[Title 17 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2020 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

                                   Title 17

                      Commodity and Securities Exchanges

                          ________________________

                             Part 240 to End
                             

                         Revised as of April 1, 2020

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2020
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 17:
          Chapter II--Securities and Exchange Commission 
          (Continued)                                                3
          Chapter IV--Department of the Treasury                  1381
  Finding Aids:
      Table of CFR Titles and Chapters........................    1459
      Alphabetical List of Agencies Appearing in the CFR......    1479
      Table of OMB Control Numbers............................    1489
      List of CFR Sections Affected...........................    1495

[[Page iv]]





                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 17 CFR 240.0-1 
                       refers to title 17, part 
                       240, section 0-1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
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    To determine whether a Code volume has been amended since its 
revision date (in this case, April 1, 2020), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
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Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

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Register since the last revision of that volume of the Code. Source 
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inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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placed as close as possible to the applicable recordkeeping or reporting 
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PAST PROVISIONS OF THE CODE

    Provisions of the Code that are no longer in force and effect as of 
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for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.

``[RESERVED]'' TERMINOLOGY

    The term ``[Reserved]'' is used as a place holder within the Code of 
Federal Regulations. An agency may add regulatory information at a 
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used 
editorially to indicate that a portion of the CFR was left vacant and 
not dropped in error.

INCORPORATION BY REFERENCE

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to materials already published elsewhere. For an incorporation to be 
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if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
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    (b) The matter incorporated is in fact available to the extent 
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    (c) The incorporating document is drafted and submitted for 
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alphabetical list of agencies publishing in the CFR are also included in 
this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.

[[Page vii]]

    The Federal Register Index is issued monthly in cumulative form. 
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the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

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in the Code of Federal Regulations.

INQUIRIES

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Connect to NARA's website at www.archives.gov/federal-register.
    The e-CFR is a regularly updated, unofficial editorial compilation 
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of the Federal Register and the Government Publishing Office. It is 
available at www.ecfr.gov.

    Oliver A. Potts,
    Director,
    Office of the Federal Register
    April 1, 2020







[[Page ix]]



                               THIS TITLE

    Title 17--Commodity and Securities Exchanges is composed of four 
volumes. The first two volumes containing parts 1--40, and 41--199 
comprise Chapter I--Commodity Futures Trading Commission. The third 
volume contains Chapter II--Securities and Exchange Commission, parts 
200--239. The fourth volume, comprising part 240 to end, contains the 
remaining regulations of the Securities and Exchange Commission, and 
Chapter IV--Department of the Treasury. The contents of these volumes 
represent all current regulations issued by the Commodity Futures 
Trading Commission, the Securities and Exchange Commission, and the 
Department of the Treasury as of April 1, 2020.

    The OMB control numbers for the Securities and Exchange Commission 
appear in Sec.  200.800 of chapter II. For the convenience of the user, 
Sec.  200.800 is reprinted in the Finding Aids section of the volume 
containing part 240 to end.

    For this volume, Robert J. Sheehan, III was Chief Editor. The Code 
of Federal Regulations publication program is under the direction of 
John Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



              TITLE 17--COMMODITY AND SECURITIES EXCHANGES




                  (This book contains part 240 to end)

  --------------------------------------------------------------------
                                                                    Part

chapter ii--Securities and Exchange Commission (Continued)..         240

chapter iv--Department of the Treasury......................         400

[[Page 3]]



       CHAPTER II--SECURITIES AND EXCHANGE COMMISSION (CONTINUED)




  --------------------------------------------------------------------
Part                                                                Page
240             General rules and regulations, Securities 
                    Exchange Act of 1934....................           5
241             Interpretative releases relating to the 
                    Securities Exchange Act of 1934 and 
                    general rules and regulations thereunder         786
242             Regulations M, SHO, ATS, AC, NMS, and SBSR 
                    and customer margin requirements........         792
243             Regulation FD...............................         884
244             Regulation G................................         886
245             Regulation blackout trading restriction.....         888
246             Credit risk retention.......................         894
247             Regulation R--Exemptions and definitions 
                    related to the exceptions for banks from 
                    the definition of broker................         936
248             Regulations S-P, S-AM, and S-ID.............         950
249             Forms, Securities Exchange Act of 1934......        1001
249a

Forms, Securities Investor Protection Act of 1970 [Reserved]

249b            Further forms, Securities Exchange Act of 
                    1934....................................        1023
250             Cross-border antifraud law-enforcement 
                    authority...............................        1025
251-254         [Reserved]

255             Proprietary trading and certain interests in 
                    and relationships with covered funds....        1025
256-259         [Reserved]

260             General rules and regulations, Trust 
                    Indenture Act of 1939...................        1103
261             Interpretative releases relating to the 
                    Trust Indenture Act of 1939 and general 
                    rules and regulations thereunder........        1120
269             Forms prescribed under the Trust Indenture 
                    Act of 1939.............................        1121
270             Rules and regulations, Investment Company 
                    Act of 1940.............................        1123

[[Page 4]]

271             Interpretative releases relating to the 
                    Investment Company Act of 1940 and 
                    general rules and regulations thereunder        1301
274             Forms prescribed under the Investment 
                    Company Act of 1940.....................        1304
275             Rules and regulations, Investment Advisers 
                    Act of 1940.............................        1313
276             Interpretative releases relating to the 
                    Investment Advisers Act of 1940 and 
                    general rules and regulations thereunder        1358
279             Forms prescribed under the Investment 
                    Advisers Act of 1940....................        1359
281             Interpretative releases relating to 
                    corporate reorganizations under Chapter 
                    X of the Bankruptcy Act.................        1360
285             Rules and regulations pursuant to section 
                    15(a) of the Bretton Woods Agreements 
                    Act.....................................        1360
286             General rules and regulations pursuant to 
                    section 11(a) of the Inter-American 
                    Development Bank Act....................        1362
287             General rules and regulations pursuant to 
                    section 11(a) of the Asian Development 
                    Bank Act................................        1364
288             General rules and regulations pursuant to 
                    section 9(a) of the African Development 
                    Bank Act................................        1366
289             General rules and regulations pursuant to 
                    section 13(a) of the International 
                    Finance Corporation Act.................        1368
290             General rules and regulations pursuant to 
                    section 9(a) of the European Bank for 
                    Reconstruction and Development Act......        1370
300             Rules of the Securities Investor Protection 
                    Corporation.............................        1372
301             Forms, Securities Investor Protection 
                    Corporation.............................        1379
302-399         [Reserved]

[[Page 5]]



PART 240_GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT
OF 1934--Table of Contents



  Subpart A_Rules and Regulations Under the Securities Exchange Act of 
                                  1934

                      Rules of General Application

Sec.
240.0-1 Definitions.
240.0-2 Business hours of the Commission.
240.0-3 Filing of material with the Commission.
240.0-4 Nondisclosure of information obtained in examinations and 
          investigations.
240.0-5 Reference to rule by obsolete designation.
240.0-6 Disclosure detrimental to the national defense or foreign 
          policy.
240.0-8 Application of rules to registered broker-dealers.
240.0-9 Payment of fees.
240.0-10 Small entities under the Securities Exchange Act for purposes 
          of the Regulatory Flexibility Act.
240.0-11 Filing fees for certain acquisitions, dispositions and similar 
          transactions.
240.0-12 Commission procedures for filing applications for orders for 
          exemptive relief under Section 36 of the Exchange Act.
240.0-13 Commission procedures for filing applications to request a 
          substituted compliance order under the Exchange Act.
240.3a1-1 Exemption from the definition of ``Exchange'' under Section 
          3(a)(1) of the Act.
240.3a4-1 Associated persons of an issuer deemed not to be brokers.
240.3a4-2--240.3a4-6 [Reserved]
240.3a5-1 Exemption from the definition of ``dealer'' for a bank engaged 
          in riskless principal transactions.
240.3a5-2 Exemption from the definition of ``dealer'' for banks 
          effecting transactions in securities issued pursuant to 
          Regulation S.
240.3a5-3 Exemption from the definition of ``dealer'' for banks engaging 
          in securities lending transactions.

   Definition of ``Equity Security'' as Used in Sections 12(g) and 16

240.3a11-1 Definition of the term ``equity security''.

                        Miscellaneous Exemptions

240.3a12-1 Exemption of certain mortgages and interests in mortgages.
240.3a12-2 [Reserved]
240.3a12-3 Exemption from sections 14(a), 14(b), 14(c), 14(f), and 16 
          for securities of certain foreign issuers.
240.3a12-4 Exemptions from sections 15(a) and 15(c)(3) for certain 
          mortgage securities.
240.3a12-5 Exemption of certain investment contract securities from 
          sections 7(c) and 11(d)(1).
240.3a12-6 Definition of ``common trust fund'' as used in section 
          3(a)(12) of the Act.
240.3a12-7 Exemption for certain derivative securities traded otherwise 
          than on a national securities exchange.
240.3a12-8 Exemption for designated foreign government securities for 
          purposes of futures trading.
240.3a12-9 Exemption of certain direct participation program securities 
          from the arranging provisions of sections 7(c) and 11(d)(1).
240.3a12-10 Exemption of certain securities issued by the Resolution 
          Funding Corporation.
240.3a12-11 Exemption from sections 8(a), 14(a), 14(b), and 14(c) for 
          debt securities listed on a national securities exchange.
240.3a12-12 Exemption from certain provisions of section 16 of the Act 
          for asset-backed securities.
240.3a40-1 Designation of financial responsibility rules.
240.3a43-1 Customer-related government securities activities incidental 
          to the futures-related business of a futures commission 
          merchant registered with the Commodity Futures Trading 
          Commission.
240.3a44-1 Proprietary government securities transactions incidental to 
          the futures-related business of a CFTC-regulated person.
240.3a51-1 Definition of ``penny stock''.
240.3a55-1 Method for determining market capitalization and dollar value 
          of average daily trading volume; application of the definition 
          of narrow-based security index.
240.3a55-2 Indexes underlying futures contracts trading for fewer than 
          30 days.
240.3a55-3 Futures contracts on security indexes trading on or subject 
          to the rules of a foreign board of trade.
240.3a55-4 Exclusion from definition of narrow-based security index for 
          indexes composed of debt securities.

         Security-Based Swap Dealer and Participant Definitions

240.3a67-1 Definition of ``major security-based swap participant.''
240.3a67-2 Categories of security-based swaps.
240.3a67-3 Definition of ``substantial position.''
240.3a67-4 Definition of ``hedging or mitigating commercial risk.''
240.3a67-5 Definition of ``substantial counterparty exposure.''

[[Page 6]]

240.3a67-6 Definition of ``financial entity.''
240.3a67-7 Definition of ``highly leveraged.''
240.3a67-8 Timing requirements, reevaluation period and termination of 
          status.
240.3a67-9 Calculation of major participant status by certain persons.
240.3a67-10 Foreign major security-based swap participants.

Further Definition of Swap, Security-Based Swap, and Security-Based Swap 
   Agreement; Mixed Swaps; Security-Based Swap Agreement Recordkeeping

240.3a68-1a Meaning of ``issuers of securities in a narrow-based 
          security index'' as used in section 3(a)(68)(A)(ii)(III) of 
          the Act.
240.3a68-1b Meaning of ``narrow-based security index'' as used in 
          section 3(a)(68)(A)(ii)(I) of the Act.
240.3a68-2 Requests for interpretation of swaps, security-based swaps, 
          and mixed swaps.
240.3a68-3 Meaning of ``narrow-based security index'' as used in the 
          definition of ``security-based swap.''
240.3a68-4 Regulation of mixed swaps.
240.3a68-5 Regulation of certain futures contracts on foreign sovereign 
          debt.
240.3a69-1 Safe Harbor Definition of ``security-based swap'' and 
          ``swap'' as used in sections 3(a)(68) and 3(a)(69) of the 
          Act--insurance.
240.3a69-2 Definition of ``swap'' as used in section 3(a)(69) of the 
          Act--additional products.
240.3a69-3 Books and records requirements for security-based swap 
          agreements.
240.3a71-1 Definition of ``security-based swap dealer.''
240.3a71-2 De minimis exception.
240.3a71-2A Report regarding the ``security-based swap dealer'' and 
          ``major security-based swap participant'' definitions 
          (Appendix A to 17 CFR 240.3a71-2)
240.3a71-3 Cross-border security-based swap dealing activity.
240.3a71-4 Exception from aggregation for affiliated groups with 
          registered security-based swap dealers.
240.3a71-5 Substituted compliance for foreign security-based swap 
          dealers.
240.3a71-6 Substituted compliance for security-based swap dealers and 
          major security-based swap participants.

                               Definitions

240.3b-1 Definition of ``listed''.
240.3b-2 Definition of ``officer''.
240.3b-3 [Reserved]
240.3b-4 Definition of ``foreign government,'' ``foreign issuer'' and 
          ``foreign private issuer''.
240.3b-5 Non-exempt securities issued under governmental obligations.
240.3b-6 Liability for certain statements by issuers.
240.3b-7 Definition of ``executive officer''.
240.3b-8 Definitions of ``Qualified OTC Market Maker, Qualified Third 
          Market Maker'' and ``Qualified Block Positioner''.
240.3b-9--240.3b-10 [Reserved]
240.3b-11 Definitions relating to limited partnership roll-up 
          transactions for purposes of sections 6(b)(9), 14(h) and 
          15A(b)(12)-(13).
240.3b-12 Definition of OTC derivatives dealer.
240.3b-13 Definition of eligible OTC derivative instrument.
240.3b-14 Definition of cash management securities activities.
240.3b-15 Definition of ancillary portfolio management securities 
          activities.
240.3b-16 Definitions of terms used in Section 3(a)(1) of the Act.
240.3b-17 [Reserved]
240.3b-18 Definitions of terms used in Section 3(a)(5) of the Act.
240.3b-19 Definition of ``issuer'' in section 3(a)(8) of the Act in 
          relation to asset-backed securities.

                    Clearing of Security-Based Swaps

240.3Ca-1 Stay of clearing requirement and review by the Commission.
240.3Ca-2 Submission of security-based swaps for clearing.

                 Registration and Exemption of Exchanges

240.6a-1 Application for registration as a national securities exchange 
          or exemption from registration based on limited volume.
240.6a-2 Amendments to application.
240.6a-3 Supplemental material to be filed by exchanges.
240.6a-4 Notice of registration under Section 6(g) of the Act, amendment 
          to such notice, and supplemental materials to be filed by 
          exchanges registered under Section 6(g) of the Act.
240.6h-1 Settlement and regulatory halt requirements for security 
          futures products.
240.6h-2 Security future based on note, bond, debenture, or evidence of 
          indebtedness.
240.7c2-1 [Reserved]

                 Hypothecation of Customers' Securities

240.8c-1 Hypothecation of customers' securities.
240.9b-1 Options disclosure document.
240.10a-1--240.10a-2 [Reserved]

           Manipulative and Deceptive Devices and Contrivances

240.10b-1 Prohibition of use of manipulative or deceptive devices or 
          contrivances with respect to certain securities exempted from 
          registration.
240.10b-2 [Reserved]

[[Page 7]]

240.10b-3 Employment of manipulative and deceptive devices by brokers or 
          dealers.
240.10b-4 [Reserved]
240.10b-5 Employment of manipulative and deceptive devices.
240.10b5-1 Trading ``on the basis of'' material nonpublic information in 
          insider trading cases.
240.10b5-2 Duties of trust or confidence in misappropriation insider 
          trading cases.
240.10b-6--240.10b-8 [Reserved]
240.10b-9 Prohibited representations in connection with certain 
          offerings.
240.10b-10 Confirmation of transactions.
240.10b-13 [Reserved]
240.10b-16 Disclosure of credit terms in margin transactions.
240.10b-17 Untimely announcements of record dates.
240.10b-18 Purchases of certain equity securities by the issuer and 
          others.
240.10b-21 Deception in connection with a seller's ability or intent to 
          deliver securities on the date delivery is due.

                        Reports Under Section 10A

240.10A-1 Notice to the Commission Pursuant to Section 10A of the Act.
240.10A-2 Auditor independence.
240.10A-3 Listing standards relating to audit committees.

                     Requirements Under Section 10C

240.10C-1 Listing standards relating to compensation committees.

            Adoption of Floor Trading Regulation (Rule 11a-1)

240.11a-1 Regulation of floor trading.
240.11a1-1(T) Transactions yielding priority, parity, and precedence.
240.11a1-2 Transactions for certain accounts of associated persons of 
          members.
240.11a1-3(T) Bona fide hedge transactions in certain securities.
240.11a1-4(T) Bond transactions on national securities exchanges.
240.11a1-5 Transactions by registered competitive market makers and 
          registered equity market makers.
240.11a1-6 Transactions for certain accounts of OTC derivatives dealers.
240.11a2-2(T) Transactions effected by exchange members through other 
          members.

            Adoption of Regulation on Conduct of Specialists

240.11b-1 Regulation of specialists.

          Exemption of Certain Securities From Section 11(d)(1)

240.11d1-1 Exemption of certain securities from section 11(d)(1).
240.11d1-2 Exemption from section 11(d)(1) for certain investment 
          company securities held by broker-dealers as collateral in 
          margin accounts.
240.11d2-1 Exemption from Section 11(d)(2) for certain broker-dealers 
          effecting transactions for customers security futures products 
          in futures accounts.

                  Securities Exempted From Registration

240.12a-4 Exemption of certain warrants from section 12(a).
240.12a-5 Temporary exemption of substituted or additional securities.
240.12a-6 Exemption of securities underlying certain options from 
          section 12(a).
240.12a-7 Exemption of stock contained in standardized market baskets 
          from section 12(a) of the Act.
240.12a-8 Exemption of depositary shares.
240.12a-9 Exemption of standardized options from section 12(a) of the 
          Act.
240.12a-10 Exemption of security-based swaps from section 12(a) of the 
          Act.
240.12a-11 Exemption of security-based swaps sold in reliance on 
          Securities Act of 1933 Rule 240 (Sec.230.240) from section 
          12(a) of the Act.

               Regulation 12B: Registration and Reporting

                                 General

240.12b-1 Scope of regulation.
240.12b-2 Definitions.
240.12b-3 Title of securities.
240.12b-4 Supplemental information.
240.12b-5 Determination of affiliates of banks.
240.12b-6 When securities are deemed to be registered.
240.12b-7 [Reserved]

                           Formal Requirements

240.12b-10 Requirements as to proper form.
240.12b-11 Number of copies; signatures; binding.
240.12b-12 Requirements as to paper, printing and language.
240.12b-13 Preparation of statement or report.
240.12b-14 Riders; inserts.
240.12b-15 Amendments.

                   General Requirements as to Contents

240.12b-20 Additional information.
240.12b-21 Information unknown or not available.
240.12b-22 Disclaimer of control.
240.12b-23 Incorporation by reference.
240.12b-24 [Reserved]
240.12b-25 Notification of inability to timely file all or any required 
          portion of a Form 10-K, 20-F, 11-K, N-CEN, N-CSR, 10-Q, or 10-
          D.

                                Exhibits

240.12b-30 Additional exhibits.

[[Page 8]]

240.12b-31 Omission of substantially identical documents.
240.12b-32 [Reserved]
240.12b-33 Annual reports to other Federal agencies.

                           Special Provisions

240.12b-35 [Reserved]
240.12b-36 Use of financial statements filed under other acts.
240.12b-37 Satisfaction of filing requirements.

      Certification by Exchanges and Effectiveness of Registration

240.12d1-1 Registration effective as to class or series.
240.12d1-2 Effectiveness of registration.
240.12d1-3 Requirements as to certification.
240.12d1-4 Date of receipt of certification by Commission.
240.12d1-5 Operation of certification on subsequent amendments.
240.12d1-6 Withdrawal of certification.

    Suspension of Trading, Withdrawal, and Striking From Listing and 
                              Registration

240.12d2-1 Suspension of trading.
240.12d2-2 Removal from listing and registration.

                            Unlisted Trading

240.12f-1 Applications for permission to reinstate unlisted trading 
          privileges.
240.12f-2 Extending unlisted trading privileges to a security that is 
          the subject of an initial public offering.
240.12f-3 Termination or suspension of unlisted trading privileges.
240.12f-4 Exemption of securities admitted to unlisted trading 
          privileges from sections 13, 14, and 16.
240.12f-5 Exchange rules for securities to which unlisted trading 
          privileges are extended.
240.12f-6 [Reserved]

            Extensions and Temporary Exemptions; Definitions

240.12g-1 Exemption from section 12(g).
240.12g-2 Securities deemed to be registered pursuant to section 
          12(g)(1) upon termination of exemption pursuant to section 
          12(g)(2) (A) or (B).
240.12g-3 Registration of securities of successor issuers under section 
          12(b) or 12(g).
240.12g-4 Certifications of termination of registration under section 
          12(g).
240.12g-6 Exemption for securities issued pursuant to section 4(a)(6) of 
          the Securities Act of 1933.
240.12g3-2 Exemptions for American depositary receipts and certain 
          foreign securities.
240.12g5-1 Definition of securities ``held of record''.
240.12g5-2 Definition of ``total assets''.
240.12h-1 Exemptions from registration under section 12(g) of the Act.
240.12h-2 [Reserved]
240.12h-3 Suspension of duty to file reports under section 15(d).
240.12h-4 Exemption from duty to file reports under section 15(d).
240.12h-5 Exemption for subsidiary issuers of guaranteed securities and 
          subsidiary guarantors.
240.12h-6 Certification by a foreign private issuer regarding the 
          termination of registration of a class of securities under 
          section 12(g) or the duty to file reports under section 13(a) 
          or section 15(d).
240.12h-7 Exemption for issuers of securities that are subject to 
          insurance regulation.

Regulation 13A: Reports of Issuers of Securities Registered Pursuant to 
                               Section 12

                             Annual Reports

240.13a-1 Requirements of annual reports.
240.13a-2 [Reserved]
240.13a-3 Reporting by Form 40-F registrant.

                              Other Reports

240.13a-10 Transition reports.
240.13a-11 Current reports on Form 8-K (Sec.249.308 of this chapter).
240.13a-13 Quarterly reports on Form 10-Q (Sec.249.308a of this 
          chapter).
240.13a-14 Certification of disclosure in annual and quarterly reports.
240.13a-15 Controls and procedures.
240.13a-16 Reports of foreign private issuers on Form 6-K (17 CFR 
          249.306).
240.13a-17 Reports of asset-backed issuers on Form 10-D (Sec.249.312 
          of this chapter).
240.13a-18 Compliance with servicing criteria for asset-backed 
          securities.
240.13a-19 Reports by shell companies on Form 20-F.
240.13a-20 Plain English presentation of specified information.

  Regulation 13b-2: Maintenance of Records and Preparation of Required 
                                 Reports

240.13b2-1 Falsification of accounting records.
240.13b2-2 Representations and conduct in connection with the 
          preparation of required reports and documents.

                            Regulation 13D-G

240.13d-1 Filing of Schedules 13D and 13G.
240.13d-2 Filing of amendments to Schedules 13D or 13G.
240.13d-3 Determination of beneficial owner.
240.13d-4 Disclaimer of beneficial ownership.
240.13d-5 Acquisition of securities.
240.13d-6 Exemption of certain acquisitions.

[[Page 9]]

240.13d-7 Dissemination.
240.13d-101 Schedule 13D--Information to be included in statements filed 
          pursuant to Sec.240.13d-1(a) and amendments thereto filed 
          pursuant to Sec.240.13d-2(a).
240.13d-102 Schedule 13G--Information to be included in statements filed 
          pursuant to Sec.240.13d-1(b), (c), and (d) and amendments 
          thereto filed pursuant to Sec.240.13d-2(b).
240.13e-1 Purchase of securities by the issuer during a third-party 
          tender offer.
240.13e-2 [Reserved]
240.13e-3 Going private transactions by certain issuers or their 
          affiliates.
240.13e-4 Tender offers by issuers.
240.13e-100 Schedule 13E-3, Transaction statement under section 13(e) of 
          the Securities Exchange Act of 1934 and Rule 13e-3 (Sec.
          240.13e-3) thereunder.
240.13e-101 [Reserved]
240.13e-102 Schedule 13E-4F. Tender offer statement pursuant to section 
          13(e) (1) of the Securities Exchange Act of 1934 and Sec.
          240.13e-4 thereunder.
240.13f-1 Reporting by institutional investment managers of information 
          with respect to accounts over which they exercise investment 
          discretion.
240.13h-1 Large trader reporting.
240.13k-1 Foreign bank exemption from the insider lending prohibition 
          under section 13(k).
240.13n-1 Registration of security-based swap data repository.
240.13n-2 Withdrawal from registration; revocation and cancellation.
240.13n-3 Registration of successor to registered security-based swap 
          data repository.
240.13n-4 Duties and core principles of security-based swap data 
          repository.
240.13n-5 Data collection and maintenance.
240.13n-6 Automated systems.
240.13n-7 Recordkeeping of security-based swap data repository.
240.13n-8 Reports to be provided to the Commission.
240.13n-9 Privacy requirements of security-based swap data repository.
240.13n-10 Disclosure requirements of security-based swap data 
          repository.
240.13n-11 Chief compliance officer of security-based swap data 
          repository; compliance reports and financial reports.
240.13n-12 Exemption from requirements governing security-based swap 
          data repositories for certain non-U.S. persons.
240.13p-1 Requirement of report regarding disclosure of registrant's 
          supply chain information regarding conflict minerals.
240.13q-1 Disclosure of payments made by resource extraction issuers.

                Regulation 14A: Solicitations of Proxies

240.14a-1 Definitions.
240.14a-2 Solicitations to which Sec.240.14a-3 to Sec.240.14a-15 
          apply.
240.14a-3 Information to be furnished to security holders.
240.14a-4 Requirements as to proxy.
240.14a-5 Presentation of information in proxy statement.
240.14a-6 Filing requirements.
240.14a-7 Obligations of registrants to provide a list of, or mail 
          soliciting material to, security holders.
240.14a-8 Shareholder proposals.
240.14a-9 False or misleading statements.
240.14a-10 Prohibition of certain solicitations.
240.14a-12 Solicitation before furnishing a proxy statement.
240.14a-13 Obligation of registrants in communicating with beneficial 
          owners.
240.14a-14 Modified or superseded documents.
240.14a-15 Differential and contingent compensation in connection with 
          roll-up transactions.
240.14a-16 Internet availability of proxy materials.
240.14a-17 Electronic shareholder forums.
240.14a-18 Disclosure regarding nominating shareholders and nominees 
          submitted for inclusion in a registrant's proxy materials 
          pursuant to applicable state or foreign law, or a registrant's 
          governing documents.
240.14a-20 Shareholder approval of executive compensation of TARP 
          recipients.
240.14a-21 Shareholder approval of executive compensation, frequency of 
          votes for approval of executive compensation and shareholder 
          approval of golden parachute compensation.
240.14a-101 Schedule 14A. Information required in proxy statement.
240.14a-102 [Reserved]
240.14a-103 Notice of Exempt Solicitation. Information to be included in 
          statements submitted by or on behalf of a person pursuant to 
          Sec.240.14a-6(g).
240.14a-104 Notice of Exempt Preliminary Roll-up Communication. 
          Information regarding ownership interests and any potential 
          conflicts of interest to be included in statements submitted 
          by or on behalf of a person pursuant to Sec.240.14a-2(b)(4) 
          and Sec.240.14a-6(n).
240.14b-1 Obligation of registered brokers and dealers in connection 
          with the prompt forwarding of certain communications to 
          beneficial owners.
240.14b-2 Obligation of banks, associations and other entities that 
          exercise fiduciary powers in connection with the prompt 
          forwarding of certain communications to beneficial owners.

  Regulation 14C: Distribution of Information Pursuant to Section 14(c)

240.14c-1 Definitions.

[[Page 10]]

240.14c-2 Distribution of information statement.
240.14c-3 Annual report to be furnished security holders.
240.14c-4 Presentation of information in information statement.
240.14c-5 Filing requirements.
240.14c-6 False or misleading statements.
240.14c-7 Providing copies of material for certain beneficial owners.
240.14c-101 Schedule 14C. Information required in information statement.

                             Regulation 14D

240.14d-1 Scope of and definitions applicable to Regulations 14D and 
          14E.
240.14d-2 Commencement of a tender offer.
240.14d-3 Filing and transmission of tender offer statement.
240.14d-4 Dissemination of tender offers to security holders.
240.14d-5 Dissemination of certain tender offers by the use of 
          stockholder lists and security position listings.
240.14d-6 Disclosure of tender offer information to security holders.
240.14d-7 Additional withdrawal rights.
240.14d-8 Exemption from statutory pro rata requirements.
240.14d-9 Recommendation or solicitation by the subject company and 
          others.
240.14d-10 Equal treatment of security holders.
240.14d-11 Subsequent offering period.
240.14d-100 Schedule TO. Tender offer statement under section 14(d)(1) 
          or 13(e)(1) of the Securities Exchange Act of 1934.
240.14d-101 Schedule 14D-9.
240.14d-102 Schedule 14D-1F. Tender offer statement pursuant to rule 
          14d-1(b) under the Securities Exchange Act of 1934.
240.14d-103 Schedule 14D-9F. Solicitation/recommendation statement 
          pursuant to section 14(d)(4) of the Securities Exchange Act of 
          1934 and rules 14d-1(b) and 14e-2(c) thereunder.

                             Regulation 14E

240.14e-1 Unlawful tender offer practices.
240.14e-2 Position of subject company with respect to a tender offer.
240.14e-3 Transactions in securities on the basis of material, nonpublic 
          information in the context of tender offers.
240.14e-4 Prohibited transactions in connection with partial tender 
          offers.
240.14e-5 Prohibiting purchases outside of a tender offer.
240.14e-6 Repurchase offers by certain closed-end registered investment 
          companies.
240.14e-7 Unlawful tender offer practices in connection with roll-ups.
240.14e-8 Prohibited conduct in connection with pre-commencement 
          communications.
240.14f-1 Change in majority of directors.

   Regulation 14N: Filings Required by Certain Nominating Shareholders

240.14n-1 Filing of Schedule 14N.
240.14n-2 Filing of amendments to Schedule 14N.
240.14n-3 Dissemination.
240.14n-101 Schedule 14N--Information to be included in statements filed 
          pursuant to Sec.240.14n-1 and amendments thereto filed 
          pursuant to Sec.240.14n-2.

              Exemption of Certain OTC Derivatives Dealers

240.15a-1 Securities activities of OTC derivatives dealers.

           Exemption of Certain Securities From Section 15(a)

240.15a-2 Exemption of certain securities of cooperative apartment 
          houses from section 15(a).
240.15a-3 [Reserved]
240.15a-4 Forty-five day exemption from registration for certain members 
          of national securities exchanges.
240.15a-5 Exemption of certain nonbank lenders.

                   Registration of Brokers and Dealers

240.15a-6 Exemption of certain foreign brokers or dealers.
240.15a-7--240.15a-9 [Reserved]
240.15a-10 Exemption of certain brokers or dealers with respect to 
          security futures products.
240.15a-11 [Reserved]
240.15b1-1 Application for registration of brokers or dealers.
240.15b1-2 [Reserved]
240.15b1-3 Registration of successor to registered broker or dealer.
240.15b1-4 Registration of fiduciaries.
240.15b1-5 Consent to service of process to be furnished by nonresident 
          brokers or dealers and by nonresident general partners or 
          managing agents of brokers or dealers.
240.15b1-6 Notice to brokers and dealers of requirements regarding lost 
          securityholders and unresponsive payees.
240.15b2-2 Inspection of newly registered brokers and dealers.
240.15b3-1 Amendments to application.
240.15b5-1 Extension of registration for purposes of the Securities 
          Investor Protection Act of 1970 after cancellation or 
          revocation.
240.15b6-1 Withdrawal from registration.
240.15b7-1 Compliance with qualification requirements of self-regulatory 
          organizations.
240.15b7-3T Operational capability in a Year 2000 environment.

[[Page 11]]

240.15b9-1 Exemption for certain exchange members.
240.15b9-2 Exemption from SRO membership for OTC derivatives dealers.
240.15b11-1 Registration by notice of security futures product broker-
          dealers.

               Rules Relating to Over-the-Counter Markets

240.15c1-1 Definitions.
240.15c1-2 Fraud and misrepresentation.
240.15c1-3 Misrepresentation by brokers, dealers and municipal 
          securities dealers as to registration.
240.15c1-4 [Reserved]
240.15c1-5 Disclosure of control.
240.15c1-6 Disclosure of interest in distribution.
240.15c1-7 Discretionary accounts.
240.15c1-8 Sales at the market.
240.15c1-9 Use of pro forma balance sheets.
240.15c2-1 Hypothecation of customers' securities.
240.15c2-3 [Reserved]
240.15c2-4 Transmission or maintenance of payments received in 
          connection with underwritings.
240.15c2-5 Disclosure and other requirements when extending or arranging 
          credit in certain transactions.
240.15c2-6 [Reserved]
240.15c2-7 Identification of quotations.
240.15c2-8 Delivery of prospectus.
240.15c2-11 Initiation or resumption of quotations without specific 
          information.
240.15c2-12 Municipal securities disclosure.
240.15c3-1 Net capital requirements for brokers or dealers.
240.15c3-1a Options (Appendix A to 17 CFR 240.15c3-1).
240.15c3-1b Adjustments to net worth and aggregate indebtedness for 
          certain commodities transactions (Appendix B to 17 CFR 
          240.15c3-1).
240.15c3-1c Consolidated computations of net capital and aggregate 
          indebtedness for certain subsidiaries and affiliates (Appendix 
          C to 17 CFR 240.15c3-1).
240.15c3-1d Satisfactory Subordination Agreements (Appendix D to 17 CFR 
          240.15c3-1).
240.15c3-1e Deductions for market and credit risk for certain brokers or 
          dealers (Appendix E to 17 CFR 240.15c3-1).
240.15c3-1f Optional market and credit risk requirements for OTC 
          derivatives dealers (Appendix F to 17 CFR 240.15c3-1)
240.15c3-1g Conditions for ultimate holding companies of certain brokers 
          or dealers (Appendix G to 17 CFR 240.15c3-1).
240.15c3-2 [Reserved]
240.15c3-3 Customer protection--reserves and custody of securities.
240.15c3-3a Exhibit A--formula for determination reserve requirement of 
          brokers and dealers under Sec.240.15c3-3.
240.15c3-3b Exhibit B--Formula for determination of security-based swap 
          customer reserve requirements of brokers and dealers under 
          Sec.240.15c3-3.
240.15c3-4 Internal risk management control systems for OTC derivatives 
          dealers.
240.15c3-5 Risk management controls for brokers or dealers with market 
          access.
240.15c6-1 Settlement cycle.

 Regulation 15D: Reports of Registrants Under the Securities Act of 1933

                             Annual Reports

240.15d-1 Requirement of annual reports.
240.15d-2 Special financial report.
240.15d-3 Reports for depositary shares registered on Form F-6.
240.15d-4 Reporting by Form 40-F Registrants.
240.15d-5 Reporting by successor issuers.
240.15d-6 Suspension of duty to file reports.

                              Other Reports

240.15d-10 Transition reports.
240.15d-11 Current reports on Form 8-K (Sec.249.308 of this chapter).
240.15d-13 Quarterly reports on Form 10-Q (Sec.249.308 of this 
          chapter).
240.15d-14 Certification of disclosure in annual and quarterly reports.
240.15d-15 Controls and procedures.
240.15d-16 Reports of foreign private issuers on Form 6-K [17 CFR 
          249.306].
240.15d-17 Reports of asset-backed issuers on Form 10-D (Sec.249.312 
          of this chapter).
240.15d-18 Compliance with servicing criteria for asset-backed 
          securities.
240.15d-19 Reports by shell companies on Form 20-F.
240.15d-20 Plain English presentation of specified information.

       Exemption of Certain Issuers From Section 15(d) of the Act

240.15d-21 Reports for employee stock purchase, savings and similar 
          plans.
240.15d-22 Reporting regarding asset-backed securities under section 
          15(d) of the Act.
240.15d-23 Reporting regarding certain securities underlying asset-
          backed securities under section 15(d) of the Act.
240.15g-1 Exemptions for certain transactions.
240.15g-2 Penny stock disclosure document relating to the penny stock 
          market.
240.15g-3 Broker or dealer disclosure of quotations and other 
          information relating to the penny stock market.
240.15g-4 Disclosure of compensation to brokers or dealers.
240.15g-5 Disclosure of compensation of associated persons in connection 
          with penny stock transactions.
240.15g-6 Account statements for penny stock customers.

[[Page 12]]

240.15g-8 Sales of escrowed securities of blank check companies.
240.15g-9 Sales practice requirements for certain low-priced securities.
240.15g-100 Schedule 15G--Information to be included in the document 
          distributed pursuant to 17 CFR 240.15g-2.
240.15l-1 Regulation best interest.

             National and Affiliated Securities Associations

240.15Aa-1 Registration of a national or an affiliated securities 
          association.
240.15Aj-1 Amendments and supplements to registration statements of 
          securities associations.
240.15Al2-1 [Reserved]
240.15Ba1-1 Definitions.
240.15Ba1-2 Registration of municipal advisors and information regarding 
          certain natural persons.
240.15Ba1-3 Exemption of certain natural persons from registration under 
          section 15B(a)(1)(B) of the Act.
240.15Ba1-4 Withdrawal from municipal advisor registration.
240.15Ba1-5 Amendments to Form MA and Form MA-I.
240.15Ba1-6 Consent to service of process to be filed by non-resident 
          municipal advisors; legal opinion to be provided by non-
          resident municipal advisors.
240.15Ba1-7 Registration of successor to municipal advisor.
240.15Ba1-8 Books and records to be made and maintained by municipal 
          advisors.
240.15Ba2-1 Application for registration of municipal securities dealers 
          which are banks or separately identifiable departments or 
          divisions of banks.
240.15Ba2-2 Application for registration of non-bank municipal 
          securities dealers whose business is exclusively intrastate.
240.15Ba2-4 Registration of successor to registered municipal securities 
          dealer.
240.15Ba2-5 Registration of fiduciaries.
240.15Ba2-6 [Reserved]
240.15Ba2-6T Temporary registration as a municipal advisor; required 
          amendments; and withdrawal from temporary registration.
240.15Bc3-1 Withdrawal from registration of municipal securities 
          dealers.
240.15Bc4-1 Persons associated with municipal advisors.
240.15Bc7-1 Availability of examination reports.

Registration of Government Securities Brokers and Government Securities 
                                 Dealers

240.15Ca1-1 Notice of government securities broker-dealer activities.
240.15Ca2-1 Application for registration as a government securities 
          broker or government securities dealer.
240.15Ca2-2 [Reserved]
240.15Ca2-3 Registration of successor to registered government 
          securities broker or government securities dealer.
240.15Ca2-4 Registration of fiduciaries.
240.15Ca2-5 Consent to service of process to be furnished by non-
          resident government securities brokers or government 
          securities dealers and by non-resident general partners or 
          managing agents of government securities brokers or government 
          securities dealers.
240.15Cc1-1 Withdrawal from registration of government securities 
          brokers or government securities dealers.

  Registration and Regulation of Security-based Swap Dealers and Major 
                    Security-based Swap Participants

240.15Fb1-1 Signatures.
240.15Fb2-1 Registration of security-based swap dealers and major 
          security-based swap participants.
240.15Fb2-3 Amendments to Form SBSE, Form SBSE-A, and Form SBSE-BD.
240.15Fb2-4 Nonresident security-based swap dealers and major security-
          based swap participants.
240.15Fb2-5 Registration of successor to registered security-based swap 
          dealer or major security-based swap participant.
240.15Fb2-6 Registration of fiduciaries.
240.15Fb3-1 Duration of registration.
240.15Fb3-2 Withdrawal from registration.
240.15Fb3-3 Cancellation or revocation from registration.
240.15Fb6-1 [Reserved]
240.15Fb6-2 Associated person certification.
240.15Fh-1 Scope and reliance on representations.
240.15Fh-2 Definitions.
240.15Fh-3 Business conduct requirements.
240.15Fh-4 Antifraud provisions for security-based swap dealers and 
          major security-based swap participants; special requirements 
          for security-based swap dealers acting as advisors to special 
          entities.
240.15Fh-5 Special requirements for security-based swap dealers and 
          major security-based swap participants acting as 
          counterparties to special entities.
240.15Fh-6 Political contributions by certain security-based swap 
          dealers.
240.15Fi-1 Definitions.
240.15Fi-2 Acknowledgment and verification of security-based swap 
          transactions.
240.15Fi-3 Security-based swap portfolio reconciliation.
240.15Fi-4 Security-based swap portfolio compression.
240.15Fi-5 Security-based swap trading relationship documentation.
240.15Fk-1 Designation of chief compliance officer for security-based 
          swap dealers and major security-based swap participants.

[[Page 13]]

240.15Ga-1 Repurchases and replacements relating to asset-backed 
          securities.
240.15Ga-2 Findings and conclusions of third-party due diligence 
          reports.

       Reports of Directors, Officers, and Principal Shareholders

240.16a-1 Definition of terms.
240.16a-2 Persons and transactions subject to section 16.
240.16a-3 Reporting transactions and holdings.
240.16a-4 Derivative securities.
240.16a-5 Odd-lot dealers.
240.16a-6 Small acquisitions.
240.16a-7 Transactions effected in connection with a distribution.
240.16a-8 Trusts.
240.16a-9 Stock splits, stock dividends, and pro rata rights.
240.16a-10 Exemptions under section 16(a).
240.16a-11 Dividend or interest reinvestment plans.
240.16a-12 Domestic relations orders.
240.16a-13 Change in form of beneficial ownership.

          Exemption of Certain Transactions From Section 16(b)

240.16b-1 Transactions approved by a regulatory authority.
240.16b-2 [Reserved]
240.16b-3 Transactions between an issuer and its officers or directors.
240.16b-4 [Reserved]
240.16b-5 Bona fide gifts and inheritance.
240.16b-6 Derivative securities.
240.16b-7 Mergers, reclassifications, and consolidations.
240.16b-8 Voting trusts.

          Exemption of Certain Transactions From Section 16(c)

240.16c-1 Brokers.
240.16c-2 Transactions effected in connection with a distribution.
240.16c-3 Exemption of sales of securities to be acquired.
240.16c-4 Derivative securities.

                         Arbitrage Transactions

240.16e-1 Arbitrage transactions under section 16.

  Preservation of Records and Reports of Certain Stabilizing Activities

240.17a-1 Recordkeeping rule for national securities exchanges, national 
          securities associations, registered clearing agencies and the 
          Municipal Securities Rulemaking Board.
240.17a-2 Recordkeeping requirements relating to stabilizing activities.
240.17a-3 Records to be made by certain exchange members, brokers and 
          dealers.
240.17a-4 Records to be preserved by certain exchange members, brokers 
          and dealers.
240.17a-5 Reports to be made by certain brokers and dealers.
240.17a-6 Right of national securities exchange, national securities 
          association, registered clearing agency or the Municipal 
          Securities Rulemaking Board to destroy or dispose of 
          documents.
240.17a-7 Records of non-resident brokers and dealers.
240.17a-8 Financial recordkeeping and reporting of currency and foreign 
          transactions.
240.17a-9T Records to be made and retained by certain exchange members, 
          brokers and dealers.
240.17a-10 Report of revenue and expenses.
240.17a-11 Notification provisions for brokers and dealers.
240.17a-12 Reports to be made by certain OTC derivatives dealers.
240.17a-13 Quarterly security counts to be made by certain exchange 
          members, brokers, and dealers.
240.17a-14 Form CRS, for preparation, filing and delivery of Form CRS.
240.17a-18 [Reserved]
240.17a-19 Form X-17A-19 Report by national securities exchanges and 
          registered national securities associations of changes in the 
          membership status of any of their members.
240.17a-21 Reports of the Municipal Securities Rulemaking Board.
240.17a-22 Supplemental material of registered clearing agencies.
240.17a-25 Electronic submission of securities transaction information 
          by exchange members, brokers, and dealers.
240.17d-1 Examination for compliance with applicable financial 
          responsibility rules.
240.17d-2 Program for allocation of regulatory responsibility.
240.17f-1 Requirements for reporting and inquiry with respect to 
          missing, lost, counterfeit or stolen securities.
240.17f-2 Fingerprinting of securities industry personnel.

         Nationally Recognized Statistical Rating Organizations

240.17g-1 Application for registration as a nationally recognized 
          statistical rating organization.
240.17g-2 Records to be made and retained by nationally recognized 
          statistical rating organizations.
240.17g-3 Annual financial and other reports to be filed or furnished by 
          nationally recognized statistical rating organizations.
240.17g-4 Prevention of misuse of material nonpublic information.
240.17g-5 Conflicts of interest.
240.17g-6 Prohibited acts and practices.
240.17g-7 Disclosure requirements.

[[Page 14]]

240.17g-8 Policies, procedures, and internal controls.
240.17g-9 Standards of training, experience, and competence for credit 
          analysts.
240.17g-10 Certification of providers of third-party due diligence 
          services in connection with asset-backed securities.
240.17h-1T Risk assessment recordkeeping requirements for associated 
          persons of brokers and dealers.
240.17h-2T Risk assessment reporting requirements for brokers and 
          dealers.
240.17Ab2-1 Registration of clearing agencies.
240.17Ab2-2 Determinations affecting covered clearing agencies.
240.17Ac2-1 Application for registration of transfer agents.
240.17Ac2-2 Annual reporting requirement for registered transfer agents.
240.17Ac3-1 Withdrawal from registration with the Commission.
240.17Ad-1 Definitions.
240.17Ad-2 Turnaround, processing, and forwarding of items.
240.17Ad-3 Limitations on expansion.
240.17Ad-4 Applicability of Sec.Sec.240.17Ad-2, 240.17Ad-3 and 
          240.17Ad-6(a) (1) through (7) and (11).
240.17Ad-5 Written inquiries and requests.
240.17Ad-6 Recordkeeping.
240.17Ad-7 Record retention.
240.17Ad-8 Securities position listings.
240.17Ad-9 Definitions.
240.17Ad-10 Prompt posting of certificate detail to master 
          securityholder files, maintenance of accurate securityholder 
          files, communications between co-transfer agents and 
          recordkeeping transfer agents, maintenance of current control 
          book, retention of certificate detail and ``buy-in'' of 
          physical over-issuance.
240.17Ad-11 Reports regarding aged record differences, buy-ins and 
          failure to post certificate detail to master securityholder 
          and subsidiary files.
240.17Ad-12 Safeguarding of funds and securities.
240.17Ad-13 Annual study and evaluation of internal accounting control.
240.17Ad-14 Tender agents.
240.17Ad-15 Signature guarantees.
240.17Ad-16 Notice of assumption or termination of transfer agent 
          services.
240.17Ad-17 Lost securityholders and unresponsive payees.
240.17Ad-18 Year 2000 Reports to be made by certain transfer agents.
240.17Ad-19 Requirements for cancellation, processing, storage, 
          transportation, and destruction or other disposition of 
          securities certificates.
240.17Ad-20 Issuer restrictions or prohibitions on ownership by 
          securities intermediaries.
240.17Ad-21T Operational capability in a Year 2000 environment.
240.17Ad-22 Standards for clearing agencies.

  Capital, Margin and Segregation Requirements for Security-Based Swap 
           Dealers and Major Security-Based Swap Participants

240.18a-1 Net capital requirements for security-based swap dealers for 
          which there is not a prudential regulator.
240.18a-1a Options.
240.18a-1b Adjustments to net worth for certain commodities 
          transactions.
240.18a-1c Consolidated computations of net capital for certain 
          subsidiaries and affiliates of security-based swap dealers.
240.18a-1d Satisfactory subordinated loan agreements.
240.18a-2 Capital requirements for major security-based swap 
          participants for which there is not a prudential regulator.
240.18a-3 Non-cleared security-based swap margin requirements for 
          security-based swap dealers and major security-based swap 
          participants for which there is not a prudential regulator.
240.18a-4 Segregation requirements for security-based swap dealers and 
          major security-based swap participants.
240.18a-4a Exhibit A--Formula for determination of security-based swap 
          customer reserve requirements under Sec.240.18a-4.
240.18a-5 Records to be made by certain security-based swap dealers and 
          major security-based swap participants.
240.18a-6 Records to be preserved by certain security-based swap dealers 
          and major security-based swap participants.
240.18a-7 Reports to be made by certain security-based swap dealers and 
          major security-based swap participants.
240.18a-8 Notification provisions for security-based swap dealers and 
          major security-based swap participants.
240.18a-9 Quarterly security counts to be made by certain security-based 
          swap dealers.
240.18a-10 Alternative compliance mechanism for security-based swap 
          dealers that are registered as swap dealers and have limited 
          security-based swap activities.

              Suspension and Expulsion of Exchange Members

240.19a3-1 [Reserved]
240.19b-3 [Reserved]
240.19b-4 Filings with respect to proposed rule changes by self-
          regulatory organizations.
240.19b-5 Temporary exemption from the filing requirements of Section 
          19(b) of the Act.
240.19b-7 Filings with respect to proposed rule changes submitted 
          pursuant to Section 19(b)(7) of the Act.

[[Page 15]]

240.19c-1 Governing certain off-board agency transactions by members of 
          national securities exchanges.
240.19c-3 Governing off-board trading by members of national securities 
          exchanges.
240.19c-4 Governing certain listing or authorization determinations by 
          national securities exchanges and associations.
240.19c-5 Governing the multiple listing of options on national 
          securities exchanges.
240.19d-1 Notices by self-regulatory organizations of final disciplinary 
          actions, denials, bars, or limitations respecting membership, 
          association, participation, or access to services, and summary 
          suspensions.
240.19d-2 Applications for stays of disciplinary sanctions or summary 
          suspensions by a self-regulatory organization.
240.19d-3 Applications for review of final disciplinary sanctions, 
          denials of membership, participation or association, or 
          prohibitions or limitations of access to services imposed by 
          self-regulatory organizations.
240.19d-4 Notice by the Public Company Accounting Oversight Board of 
          disapproval of registration or of disciplinary action.
240.19g2-1 Enforcement of compliance by national securities exchanges 
          and registered securities associations with the Act and rules 
          and regulations thereunder.
240.19h-1 Notice by a self-regulatory organization of proposed admission 
          to or continuance in membership or participation or 
          association with a member of any person subject to a statutory 
          disqualification, and applications to the Commission for 
          relief therefrom.

           Securities Whistleblower Incentives and Protections

240.21F-1 General.
240.21F-2 Whistleblower status and retaliation protections.
240.21F-3 Payment of award.
240.21F-4 Other definitions.
240.21F-5 Amount of award.
240.21F-6 Criteria for determining amount of award.
240.21F-7 Confidentiality of submissions.
240.21F-8 Eligibility.
240.21F-9 Procedures for submitting original information.
240.21F-10 Procedures for making a claim for a whistleblower award in 
          SEC actions that result in monetary sanctions in excess of 
          $1,000,000
240.21F-11 Procedures for determining awards based upon a related 
          action.
240.21F-12 Materials that may be used as the basis for an award 
          determination and that may comprise the record on appeal.
240.21F-13 Appeals.
240.21F-14 Procedures applicable to the payment of awards.
240.21F-15 No amnesty.
240.21F-16 Awards to whistleblowers who engage in culpable conduct.
240.21F-17 Staff communications with individuals reporting possible 
          securities law violations.

      Inspection and Publication of Information Filed Under the Act

240.24b-1 Documents to be kept public by exchanges.
240.24b-2 Nondisclosure of information filed with the Commission and 
          with any exchange.
240.24b-3 Information filed by issuers and others under sections 12, 13, 
          14, and 16.
240.24c-1 Access to nonpublic information.
240.31 Section 31 transaction fees.
240.31T Temporary rule regarding fiscal year 2004.
240.36a1-1 Exemption from Section 7 for OTC derivatives dealers.
240.36a1-2 Exemption from SIPA for OTC derivatives dealers.

Subpart B--Rules and Regulations Under the Securities Investor Protection 
Act of 1970 [Reserved]

     Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 
77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78o-10, 78p, 
78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 80a-20, 80a-23, 80a-
29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq., and 8302; 7 U.S.C. 
2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; Pub. L. 111-203, 939A, 
124 Stat. 1376 (2010); and Pub. L. 112-106, Sec.503 and 602, 126 Stat. 
326 (2012), unless otherwise noted.
    Section 240.3a4-1 also issued under secs. 3 and 15, 89 Stat. 97, as 
amended, 89 Stat. 121 as amended;
    Section 240.3a12-8 also issued under 15 U.S.C. 78a et seq., 
particularly secs. 3(a)(12), 15 U.S.C. 78c(a)(12), and 23(a), 15 U.S.C. 
78w(a);
    Section 240.3a12-10 also issued under 15 U.S.C. 78b and c;
    Section 240.3a12-9 also issued under secs. 3(a)(12), 7(c), 11(d)(1), 
15 U.S.C. 78c(a)(12), 78g(c), 78k(d)(1));
    Sections 240.3a43-1 and 240.3a44-1 also issued under Sec.3; 15 
U.S.C. 78c;
    Sections 3a67-1 through 3a67-9 and 3a71-1 and 3a71-2 are also issued 
under Pub. L. 111-203, Sec.Sec.712, 761(b), 124 Stat. 1841 (2010).
    Sections 240.3a67-10, 240.3a71-3, 240.3a71-4, and 240.3a71-5 are 
also issued under Pub. L. 111-203, section 761(b), 124 Stat. 1754 
(2010), and 15 U.S.C. 78dd(c).

[[Page 16]]

    Sections 240.3a71-3 and 240.3a71-5 are also issued under Pub. L. 
111-203, Sec.761(b), 124 Stat. 1754 (2010), and 15 U.S.C. 78dd(c).
    Section 240.3b-6 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 
77s(a).
    Section 240.3b-9 also issued under secs. 2, 3 and 15, 89 Stat. 97, 
as amended, 89 Stat. 121, as amended (15 U.S.C. 78b, 78c, 78o);
    Section 240.9b-1 is also issued under Sec.2, 7, 10, 19(a), 48 Stat. 
74, 78, 81, 85; secs. 201, 205, 209, 120, 48 Stat. 905, 906, 908; secs. 
1-4, 8, 68 Stat. 683, 685; Sec.12(a), 73 Stat. 143; Sec.7(a), 74 Stat. 
412; Sec.27(a), 84 Stat. 1433; Sec.308(a)(2), 90 Stat. 57; Sec.505, 
94 Stat. 2292; secs. 9, 15, 23(a), 48 Stat. 889, 895, 901; Sec.230(a), 
49 Stat. 704; secs. 3, 8, 49 Stat. 1377, 1379; Sec.2, 52 Stat. 1075; 
secs. 6, 10, 78 Stat. 570-574, 580; Sec.11(d), 84 Stat. 121; Sec.18, 
89 Stat. 155; Sec.204, 91 Stat. 1500; 15 U.S.C. 77b, 77g, 77j, 77s(a), 
78i, 78o, 78w(a);
    Section 240.10b-10 is also issued under secs. 2, 3, 9, 10, 11, 11A, 
15, 17, 23, 48 Stat. 891, 89 Stat. 97, 121, 137, 156, (15 U.S.C. 78b, 
78c, 78i, 78j, 78k, 78k-1, 78o, 78q).
    Section 240.12a-7 also issued under 15 U.S.C. 78a et seq., 
particularly secs. 3(a)(12), 15 U.S.C. 78c(a)(12), 6, 15 U.S.C. 78(f), 
11A, 15 U.S.C. 78k, 12, 15 U.S.C. 78(l), and 23(a)(1), 15 U.S.C. 
78(w)(a)(1).
    Sections 240.12b-1 to 240.12b-36 also issued under secs. 3, 12, 13, 
15, 48 Stat. 892, as amended, 894, 895, as amended; 15 U.S.C. 78c, 78l, 
78m, 78o;
    Section 240.12b-15 is also issued under secs. 3(a) and 302, Pub.L. 
No. 107-204, 116 Stat. 745.
    Section 240.12b-25 is also issued under 15 U.S.C. 80a-8, 80a-24(a), 
80a-29, and 80a-37.
    Section 240.12g-3 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 
77s(a).
    Section 240.12g3-2 is also issued under 15 U.S.C. 77f, 77g, 77h, 
77j, 77s(a).
    Section 240.13a-10 is also issued under secs. 3(a) and 302, Pub.L. 
No. 107-204, 116 Stat. 745.
    Section 240.13a-11 is also issued under secs. 3(a) and 306(a), Pub. 
L. 107-204, 116 Stat. 745.
    Section 240.13a-14 is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 240.13a-15 is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 240.13d-3 is also issued under Public Law 111-203 Sec.766, 
124 Stat. 1799 (2010).
    Sections 240.13e-4, 240.14d-7, 240.14d-10 and 240.14e-1 also issued 
under secs. 3(b), 9(a)(6), 10(b), 13(e), 14(d) and 14(e), 15 U.S.C. 
78c(b), 78i(a)(6), 78j(b), 78m(e), 78n(d) and 78n(e) and Sec.23(c) of 
the Investment Company Act of 1940, 15 U.S.C 80a-23(c);
    Sections 240.13e-4 to 240.13e-101 also issued under secs. 3(b), 
9(a)(6), 10(b), 13(e), 14(e), 15(c)(1), 48 Stat. 882, 889, 891, 894, 
895, 901, Sec.8, 49 Stat. 1379, Sec.5, 78 Stat. 569, 570, secs. 2, 3, 
82 Stat. 454, 455, secs. 1, 2, 3-5, 84 Stat. 1497, secs. 3, 18, 89 Stat. 
97, 155; 15 U.S.C. 78c(b), 78i(a)(6), 78j(b), 78m(e), 78n(e), 78o(c); 
Sec.23(c) of the Investment Company Act of 1940; 54 Stat. 825; 15 
U.S.C. 80a-23(c);
    Section 240.13f-2(T) also issued under Sec.13(f)(1) (15 U.S.C. 
78m(f)(1));
    Section 240.13p-1 is also issued under Sec.1502, Pub. L. 111-203, 
124 Stat. 1376.
    Section 240.13q-1 is also issued under Sec.1504, Pub. L. 111-203, 
124 Stat. 2220.
    Sections 240.14a-1, 240.14a-3, 240.14a-13, 240.14b-1, 240.14b-2, 
240.14c-1, and 240.14c-7 also issued under secs. 12, 15 U.S.C. 781, and 
14, Pub. L. 99-222, 99 Stat. 1737, 15 U.S.C. 78n;
    Sections 240.14a-3, 240.14a-13, 240.14b-1 and 240.14c-7 also issued 
under secs. 12, 14 and 17, 15 U.S.C. 781, 78n and 78g;
    Sections 240.14c-1 to 240.14c-101 also issued under Sec.14, 48 
Stat. 895; 15 U.S.C. 78n;
    Section 240.14d-1 is also issued under 15 U.S.C. 77g, 77j, 77s(a), 
77ttt(a), 80a-37.
    Section 240.14e-2 is also issued under 15 U.S.C. 77g, 77h, 77s(a), 
77sss, 80a-37(a).
    Section 240.14e-4 also issued under the Exchange Act, 15 U.S.C. 78a 
et seq., and particularly sections 3(b), 10(a), 10(b), 14(e), 15(c), and 
23(a) of the Exchange Act (15 U.S.C. 78c(b), 78j(a), 78j(b), 78n(e), 
78o(c), and 78w(a)).
    Section 240.15a-6, also issued under secs. 3, 10, 15, and 17, 15 
U.S.C. 78c, 78j, 78o, and 78q;
    Section 240.15b1-3 also issued under Sec.15, 17; 15 U.S.C. 78o 78q;
    Sections 240.15b1-3 and 240.15b2-1 also issued under 15 U.S.C. 78o, 
78q;
    Section 240.15b2-2 also issued under secs. 3, 15; 15 U.S.C. 78c, 
78o;
    Sections 240.15b10-1 to 240.15b10-9 also issued under secs. 15, 17, 
48 Stat. 895, 897, Sec.203, 49 Stat. 704, secs. 4, 8, 49 Stat. 1379, 
Sec.5, 52 Stat. 1076, Sec.6, 78 Stat. 570; 15 U.S.C. 78o, 78q, 12 
U.S.C. 241 nt.;
    Section 240.15c2-6, also issued under secs. 3, 10, and 15, 15 U.S.C. 
78c, 78j, and 78o.
    Section 240.15c2-11 also issued under 15 U.S.C. 78j(b), 78o(c), 
78q(a), and 78w(a).
    Section 240.15c2-12 also issued under 15 U.S.C. 78b, 78c, 78j, 78o, 
78o-4 and 78q.
    Section 240.15c3-1 is also issued under 15 U.S.C. 78o(c)(3), 78o-
10(d), and 78o-10(e).
    Sections 240.15c3-1a, 240.15c3-1e, 240.15c3-1f, 240.15c3-1g are also 
issued under Pub. L. 111-203, secs. 939, 939A, 124. Stat. 1376 (2010) 
(15 U.S.C. 78c, 15 U.S.C. 78o-7 note).
    Section 240.15c3-3 is also issued under 15 U.S.C. 78c-5, 78o(c)(2), 
78(c)(3), 78q(a), 78w(a); Sec.6(c), 84 Stat. 1652; 15 U.S.C. 78fff.
    Section 240.15c3-3(o) is also issued under Pub. L. 106-554, 114 
Stat. 2763, section 203.
    Section 240.15c3-3a is also issued under Pub. L. 111-203, Sec.Sec.
939, 939A, 124. Stat. 1376 (2010) (15 U.S.C. 78c, 15 U.S.C. 78o-7 note).
    Section 240.15d-5 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 
77s(a).
    Section 240.15d-10 is also issued under 15 U.S.C. 80a-20(a) and 80a-
37(a), and secs. 3(a) and 302, Pub. L. No. 107-204, 116 Stat. 745.
    Section 240.15d-11 is also issued under secs. 3(a) and 306(a), Pub. 
L. 107-204, 116 Stat. 745.
    Section 240.15d-14 is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.

[[Page 17]]

    Section 240.15d-15 is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 240.15l-1 is also issued under Pub. L. 111-203, Sec.913, 
124 Stat. 1376, 1827 (2010).
    Sections 240.15Ba1-1 through 240.15Ba1-8 are also issued under Sec.
975, Public Law 111-203, 124 Stat. 1376 (2010).
    Section 240.15Bc4-1 is also issued under Sec.975, Public Law 111-
203, 124 Stat. 1376 (2010).
    Sections 240.15Ca1-1, 240.15Ca2-1, 240.15Ca2-2, 240.15Ca2-3, 
240.15Ca2-4, 240.15Ca2-5, 240.15Cc1-1 also issued under secs. 3, 15C; 15 
U.S.C. 78c, 78o-5;
    Sections 240.15Fh-1 through 240.15Fh-6 and 240.15Fk-1 are also 
issued under Sec.943, Pub. L. 111-203, 124 Stat. 1376.
    Section 240.15Ga-1 is also issued under Sec.943, Pub. L. 111-203, 
124 Stat. 1376.
    Section 240.15Ga-2 is also issued under Sec.943, Pub. L. 111-203, 
124 Stat. 1376. Section 240.16a-1(a) is also issued under Public Law 
111-203 Sec.766, 124 Stat. 1799 (2010).
    Section 240.17a-3 also issued under secs. 2, 17, 23a, 48 Stat. 897, 
as amended; 15 U.S.C. 78d-1, 78d-2, 78q; secs. 12, 14, 17, 23(a), 48 
Stat. 892, 895, 897, 901; secs. 1, 4, 8, 49 Stat. 1375, 1379; Sec.
203(a), 49 Stat. 704; Sec.5, 52 Stat. 1076; Sec.202, 68 Stat. 686; 
secs. 3, 5, 10, 78 Stat. 565-568, 569, 570, 580; secs. 1, 3, 82 Stat. 
454, 455; secs. 28(c), 3-5, 84 Stat. 1435, 1497; Sec.105(b), 88 Stat. 
1503; secs. 8, 9, 14, 18, 89 Stat. 117, 118, 137, 155; 15 U.S.C. 78l, 
78n, 78q, 78w(a);
    Section 240.17a-4 also issued under secs. 2, 17, 23(a), 48 Stat. 
897, as amended; 15 U.S.C. 78a, 78d-1, 78d-2; Sec.14, Pub. L. 94-29, 89 
Stat. 137 (15 U.S.C. 78a); Sec.18, Pub. L. 94-29, 89 Stat. 155 (15 
U.S.C. 78w);
    Section 240.17a-14 is also issued under Public Law 111-203, Sec.
913, 124 Stat. 1376 (2010)
    Section 240.17a-23 also issued under 15 U.S.C. 78b, 78c, 78o, 78q, 
and 78w(a).
    Section 240.17f-1 is also authorized under sections 2, 17 and 17A, 
48 Stat. 891, 89 Stat. 137, 141 (15 U.S.C. 78b, 78q, 78q-1);
    Section 240.17g-7 is also issued under Sec.943, Pub. L. 111-203, 
124 Stat. 1376.
    Section 240.17g-8 is also issued under Sec.938, Pub. L. 111-203, 
124 Stat. 1376.
    Section 240.17g-9 is also issued under Sec.936, Pub. L. 111-203, 
124 Stat. 1376.
    Section 240.17h-1T also issued under 15 U.S.C. 78q.
    Sections 240.17Ac2-1(c) and 240.17Ac2-2 also issued under secs. 17, 
17A and 23(a); 48 Stat. 897, as amended, 89 Stat. 137, 141 and 48 Stat. 
901 (15 U.S.C. 78q, 78q-1, 78w(a));
    Section 240.17Ad-1 is also issued under secs. 2, 17, 17A and 23(a); 
48 Stat. 841 as amended, 48 Stat. 897, as amended, 89 Stat. 137, 141, 
and 48 Stat. 901 (15 U.S.C. 78b, 78q, 78q-1, 78w);
    Sections 240.17Ad-5 and 240.17Ad-10 are also issued under secs. 3 
and 17A; 48 Stat. 882, as amended, and 89 Stat. (15 U.S.C. 78c and 78q-
1);
    Section 240.17Ad-7 also issued under 15 U.S.C. 78b, 78q, and 78q-1.
    Section 240.17Ad-17 is also issued under Pub. L. 111-203, section 
929W, 124 Stat. 1869 (2010).
    Section 240.17Ad-22 is also issued under 12 U.S.C. 5461 et seq.
    Sections 240.18a-1, 240.18a-1a, 240.18a-1b, 240.18a-1c, 240.18a-1d, 
240.18a-2, 240.18a-3, and 240.18a-10 are also issued under 15 U.S.C. 
78o-10(d) and 78o-10(e).
    Section 240.18a-4 is also issued under 15 U.S.C. 78c-5(f).
    Section 240.19b-4 is also issued under 12 U.S.C. 5465(e).
    Sections 240.19c-4 also issued under secs. 6, 11A, 14, 15A, 19 and 
23 of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3, and 78s);
    Section 240.19c-5 also issued under Sections 6, 11A, and 19 of the 
Securities Exchange Act of 1934, 48 Stat. 885, as amended, 89 Stat. 111, 
as amended, and 48 Stat. 898, as amended, 15 U.S.C. 78f, 78k-1, and 78s.
    Section 240.21F is also issued under Pub. L. 111-203, Sec.922(a), 
124 Stat. 1841 (2010).
    Section 240.31-1 is also issued under Sec.31, 48 Stat. 904, as 
amended (15 U.S.C. 78ee).

    Editorial Note: Nomenclature changes to part 240 appear at 57 FR 
36501, Aug. 13, 1992, and 57 FR 47409, Oct. 16, 1992.
    Note: In Sec.Sec.240.0-1 to 240.24b-3, the numbers to the right 
of the decimal point correspond with the respective rule numbers of the 
rules and regulations under the Securities Exchange Act of 1934.
    ATTENTION ELECTRONIC FILERS
    THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T 
(PART 232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION 
OF DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



  Subpart A_Rules and Regulations Under the Securities Exchange Act of 
                                  1934

                      Rules of General Application



Sec.240.0-1  Definitions.

    (a) As used in the rules and regulations in this part, prescribed by 
the Commission pursuant to Title I of the Securities Exchange Act of 
1934 (48

[[Page 18]]

Stat. 881-905; 15 U.S.C. chapter 2B), unless the context otherwise 
specifically requires:
    (1) The term Commission means the Securities and Exchange 
Commission.
    (2) The term act means Title I of the Securities Exchange Act of 
1934.
    (3) The term section refers to a section of the Securities Exchange 
Act of 1934. \1\
---------------------------------------------------------------------------

    \1\ The provisions of paragraph (a)(3) of 17 CFR 240.0-1 relate to 
the terminology of rules and regulations as published by the Securities 
and Exchange Commission and are inapplicable to the terminology 
appearing in the Code of Federal Regulations.
---------------------------------------------------------------------------

    (4) The term rules and regulations refers to all rules and 
regulations adopted by the Commission pursuant to the act, including the 
forms for registration and reports and the accompanying instructions 
thereto.
    (5) The term electronic filer means a person or an entity that 
submits filings electronically pursuant to Rules 100 and 101 of 
Regulation S-T (Sec.Sec.232.100 and 232.101 of this chapter, 
respectively).
    (6) The term electronic filing means a document under the federal 
securities laws that is transmitted or delivered to the Commission in 
electronic format.
    (b) Unless otherwise specifically stated, the terms used in this 
part shall have the meaning defined in the act.
    (c) A rule or regulation which defines a term without express 
reference to the act or to the rules and regulations, or to a portion 
thereof, defines such term for all purposes as used both in the act and 
in the rules and regulations, unless the context otherwise specifically 
requires.
    (d) Unless otherwise specified or the context otherwise requires, 
the term prospectus means a prospectus meeting the requirements of 
section 10(a) of the Securities Act of 1933 as amended.

    Cross References: For definition of ``listed'', see Sec.240.3b-1; 
``officer'', Sec.240.3b-2; ``short sale'', Sec.240.3b-3. For 
additional definitions, see Sec.240.15c1-1.

[13 FR 8178, Dec. 22, 1948, as amended at 13 FR 9321, Dec. 31, 1948; 19 
FR 6730, Oct. 20, 1954; 58 FR 14682, Mar. 18, 1993; 62 FR 36459, July 8, 
1997]



Sec.240.0-2  Business hours of the Commission.

    (a) The principal office of the Commission, at 100 F Street, NE, 
Washington, DC 20549, is open each day, except Saturdays, Sundays, and 
Federal holidays, from 9 a.m. to 5:30 p.m., Eastern Standard Time or 
Eastern Daylight Saving Time, whichever currently is in effect in 
Washington, DC, provided that hours for the filing of documents pursuant 
to the Act or the rules and regulations thereunder are as set forth in 
paragraphs (b) and (c) of this section.
    (b) Submissions made in paper. Paper documents filed with or 
otherwise furnished to the Commission may be submitted to the Commission 
each day, except Saturdays, Sundays and federal holidays, from 8 a.m. to 
5:30 p.m., Eastern Standard Time or Eastern Daylight Saving Time, 
whichever is currently in effect.
    (c) Electronic filings. Filings made by direct transmission may be 
submitted to the Commission each day, except Saturdays, Sundays and 
federal holidays, from 8 a.m. to 10 p.m., Eastern Standard Time or 
Eastern Daylight Saving Time, whichever is currently in effect.

    Cross References: For registration and exemption of exchanges, see 
Sec.Sec.240.6a-1 to 240.6a-3. For forms for permanent registration of 
securities, see Sec.240.12b-1. For regulations relating to 
registration of securities, see Sec.Sec.240.12b-1 to 240.12b-36. For 
forms for applications for registration of brokers and dealers, see 
Sec.Sec.240.15b1-1 to 240.15b9-1.

[58 FR 14682, Mar. 18, 1993, as amended at 65 FR 24801, Apr. 27, 2000; 
68 FR 25799, May 13, 2003; 73 FR 973, Jan. 4, 2008]



Sec.240.0-3  Filing of material with the Commission.

    (a) All papers required to be filed with the Commission pursuant to 
the Act or the rules and regulations thereunder shall be filed at the 
principal office in Washington, DC. Material may be filed by delivery to 
the Commission, through the mails or otherwise. The date on which papers 
are actually received by the Commission shall be the date of filing 
thereof if all of the requirements with respect to the filing have been 
complied with, except that if

[[Page 19]]

the last day on which papers can be accepted as timely filed falls on a 
Saturday, Sunday or holiday, such papers may be filed on the first 
business day following.
    (b) The manually signed original (or in the case of duplicate 
originals, one duplicate original) of all registrations, applications, 
statements, reports, or other documents filed under the Securities 
Exchange Act of 1934, as amended, shall be numbered sequentially (in 
addition to any internal numbering which otherwise may be present) by 
handwritten, typed, printed, or other legible form of notation from the 
facing page of the document through the last page of that document and 
any exhibits or attachments thereto. Further, the total number of pages 
contained in a numbered original shall be set forth on the first page of 
the document.
    (c) Each document filed shall contain an exhibit index, which should 
immediately precede the exhibits filed with such document. The index 
shall list each exhibit filed and identify by handwritten, typed, 
printed, or other legible form of notation in the manually signed 
original, the page number in the sequential numbering system described 
in paragraph (b) of this section where such exhibit can be found or 
where it is stated that the exhibit is incorporated by reference. 
Further, the first page of the manually signed document shall list the 
page in the filing where the exhibit index is located.

[44 FR 4666, Jan. 23, 1979, as amended at 45 FR 58828, Sept. 5, 1980]



Sec.240.0-4  Nondisclosure of information obtained in examinations
and investigations.

    Information or documents obtained by officers or employees of the 
Commission in the course of any examination or investigation pursuant to 
section 17(a) (48 Stat. 897, section 4, 49 Stat. 1379; 15 U.S.C. 78q(a)) 
or 21(a) (48 Stat. 899; 15 U.S.C. 78u(a)) shall, unless made a matter of 
public record, be deemed confidential. Except as provided by 17 CFR 
203.2, officers and employees are hereby prohibited from making such 
confidential information or documents or any other non-public records of 
the Commission available to anyone other than a member, officer or 
employee of the Commission, unless the Commission or the General 
Counsel, pursuant to delegated authority, authorizes the disclosure of 
such information or the production of such documents as not being 
contrary to the public interest. Any officer or employee who is served 
with a subpoena requiring the disclosure of such information or the 
production of such documents shall appear in court and, unless the 
authorization described in the preceding sentence shall have been given, 
shall respectfully decline to disclose the information or produce the 
documents called for, basing his or her refusal upon this section. Any 
officer or employee who is served with such a subpoena shall promptly 
advise the General Counsel of the service of such subpoena, the nature 
of the information or documents sought, and any circumstances which may 
bear upon the desirability of making available such information or 
documents.

[44 FR 50836, Aug. 30, 1979, as amended at 53 FR 17459, May 17, 1988; 76 
FR 71876, Nov. 21, 2011]



Sec.240.0-5  Reference to rule by obsolete designation.

    Wherever in any rule, form, or instruction book specific reference 
is made to a rule by number or other designation which is now obsolete, 
such reference shall be deemed to be made to the corresponding rule or 
rules in the existing general rules and regulations.

[13 FR 8179, Dec. 22, 1948]



Sec.240.0-6  Disclosure detrimental to the national defense or foreign
policy.

    (a) Any requirement to the contrary notwithstanding, no registration 
statement, report, proxy statement or other document filed with the 
Commission or any securities exchange shall contain any document or 
information which, pursuant to Executive order, has been classified by 
an appropriate department or agency of the United States for protection 
in the interests of national defense or foreign policy.
    (b) Where a document or information is omitted pursuant to paragraph 
(a) of this section, there shall be filed, in lieu of such document or 
information, a

[[Page 20]]

statement from an appropriate department or agency of the United States 
to the effect that such document or information has been classified or 
that the status thereof is awaiting determination. Where a document is 
omitted pursuant to paragraph (a) of this section, but information 
relating to the subject matter of such document is nevertheless included 
in material filed with the Commission pursuant to a determination of an 
appropriate department or agency of the United States that disclosure of 
such information would not be contrary to the interests of national 
defense or foreign policy, a statement from such department or agency to 
that effect shall be submitted for the information of the Commission. A 
registrant may rely upon any such statement in filing or omitting any 
document or information to which the statement relates.
    (c) The Commission may protect any information in its possession 
which may require classification in the interests of national defense or 
foreign policy pending determination by an appropriate department or 
agency as to whether such information should be classified.
    (d) It shall be the duty of the registrant to submit the documents 
or information referred to in paragraph (a) of this section to the 
appropriate department or agency of the United States prior to filing 
them with the Commission and to obtain and submit to the Commission, at 
the time of filing such documents or information, or in lieu thereof, as 
the case may be, the statements from such department or agency required 
by paragraph (b) of this section. All such statements shall be in 
writing.

[33 FR 7682, May 24, 1968]



Sec.240.0-8  Application of rules to registered broker-dealers.

    Any provision of any rule or regulation under the Act which 
prohibits any act, practice, or course of business by any person if the 
mails or any means or instrumentality of interstate commerce are used in 
connection therewith, shall also prohibit any such act, practice, or 
course of business by any broker or dealer registered pursuant to 
section 15(b) of the Act, or any person acting on behalf of such a 
broker or dealer, irrespective of any use of the mails or any means or 
instrumentality of interstate commerce.

[29 FR 12555, Sept. 3, 1964]



Sec.240.0-9  Payment of fees.

    All payment of fees shall be made by wire transfer, or by certified 
check, bank cashier's check, United States postal money order, or bank 
money order payable to the Securities and Exchange Commission, omitting 
the name or title of any official of the Commission. Payment of filing 
fees required by this section shall be made in accordance with the 
directions set forth in Sec.202.3a of this chapter.

[72 FR 6014, Feb. 1, 2008]



Sec.240.0-10  Small entities under the Securities Exchange Act for 
purposes of the Regulatory Flexibility Act.

    For purposes of Commission rulemaking in accordance with the 
provisions of Chapter Six of the Administrative Procedure Act (5 U.S.C. 
601 et seq.), and unless otherwise defined for purposes of a particular 
rulemaking proceeding, the term small business or small organization 
shall:
    (a) When used with reference to an ``issuer'' or a ``person,'' other 
than an investment company, mean an ``issuer'' or ``person'' that, on 
the last day of its most recent fiscal year, had total assets of $5 
million or less;
    (b) When used with reference to an ``issuer'' or ``person'' that is 
an investment company, have the meaning ascribed to those terms by Sec.
270.0-10 of this chapter;
    (c) When used with reference to a broker or dealer, mean a broker or 
dealer that:
    (1) Had total capital (net worth plus subordinated liabilities) of 
less than $500,000 on the date in the prior fiscal year as of which its 
audited financial statements were prepared pursuant to Sec.240.17a-
5(d) or, if not required to file such statements, a broker or dealer 
that had total capital (net worth plus subordinated liabilities) of less 
than $500,000 on the last business day of the preceding fiscal year (or 
in the time that it has been in business, if shorter); and

[[Page 21]]

    (2) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization as defined in this 
section;
    (d) When used with reference to a clearing agency, mean a clearing 
agency that:
    (1) Compared, cleared and settled less than $500 million in 
securities transactions during the preceding fiscal year (or in the time 
that it has been in business, if shorter);
    (2) Had less than $200 million of funds and securities in its 
custody or control at all times during the preceding fiscal year (or in 
the time that it has been in business, if shorter); and
    (3) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization as defined in this 
section;
    (e) When used with reference to an exchange, mean any exchange that:
    (1) Has been exempted from the reporting requirements of Sec.
242.601 of this chapter; and
    (2) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization as defined in this 
section;
    (f) When used with reference to a municipal securities dealer that 
is a bank (including any separately identifiable department or division 
of a bank), mean any such municipal securities dealer that:
    (1) Had, or is a department of a bank that had, total assets of less 
than $10 million at all times during the preceding fiscal year (or in 
the time that it has been in business, if shorter);
    (2) Had an average monthly volume of municipal securities 
transactions in the preceding fiscal year (or in the time it has been 
registered, if shorter) of less than $100,000; and
    (3) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization as defined in this 
section;
    (g) When used with reference to a securities information processor, 
mean a securities information processor that:
    (1) Had gross revenues of less than $10 million during the preceding 
fiscal year (or in the time it has been in business, if shorter);
    (2) Provided service to fewer than 100 interrogation devices or 
moving tickers at all times during the preceding fiscal year (or in the 
time that it has been in business, if shorter); and
    (3) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization under this section; 
and
    (h) When used with reference to a transfer agent, mean a transfer 
agent that:
    (1) Received less than 500 items for transfer and less than 500 
items for processing during the preceding six months (or in the time 
that it has been in business, if shorter);
    (2) Transferred items only of issuers that would be deemed ``small 
businesses'' or ``small organizations'' as defined in this section; and
    (3) Maintained master shareholder files that in the aggregate 
contained less than 1,000 shareholder accounts or was the named transfer 
agent for less than 1,000 shareholder accounts at all times during the 
preceding fiscal year (or in the time that it has been in business, if 
shorter); and
    (4) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization under this section.
    (i) For purposes of paragraph (c) of this section, a broker or 
dealer is affiliated with another person if:
    (1) Such broker or dealer controls, is controlled by, or is under 
common control with such other person; a person shall be deemed to 
control another person if that person has the right to vote 25 percent 
or more of the voting securities of such other person or is entitled to 
receive 25 percent or more of the net profits of such other person or is 
otherwise able to direct or cause the direction of the management or 
policies of such other person; or
    (2) Such broker or dealer introduces transactions in securities, 
other than registered investment company securities or interests or 
participations in insurance company separate accounts, to such other 
person, or introduces accounts of customers or other brokers or dealers, 
other than accounts that hold only registered investment company 
securities or interests or participations in insurance company separate 
accounts, to such other person that

[[Page 22]]

carries such accounts on a fully disclosed basis.
    (j) For purposes of paragraphs (d) through (h) of this section, a 
person is affiliated with another person if that person controls, is 
controlled by, or is under common control with such other person; a 
person shall be deemed to control another person if that person has the 
right to vote 25 percent or more of the voting securities of such other 
person or is entitled to receive 25 percent or more of the net profits 
of such other person or is otherwise able to direct or cause the 
direction of the management or policies of such other person.
    (k) For purposes of paragraph (g) of this section, ``interrogation 
device'' shall refer to any device that may be used to read or receive 
securities information, including quotations, indications of interest, 
last sale data and transaction reports, and shall include proprietary 
terminals or personal computers that receive securities information via 
computer-to-computer interfaces or gateway access.

[47 FR 5222, Feb. 4, 1982, as amended at 51 FR 25362, July 14, 1986; 63 
FR 35514, June 30, 1998; 70 FR 37617, June 29, 2005]



Sec.240.0-11  Filing fees for certain acquisitions, dispositions and 
similar transactions.

    (a) General. (1) At the time of filing a disclosure document 
described in paragraphs (b) through (d) of this section relating to 
certain acquisitions, dispositions, business combinations, 
consolidations or similar transactions, the person filing the specified 
document shall pay a fee payable to the Commission to be calculated as 
set forth in paragraphs (b) through (d) of this section.
    (2) Only one fee per transaction is required to be paid. A required 
fee shall be reduced in an amount equal to any fee paid with respect to 
such transaction pursuant to either section 6(b) of the Securities Act 
of 1933 or any applicable provision of this rule; the fee requirements 
under section 6(b) shall be reduced in an amount equal to the fee paid 
the Commission with respect to a transaction under this regulation. No 
part of a filing fee is refundable.
    (3) If at any time after the initial payment the aggregate 
consideration offered is increased, an additional filing fee based upon 
such increase shall be paid with the required amended filing.
    (4) When the fee is based upon the market value of securities, such 
market value shall be established by either the average of the high and 
low prices reported in the consolidated reporting system (for exchange 
traded securities and last sale reported over-the-counter securities) or 
the average of the bid and asked price (for other over-the-counter 
securities) as of a specified date within 5 business days prior to the 
date of the filing. If there is no market for the securities, the value 
shall be based upon the book value of the securities computed as of the 
latest practicable date prior to the date of the filing, unless the 
issuer of the securities is in bankruptcy or receivership or has an 
accumulated capital deficit, in which case one-third of the principal 
amount, par value or stated value of the securities shall be used.
    (5) The cover page of the filing shall set forth the calculation of 
the fee in tabular format, as well as the amount offset by a previous 
filing and the identification of such filing, if applicable.
    (b) Section 13(e)(1) filings. At the time of filing such statement 
as the Commission may require pursuant to section 13(e)(1) of the 
Exchange Act, a fee of one-fiftieth of one percent of the value of the 
securities proposed to be acquired by the acquiring person. The value of 
the securities proposed to be acquired shall be determined as follows:
    (1) The value of the securities to be acquired solely for cash shall 
be the amount of cash to be paid for them:
    (2) The value of the securities to be acquired with securities or 
other non-cash consideration, whether or not in combination with a cash 
payment for the same securities, shall be based upon the market value of 
the securities to be received by the acquiring person as established in 
accordance with paragraph (a)(4) of this section.
    (c) Proxy and information statement filings. At the time of filing a 
preliminary proxy statement pursuant to Rule 14a-

[[Page 23]]

6(a) or preliminary information statement pursuant to Rule 14c-5(a) that 
concerns a merger, consolidation, acquisition of a company, or proposed 
sale or other disposition of substantially all the assets of the 
registrant (including a liquidation), the following fee:
    (1) For preliminary material involving a vote upon a merger, 
consolidation or acquisition of a company, a fee of one-fiftieth of one 
percent of the proposed cash payment or of the value of the securities 
and other property to be transferred to security holders in the 
transaction. The fee is payable whether the registrant is acquiring 
another company or being acquired.
    (i) The value of securities or other property to be transferred to 
security holders, whether or not in combination with a cash payment for 
the same securities, shall be based upon the market value of the 
securities to be received by the acquiring person as established in 
accordance with paragraph (a)(4) of this section.
    (ii) Notwithstanding the above, where the acquisition, merger or 
consolidation is for the sole purpose of changing the registrant's 
domicile, no filing fee is required to be paid.
    (2) For preliminary material involving a vote upon a proposed sale 
or other disposition of substantially all the assets of the registrant, 
a fee of one-fiftieth of one percent of the aggregate of the cash and 
the value of the securities (other than its own) and other property to 
be received by the registrant. In the case of a disposition in which the 
registrant will not receive any property, such as at liquidation or 
spin-off, the fee shall be one-fiftieth of one percent of the aggregate 
of the cash and the value of the securities and other property to be 
distributed to security holders.
    (i) The value of the securities to be received (or distributed in 
the case of a spin-off or liquidation) shall be based upon the market 
value of such securities as established in accordance with paragraph 
(a)(4) of this section.
    (ii) The value of other property shall be a bona fide estimate of 
the fair market value of such property.
    (3) Where two or more companies are involved in the transaction, 
each shall pay a proportionate share of such fee, determined by the 
persons involved.
    (4) Notwithstanding the above, the fee required by this paragraph 
(c) shall not be payable for a proxy statement filed by a company 
registered under the Investment Company Act of 1940.
    (d) Section 14(d)(1) filings. At the time of filing such statement 
as the Commission may require pursuant to section 14(d)(1) of the Act, a 
fee of one-fiftieth of one percent of the aggregate of the cash or of 
the value of the securities or other property offered by the bidder. 
Where the bidder is offering securities or other non-cash consideration 
for some or all of the securities to be acquired, whether or not in 
combination with a cash payment for the same securities, the value of 
the consideration to be offered for such securities shall be based upon 
the market value of the securities to be received by the bidder as 
established in accordance with paragraph (a)(4) of this section.

[51 FR 2476, Jan. 17, 1986, as amended at 58 FR 14682, Mar. 18, 1993; 61 
FR 49959, Sept. 24, 1996; 73 FR 17813, Apr. 1, 2008]



Sec.240.0-12  Commission procedures for filing applications for orders
for exemptive relief under Section 36 of the Exchange Act.

    (a) The application shall be in writing in the form of a letter, 
must include any supporting documents necessary to make the application 
complete, and otherwise must comply with Sec.240.0-3. All applications 
must be submitted to the Office of the Secretary of the Commission. 
Requestors may seek confidential treatment of their applications to the 
extent provided under Sec.200.81 of this chapter. If an application is 
incomplete, the Commission, through the Division handling the 
application, may request that the application be withdrawn unless the 
applicant can justify, based on all the facts and circumstances, why 
supporting materials have not been submitted and undertakes to submit 
the omitted materials promptly.
    (b) An applicant may submit a request electronically. The electronic 
mailbox to use for these applications is described on the Commission's 
Web

[[Page 24]]

site at http://www.sec.gov in the ``Exchange Act Exemptive 
Applications'' section. In the event the electronic mailbox is revised 
in the future, applicants can find the appropriate mailbox by accessing 
the ``Electronic Mailboxes at the Commission'' section.
    (c) An applicant also may submit a request in paper format. Five 
copies of every paper application and every amendment to such an 
application must be submitted to the Office of the Secretary at 100 F 
Street, NE., Washington, DC 20549-1090. Applications must be on white 
paper no larger than 8\1/2\ by 11 inches in size. The left margin of 
applications must be at least 1\1/2\ inches wide, and if the application 
is bound, it must be bound on the left side. All typewritten or printed 
material must be on one side of the paper only and must be set forth in 
black ink so as to permit photocopying.
    (d) Every application (electronic or paper) must contain the name, 
address and telephone number of each applicant and the name, address, 
and telephone number of a person to whom any questions regarding the 
application should be directed. The Commission will not consider 
hypothetical or anonymous requests for exemptive relief. Each applicant 
shall state the basis for the relief sought, and identify the 
anticipated benefits for investors and any conditions or limitations the 
applicant believes would be appropriate for the protection of investors. 
Applicants should also cite to and discuss applicable precedent.
    (e) Amendments to the application should be prepared and submitted 
as set forth in these procedures and should be marked to show what 
changes have been made.
    (f) After the filing is complete, the applicable Division will 
review the application. Once all questions and issues have been answered 
to the satisfaction of the Division, the staff will make an appropriate 
recommendation to the Commission. After consideration of the 
recommendation by the Commission, the Commission's Office of the 
Secretary will issue an appropriate response and will notify the 
applicant. If the application pertains to a section of the Exchange Act 
pursuant to which the Commission has delegated its authority to the 
appropriate Division, the Division Director or his or her designee will 
issue an appropriate response and notify the applicant.
    (g) The Commission, in its sole discretion, may choose to publish in 
the Federal Register a notice that the application has been submitted. 
The notice would provide that any person may, within the period 
specified therein, submit to the Commission any information that relates 
to the Commission action requested in the application. The notice also 
would indicate the earliest date on which the Commission would take 
final action on the application, but in no event would such action be 
taken earlier than 25 days following publication of the notice in the 
Federal Register.
    (h) The Commission may, in its sole discretion, schedule a hearing 
on the matter addressed by the application.

[63 FR 8102, Feb. 18, 1998, as amended at 73 FR 973, Jan. 4, 2008; 76 FR 
43891, July 22, 2011]



Sec.240.0-13  Commission procedures for filing applications to request
a substituted compliance order under the Exchange Act.

    (a) The application shall be in writing in the form of a letter, 
must include any supporting documents necessary to make the application 
complete, and otherwise must comply with Sec.240.0-3. All applications 
must be submitted to the Office of the Secretary of the Commission, by a 
party that potentially would comply with requirements under the Exchange 
Act pursuant to a substituted compliance order, or by the relevant 
foreign financial regulatory authority or authorities. If an application 
is incomplete, the Commission may request that the application be 
withdrawn unless the applicant can justify, based on all the facts and 
circumstances, why supporting materials have not been submitted and 
undertakes to submit the omitted materials promptly.
    (b) An applicant may submit a request electronically. The electronic 
mailbox to use for these applications is described on the Commission's 
Web site at www.sec.gov in the ``Exchange Act Substituted Compliance 
Applications'' section. In the event electronic

[[Page 25]]

mailboxes are revised in the future, applicants can find the appropriate 
mailbox by accessing the ``Electronic Mailboxes at the Commission'' 
section.
    (c) All filings and submissions filed pursuant to this rule must be 
in the English language. If a filing or submission filed pursuant to 
this rule requires the inclusion of a document that is in a foreign 
language, a party must submit instead a fair and accurate English 
translation of the entire foreign language document. A party may submit 
a copy of the unabridged foreign language document when including an 
English translation of a foreign language document in a filing or 
submission filed pursuant to this rule. A party must provide a copy of 
any foreign language document upon the request of Commission staff.
    (d) An applicant also may submit a request in paper format. Five 
copies of every paper application and every amendment to such an 
application must be submitted to the Office of the Secretary at 100 F 
Street NE., Washington, DC 20549-1090. Applications must be on white 
paper no larger than 8\1/2\ by 11 inches in size. The left margin of 
applications must be at least 1\1/2\ inches wide, and if the application 
is bound, it must be bound on the left side. All typewritten or printed 
material must be set forth in black ink so as to permit photocopying.
    (e) Every application (electronic or paper) must contain the name, 
address, telephone number, and email address of each applicant and the 
name, address, telephone number, and email address of a person to whom 
any questions regarding the application should be directed. The 
Commission will not consider hypothetical or anonymous requests for a 
substituted compliance order. Each applicant shall provide the 
Commission with any supporting documentation it believes necessary for 
the Commission to make such determination, including information 
regarding applicable requirements established by the foreign financial 
regulatory authority or authorities, as well as the methods used by the 
foreign financial regulatory authority or authorities to monitor and 
enforce compliance with such rules. Applicants should also cite to and 
discuss applicable precedent.
    (f) Amendments to the application should be prepared and submitted 
as set forth in these procedures and should be marked to show what 
changes have been made.
    (g) After the filing is complete, the staff will review the 
application. Once all questions and issues have been answered to the 
satisfaction of the staff, the staff will make an appropriate 
recommendation to the Commission. After consideration of the 
recommendation and a vote by the Commission, the Commission's Office of 
the Secretary will issue an appropriate response and will notify the 
applicant.
    (h) The Commission shall publish in the Federal Register a notice 
that a complete application has been submitted. The notice will provide 
that any person may, within the period specified therein, submit to the 
Commission any information that relates to the Commission action 
requested in the application. The notice also will indicate the earliest 
date on which the Commission would take final action on the application, 
but in no event would such action be taken earlier than 25 days 
following publication of the notice in the Federal Register.
    (i) The Commission may, in its sole discretion, schedule a hearing 
on the matter addressed by the application.

[79 FR 47369, Aug. 12, 2014]

    Effective Date Note: At 85 FR 6350, Feb. 4, 2020, Sec.240.0-13 was 
amended by revising the section heading and paragraphs (a), (b), and 
(e), effective Apr. 6, 2020. For the convenience of the user, the 
revised text is set forth as follows:



Sec.240.0-13  Commission procedures for filing applications to request 
          a substituted compliance or listed jurisdiction order under 
          the Exchange Act.

    (a) The application shall be in writing in the form of a letter, 
must include any supporting documents necessary to make the application 
complete, and otherwise must comply with Sec.240.0-3. All applications 
must be submitted to the Office of the Secretary of the Commission, by a 
party that potentially would comply with requirements under the Exchange 
Act pursuant to a substituted compliance or listed jurisdiction order, 
or by the relevant foreign financial regulatory authority or 
authorities. If an application is incomplete, the Commission may request 
that the application be withdrawn unless the applicant can justify, 
based on all the facts and circumstances, why supporting

[[Page 26]]

materials have not been submitted and undertakes to submit the omitted 
materials promptly.
    (b) An applicant may submit a request electronically. The electronic 
mailbox to use for these applications is described on the Commission's 
website at www.sec.gov in the ``Exchange Act Substituted Compliance and 
Listed Jurisdiction Applications'' section. In the event electronic 
mailboxes are revised in the future, applicants can find the appropriate 
mailbox by accessing the ``Electronic Mailboxes at the Commission'' 
section.

                                * * * * *

    (e) Every application (electronic or paper) must contain the name, 
address, telephone number, and email address of each applicant and the 
name, address, telephone number, and email address of a person to whom 
any questions regarding the application should be directed. The 
Commission will not consider hypothetical or anonymous requests for a 
substituted compliance or listed jurisdiction order. Each applicant 
shall provide the Commission with any supporting documentation it 
believes necessary for the Commission to make such determination, 
including information regarding applicable requirements established by 
the foreign financial regulatory authority or authorities, as well as 
the methods used by the foreign financial regulatory authority or 
authorities to monitor and enforce compliance with such rules. 
Applicants should also cite to and discuss applicable precedent.

                                * * * * *



Sec.240.3a1-1  Exemption from the definition of ``Exchange'' under 
Section 3(a)(1) of the Act.

    (a) An organization, association, or group of persons shall be 
exempt from the definition of the term ``exchange'' under section 
3(a)(1) of the Act, (15 U.S.C. 78c(a)(1)), if such organization, 
association, or group of persons:
    (1) Is operated by a national securities association;
    (2) Is in compliance with Regulation ATS, 17 CFR 242.300 through 
242.304; or
    (3) Pursuant to paragraph (a) of Sec.242.301 of Regulation ATS, 17 
CFR 242.301(a), is not required to comply with Regulation ATS, 17 CFR 
242.300 through 242.304.
    (b) Notwithstanding paragraph (a) of this section, an organization, 
association, or group of persons shall not be exempt under this section 
from the definition of ``exchange,'' if:
    (1) During three of the preceding four calendar quarters such 
organization, association, or group of persons had:
    (i) Fifty percent or more of the average daily dollar trading volume 
in any security and five percent or more of the average daily dollar 
trading volume in any class of securities; or
    (ii) Forty percent or more of the average daily dollar trading 
volume in any class of securities; and
    (2) The Commission determines, after notice to the organization, 
association, or group of persons, and an opportunity for such 
organization, association, or group of persons to respond, that such an 
exemption would not be necessary or appropriate in the public interest 
or consistent with the protection of investors taking into account the 
requirements for exchange registration under section 6 of the Act, (15 
U.S.C. 78f), and the objectives of the national market system under 
section 11A of the Act, (15 U.S.C 78k-1).
    (3) For purposes of paragraph (b) of this section, each of the 
following shall be considered a ``class of securities'':
    (i) Equity securities, which shall have the same meaning as in Sec.
240.3a11-1;
    (ii) Listed options, which shall mean any options traded on a 
national securities exchange or automated facility of a national 
securities exchange;
    (iii) Unlisted options, which shall mean any options other than 
those traded on a national securities exchange or automated facility of 
a national securities association;
    (iv) Municipal securities, which shall have the same meaning as in 
section 3(a)(29) of the Act, (15 U.S.C. 78c(a)(29));
    (v) Corporate debt securities, which shall mean any securities that:
    (A) Evidence a liability of the issuer of such securities;
    (B) Have a fixed maturity date that is at least one year following 
the date of issuance; and
    (C) Are not exempted securities, as defined in section 3(a)(12) of 
the Act, (15 U.S.C. 78c(a)(12));
    (vi) Foreign corporate debt securities, which shall mean any 
securities that:
    (A) Evidence a liability of the issuer of such debt securities;

[[Page 27]]

    (B) Are issued by a corporation or other organization incorporated 
or organized under the laws of any foreign country; and
    (C) Have a fixed maturity date that is at least one year following 
the date of issuance; and
    (vii) Foreign sovereign debt securities, which shall mean any 
securities that:
    (A) Evidence a liability of the issuer of such debt securities;
    (B) Are issued or guaranteed by the government of a foreign country, 
any political subdivision of a foreign country or any supranational 
entity; and
    (C) Do not have a maturity date of a year or less following the date 
of issuance.

[63 FR 70917, Dec. 22, 1998, as amended at 74 FR 52372, Oct. 9, 2009; 83 
FR 38911, Aug. 7, 2018]



Sec.240.3a4-1  Associated persons of an issuer deemed not to be brokers.

    (a) An associated person of an issuer of securities shall not be 
deemed to be a broker solely by reason of his participation in the sale 
of the securities of such issuer if the associated person:
    (1) Is not subject to a statutory disqualification, as that term is 
defined in section 3(a)(39) of the Act, at the time of his 
participation; and
    (2) Is not compensated in connection with his participation by the 
payment of commissions or other remuneration based either directly or 
indirectly on transactions in securities; and
    (3) Is not at the time of his participation an associated person of 
a broker or dealer; and
    (4) Meets the conditions of any one of paragraph (a)(4) (i), (ii), 
or (iii) of this section.
    (i) The associated person restricts his participation to 
transactions involving offers and sales of securities:
    (A) To a registered broker or dealer; a registered investment 
company (or registered separate account); an insurance company; a bank; 
a savings and loan association; a trust company or similar institution 
supervised by a state or federal banking authority; or a trust for which 
a bank, a savings and loan association, a trust company, or a registered 
investment adviser either is the trustee or is authorized in writing to 
make investment decisions; or
    (B) That are exempted by reason of section 3(a)(7), 3(a)(9) or 
3(a)(10) of the Securities Act of 1933 from the registration provisions 
of that Act; or
    (C) That are made pursuant to a plan or agreement submitted for the 
vote or consent of the security holders who will receive securities of 
the issuer in connection with a reclassification of securities of the 
issuer, a merger or consolidation or a similar plan of acquisition 
involving an exchange of securities, or a transfer of assets of any 
other person to the issuer in exchange for securities of the issuer; or
    (D) That are made pursuant to a bonus, profit-sharing, pension, 
retirement, thrift, savings, incentive, stock purchase, stock ownership, 
stock appreciation, stock option, dividend reinvestment or similar plan 
for employees of an issuer or a subsidiary of the issuer;
    (ii) The associated person meets all of the following conditions:
    (A) The associated person primarily performs, or is intended 
primarily to perform at the end of the offering, substantial duties for 
or on behalf of the issuer otherwise than in connection with 
transactions in securities; and
    (B) The associated person was not a broker or dealer, or an 
associated person of a broker or dealer, within the preceding 12 months; 
and
    (C) The associated person does not participate in selling an 
offering of securities for any issuer more than once every 12 months 
other than in reliance on paragraph (a)(4)(i) or (iii) of this section, 
except that for securities issued pursuant to rule 415 under the 
Securities Act of 1933, the 12 months shall begin with the last sale of 
any security included within one rule 415 registration.
    (iii) The associated person restricts his participation to any one 
or more of the following activities:
    (A) Preparing any written communication or delivering such 
communication through the mails or other means that does not involve 
oral solicitation by the associated person of a potential purchaser; 
Provided, however,

[[Page 28]]

that the content of such communication is approved by a partner, officer 
or director of the issuer;
    (B) Responding to inquiries of a potential purchaser in a 
communication initiated by the potential purchaser; Provided, however, 
That the content of such responses are limited to information contained 
in a registration statement filed under the Securities Act of 1933 or 
other offering document; or
    (C) Performing ministerial and clerical work involved in effecting 
any transaction.
    (b) No presumption shall arise that an associated person of an 
issuer has violated section 15(a) of the Act solely by reason of his 
participation in the sale of securities of the issuer if he does not 
meet the conditions specified in paragraph (a) of this section.
    (c) Definitions. When used in this section:
    (1) The term associated person of an issuer means any natural person 
who is a partner, officer, director, or employee of:
    (i) The issuer;
    (ii) A corporate general partner of a limited partnership that is 
the issuer;
    (iii) A company or partnership that controls, is controlled by, or 
is under common control with, the issuer; or
    (iv) An investment adviser registered under the Investment Advisers 
Act of 1940 to an investment company registered under the Investment 
Company Act of 1940 which is the issuer.
    (2) The term associated person of a broker or dealer means any 
partner, officer, director, or branch manager of such broker or dealer 
(or any person occupying a similar status or performing similar 
functions), any person directly or indirectly controlling, controlled 
by, or under common control with such broker or dealer, or any employee 
of such broker or dealer, except that any person associated with a 
broker or dealer whose functions are solely clerical or ministerial and 
any person who is required under the laws of any State to register as a 
broker or dealer in that State solely because such person is an issuer 
of securities or associated person of an issuer of securities shall not 
be included in the meaning of such term for purposes of this section.

[50 FR 27946, July 9, 1985]



Sec.Sec.240.3a4-2--240.3a4-6  [Reserved]



Sec.240.3a5-1  Exemption from the definition of ``dealer'' for a bank
engaged in riskless principal transactions.

    (a) A bank is exempt from the definition of the term ``dealer'' to 
the extent that it engages in or effects riskless principal transactions 
if the number of such riskless principal transactions during a calendar 
year combined with transactions in which the bank is acting as an agent 
for a customer pursuant to section 3(a)(4)(B)(xi) of the Act (15 U.S.C. 
78c(a)(4)(B)(xi)) during that same year does not exceed 500.
    (b) For purposes of this section, the term riskless principal 
transaction means a transaction in which, after having received an order 
to buy from a customer, the bank purchased the security from another 
person to offset a contemporaneous sale to such customer or, after 
having received an order to sell from a customer, the bank sold the 
security to another person to offset a contemporaneous purchase from 
such customer.

[68 FR 8700, Feb. 24, 2003]



Sec.240.3a5-2  Exemption from the definition of ``dealer'' for banks 
effecting transactions in securities issued pursuant to Regulation S.

    (a) A bank is exempt from the definition of the term ``dealer'' 
under section 3(a)(5) of the Act (15 U.S.C. 78c(a)(5)), to the extent 
that, in a riskless principal transaction, the bank:
    (1) Purchases an eligible security from an issuer or a broker-dealer 
and sells that security in compliance with the requirements of 17 CFR 
230.903 to a purchaser who is not in the United States;
    (2) Purchases from a person who is not a U.S. person under 17 CFR 
230.902(k) an eligible security after its initial sale with a reasonable 
belief that the eligible security was initially sold outside of the 
United States within the meaning of and in compliance with the 
requirements of 17 CFR 230.903, and resells that security to a purchaser 
who is not in the United

[[Page 29]]

States or to a registered broker or dealer, provided that if the resale 
is made prior to the expiration of any applicable distribution 
compliance period specified in 17 CFR 230.903(b)(2) or (b)(3), the 
resale is made in compliance with the requirements of 17 CFR 230.904; or
    (3) Purchases from a registered broker or dealer an eligible 
security after its initial sale with a reasonable belief that the 
eligible security was initially sold outside of the United States within 
the meaning of and in compliance with the requirements of 17 CFR 
230.903, and resells that security to a purchaser who is not in the 
United States, provided that if the resale is made prior to the 
expiration of any applicable distribution compliance period specified in 
17 CFR 230.903(b)(2) or (b)(3), the resale is made in compliance with 
the requirements of 17 CFR 230.904.
    (b) Definitions. For purposes of this section:
    (1) Distributor has the same meaning as in 17 CFR 230.902(d).
    (2) Eligible security means a security that:
    (i) Is not being sold from the inventory of the bank or an affiliate 
of the bank; and
    (ii) Is not being underwritten by the bank or an affiliate of the 
bank on a firm-commitment basis, unless the bank acquired the security 
from an unaffiliated distributor that did not purchase the security from 
the bank or an affiliate of the bank.
    (3) Purchaser means a person who purchases an eligible security and 
who is not a U.S. person under 17 CFR 230.902(k).
    (4) Riskless principal transaction means a transaction in which, 
after having received an order to buy from a customer, the bank 
purchased the security from another person to offset a contemporaneous 
sale to such customer or, after having received an order to sell from a 
customer, the bank sold the security to another person to offset a 
contemporaneous purchase from such customer.

[72 FR 56567, Oct. 3, 2007]



Sec.240.3a5-3  Exemption from the definition of ``dealer'' for banks
+engaging in securities lending transactions.

    (a) A bank is exempt from the definition of the term ``dealer'' 
under section 3(a)(5) of the Act (15 U.S.C. 78c(a)(5)), to the extent 
that, as a conduit lender, it engages in or effects securities lending 
transactions, and any securities lending services in connection with 
such transactions, with or on behalf of a person the bank reasonably 
believes to be:
    (1) A qualified investor as defined in section 3(a)(54)(A) of the 
Act (15 U.S.C. 78c(a)(54)(A)); or
    (2) Any employee benefit plan that owns and invests, on a 
discretionary basis, not less than $25,000,000 in investments.
    (b) Securities lending transaction means a transaction in which the 
owner of a security lends the security temporarily to another party 
pursuant to a written securities lending agreement under which the 
lender retains the economic interests of an owner of such securities, 
and has the right to terminate the transaction and to recall the loaned 
securities on terms agreed by the parties.
    (c) Securities lending services means:
    (1) Selecting and negotiating with a borrower and executing, or 
directing the execution of the loan with the borrower;
    (2) Receiving, delivering, or directing the receipt or delivery of 
loaned securities;
    (3) Receiving, delivering, or directing the receipt or delivery of 
collateral;
    (4) Providing mark-to-market, corporate action, recordkeeping or 
other services incidental to the administration of the securities 
lending transaction;
    (5) Investing, or directing the investment of, cash collateral; or
    (6) Indemnifying the lender of securities with respect to various 
matters.
    (d) For the purposes of this section, the term conduit lender means 
a bank that borrows or loans securities, as principal, for its own 
account, and contemporaneously loans or borrows the same securities, as 
principal, for its own account. A bank that qualifies

[[Page 30]]

under this definition as a conduit lender at the commencement of a 
transaction will continue to qualify, notwithstanding whether:
    (1) The lending or borrowing transaction terminates and so long as 
the transaction is replaced within one business day by another lending 
or borrowing transaction involving the same securities; and
    (2) Any substitutions of collateral occur.

[72 FR 56567, Oct. 3, 2007]

   Definition of ``Equity Security'' as Used in Sections 12(g) and 16



Sec.240.3a11-1  Definition of the term ``equity security.''

    The term equity security is hereby defined to include any stock or 
similar security, certificate of interest or participation in any profit 
sharing agreement, preorganization certificate or subscription, 
transferable share, voting trust certificate or certificate of deposit 
for an equity security, limited partnership interest, interest in a 
joint venture, or certificate of interest in a business trust; any 
security future on any such security; or any security convertible, with 
or without consideration into such a security, or carrying any warrant 
or right to subscribe to or purchase such a security; or any such 
warrant or right; or any put, call, straddle, or other option or 
privilege of buying such a security from or selling such a security to 
another without being bound to do so.

[67 FR 19673, Apr. 23, 2002]

                        Miscellaneous Exemptions



Sec.240.3a12-1  Exemption of certain mortgages and interests 
in mortgages.

    Mortgages, as defined in section 302(d) of the Emergency Home 
Finance Act of 1970, which are or have been sold by the Federal Home 
Loan Mortgage Corporation are hereby exempted from the operation of such 
provisions of the Act as by their terms do not apply to an ``exempted 
security'' or to ``exempted securities''.

(Sec.3(a)(12), 48 Stat. 882, 15 U.S.C. 78(c))

[37 FR 25167, Nov. 28, 1972]



Sec.240.3a12-2  [Reserved]



Sec.240.3a12-3  Exemption from sections 14(a), 14(b), 14(c), 14(f) 
and 16 for securities of certain foreign issuers.

    (a) Securities for which the filing of registration statements on 
Form 18 [17 CFR 249.218] are authorized shall be exempt from the 
operation of sections 14 and 16 of the Act.
    (b) Securities registered by a foreign private issuer, as defined in 
Rule 3b-4 (Sec.240.3b-4 of this chapter), shall be exempt from 
sections 14(a), 14(b), 14(c), 14(f) and 16 of the Act.

[44 FR 70137, Dec. 6, 1979, as amended at 47 FR 54780, Dec. 6, 1982; 56 
FR 30067, July 1, 1991]



Sec.240.3a12-4  Exemptions from sections 15(a) and 15(c)(3) for 
certain mortgage securities.

    (a) When used in this Rule the following terms shall have the 
meanings indicated:
    (1) The term whole loan mortgage means an evidence of indebtedness 
secured by mortgage, deed of trust, or other lien upon real estate or 
upon leasehold interests therein where the entire mortgage, deed or 
other lien is transferred with the entire evidence of indebtedness.
    (2) The term aggregated whole loan mortgage means two or more whole 
loan mortgages that are grouped together and sold to one person in one 
transaction.
    (3) The term participation interest means an undivided interest 
representing one of only two such interests in a whole loan mortgage or 
in an aggregated whole loan mortgage, provided that the other interest 
is retained by the originator of such participation interest.
    (4) The term commitment means a contract to purchase a whole loan 
mortgage, an aggregated whole loan mortgage or a participation interest 
which by its terms requires that the contract be fully executed within 2 
years.
    (5) The term mortgage security means a whole loan mortgage, an 
aggregated whole loan mortgage, a participation interest, or a 
commitment.
    (b) A mortgage security shall be deemed an ``exempted security'' for 
purposes of subsections (a) and (c)(3) of

[[Page 31]]

section 15 of the Act provided that, in the case of and at the time of 
any sale of the mortgage security by a broker or dealer, such mortgage 
security is not in default and has an unpaid principal amount of at 
least $50,000.

[39 FR 19945, June 5, 1974]



Sec.240.3a12-5  Exemption of certain investment contract securities 
from sections 7(c) and 11(d)(1).

    (a) An investment contract security involving the direct ownership 
of specified residential real property shall be exempted from the 
provisions of sections 7(c) and 11(d)(1) of the Act with respect to any 
transaction by a broker or dealer who, directly or indirectly, arranges 
for the extension or maintenance of credit on the security to or from a 
customer, if the credit:
    (1) Is secured by a lien, mortgage, deed of trust, or any other 
similar security interest related only to real property: Provided, 
however, That this provision shall not prevent a lender from requiring 
(i) a security interest in the common areas and recreational facilities 
or furniture and fixtures incidental to the investment contract if the 
purchase of such furniture and fixtures is required by, or subject to 
the approval of, the issuer, as a condition of purchase; or (ii) an 
assignment of future rentals in the event of default by the purchaser or 
a co-signer or guarantor on the debt obligation other than the issuer, 
its affiliates, or any broker or dealer offering such securities;
    (2) Is to be repaid by periodic payments of principal and interest 
pursuant to an amortization schedule established by the governing 
instruments: Provided, however, That this provision shall not prevent 
the extension of credit on terms which require the payment of interest 
only, if extended in compliance with the other provisions of this rule; 
and
    (3) Is extended by a lender which is not, directly or indirectly 
controlling, controlled by, or under common control with the broker or 
dealer or the issuer of the securities or affiliates thereof.
    (b) For purposes of this rule:
    (1) Residential real property shall mean real property containing 
living accommodations, whether used on a permanent or transient basis, 
and may include furniture or fixtures if required as a condition of 
purchase of the investment contract or if subject to the approval of the 
issuer.
    (2) Direct ownership shall mean ownership of a fee or leasehold 
estate or a beneficial interest in a trust the purchase of which, under 
applicable local law, is financed and secured by a security interest 
therein similar to a mortgage or deed of trust, but it shall not include 
an interest in a real estate investment trust, an interest in a general 
or limited partnership, or similar indirect interest in the ownership of 
real property.

(Sec.3(a)(12), 48 Stat. 882, as amended 84 Stat. 718, 1435, 1499 (15 
U.S.C. 78c(12)); Sec.7(c), 48 Stat. 886, as amended 82 Stat. 452 (15 
U.S.C. 78g(c)); Sec.11(d)(1), 48 Stat. 891 as amended 68 Stat. 636 (15 
U.S.C. 78k(d)(1)); Sec.15(c), 48 Stat. 895, as amended 52 Stat. 1075, 
84 Stat. 1653 (15 U.S.C. 78o(c)); Sec.23(a), 48 Stat. 901, as amended 
49 Stat. 704, 1379 (15 U.S.C. 78w(a)))

[40 FR 6646, Feb. 13, 1975]



Sec.240.3a12-6  Definition of ``common trust fund'' as used in
section 3(a)(12) of the Act.

    The term common trust fund as used in section 3(a)(12) of the Act 
(15 U.S.C. 78c(a)(12)) shall include a common trust fund which is 
maintained by a bank which is a member of an affiliated group, as 
defined in section 1504(a) of the Internal Revenue Code of 1954 (26 
U.S.C. 1504(a)), and which is maintained exclusively for the collective 
investment and reinvestment of monies contributed thereto by one or more 
bank members of such affiliated group in the capacity of trustee, 
executor, administrator, or guardian; Provided, That:
    (a) The common trust fund is operated in compliance with the same 
state and federal regulatory requirements as would apply if the bank 
maintaining such fund and any other contributing banks were the same 
entity; and
    (b) The rights of persons for whose benefit a contributing bank acts 
as trustee, executor, administrator, or guardian would not be diminished 
by

[[Page 32]]

reason of the maintenance of such common trust fund by another bank 
member of the affiliated group.

(15 U.S.C. 78c(b))

[43 FR 2392, Jan. 17, 1978]



Sec.240.3a12-7  Exemption for certain derivative securities traded 
otherwise than on a national securities exchange.

    Any put, call, straddle, option, or privilege traded exclusively 
otherwise than on a national securities exchange and for which 
quotations are not disseminated through an automated quotation system of 
a registered securities association, which relates to any securities 
which are direct obligations of, or obligations guaranteed as to 
principal or interest by, the United States, or securities issued or 
guaranteed by a corporation in which the United States has a direct or 
indirect interest as shall be designated for exemption by the Secretary 
of the Treasury pursuant to section 3(a)(12) of the Act, shall be exempt 
from all provisions of the Act which by their terms do not apply to any 
``exempted security'' or ``exempted securities,'' provided that the 
securities underlying such put, call, straddle, option or privilege 
represent an obligation equal to or exceeding $250,000 principal amount.

(15 U.S.C. 78a et seq., and particularly secs. 3(a)(12), 15(a)(2) and 
23(a) (15 U.S.C. 78c(a)(12), 78o(a)(2) and 78w(a)))

[49 FR 5073, Feb. 10, 1984]



Sec.240.3a12-8  Exemption for designated foreign government 
securities for purposes of futures trading.

    (a) When used in this Rule, the following terms shall have the 
meaning indicated:
    (1) The term designated foreign government security shall mean a 
security not registered under the Securities Act of 1933 nor the subject 
of any American depositary receipt so registered, and representing a 
debt obligation of the government of
    (i) The United Kingdom of Great Britain and Northern Ireland;
    (ii) Canada;
    (iii) Japan;
    (iv) The Commonwealth of Australia;
    (v) The Republic of France;
    (vi) New Zealand;
    (vii) The Republic of Austria;
    (viii) The Kingdom of Denmark;
    (ix) The Republic of Finland;
    (x) The Kingdom of the Netherlands;
    (xi) Switzerland;
    (xii) The Federal Republic of Germany;
    (xiii) The Republic of Ireland;
    (xiv) The Republic of Italy;
    (xv) The Kingdom of Spain;
    (xvi) The United Mexican States;
    (xvii) The Federative Republic of Brazil;
    (xviii) The Republic of Argentina;
    (xix) The Republic of Venezuela;
    (xx) The Kingdom of Belgium; or
    (xxi) The Kingdom of Sweden.
    (2) The term qualifying foreign futures contracts shall mean any 
contracts for the purchase or sale of a designated foreign government 
security for future delivery, as ``future delivery'' is defined in 7 
U.S.C. 2, provided such contracts require delivery outside the United 
States, any of its possessions or territories, and are traded on or 
through a board of trade, as defined at 7 U.S.C. 2.
    (b) Any designated foreign government security shall, for purposes 
only of the offer, sale or confirmation of sale of qualifying foreign 
futures contracts, be exempted from all provisions of the Act which by 
their terms do not apply to an ``exempted security'' or ``exempted 
securities.''

(15 U.S.C. 78a et seq., and particularly secs. 3(a)(12), and 23(a) 15 
U.S.C. 78c(a)(12), and 78w(a))

[49 FR 8599, Mar. 8, 1984, as amended at 51 FR 25998, July 18, 1986; 52 
FR 8877, Mar. 20, 1987; 52 FR 42279, Nov. 4, 1987; 53 FR 43863, Oct. 31, 
1988; 57 FR 1378, Jan. 14, 1992; 59 FR 54815, Nov. 2, 1994; 60 FR 62326, 
Dec. 6, 1995; 61 FR 10274, Mar. 13, 1996; 64 FR 10567, Mar. 5, 1999; 64 
FR 29553, June 2, 1999]



Sec.240.3a12-9  Exemption of certain direct participation program
securities from the arranging provisions of sections 7(c) and 11(d)(1).

    (a) Direct participation program securities sold on a basis whereby 
the purchase price is paid to the issuer in one or more mandatory 
deferred payments shall be deemed to be exempted securities for purposes 
of the arranging provisions of sections 7(c) and 11(d)(1) of the Act, 
provided that:

[[Page 33]]

    (1) The securities are registered under the Securities Act of 1933 
or are sold or offered exclusively on an intrastate basis in reliance 
upon section 3(a)(11) of that Act;
    (2) The mandatory deferred payments bear a reasonable relationship 
to the capital needs and program objectives described in a business 
development plan disclosed to investors in a registration statement 
filed with the Commission under the Securities Act of 1933 or, where no 
registration statement is required to be filed with the Commission, as 
part of a statement filed with the relevant state securities 
administrator;
    (3) Not less than 50 percent of the purchase price of the direct 
participation program security is paid by the investor at the time of 
sale;
    (4) The total purchase price of the direct participation program 
security is due within three years in specified property programs or two 
years in non-specified property programs. Such pay-in periods are to be 
measured from the earlier of the completion of the offering or one year 
following the effective date of the offering.
    (b) For purposes of this rule:
    (1) Direct participation program shall mean a program financed 
through the sale of securities, other than securities that are listed on 
an exchange, quoted on NASDAQ, or will otherwise be actively traded 
during the pay-in period as a result of efforts by the issuer, 
underwriter, or other participants in the initial distribution of such 
securities, that provides for flow-through tax consequences to its 
investors; Provided, however, That the term ``direct participation 
program'' does not include real estate investment trusts, Subchapter S 
corporate offerings, tax qualified pension and profit sharing plans 
under sections 401 and 403(a) of the Internal Revenue Code (``Code''), 
tax shelter annuities under section 403(b) of the Code, individual 
retirement plans under section 408 of the Code, and any issuer, 
including a separate account, that is registered under the Investment 
Company Act of 1940.
    (2) Business development plan shall mean a specific plan describing 
the program's anticipated economic development and the amounts of future 
capital contributions, in the form of mandatory deferred payments, to be 
required at specified times or upon the occurrence of certain events.
    (3) Specified property program shall mean a direct participation 
program in which, at the date of effectiveness, more than 75 percent of 
the net proceeds from the sale of program securities are committed to 
specific purchases or expenditures. Non-specified property program shall 
mean any other direct participation program.

[51 FR 8801, Mar. 14, 1986]



Sec.240.3a12-10  Exemption of certain securities issued by the
Resolution Funding Corporation.

    Securities that are issued by the Resolution Funding Corporation 
pursuant to section 21B(f) of the Federal Home Loan Bank Act (12 U.S.C. 
1421 et seq.) are exempt from the operation of all provisions of the Act 
that by their terms do not apply to any ``exempted security'' or to 
``exempted securities.''

[54 FR 37789, Sept. 13, 1989]



Sec.240.3a12-11  Exemption from sections 8(a), 14(a), 14(b), and 14(c
for debt securities listed on a national securities exchange.

    (a) Debt securities that are listed for trading on a national 
securities exchange shall be exempt from the restrictions on borrowing 
of section 8(a) of the Act (15 U.S.C. 78h(a)).
    (b) Debt securities registered pursuant to the provisions of section 
12(b) of the Act (15 U.S.C. 78l(b)) shall be exempt from sections 14(a), 
14(b), and 14(c) of the Act (15 U.S.C. 78n(a), (b), and (c)), except 
that Sec.Sec.240.14a-1, 240.14a-2(a), 240.14a-9, 240.14a-13, 240.14b-
1, 240.14b-2, 240.14c-1, 240.14c-6 and 240.14c-7 shall continue to 
apply.
    (c) For purposes of this section, debt securities is defined to mean 
any securities that are not ``equity securities'' as defined in section 
3(a)(11) of the Act (15 U.S.C. 78c(a)(11)) and Sec.240.3a11-1 
thereunder.

[59 FR 55347, Nov. 7, 1994]

[[Page 34]]



Sec.240.3a12-12  Exemption from certain provisions of section 16
of the Act for asset-backed securities.

    Asset-backed securities, as defined in Sec.229.1101 of this 
chapter, are exempt from section 16 of the Act (15 U.S.C. 78p).

[70 FR 1620, Jan. 7, 2005]



Sec.240.3a40-1  Designation of financial responsibility rules.

    The term financial responsibility rules for purposes of the 
Securities Investor Protection Act of 1970 shall include:
    (a) Any rule adopted by the Commission pursuant to sections 8, 
15(c)(3), 17(a) or 17(e)(1)(A) of the Securities Exchange Act of 1934;
    (b) Any rule adopted by the Commission relating to hypothecation or 
lending of customer securities;
    (c) Any rule adopted by any self-regulatory organization relating to 
capital, margin, recordkeeping, hypothecation or lending requirements; 
and
    (d) Any other rule adopted by the Commission or any self-regulatory 
organization relating to the protection of funds or securities.

(Secs. 3, 15(c)(3), 17(a) and 23 (15 U.S.C. 78c, 78o, 78q(a) and 78u))

[44 FR 28318, May 15, 1979]



Sec.240.3a43-1  Customer-related government securities activities 
incidental to the futures-related business of a futures commission 
merchant registered with the Commodity Futures Trading Commission.
          

    (a) A futures commission merchant registered with the Commodity 
Futures Trading Commission (``CFTC'') is not a government securities 
broker or government securities dealer solely because such futures 
commission merchant effects transactions in government securities that 
are defined in paragraph (b) of this section as incidental to such 
person's futures-related business.
    (b) Provided that the futures commission merchant maintains in a 
regulated account all funds and securities associated with such 
government securities transactions (except funds and securities 
associated with transactions under paragraph (b)(1)(i) of this section 
and does not advertise that it is in the business of effecting 
transactions in government securities otherwise than in connection with 
futures or options on futures trading or the investment of margin or 
excess funds related to such trading or the trading of any other 
instrument subject to CFTC jurisdiction, the following transactions in 
government securities are incidental to the futures-related business of 
such a futures commission merchant:
    (1) Transactions as agent for a customer--
    (i) To effect delivery pursuant to a futures contract; or
    (ii) For risk reduction or arbitrage of existing or 
contemporaneously created postions in futures or options on futures;
    (2) Transactions as agent for a customer for investment of margin 
and excess funds related to futures or options on futures trading or the 
trading of other instruments subject to CFTC jurisdiction, provided 
further that,
    (i) Such transactions involve Treasury securities with a maturity of 
less than 93 days at the time of the transation.
    (ii) Such transactions generate no monetary profit for the futures 
commission merchant in excess of the costs of executing such 
transactions, or
    (iii) Such transactions are unsolicited, and commissions and other 
income generated on transactions pursuant to this paragraph (b)(2)(iii) 
(including transactional fees paid by the futures commission merchant 
and charged to its customer) do not exceed 2% of such futures commission 
merchant's total commission revenues;
    (3) Exchange of futures for physicals transactions as agent for or 
as principal with a customer; and
    (4) Any transaction or transactions that the Commission exempts, 
either unconditionally or on specified terms and conditions, as 
incidental to the futures-related business of a specified futures 
commission merchant, a specified category of futures commission 
merchants, or futures commission merchants generally.
    (c) Definitions. (1) Customer means any person for whom the futures 
commission merchant effects or intends to effect transactions in 
futures, options

[[Page 35]]

on futures, or any other instruments subject to CFTC jurisdiction.
    (2) Regulated account means a customer segregation account subject 
to the regulations of the CFTC; provided, however, that, where such 
regulations do not permit to be maintained in such an account or require 
to be maintained in a separate regulated account funds or securities in 
proprietary accounts or funds or securities used as margin for or excess 
funds related to futures contracts, options on futures or any other 
instruments subject to CFTC jurisdiction that trade outside the United 
States, its territories, or possessions, the term regulated account 
means such separate regulated account or any other account subject to 
record-keeping regulations of the CFTC.
    (3) Unsolicited transaction means a transaction that is not effected 
in a discretionary account or recommended to a customer by the futures 
commission merchant, an associated person of a futures commission 
merchant, a business affiliate that is controlled by, controlling, or 
under common control with the futures commission merchant, or an 
introducing broker that is guaranteed by the futures commission 
merchant.
    (4) Futures and futures contracts mean contracts of sale of a 
commodity for future delivery traded on or subject to the rules of a 
contract market designated by the CFTC or traded on or subject to the 
rules of any board of trade located outside the United States, its 
territories, or possessions.
    (5) Options on futures means puts or calls on a futures contract 
traded on or subject to the rules of a contract market designated by the 
CFTC or traded or subject to the rules of any board of trade located 
outside the United States, its territories, or possessions.

[52 FR 27969, July 24, 1987]



Sec.240.3a44-1  Proprietary government securities transactions 
incidental to the futures-related business of a CFTC-regulated
person.

    (a) A person registered with the Commodity Futures Trading 
Commission (``CFTC''), a contract market designated by the CFTC, such a 
contract market's affiliated clearing organization, or any floor trader 
or such a contract market (hereinafter referred to collectively as a 
``CFTC-regulated person'') is not a government securities dealer solely 
because such person effects transactions for its own account in 
government securities that are defined in paragraph (b) of this section 
as incidental to such person's futures-related business.
    (b) Provided that a CFTC-regulated person does not advertise or 
otherwise hold itself out as a government securities dealer except as 
permitted under rule 3a43-1 (Sec.240.3a43-1) the following 
transactions in government securities for its own account are incidental 
to the futures-related business of such a CFTC-regulated person:
    (1) Transactions to effect delivery of a government security 
pursuant to a futures contract;
    (2) Exchange of futures for physicals transactions with (i) a 
government securities broker or government securities dealer that has 
registered with the Commission or filed notice pursuant to section 
15C(a) of the Act or (ii) a CFTC-regulated person;
    (3) Transactions (including repurchase agreements and reverse 
repurchase agreements) involving segregated customer funds and 
securities or funds and securities held by a clearing organization with 
(i) a government securities broker or government securities dealer that 
has registered with the Commission of filed notice pursuant to section 
15C(a) of the Act or (ii) a bank;
    (4) Transactions for risk reduction or arbitrage of existing or 
contemporaneously created positions in futures or options on futures 
with (i) a government securities broker or government securities dealer 
that has registered with the Commission or filed notice pursuant to 
section 15C(a) of the Act or (ii) a CFTC-regulated person;
    (5) Repurchase and reverse repurchase agreement transactions between 
a futures commission merchant acting in a proprietary capacity and 
another CFTC-regulated person acting in a proprietary capacity and 
contemporaneous offsetting transactions between such a futures 
commission merchant and (i) a government securities broker or government 
securities dealer that has registered with the Commission or

[[Page 36]]

filed notice pursuant to section 15C(a) of the Act, (ii) a bank, or 
(iii) a CFTC-regulated person acting in a proprietary capacity; and
    (6) Any transaction or transactions that the Commission exempts, 
either unconditionally or on specified terms and conditions, as 
incidental to the futures related business of a specified CFTC-regulated 
person, a specified category of CFTC-regulated persons, or CFTC-
regulated persons generally.
    (c) Definitions--(1) Segregated customer funds means funds subject 
to CFTC segregation requirements.
    (2) Futures and futures contracts means contracts of sale of a 
commodity for future delivery traded on or subject to the rules of a 
contract market designated by the CFTC or traded on or subject to the 
rules of any board of trade located outside the United States, its 
territories, or possessions.
    (3) Options on futures means puts or calls on a futures contract 
traded on or subject to the rules of a contract market designated by the 
CFTC or traded on or subject to the rules of any board of trade located 
outside the United States, its territories, or possessions.

[52 FR 27970, July 24, 1987]



Sec.240.3a51-1  Definition of ``penny stock''.

    For purposes of section 3(a)(51) of the Act, the term ``penny 
stock'' shall mean any equity security other than a security:
    (a) That is an NMS stock, as defined in Sec.242.600(b)(48), 
provided that:
    (1) The security is registered, or approved for registration upon 
notice of issuance, on a national securities exchange that has been 
continuously registered as a national securities exchange since April 
20, 1992 (the date of the adoption of Rule 3a51-1 (Sec.240.3a51-1) by 
the Commission); and the national securities exchange has maintained 
quantitative listing standards that are substantially similar to or 
stricter than those listing standards that were in place on that 
exchange on January 8, 2004; or
    (2) The security is registered, or approved for registration upon 
notice of issuance, on a national securities exchange, or is listed, or 
approved for listing upon notice of issuance on, an automated quotation 
system sponsored by a registered national securities association, that:
    (i) Has established initial listing standards that meet or exceed 
the following criteria:
    (A) The issuer shall have:
    (1) Stockholders' equity of $5,000,000;
    (2) Market value of listed securities of $50 million for 90 
consecutive days prior to applying for the listing (market value means 
the closing bid price multiplied by the number of securities listed); or
    (3) Net income of $750,000 (excluding non-recurring items) in the 
most recently completed fiscal year or in two of the last three most 
recently completed fiscal years;
    (B) The issuer shall have an operating history of at least one year 
or a market value of listed securities of $50 million (market value 
means the closing bid price multiplied by the number of securities 
listed);
    (C) The issuer's stock, common or preferred, shall have a minimum 
bid price of $4 per share;
    (D) In the case of common stock, there shall be at least 300 round 
lot holders of the security (a round lot holder means a holder of a 
normal unit of trading);
    (E) In the case of common stock, there shall be at least 1,000,000 
publicly held shares and such shares shall have a market value of at 
least $5 million (market value means the closing bid price multiplied by 
number of publicly held shares, and shares held directly or indirectly 
by an officer or director of the issuer and by any person who is the 
beneficial owner of more than 10 percent of the total shares outstanding 
are not considered to be publicly held);
    (F) In the case of a convertible debt security, there shall be a 
principal amount outstanding of at least $10 million;
    (G) In the case of rights and warrants, there shall be at least 
100,000 issued and the underlying security shall be registered on a 
national securities exchange or listed on an automated quotation system 
sponsored by a registered national securities association and shall 
satisfy the requirements of paragraph (a) or (e) of this section;

[[Page 37]]

    (H) In the case of put warrants (that is, instruments that grant the 
holder the right to sell to the issuing company a specified number of 
shares of the company's common stock, at a specified price until a 
specified period of time), there shall be at least 100,000 issued and 
the underlying security shall be registered on a national securities 
exchange or listed on an automated quotation system sponsored by a 
registered national securities association and shall satisfy the 
requirements of paragraph (a) or (e) of this section;
    (I) In the case of units (that is, two or more securities traded 
together), all component parts shall be registered on a national 
securities exchange or listed on an automated quotation system sponsored 
by a registered national securities association and shall satisfy the 
requirements of paragraph (a) or (e) of this section; and
    (J) In the case of equity securities (other than common and 
preferred stock, convertible debt securities, rights and warrants, put 
warrants, or units), including hybrid products and derivative securities 
products, the national securities exchange or registered national 
securities association shall establish quantitative listing standards 
that are substantially similar to those found in paragraphs (a)(2)(i)(A) 
through (a)(2)(i)(I) of this section; and
    (ii) Has established quantitative continued listing standards that 
are reasonably related to the initial listing standards set forth in 
paragraph (a)(2)(i) of this section, and that are consistent with the 
maintenance of fair and orderly markets;
    (b) That is issued by an investment company registered under the 
Investment Company Act of 1940;
    (c) That is a put or call option issued by the Options Clearing 
Corporation;
    (d) Except for purposes of section 7(b) of the Securities Act and 
Rule 419 (17 CFR 230.419), that has a price of five dollars or more;
    (1) For purposes of paragraph (d) of this section:
    (i) A security has a price of five dollars or more for a particular 
transaction if the security is purchased or sold in that transaction at 
a price of five dollars or more, excluding any broker or dealer 
commission, commission equivalent, mark-up, or mark-down; and
    (ii) Other than in connection with a particular transaction, a 
security has a price of five dollars or more at a given time if the 
inside bid quotation is five dollars or more; provided, however, that if 
there is no such inside bid quotation, a security has a price of five 
dollars or more at a given time if the average of three or more 
interdealer bid quotations at specified prices displayed at that time in 
an interdealer quotation system, as defined in 17 CFR 240.15c2-7(c)(1), 
by three or more market makers in the security, is five dollars or more.
    (iii) The term ``inside bid quotation'' shall mean the highest bid 
quotation for the security displayed by a market maker in the security 
on an automated interdealer quotation system that has the 
characteristics set forth in section 17B(b)(2) of the Act, or such other 
automated interdealer quotation system designated by the Commission for 
purposes of this section, at any time in which at least two market 
makers are contemporaneously displaying on such system bid and offer 
quotations for the security at specified prices.
    (2) If a security is a unit composed of one or more securities, the 
unit price divided by the number of shares of the unit that are not 
warrants, options, rights, or similar securities must be five dollars or 
more, as determined in accordance with paragraph (d)(1) of this section, 
and any share of the unit that is a warrant, option, right, or similar 
security, or a convertible security, must have an exercise price or 
conversion price of five dollars or more;
    (e)(1) That is registered, or approved for registration upon notice 
of issuance, on a national securities exchange that makes transaction 
reports available pursuant to Sec.242.601, provided that:
    (i) Price and volume information with respect to transactions in 
that security is required to be reported on a current and continuing 
basis and is made available to vendors of market information pursuant to 
the rules of the national securities exchange;
    (ii) The security is purchased or sold in a transaction that is 
effected on or

[[Page 38]]

through the facilities of the national securities exchange, or that is 
part of the distribution of the security; and
    (iii) The security satisfies the requirements of paragraph (a)(1) or 
(a)(2) of this section;
    (2) A security that satisfies the requirements of this paragraph 
(e), but does not otherwise satisfy the requirements of paragraph (a), 
(b), (c), (d), (f), or (g) of this section, shall be a penny stock for 
purposes of section 15(b)(6) of the Act (15 U.S.C. 78o(b)(6));
    (f) That is a security futures product listed on a national 
securities exchange or an automated quotation system sponsored by a 
registered national securities association; or
    (g) Whose issuer has:
    (1) Net tangible assets (i.e., total assets less intangible assets 
and liabilities) in excess of $2,000,000, if the issuer has been in 
continuous operation for at least three years, or $5,000,000, if the 
issuer has been in continuous operation for less than three years; or
    (2) Average revenue of at least $6,000,000 for the last three years.
    (3) For purposes of paragraph (g) of this section, net tangible 
assets or average revenues must be demonstrated by financial statements 
dated less than fifteen months prior to the date of the transaction that 
the broker or dealer has reviewed and has a reasonable basis for 
believing are accurate in relation to the date of the transaction, and:
    (i) If the issuer is other than a foreign private issuer, are the 
most recent financial statements for the issuer that have been audited 
and reported on by an independent public accountant in accordance with 
the provisions of 17 CFR 210.2-02; or
    (ii) If the issuer is a foreign private issuer, are the most recent 
financial statements for the issuer that have been filed with the 
Commission or furnished to the Commission pursuant to 17 CFR 240.12g3-
2(b); provided, however, that if financial statements for the issuer 
dated less than fifteen months prior to the date of the transaction have 
not been filed with or furnished to the Commission, financial statements 
dated within fifteen months prior to the transaction shall be prepared 
in accordance with generally accepted accounting principles in the 
country of incorporation, audited in compliance with the requirements of 
that jurisdiction, and reported on by an accountant duly registered and 
in good standing in accordance with the regulations of that 
jurisdiction.
    (4) The broker or dealer shall preserve, as part of its records, 
copies of the financial statements required by paragraph (g)(3) of this 
section for the period specified in 17 CFR 240.17a-4(b).

[57 FR 18032, Apr. 28, 1992, as amended at 58 FR 58101, Oct. 29, 1993; 
70 FR 40631, July 13, 2005; 70 FR 46090, Aug. 9, 2005; 83 FR 50221, Oct. 
4, 2018; 83 FR 58427, Nov. 19, 2018]



Sec.240.3a55-1  Method for determining market capitalization and
dollar value of average daily trading volume; application of the 
definition of narrow-based security index.
          

    (a) Market capitalization. For purposes of Section 
3(a)(55)(C)(i)(III)(bb) of the Act (15 U.S.C. 
78c(a)(55)(C)(i)(III)(bb)):
    (1) On a particular day, a security shall be 1 of 750 securities 
with the largest market capitalization as of the preceding 6 full 
calendar months when it is included on a list of such securities 
designated by the Commission and the CFTC as applicable for that day.
    (2) In the event that the Commission and the CFTC have not 
designated a list under paragraph (a)(1) of this section:
    (i) The method to be used to determine market capitalization of a 
security as of the preceding 6 full calendar months is to sum the values 
of the market capitalization of such security for each U.S. trading day 
of the preceding 6 full calendar months, and to divide this sum by the 
total number of such trading days.
    (ii) The 750 securities with the largest market capitalization shall 
be identified from the universe of all NMS securities as defined in 
Sec.242.600 of this chapter that are common stock or depositary 
shares.
    (b) Dollar value of ADTV. (1) For purposes of Section 3(a)(55)(B) of 
the Act (15 U.S.C. 78c(a)(55)(B)):
    (i)(A) The method to be used to determine the dollar value of ADTV 
of a security is to sum the dollar value of ADTV of all reported 
transactions in such security in each jurisdiction as

[[Page 39]]

calculated pursuant to paragraphs (b)(1)(ii) and (iii).
    (B) The dollar value of ADTV of a security shall include the value 
of all reported transactions for such security and for any depositary 
share that represents such security.
    (C) The dollar value of ADTV of a depositary share shall include the 
value of all reported transactions for such depositary share and for the 
security that is represented by such depositary share.
    (ii) For trading in a security in the United States, the method to 
be used to determine the dollar value of ADTV as of the preceding 6 full 
calendar months is to sum the value of all reported transactions in such 
security for each U.S. trading day during the preceding 6 full calendar 
months, and to divide this sum by the total number of such trading days.
    (iii)(A) For trading in a security in a jurisdiction other than the 
United States, the method to be used to determine the dollar value of 
ADTV as of the preceding 6 full calendar months is to sum the value in 
U.S. dollars of all reported transactions in such security in such 
jurisdiction for each trading day during the preceding 6 full calendar 
months, and to divide this sum by the total number of trading days in 
such jurisdiction during the preceding 6 full calendar months.
    (B) If the value of reported transactions used in calculating the 
ADTV of securities under paragraph (b)(1)(iii)(A) is reported in a 
currency other than U.S. dollars, the total value of each day's 
transactions in such currency shall be converted into U.S. dollars on 
the basis of a spot rate of exchange for that day obtained from at least 
one independent entity that provides or disseminates foreign exchange 
quotations in the ordinary course of its business.
    (iv) The dollar value of ADTV of the lowest weighted 25% of an index 
is the sum of the dollar value of ADTV of each of the component 
securities comprising the lowest weighted 25% of such index.
    (2) For purposes of Section 3(a)(55)(C)(i)(III)(cc) of the Act (15 
U.S.C. 78c(a)(55)(C)(i)(III)(cc)):
    (i) On a particular day, a security shall be 1 of 675 securities 
with the largest dollar value of ADTV as of the preceding 6 full 
calendar months when it is included on a list of such securities 
designated by the Commission and the CFTC as applicable for that day.
    (ii) In the event that the Commission and the CFTC have not 
designated a list under paragraph (b)(2) of this section:
    (A) The method to be used to determine the dollar value of ADTV of a 
security as of the preceding 6 full calendar months is to sum the value 
of all reported transactions in such security in the United States for 
each U.S. trading day during the preceding 6 full calendar months, and 
to divide this sum by the total number of such trading days.
    (B) The 675 securities with the largest dollar value of ADTV shall 
be identified from the universe of all NMS securities as defined in 
Sec.242.600 of this chapter that are common stock or depositary 
shares.
    (c) Depositary Shares and Section 12 Registration. For purposes of 
Section 3(a)(55)(C) of the Act (15 U.S.C. 78c(a)(55)(C)), the 
requirement that each component security of an index be registered 
pursuant to Section 12 of the Act (15 U.S.C. 78l) shall be satisfied 
with respect to any security that is a depositary share if the deposited 
securities underlying the depositary share are registered pursuant to 
Section 12 of the Act and the depositary share is registered under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.) on Form F-6 (17 CFR 
239.36).
    (d) Definitions. For purposes of this section:
    (1) CFTC means Commodity Futures Trading Commission.
    (2) Closing price of a security means:
    (i) If reported transactions in the security have taken place in the 
United States, the price at which the last transaction in such security 
took place in the regular trading session of the principal market for 
the security in the United States.
    (ii) If no reported transactions in a security have taken place in 
the United States, the closing price of such security shall be the 
closing price of any

[[Page 40]]

depositary share representing such security divided by the number of 
shares represented by such depositary share.
    (iii) If no reported transactions in a security or in a depositary 
share representing such security have taken place in the United States, 
the closing price of such security shall be the price at which the last 
transaction in such security took place in the regular trading session 
of the principal market for the security. If such price is reported in a 
currency other than U.S. dollars, such price shall be converted into 
U.S. dollars on the basis of a spot rate of exchange relevant for the 
time of the transaction obtained from at least one independent entity 
that provides or disseminates foreign exchange quotations in the 
ordinary course of its business.
    (3) Depositary share has the same meaning as in Sec.240.12b-2.
    (4) Foreign financial regulatory authority has the same meaning as 
in Section 3(a)(52) of the Act (15 U.S.C. 78c(a)(52)).
    (5) Lowest weighted 25% of an index. With respect to any particular 
day, the lowest weighted component securities comprising, in the 
aggregate, 25% of an index's weighting for purposes of Section 
3(a)(55)(B)(iv) of the Act (15 U.S.C. 78c(a)(55)(B)(iv)) (``lowest 
weighted 25% of an index'') means those securities:
    (i) That are the lowest weighted securities when all the securities 
in such index are ranked from lowest to highest based on the index's 
weighting methodology; and
    (ii) For which the sum of the weight of such securities is equal to, 
or less than, 25% of the index's total weighting.
    (6) Market capitalization of a security on a particular day:
    (i) If the security is not a depositary share, is the product of:
    (A) The closing price of such security on that same day; and
    (B) The number of outstanding shares of such security on that same 
day.
    (ii) If the security is a depositary share, is the product of:
    (A) The closing price of the depositary share on that same day 
divided by the number of deposited securities represented by such 
depositary share; and
    (B) The number of outstanding shares of the security represented by 
the depositary share on that same day.
    (7) Outstanding shares of a security means the number of outstanding 
shares of such security as reported on the most recent Form 10-K, Form 
10-Q, Form 10-KSB, Form 10-QSB, or Form 20-F (17 CFR 249.310, 249.308a, 
249.310b, 249.308b, or 249.220f) filed with the Commission by the issuer 
of such security, including any change to such number of outstanding 
shares subsequently reported by the issuer on a Form 8-K (17 CFR 
249.308).
    (8) Preceding 6 full calendar months means, with respect to a 
particular day, the period of time beginning on the same day of the 
month 6 months before and ending on the day prior to such day.
    (9) Principal market for a security means the single securities 
market with the largest reported trading volume for the security during 
the preceding 6 full calendar months.
    (10) Reported transaction means:
    (i) With respect to securities transactions in the United States, 
any transaction for which a transaction report is collected, processed, 
and made available pursuant to an effective transaction reporting plan, 
or for which a transaction report, last sale data, or quotation 
information is disseminated through an automated quotation system as 
described in Section 3(a)(51)(A)(ii) of the Act (15 U.S.C. 
78c(a)(51)(A)(ii); and
    (ii) With respect to securities transactions outside the United 
States, any transaction that has been reported to a foreign financial 
regulatory authority in the jurisdiction where such transaction has 
taken place.
    (11) U.S. trading day means any day on which a national securities 
exchange is open for trading.
    (12) Weighting of a component security of an index means the 
percentage of such index's value represented, or accounted for, by such 
component security.

[66 FR 44514, Aug. 23, 2001, as amended at 70 FR 43750, July 29, 2005]

[[Page 41]]



Sec.240.3a55-2  Indexes underlying futures contracts trading for 
fewer than 30 days.

    (a) An index on which a contract of sale for future delivery is 
trading on a designated contract market, registered derivatives 
transaction execution facility, or foreign board of trade is not a 
narrow-based security index under Section 3(a)(55) of the Act (15 U.S.C. 
78c(a)(55)) for the first 30 days of trading, if:
    (1) Such index would not have been a narrow-based security index on 
each trading day of the preceding 6 full calendar months with respect to 
a date no earlier than 30 days prior to the commencement of trading of 
such contract;
    (2) On each trading day of the preceding 6 full calendar months with 
respect to a date no earlier than 30 days prior to the commencement of 
trading such contract:
    (i) Such index had more than 9 component securities;
    (ii) No component security in such index comprised more than 30 
percent of the index's weighting;
    (iii) The 5 highest weighted component securities in such index did 
not comprise, in the aggregate, more than 60 percent of the index's 
weighting; and
    (iv) The dollar value of the trading volume of the lowest weighted 
25% of such index was not less than $50 million (or in the case of an 
index with 15 or more component securities, $30 million); or
    (3) On each trading day of the preceding 6 full calendar months, 
with respect to a date no earlier than 30 days prior to the commencement 
of trading such contract:
    (i) Such index had at least 9 component securities;
    (ii) No component security in such index comprised more than 30 
percent of the index's weighting; and
    (iii) Each component security in such index was:
    (A) Registered pursuant to Section 12 of the Act (15 U.S.C. 78) or 
was a depositary share representing a security registered pursuant to 
Section 12 of the Act;
    (B) 1 of 750 securities with the largest market capitalization that 
day; and
    (C) 1 of 675 securities with the largest dollar value of trading 
volume that day.
    (b) An index that is not a narrow-based security index for the first 
30 days of trading pursuant to paragraph (a) of this section, shall 
become a narrow-based security index if such index has been a narrow-
based security index for more than 45 business days over 3 consecutive 
calendar months.
    (c) An index that becomes a narrow-based security index solely 
because it was a narrow-based security index for more than 45 business 
days over 3 consecutive calendar months pursuant to paragraph (b) of 
this section shall not be a narrow-based security index for the 
following 3 calendar months.
    (d) Definitions. For purposes of this section:
    (1) Market capitalization has the same meaning as in Sec.240.3a55-
1(d)(6).
    (2) Dollar value of trading volume of a security on a particular day 
is the value in U.S. dollars of all reported transactions in such 
security on that day. If the value of reported transactions used in 
calculating dollar value of trading volume is reported in a currency 
other than U.S. dollars, the total value of each day's transactions 
shall be converted into U.S. dollars on the basis of a spot rate of 
exchange for that day obtained from at least one independent entity that 
provides or disseminates foreign exchange quotations in the ordinary 
course of its business.
    (3) Lowest weighted 25% of an index has the same meaning as in Sec.
240.3a55-1(d)(5).
    (4) Preceding 6 full calendar months has the same meaning as in 
Sec.240.3a55-1(d)(8).
    (5) Reported transaction has the same meaning as in Sec.240.3a55-
1(d)(10).

[66 FR 44514, Aug. 23, 2001]



Sec.240.3a55-3  Futures contracts on security indexes trading on or 
subject to the rules of a foreign board of trade.

    When a contract of sale for future delivery on a security index is 
traded on or subject to the rules of a foreign board of trade, such 
index shall not be a narrow-based security index if it would not be a 
narrow-based security index if a futures contract on such

[[Page 42]]

index were traded on a designated contract market or registered 
derivatives transaction execution facility.

[66 FR 44514, Aug. 23, 2001]



Sec.240.3a55-4  Exclusion from definition of narrow-based security
index for indexes composed of debt securities.

    (a) An index is not a narrow-based security index if:
    (1)(i) Each of the securities of an issuer included in the index is 
a security, as defined in section 2(a)(1) of the Securities Act of 
1933(15 U.S.C. 77b(a)(1)) and section 3(a)(10) of the Act (15 U.S.C. 
78c(a)(10)) and the respective rules promulgated thereunder, that is a 
note, bond, debenture, or evidence of indebtedness;
    (ii) None of the securities of an issuer included in the index is an 
equity security, as defined in section 3(a)(11) of the Act (15 U.S.C. 
78c(a)(11)) and the rules promulgated thereunder;
    (iii) The index is comprised of more than nine securities that are 
issued by more than nine non-affiliated issuers;
    (iv) The securities of any issuer included in the index do not 
comprise more than 30 percent of the index's weighting;
    (v) The securities of any five non-affiliated issuers included in 
the index do not comprise more than 60 percent of the index's weighting;
    (vi) Except as provided in paragraph (a)(1)(viii) of this section, 
for each security of an issuer included in the index one of the 
following criteria is satisfied:
    (A) The issuer of the security is required to file reports pursuant 
to section 13 or section 15(d) of the Act (15 U.S.C. 78m and 78o(d));
    (B) The issuer of the security has a [Worldwide market value of its 
outstanding common equity held by non-affiliates of $71 million or more;
    (C) The issuer of the security has outstanding securities that are 
notes, bonds, debentures, or evidences of indebtedness having a total 
remaining principal amount of at least $1 billion;
    (D) The security is an exempted security as defined in section 
3(a)(12) of the Act (15 U.S.C. 78c(a)(12)) and the rules promulgated 
thereunder; or
    (E) The issuer of the security is a government of a foreign country 
or a political subdivision of a foreign country;
    (vii) Except as provided in paragraph (a)(1)(viii) of this section, 
for each security of an issuer included in the index one of the 
following criteria is satisfied
    (A) The security has a total remaining principal amount of at least 
$250,000,000; or
    (B) The security is a municipal security, as defined in section 
3(a)(29) of the Act (15 U.S.C. 78c(a)(29)) and the rules promulgated 
thereunder that has a total remaining principal amount of at least 
$200,000,000 and the issuer of such municipal security has outstanding 
securities that are notes, bonds, debentures, or evidences of 
indebtedness having a total remaining principal amount of at least $1 
billion; and
    (viii) Paragraphs (a)(1)(vi) and (a)(1)(vii) of this section will 
not apply to securities of an issuer included in the index if:
    (A) All securities of such issuer included in the index represent 
less than 5 percent of the index's weighting; and
    (B) Securities comprising at least 80 percent of the index's 
weighting satisfy the provisions of paragraphs (a)(1)(vi) and 
(a)(1)(vii) of this section; or
    (2)(i) The index includes exempted securities, other than municipal 
securities, as defined in section 3(a)(29) of the Act and the rules 
promulgated thereunder, that are:
    (A) Notes, bonds, debentures, or evidences of indebtedness; and
    (B) Not equity securities, as defined in section 3(a)(11) of the Act 
(15 U.S.C. 78c(a)(11)) and the rules promulgated thereunder; and
    (ii) Without taking into account any portion of the index composed 
of such exempted securities, other than municipal securities, the 
remaining portion of the index would not be a narrow-based security 
index: meeting all the conditions under paragraph (a)(1) of this 
section.
    (b) For purposes of this section:
    (1) An issuer is affiliated with another issuer if it controls, is 
controlled by, or is under common control with, that issuer.

[[Page 43]]

    (2) For purposes of this section, control means ownership of 20 
percent or more of an issuer's equity, or the ability to direct the 
voting of 20 percent or more of the issuer's voting equity.
    (3) The term issuer includes a single issuer or group of affiliated 
issuers.

[71 FR 39542, July 13, 2006]

         Security-Based Swap Dealer and Participant Definitions

    Source: 77 FR 30751, May 23, 2012, unless otherwise noted.



Sec.240.3a67-1  Definition of ``major security-based swap participant.''

    (a) General. Major security-based swap participant means any person:
    (1) That is not a security-based swap dealer; and
    (2)(i) That maintains a substantial position in security-based swaps 
for any of the major security-based swap categories, excluding both 
positions held for hedging or mitigating commercial risk, and positions 
maintained by any employee benefit plan (or any contract held by such a 
plan) as defined in paragraphs (3) and (32) of section 3 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1002) for the primary 
purpose of hedging or mitigating any risk directly associated with the 
operation of the plan;
    (ii) Whose outstanding security-based swaps create substantial 
counterparty exposure that could have serious adverse effects on the 
financial stability of the United States banking system or financial 
markets; or
    (iii) That is a financial entity that:
    (A) Is highly leveraged relative to the amount of capital such 
entity holds and that is not subject to capital requirements established 
by an appropriate Federal banking agency (as defined in 15 U.S.C. 
78c(a)(72)); and
    (B) Maintains a substantial position in outstanding security-based 
swaps in any major security-based swap category.
    (b) Scope of designation. A person that is a major security-based 
swap participant in general shall be deemed to be a major security-based 
swap participant with respect to each security-based swap it enters 
into, regardless of the category of the security-based swap or the 
person's activities in connection with the security-based swap, unless 
the Commission limits the person's designation as a major security-based 
swap participant to specified categories of security-based swaps.



Sec.240.3a67-2  Categories of security-based swaps.

    For purposes of section 3(a)(67) of the Act, 15 U.S.C. 78c(a)(67), 
and the rules thereunder, the terms major security-based swap category, 
category of security-based swaps and any similar terms mean either of 
the following categories of security-based swaps:
    (a) Debt security-based swaps. Any security-based swap that is 
based, in whole or in part, on one or more instruments of indebtedness 
(including loans), or on a credit event relating to one or more issuers 
or securities, including but not limited to any security-based swap that 
is a credit default swap, total return swap on one or more debt 
instruments, debt swap, debt index swap, or credit spread.
    (b) Other security-based swaps. Any security-based swap not 
described in paragraph (a) of this section.



Sec.240.3a67-3  Definition of ``substantial position.''

    (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C. 
78c(a)(67), and Sec.240.3a67-1, the term substantial position means 
security-based swap positions that equal or exceed either of the 
following thresholds in any major category of security-based swaps:
    (1) $1 billion in daily average aggregate uncollateralized outward 
exposure; or
    (2) $2 billion in:
    (i) Daily average aggregate uncollateralized outward exposure; plus
    (ii) Daily average aggregate potential outward exposure.
    (b) Aggregate uncollateralized outward exposure--(1) General. 
Aggregate uncollateralized outward exposure in general means the sum of 
the current exposure, obtained by marking-to-market using industry 
standard practices, of each of the person's security-based swap 
positions with negative value in a major security-based swap category,

[[Page 44]]

less the value of the collateral the person has posted in connection 
with those positions.
    (2) Calculation of aggregate uncollateralized outward exposure. In 
calculating this amount the person shall, with respect to each of its 
security-based swap counterparties in a given major security-based swap 
category:
    (i) Determine the dollar value of the aggregate current exposure 
arising from each of its security-based swap positions with negative 
value (subject to the netting provisions described below) in that major 
category by marking-to-market using industry standard practices; and
    (ii) Deduct from that dollar amount the aggregate value of the 
collateral the person has posted with respect to the security-based swap 
positions.
    (iii) The aggregate uncollateralized outward exposure shall be the 
sum of those uncollateralized amounts across all of the person's 
security-based swap counterparties in the applicable major category.
    (3) Relevance of netting agreements. (i) If a person has one or more 
master netting agreements with a counterparty, the person may measure 
the current exposure arising from its security-based swaps in any major 
category on a net basis, applying the terms of those agreements. 
Calculation of current exposure may take into account offsetting 
positions entered into with that particular counterparty involving 
security-based swaps (in any security-based swap category) as well as 
swaps and securities financing transactions (consisting of securities 
lending and borrowing, securities margin lending and repurchase and 
reverse repurchase agreements), and other financial instruments that are 
subject to netting offsets for purposes of applicable bankruptcy law, to 
the extent these are consistent with the offsets permitted by the master 
netting agreements.
    (ii) Such adjustments may not take into account any offset 
associated with positions that the person has with separate 
counterparties.
    (4) Allocation of uncollateralized outward exposure. If a person 
calculates current exposure with a particular counterparty on a net 
basis, as provided by paragraph (b)(3) of this section, the amount of 
current uncollateralized exposure attributable to each ``major'' 
category of security-based swaps should be calculated according to the 
following formula:
[GRAPHIC] [TIFF OMITTED] TR23MY12.001

    Note to paragraph (b)(4). Where: ESBS(MC) equals the 
amount of aggregate current exposure attributable to the entity's 
security-based swap positions in the ``major'' category at issue (either 
security-based credit derivatives or other security-based swaps); 
Enet total equals the entity's aggregate current exposure to 
the counterparty at issue, after accounting for the netting of positions 
and the posting of collateral; OTMSBS(MC) equals the current 
exposure associated with the entity's out-of-the-money positions in 
security-based swaps in the ``major'' category at issue, subject to 
those netting arrangements; and OTMSBS(O) equals the current 
exposure associated with the entity's out-of-the-money positions in the 
other ``major'' category of security-based swaps, subject to those 
netting arrangements; and OTMnon-SBS equals the current 
exposure associated with the entity's out-of-the-money positions 
associated with instruments, other than security-based swaps, that are 
subject to those netting arrangements.

    (c) Aggregate potential outward exposure--(1) General. Aggregate 
potential outward exposure means the sum of:
    (i) The aggregate potential outward exposure for each of the 
person's security-based swap positions in a major security-based swap 
category that are neither cleared by a registered or exempt clearing 
agency nor subject to daily mark-to-market margining, as calculated in 
accordance with paragraph (c)(2) of this section; and

[[Page 45]]

    (ii) The aggregate potential outward exposure for each of the 
person's security-based swap positions in a major security-based swap 
category that are either cleared by a registered or exempt clearing 
agency or subject to daily mark-to-market margining, as calculated in 
accordance with paragraph (c)(3) of this section.
    (2) Calculation of potential outward exposure for security-based 
swaps that are not cleared by a registered or exempt clearing agency or 
subject to daily mark-to-market margining--(i) General--(A)(1) For 
positions in security-based swaps that are not cleared by a registered 
or exempt clearing agency or subject to daily mark-to-market margining, 
potential outward exposure equals the total notional principal amount of 
those positions, multiplied by the following factors on a position-by-
position basis reflecting the type of security-based swap. For any 
security-based swap that is not of the ``debt'' type, the ``equity and 
other'' conversion factors are to be used:

------------------------------------------------------------------------
                                                                  Equity
                   Residual maturity                      Debt     and
                                                                  other
------------------------------------------------------------------------
One year or less......................................     0.10     0.06
Over one to five years................................     0.10     0.08
Over five years.......................................     0.10     0.10
------------------------------------------------------------------------

    (2) If a security-based swap is structured such that on specified 
dates any outstanding exposure is settled and the terms are reset so 
that the market value of the security-based swap is zero, the remaining 
maturity equals the time until the next reset date.
    (B) Use of effective notional amounts. If the stated notional amount 
on a position is leveraged or enhanced by the structure of the position, 
the calculation in paragraph (c)(2)(i)(A) of this section shall be based 
on the effective notional amount of the position rather than on the 
stated notional amount.
    (C) Exclusion of certain positions. The calculation in paragraph 
(c)(2)(i)(A) of this section shall exclude:
    (1) Positions that constitute the purchase of an option, such that 
the person has no additional payment obligations under the position;
    (2) Other positions for which the person has prepaid or otherwise 
satisfied all of its payment obligations; and
    (3) Positions for which, pursuant to regulatory requirement, the 
person has assigned an amount of cash or U.S. Treasury securities that 
is sufficient to pay the person's maximum possible liability under the 
position, and the person may not use that cash or those Treasury 
securities for other purposes.
    (D) Adjustment for certain positions. Notwithstanding paragraph 
(c)(2)(i)(A) of this section, the potential outward exposure associated 
with a position by which a person buys credit protection using a credit 
default swap, or associated with a position by which a person purchases 
an option for which the person retains additional payment obligations 
under the position, is capped at the net present value of the unpaid 
premiums.
    (ii) Adjustment for netting agreements. Notwithstanding paragraph 
(c)(2)(i) of this section, for positions subject to master netting 
agreements the potential outward exposure associated with the person's 
security-based swaps with each counterparty equals a weighted average of 
the potential outward exposure for the person's security-based swaps 
with that counterparty as calculated under paragraph (c)(2)(i) of this 
section, and that amount reduced by the ratio of net current exposure to 
gross current exposure, consistent with the following equation as 
calculated on a counterparty-by-counterparty basis:

PNet = 0.4 x PGross + 0.6 x NGR x PGross

    Note to paragraph (c)(2)(ii): Where: PNet is the potential outward 
exposure, adjusted for bilateral netting, of the person's security-based 
swaps with a particular counterparty; PGross is the potential outward 
exposure without adjustment for bilateral netting, as calculated 
pursuant to paragraph (c)(2)(i) of this section; and NGR is the ratio 
of:
    1. The current exposure arising from its security-based swaps in the 
major category as calculated on a net basis according to paragraphs 
(b)(3) and (4) of this section, divided by
    2. The current exposure arising from its security-based swaps in the 
major category as calculated in the absence of those netting procedures.

    (3) Calculation of potential outward exposure for security-based 
swaps that are either cleared by a registered or exempt clearing agency 
or subject to daily mark-to-market margining. For positions in security-
based swaps that are cleared by

[[Page 46]]

a registered or exempt clearing agency or subject to daily mark-to-
market margining:
    (i) Potential outward exposure equals the potential outward exposure 
that would be attributed to such positions using the procedures in 
paragraph (c)(2) of this section, multiplied by:
    (A) 0.1, in the case of positions cleared by a registered or exempt 
clearing agency; or
    (B) 0.2, in the case of positions that are subject to daily mark-to-
market margining but that are not cleared by a registered or exempt 
clearing agency.
    (ii) Solely for purposes of calculating potential outward exposure:
    (A) A security-based swap shall be considered to be subject to daily 
mark-to-market margining if, and for as long as, the counterparties 
follow the daily practice of exchanging collateral to reflect changes in 
the current exposure arising from the security-based swap (after taking 
into account any other financial positions addressed by a netting 
agreement between the counterparties).
    (B) If the person is permitted by agreement to maintain a threshold 
for which it is not required to post collateral, the position still will 
be considered to be subject to daily mark-to-market margining for 
purposes of calculating potential outward exposure, but the total amount 
of that threshold (regardless of the actual exposure at any time) less 
any initial margin posted up to the amount of that threshold, shall be 
added to the person's aggregate uncollateralized outward exposure for 
purposes of paragraph (a)(2) of this section.
    (C) If the minimum transfer amount under the agreement is in excess 
of $1 million, the position still will be considered to be subject to 
daily mark-to-market margining for purposes of calculating potential 
outward exposure, but the entirety of the minimum transfer amount shall 
be added to the person's aggregate uncollateralized outward exposure for 
purposes of paragraph (a)(2) of this section.
    (D) A person may, at its discretion, calculate the potential outward 
exposure of positions in security-based swaps that are subject to daily 
mark-to-market margining in accordance with paragraph (c)(2) of this 
section in lieu of calculating the potential outward exposure of such 
positions in accordance with this paragraph (c)(3).
    (d) Calculation of daily average. Measures of daily average 
aggregate uncollateralized outward exposure and daily average aggregate 
potential outward exposure shall equal the arithmetic mean of the 
applicable measure of exposure at the close of each business day, 
beginning the first business day of each calendar quarter and continuing 
through the last business day of that quarter.
    (e) Inter-affiliate activities. In calculating its aggregate 
uncollateralized outward exposure and its aggregate potential outward 
exposure, a person shall not consider its security-based swap positions 
with counterparties that are majority-owned affiliates. For these 
purposes the parties are majority-owned affiliates if one party directly 
or indirectly owns a majority interest in the other, or if a third party 
directly or indirectly owns a majority interest in both counterparties 
to the security-based swap, where ``majority interest'' is the right to 
vote or direct the vote of a majority of a class of voting securities of 
an entity, the power to sell or direct the sale of a majority of a class 
of voting securities of an entity, or the right to receive upon 
dissolution or the contribution of a majority of the capital of a 
partnership.



Sec.240.3a67-4  Definition of ``hedging or mitigating commercial risk.''

    For purposes of section 3(a)(67) of the Act, 15 U.S.C. 78c(a)(67), 
and Sec.240.3a67-1, a security-based swap position shall be deemed to 
be held for the purpose of hedging or mitigating commercial risk when:
    (a)(1) Such position is economically appropriate to the reduction of 
risks that are associated with the present conduct and management of a 
commercial enterprise (or of a majority owned affiliate of the 
enterprise), or are reasonably expected to arise in the future conduct 
and management of the commercial enterprise, where such risks arise 
from:
    (i) The potential change in the value of assets that a person owns, 
produces,

[[Page 47]]

manufactures, processes, or merchandises or reasonably anticipates 
owning, producing, manufacturing, processing, or merchandising in the 
ordinary course of business of the enterprise (or of an affiliate under 
common control with the enterprise);
    (ii) The potential change in the value of liabilities that a person 
has incurred or reasonably anticipates incurring in the ordinary course 
of business of the enterprise (or of an affiliate under common control 
with the enterprise); or
    (iii) The potential change in the value of services that a person 
provides, purchases, or reasonably anticipates providing or purchasing 
in the ordinary course of business of the enterprise (or of an affiliate 
under common control with the enterprise);
    (2) Depending on the applicable facts and circumstances, the 
security-based swap positions described in paragraph (a)(1) of this 
section may be expected to encompass, among other positions:
    (i) Positions established to manage the risk posed by a customer's, 
supplier's or counterparty's potential default in connection with: 
Financing provided to a customer in connection with the sale of real 
property or a good, product or service; a customer's lease of real 
property or a good, product or service; a customer's agreement to 
purchase real property or a good, product or service in the future; or a 
supplier's commitment to provide or sell a good, product or service in 
the future;
    (ii) Positions established to manage the default risk posed by a 
financial counterparty (different from the counterparty to the hedging 
position at issue) in connection with a separate transaction (including 
a position involving a credit derivative, equity swap, other security-
based swap, interest rate swap, commodity swap, foreign exchange swap or 
other swap, option, or future that itself is for the purpose of hedging 
or mitigating commercial risk pursuant to this section or 17 CFR 
1.3(kkk));
    (iii) Positions established to manage equity or market risk 
associated with certain employee compensation plans, including the risk 
associated with market price variations in connection with stock-based 
compensation plans, such as deferred compensation plans and stock 
appreciation rights;
    (iv) Positions established to manage equity market price risks 
connected with certain business combinations, such as a corporate merger 
or consolidation or similar plan or acquisition in which securities of a 
person are exchanged for securities of any other person (unless the sole 
purpose of the transaction is to change an issuer's domicile solely 
within the United States), or a transfer of assets of a person to 
another person in consideration of the issuance of securities of such 
other person or any of its affiliates;
    (v) Positions established by a bank to manage counterparty risks in 
connection with loans the bank has made; and
    (vi) Positions to close out or reduce any of the positions described 
in paragraphs (a)(2)(i) through (a)(2)(v) of this section; and
    (b) Such position is:
    (1) Not held for a purpose that is in the nature of speculation or 
trading; and
    (2) Not held to hedge or mitigate the risk of another security-based 
swap position or swap position, unless that other position itself is 
held for the purpose of hedging or mitigating commercial risk as defined 
by this section or 17 CFR 1.3(kkk).



Sec.240.3a67-5  Definition of ``substantial counterparty exposure.''

    (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C. 
78c(a)(67), and Sec.240.3a67-1, the term substantial counterparty 
exposure that could have serious adverse effects on the financial 
stability of the United States banking system or financial markets means 
a security-based swap position that satisfies either of the following 
thresholds:
    (1) $2 billion in daily average aggregate uncollateralized outward 
exposure; or
    (2) $4 billion in:
    (i) Daily average aggregate uncollateralized outward exposure; plus
    (ii) Daily average aggregate potential outward exposure.
    (b) Calculation. For these purposes, daily average aggregate 
uncollateralized

[[Page 48]]

outward exposure and daily average aggregate potential outward exposure 
shall be calculated the same way as is prescribed in Sec.240.3a67-3, 
except that these amounts shall be calculated by reference to all of the 
person's security-based swap positions, rather than by reference to a 
specific major security-based swap category.



Sec.240.3a67-6  Definition of ``financial entity.''

    (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C. 
78c(a)(67), and Sec.240.3a67-1, the term financial entity means:
    (1) A swap dealer;
    (2) A major swap participant;
    (3) A commodity pool as defined in section 1a(10) of the Commodity 
Exchange Act (7 U.S.C. 1a(10));
    (4) A private fund as defined in section 202(a) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-2(a));
    (5) An employee benefit plan as defined in paragraphs (3) and (32) 
of section 3 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1002); and
    (6) A person predominantly engaged in activities that are in the 
business of banking or financial in nature, as defined in section 4(k) 
of the Bank Holding Company Act of 1956 (12 U.S.C. 1843k).
    (b) Exclusion for centralized hedging facilities--(1) General. 
Notwithstanding paragraph (a) of this section, for purposes of this 
section the term financial entity shall not encompass a person that 
would be a financial entity solely as a result of the person's 
activities that facilitate hedging and/or treasury functions on behalf 
of one or more majority-owned affiliates that themselves do not 
constitute a financial entity.
    (2) Meaning of majority-owned. For these purposes the counterparties 
to a security-based swap are majority-owned affiliates if one 
counterparty directly or indirectly owns a majority interest in the 
other, or if a third party directly or indirectly owns a majority 
interest in both counterparties to the security-based swap, where 
``majority interest'' includes, but is not limited to, the right to vote 
or direct the vote of a majority of a class of voting securities of an 
entity, the power to sell or direct the sale of a majority of a class of 
voting securities of an entity, or the right to receive upon dissolution 
or the contribution of a majority of the capital of a partnership.



Sec.240.3a67-7  Definition of ``highly leveraged.''

    (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C. 
78c(a)(67), and Sec.240.3a67-1, the term highly leveraged means the 
existence of a ratio of an entity's total liabilities to equity in 
excess of 12 to 1 as measured at the close of business on the last 
business day of the applicable fiscal quarter.
    (b) Measurement of liabilities and equity. For purposes of this 
section, liabilities and equity generally should each be determined in 
accordance with U.S. generally accepted accounting principles; provided, 
however, that a person that is an employee benefit plan, as defined in 
paragraphs (3) and (32) of section 3 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1002), may, for purposes of this 
paragraph (b):
    (1) Exclude obligations to pay benefits to plan participants from 
the calculation of liabilities; and
    (2) Substitute the total value of plan assets for equity.



Sec.240.3a67-8  Timing requirements, reevaluation period, and 
termination of status.

    (a) Timing requirements. A person that is not registered as a major 
security-based swap participant, but that meets the criteria in Sec.
240.3a67-1 to be a major security-based swap participant as a result of 
its security-based swap activities in a fiscal quarter, will not be 
deemed to be a major security-based swap participant until the earlier 
of the date on which it submits a complete application for registration 
pursuant to section 15F of the Act (15 U.S.C. 78o-10) or two months 
after the end of that quarter.
    (b) Reevaluation period. Notwithstanding paragraph (a) of this 
section, if a person that is not registered as a major security-based 
swap participant meets the criteria in Sec.240.3a67-1 to be a major 
security-based swap participant in a fiscal quarter, but does not exceed

[[Page 49]]

any applicable threshold by more than twenty percent in that quarter:
    (1) That person will not immediately be deemed a major security-
based swap participant pursuant to the timing requirements specified in 
paragraph (a) of this section; but
    (2) That person will be deemed a major security-based swap 
participant pursuant to the timing requirements specified in paragraph 
(a) of this section at the end of the next fiscal quarter if the person 
exceeds any of the applicable daily average thresholds in that next 
fiscal quarter.
    (c) Termination of status. A person that is deemed to be a major 
security-based swap participant shall continue to be deemed a major 
security-based swap participant until such time that its security-based 
swap activities do not exceed any of the daily average thresholds set 
forth within Sec.240.3a67-1 for four consecutive fiscal quarters after 
the date on which the person becomes registered as a major security-
based swap participant.



Sec.240.3a67-9  Calculation of major participant status by certain persons.

    A person shall not be deemed to be a major security-based swap 
participant, regardless of whether the criteria in Sec.240.3a67-1 
otherwise would cause the person to be a major security-based swap 
participant, provided the person meets the conditions set forth in 
paragraph (a) of this section.
    (a) Conditions--(1) Caps on uncollateralized exposure and notional 
positions--(i) Maximum potential uncollateralized exposure. The express 
terms of the person's agreements or arrangements relating to security-
based swaps with its counterparties at no time would permit the person 
to maintain a total uncollateralized exposure of more than $100 million 
to all such counterparties, including any exposure that may result from 
thresholds or minimum transfer amounts established by credit support 
annexes or similar arrangements; and
    (ii) Maximum notional amount of security-based swap positions. The 
person does not maintain security-based swap positions in an effective 
notional amount of more than $2 billion in any major category of 
security-based swaps, or more than $4 billion in aggregate; or
    (2) Caps on uncollateralized exposure plus monthly calculation--(i) 
Maximum potential uncollateralized exposure. The express terms of the 
person's agreements or arrangements relating to security-based swaps 
with its counterparties at no time would permit the person to maintain a 
total uncollateralized exposure of more than $200 million to all such 
counterparties (with regard to security-based swaps and any other 
instruments by which the person may have exposure to those 
counterparties), including any exposure that may result from thresholds 
or minimum transfer amounts established by credit support annexes or 
similar arrangements; and
    (ii) Calculation of positions. (A) At the end of each month, the 
person performs the calculations prescribed by Sec.Sec.240.3a67-3 and 
240.3a67-5 with regard to whether the aggregate uncollateralized outward 
exposure plus aggregate potential outward exposure as of that day 
constitute a substantial position in a major category of security-based 
swaps, or pose substantial counterparty exposure that could have serious 
adverse effects on the financial stability of the United States banking 
system or financial markets; these calculations shall disregard 
provisions of those rules that provide for the analyses to be determined 
based on a daily average over a calendar quarter; and
    (B) Each such analysis produces thresholds of no more than:
    (1) $1 billion in aggregate uncollateralized outward exposure plus 
aggregate potential outward exposure in any major category of security-
based swaps; if the person is subject to Sec.240.3a67-3(a)(2)(iii), by 
virtue of being a highly leveraged financial entity that is not subject 
to capital requirements established by an appropriate Federal banking 
agency, this analysis shall account for all of the person's security-
based swap positions in that major category (without excluding hedging 
positions), otherwise this analysis shall exclude the same hedging and 
related positions that are excluded from consideration pursuant to Sec.
240.3a67-3(a)(2)(i); or

[[Page 50]]

    (2) $2 billion in aggregate uncollateralized outward exposure plus 
aggregate potential outward exposure (without any positions excluded 
from the analysis) with regard to all of the person's security-based 
swap positions.
    (3) Calculations based on certain information. (i) At the end of 
each month:
    (A)(1) The person's aggregate uncollateralized outward exposure with 
respect to its security-based swap positions is less than $500 million 
with respect to each of the major security-based swap categories; and
    (2) The sum of the amount calculated under paragraph (a)(3)(i)(A)(1) 
of this section with respect to each major security-based swap category 
and the total notional principal amount of the person's security-based 
swap positions in each such major security-based swap category, adjusted 
by the multipliers set forth in Sec.240.3a67-3(c)(2)(i)(A) on a 
position-by-position basis reflecting the type of security-based swap, 
is less than $1 billion with respect to each of the major security-based 
swap categories; or
    (B)(1) The person's aggregate uncollateralized outward exposure with 
respect to its security-based swap positions across all major security-
based swap categories is less than $500 million; and
    (2) The sum of the amount calculated under paragraph (a)(3)(i)(B)(1) 
of this section and the product of the total effective notional 
principal amount of the person's security-based swap positions in all 
major security-based swap categories multiplied by 0.10 is less than $1 
billion.
    (ii) For purposes of the calculations set forth in paragraph 
(a)(3)(i) of this section:
    (A) The person's aggregate uncollateralized outward exposure for 
positions held with security-based swap dealers shall be equal to such 
exposure reported on the most recent reports of such exposure received 
from such security-based swap dealers; and
    (B) The person's aggregate uncollateralized outward exposure for 
positions that are not reflected in any report of exposure from a 
security-based swap dealer (including all security-based swap positions 
it holds with persons other than security-based swap dealers) shall be 
calculated in accordance with Sec.240.3a67-3(b)(2).
    (b) For purposes of the calculations set forth by this section, the 
person shall use the effective notional amount of a position rather than 
the stated notional amount of the position if the stated notional amount 
is leveraged or enhanced by the structure of the position.
    (c) No presumption shall arise that a person is required to perform 
the calculations needed to determine if it is a major security-based 
swap participant, solely by reason that the person does not meet the 
conditions specified in paragraph (a) of this section.



Sec.240.3a67-10  Foreign major security-based swap participants.

    (a) Definitions. As used in this section, the following terms shall 
have the meanings indicated:
    (1) Conduit affiliate has the meaning set forth in Sec.240.3a71-
3(a)(1).
    (2) Foreign branch has the meaning set forth in Sec.240.3a71-
3(a)(2).
    (3) Transaction conducted through a foreign branch has the meaning 
set forth in Sec.240.3a71-3(a)(3).
    (4) U.S. person has the meaning set forth in Sec.240.3a71-3(a)(4).
    (5) U.S. major security-based swap participant means a major 
security-based swap participant, as defined in section 3(a)(67) of the 
Act (15 U.S.C. 78c(a)(67)), and the rules and regulations thereunder, 
that is a U.S. person.
    (6) Foreign major security-based swap participant means a major 
security-based swap participant, as defined in section 3(a)(67) of the 
Act (15 U.S.C. 78c(a)(67)), and the rules and regulations thereunder, 
that is not a U.S. person.
    (b) Application of major security-based swap participant tests in 
the cross-border context. For purposes of calculating a person's status 
as a major security-based swap participant as defined in section 
3(a)(67) of the Act (15 U.S.C. 78c(a)(67)), and the rules and 
regulations thereunder, a person shall include the following security-
based swap positions:
    (1) If such person is a U.S. person, all security-based swap 
positions that are entered into by the person, including

[[Page 51]]

positions entered into through a foreign branch;
    (2) If such person is a conduit affiliate, all security-based swap 
positions that are entered into by the person; and
    (3) If such person is a non-U.S. person other than a conduit 
affiliate, all of the following types of security-based swap positions 
that are entered into by the person:
    (i) Security-based swap positions that are entered into with a U.S. 
person; provided, however, that this paragraph (b)(3)(i) shall not apply 
to:
    (A) Positions with a U.S. person counterparty that arise from 
transactions conducted through a foreign branch of the counterparty, 
when the counterparty is a registered security-based swap dealer; and
    (B) Positions with a U.S. person counterparty that arise from 
transactions conducted through a foreign branch of the counterparty, 
when the transaction is entered into prior to 60 days following the 
earliest date on which the registration of security-based swap dealers 
is first required pursuant to the applicable final rules and 
regulations; and
    (ii) Security-based swap positions for which the non-U.S. person's 
counterparty to the security-based swap has rights of recourse against a 
U.S. person; for these purposes a counterparty has rights of recourse 
against the U.S. person if the counterparty has a conditional or 
unconditional legally enforceable right, in whole or in part, to receive 
payments from, or otherwise collect from, the U.S. person in connection 
with the security-based swap.
    (c) Attributed positions--(1) In general. For purposes of 
calculating a person's status as a major security-based swap participant 
as defined in section 3(a)(67) of the Act (15 U.S.C. 78c(a)(67)), and 
the rules and regulations thereunder, a person also shall include the 
following security-based swap positions:
    (i) If such person is a U.S. person, any security-based swap 
position of a non-U.S. person for which the non-U.S. person's 
counterparty to the security-based swap has rights of recourse against 
that U.S. person.

    Note to paragraph (c)(1)(i).
    This paragraph describes attribution requirements for a U.S. person 
solely with respect to the guarantee of the obligations of a non-U.S. 
person under a security-based swap. The Commission and the Commodity 
Futures Trading Commission previously provided an interpretation about 
attribution to a U.S. parent, other affiliate, or guarantor to the 
extent that the counterparties to those positions have recourse against 
that parent, other affiliate, or guarantor in connection with the 
position. See Intermediary Definitions Adopting Release, http://
www.gpo.gov/fdsys/pkg/FR-2012-08-13/pdf/2012-18003.pdf. The Commission 
explained that it intended to issue separate releases addressing the 
application of the major participant definition, and Title VII 
generally, to non-U.S. persons. See id. at note 1041.

    (ii) If such person is a non-U.S. person:
    (A) Any security-based swap position of a U.S. person for which that 
person's counterparty has rights of recourse against the non-U.S. 
person; and
    (B) Any security-based swap position of another non-U.S. person 
entered into with a U.S. person counterparty who has rights of recourse 
against the first non-U.S. person, provided, however, that this 
paragraph (c)(1)(ii)(B) shall not apply to positions described in Sec.
240.3a67-10(b)(3)(i)(A) and (B).
    (2) Exceptions. Notwithstanding paragraph (c)(1) of this section, a 
person shall not include such security-based swap positions if the 
person whose performance is guaranteed in connection with the security-
based swap is:
    (i) Subject to capital regulation by the Commission or the Commodity 
Futures Trading Commission (including, but not limited to regulation as 
a swap dealer, major swap participant, security-based swap dealer, major 
security-based swap participant, futures commission merchant, broker, or 
dealer);
    (ii) Regulated as a bank in the United States;
    (iii) Subject to capital standards, adopted by the person's home 
country supervisor, that are consistent in all respects with the Capital 
Accord of the Basel Committee on Banking Supervision; or
    (iv) Deemed not to be a major security-based swap participant 
pursuant to Sec.240.3a67-8(a).
    (d) Application of customer protection requirements. (1) A 
registered foreign

[[Page 52]]

major security-based swap participant shall not be subject to the 
requirements relating to business conduct standards described in section 
15F(h) of the Act (15 U.S.C. 78o-10(h)), and the rules and regulations 
thereunder, other than rules and regulations prescribed by the 
Commission pursuant to section 15F(h)(1)(B) of the Act (15 U.S.C. 78o- 
10(h)(1)(B)), with respect to a security-based swap transaction with a 
counterparty that is not a U.S. person or with a counterparty that is a 
U.S. person in a transaction conducted through a foreign branch of the 
U.S. person.
    (2) A registered U.S. major security-based swap participant shall 
not be subject to the requirements relating to business conduct 
standards described in section 15F(h) of the Act (15 U.S.C. 78o-10(h)), 
and the rules and regulations thereunder, other than rules and 
regulations prescribed by the Commission pursuant to section 
15F(h)(1)(B) of the Act (15 U.S.C. 78o-10(h)(1)(B)), with respect to a 
security-based swap transaction that constitutes a transaction conducted 
through a foreign branch of the registered U.S. major security-based 
swap participant with a non-U.S. person or with a U.S.-person 
counterparty that constitutes a transaction conducted through a foreign 
branch of that U.S.-person counterparty.

[79 FR 47369, Aug. 12, 2014, as amended at 81 FR 30142, May 13, 2016]

Further Definition of Swap, Security-Based Swap, and Security-Based Swap 
   Agreement; Mixed Swaps; Security-Based Swap Agreement Recordkeeping



Sec.240.3a68-1a  Meaning of ``issuers of securities in a narrow-based
security index'' as used in section 3(a)(68)(A)(ii)(III) of the Act.

    (a) Notwithstanding Sec.240.3a68-3(a), and solely for purposes of 
determining whether a credit default swap is a security-based swap under 
section 3(a)(68)(A)(ii)(III) of the Act (15 U.S.C. 
78c(a)(68)(A)(ii)(III)), the term issuers of securities in a narrow-
based security index as used in section 3(a)(68)(A)(ii)(III) of the Act 
means issuers of securities included in an index (including an index 
referencing loan borrowers or loans of such borrowers) in which:
    (1)(i) There are nine or fewer non-affiliated issuers of securities 
that are reference entities included in the index, provided that an 
issuer of securities shall not be deemed a reference entity included in 
the index for purposes of this section unless:
    (A) A credit event with respect to such reference entity would 
result in a payment by the credit protection seller to the credit 
protection buyer under the credit default swap based on the related 
notional amount allocated to such reference entity; or
    (B) The fact of such credit event or the calculation in accordance 
with paragraph (a)(1)(i)(A) of this section of the amount owed with 
respect to such credit event is taken into account in determining 
whether to make any future payments under the credit default swap with 
respect to any future credit events;
    (ii) The effective notional amount allocated to any reference entity 
included in the index comprises more than 30 percent of the index's 
weighting;
    (iii) The effective notional amount allocated to any five non-
affiliated reference entities included in the index comprises more than 
60 percent of the index's weighting; or
    (iv) Except as provided in paragraph (b) of this section, for each 
reference entity included in the index, none of the criteria in 
paragraphs (a)(1)(iv)(A) through (a)(1)(iv)(H) of this section is 
satisfied:
    (A) The reference entity included in the index is required to file 
reports pursuant to section 13 or section 15(d) of the Act (15 U.S.C. 
78m or 78o(d));
    (B) The reference entity included in the index is eligible to rely 
on the exemption provided in Sec.240.12g3-2(b);
    (C) The reference entity included in the index has a worldwide 
market value of its outstanding common equity held by non-affiliates of 
$700 million or more;
    (D) The reference entity included in the index (other than a 
reference entity included in the index that is an issuing entity of an 
asset-backed security as defined in section 3(a)(79) of the

[[Page 53]]

Act (15 U.S.C. 78c(a)(79))) has outstanding notes, bonds, debentures, 
loans, or evidences of indebtedness (other than revolving credit 
facilities) having a total remaining principal amount of at least $1 
billion;
    (E) The reference entity included in the index is the issuer of an 
exempted security as defined in section 3(a)(12) of the Act (15 U.S.C. 
78c(a)(12)) (other than any municipal security as defined in section 
3(a)(29) of the Act (15 U.S.C. 78c(a)(29)));
    (F) The reference entity included in the index is a government of a 
foreign country or a political subdivision of a foreign country;
    (G) If the reference entity included in the index is an issuing 
entity of an asset-backed security as defined in section 3(a)(79) of the 
Act (15 U.S.C. 78c(a)(79)), such asset-backed security was issued in a 
transaction registered under the Securities Act of 1933 (15 U.S.C. 77a 
et seq.) and has publicly available distribution reports; and
    (H) For a credit default swap entered into solely between eligible 
contract participants as defined in section 3(a)(65) of the Act (15 
U.S.C. 78c(a)(65)):
    (1) The reference entity included in the index (other than a 
reference entity included in the index that is an issuing entity of an 
asset-backed security as defined in section 3(a)(79) of the Act (15 
U.S.C. 78c(a)(79))) makes available to the public or otherwise makes 
available to such eligible contract participant information about the 
reference entity included in the index pursuant to Sec.230.144A(d)(4)) 
of this chapter;
    (2) Financial information about the reference entity included in the 
index (other than a reference entity included in the index that is an 
issuing entity of an asset-backed security as defined in section 
3(a)(79) of the Act (15 U.S.C. 78c(a)(79))) is otherwise publicly 
available; or
    (3) In the case of a reference entity included in the index that is 
an issuing entity of an asset-backed security as defined in section 
3(a)(79) of the Act (15 U.S.C. 78c(a)(79)), information of the type and 
level included in publicly available distribution reports for similar 
asset-backed securities is publicly available about both the reference 
entity included in the index and such asset-backed security; and
    (2)(i) The index is not composed solely of reference entities that 
are issuers of exempted securities as defined in section 3(a)(12) of the 
Act (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the 
Futures Trading Act of 1982 (other than any municipal security as 
defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))), as in 
effect on the date of enactment of the Futures Trading Act of 1982); and
    (ii) Without taking into account any portion of the index composed 
of reference entities that are issuers of exempted securities as defined 
in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)), as in effect on 
the date of enactment of the Futures Trading Act of 1982 (other than any 
municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 
78c(a)(29))), the remaining portion of the index would be within the 
term ``issuer of securities in a narrow-based security index'' under 
paragraph (a)(1) of this section.
    (b) Paragraph (a)(1)(iv) of this section will not apply with respect 
to a reference entity included in the index if:
    (1) The effective notional amounts allocated to such reference 
entity comprise less than five percent of the index's weighting; and
    (2) The effective notional amounts allocated to reference entities 
included in the index that satisfy paragraph (a)(1)(iv) of this section 
comprise at least 80 percent of the index's weighting.
    (c) For purposes of this section:
    (1) A reference entity included in the index is affiliated with 
another reference entity included in the index (for purposes of 
paragraph (c)(4) of this section) or another entity (for purposes of 
paragraph (c)(5) of this section) if it controls, is controlled by, or 
is under common control with, that other reference entity included in 
the index or other entity, as applicable; provided that each reference 
entity included in the index that is an issuing entity of an asset-
backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 
78c(a)(79)) will not be considered affiliated with any other reference 
entity

[[Page 54]]

included in the index or any other entity that is an issuing entity of 
an asset-backed security.
    (2) Control for purposes of this section means ownership of more 
than 50 percent of the equity of a reference entity included in the 
index (for purposes of paragraph (c)(4) of this section) or another 
entity (for purposes of paragraph (c)(5) of this section), or the 
ability to direct the voting of more than 50 percent of the voting 
equity of a reference entity included in the index (for purposes of 
paragraph (c)(4) of this section) or another entity (for purposes of 
paragraph (c)(5) of this section).
    (3) In identifying a reference entity included in the index for 
purposes of this section, the term reference entity includes:
    (i) An issuer of securities;
    (ii) An issuer of securities that is an issuing entity of an asset-
backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 
78c(a)(79)); and
    (iii) An issuer of securities that is a borrower with respect to any 
loan identified in an index of borrowers or loans.
    (4) For purposes of calculating the thresholds in paragraphs 
(a)(1)(i) through (a)(1)(iii) of this section, the term reference entity 
included in the index includes a single reference entity included in the 
index or a group of affiliated reference entities included in the index 
as determined in accordance with paragraph (c)(1) of this section (with 
each reference entity included in the index that is an issuing entity of 
an asset-backed security as defined in section 3(a)(79) of the Act (15 
U.S.C. 78c(a)(79)) being considered a separate reference entity included 
in the index).
    (5) For purposes of determining whether one of the criterion in 
either paragraphs (a)(1)(iv)(A) through (a)(1)(iv)(D) of this section or 
paragraphs (a)(1)(iv)(H)(1) and (a)(1)(iv)(H)(2) of this section is met, 
the term reference entity included in the index includes a single 
reference entity included in the index or a group of affiliated entities 
as determined in accordance with paragraph (c)(1) of this section (with 
each issuing entity of an asset-backed security as defined in section 
3(a)(79) of the Act (15 U.S.C. 78c(a)(79)) being considered a separate 
entity).

[77 FR 48356, Aug. 13, 2012, as amended at 79 FR 57344, Sept. 24, 2014]



Sec.240.3a68-1b  Meaning of ``narrow-based security index'' as used 
in section 3(a)(68)(A)(ii)(I) of the Act.

    (a) Notwithstanding Sec.240.3a68-3(a), and solely for purposes of 
determining whether a credit default swap is a security-based swap under 
section 3(a)(68)(A)(ii)(I) of the Act (15 U.S.C. 78c(a)(68)(A)(ii)(I)), 
the term narrow-based security index as used in section 
3(a)(68)(A)(ii)(I) of the Act means an index in which:
    (1)(i) The index is composed of nine or fewer securities or 
securities that are issued by nine or fewer non-affiliated issuers, 
provided that a security shall not be deemed a component of the index 
for purposes of this section unless:
    (A) A credit event with respect to the issuer of such security or a 
credit event with respect to such security would result in a payment by 
the credit protection seller to the credit protection buyer under the 
credit default swap based on the related notional amount allocated to 
such security; or
    (B) The fact of such credit event or the calculation in accordance 
with paragraph (a)(1)(i)(A) of this section of the amount owed with 
respect to such credit event is taken into account in determining 
whether to make any future payments under the credit default swap with 
respect to any future credit events;
    (ii) The effective notional amount allocated to the securities of 
any issuer included in the index comprises more than 30 percent of the 
index's weighting;
    (iii) The effective notional amount allocated to the securities of 
any five non-affiliated issuers included in the index comprises more 
than 60 percent of the index's weighting; or
    (iv) Except as provided in paragraph (b) of this section, for each 
security included in the index none of the criteria in paragraphs 
(a)(1)(iv)(A) through (a)(1)(iv)(H) of this section is satisfied:
    (A) The issuer of the security included in the index is required to 
file

[[Page 55]]

reports pursuant to section 13 or section 15(d) of the Act (15 U.S.C. 
78m or 78o(d));
    (B) The issuer of the security included in the index is eligible to 
rely on the exemption provided in Sec.240.12g3-2(b);
    (C) The issuer of the security included in the index has a worldwide 
market value of its outstanding common equity held by non-affiliates of 
$700 million or more;
    (D) The issuer of the security included in the index (other than an 
issuer of the security that is an issuing entity of an asset-backed 
security as defined in section 3(a)(79) of the Act (15 U.S.C. 
78c(a)(79))) has outstanding notes, bonds, debentures, loans, or 
evidences of indebtedness (other than revolving credit facilities) 
having a total remaining principal amount of at least $1 billion;
    (E) The security included in the index is an exempted security as 
defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)) (other 
than any municipal security as defined in section 3(a)(29) of the Act 
(15 U.S.C. 78c(a)(29)));
    (F) The issuer of the security included in the index is a government 
of a foreign country or a political subdivision of a foreign country;
    (G) If the security included in the index is an asset-backed 
security as defined in section 3(a)(79) of the Act (15 U.S.C. 
78c(a)(79)), the security was issued in a transaction registered under 
the Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly 
available distribution reports; and
    (H) For a credit default swap entered into solely between eligible 
contract participants as defined in section 3(a)(65) of the Act (15 
U.S.C. 78c(a)(65)):
    (1) The issuer of the security included in the index (other than an 
issuer of the security that is an issuing entity of an asset-backed 
security as defined in section 3(a)(79) of the Act (15 U.S.C. 
78c(a)(79))) makes available to the public or otherwise makes available 
to such eligible contract participant information about such issuer 
pursuant to Sec.230.144A(d)(4)) of this chapter;
    (2) Financial information about the issuer of the security included 
in the index (other than an issuer of the security that is an issuing 
entity of an asset-backed security as defined in section 3(a)(79) of the 
Act (15 U.S.C. 78c(a)(79))) is otherwise publicly available; or
    (3) In the case of an asset-backed security as defined in section 
3(a)(79) of the Act (15 U.S.C. 78c(a)(79)), information of the type and 
level included in public distribution reports for similar asset-backed 
securities is publicly available about both the issuing entity and such 
asset-backed security; and
    (2)(i) The index is not composed solely of exempted securities as 
defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)), as in 
effect on the date of enactment of the Futures Trading Act of 1982 
(other than any municipal security as defined in section 3(a)(29) of the 
Act (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of 
the Futures Trading Act of 1982); and
    (ii) Without taking into account any portion of the index composed 
of exempted securities as defined in section 3(a)(12) of the Act (15 
U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures 
Trading Act of 1982 (other than any municipal security as defined in 
section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))), the remaining 
portion of the index would be within the term ``narrow-based security 
index'' under paragraph (a)(1) of this section.
    (b) Paragraph (a)(1)(iv) of this section will not apply with respect 
to securities of an issuer included in the index if:
    (1) The effective notional amounts allocated to all securities of 
such issuer included in the index comprise less than five percent of the 
index's weighting; and
    (2) The securities that satisfy paragraph (a)(1)(iv) of this section 
comprise at least 80 percent of the index's weighting.
    (c) For purposes of this section:
    (1) An issuer of securities included in the index is affiliated with 
another issuer of securities included in the index (for purposes of 
paragraph (c)(4) of this section) or another entity (for purposes of 
paragraph (c)(5) of this section) if it controls, is controlled by, or 
is under common control with, that other issuer or other entity, as 
applicable; provided that each issuer of securities included in the 
index that is an

[[Page 56]]

issuing entity of an asset-backed security as defined in section 
3(a)(79) of the Act (15 U.S.C. 78c(a)(79)) will not be considered 
affiliated with any other issuer of securities included in the index or 
any other entity that is an issuing entity of an asset-backed security.
    (2) Control for purposes of this section means ownership of more 
than 50 percent of the equity of an issuer of securities included in the 
index (for purposes of paragraph (c)(4) of this section) or another 
entity (for purposes of paragraph (c)(5) of this section), or the 
ability to direct the voting of more than 50 percent of the voting 
equity an issuer of securities included in the index (for purposes of 
paragraph (c)(4) of this section) or another entity (for purposes of 
paragraph (c)(5) of this section).
    (3) In identifying an issuer of securities included in the index for 
purposes of this section, the term issuer includes:
    (i) An issuer of securities; and
    (ii) An issuer of securities that is an issuing entity of an asset-
backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 
78c(a)(79)).
    (4) For purposes of calculating the thresholds in paragraphs 
(a)(1)(i) through (a)(1)(iii) of this section, the term issuer of the 
security included in the index includes a single issuer of securities 
included in the index or a group of affiliated issuers of securities 
included in the index as determined in accordance with paragraph (c)(1) 
of this section (with each issuer of securities included in the index 
that is an issuing entity of an asset-backed security as defined in 
section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)) being considered a 
separate issuer of securities included in the index).
    (5) For purposes of determining whether one of the criterion in 
either paragraphs (a)(1)(iv)(A) through (a)(1))(iv)(D) of this section 
or paragraphs (a)(1)(iv)(H)(1) and (a)(1)(iv)(H)(2) of this section is 
met, the term issuer of the security included in the index includes a 
single issuer of securities included in the index or a group affiliated 
entities as determined in accordance with paragraph (c)(1) of this 
section (with each issuing entity of an asset-backed security as defined 
in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)) being considered a 
separate entity).

[77 FR 48356, Aug. 13, 2012, as amended at 79 FR 57344, Sept. 24, 2014]



Sec.240.3a68-2  Requests for interpretation of swaps, security-based
swaps, and mixed swaps.

    (a) In general. Any person may submit a request to the Commission 
and the Commodity Futures Trading Commission to provide a joint 
interpretation of whether a particular agreement, contract, or 
transaction (or class thereof) is:
    (1) A swap, as that term is defined in section 3(a)(69) of the Act 
(15 U.S.C. 78c(a)(69)) and the rules and regulations promulgated 
thereunder;
    (2) A security-based swap, as that term is defined in section 
3(a)(68) of the Act (15 U.S.C. 78c(a)(68)) and the rules and regulations 
promulgated thereunder; or
    (3) A mixed swap, as that term is defined in section 3(a)(68)(D) of 
the Act and the rules and regulations promulgated thereunder.
    (b) Request process. In making a request pursuant to paragraph (a) 
of this section, the requesting person must provide the Commission and 
the Commodity Futures Trading Commission with the following:
    (1) All material information regarding the terms of the agreement, 
contract, or transaction (or class thereof);
    (2) A statement of the economic characteristics and purpose of the 
agreement, contract, or transaction (or class thereof);
    (3) The requesting person's determination as to whether the 
agreement, contract, or transaction (or class thereof) should be 
characterized as a swap, a security-based swap, or both (i.e., a mixed 
swap), including the basis for such determination; and
    (4) Such other information as may be requested by the Commission or 
the Commodity Futures Trading Commission.
    (c) Request withdrawal. A person may withdraw a request made 
pursuant to paragraph (a) of this section at any time prior to the 
issuance of a joint interpretation or joint proposed rule by

[[Page 57]]

the Commission and the Commodity Futures Trading Commission in response 
to the request; provided, however, that notwithstanding such withdrawal, 
the Commission and the Commodity Futures Trading Commission may provide 
a joint interpretation of whether the agreement, contract, or 
transaction (or class thereof) is a swap, a security-based swap, or both 
(i.e., a mixed swap).
    (d) Request by the Commission or the Commodity Futures Trading 
Commission. In the absence of a request for a joint interpretation under 
paragraph (a) of this section:
    (1) If the Commission or the Commodity Futures Trading Commission 
receives a proposal to list, trade, or clear an agreement, contract, or 
transaction (or class thereof) that raises questions as to the 
appropriate characterization of such agreement, contract, or transaction 
(or class thereof) as a swap, a security-based swap, or both (i.e., a 
mixed swap), the Commission or the Commodity Futures Trading Commission, 
as applicable, promptly shall notify the other of the agreement, 
contract, or transaction (or class thereof); and
    (2) The Commission or the Commodity Futures Trading Commission, or 
their Chairmen jointly, may submit a request for a joint interpretation 
as described in paragraph (a) of this section; such submission shall be 
made pursuant to paragraph (b) of this section, and may be withdrawn 
pursuant to paragraph (c) of this section.
    (e) Timeframe for joint interpretation. (1) If the Commission and 
the Commodity Futures Trading Commission determine to issue a joint 
interpretation as described in paragraph (a) of this section, such joint 
interpretation shall be issued within 120 days after receipt of a 
complete submission requesting a joint interpretation under paragraph 
(a) or (d) of this section.
    (2) The Commission and the Commodity Futures Trading Commission 
shall consult with the Board of Governors of the Federal Reserve System 
prior to issuing any joint interpretation as described in paragraph (a) 
of this section.
    (3) If the Commission and the Commodity Futures Trading Commission 
seek public comment with respect to a joint interpretation regarding an 
agreement, contract, or transaction (or class thereof), the 120-day 
period described in paragraph (e)(1) of this section shall be stayed 
during the pendency of the comment period, but shall recommence with the 
business day after the public comment period ends.
    (4) Nothing in this section shall require the Commission and the 
Commodity Futures Trading Commission to issue any joint interpretation.
    (5) If the Commission and the Commodity Futures Trading Commission 
do not issue a joint interpretation within the time period described in 
paragraph (e)(1) or (e)(3) of this section, each of the Commission and 
the Commodity Futures Trading Commission shall publicly provide the 
reasons for not issuing such a joint interpretation within the 
applicable timeframes.
    (f) Joint proposed rule. (1) Rather than issue a joint 
interpretation pursuant to paragraph (a) of this section, the Commission 
and the Commodity Futures Trading Commission may issue a joint proposed 
rule, in consultation with the Board of Governors of the Federal Reserve 
System, to further define one or more of the terms swap, security-based 
swap, or mixed swap.
    (2) A joint proposed rule described in paragraph (f)(1) of this 
section shall be issued within the timeframe for issuing a joint 
interpretation set forth in paragraph (e) of this section.

[77 FR 48356, Aug. 13, 2012]



Sec.240.3a68-3  Meaning of ``narrow-based security index'' as used 
in the definition of ``security-based swap.''

    (a) In general. Except as otherwise provided in Sec.240.3a68-1a 
and Sec.240.3a68-1b, for purposes of section 3(a)(68) of the Act (15 
U.S.C. 78c(a)(68)), the term narrow-based security index has the meaning 
set forth in section 3(a)(55) of the Act (15 U.S.C. 78c(a)(55)), and the 
rules, regulations, and orders of the Commission thereunder.
    (b) Tolerance period for swaps traded on designated contract 
markets, swap execution facilities and foreign boards of trade. 
Notwithstanding paragraph (a) of this section, solely for purposes of 
swaps traded on or subject to the rules of a designated contract market, 
swap

[[Page 58]]

execution facility, or foreign board of trade pursuant to the Commodity 
Exchange Act (7 U.S.C. 1 et seq.), a security index underlying such 
swaps shall not be considered a narrow-based security index if:
    (1)(i) A swap on the index is traded on or subject to the rules of a 
designated contract market, swap execution facility, or foreign board of 
trade pursuant to the Commodity Exchange Act (7 U.S.C. 1 et seq.) for at 
least 30 days as a swap on an index that was not a narrow-based security 
index; or
    (ii) Such index was not a narrow-based security index during every 
trading day of the six full calendar months preceding a date no earlier 
than 30 days prior to the commencement of trading of a swap on such 
index on a market described in paragraph (b)(1)(i) of this section; and
    (2) The index has been a narrow-based security index for no more 
than 45 business days over three consecutive calendar months.
    (c) Tolerance period for security-based swaps traded on national 
securities exchanges or security-based swap execution facilities. 
Notwithstanding paragraph (a) of this section, solely for purposes of 
security-based swaps traded on a national securities exchange or 
security-based swap execution facility, a security index underlying such 
security-based swaps shall be considered a narrow-based security index 
if:
    (1)(i) A security-based swap on the index is traded on a national 
securities exchange or security-based swap execution facility for at 
least 30 days as a security-based swap on a narrow-based security index; 
or
    (ii) Such index was a narrow-based security index during every 
trading day of the six full calendar months preceding a date no earlier 
than 30 days prior to the commencement of trading of a security-based 
swap on such index on a market described in paragraph (c)(1)(i) of this 
section; and
    (2) The index has been a security index that is not a narrow-based 
security index for no more than 45 business days over three consecutive 
calendar months.
    (d) Grace period. (1) Solely with respect to a swap that is traded 
on or subject to the rules of a designated contract market, swap 
execution facility or foreign board of trade pursuant to the Commodity 
Exchange Act (7 U.S.C. 1 et seq.), an index that becomes a narrow-based 
security index under paragraph (b) of this section solely because it was 
a narrow-based security index for more than 45 business days over three 
consecutive calendar months shall not be a narrow-based security index 
for the following three calendar months.
    (2) Solely with respect to a security-based swap that is traded on a 
national securities exchange or security-based swap execution facility, 
an index that becomes a security index that is not a narrow-based 
security index under paragraph (c) of this section solely because it was 
not a narrow-based security index for more than 45 business days over 
three consecutive calendar months shall be a narrow-based security index 
for the following three calendar months.

[77 FR 48356, Aug. 13, 2012]



Sec.240.3a68-4  Regulation of mixed swaps.

    (a) In general. The term mixed swap has the meaning set forth in 
section 3(a)(68)(D) of the Act (15 U.S.C. 78c(a)(68)(D)).
    (b) Regulation of bilateral uncleared mixed swaps entered into by 
dually-registered dealers or major participants. A mixed swap:
    (1) That is neither executed on nor subject to the rules of a 
designated contract market, national securities exchange, swap execution 
facility, security-based swap execution facility, or foreign board of 
trade;
    (2) That will not be submitted to a derivatives clearing 
organization or registered or exempt clearing agency to be cleared; and
    (3) Where at least one party is registered with the Commission as a 
security-based swap dealer or major security-based swap participant and 
also with the Commodity Futures Trading Commission as a swap dealer or 
major swap participant, shall be subject to:
    (i) The following provisions of the Commodity Exchange Act (7 U.S.C. 
1 et seq.), and the rules and regulations promulgated thereunder, set 
forth in the

[[Page 59]]

rules and regulations of the Commodity Futures Trading Commission:
    (A) Examinations and information sharing: 7 U.S.C. 6s(f) and 12;
    (B) Enforcement: 7 U.S.C. 2(a)(1)(B), 6(b), 6b, 6c, 6s(h)(1)(A), 
6s(h)(4)(A), 9, 13b, 13a-1, 13a-2, 13, 13c(a), 13c(b), 15 and 26;
    (C) Reporting to a swap data repository: 7 U.S.C. 6r;
    (D) Real-time reporting: 7 U.S.C. 2(a)(13);
    (E) Capital: 7 U.S.C. 6s(e); and
    (F) Position Limits: 7 U.S.C. 6a; and
    (ii) The provisions of the Federal securities laws, as defined in 
section 3(a)(47) of the Act (15 U.S.C. 78c(a)(47)), and the rules and 
regulations promulgated thereunder.
    (c) Process for determining regulatory treatment for other mixed 
swaps--(1) In general. Any person who desires or intends to list, trade, 
or clear a mixed swap (or class thereof) that is not subject to 
paragraph (b) of this section may request the Commission and the 
Commodity Futures Trading Commission to issue a joint order permitting 
the requesting person (and any other person or persons that subsequently 
lists, trades, or clears that mixed swap) to comply, as to parallel 
provisions only, with specified parallel provisions of either the Act 
(15 U.S.C. 78a et seq.) or the Commodity Exchange Act (7 U.S.C. 1 et 
seq.), and the rules and regulations thereunder (collectively, specified 
parallel provisions), instead of being required to comply with parallel 
provisions of both the Act and the Commodity Exchange Act. For purposes 
of this paragraph (c), parallel provisions means comparable provisions 
of the Act and the Commodity Exchange Act that were added or amended by 
the Wall Street Transparency and Accountability Act of 2010 with respect 
to security-based swaps and swaps, and the rules and regulations 
thereunder.
    (2) Request process. A person submitting a request pursuant to 
paragraph (c)(1) of this section must provide the Commission and the 
Commodity Futures Trading Commission with the following:
    (i) All material information regarding the terms of the specified, 
or specified class of, mixed swap;
    (ii) The economic characteristics and purpose of the specified, or 
specified class of, mixed swap;
    (iii) The specified parallel provisions, and the reasons the person 
believes such specified parallel provisions would be appropriate for the 
mixed swap (or class thereof); and
    (iv) An analysis of:
    (A) The nature and purposes of the parallel provisions that are the 
subject of the request;
    (B) The comparability of such parallel provisions;
    (C) The extent of any conflicts or differences between such parallel 
provisions; and
    (D) Such other information as may be requested by the Commission or 
the Commodity Futures Trading Commission.
    (3) Request withdrawal. A person may withdraw a request made 
pursuant to paragraph (c)(1) of this section at any time prior to the 
issuance of a joint order under paragraph (c)(4) of this section by the 
Commission and the Commodity Futures Trading Commission in response to 
the request.
    (4) Issuance of orders. In response to a request under paragraph 
(c)(1) of this section, the Commission and the Commodity Futures Trading 
Commission, as necessary to carry out the purposes of the Wall Street 
Transparency and Accountability Act of 2010, may issue a joint order, 
after notice and opportunity for comment, permitting the requesting 
person (and any other person or persons that subsequently lists, trades, 
or clears that mixed swap) to comply, as to parallel provisions only, 
with the specified parallel provisions (or another subset of the 
parallel provisions that are the subject of the request, as the 
Commissions determine is appropriate), instead of being required to 
comply with parallel provisions of both the Act (15 U.S.C. 78a et seq.) 
and the Commodity Exchange Act (7 U.S.C. 1 et seq.). In determining the 
contents of such joint order, the Commission and the Commodity Futures 
Trading Commission may consider, among other things:
    (i) The nature and purposes of the parallel provisions that are the 
subject of the request;

[[Page 60]]

    (ii) The comparability of such parallel provisions; and
    (iii) The extent of any conflicts or differences between such 
parallel provisions.
    (5) Timeframe. (i) If the Commission and the Commodity Futures 
Trading Commission determine to issue a joint order as described in 
paragraph (c)(4) of this section, such joint order shall be issued 
within 120 days after receipt of a complete request for a joint order 
under paragraph (c)(1) of this section, which time period shall be 
stayed during the pendency of the public comment period provided for in 
paragraph (c)(4) of this section and shall recommence with the business 
day after the public comment period ends.
    (ii) Nothing in this section shall require the Commission and the 
Commodity Futures Trading Commission to issue any joint order.
    (iii) If the Commission and the Commodity Futures Trading Commission 
do not issue a joint order within the time period described in paragraph 
(c)(5)(i) of this section, each of the Commission and the Commodity 
Futures Trading Commission shall publicly provide the reasons for not 
issuing such a joint order within that timeframe.

[77 FR 48356, Aug. 13, 2012]



Sec.240.3a68-5  Regulation of certain futures contracts on foreign
sovereign debt.

    The term security-based swap as used in section 3(a)(68) of the Act 
(15 U.S.C. 78c(a)(68)) does not include an agreement, contract, or 
transaction that is based on or references a qualifying foreign futures 
contract (as defined in Sec.240.3a12-8 on the debt securities of any 
one or more of the foreign governments enumerated in Sec.240.3a12-8, 
provided that such agreement, contract, or transaction satisfies the 
following conditions:
    (a) The futures contract that the agreement, contract, or 
transaction references or upon which the agreement, contract, or 
transaction is based is a qualifying foreign futures contract that 
satisfies the conditions of Sec.240.3a12-8 applicable to qualifying 
foreign futures contracts;
    (b) The agreement, contract, or transaction is traded on or through 
a board of trade (as defined in 7 U.S.C. 2);
    (c) The debt securities upon which the qualifying foreign futures 
contract is based or referenced and any security used to determine the 
cash settlement amount pursuant to paragraph (d) of this section were 
not registered under the Securities Act of 1933 (15 U.S.C. 77 et seq.) 
or the subject of any American depositary receipt registered under the 
Securities Act of 1933;
    (d) The agreement, contract, or transaction may only be cash 
settled; and
    (e) The agreement, contract or transaction is not entered into by 
the issuer of the debt securities upon which the qualifying foreign 
futures contract is based or referenced (including any security used to 
determine the cash payment due on settlement of such agreement, contract 
or transaction), an affiliate (as defined in the Securities Act of 1933 
(15 U.S.C. 77 et seq.) and the rules and regulations thereunder) of the 
issuer, or an underwriter of such issuer's debt securities.

[77 FR 48356, Aug. 13, 2012]



Sec.240.3a69-1  Safe Harbor Definition of ``security-based swap''
and ``swap'' as used in sections 3(a)(68) and 3(a)(69) of the
Act--insurance.

    (a) This paragraph is a non-exclusive safe harbor. The terms 
security-based swap as used in section 3(a)(68) of the Act (15 U.S.C. 
78c(a)(68)) and swap as used in section 3(a)(69) of the Act (15 U.S.C. 
78c(a)(69)) do not include an agreement, contract, or transaction that:
    (1) By its terms or by law, as a condition of performance on the 
agreement, contract, or transaction:
    (i) Requires the beneficiary of the agreement, contract, or 
transaction to have an insurable interest that is the subject of the 
agreement, contract, or transaction and thereby carry the risk of loss 
with respect to that interest continuously throughout the duration of 
the agreement, contract, or transaction;
    (ii) Requires that loss to occur and to be proved, and that any 
payment or indemnification therefor be limited to the value of the 
insurable interest;

[[Page 61]]

    (iii) Is not traded, separately from the insured interest, on an 
organized market or over the counter; and
    (iv) With respect to financial guaranty insurance only, in the event 
of payment default or insolvency of the obligor, any acceleration of 
payments under the policy is at the sole discretion of the insurer; and
    (2) Is provided:
    (i)(A) By a person that is subject to supervision by the insurance 
commissioner (or similar official or agency) of any State, as defined in 
section 3(a)(16) of the Act (15 U.S.C. 78c(a)(16)), or by the United 
States or an agency or instrumentality thereof; and
    (B) Such agreement, contract, or transaction is regulated as 
insurance under applicable State law or the laws of the United States;
    (ii)(A) Directly or indirectly by the United States, any State or 
any of their respective agencies or instrumentalities; or
    (B) Pursuant to a statutorily authorized program thereof; or
    (iii) In the case of reinsurance only by a person to another person 
that satisfies the conditions set forth in paragraph (a)(2) of this 
section, provided that:
    (A) Such person is not prohibited by applicable State law or the 
laws of the United States from offering such agreement, contract, or 
transaction to such person that satisfies the conditions set forth in 
paragraph (a)(2) of this section;
    (B) The agreement, contract, or transaction to be reinsured 
satisfies the conditions set forth in paragraph (a)(1) or (3) of this 
section; and
    (C) Except as otherwise permitted under applicable State law, the 
total amount reimbursable by all reinsurers for such agreement, 
contract, or transaction may not exceed the claims or losses paid by the 
person writing the risk being ceded or transferred by such person; or
    (iv) In the case of non-admitted insurance by a person who:
    (A) Is located outside of the United States and listed on the 
Quarterly Listing of Alien Insurers as maintained by the International 
Insurers Department of the National Association of Insurance 
Commissioners; or
    (B) Meets the eligibility criteria for non-admitted insurers under 
applicable State law; or
    (3) Is provided in accordance with the conditions set forth in 
paragraph (a)(2) of this section and is one of the following types of 
products:
    (i) Surety bond;
    (ii) Fidelity bond;
    (iii) Life insurance;
    (iv) Health insurance;
    (v) Long term care insurance;
    (vi) Title insurance;
    (vii) Property and casualty insurance;
    (viii) Annuity;
    (ix) Disability insurance;
    (x) Insurance against default on individual residential mortgages; 
and
    (xi) Reinsurance of any of the foregoing products identified in 
paragraphs (i) through (x) of this section.
    (b) The terms security-based swap as used in section 3(a)(68) of the 
Act (15 U.S.C. 78c(a)(68)) and swap as used in section 3(a)(69) of the 
Act (15 U.S.C. 78c(a)(69)) do not include an agreement, contract, or 
transaction that was entered into on or before the effective date of 
this section and that, at such time that it was entered into, was 
provided in accordance with the conditions set forth in paragraph (a)(2) 
of this section.

[77 FR 48356, Aug. 13, 2012]



Sec.240.3a69-2  Definition of ``swap'' as used in section 3(a)(69)
of the Act--additional products.

    (a) In general. The term swap has the meaning set forth in section 
3(a)(69) of the Act (15 U.S.C. 78c(a)(69)).
    (b) Inclusion of particular products. (1) The term swap includes, 
without limiting the meaning set forth in section 3(a)(69) of the Act 
(15 U.S.C. 78c(a)(69)), the following agreements, contracts, and 
transactions:
    (i) A cross-currency swap;
    (ii) A currency option, foreign currency option, foreign exchange 
option and foreign exchange rate option;
    (iii) A foreign exchange forward;
    (iv) A foreign exchange swap;
    (v) A forward rate agreement; and
    (vi) A non-deliverable forward involving foreign exchange.

[[Page 62]]

    (2) The term swap does not include an agreement, contract, or 
transaction described in paragraph (b)(1) of this section that is 
otherwise excluded by section 1a(47)(B) of the Commodity Exchange Act (7 
U.S.C. 1a(47)(B)).
    (c) Foreign exchange forwards and foreign exchange swaps. 
Notwithstanding paragraph (b)(2) of this section:
    (1) A foreign exchange forward or a foreign exchange swap shall not 
be considered a swap if the Secretary of the Treasury makes a 
determination described in section 1a(47)(E)(i) of the Commodity 
Exchange Act (7 U.S.C. 1a(47)(E)(i)).
    (2) Notwithstanding paragraph (c)(1) of this section:
    (i) The reporting requirements set forth in section 4r of the 
Commodity Exchange Act (7 U.S.C. 6r) and regulations promulgated 
thereunder shall apply to a foreign exchange forward or foreign exchange 
swap; and
    (ii) The business conduct standards set forth in section 4s(h) of 
the Commodity Exchange Act (7 U.S.C. 6s) and regulations promulgated 
thereunder shall apply to a swap dealer or major swap participant that 
is a party to a foreign exchange forward or foreign exchange swap.
    (3) For purposes of section 1a(47)(E) of the Commodity Exchange Act 
(7 U.S.C. 1a(47)(E)) and this section, the term foreign exchange forward 
has the meaning set forth in section 1a(24) of the Commodity Exchange 
Act (7 U.S.C. 1a(24)).
    (4) For purposes of section 1a(47)(E) of the Commodity Exchange Act 
(7 U.S.C. 1a(47)(E)) and this section, the term foreign exchange swap 
has the meaning set forth in section 1a(25) of the Commodity Exchange 
Act (7 U.S.C. 1a(25)).
    (5) For purposes of sections 1a(24) and 1a(25) of the Commodity 
Exchange Act (7 U.S.C. 1a(24) and (25)) and this section, the following 
transactions are not foreign exchange forwards or foreign exchange 
swaps:
    (i) A currency swap or a cross-currency swap;
    (ii) A currency option, foreign currency option, foreign exchange 
option, or foreign exchange rate option; and
    (iii) A non-deliverable forward involving foreign exchange.

[77 FR 48356, Aug. 13, 2012]



Sec.240.3a69-3  Books and records requirements for security-based
swap agreements.

    (a) A person registered as a swap data repository under section 21 
of the Commodity Exchange Act (7 U.S.C. 24a) and the rules and 
regulations thereunder:
    (1) Shall not be required to keep and maintain additional books and 
records regarding security-based swap agreements other than the books 
and records regarding swaps required to be kept and maintained pursuant 
to section 21 of the Commodity Exchange Act (7 U.S.C. 24a) and the rules 
and regulations thereunder; and
    (2) Shall not be required to collect and maintain additional data 
regarding security-based swap agreements other than the data regarding 
swaps required to be collected and maintained by such persons pursuant 
to section 21 of the Commodity Exchange Act (7 U.S.C. 24a) and the rules 
and regulations thereunder.
    (b) A person shall not be required to keep and maintain additional 
books and records, including daily trading records, regarding security-
based swap agreements other than the books and records regarding swaps 
required to be kept and maintained by such persons pursuant to section 
4s of the Commodity Exchange Act (7 U.S.C. 6s) and the rules and 
regulations thereunder if such person is registered as:
    (1) A swap dealer under section 4s(a)(1) of the Commodity Exchange 
Act (7 U.S.C. 6s(a)(1)) and the rules and regulations thereunder;
    (2) A major swap participant under section 4s(a)(2) of the Commodity 
Exchange Act (7 U.S.C. 6s(a)(2)) and the rules and regulations 
thereunder;
    (3) A security-based swap dealer under section 15F(a)(1) of the Act 
(15 U.S.C. 78o-10(a)(1)) and the rules and regulations thereunder; or
    (4) A major security-based swap participant under section 15F(a)(2) 
of the Act (15 U.S.C. 78o-10(a)(2)) and the rules and regulations 
thereunder.
    (c) The term security-based swap agreement has the meaning set forth 
in

[[Page 63]]

section 3(a)(78) of the Act (15 U.S.C. 78c(a)(78)).

[77 FR 48356, Aug. 13, 2012]



Sec.240.3a71-1  Definition of ``security-based swap dealer.''

    (a) General. The term security-based swap dealer in general means 
any person who:
    (1) Holds itself out as a dealer in security-based swaps;
    (2) Makes a market in security-based swaps;
    (3) Regularly enters into security-based swaps with counterparties 
as an ordinary course of business for its own account; or
    (4) Engages in any activity causing it to be commonly known in the 
trade as a dealer or market maker in security-based swaps.
    (b) Exception. The term security-based swap dealer does not include 
a person that enters into security-based swaps for such person's own 
account, either individually or in a fiduciary capacity, but not as a 
part of regular business.
    (c) Scope of designation. A person that is a security-based swap 
dealer in general shall be deemed to be a security-based swap dealer 
with respect to each security-based swap it enters into, regardless of 
the type, class, or category of the security-based swap or the person's 
activities in connection with the security-based swap, unless the 
Commission limits the person's designation as a security-based swap 
dealer to specified types, classes, or categories of security-based 
swaps or specified activities of the person in connection with security-
based swaps.
    (d) Inter-affiliate activities--(1) General. In determining whether 
a person is a security-based swap dealer, that person's security-based 
swaps with majority-owned affiliates shall not be considered.
    (2) Meaning of majority-owned. For these purposes the counterparties 
to a security-based swap are majority-owned affiliates if one 
counterparty directly or indirectly owns a majority interest in the 
other, or if a third party directly or indirectly owns a majority 
interest in both counterparties to the security-based swap, where 
``majority interest'' is the right to vote or direct the vote of a 
majority of a class of voting securities of an entity, the power to sell 
or direct the sale of a majority of a class of voting securities of an 
entity, or the right to receive upon dissolution or the contribution of 
a majority of the capital of a partnership.

[78 FR 30751, May 23, 2013]



Sec.240.3a71-2  De minimis exception.

    (a) Requirements. For purposes of section 3(a)(71) of the Act (15 
U.S.C. 78c(a)(71)) and Sec.240.3a71-1, a person that is not currently 
registered as a security-based swap dealer shall be deemed not to be a 
security-based swap dealer, and, therefore, shall not be subject to 
section 15F of the Act (15 U.S.C. 78o-10) and the rules, regulations and 
interpretations issued thereunder, as a result of security-based swap 
dealing activity that meets the following conditions:
    (1) Notional thresholds. The security-based swap positions connected 
with the dealing activity in which the person--or any other entity 
controlling, controlled by or under common control with the person--
engages over the course of the immediately preceding 12 months (or 
following the effective date of final rules implementing section 
3(a)(68) of the Act (15 U.S.C. 78c(a)(68)) if that period is less than 
12 months) have:
    (i) An aggregate gross notional amount of no more than $3 billion, 
subject to a phase-in level of an aggregate gross notional amount of no 
more than $8 billion applied in accordance with paragraph (a)(2)(i) of 
this section, with regard to credit default swaps that constitute 
security-based swaps;
    (ii) An aggregate gross notional amount of no more than $150 
million, subject to a phase-in level of an aggregate gross notional 
amount of no more than $400 million applied in accordance with paragraph 
(a)(2)(i) of this section, with regard to security-based swaps not 
described in paragraph (a)(1)(i) of this section; and
    (iii) An aggregate gross notional amount of no more than $25 million 
with regard to all security-based swaps in which the counterparty is a 
special entity (as that term is defined in section 15F(h)(2)(C) of the 
Act (15 U.S.C. 78o-10(h)(2)(C)).
    (2) Phase-in procedure--(i) Phase-in period. For purposes of 
paragraphs

[[Page 64]]

(a)(1)(i) and (ii) of this section, a person that engages in security-
based swap dealing activity that does not exceed either of the phase-in 
levels set forth in paragraphs (a)(1)(i) and (ii) of this section, as 
applicable, shall be deemed not to be a security-based swap dealer, and, 
therefore, shall not be subject to Section 15F of the Act (15 U.S.C. 
78o-10) and the rules, regulations and interpretations issued 
thereunder, as a result of its security-based swap dealing activity, 
until the ``phase-in termination date'' established as provided in 
paragraph (a)(2)(ii) of this section; provided, however, that this 
phase-in period shall not be available to the extent that a person 
engages in security-based swap dealing activity with counterparties that 
are natural persons, other than natural persons who qualify as eligible 
contract participants by virtue of section 1a(18)(A)(xi)(II) of the 
Commodity Exchange Act, (7 U.S.C. 1a(18)(A)(xi)(II)). The Commission 
shall announce the phase-in termination date on the Commission Web site 
and publish such date in the Federal Register.
    (ii) Establishment of phase-in termination date. (A) Nine months 
after the publication of the staff report described in Appendix A of 
this section, and after giving due consideration to that report and any 
associated public comment, the Commission may either:
    (1) Terminate the phase-in period set forth in paragraph (a)(2)(i) 
of this section, in which case the phase-in termination date shall be 
established by the Commission by order published in the Federal 
Register; or
    (2) Determine that it is necessary or appropriate in the public 
interest to propose through rulemaking an alternative to the $3 billion 
and $150 million amounts set forth in paragraphs (a)(1)(i) and (ii) of 
this section, as applicable, that would constitute a de minimis quantity 
of security-based swap dealing in connection with transactions with or 
on behalf of customers within the meaning of section 3(a)(71)(D) of the 
Act, (15 U.S.C. 78c(a)(71)(D)), in which case the Commission shall by 
order published in the Federal Register provide notice of such 
determination to propose through rulemaking an alternative, which order 
shall also establish the phase-in termination date.
    (B) If the phase-in termination date has not been previously 
established pursuant to paragraph (a)(2)(ii)(A) of this section, then in 
any event the phase-in termination date shall occur five years after the 
data collection initiation date defined in paragraph (a)(2)(iii) of this 
section.
    (iii) Data collection initiation date. The term ``data collection 
initiation date'' shall mean the date that is the later of: the last 
compliance date for the registration and regulatory requirements for 
security-based swap dealers and major security-based swap participants 
under Section 15F of the Act (15 U.S.C. 78o-10); or the first date on 
which compliance with the trade-by-trade reporting rules for credit-
related and equity-related security-based swaps to a registered 
security-based swap data repository is required. The Commission shall 
announce the data collection initiation date on the Commission Web site 
and publish such date in the Federal Register.
    (3) Use of effective notional amounts. For purposes of paragraph 
(a)(1) of this section, if the stated notional amount of a security-
based swap is leveraged or enhanced by the structure of the security-
based swap, the calculation shall be based on the effective notional 
amount of the security-based swap rather than on the stated notional 
amount.
    (b) Registration period for persons that no longer can take 
advantage of the exception. A person that has not registered as a 
security-based swap dealer by virtue of satisfying the requirements of 
paragraph (a) of this section, but that no longer can take advantage of 
the de minimis exception provided for in paragraph (a) of this section, 
will be deemed not to be a security-based swap dealer under section 
3(a)(71) of the Act (15 U.S.C. 78c(a)(71)) and subject to the 
requirements of section 15F of the Act (15 U.S.C. 78o-10) and the rules, 
regulations and interpretations issued thereunder until the earlier of 
the date on which it submits a complete application for registration 
pursuant to section 15F(b) (15 U.S.C. 78o-10(b)) or two months after the 
end of the month in which that person becomes no longer

[[Page 65]]

able to take advantage of the exception.
    (c) Applicability to registered security-based swap dealers. A 
person who currently is registered as a security-based swap dealer may 
apply to withdraw that registration, while continuing to engage in 
security-based swap dealing activity in reliance on this section, so 
long as that person has been registered as a security-based swap dealer 
for at least 12 months and satisfies the conditions of paragraph (a) of 
this section.
    (d) Future adjustments to scope of the de minimis exception. The 
Commission may by rule or regulation change the requirements of the de 
minimis exception described in paragraphs (a) through (c) of this 
section.
    (e) Voluntary registration. Notwithstanding paragraph (a) of this 
section, a person that chooses to register with the Commission as a 
security-based swap dealer shall be deemed to be a security-based swap 
dealer, and, therefore, shall be subject to Section 15F of the Act (15 
U.S.C 78o-10) and the rules, regulations and interpretations issued 
thereunder.

[78 FR 30751, May 23, 2013]



Sec.240.3a71-2A  Report regarding the ``security-based swap dealer''
and ``major security-based swap participant'' definitions 
(Appendix A to 17 CFR 240.3a71-2).
          

    Appendix A to Sec.240.3a71-2 sets forth guidelines applicable to a 
report that the Commission has directed its staff to make in connection 
with the rules and interpretations further defining the Act's 
definitions of the terms ``security-based swap dealer'' (including the 
de minimis exception to that definition) and ``major security-based swap 
participant.'' The Commission intends to consider this report in 
reviewing the effect and application of these rules based on the 
evolution of the security-based swap market following the implementation 
of the registration and regulatory requirements of Section 15F of the 
Act (15 U.S.C. 78o-10). The report may also be informative as to 
potential changes to the rules further defining those terms. In 
producing this report, the staff shall consider security-based swap data 
collected by the Commission pursuant to other Title VII rules, as well 
as any other applicable information as the staff may determine to be 
appropriate for its analysis.
    (a) Report topics. As appropriate, based on the availability of data 
and information, the report should address the following topics:
    (1) De minimis exception. In connection with the de minimis 
exception to the definition of ``security-based swap dealer,'' the 
report generally should assess whether any of the de minimis thresholds 
set forth in paragraph (a)(1) of Sec.240.3a71-2 should be increased or 
decreased;
    (2) General security-based swap dealer analysis. In connection with 
the definition of ``security-based swap dealer,'' the report generally 
should consider the factors that are useful for identifying security-
based swap dealing activity, including the application of the dealer-
trader distinction for that purpose, and the potential use of more 
objective tests or safe harbors as part of the analysis;
    (3) General major security-based swap participant analysis. In 
connection with the definition of ``major security-based swap 
participant,'' the report generally should consider the tests used to 
identify the presence of a ``substantial position'' in a major category 
of security-based swaps, and the tests used to identify persons whose 
security-based swap positions create ``substantial counterparty 
exposure,'' including the potential use of alternative tests or 
thresholds;
    (4) Commercial risk hedging exclusion. In connection with the 
definition of ``major security-based swap participant,'' the report 
generally should consider the definition of ``hedging or mitigating 
commercial risk,'' including whether that latter definition 
inappropriately permits certain positions to be excluded from the 
``substantial position'' analysis, and whether the continued 
availability of the exclusion for such hedging positions should be 
conditioned on a person assessing and documenting the hedging 
effectiveness of those positions;
    (5) Highly leveraged financial entities. In connection with the 
definition of

[[Page 66]]

``major security-based swap participant,'' the report generally should 
consider the definition of ``highly leveraged,'' including whether 
alternative approaches should be used to identify highly leveraged 
financial entities;
    (6) Inter-affiliate exclusions. In connection with the definitions 
of ``security-based swap dealer'' and ``major security-based swap 
participant,'' the report generally should consider the impact of rule 
provisions excluding inter-affiliate transactions from the relevant 
analyses, and should assess potential alternative approaches for such 
exclusions; and
    (7) Other topics. Any other analysis of security-based swap data and 
information the Commission or the staff deem relevant to this rule.
    (b) Timing of report. The report shall be completed no later than 
three years following the data collection initiation date, established 
pursuant to Sec.240.3a71-2(a)(2)(iii).
    (c) Public comment on the report. Following completion of the 
report, the report shall be published in the Federal Register for public 
comment.



Sec.240.3a71-3  Cross-border security-based swap dealing activity.

    (a) Definitions. As used in this section, the following terms shall 
have the meanings indicated:
    (1) Conduit affiliate--(i) Definition. Conduit affiliate means a 
person, other than a U.S. person, that:
    (A) Is directly or indirectly majority-owned by one or more U.S. 
persons; and
    (B) In the regular course of business enters into security-based 
swaps with one or more other non-U.S. persons, or with foreign branches 
of U.S. banks that are registered as security-based swap dealers, for 
the purpose of hedging or mitigating risks faced by, or otherwise taking 
positions on behalf of, one or more U.S. persons (other than U.S. 
persons that are registered as security-based swap dealers or major 
security-based swap participants) who are controlling, controlled by, or 
under common control with the person, and enters into offsetting 
security-based swaps or other arrangements with such U.S. persons to 
transfer risks and benefits of those security-based swaps.
    (ii) Majority-ownership standard. The majority-ownership standard in 
paragraph (a)(1)(i)(A) of this section is satisfied if one or more 
persons described in Sec.240.3a71-3(a)(4)(i)(B) directly or indirectly 
own a majority interest in the non-U.S. person, where ``majority 
interest'' is the right to vote or direct the vote of a majority of a 
class of voting securities of an entity, the power to sell or direct the 
sale of a majority of a class of voting securities of an entity, or the 
right to receive upon dissolution, or the contribution of, a majority of 
the capital of a partnership.
    (2) Foreign branch means any branch of a U.S. bank if:
    (i) The branch is located outside the United States;
    (ii) The branch operates for valid business reasons; and
    (iii) The branch is engaged in the business of banking and is 
subject to substantive banking regulation in the jurisdiction where 
located.
    (3) Transaction conducted through a foreign branch--(i) Definition. 
Transaction conducted through a foreign branch means a security-based 
swap transaction that is arranged, negotiated, and executed by a U.S. 
person through a foreign branch of such U.S. person if:
    (A) The foreign branch is the counterparty to such security-based 
swap transaction; and
    (B) The security-based swap transaction is arranged, negotiated, and 
executed on behalf of the foreign branch solely by persons located 
outside the United States.
    (ii) Representations. A person shall not be required to consider its 
counterparty's activity in connection with paragraph (a)(3)(i)(B) of 
this section in determining whether a security-based swap transaction is 
a transaction conducted through a foreign branch if such person receives 
a representation from its counterparty that the security-based swap 
transaction is arranged, negotiated, and executed on behalf of the 
foreign branch solely by persons located outside the United States, 
unless such person knows or has reason to know that the representation 
is not accurate; for the purposes of this final rule a person would have 
reason to

[[Page 67]]

know the representation is not accurate if a reasonable person should 
know, under all of the facts of which the person is aware, that it is 
not accurate.
    (4) U.S. person. (i) Except as provided in paragraph (a)(4)(iii) of 
this section, U.S. person means any person that is:
    (A) A natural person resident in the United States;
    (B) A partnership, corporation, trust, investment vehicle, or other 
legal person organized, incorporated, or established under the laws of 
the United States or having its principal place of business in the 
United States;
    (C) An account (whether discretionary or non-discretionary) of a 
U.S. person; or
    (D) An estate of a decedent who was a resident of the United States 
at the time of death.
    (ii) For purposes of this section, principal place of business means 
the location from which the officers, partners, or managers of the legal 
person primarily direct, control, and coordinate the activities of the 
legal person. With respect to an externally managed investment vehicle, 
this location is the office from which the manager of the vehicle 
primarily directs, controls, and coordinates the investment activities 
of the vehicle.
    (iii) The term U.S. person does not include the International 
Monetary Fund, the International Bank for Reconstruction and 
Development, the Inter-American Development Bank, the Asian Development 
Bank, the African Development Bank, the United Nations, and their 
agencies and pension plans, and any other similar international 
organizations, their agencies and pension plans.
    (iv) A person shall not be required to consider its counterparty to 
a security-based swap to be a U.S. person if such person receives a 
representation from the counterparty that the counterparty does not 
satisfy the criteria set forth in paragraph (a)(4)(i) of this section, 
unless such person knows or has reason to know that the representation 
is not accurate; for the purposes of this final rule a person would have 
reason to know the representation is not accurate if a reasonable person 
should know, under all of the facts of which the person is aware, that 
it is not accurate.
    (5) United States means the United States of America, its 
territories and possessions, any State of the United States, and the 
District of Columbia.
    (6) U.S. security-based swap dealer means a security-based swap 
dealer, as defined in section 3(a)(71) of the Act (15 U.S.C. 
78c(a)(71)), and the rules and regulations thereunder, that is a U.S. 
person.
    (7) Foreign security-based swap dealer means a security-based swap 
dealer, as defined in section 3(a)(71) of the Act (15 U.S.C. 
78c(a)(71)), and the rules and regulations thereunder, that is not a 
U.S. person.
    (8) U.S. business means:
    (i) With respect to a foreign security-based swap dealer:
    (A) Any security-based swap transaction entered into, or offered to 
be entered into, by or on behalf of such foreign security-based swap 
dealer, with a U.S. person (other than a transaction conducted through a 
foreign branch of that person); or
    (B) Any security-based swap transaction arranged, negotiated, or 
executed by personnel of the foreign security-based swap dealer located 
in a U.S. branch or office, or by personnel of an agent of the foreign 
security-based swap dealer located in a U.S. branch or office; and
    (ii) With respect to a U.S. security-based swap dealer, any 
transaction entered into or offered to be entered into by or on behalf 
of such U.S. security-based swap dealer, other than a transaction 
conducted through a foreign branch with a non-U.S. person or with a 
U.S.-person counterparty that constitutes a transaction conducted 
through a foreign branch of the counterparty.
    (9) Foreign business means security-based swap transactions entered 
into, or offered to be entered into, by or on behalf of a security-based 
swap dealer, other than the U.S. business of such person.
    (b) Application of de minimis exception to cross-border dealing 
activity. For purposes of calculating the amount of security-based swap 
positions connected with dealing activity under Sec.240.3a71-2(a)(1), 
except as provided in Sec.240.3a71-

[[Page 68]]

5, a person shall include the following security-based swap 
transactions:
    (1)(i) If such person is a U.S. person, all security-based swap 
transactions connected with the dealing activity in which such person 
engages, including transactions conducted through a foreign branch;
    (ii) If such person is a conduit affiliate, all security-based swap 
transactions connected with the dealing activity in which such person 
engages; and
    (iii) If such person is a non-U.S. person other than a conduit 
affiliate, all of the following types of transactions:
    (A) Security-based swap transactions connected with the dealing 
activity in which such person engages that are entered into with a U.S. 
person; provided, however, that this paragraph (b)(1)(iii)(A) shall not 
apply to:
    (1) Transactions with a U.S. person counterparty that constitute 
transactions conducted through a foreign branch of the counterparty, 
when the counterparty is a registered security-based swap dealer; and
    (2) Transactions with a U.S. person counterparty that constitute 
transactions conducted through a foreign branch of the counterparty, 
when the transaction is entered into prior to 60 days following the 
earliest date on which the registration of security-based swap dealers 
is first required pursuant to the applicable final rules and 
regulations; and
    (B) Security-based swap transactions connected with the dealing 
activity in which such person engages for which the counterparty to the 
security-based swap has rights of recourse against a U.S. person that is 
controlling, controlled by, or under common control with the non-U.S. 
person; for these purposes a counterparty has rights of recourse against 
the U.S. person if the counterparty has a conditional or unconditional 
legally enforceable right, in whole or in part, to receive payments 
from, or otherwise collect from, the U.S. person in connection with the 
security-based swap; and
    (C) Unless such person is a person described in paragraph 
(a)(4)(iii) of this section, security-based swap transactions connected 
with such person's security-based swap dealing activity that are 
arranged, negotiated, or executed by personnel of such non-U.S. person 
located in a U.S. branch or office, or by personnel of an agent of such 
non-U.S. person located in a U.S. branch or office; and
    (2) If such person engages in transactions described in paragraph 
(b)(1) of this section, except as provided in Sec.240.3a71-4, all of 
the following types of security-based swap transactions:
    (i) Security-based swap transactions connected with the dealing 
activity in which any U.S. person controlling, controlled by, or under 
common control with such person engages, including transactions 
conducted through a foreign branch;
    (ii) Security-based swap transactions connected with the dealing 
activity in which any conduit affiliate controlling, controlled by, or 
under common control with such person engages; and
    (iii) Security-based swap transactions connected with the dealing 
activity of any non-U.S. person, other than a conduit affiliate, that is 
controlling, controlled by, or under common control with such person, 
that are described in paragraph (b)(1)(iii) of this section.
    (c) Application of customer protection requirements. A registered 
security-based swap dealer, with respect to its foreign business, shall 
not be subject to the requirements relating to business conduct 
standards described in section 15F(h) of the Act (15 U.S.C. 78o-10(h)), 
and the rules and regulations thereunder, other than the rules and 
regulations prescribed by the Commission pursuant to section 
15F(h)(1)(B) of the Act (15 U.S.C. 78o-10(h)(1)(B)).

[79 FR 47370, Aug. 12, 2014, as amended at 81 FR 8637, Feb. 19, 2016, 81 
FR 30142, May 13, 2016]

    Effective Date Note: At 85 FR 6350, Feb. 4, 2020, Sec.240.3a71-3 
was amended by adding paragraphs (a)(10) through (13) and (d) and 
revising paragraph (b)(1)(iii)(C), effective Apr. 6, 2020. For the 
convenience of the user, the added and revised text is set forth as 
follows:



Sec.240.3a71-3  Cross-border security-based swap dealing activity.

    (a) * * *
    (10) An entity is a majority-owned affiliate of another entity if 
the entity directly or indirectly owns a majority interest in the

[[Page 69]]

other, or if a third party directly or indirectly owns a majority 
interest in both entities, where ``majority interest'' is the right to 
vote or direct the vote of a majority of a class of voting securities of 
an entity, the power to sell or direct the sale of a majority of a class 
of voting securities of an entity, or the right to receive upon 
dissolution, or the contribution of, a majority of the capital of a 
partnership.
    (11) Foreign associated person means a natural person domiciled 
outside the United States who--with respect to a non-U.S. person relying 
on the exception set forth in paragraph (d) of this section--is a 
partner, officer, director, or branch manager of such non-U.S. person 
(or any person occupying a similar status or performing similar 
functions), any person directly or indirectly controlling, controlled 
by, or under common control with such non-U.S. person, or any employee 
of such non-U.S. person.
    (12) Listed jurisdiction means any jurisdiction that the Commission 
by order has designated as a listed jurisdiction for purposes of the 
exception specified in paragraph (d) of this section.
    (13) Covered inter-dealer security-based swap means any security-
based swap between:
    (i) A non-U.S. person relying on the exception in paragraph (d) of 
this section; and
    (ii) A non-U.S. person that is, or is an affiliate of, a registered 
security-based swap dealer or registered broker that has filed with the 
Commission a notice pursuant to paragraph (d)(1)(vi) of this section; 
provided, however, that a covered inter-dealer security-based swap does 
not include a security-based swap with a non-U.S. person that the non-
U.S. person relying on the exception in paragraph (d) of this section 
reasonably determines at the time of execution of the security-based 
swap is neither a registered security-based swap dealer or registered 
broker that has filed with the Commission a notice pursuant to paragraph 
(d)(1)(vi) of this section nor an affiliate of such a registered 
security-based swap dealer or registered broker.
    (b) * * *
    (1) * * *
    (iii) * * *
    (C) Except as provided in paragraph (d) of this section, or unless 
such person is a person described in paragraph (a)(4)(iii) of this 
section, security-based swap transactions connected with such person's 
security-based swap dealing activity that are arranged, negotiated, or 
executed by personnel of such non-U.S. person located in a U.S. branch 
or office, or by personnel of an agent of such non-U.S. person located 
in a U.S. branch or office; and

                                * * * * *

    (d) Exception from counting certain transactions. The counting 
requirement described by paragraph (b)(1)(iii)(C) of this section will 
not apply to the security-based swap dealing transactions of a non-U.S. 
person if the conditions of paragraph (d)(1) of this section have been 
satisfied.
    (1) Conditions--(i) Entity conducting U.S. activity. All activity 
that otherwise would cause a security-based swap transaction to be 
described by paragraph (b)(1)(iii)(C) of this section--namely, all 
arranging, negotiating or executing activity that is conducted by 
personnel of the entity (or its agent) located in a branch or office in 
the United States--is conducted by such U.S. personnel in their capacity 
as persons associated with an entity that:
    (A) Is registered with the Commission as:
    (1) A broker registered under section 15 of the Act (15 U.S.C. 78o) 
that is subject to and complies with Sec.240.15c3-1(a)(7);
    (2) A broker registered under section 15 of the Act (15 U.S.C. 78o), 
other than a broker that is subject to Sec.240.15c3-1(a)(7), that 
complies with Sec.240.15c3-1(a)(10), as if that entity were registered 
with the Commission as a security-based swap dealer, if it is not so 
registered; or
    (3) A security-based swap dealer; and
    (B) Is a majority-owned affiliate of the non-U.S. person relying on 
this exception.
    (ii) Compliance with specified security-based swap dealer 
requirements--(A) Compliance required. In connection with such 
transactions, the registered entity described in paragraph (d)(1)(i) of 
this section complies with the requirements described in paragraph 
(d)(1)(ii)(B) of this section
    (1) As if the counterparties to the non-U.S. person relying on this 
exception also were counterparties to that entity; and
    (2) As if that entity were registered with the Commission as a 
security-based swap dealer, if it is not so registered.
    (B) Applicable requirements. The compliance obligation described in 
paragraph (d)(1)(ii)(A) of this section applies to the following 
provisions of the Act and the rules and regulations thereunder:
    (1) Section 15F(h)(3)(B)(i), (ii) and Sec.240.15Fh-3(b), including 
in connection with material incentives and conflicts of interest 
associated with the non-U.S. person relying on the exception;
    (2) Section 240.15Fh-3(f)(1); provided, however, that if the 
registered entity described in paragraph (d)(1)(i) of this section 
reasonably determines that the counterparty to whom it recommends a 
security-based swap or trading strategy involving a security-based swap 
is an ``institutional counterparty'' as defined in Sec.240.15Fh-
3(f)(4), the registered entity instead may fulfill its obligations under 
Sec.240.15Fh-3(f)(1)(ii) if it discloses to the counterparty that it 
is not undertaking to assess the suitability of the

[[Page 70]]

security-based swap or trading strategy involving a security-based swap 
for the counterparty;
    (3) Section 15F(h)(3)(C) of the Act and Sec.240.15Fh-3(g); and
    (4) Sections 240.15Fi-1 and 240.15Fi-2.
    (iii) Commission access to books, records and testimony. (A) The 
non-U.S. person relying on this exception promptly provides 
representatives of the Commission (upon request of the Commission or its 
representatives or pursuant to a supervisory or enforcement memorandum 
of understanding or other arrangement or agreement reached between any 
foreign securities authority, including any foreign government, as 
specified in section 3(a)(50) of the Act, and the Commission or the U.S. 
Government) with any information or documents within the non-U.S. 
person's possession, custody, or control, promptly makes its foreign 
associated persons available for testimony, and provides any assistance 
in taking the evidence of other persons, wherever located, that the 
Commission or its representatives requests and that relates to 
transactions subject to this exception; provided, however, that if, 
after exercising its best efforts, the non-U.S. person is prohibited by 
applicable foreign law or regulations from providing such information, 
documents, testimony, or assistance, the non-U.S. person may continue to 
rely on this exception until the Commission issues an order modifying or 
withdrawing an associated ``listed jurisdiction'' determination pursuant 
to paragraph (d)(2)(iii) of this section.
    (B) The registered entity described in paragraph (d)(1)(i) of this 
section:
    (1) Creates and maintains books and records relating to the 
transactions subject to this exception that are required, as applicable, 
by Sec.Sec.240.17a-3 and 240.17a-4, or by Sec.Sec.240.18a-5 and 
240.18a-6, including any books and records requirements relating to the 
provisions specified in paragraph (d)(1)(ii)(B) of this section;
    (2) Obtains from the non-U.S. person relying on the exception, and 
maintains for not less than three years following the activity described 
in paragraph (d)(1)(i) of this section, the first two years in an easily 
accessible place, documentation regarding such non-U.S. person's 
compliance with the condition in paragraph (d)(1)(vii) of this section;
    (3) Obtains from the non-U.S. person relying on the exception, and 
maintains for not less than three years following the activity described 
in paragraph (d)(1)(i) of this section, the first two years in an easily 
accessible place, documentation encompassing all terms governing the 
trading relationship between the non-U.S. person and its counterparty 
relating to the transactions subject to this exception, including, 
without limitation, terms addressing payment obligations, netting of 
payments, events of default or other termination events, calculation and 
netting of obligations upon termination, transfer of rights and 
obligations, allocation of any applicable regulatory reporting 
obligations, governing law, valuation, and dispute resolution; and
    (4) Obtains from the non-U.S. person relying on this exception, and 
maintains for not less than three years following the activity described 
in paragraph (d)(1)(i) of this section, the first two years in an easily 
accessible place, written consent to service of process for any civil 
action brought by or proceeding before the Commission, providing that 
process may be served on the non-U.S. person by service on the 
registered entity in the manner set forth in the registered entity's 
current Form BD, SBSE, SBSE-A or SBSE-BD, as applicable.
    (iv) Counterparty notification In connection with the transaction, 
the registered entity described in paragraph (d)(1)(i) of this section 
notifies the counterparties of the non-U.S. person relying on this 
exception that the non-U.S. person is not registered with the Commission 
as a security-based swap dealer, and that certain Exchange Act 
provisions or rules addressing the regulation of security-based swaps 
would not be applicable in connection with the transaction, including 
provisions affording clearing rights to counterparties. Such notice 
shall be provided contemporaneously with, and in the same manner as, the 
arranging, negotiating, or executing activity at issue; provided, 
however, that during a period in which a counterparty is neither a 
customer (as such term is defined in Sec.240.15c3-3) of the registered 
entity described in paragraph (d)(1)(i) of this section (if such 
registered entity is a registered broker or dealer) nor a counterparty 
to a security-based swap with the registered entity described in 
paragraph (d)(1)(i) of this section, such notice need only be provided 
contemporaneously with, and in the same manner as, the first such 
arranging, negotiating, or executing activity during such period. This 
disclosure will not be required if the identity of that counterparty is 
not known to that registered entity at a reasonably sufficient time 
prior to the execution of the transaction to permit such disclosure.
    (v) Subject to regulation of a listed jurisdiction. The non-U.S. 
person relying on this exception is subject to the margin and capital 
requirements of a listed jurisdiction when engaging in the transactions 
subject to this exception.
    (vi) Notice by registered entity. Before an associated person of the 
registered entity described in paragraph (d)(1)(i) of this section 
commences the activity described in paragraph (d)(1)(i) of this section, 
such registered entity shall file with the Commission a notice that its 
associated persons may conduct such activity. Such registered entity 
shall

[[Page 71]]

file this notice by submitting it to the electronic mailbox described on 
the Commission's website at www.sec.gov at the ``ANE Exception Notices'' 
section. The Commission shall publicly post such notice on the same 
section of its website.
    (vii) Limitation for covered inter-dealer security-based swaps. The 
aggregate gross notional amount of covered inter-dealer security-based 
swap positions connected with dealing activity subject to the exception 
in this paragraph (d) engaged in by persons described in paragraph 
(d)(6)(i) of this section over the course of the immediately preceding 
12 months does not exceed $50 billion.
    (2) Order for listed jurisdiction designation. The Commission by 
order, may conditionally or unconditionally determine that a foreign 
jurisdiction is a listed jurisdiction for purposes of this section. The 
Commission may make listed jurisdiction determinations in response to 
applications, or upon the Commission's own initiative.
    (i) Applications. Applications for an order requesting listed 
jurisdiction status may be made by a party or group of parties that 
potentially would seek to rely on the exception provided by paragraph 
(d) of this section, or by any foreign financial regulatory authority or 
authorities supervising such a party or its security-based swap 
activities. Applications must be filed pursuant to the procedures set 
forth in Sec.240.0-13.
    (ii) Criteria considered. In considering a foreign jurisdiction's 
potential status as a listed jurisdiction, the Commission may consider 
factors relevant for purposes of assessing whether such an order would 
be in the public interest, including:
    (A) Applicable margin and capital requirements of the foreign 
financial regulatory system; and
    (B) The effectiveness of the supervisory compliance program 
administered by, and the enforcement authority exercised by, the foreign 
financial regulatory authority in connection with such requirements, 
including the application of those requirements in connection with an 
entity's cross-border business.
    (iii) Withdrawal or modification of listed jurisdiction status. The 
Commission may, on its own initiative, by order after notice and 
opportunity for comment, modify or withdraw a jurisdiction's status as a 
listed jurisdiction, if the Commission determines that continued listed 
jurisdiction status no longer would be in the public interest, based on:
    (A) The criteria set forth in paragraph (d)(2)(ii) of this section;
    (B) Any laws or regulations that have had the effect of preventing 
the Commission or its representatives, on request, to promptly access 
information or documents regarding the activities of persons relying on 
the exception provided by this paragraph (d), to obtain the testimony of 
their foreign associated persons, and to obtain the assistance of 
persons relying on this exception in taking the evidence of other 
persons, wherever located, as described in paragraph (d)(1)(iii)(A) of 
this section; and
    (C) Any other factor the Commission determines to be relevant to 
whether continued status as a listed jurisdiction would be in the public 
interest.
    (3) Exception for person that engages in arranging, negotiating, or 
executing activity as agent. The registered entity described in 
paragraph (d)(1)(i) of this section need not count, against the de 
minimis thresholds described in Sec.240.3a71-2(a)(1), the transactions 
described by paragraph (d) of this section.
    (4) Limited exemption from registration as a broker. A registered 
security-based swap dealer and its associated persons who conduct the 
activities described in paragraph (d)(1)(i) of this section shall not be 
subject to registration as a broker pursuant to section 15(a)(1) of the 
Act solely because the registered entity or the associated person 
conducts any activity described in paragraph (d)(1)(i) of this section 
with or for a person that is an eligible contract participant, provided 
that:
    (i) The conditions of paragraph (d)(1) of this section are satisfied 
in connection with such activities; and
    (ii) If Sec.240.10b-10 would apply to an activity subject to the 
exception in paragraph (d)(1)(i), such registered security-based swap 
dealer provides to the customer the disclosures required by Sec.
240.10b-10(a)(2) (excluding Sec.240.10b-10(a)(2)(i) and (ii)) and 
Sec.240.10b-10(a)(8) in accordance with the time and form requirements 
set forth in Sec.240.15Fi-2(b) and (c) or, alternatively, promptly 
after discovery of any defect in the registered security-based swap 
dealer's good faith effort to comply with such requirements.
    (5) Exemption from Sec.240.10b-10. A broker or dealer that is also 
a registered security-based swap dealer or registered broker described 
in paragraph (d)(1)(i) of this section shall be exempt from the 
requirements of Sec.240.10b-10 with respect to activity described in 
paragraph (d)(1)(i) of this section, provided that such broker or 
dealer:
    (i) Complies with paragraph (d)(1)(ii)(B)(4) of this section in 
connection with such activity; and
    (ii) Provides to the customer the disclosures required by Sec.
240.10b-10(a)(2) (excluding Sec.240.10b-10(a)(2)(i) and (ii)) and 
Sec.240.10b-10(a)(8) in accordance with the time and form requirements 
set forth in Sec.240.15Fi-2(b) and (c) or, alternatively, promptly 
after discovery of any defect in the broker or dealer's good faith 
effort to comply with such requirements.
    (6) Limitation for covered inter-dealer security-based swaps--(i) 
Scope of limitation for covered inter-dealer security-based swaps. The 
threshold described in paragraph (d)(1)(vii) of

[[Page 72]]

this section applies to covered inter-dealer security-based swap 
positions connected with dealing activity subject to the exception in 
this paragraph (d) engaged in by any of the following persons:
    (A) The non-U.S. person relying on the exception in this paragraph 
(d); and
    (B) Any affiliate of such person, except for an affiliate that is 
deemed not to be a security-based swap dealer pursuant to Rule 3a71-
2(b).
    (ii) Impact of exceeding exception threshold. If the threshold 
described in paragraph (d)(1)(vii) of this section is exceeded, then
    (A) As of the date the condition in paragraph (d)(1)(vii) of this 
section is no longer satisfied, the non-U.S. person that is no longer 
able to satisfy that condition may not rely on the exception in this 
paragraph (d) for future security-based swap transactions.
    (B) For purposes of calculating the amount of security-based swap 
positions connected with dealing activity under Sec.240.3a71-2(a)(1), 
the non-U.S. person that is no longer able to satisfy the condition in 
paragraph (d)(1)(vii) of this section shall include all covered inter-
dealer security-based swap positions connected with dealing activity 
subject to the exception in this paragraph (d) engaged in by persons 
described in paragraph (d)(6)(i) of this section over the course of the 
immediately preceding 12 months, such positions to be included in such 
calculation as of the date that the condition in paragraph (d)(1)(vii) 
of this section is no longer satisfied.

                                * * * * *



Sec.240.3a71-4  Exception from aggregation for affiliated groups 
with registered security-based swap dealers.

    Notwithstanding Sec.Sec.240.3a71-2(a)(1) and 240.3a71-3(b)(2), a 
person shall not include the security-based swap transactions of another 
person (an ``affiliate'') controlling, controlled by, or under common 
control with such person where such affiliate either is:
    (a) Registered with the Commission as a security-based swap dealer; 
or
    (b) Deemed not to be a security-based swap dealer pursuant to Sec.
240.3a71-2(b).

[79 FR 47370, Aug. 12, 2014]



Sec.240.3a71-5  Exception for cleared transactions executed on 
a swap execution facility.

    (a) For purposes of Sec.240.3a71-3(b)(1), a non-U.S. person, other 
than a conduit affiliate, shall not include its security-based swap 
transactions that are entered into anonymously on an execution facility 
or national securities exchange and are cleared through a clearing 
agency; and
    (b) For purposes of Sec.240.3a71-3(b)(2), a person shall not 
include security-based swap transactions of an affiliated non-U.S. 
person, other than a conduit affiliate, when such transactions are 
entered into anonymously on an execution facility or national securities 
exchange and are cleared through a clearing agency.
    (c) The exceptions in paragraphs (a) and (b) of this section shall 
not apply to any security-based swap transactions of a non-U.S. person 
or of an affiliated non-U.S. person connected with the person's 
security-based swap dealing activity that are arranged, negotiated, or 
executed by personnel of such non-U.S. person located in a U.S. branch 
or office, or by personnel of an agent of such non-U.S. person located 
in a U.S. branch or office.

[79 FR 47370, Aug. 12, 2014, as amended at 81 FR 8637, Feb. 19, 2016]



Sec.240.3a71-6  Substituted compliance for security-based swap 
dealers and major security-based swap participants.

    (a) Determinations--(1) In general. Subject to paragraph (a)(2) of 
this section, the Commission may, conditionally or unconditionally, by 
order, make a determination with respect to a foreign financial 
regulatory system that compliance with specified requirements under such 
foreign financial regulatory system by a registered security-based swap 
dealer and/or by a registered major security-based swap participant 
(each a ``security-based swap entity''), or class thereof, may satisfy 
the corresponding requirements identified in paragraph (d) of this 
section that would otherwise apply to such security-based swap entity 
(or class thereof).
    (2) Standard. The Commission shall not make a substituted compliance 
determination under paragraph (a)(1) of this section unless the 
Commission:
    (i) Determines that the requirements of such foreign financial 
regulatory system applicable to such security-based swap entity (or 
class thereof) or to the activities of such security-based

[[Page 73]]

swap entity (or class thereof) are comparable to otherwise applicable 
requirements, after taking into account such factors as the Commission 
determines are appropriate, such as the scope and objectives of the 
relevant foreign regulatory requirements (taking into account the 
applicable criteria set forth in paragraph (d) of this section), as well 
as the effectiveness of the supervisory compliance program administered, 
and the enforcement authority exercised, by a foreign financial 
regulatory authority or authorities in such system to support its 
oversight of such security-based swap entity (or class thereof) or of 
the activities of such security-based swap entity (or class thereof); 
and
    (ii) Has entered into a supervisory and enforcement memorandum of 
understanding and/or other arrangement with the relevant foreign 
financial regulatory authority or authorities under such foreign 
financial regulatory system addressing supervisory and enforcement 
cooperation and other matters arising under the substituted compliance 
determination.
    (3) Withdrawal or modification. The Commission may, on its own 
initiative, by order, modify or withdraw a substituted compliance 
determination under paragraph (a)(1) of this section, after appropriate 
notice and opportunity for comment.
    (b) Reliance by security-based swap entities. A registered security-
based swap entity may satisfy the requirements described in paragraph 
(d) of this section by complying with corresponding law, rules and 
regulations under a foreign financial regulatory system, provided:
    (1) The Commission has made a substituted compliance determination 
pursuant to paragraph (a)(1) of this section regarding such foreign 
financial regulatory system providing that compliance with specified 
requirements under such foreign financial regulatory system by such 
registered security-based swap entity (or class thereof) may satisfy the 
corresponding requirements described in paragraph (d) of this section; 
and
    (2) Such registered security-based swap entity satisfies any 
conditions set forth in a substituted compliance determination made by 
the Commission pursuant to paragraph (a)(1) of this section.
    (c) Requests for determinations. (1) A party or group of parties 
that potentially would comply with specified requirements pursuant to 
paragraph (a)(1), or any foreign financial regulatory authority or 
authorities supervising such a party or its security-based swap 
activities, may file an application, pursuant to the procedures set 
forth in Sec.240.0-13, requesting that the Commission make a 
substituted compliance determination pursuant to paragraph (a)(1) of 
this section, with respect to one or more requirements described in 
paragraph (d) of this section.
    (2) Such a party or group of parties may make a request under 
paragraph (c)(1) of this section only if:
    (i) Each such party, or the party's activities, is directly 
supervised by the foreign financial regulatory authority or authorities 
with respect to the foreign regulatory requirements relating to the 
applicable requirements described in paragraph (d) of this section; and
    (ii) Each such party provides the certification and opinion of 
counsel as described in Sec.240.15Fb2-4(c), as if the party were 
subject to that requirement at the time of the request.
    (3) Such foreign financial authority or authorities may make a 
request under paragraph (c)(1) of this section only if each such 
authority provides adequate assurances that no law or policy of any 
relevant foreign jurisdiction would impede the ability of any entity 
that is directly supervised by the foreign financial regulatory 
authority and that may register with the Commission as a security-based 
swap dealer or major security-based swap participant to provide prompt 
access to the Commission to such entity's books and records or to submit 
to onsite inspection or examination by the Commission.
    (d) Eligible requirements. The Commission may make a substituted 
compliance determination under paragraph (a)(1) of this section to 
permit security-based swap entities that are not U.S. persons (as 
defined in Sec.240.3a71-3(a)(4)), but not security-based swap entities

[[Page 74]]

that are U.S. persons, to satisfy the following requirements by 
complying with comparable foreign requirements:
    (1) Business conduct and supervision. The business conduct and 
supervision requirements of sections 15F(h) and (j) of the Act (15 
U.S.C. 78o-10(h) and (j)) and Sec.Sec.240.15Fh-3 through 15Fh-6, 
other than the antifraud provisions of section 15F(h)(4)(A) of the Act 
and Sec.240.15Fh-4(a), and other than the provisions of sections 
15F(j)(3) and 15F(j)(4)(B) of the Act; provided, however, that prior to 
making such a substituted compliance determination the Commission 
intends to consider whether the information that is required to be 
provided to counterparties pursuant to the requirements of the foreign 
financial regulatory system, the counterparty protections under the 
requirements of the foreign financial regulatory system, the mandates 
for supervisory systems under the requirements of the foreign financial 
regulatory system, and the duties imposed by the foreign financial 
regulatory system, are comparable to those associated with the 
applicable provisions arising under the Act and its rules and 
regulations.
    (2) Chief compliance officer. The chief compliance officer 
requirements of section 15F(k) of the Act (15 U.S.C. 78o-10(k)) and 
Sec.240.15Fk-1; provided, however, that prior to making such a 
substituted compliance determination the Commission intends to consider 
whether the requirements of the foreign financial regulatory system 
regarding chief compliance officer obligations are comparable to those 
required pursuant to the applicable provisions arising under the Act and 
its rules and regulations.
    (3) Trade acknowledgment and verification. The trade acknowledgment 
and verification requirements of section 15F(i) of the Act (15 U.S.C. 
78o-10(i)) and Sec.240.15Fi-2; provided, however, that prior to making 
such a substituted compliance determination the Commission intends to 
consider whether the information that is required to be provided 
pursuant to the requirements of the foreign financial regulatory system, 
and the manner and timeframe by which that information must be provided, 
are comparable to those required pursuant to the applicable provisions 
arising under the Act and its rules and regulations.
    (4) Capital--(i) Security-based swap dealers. The capital 
requirements of section 15F(e) of the Act (15 U.S.C. 78o-10(e)) and 
Sec.240.18a-1; provided, however, that prior to making such 
substituted compliance determination, the Commission intends to consider 
(in addition to any conditions imposed) whether the capital requirements 
of the foreign financial regulatory system are designed to help ensure 
the safety and soundness of registrants in a manner that is comparable 
to the applicable provisions arising under the Act and its rules and 
regulations.
    (ii) Major security-based swap participants. The capital 
requirements of section 15F(e) of the Act (15 U.S.C. 78o-10(e)) and 
Sec.240.18a-2; provided, however, that prior to making such 
substituted compliance determination, the Commission intends to consider 
(in addition to any conditions imposed) whether the capital requirements 
of the foreign financial regulatory system are comparable to the 
applicable provisions arising under the Act and its rules and 
regulations.
    (5) Margin--(i) Security-based swap dealers. The margin requirements 
of section 15F(e) of the Act (15 U.S.C. 78o-10(e)) and Sec.240.18a-3; 
provided, however, that prior to making such substituted compliance 
determination, the Commission intends to consider (in addition to any 
conditions imposed) whether the foreign financial regulatory system 
requires registrants to adequately cover their current and potential 
future exposure to over-the-counter derivatives counterparties, and 
ensures registrants' safety and soundness, in a manner comparable to the 
applicable provisions arising under the Act and its rules and 
regulations.
    (ii) Major security-based swap participants. The margin requirements 
of section 15F(e) of the Act (15 U.S.C. 78o-10(e)) and Sec.240.18a-3; 
provided, however, that prior to making such substituted compliance 
determination, the Commission intends to consider (in addition to any 
conditions imposed) whether the foreign financial regulatory system 
requires registrants to adequately cover their current exposure to over-

[[Page 75]]

the-counter derivatives counterparties, and ensures registrants' safety 
and soundness, in a manner comparable to the applicable provisions 
arising under the Act and its rules and regulations.
    (6) Recordkeeping and reporting. The recordkeeping and reporting 
requirements of Section 15F of the Act (15 U.S.C. 78o-10) and Sec.Sec.
240.18a-5 through 240.18a-9; provided, however, that prior to making 
such a substituted compliance determination the Commission intends to 
consider (in addition to any conditions imposed), whether the foreign 
financial regulatory system's required records and reports, the 
timeframes for recording or reporting information, the accounting 
standards governing the records and reports, and the required format of 
the records and reports are comparable to applicable provisions arising 
under the Act and its rules and regulations and would permit the 
Commission to examine and inspect regulated firms' compliance with the 
applicable securities laws.

[81 FR 30143, May 13, 2016, as amended at 81 FR 39844, June 17, 2016; 84 
FR 44041, Aug. 22, 2019; 84 FR 68646, Dec. 16, 2019]

    Effective Date Note: At 85 FR 6412, Feb. 4, 2020, Sec.240.3a71-6 
was amended by adding paragraph (d)(7), effective Apr. 6, 2020. For the 
convenience of the user, the added text is set forth as follows:



Sec.240.3a71-6  Substituted compliance for security-based swap dealers 
          and major security-based swap participants.

                                * * * * *

    (d) * * *
    (7) Portfolio reconciliation, portfolio compression, and trading 
relationship documentation requirements. The portfolio reconciliation, 
portfolio compression, and trading relationship documentation 
requirements of section 15F(i) of the Act (15 U.S.C. 78o-10(i)) and 
Sec.Sec.240.15Fi-3 through 240.15Fi-5; provided, however, that prior 
to making such a substituted compliance determination the Commission 
intends to consider whether the requirements of the foreign financial 
regulatory system for engaging in portfolio reconciliation and portfolio 
compression and for executing trading relationship documentation with 
counterparties, the duties imposed by the foreign financial regulatory 
system, and the information that is required to be provided to 
counterparties pursuant to the requirements of the foreign financial 
regulatory system, are comparable to those required pursuant to the 
applicable provisions arising under the Act and its rules and 
regulations.

                               Definitions



Sec.240.3b-1  Definition of ``listed''.

    The term listed means admitted to full trading privileges upon 
application by the issuer or its fiscal agent or, in the case of the 
securities of a foreign corporation, upon application by a banker 
engaged in distributing them; and includes securities for which 
authority to add to the list on official notice of issuance has been 
granted.

(Sec.3, 48 Stat. 884; 15 U.S.C. 78c)

[13 FR 8179, Dec. 22, 1948]



Sec.240.3b-2  Definition of ``officer''.

    The term officer means a president, vice president, secretary, 
treasury or principal financial officer, comptroller or principal 
accounting officer, and any person routinely performing corresponding 
functions with respect to any organization whether incorporated or 
unincorporated.

[47 FR 11464, Mar. 16, 1982; 47 FR 11819, Mar. 19, 1982]



Sec.240.3b-3  [Reserved]



Sec.240.3b-4  Definition of ``foreign government,'' ``foreign issuer''
and ``foreign private issuer''.

    (a) The term foreign government means the government of any foreign 
country or of any political subdivision of a foreign country.
    (b) The term foreign issuer means any issuer which is a foreign 
government, a national of any foreign country or a corporation or other 
organization incorporated or organized under the laws of any foreign 
country.
    (c) The term foreign private issuer means any foreign issuer other 
than a foreign government except for an issuer meeting the following 
conditions as of the last business day of its most recently completed 
second fiscal quarter:
    (1) More than 50 percent of the issuer's outstanding voting 
securities are directly or indirectly held of record by residents of the 
United States; and
    (2) Any of the following:

[[Page 76]]

    (i) The majority of the executive officers or directors are United 
States citizens or residents;
    (ii) More than 50 percent of the assets of the issuer are located in 
the United States; or
    (iii) The business of the issuer is administered principally in the 
United States.

    Note to paragraph (c)(1): To determine the percentage of outstanding 
voting securities held by U.S. residents:
    A. Use the method of calculating record ownership in Sec.240.12g3-
2(a), except that:
    (1) Your inquiry as to the amount of shares represented by accounts 
of customers resident in the United States may be limited to brokers, 
dealers, banks and other nominees located in:
    (i) The United States,
    (ii) Your jurisdiction of incorporation, and
    (iii) The jurisdiction that is the primary trading market for your 
voting securities, if different than your jurisdiction of incorporation; 
and
    (2) Notwithstanding Sec.240.12g5-1(a)(8) of this chapter, you 
shall not exclude securities held by persons who received the securities 
pursuant to an employee compensation plan.
    B. If, after reasonable inquiry, you are unable to obtain 
information about the amount of shares represented by accounts of 
customers resident in the United States, you may assume, for purposes of 
this definition, that the customers are residents of the jurisdiction in 
which the nominee has its principal place of business.
    C. Count shares of voting securities beneficially owned by residents 
of the United States as reported on reports of beneficial ownership 
provided to you or filed publicly and based on information otherwise 
provided to you.

    (d) Notwithstanding paragraph (c) of this section, in the case of a 
new registrant with the Commission, the determination of whether an 
issuer is a foreign private issuer will be made as of a date within 30 
days prior to the issuer's filing of an initial registration statement 
under either the Act or the Securities Act of 1933.
    (e) Once an issuer qualifies as a foreign private issuer, it will 
immediately be able to use the forms and rules designated for foreign 
private issuers until it fails to qualify for this status at the end of 
its most recently completed second fiscal quarter. An issuer's 
determination that it fails to qualify as a foreign private issuer 
governs its eligibility to use the forms and rules designated for 
foreign private issuers beginning on the first day of the fiscal year 
following the determination date. Once an issuer fails to qualify for 
foreign private issuer status, it will remain unqualified unless it 
meets the requirements for foreign private issuer status as of the last 
business day of its second fiscal quarter.

[32 FR 7848, May 30, 1967, as amended at 48 FR 46739, Oct. 14, 1983; 64 
FR 53912, Oct. 5, 1999; 73 FR 58323, Oct. 6, 2008; 81 FR 28705, May 10, 
2016]



Sec.240.3b-5  Non-exempt securities issued under governmental
obligations.

    (a) Any part of an obligation evidenced by any bond, note, 
debenture, or other evidence of indebtedness issued by any governmental 
unit specified in section 3(a)(12) of the Act which is payable from 
payments to be made in respect of property or money which is or will be 
used, under a lease, sale, or loan arrangement, by or for industrial or 
commercial enterprise, shall be deemed to be a separate ``security'' 
within the meaning of section 3(a)(10) of the Act, issued by the lessee 
or obligor under the lease, sale or loan arrangement.
    (b) An obligation shall not be deemed a separate ``security'' as 
defined in paragraph (a) of this section if, (1) the obligation is 
payable from the general revenues of a governmental unit, specified in 
section 3(a)(12) of the Act, having other resources which may be used 
for the payment of the obligation, or (2) the obligation relates to a 
public project or facility owned and operated by or on behalf of and 
under the control of a governmental unit specified in such section, or 
(3) the obligation relates to a facility which is leased to and under 
the control of an industrial or commercial enterprise but is a part of a 
public project which, as a whole, is owned by and under the general 
control of a governmental unit specified in such section, or an 
instrumentality thereof.
    (c) This rule shall apply to transactions of the character described 
in paragraph (a) of this section only with respect to bonds, notes, 
debentures or

[[Page 77]]

other evidences of indebtedness sold after December 31, 1968.

(Sec.3, 48 Stat. 882; 15 U.S.C. 78c, 77s)

[33 FR 12648, Sept. 6, 1968, as amended at 35 FR 6000, Apr. 11, 1970]



Sec.240.3b-6  Liability for certain statements by issuers.

    (a) A statement within the coverage of paragraph (b) of this section 
which is made by or on behalf of an issuer or by an outside reviewer 
retained by the issuer shall be deemed not to be a fraudulent statement 
(as defined in paragraph (d) of this section), unless it is shown that 
such statement was made or reaffirmed without a reasonable basis or was 
disclosed other than in good faith.
    (b) This rule applies to the following statements:
    (1) A forward-looking statement (as defined in paragraph (c) of this 
section) made in a document filed with the Commission, in Part I of a 
quarterly report on Form 10-Q, Sec.249.308a of this chapter, or in an 
annual report to security holders meeting the requirements of Rules 14a-
3(b) and (c) or 14c-3(a) and (b) (Sec.240.14a-3(b) and (c) or Sec.
240.14c-3(a) and (b)), a statement reaffirming such forward-looking 
statement after the date the document was filed or the annual report was 
made publicly available, or a forward-looking statement made before the 
date the document was filed or the date the annual report was made 
publicly available if such statement is reaffirmed in a filed document, 
in Part I of a quarterly report on Form 10-Q, or in an annual report 
made publicly available within a reasonable time after the making of 
such forward-looking statement; Provided, that:
    (i) At the time such statements are made or reaffirmed, either the 
issuer is subject to the reporting requirements of Section 13(a) or 
15(d) of the Act and has complied with the requirements of Rule 13a-1 or 
15d-1 thereunder, if applicable, to file its most recent annual report 
on Form 10-K, Form 20-F or Form 40-F; or if the issuer is not subject to 
the reporting requirements of Section 13(a) or 15(d) of the Act, the 
statements are made in a registration statement filed under the 
Securities Act of 1933 offering statement or solicitation of interest, 
written document or broadcast script under Regulation A or pursuant to 
Section 12(b) or (g) of the Securities Exchange Act of 1934; and
    (ii) The statements are not made by or on behalf of an issuer that 
is an investment company registered under the Investment Company Act of 
1940; and
    (2) Information that is disclosed in a document filed with the 
Commission in Part I of a quarterly report on Form 10-Q (Sec.249.308a 
of this chapter) or in an annual report to security holders meeting the 
requirements of Rules 14a-3(b) and (c) or 14c-3(a) and (b) under the Act 
(Sec.240.14a-3(b) and (c) or Sec.240.14c-3(a) and (b) of this 
chapter) and that relates to:
    (i) The effects of changing prices on the business enterprise, 
presented voluntarily or pursuant to Item 303 of Regulation S-K (Sec.
229.303 of this chapter), ``Management's Discussion and Analysis of 
Financial Condition and Results of Operations,'' Item 5 of Form 20-F 
(Sec.240.220(f) of this chapter), ``Operating and Financial Review and 
Prospects,'' Item 302 of Regulation S-K (Sec.229.302 of this chapter) 
``Supplementary Financial Information,'' or Rule 3-20(c) of Regulation 
S-X (Sec.210.3-20(c) of this chapter); or
    (ii) The value of proved oil and gas reserves (such as a 
standardized measure of discounted future net cash flows relating to 
proved oil and gas reserves as set forth in FASB ASC paragraphs 932-235-
50-29 through 932-235-50-36 (Extractive Activities--Oil and Gas Topic)), 
presented voluntarily or pursuant to Item 302 of Regulation S-K (Sec.
229.302 of this chapter).
    (c) For the purpose of this rule, the term forward-looking statement 
shall mean and shall be limited to:
    (1) A statement containing a projection of revenues, income (loss), 
earnings (loss) per share, capital expenditures, dividends, capital 
structure or other financial items;
    (2) A statement of management's plans and objectives for future 
operations;
    (3) A statement of future economic performance contained in 
management's discussion and analysis of financial condition and results 
of operations included pursuant to Item 303 of

[[Page 78]]

Regulation S-K (Sec.229.303 of this chapter) or Item 5 of Form 20-F or
    (4) Disclosed statements of the assumptions underlying or relating 
to any of the statements described in paragraphs (c) (1), (2), or (3) of 
this section.
    (d) For the purpose of this rule the term fraudulent statement shall 
mean a statement which is an untrue statement of a material fact, a 
statement false or misleading with respect to any material fact, an 
omission to state a material fact necessary to make a statement not 
misleading, or which constitutes the employment of a manipulative, 
deceptive, or fraudulent device, contrivance, scheme, transaction, act, 
practice, course of business, or an artifice to defraud, as those terms 
are used in the Securities Exchange Act of 1934 or the rules or 
regulations promulgated thereunder.

[46 FR 13990, Feb. 25, 1981, as amended at 46 FR 19457, Mar. 31, 1981; 
47 FR 11464, Mar. 16, 1982; 47 FR 54780, Dec. 6, 1982; 47 FR 57915, Dec. 
29, 1982; 48 FR 19876, May 3, 1983; 56 FR 30067, July 1, 1991; 57 FR 
36494, Aug. 13, 1992; 64 FR 53912, Oct. 5, 1999; 73 FR 973, Jan. 4, 
2008; 76 FR 50122, Aug. 12, 2011]



Sec.240.3b-7  Definition of ``executive officer''.

    The term executive officer, when used with reference to a 
registrant, means its president, any vice president of the registrant in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), any other officer who performs a 
policy making function or any other person who performs similar policy 
making functions for the registrant. Executive officers of subsidiaries 
may be deemed executive officers of the registrant if they perform such 
policy making functions for the registrant.

[47 FR 11464, Mar. 16, 1982, as amended at 56 FR 7265, Feb. 21, 1991]



Sec.240.3b-8  Definitions of ``Qualified OTC Market Maker, Qualified 
Third Market Maker'' and ``Qualified Block Positioner''.

    For the purposes of Regulation U under the Act (12 CFR part 221):
    (a) The term Qualified OTC Market Maker in an over-the-counter 
(``OTC'') margin security means a dealer in any ``OTC Margin Security'' 
(as that term is defined in section 2(j) of Regulation U (12 CFR 
221.2(j)) who (1) is a broker or dealer registered pursuant to section 
15 of the Act, (2) is subject to and is in compliance with Rule 15c3-1 
(17 CFR 240.15c3-1), (3) has and maintains minimum net capital, as 
defined in Rule 15c3-1, of the lesser of (i) $250,000 or (ii) $25,000 
plus $5,000 for each security in excess of five with regard to which the 
broker or dealer is, or is seeking to become a Qualified OTC Market 
Maker, and (4) except when such activity is unlawful, meets all of the 
following conditions with respect to such security: (i) He regularly 
publishes bona fide, competitive bid and offer quotations in a 
recognized inter-dealer quotation system, (ii) he furnishes bona fide, 
competitive bid and offer quotations to other brokers and dealers on 
request, (iii) he is ready, willing and able to effect transactions in 
reasonable amounts, and at his quoted prices, with other brokers and 
dealers, and (iv) he has a reasonable average rate of inventory turnover 
in such security.
    (b) The term Qualified Third Market Maker means a dealer in any 
stock registered on a national securities exchange (``exchange'') who 
(1) is a broker or dealer registered pursuant to section 15 of the Act, 
(2) is subject to and is in compliance with Rule 15c3-1 (17 CFR 
240.15c3-1), (3) has and maintains minimum net capital, as defined in 
Rule 15c3-1, of the lesser of (i) $500,000 or (ii) $100,000 plus $20,000 
for each security in excess of five with regard to which the broker or 
dealer is, or is seeking to become, a Qualified Third Market Maker, and 
(4) except when such activity is unlawful, meets all of the following 
conditions with respect to such security: (i) He furnishes bona fide, 
competitive bid and offer quotations at all times to other brokers and 
dealers on request, (ii) he is ready, willing and able to effect 
transactions for his own account in reasonable amounts, and at his 
quoted prices with other brokers and dealers, and (iii) he has a 
reasonable average rate of inventory turnover in such security.
    (c) The term Qualified Block Positioner means a dealer who (1) is a 
broker or dealer registered pursuant to section 15

[[Page 79]]

of the Act, (2) is subject to and in compliance with Rule 15c3-1 (17 CFR 
240.15c3-1), (3) has and maintains minimum net capital, as defined in 
Rule 15c3-1 of $1,000,000 and (4) except when such activity is unlawful, 
meets all of the following conditions: (i) He engages in the activity of 
purchasing long or selling short, from time to time, from or to a 
customer (other than a partner or a joint venture or other entity in 
which a partner, the dealer, or a person associated with such dealer, as 
defined in section 3(a) (18) of the Act, participates) a block of stock 
with a current market value of $200,000 or more in a single transaction, 
or in several transactions at approximately the same time, from a single 
source to facilitate a sale or purchase by such customer, (ii) he has 
determined in the exercise of reasonable diligence that the block could 
not be sold to or purchased from others on equivalent or better terms, 
and (iii) he sells the shares comprising the block as rapidly as 
possible commensurate with the circumstances.

(15 U.S.C. 78a et seq., as amended by Pub. L. 94-29 (June 4, 1975), 
particularly secs. 2, 3, 11, 15, 17 and 23 thereof (15 U.S.C. 78b, 78c, 
78k, 78o, 78q and 78w))

[48 FR 39606, Sept. 1, 1983]



Sec.Sec.240.3b-9--240.3b-10  [Reserved]



Sec.240.3b-11  Definitions relating to limited partnership roll-up 
transactions for purposes of sections 6(b)(9), 14(h) and 15A(b)
(12)-(13).

    For purposes of sections 6(b)(9), 14(h) and 15A(b)(12)-(13) of the 
Act (15 U.S.C. 78f(b)(9), 78n(h) and 78o-3(b)(12)-(13)):
    (a) The term limited partnership roll-up transaction does not 
include a transaction involving only entities that are not ``finite-
life'' as defined in Item 901(b)(2) of Regulation S-K (Sec.
229.901(b)(2) of this chapter).
    (b) The term limited partnership roll-up transaction does not 
include a transaction involving only entities registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or any Business 
Development Company as defined in section 2(a)(48) of that Act (15 
U.S.C. 80a-2(a)(48)).
    (c) The term regularly traded shall be defined as in Item 
901(c)(2)(v)(C) of Regulation S-K (Sec.229.901(c)(2)(v)(C) of this 
chapter).

[59 FR 63684, Dec. 8, 1994]



Sec.240.3b-12  Definition of OTC derivatives dealer.

    The term OTC derivatives dealer means any dealer that is affiliated 
with a registered broker or dealer (other than an OTC derivatives 
dealer), and whose securities activities:
    (a) Are limited to:
    (1) Engaging in dealer activities in eligible OTC derivative 
instruments that are securities;
    (2) Issuing and reacquiring securities that are issued by the 
dealer, including warrants on securities, hybrid securities, and 
structured notes;
    (3) Engaging in cash management securities activities;
    (4) Engaging in ancillary portfolio management securities 
activities; and
    (5) Engaging in such other securities activities that the Commission 
designates by order pursuant to Sec.240.15a-1(b)(1); and
    (b) Consist primarily of the activities described in paragraphs 
(a)(1), (a)(2), and (a)(3) of this section; and
    (c) Do not consist of any other securities activities, including 
engaging in any transaction in any security that is not an eligible OTC 
derivative instrument, except as permitted under paragraphs (a)(3), 
(a)(4), and (a)(5) of this section.
    (d) For purposes of this section, the term hybrid security means a 
security that incorporates payment features economically similar to 
options, forwards, futures, swap agreements, or collars involving 
currencies, interest or other rates, commodities, securities, indices, 
quantitative measures, or other financial or economic interests or 
property of any kind, or any payment or delivery that is dependent on 
the occurrence or nonoccurrence of any event associated with a potential 
financial, economic, or commercial consequence (or any combination, 
permutation, or derivative of such contract or underlying interest).

[63 FR 59394, Nov. 3, 1998]

[[Page 80]]



Sec.240.3b-13  Definition of eligible OTC derivative instrument.

    (a) Except as otherwise provided in paragraph (b) of this section, 
the term eligible OTC derivative instrument means any contract, 
agreement, or transaction that:
    (1) Provides, in whole or in part, on a firm or contingent basis, 
for the purchase or sale of, or is based on the value of, or any 
interest in, one or more commodities, securities, currencies, interest 
or other rates, indices, quantitative measures, or other financial or 
economic interests or property of any kind; or
    (2) Involves any payment or delivery that is dependent on the 
occurrence or nonoccurrence of any event associated with a potential 
financial, economic, or commercial consequence; or
    (3) Involves any combination or permutation of any contract, 
agreement, or transaction or underlying interest, property, or event 
described in paragraphs (a)(1) or (a)(2) of this section.
    (b) The term eligible OTC derivative instrument does not include any 
contract, agreement, or transaction that:
    (1) Provides for the purchase or sale of a security, on a firm 
basis, unless:
    (i) The settlement date for such purchase or sale occurs at least 
one year following the trade date or, in the case of an eligible forward 
contract, at least four months following the trade date; or
    (ii) The material economic features of the contract, agreement, or 
transaction consist primarily of features of a type described in 
paragraph (a) of this section other than the provision for the purchase 
or sale of a security on a firm basis; or
    (2) Provides, in whole or in part, on a firm or contingent basis, 
for the purchase or sale of, or is based on the value of, or any 
interest in, any security (or group or index of securities), and is:
    (i) Listed on, or traded on or through, a national securities 
exchange or registered national securities association, or facility or 
market thereof; or
    (ii) Except as otherwise determined by the Commission by order 
pursuant to Sec.240.15a-1(b)(2), one of a class of fungible 
instruments that are standardized as to their material economic terms.
    (c) The Commission may issue an order pursuant to Sec.240.15a-
1(b)(3) clarifying whether certain contracts, agreements, or 
transactions are within the scope of eligible OTC derivative instrument.
    (d) For purposes of this section, the term eligible forward contract 
means a forward contract that provides for the purchase or sale of a 
security other than a government security, provided that, if such 
contract provides for the purchase or sale of margin stock (as defined 
in Regulation U of the Regulations of the Board of Governors of the 
Federal Reserve System, 12 CFR Part 221), such contract either:
    (1) Provides for the purchase or sale of such stock by the issuer 
thereof (or an affiliate that is not a bank or a broker or dealer); or
    (2) Provides for the transfer of transaction collateral in an amount 
that would satisfy the requirements, if any, that would be applicable 
assuming the OTC derivatives dealer party to such transaction were not 
eligible for the exemption from Regulation T of the Regulations of the 
Board of Governors of the Federal Reserve System, 12 CFR part 220, set 
forth in Sec.240.36a1-1.

[63 FR 59395, Nov. 3, 1998]



Sec.240.3b-14  Definition of cash management securities activities.

    The term cash management securities activities means securities 
activities that are limited to transactions involving:
    (a) Any taking possession of, and any subsequent sale or disposition 
of, collateral provided by a counterparty, or any acquisition of, and 
any subsequent sale or disposition of, collateral to be provided to a 
counterparty, in connection with any securities activities of the dealer 
permitted under Sec.240.15a-1 or any non-securities activities of the 
dealer that involve eligible OTC derivative instruments or other 
financial instruments;
    (b) Cash management, in connection with any securities activities of 
the dealer permitted under Sec.240.15a-1 or any non-securities 
activities of the

[[Page 81]]

dealer that involve eligible OTC derivative instruments or other 
financial instruments; or
    (c) Financing of positions of the dealer acquired in connection with 
any securities activities of the dealer permitted under Sec.240.15a-1 
or any non-securities activities that involve eligible OTC derivative 
instruments or other financial instruments.

[63 FR 59395, Nov. 3, 1998]



Sec.240.3b-15  Definition of ancillary portfolio management securities
activities.

    (a) The term ancillary portfolio management securities activities 
means securities activities that:
    (1) Are limited to transactions in connection with:
    (i) Dealer activities in eligible OTC derivative instruments;
    (ii) The issuance of securities by the dealer; or
    (iii) Such other securities activities that the Commission 
designates by order pursuant to Sec.240.15a-1(b)(1); and
    (2) Are conducted for the purpose of reducing the market or credit 
risk of the dealer or consist of incidental trading activities for 
portfolio management purposes; and
    (3) Are limited to risk exposures within the market, credit, 
leverage, and liquidity risk parameters set forth in:
    (i) The trading authorizations granted to the associated person (or 
to the supervisor of such associated person) who executes a particular 
transaction for, or on behalf of, the dealer; and
    (ii) The written guidelines approved by the governing body of the 
dealer and included in the internal risk management control system for 
the dealer pursuant to Sec.240.15c3-4; and
    (4) Are conducted solely by one or more associated persons of the 
dealer who perform substantial duties for, or on behalf of, the dealer 
in connection with its dealer activities in eligible OTC derivative 
instruments.
    (b) The Commission may issue an order pursuant to Sec.240.15a-
1(b)(4) clarifying whether certain securities activities are within the 
scope of ancillary portfolio management securities activities.

[63 FR 59395, Nov. 3, 1998]



Sec.240.3b-16  Definitions of terms used in Section 3(a)(1) of the Act.

    (a) An organization, association, or group of persons shall be 
considered to constitute, maintain, or provide ``a market place or 
facilities for bringing together purchasers and sellers of securities or 
for otherwise performing with respect to securities the functions 
commonly performed by a stock exchange,'' as those terms are used in 
section 3(a)(1) of the Act, (15 U.S.C. 78c(a)(1)), if such organization, 
association, or group of persons:
    (1) Brings together the orders for securities of multiple buyers and 
sellers; and
    (2) Uses established, non-discretionary methods (whether by 
providing a trading facility or by setting rules) under which such 
orders interact with each other, and the buyers and sellers entering 
such orders agree to the terms of a trade.
    (b) An organization, association, or group of persons shall not be 
considered to constitute, maintain, or provide ``a market place or 
facilities for bringing together purchasers and sellers of securities or 
for otherwise performing with respect to securities the functions 
commonly performed by a stock exchange,'' solely because such 
organization, association, or group of persons engages in one or more of 
the following activities:
    (1) Routes orders to a national securities exchange, a market 
operated by a national securities association, or a broker-dealer for 
execution; or
    (2) Allows persons to enter orders for execution against the bids 
and offers of a single dealer; and
    (i) As an incidental part of these activities, matches orders that 
are not displayed to any person other than the dealer and its employees; 
or
    (ii) In the course of acting as a market maker registered with a 
self-regulatory organization, displays the limit orders of such market 
maker's, or other broker-dealer's, customers; and
    (A) Matches customer orders with such displayed limit orders; and
    (B) As an incidental part of its market making activities, crosses 
or matches orders that are not displayed to any person other than the 
market maker and its employees.

[[Page 82]]

    (c) For purposes of this section the term order means any firm 
indication of a willingness to buy or sell a security, as either 
principal or agent, including any bid or offer quotation, market order, 
limit order, or other priced order.
    (d) For the purposes of this section, the terms bid and offer shall 
have the same meaning as under Sec.242.600 of this chapter.
    (e) The Commission may conditionally or unconditionally exempt any 
organization, association, or group of persons from the definition in 
paragraph (a) of this section.

[63 FR 70918, Dec. 22, 1998, as amended at 70 FR 37617, June 29, 2005]



Sec.240.3b-17  [Reserved]



Sec.240.3b-18  Definitions of terms used in Section 3(a)(5) of the Act.

    For the purposes of section 3(a)(5)(C) of the Act (15 U.S.C. 
78c(a)(5)(C):
    (a) The term affiliate means any company that controls, is 
controlled by, or is under common control with another company.
    (b) The term consumer-related receivable means any obligation 
incurred by any natural person to pay money arising out of a transaction 
in which the money, property, insurance, or services (being purchased) 
are primarily for personal, family, or household purposes.
    (c) The term member as it relates to the term ``syndicate of banks'' 
means a bank that is a participant in a syndicate of banks and together 
with its affiliates, other than its broker or dealer affiliates, 
originates no less than 10% of the value of the obligations in a pool of 
obligations used to back the securities issued through a grantor trust 
or other separate entity.
    (d) The term obligation means any note, draft, acceptance, loan, 
lease, receivable, or other evidence of indebtedness that is not a 
security issued by a person other than the bank.
    (e) The term originated means:
    (1) Funding an obligation at the time that the obligation is 
created; or
    (2) Initially approving and underwriting the obligation, or 
initially agreeing to purchase the obligation, provided that:
    (i) The obligation conforms to the underwriting standards or is 
evidenced by the loan documents of the bank or its affiliates, other 
than its broker or dealer affiliates; and
    (ii) The bank or its affiliates, other than its broker or dealer 
affiliates, fund the obligation in a timely manner, not to exceed six 
months after the obligation is created.
    (f) The term pool means more than one obligation or type of 
obligation grouped together to provide collateral for a securities 
offering.
    (g) The term predominantly originated means that no less than 85% of 
the value of the obligations in any pool were originated by:
    (1) The bank or its affiliates, other than its broker or dealer 
affiliates; or
    (2) Banks that are members of a syndicate of banks and affiliates of 
such banks, other than their broker or dealer affiliates, if the 
obligations or pool of obligations consist of mortgage obligations or 
consumer-related receivables.
    (3) For this purpose, the bank and its affiliates include any 
financial institution with which the bank or its affiliates have merged 
but does not include the purchase of a pool of obligations or the 
purchase of a line of business.
    (h) The term syndicate of banks means a group of banks that acts 
jointly, on a temporary basis, to issue through a grantor trust or other 
separate entity, securities backed by obligations originated by each of 
the individual banks or their affiliates, other than their broker or 
dealer affiliates.

[68 FR 8700, Feb. 24, 2003]



Sec.240.3b-19  Definition of ``issuer'' in section 3(a)(8) of the Act
in relation to asset-backed securities.

    The following applies with respect to asset-backed securities under 
the Act. Terms used in this section have the same meaning as in Item 
1101 of Regulation AB (Sec.229.1101 of this chapter).
    (a) The depositor for the asset-backed securities acting solely in 
its capacity as depositor to the issuing entity is the ``issuer'' for 
purposes of the asset-backed securities of that issuing entity.
    (b) The person acting in the capacity as the depositor specified in 
paragraph

[[Page 83]]

(a) of this section is a different ``issuer'' from that same person 
acting as a depositor for another issuing entity or for purposes of that 
person's own securities.

[70 FR 1620, Jan. 7, 2005]

                    Clearing of Security-Based Swaps



Sec.240.3Ca-1  Stay of clearing requirement and review by the
Commission.

    (a) After making a determination pursuant to a clearing agency's 
security-based swap submission that a security-based swap, or any group, 
category, type or class of security-based swaps, is required to be 
cleared, the Commission, on application of a counterparty to a security-
based swap or on the Commission's own initiative, may stay the clearing 
requirement until the Commission completes a review of the terms of the 
security-based swap (or group, category, type, or class of security-
based swaps) and the clearing of the security-based swap (or group, 
category, type, or class of security-based swaps) by the clearing agency 
that has accepted it for clearing.
    (b) A counterparty to a security-based swap applying for a stay of 
the clearing requirement for a security-based swap (or group, category, 
type, or class of security-based swaps) shall submit a written statement 
to the Commission that includes:
    (1) A request for a stay of the clearing requirement;
    (2) The identity of the counterparties to the security-based swap 
and a contact at the counterparty requesting the stay;
    (3) The identity of the clearing agency clearing the security-based 
swap;
    (4) The terms of the security-based swap subject to the clearing 
requirement and a description of the clearing arrangement; and
    (5) Reasons why such stay should be granted and why the security-
based swap should not be subject to a clearing requirement, specifically 
addressing the same factors a clearing agency must address in its 
security-based-swap submission pursuant to Sec.240.19b-4(o)(3).
    (c) A stay of the clearing requirement may be granted with respect 
to a security-based swap, or the group, category, type, or class of 
security-based swaps, as determined by the Commission.
    (d) The Commission's review shall include a quantitative and 
qualitative assessment of the factors specified in Sec.240.19b-
4(o)(3). Any clearing agency that has accepted for clearing a security-
based swap, or any group, category, type or class of security-based 
swaps, that is subject to the stay of the clearing requirement shall 
provide information requested by the Commission as necessary to assess 
any of the factors it determines to be appropriate in the course of its 
review.
    (e) Upon completion of its review, the Commission may:
    (1) Determine, subject to any terms and conditions that the 
Commission determines to be appropriate in the public interest, that the 
security-based swap, or group, category, type, or class of security-
based swaps must be cleared; or
    (2) Determine that the clearing requirement will not apply to the 
security-based swap, or group, category, type, or class of security-
based swaps, but clearing may continue on a non-mandatory basis.

[77 FR 41647, July 13, 2012]



Sec.240.3Ca-2  Submission of security-based swaps for clearing.

    Pursuant to section 3C(a)(1) of the Act (15 U.S.C. 78c-3(a)(1)), it 
shall be unlawful for any person to engage in a security-based swap 
unless that person submits such security-based swap for clearing to a 
clearing agency that is registered under this Act or a clearing agency 
that is exempt from registration under the Act if the security-based 
swap is required to be cleared. The phrase submits such security-based 
swap for clearing to a clearing agency in the clearing requirement of 
Section 3C(a)(1) of the Act shall mean that the security-based swap will 
be submitted for central clearing to a clearing agency that functions as 
a central counterparty.

[77 FR 41647, July 13, 2012]

[[Page 84]]

                 Registration and Exemption of Exchanges



Sec.240.6a-1  Application for registration as a national securities 
exchange or exemption from registration based on limited volume.

    (a) An application for registration as a national securities 
exchange, or for exemption from such registration based on limited 
volume, shall be filed on Form 1 (Sec.249.1 of this chapter), in 
accordance with the instructions contained therein.
    (b) Promptly after the discovery that any information filed on Form 
1 was inaccurate when filed, the exchange shall file with the Commission 
an amendment correcting such inaccuracy.
    (c) Promptly after the discovery that any information in the 
statement, any exhibit, or any amendment was inaccurate when filed, the 
exchange shall file with the Commission an amendment correcting such 
inaccuracy.
    (d) Whenever the number of changes to be reported in an amendment, 
or the number of amendments filed, are so great that the purpose of 
clarity will be promoted by the filing of a new complete statement and 
exhibits, an exchange may, at its election, or shall, upon request of 
the Commission, file as an amendment a complete new statement together 
with all exhibits which are prescribed to be filed in connection with 
Form 1.

(Secs. 5, 6, 17, 48 Stat. 885, 897, as amended; 15 U.S.C. 78e, 78f, 78q)

[14 FR 7759, Dec. 29, 1949, as amended at 63 FR 70918, Dec. 22, 1998]



Sec.240.6a-2  Amendments to application.

    (a) A national securities exchange, or an exchange exempted from 
such registration based on limited volume, shall file an amendment to 
Form 1, (Sec.249.1 of this chapter), which shall set forth the nature 
and effective date of the action taken and shall provide any new 
information and correct any information rendered inaccurate, on Form 1, 
(Sec.249.1 of this chapter), within 10 days after any action is taken 
that renders inaccurate, or that causes to be incomplete, any of the 
following:
    (1) Information filed on the Execution Page of Form 1, or amendment 
thereto; or
    (2) Information filed as part of Exhibits C, F, G, H, J, K or M, or 
any amendments thereto.
    (b) On or before June 30 of each year, a national securities 
exchange, or an exchange exempted from such registration based on 
limited volume, shall file, as an amendment to Form 1, the following:
    (1) Exhibits D and I as of the end of the latest fiscal year of the 
exchange; and
    (2) Exhibits K, M, and N, which shall be up to date as of the latest 
date practicable within 3 months of the date the amendment is filed.
    (c) On or before June 30, 2001 and every 3 years thereafter, a 
national securities exchange, or an exchange exempted from such 
registration based on limited volume, shall file, as an amendment to 
Form 1, complete Exhibits A, B, C and J. The information filed under 
this paragraph (c) shall be current as of the latest practicable date, 
but shall, at a minimum, be up to date within 3 months as of the date 
the amendment is filed.
    (d)(1) If an exchange, on an annual or more frequent basis, 
publishes, or cooperates in the publication of, any of the information 
required to be filed by paragraphs (b)(2) and (c) of this section, in 
lieu of filing such information, an exchange may:
    (i) Identify the publication in which such information is available, 
the name, address, and telephone number of the person from whom such 
publication may be obtained, and the price of such publication; and
    (ii) Certify to the accuracy of such information as of its 
publication date.
    (2) If an exchange keeps the information required under paragraphs 
(b)(2) and (c) of this section up to date and makes it available to the 
Commission and the public upon request, in lieu of filing such 
information, an exchange may certify that the information is kept up to 
date and is available to the Commission and the public upon request.
    (3) If the information required to be filed under paragraphs (b)(2) 
and (c) of this section is available continuously

[[Page 85]]

on an Internet web site controlled by an exchange, in lieu of filing 
such information with the Commission, such exchange may:
    (i) Indicate the location of the Internet web site where such 
information may be found; and
    (ii) Certify that the information available at such location is 
accurate as of its date.
    (e) The Commission may exempt a national securities exchange, or an 
exchange exempted from such registration based on limited volume, from 
filing the amendment required by this section for any affiliate or 
subsidiary listed in Exhibit C of the exchange's application for 
registration, as amended, that either:
    (1) Is listed in Exhibit C of the application for registration or 
notice of registration, as amended, of one or more other national 
securities exchanges; or
    (2) Was an inactive subsidiary throughout the subsidiary's latest 
fiscal year. Any such exemption may be granted upon terms and conditions 
the Commission deems necessary or appropriate in the public interest or 
for the protection of investors, provided however, that at least one 
national securities exchange shall be required to file the amendments 
required by this section for an affiliate or subsidiary described in 
paragraph (e)(1) of this section.
    (f) A national securities exchange registered pursuant to Section 
6(g)(1) of the Act (15 U.S.C. 78f(g)(1)) shall be exempt from the 
requirements of this section.

[63 FR 70918, Dec. 22, 1998, as amended at 66 FR 43741, Aug. 20, 2001]



Sec.240.6a-3  Supplemental material to be filed by exchanges.

    (a)(1) A national securities exchange, or an exchange exempted from 
such registration based on limited volume, shall file with the 
Commission any material (including notices, circulars, bulletins, lists, 
and periodicals) issued or made generally available to members of, or 
participants or subscribers to, the exchange. Such material shall be 
filed with the Commission within 10 days after issuing or making such 
material available to members, participants or subscribers.
    (2) If the information required to be filed under paragraph (a)(1) 
of this section is available continuously on an Internet web site 
controlled by an exchange, in lieu of filing such information with the 
Commission, such exchange may:
    (i) Indicate the location of the Internet web site where such 
information may be found; and
    (ii) Certify that the information available at such location is 
accurate as of its date.
    (b) Within 15 days after the end of each calendar month, a national 
securities exchange or an exchange exempted from such registration based 
on limited volume, shall file a report concerning the securities sold on 
such exchange during the calendar month. Such report shall set forth:
    (1) The number of shares of stock sold and the aggregate dollar 
amount of such stock sold;
    (2) The principal amount of bonds sold and the aggregate dollar 
amount of such bonds sold; and
    (3) The number of rights and warrants sold and the aggregate dollar 
amount of such rights and warrants sold.
    (c) A national securities exchange registered pursuant to Section 
6(g)(1) of the Act (15 U.S.C. 78f(g)(1)) shall be exempt from the 
requirements of this section.

[63 FR 70919, Dec. 22, 1998, as amended at 66 FR 43741, Aug. 20, 2001]



Sec.240.6a-4  Notice of registration under Section 6(g) of the Act, 
amendment to such notice, and supplemental materials to be filed by
exchanges registered under Section 6(g) of the Act.

          
    (a) Notice of registration. (1) An exchange may register as a 
national securities exchange solely for the purposes of trading security 
futures products by filing Form 1-N (Sec.249.10 of this chapter) 
(``notice of registration''), in accordance with the instructions 
contained therein, if:
    (i) The exchange is a board of trade, as that term in defined in the 
Commodity Exchange Act (7 U.S.C. 1a(2)), that:
    (A) Has been designated a contract market by the Commodity Futures

[[Page 86]]

Trading Commission and such designation is not suspended by order of the 
Commodity Futures Trading Commission; or
    (B) Is registered as a derivative transaction execution facility 
under Section 5a of the Commodity Exchange Act (7 U.S.C. 7a) and such 
registration is not suspended by the Commodity Futures Trading 
Commission; and
    (ii) Such exchange does not serve as a market place for transactions 
in securities other than:
    (A) Security futures products; or
    (B) Futures on exempted securities or on groups or indexes of 
securities or options thereon that have been authorized under Section 
2(a)(1)(C) of the Commodity Exchange Act (7 U.S.C. 2a).
    (2) Promptly after the discovery that any information filed on Form 
1-N (Sec.249.10 of this chapter) was inaccurate when filed, the 
exchange shall file with the Commission an amendment correcting such 
inaccuracy.
    (b) Amendment to notice of registration. (1) A national securities 
exchange registered pursuant to Section 6(g)(1) of the Act (15 U.S.C. 
78f(g)(1)) (``Security Futures Product Exchange'') shall file an 
amendment to Form 1-N (Sec.249.10 of this chapter), which shall set 
forth the nature and effective date of the action taken and shall 
provide any new information and correct any information rendered 
inaccurate, on Form 1-N (Sec.249.10 of this chapter), within:
    (i) Ten days after any action is taken that renders inaccurate, or 
that causes to be incomplete, any information filed on the Execution 
Page of Form 1-N (Sec.249.10 of this chapter), or amendment thereto; 
or
    (ii) 30 days after any action is taken that renders inaccurate, or 
that causes to be incomplete, any information filed as part of Exhibit F 
to Form 1-N (Sec.249.10 of this chapter), or any amendments thereto.
    (2) A Security Futures Product Exchange shall maintain records 
relating to changes in information required in Exhibits C and E to Form 
1-N (Sec.249.10 of this chapter) which shall be current of as of the 
latest practicable date, but shall, at a minimum, be up-to-date within 
30 days. A Security Futures Product Exchange shall make such records 
available to the Commission and the public upon request.
    (3) On or before June 30, 2002, and by June 30 every year 
thereafter, a Security Futures Product Exchange shall file, as an 
amendment to Form 1-N (Sec.249.10 of this chapter), Exhibits F, H, and 
I, which shall be current of as of the latest practicable date, but 
shall, at a minimum, be up-to-date within three months as of the date 
the amendment is filed.
    (4) On or before June 30, 2004, and by June 30 every three years 
thereafter, a Security Futures Product Exchange shall file, as an 
amendment to Form 1-N (Sec.249.10 of this chapter), complete Exhibits 
A, B, C, and E, which shall be current of as of the latest practicable 
date, but shall, at a minimum, be up-to-date within three months as of 
the date the amendment is filed.
    (5)(i) If a Security Futures Product Exchange, on an annual or more 
frequent basis, publishes, or cooperates in the publication of, any of 
the information required to be filed by paragraphs (b)(3) and (b)(4) of 
this section, in lieu of filing such information, a Security Futures 
Product Exchange may satisfy this filing requirement by:
    (A) Identifying the publication in which such information is 
available, the name, address, and telephone number of the person from 
whom such publication may be obtained, and the price of such 
publication; and
    (B) Certifying to the accuracy of such information as of its 
publication date.
    (ii) If a Security Futures Product Exchange keeps the information 
required under paragraphs (b)(3) and (b)(4) of this section up-to-date 
and makes it available to the Commission and the public upon request, in 
lieu of filing such information, a Security Futures Product Exchange may 
satisfy this filing requirement by certifying that the information is 
kept up-to-date and is available to the Commission and the public upon 
request.
    (iii) If the information required to be filed under paragraphs 
(b)(3) and (b)(4) of this section is available continuously on an 
Internet web site controlled by a Security Futures Product

[[Page 87]]

Exchange, in lieu of filing such information with the Commission, such 
Security Futures Product Exchange may satisfy this filing requirement 
by:
    (A) Indicating the location of the Internet web site where such 
information may be found; and
    (B) Certifying that the information available at such location is 
accurate as of its date.
    (6)(i) The Commission may exempt a Security Futures Product Exchange 
from filing the amendment required by this section for any affiliate or 
subsidiary listed in Exhibit C to Form 1-N (Sec.249.10 of this 
chapter), as amended, that either:
    (A) Is listed in Exhibit C to Form 1 (Sec.249.1 of this chapter) 
or to Form 1-N (Sec.249.10 of this chapter), as amended, of one or 
more other national securities exchanges; or
    (B) Was an inactive affiliate or subsidiary throughout the 
affiliate's or subsidiary's latest fiscal year.
    (ii) Any such exemption may be granted upon terms and conditions the 
Commission deems necessary or appropriate in the public interest or for 
the protection of investors, provided however, that at least one 
national securities exchange shall be required to file the amendments 
required by this section for an affiliate or subsidiary described in 
paragraph (b)(6)(i) of this section.
    (7) If a Security Futures Product Exchange has filed documents with 
the Commodity Futures Trading Commission, to the extent that such 
documents contain information satisfying the Commission's informational 
requirements, copies of such documents may be filed with the Commission 
in lieu of the required written notice.
    (c) Supplemental material to be filed by Security Futures Product 
Exchanges. (1)(i) A Security Futures Product Exchange shall file with 
the Commission any material related to the trading of security futures 
products (including notices, circulars, bulletins, lists, and 
periodicals) issued or made generally available to members of, 
participants in, or subscribers to, the exchange. Such material shall be 
filed with the Commission within ten days after issuing or making such 
material available to members, participants, or subscribers.
    (ii) If the information required to be filed under paragraph 
(c)(1)(i) of this section is available continuously on an Internet web 
site controlled by an exchange, in lieu of filing such information with 
the Commission, such exchange may:
    (A) Indicate the location of the Internet web site where such 
information may be found; and
    (B) Certify that the information available at such location is 
accurate as of its date.
    (2) Within 15 days after the end of each calendar month, a Security 
Futures Product Exchange shall file a report concerning the security 
futures products traded on such exchange during the previous calendar 
month. Such a report shall:
    (i) For each contract of sale for future delivery of a single 
security, the number of contracts traded on such exchange during the 
relevant calendar month and the total number of shares underlying such 
contracts traded; and
    (ii)For each contract of sale for future delivery of a narrow-based 
security index, the number of contracts traded on such exchange during 
the relevant calendar month and the total number of shares represented 
by the index underlying such contracts traded.

[66 FR 43741, Aug. 20, 2001]



Sec.240.6h-1  Settlement and regulatory halt requirements for 
security futures products.

    (a) For the purposes of this section:
    (1) Opening price means the price at which a security opened for 
trading, or a price that fairly reflects the price at which a security 
opened for trading, during the regular trading session of the national 
securities exchange or national securities association that lists the 
security. If the security is not listed on a national securities 
exchange or a national securities association, then opening price shall 
mean the price at which a security opened for trading, or a price that 
fairly reflects the price at which a security opened for trading, on the 
primary market for the security.

[[Page 88]]

    (2) Regular trading session of a security means the normal hours for 
business of a national securities exchange or national securities 
association that lists the security.
    (3) Regulatory halt means a delay, halt, or suspension in the 
trading of a security, that is instituted by the national securities 
exchange or national securities association that lists the security, as 
a result of:
    (i) A determination that there are matters relating to the security 
or issuer that have not been adequately disclosed to the public, or that 
there are regulatory problems relating to the security which should be 
clarified before trading is permitted to continue; or
    (ii) The operation of circuit breaker procedures to halt or suspend 
trading in all equity securities trading on that national securities 
exchange or national securities association.
    (b) Final settlement prices for security futures products. (1) The 
final settlement price of a cash-settled security futures product must 
fairly reflect the opening price of the underlying security or 
securities.
    (2) Notwithstanding paragraph (b)(1) of this section, if an opening 
price for one or more securities underlying a security futures product 
is not readily available, the final settlement price of the security 
futures product shall fairly reflect:
    (i) The price of the underlying security or securities during the 
most recent regular trading session for such security or securities; or
    (ii) The next available opening price of the underlying security or 
securities.
    (3) Notwithstanding paragraph (b)(1) or (b)(2) of this section, if a 
clearing agency registered under Section 17A of the Act (15 U.S.C. 78q-
1), or exempt from registration pursuant to Section 17A(b)(7) of the Act 
(15 U.S.C. 78q-1(b)(7)), to which the final settlement price of a 
security futures product is or would be reported determines, pursuant to 
its rules, that such final settlement price is not consistent with the 
protection of investors and the public interest, taking into account 
such factors as fairness to buyers and sellers of the affected security 
futures product, the maintenance of a fair and orderly market in such 
security futures product, and consistency of interpretation and 
practice, the clearing agency shall have the authority to determine, 
under its rules, a final settlement price for such security futures 
product.
    (c) Regulatory trading halts. The rules of a national securities 
exchange or national securities association registered pursuant to 
Section 15A(a) of the Act (15 U.S.C. 78o-3(a)) that lists or trades one 
or more security futures products must include the following provisions:
    (1) Trading of a security futures product based on a single security 
shall be halted at all times that a regulatory halt has been instituted 
for the underlying security; and
    (2) Trading of a security futures product based on a narrow-based 
security index shall be halted at all times that a regulatory halt has 
been instituted for one or more underlying securities that constitute 50 
percent or more of the market capitalization of the narrow-based 
security index.
    (d) The Commission may exempt from the requirements of this section, 
either unconditionally or on specified terms and conditions, any 
national securities exchange or national securities association, if the 
Commission determines that such exemption is necessary or appropriate in 
the public interest and consistent with the protection of investors. An 
exemption granted pursuant to this paragraph shall not operate as an 
exemption from any Commodity Futures Trading Commission rules. Any 
exemption that may be required from such rules must be obtained 
separately from the Commodity Futures Trading Commission.

[67 FR 36762, May 24, 2002]



Sec.240.6h-2  Security future based on note, bond, debenture, 
or evidence of indebtedness.

    A security future may be based upon a security that is a note, bond, 
debenture, or evidence of indebtedness or a narrow-based security index 
composed of such securities.

[71 FR 39543, July 13, 2006]

[[Page 89]]



Sec.240.7c2-1  [Reserved]

                 Hypothecation of Customers' Securities



Sec.240.8c-1  Hypothecation of customers' securities.

    (a) General provisions. No member of a national securities exchange, 
and no broker or dealer who transacts a business in securities through 
the medium of any such member shall, directly or indirectly, hypothecate 
or arrange for or permit the continued hypothecation of any securities 
carried for the account of any customer under circumstances:
    (1) That will permit the commingling of securities carried for the 
account of any such customer with securities carried for the account of 
any other customer, without first obtaining the written consent of each 
such customer to such hypothecation;
    (2) That will permit such securities to be commingled with 
securities carried for the account of any person other than a bona fide 
customer of such member, broker or dealer under a lien for a loan made 
to such member, broker or dealer; or
    (3) That will permit securities carried for the account of customers 
to be hypothecated or subjected to any lien or liens or claim or claims 
of the pledges or pledgees, for a sum which exceeds the aggregate 
indebtedness of all customers in respect of securities carried for their 
accounts; except that this clause shall not be deemed to be violated by 
reason of an excess arising on any day through the reduction of the 
aggregate indebtedness of customers on such day, provided that funds or 
securities in an amount sufficient to eliminate such excess are paid or 
placed in transfer to pledgees for the purpose of reducing the sum of 
the liens or claims to which securities carried for the account of 
customers are subjected as promptly as practicable after such reduction 
occurs, but before the lapse of one-half hour after the commencement of 
banking hours on the next banking day at the place where the largest 
principal amount of loans of such member, broker or dealer are payable 
and, in any event, before such member, broker or dealer on such day has 
obtained or increased any bank loan collateralized by securities carried 
for the account of customers.
    (b) Definitions. For the purposes of this section:
    (1) The term customer shall not include any general or special 
partner or any director or officer of such member, broker or dealer, or 
any participant, as such, in any joint, group or syndicate account with 
such member, broker or dealer or with any partner, officer or director 
thereof. The term also shall not include any counterparty who has 
delivered collateral to an OTC derivatives dealer pursuant to a 
transaction in an eligible OTC derivative instrument, or pursuant to the 
OTC derivatives dealer's cash management securities activities or 
ancillary portfolio management securities activities, and who has 
received a prominent written notice from the OTC derivatives dealer 
that:
    (i) Except as otherwise agreed in writing by the OTC derivatives 
dealer and the counterparty, the dealer may repledge or otherwise use 
the collateral in its business;
    (ii) In the event of the OTC derivatives dealer's failure, the 
counterparty will likely be considered an unsecured creditor of the 
dealer as to that collateral;
    (iii) The Securities Investor Protection Act of 1970 (15 U.S.C. 
78aaa through 78lll) does not protect the counterparty; and
    (iv) The collateral will not be subject to the requirements of Sec.
240.8c-1, Sec.240.15c2-1, Sec.240.15c3-2, or Sec.240.15c3-3;
    (2) The term securities carried for the account of any customer 
shall be deemed to mean:
    (i) Securities received by or on behalf of such member, broker or 
dealer for the account of any customer;
    (ii) Securities sold and appropriated by such member, broker or 
dealer to a customer, except that if such securities were subject to a 
lien when appropriated to a customer they shall not be deemed to be 
``securities carried for the account of any customer'' pending their 
release from such lien as promptly as practicable:
    (iii) Securities sold, but not appropriated, by such member, broker 
or dealer to a customer who has made any

[[Page 90]]

payment therefor, to the extent that such member, broker or dealer owns 
and has received delivery of securities of like kind, except that if 
such securities were subject to a lien when such payment was made they 
shall not be deemed to be ``securities carried for the account of any 
customer'' pending their release from such lien as promptly as 
practicable:
    (3) ``Aggregate indebtedness'' shall not be deemed to be reduced by 
reason of uncollected items. In computing aggregate indebtedness, 
related guaranteed and guarantor accounts shall be treated as a single 
account and considered on a consolidated basis, and balances in accounts 
carrying both long and short positions shall be adjusted by treating the 
market value of the securities required to cover such short positions as 
though such market value were a debit; and
    (4) In computing the sum of the liens or claims to which securities 
carried for the account of customers of a member, broker or dealer are 
subject, any rehypothecation of such securities by another member, 
broker or dealer who is subject to this section or to Sec.240.15c2-1 
shall be disregarded.
    (c) Exemption for cash accounts. The provisions of paragraph (a)(1) 
of this section shall not apply to any hypothecation of securities 
carried for the account of a customer in a special cash account within 
the meaning of 12 CFR 220.4(c): Provided, That at or before the 
completion of the transaction of purchase of such securities for, or of 
sale of such securities to, such customer, written notice is given or 
sent to such customer disclosing that such securities are or may be 
hypothecated under circumstances which will permit the commingling 
thereof with securities carried for the account of other customers. The 
term the completion of the transaction shall have the meaning given to 
such term by Sec.240.15c1-1(b).
    (d) Exemption for clearinghouse liens. The provisions of paragraphs 
(a)(2), (a)(3), and (f) of this section shall not apply to any lien or 
claim of the clearing corporation, or similar department or association, 
of a national securities exchange or a registered national securities 
association for a loan made and to be repaid on the same calendar day, 
which is incidental to the clearing of transactions in securities or 
loans through such corporation, department, or association: Provided, 
however, That for the purpose of paragraph (a)(3) of this section, 
``aggregate indebtedness of all customers in respect of securities 
carried for their accounts'' shall not include indebtedness in respect 
of any securities subject to any lien or claim exempted by this 
paragraph.
    (e) Exemption for certain liens on securities of noncustomers. The 
provisions of paragraph (a)(2) of this section shall not be deemed to 
prevent such member, broker or dealer from permitting securities not 
carried for the account of a customer to be subjected (1) to a lien for 
a loan made against securities carried for the account of customers, or 
(2) to a lien for a loan made and to be repaid on the same calendar day. 
For the purpose of this exemption, a loan shall be deemed to be ``made 
against securities carried for the account of customers'' if only 
securities carried for the account of customers are used to obtain or to 
increase such loan or as substitutes for other securities carried for 
the account of customers.
    (f) Notice and certification requirements. No person subject to this 
section shall hypothecate any security carried for the account of a 
customer unless at or prior to the time of each such hypothecation, he 
gives written notice to the pledgee that the security pledged is carried 
for the account of a customer and that such hypothecation does not 
contravene any provision of this section, except that in the case of an 
omnibus account the members, broker or dealer for whom such account is 
carried may furnish a signed statement to the person carrying such 
account that all securities carried therein by such member, broker or 
dealer will be securities carried for the account of his customers and 
that the hypothecation thereof by such member, broker or dealer will not 
contravene any provision of this section. The provisions of this 
paragraph shall not apply to any hypothecation of securities under any 
lien or claim of a pledgee securing a loan made and to be repaid on the 
same calendar day.

[[Page 91]]

    (g) The fact that securities carried for the accounts of customers 
and securities carried for the accounts of others are represented by one 
or more certificates in the custody of a clearing corporation or other 
subsidiary organization of either a national securities exchange or of a 
registered national securities association, or of a custodian bank, in 
accordance with a system for the central handling of securities 
established by a national securities exchange or a registered national 
securities association, pursuant to which system the hypothecation of 
such securities is effected by bookkeeping entries without physical 
delivery of such securities, shall not, in and of itself, result in a 
commingling of securities prohibited by paragraph (a)(1) or (a)(2) of 
this section, whenever a participating member, broker or dealer 
hypothecates securities in accordance with such system: Provided, 
however, That (1) any such custodian of any securities held by or for 
such system shall agree that it will not for any reason, including the 
assertion of any claim, right or lien of any kind, refuse to refrain 
from promptly delivering any such securities (other than securities then 
hypothecated in accordance with such system) to such clearing 
corporation or other subsidiary organization or as directed by it, 
except that nothing in such agreement shall be deemed to require the 
custodian to deliver any securities in contravention of any notice of 
levy, seizure or similar notice, or order or judgment, issued or 
directed by a governmental agency or court, or officer thereof, having 
jurisdiction over such custodian, which on its face affects such 
securities; (2) such systems shall have safeguards in the handling, 
transfer and delivery of securities and provisions for fidelity bond 
coverage of the employees and agents of the clearing corporation or 
other subsidiary organization and for periodic examinations by 
independent public accountants; and (3) the provisions of this paragraph 
shall not be effective with respect to any particular system unless the 
agreement required by paragraph (g)(1) of this section and the 
safeguards and provisions required by paragraph (g)(2) of this section 
shall have been deemed adequate by the Commission for the protection of 
investors, and unless any subsequent amendments to such agreement, 
safeguards or provisions shall have been deemed adequate by the 
Commission for the protection of investors.

(Secs. 3, 8, 15, 48 Stat. 882, 888, 895; 15 U.S.C. 78c, 78h, 78o)

    Cross Reference: For interpretative releases applicable to Sec.
240.8c-1, see Nos. 2690 and 2822 in tabulation, part 241 of this 
chapter.

[13 FR 8180, Dec. 22, 1948, as amended at 31 FR 7740, June 1, 1966; 37 
FR 73, Jan. 5, 1973; 63 FR 59395, Nov. 3, 1998]



Sec.240.9b-1  Options disclosure document.

    (a) Definitions. The following definitions shall apply for the 
purpose of this rule.
    (1) Options market means a national securities exchange, an 
automated quotation system of a registered securities association or a 
foreign securities exchange on which standardized options are traded.
    (2) Options class means all options contracts covering the same 
underlying instrument.
    (3) Options disclosure document means a document, including all 
amendments and supplements thereto, prepared by one or more options 
markets which has been filed with the Commission or distributed in 
accordance with paragraph (b) of this section. Definitive options 
disclosure document or document means an options disclosure document 
furnished to customers in accordance with paragraph (b) of this section.
    (4) Standardized options are options contracts trading on a national 
securities exchange, an automated quotation system of a registered 
securities association, or a foreign securities exchange which relate to 
options classes the terms of which are limited to specific expiration 
dates and exercise prices, or such other securities as the Commission 
may, by order, designate.
    (b)(1) Five preliminary copies of an options disclosure document 
containing the information specified in paragraph (c) of this section 
shall be filed with the Commission by an options market at least 60 days 
prior to the date definitive copies are furnished to customers, unless 
the commission

[[Page 92]]

determines otherwise having due regard to the adequacy of the 
information disclosed and the public interest and protection of 
investors. Five copies of the definitive options disclosure document 
shall be filed with the Commission not later than the date the options 
disclosure document is furnished to customers. Notwithstanding the 
above, the use of an options disclosure document shall not be permitted 
unless the options class to which such document relates is the subject 
of an effective registration statement on Form S-20 under the Securities 
Act of 1933, or is exempt from registration under the Securities Act of 
1933 (15 U.S.C. 77a et seq.).
    (2)(i) If the information contained in the options disclosure 
document becomes or will become materially inaccurate or incomplete or 
there is or will be an omission of material information necessary to 
make the options disclosure document not misleading, the options market 
shall amend or supplement its options disclosure document by filing five 
copies of an amendment or supplement to such options disclosure document 
with the Commission at least 30 days prior to the date definitive copies 
are furnished to customers, unless the Commission determines otherwise 
having due regard to the adequacy of the information disclosed and the 
public interest and protection of investors. Five copies of the 
definitive options disclosure document, as amended or supplemented, 
shall be filed with the Commission not later than the date the amendment 
or supplement, or the amended options disclosure document, is furnished 
to customers.
    (ii) Notwithstanding paragraph (b)(2)(i) of this section, an options 
market may distribute an amendment or supplement to an options 
disclosure document prior to such 30 day period if it determines, in 
good faith, that such delivery is necessary to ensure timely and 
accurate disclosure with respect to one or more of the options classes 
covered by the document. Five copies of any amendment or supplement 
distributed pursuant to this paragraph shall be filed with the 
Commission at the time of distribution. In that instance, if the 
Commission determines, having given due regard to the adequacy of the 
information disclosed and the public interest and the protection of 
investors, it may require refiling of the amendment pursuant to 
paragraph (b)(2)(i) of this section.
    (c) Information required in an options disclosure document. An 
options disclosure document shall contain the following information, 
unless otherwise provided by the Commission, with respect to the options 
classes covered by the document:
    (1) A glossary of terms;
    (2) A discussion of the mechanics of exercising the options;
    (3) A discussion of the risks of being a holder or writer of the 
options;
    (4) The identification of the market or markets in which the options 
are traded;
    (5) A brief reference to the transaction costs, margin requirements 
and tax consequences of options trading;
    (6) The identification of the issuer of the options;
    (7) A general identification of the type of instrument or 
instruments underlying the options class or classes covered by the 
document;
    (8) If the options are not exempt from registration under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.), the registration of the 
options on form S-20 (17 CFR 239.20) and the availability of the 
prospectus and the information in part II of the registration statement; 
and
    (9) Such other information as the Commission may specify.
    (d) Broker-dealer obligations. (1) No broker or dealer shall accept 
an order from a customer to purchase or sell an option contract relating 
to an options class that is the subject of a definitive options 
disclosure document, or approve the customer's account for the trading 
of such option, unless the broker or dealer furnishes or has furnished 
to the customer a copy of the definitive options disclosure document.
    (2) If a definitive options disclosure document relating to an 
options class is amended or supplemented, each broker and dealer shall 
promptly send a copy of the definitive amendment or supplement or a copy 
of the definitive options disclosure document as amended to each 
customer whose account is

[[Page 93]]

approved for trading the options class or classes to which the amendment 
or supplement relates.

[47 FR 41956, Sept. 23, 1982, as amended at 51 FR 14982, Apr. 22, 1986; 
65 FR 64139, Oct. 26, 2000; 68 FR 192, Jan. 2, 2003]



Sec.Sec.240.10a-1--240.10a-2  [Reserved]

           Manipulative and Deceptive Devices and Contrivances



Sec.240.10b-1  Prohibition of use of manipulative or deceptive devices
or contrivances with respect to certain securities exempted from
registration.

    The term manipulative or deceptive device or contrivance, as used in 
section 10(b) (48 Stat. 891; 15 U.S.C. 78j(b)), is hereby defined to 
include any act or omission to act with respect to any security exempted 
from the operation of section 12(a) (48 Stat. 892; 15 U.S.C. 78l(a)) 
pursuant to any section in this part which specifically provides that 
this section shall be applicable to such security if such act or 
omission to act would have been unlawful under section 9(a) (48 Stat. 
889; 15 U.S.C. 78i(a)), or any rule or regulation heretofore or 
hereafter prescribed thereunder, if done or omitted to be done with 
respect to a security registered on a national securities exchange, and 
the use of any means or instrumentality of interstate commerce or of the 
mails or of any facility of any national securities exchange to use or 
employ any such device or contrivance in connection with the purchase or 
sale of any such security is hereby prohibited.

(Secs. 10, 12, 48 Stat. 891, 892; 15 U.S.C. 78j, 78l)

    Cross References: For applicability of this section, see Sec.Sec.
240.12a-4 and 240.12a-5. For regulations relating to employment of 
manipulative and deceptive devices, see Sec.Sec.240.10b-3 and 
240.10b-5.

[13 FR 8183, Dec. 22, 1948]



Sec.240.10b-2  [Reserved]



Sec.240.10b-3  Employment of manipulative and deceptive devices
by brokers or dealers.

    (a) It shall be unlawful for any broker or dealer, directly or 
indirectly, by the use of any means or instrumentality of interstate 
commerce, or of the mails, or of any facility of any national securities 
exchange, to use or employ, in connection with the purchase or sale of 
any security otherwise than on a national securities exchange, any act, 
practice, or course of business defined by the Commission to be included 
within the term ``manipulative, deceptive, or other fraudulent device or 
contrivance'', as such term is used in section 15(c)(1) of the act.
    (b) It shall be unlawful for any municipal securities dealer 
directly or indirectly, by the use of any means or instrumentality of 
interstate commerce, or of the mails, or of any facility of any national 
securities exchange, to use or employ, in connection with the purchase 
or sale of any municipal security, any act, practice, or course of 
business defined by the Commission to be included within the term 
``manipulative, deceptive, or other fraudulent device or contrivance,'' 
as such term is used in section 15(c)(1) of the act.

(Secs. 10, 12, 48 Stat. 891, 892, as amended; 15 U.S.C. 78j, 78l)

    Cross References: See also Sec.240.10b-5. For regulation relating 
to prohibition of manipulative or deceptive devices, see Sec.240.10b-
1. For the term ``manipulative, deceptive, or other fraudulent device or 
contrivance'', as used in section 15(c)(1) of the act, see Sec.Sec.
240.15c1-2 to 240.15c1-9.

[13 FR 8183, Dec. 22, 1948, as amended at 19 FR 8017, Dec. 4, 1954; 41 
FR 22824, June 7, 1976]



Sec.240.10b-4  [Reserved]



Sec.240.10b-5  Employment of manipulative and deceptive devices.

    It shall be unlawful for any person, directly or indirectly, by the 
use of any means or instrumentality of interstate commerce, or of the 
mails or of any facility of any national securities exchange,
    (a) To employ any device, scheme, or artifice to defraud,
    (b) To make any untrue statement of a material fact or to omit to 
state a material fact necessary in order to make the statements made, in 
the light of the circumstances under which they were made, not 
misleading, or
    (c) To engage in any act, practice, or course of business which 
operates or

[[Page 94]]

would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.

(Sec.10; 48 Stat. 891; 15 U.S.C. 78j)

[13 FR 8183, Dec. 22, 1948, as amended at 16 FR 7928, Aug. 11, 1951]



Sec.240.10b5-1  Trading ``on the basis of'' material nonpublic 
information in insider trading cases.

    Preliminary Note to Sec.240.10b5-1: This provision defines when a 
purchase or sale constitutes trading ``on the basis of'' material 
nonpublic information in insider trading cases brought under Section 
10(b) of the Act and Rule 10b-5 thereunder. The law of insider trading 
is otherwise defined by judicial opinions construing Rule 10b-5, and 
Rule 10b5-1 does not modify the scope of insider trading law in any 
other respect.

    (a) General. The ``manipulative and deceptive devices'' prohibited 
by Section 10(b) of the Act (15 U.S.C. 78j) and Sec.240.10b-5 
thereunder include, among other things, the purchase or sale of a 
security of any issuer, on the basis of material nonpublic information 
about that security or issuer, in breach of a duty of trust or 
confidence that is owed directly, indirectly, or derivatively, to the 
issuer of that security or the shareholders of that issuer, or to any 
other person who is the source of the material nonpublic information.
    (b) Definition of ``on the basis of.'' Subject to the affirmative 
defenses in paragraph (c) of this section, a purchase or sale of a 
security of an issuer is ``on the basis of'' material nonpublic 
information about that security or issuer if the person making the 
purchase or sale was aware of the material nonpublic information when 
the person made the purchase or sale.
    (c) Affirmative defenses. (1)(i) Subject to paragraph (c)(1)(ii) of 
this section, a person's purchase or sale is not ``on the basis of'' 
material nonpublic information if the person making the purchase or sale 
demonstrates that:
    (A) Before becoming aware of the information, the person had:
    (1) Entered into a binding contract to purchase or sell the 
security,
    (2) Instructed another person to purchase or sell the security for 
the instructing person's account, or
    (3) Adopted a written plan for trading securities;
    (B) The contract, instruction, or plan described in paragraph 
(c)(1)(i)(A) of this Section:
    (1) Specified the amount of securities to be purchased or sold and 
the price at which and the date on which the securities were to be 
purchased or sold;
    (2) Included a written formula or algorithm, or computer program, 
for determining the amount of securities to be purchased or sold and the 
price at which and the date on which the securities were to be purchased 
or sold; or
    (3) Did not permit the person to exercise any subsequent influence 
over how, when, or whether to effect purchases or sales; provided, in 
addition, that any other person who, pursuant to the contract, 
instruction, or plan, did exercise such influence must not have been 
aware of the material nonpublic information when doing so; and
    (C) The purchase or sale that occurred was pursuant to the contract, 
instruction, or plan. A purchase or sale is not ``pursuant to a 
contract, instruction, or plan'' if, among other things, the person who 
entered into the contract, instruction, or plan altered or deviated from 
the contract, instruction, or plan to purchase or sell securities 
(whether by changing the amount, price, or timing of the purchase or 
sale), or entered into or altered a corresponding or hedging transaction 
or position with respect to those securities.
    (ii) Paragraph (c)(1)(i) of this section is applicable only when the 
contract, instruction, or plan to purchase or sell securities was given 
or entered into in good faith and not as part of a plan or scheme to 
evade the prohibitions of this section.
    (iii) This paragraph (c)(1)(iii) defines certain terms as used in 
paragraph (c) of this Section.
    (A) Amount. ``Amount'' means either a specified number of shares or 
other securities or a specified dollar value of securities.
    (B) Price. ``Price'' means the market price on a particular date or 
a limit price, or a particular dollar price.
    (C) Date. ``Date'' means, in the case of a market order, the 
specific day of

[[Page 95]]

the year on which the order is to be executed (or as soon thereafter as 
is practicable under ordinary principles of best execution). ``Date'' 
means, in the case of a limit order, a day of the year on which the 
limit order is in force.
    (2) A person other than a natural person also may demonstrate that a 
purchase or sale of securities is not ``on the basis of'' material 
nonpublic information if the person demonstrates that:
    (i) The individual making the investment decision on behalf of the 
person to purchase or sell the securities was not aware of the 
information; and
    (ii) The person had implemented reasonable policies and procedures, 
taking into consideration the nature of the person's business, to ensure 
that individuals making investment decisions would not violate the laws 
prohibiting trading on the basis of material nonpublic information. 
These policies and procedures may include those that restrict any 
purchase, sale, and causing any purchase or sale of any security as to 
which the person has material nonpublic information, or those that 
prevent such individuals from becoming aware of such information.

[65 FR 51737, Aug. 24, 2000]



Sec.240.10b5-2  Duties of trust or confidence in misappropriation 
insider trading cases.

    Preliminary Note to Sec.240.10b5-2: This section provides a non-
exclusive definition of circumstances in which a person has a duty of 
trust or confidence for purposes of the ``misappropriation'' theory of 
insider trading under Section 10(b) of the Act and Rule 10b-5. The law 
of insider trading is otherwise defined by judicial opinions construing 
Rule 10b-5, and Rule 10b5-2 does not modify the scope of insider trading 
law in any other respect.

    (a) Scope of Rule. This section shall apply to any violation of 
Section 10(b) of the Act (15 U.S.C. 78j(b)) and Sec.240.10b-5 
thereunder that is based on the purchase or sale of securities on the 
basis of, or the communication of, material nonpublic information 
misappropriated in breach of a duty of trust or confidence.
    (b) Enumerated ``duties of trust or confidence.'' For purposes of 
this section, a ``duty of trust or confidence'' exists in the following 
circumstances, among others:
    (1) Whenever a person agrees to maintain information in confidence;
    (2) Whenever the person communicating the material nonpublic 
information and the person to whom it is communicated have a history, 
pattern, or practice of sharing confidences, such that the recipient of 
the information knows or reasonably should know that the person 
communicating the material nonpublic information expects that the 
recipient will maintain its confidentiality; or
    (3) Whenever a person receives or obtains material nonpublic 
information from his or her spouse, parent, child, or sibling; provided, 
however, that the person receiving or obtaining the information may 
demonstrate that no duty of trust or confidence existed with respect to 
the information, by establishing that he or she neither knew nor 
reasonably should have known that the person who was the source of the 
information expected that the person would keep the information 
confidential, because of the parties' history, pattern, or practice of 
sharing and maintaining confidences, and because there was no agreement 
or understanding to maintain the confidentiality of the information.

[65 FR 51738, Aug. 24, 2000]



Sec.Sec.240.10b-6--240.10b-8  [Reserved]



Sec.240.10b-9  Prohibited representations in connection with
certain offerings.

    (a) It shall constitute a manipulative or deception device or 
contrivance, as used in section 10(b) of the Act, for any person, 
directly or indirectly, in connection with the offer or sale of any 
security, to make any representation:
    (1) To the effect that the security is being offered or sold on an 
``all-or-none'' basis, unless the security is part of an offering or 
distribution being made on the condition that all or a specified amount 
of the consideration paid for such security will be promptly refunded to 
the purchaser unless (i) all of the securities being offered are sold at 
a specified price within a specified time, and (ii) the total amount due 
to

[[Page 96]]

the seller is received by him by a specified date; or
    (2) To the effect that the security is being offered or sold on any 
other basis whereby all or part of the consideration paid for any such 
security will be refunded to the purchaser if all or some of the 
securities are not sold, unless the security is part of an offering or 
distribution being made on the condition that all or a specified part of 
the consideration paid for such security will be promptly refunded to 
the purchaser unless (i) a specified number of units of the security are 
sold at a specified price within a specified time, and (ii) the total 
amount due to the seller is received by him by a specified date.
    (b) This rule shall not apply to any offer or sale of securities as 
to which the seller has a firm commitment from underwriters or others 
(subject only to customary conditions precedent, including ``market 
outs'') for the purchase of all the securities being offered.

(Sec.10, 48 Stat. 891, as amended; 15 U.S.C. 78j)

[27 FR 9943, Oct. 10, 1962]



Sec.240.10b-10  Confirmation of transactions.

    Preliminary Note. This section requires broker-dealers to disclose 
specified information in writing to customers at or before completion of 
a transaction. The requirements under this section that particular 
information be disclosed is not determinative of a broker-dealer's 
obligation under the general antifraud provisions of the federal 
securities laws to disclose additional information to a customer at the 
time of the customer's investment decision.

    (a) Disclosure requirement. It shall be unlawful for any broker or 
dealer to effect for or with an account of a customer any transaction 
in, or to induce the purchase or sale by such customer of, any security 
(other than U.S. Savings Bonds or municipal securities) unless such 
broker or dealer, at or before completion of such transaction, gives or 
sends to such customer written notification disclosing:
    (1) The date and time of the transaction (or the fact that the time 
of the transaction will be furnished upon written request to such 
customer) and the identity, price, and number of shares or units (or 
principal amount) of such security purchased or sold by such customer; 
and
    (2) Whether the broker or dealer is acting as agent for such 
customer, as agent for some other person, as agent for both such 
customer and some other person, or as principal for its own account; and 
if the broker or dealer is acting as principal, whether it is a market 
maker in the security (other than by reason of acting as a block 
positioner); and
    (i) If the broker or dealer is acting as agent for such customer, 
for some other person, or for both such customer and some other person:
    (A) The name of the person from whom the security was purchased, or 
to whom it was sold, for such customer or the fact that the information 
will be furnished upon written request of such customer; and
    (B) The amount of any remuneration received or to be received by the 
broker from such customer in connection with the transaction unless 
remuneration paid by such customer is determined pursuant to written 
agreement with such customer, otherwise than on a transaction basis; and
    (C) For a transaction in any NMS stock as defined in Sec.242.600 
of this chapter or a security authorized for quotation on an automated 
interdealer quotation system that has the characteristics set forth in 
section 17B of the Act (15 U.S.C. 78q-2), a statement whether payment 
for order flow is received by the broker or dealer for transactions in 
such securities and the fact that the source and nature of the 
compensation received in connection with the particular transaction will 
be furnished upon written request of the customer; provided, however, 
that brokers or dealers that do not receive payment for order flow in 
connection with any transaction have no disclosure obligations under 
this paragraph; and
    (D) The source and amount of any other remuneration received or to 
be received by the broker in connection with the transaction: Provided, 
however, that if, in the case of a purchase, the broker was not 
participating in a distribution, or in the case of a sale, was not 
participating in a tender offer, the written notification may state

[[Page 97]]

whether any other remuneration has been or will be received and the fact 
that the source and amount of such other remuneration will be furnished 
upon written request of such customer; or
    (ii) If the broker or dealer is acting as principal for its own 
account:
    (A) In the case where such broker or dealer is not a market maker in 
an equity security and, if, after having received an order to buy from a 
customer, the broker or dealer purchased the equity security from 
another person to offset a contemporaneous sale to such customer or, 
after having received an order to sell from a customer, the broker or 
dealer sold the security to another person to offset a contemporaneous 
purchase from such customer, the difference between the price to the 
customer and the dealer's contemporaneous purchase (for customer 
purchases) or sale price (for customer sales); or
    (B) In the case of any other transaction in an NMS stock as defined 
by Sec.242.600 of this chapter, or an equity security that is traded 
on a national securities exchange and that is subject to last sale 
reporting, the reported trade price, the price to the customer in the 
transaction, and the difference, if any, between the reported trade 
price and the price to the customer.
    (3) Whether any odd-lot differential or equivalent fee has been paid 
by such customer in connection with the execution of an order for an 
odd-lot number of shares or units (or principal amount) of a security 
and the fact that the amount of any such differential or fee will be 
furnished upon oral or written request: Provided, however, that such 
disclosure need not be made if the differential or fee is included in 
the remuneration disclosure, or exempted from disclosure, pursuant to 
paragraph (a)(2)(i)(B) of this section; and
    (4) In the case of any transaction in a debt security subject to 
redemption before maturity, a statement to the effect that such debt 
security may be redeemed in whole or in part before maturity, that such 
a redemption could affect the yield represented and the fact that 
additional information is available upon request; and
    (5) In the case of a transaction in a debt security effected 
exclusively on the basis of a dollar price:
    (i) The dollar price at which the transaction was effected, and
    (ii) The yield to maturity calculated from the dollar price: 
Provided, however, that this paragraph (a)(5)(ii) shall not apply to a 
transaction in a debt security that either:
    (A) Has a maturity date that may be extended by the issuer thereof, 
with a variable interest payable thereon; or
    (B) Is an asset-backed security, that represents an interest in or 
is secured by a pool of receivables or other financial assets that are 
subject continuously to prepayment; and
    (6) In the case of a transaction in a debt security effected on the 
basis of yield:
    (i) The yield at which the transaction was effected, including the 
percentage amount and its characterization (e.g., current yield, yield 
to maturity, or yield to call) and if effected at yield to call, the 
type of call, the call date and call price; and
    (ii) The dollar price calculated from the yield at which the 
transaction was effected; and
    (iii) If effected on a basis other than yield to maturity and the 
yield to maturity is lower than the represented yield, the yield to 
maturity as well as the represented yield; Provided, however, that this 
paragraph (a)(6)(iii) shall not apply to a transaction in a debt 
security that either:
    (A) Has a maturity date that may be extended by the issuer thereof, 
with a variable interest rate payable thereon; or
    (B) Is an asset-backed security, that represents an interest in or 
is secured by a pool of receivables or other financial assets that are 
subject continuously to prepayment; and
    (7) In the case of a transaction in a debt security that is an 
asset-backed security, which represents an interest in or is secured by 
a pool of receivables or other financial assets that are subject 
continuously to prepayment, a statement indicating that the actual yield 
of such asset-backed security may vary according to the rate at which 
the underlying receivables or other financial assets are prepaid and a

[[Page 98]]

statement of the fact that information concerning the factors that 
affect yield (including at a minimum estimated yield, weighted average 
life, and the prepayment assumptions underlying yield) will be furnished 
upon written request of such customer; and
    (8) That the broker or dealer is not a member of the Securities 
Investor Protection Corporation (SIPC), or that the broker or dealer 
clearing or carrying the customer account is not a member of SIPC, if 
such is the case: Provided, however, that this paragraph (a)(9) shall 
not apply in the case of a transaction in shares of a registered open-
end investment company or unit investment trust if:
    (i) The customer sends funds or securities directly to, or receives 
funds or securities directly from, the registered open-end investment 
company or unit investment trust, its transfer agent, its custodian, or 
other designated agent, and such person is not an associated person of 
the broker or dealer required by paragraph (a) of this section to send 
written notification to the customer; and
    (ii) The written notification required by paragraph (a) of this 
section is sent on behalf of the broker or dealer to the customer by a 
person described in paragraph (a)(9)(i) of this section.
    (b) Alternative periodic reporting. A broker or dealer may effect 
transactions for or with the account of a customer without giving or 
sending to such customer the written notification described in paragraph 
(a) of this section if:
    (1) Such transactions are effected pursuant to a periodic plan or an 
investment company plan, or effected in shares of any open-end 
management investment company registered under the Investment Company 
Act of 1940 that holds itself out as a money market fund and attempts to 
maintain a stable net asset value per share: Provided, however, that no 
sales load is deducted upon the purchase or redemption of shares in the 
money market fund; and
    (2) Such broker or dealer gives or sends to such customer within 
five business days after the end of each quarterly period, for 
transactions involving investment company and periodic plans, and after 
the end of each monthly period, for other transactions described in 
paragraph (b)(1) of this section, a written statement disclosing each 
purchase or redemption, effected for or with, and each dividend or 
distribution credited to or reinvested for, the account of such customer 
during the month; the date of such transaction; the identity, number, 
and price of any securities purchased or redeemed by such customer in 
each such transaction; the total number of shares of such securities in 
such customer's account; any remuneration received or to be received by 
the broker or dealer in connection therewith; and that any other 
information required by paragraph (a) of this section will be furnished 
upon written request: Provided, however, that the written statement may 
be delivered to some other person designated by the customer for 
distribution to the customer; and
    (3) Such customer is provided with prior notification in writing 
disclosing the intention to send the written information referred to in 
paragraph (b)(1) of this section in lieu of an immediate confirmation.
    (c) A broker or dealer shall give or send to a customer information 
requested pursuant to this rule within 5 business days of receipt of the 
request: Provided, however, That in the case of information pertaining 
to a transaction effected more than 30 days prior to receipt of the 
request, the information shall be given or sent to the customer within 
15 business days.
    (d) Definitions. For the purposes of this section:
    (1) Customer shall not include a broker or dealer;
    (2) Completion of the transaction shall have the meaning provided in 
rule 15c1-1 under the Act;
    (3) Time of the transaction means the time of execution, to the 
extent feasible, of the customer's order;
    (4) Debt security as used in paragraphs (a)(3), (4), and (5) only, 
means any security, such as a bond, debenture, note, or any other 
similar instrument which evidences a liability of the issuer (including 
any such security that is convertible into stock or a similar security) 
and fractional or participation interests in one or more of any of the

[[Page 99]]

foregoing: Provided, however, That securities issued by an investment 
company registered under the Investment Company Act of 1940 shall not be 
included in this definition;
    (5) Periodic plan means any written authorization for a broker 
acting as agent to purchase or sell for a customer a specific security 
or securities (other than securities issued by an open end investment 
company or unit investment trust registered under the Investment Company 
Act of 1940), in specific amounts (calculated in security units or 
dollars), at specific time intervals and setting forth the commissions 
or charges to be paid by the customer in connection therewith (or the 
manner of calculating them); and
    (6) Investment company plan means any plan under which securities 
issued by an open-end investment company or unit investment trust 
registered under the Investment Company Act of 1940 are purchased by a 
customer (the payments being made directly to, or made payable to, the 
registered investment company, or the principal underwriter, custodian, 
trustee, or other designated agent of the registered investment 
company), or sold by a customer pursuant to:
    (i) An individual retirement or individual pension plan qualified 
under the Internal Revenue Code;
    (ii) A contractual or systematic agreement under which the customer 
purchases at the applicable public offering price, or redeems at the 
applicable redemption price, such securities in specified amounts 
(calculated in security units or dollars) at specified time intervals 
and setting forth the commissions or charges to be paid by such customer 
in connection therewith (or the manner of calculating them; or
    (iii) Any other arrangement involving a group of two or more 
customers and contemplating periodic purchases of such securities by 
each customer through a person designated by the group: Provided, That 
such arrangement requires the registered investment company or its 
agent--
    (A) To give or send to the designated person, at or before the 
completion of the transaction for the purchase of such securities, a 
written notification of the receipt of the total amount paid by the 
group;
    (B) To send to anyone in the group who was a customer in the prior 
quarter and on whose behalf payment has not been received in the current 
quarter a quarterly written statement reflecting that a payment was not 
received on his behalf; and
    (C) To advise each customer in the group if a payment is not 
received from the designated person on behalf of the group within 10 
days of a date certain specified in the arrangement for delivery of that 
payment by the designated person and thereafter to send to each such 
customer the written notification described in paragraph (a) of this 
section for the next three succeeding payments.
    (7) NMS stock shall have the meaning provided in Sec.242.600 of 
this chapter.
    (8) Payment for order flow shall mean any monetary payment, service, 
property, or other benefit that results in remuneration, compensation, 
or consideration to a broker or dealer from any broker or dealer, 
national securities exchange, registered securities association, or 
exchange member in return for the routing of customer orders by such 
broker or dealer to any broker or dealer, national securities exchange, 
registered securities association, or exchange member for execution, 
including but not limited to: research, clearance, custody, products or 
services; reciprocal agreements for the provision of order flow; 
adjustment of a broker or dealer's unfavorable trading errors; offers to 
participate as underwriter in public offerings; stock loans or shared 
interest accrued thereon; discounts, rebates, or any other reductions of 
or credits against any fee to, or expense or other financial obligation 
of, the broker or dealer routing a customer order that exceeds that fee, 
expense or financial obligation.
    (9) Asset-backed security means a security that is primarily 
serviced by the cashflows of a discrete pool of receivables or other 
financial assets, either fixed or revolving, that by their terms convert 
into cash within a finite time period plus any rights or other assets 
designed to assure the servicing or timely distribution of proceeds to 
the security holders.

[[Page 100]]

    (e) Security futures products. The provisions of paragraphs (a) and 
(b) of this section shall not apply to a broker or dealer registered 
pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) to 
the extent that it effects transactions for customers in security 
futures products in a futures account (as that term is defined in Sec.
240.15c3-3(a)(15)) and a broker or dealer registered pursuant to section 
15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) that is also a futures 
commission merchant registered pursuant to section 4f(a)(1) of the 
Commodity Exchange Act (7 U.S.C. 6f(a)(1)), to the extent that it 
effects transactions for customers in security futures products in a 
futures account (as that term is defined in Sec.240.15c3-3(a)(15)), 
Provided that:
    (1) The broker or dealer that effects any transaction for a customer 
in security futures products in a futures account gives or sends to the 
customer no later than the next business day after execution of any 
futures securities product transaction, written notification disclosing:
    (i) The date the transaction was executed, the identity of the 
single security or narrow-based security index underlying the contract 
for the security futures product, the number of contracts of such 
security futures product purchased or sold, the price, and the delivery 
month;
    (ii) The source and amount of any remuneration received or to be 
received by the broker or dealer in connection with the transaction, 
including, but not limited to, markups, commissions, costs, fees, and 
other charges incurred in connection with the transaction, provided, 
however, that if no remuneration is to be paid for an initiating 
transaction until the occurrence of the corresponding liquidating 
transaction, that the broker or dealer may disclose the amount of 
remuneration only on the confirmation for the liquidating transaction;
    (iii) The fact that information about the time of the execution of 
the transaction, the identity of the other party to the contract, and 
whether the broker or dealer is acting as agent for such customer, as 
agent for some other person, as agent for both such customer and some 
other person, or as principal for its own account, and if the broker or 
dealer is acting as principal, whether it is engaging in a block 
transaction or an exchange of security futures products for physical 
securities, will be available upon written request of the customer; and
    (iv) Whether payment for order flow is received by the broker or 
dealer for such transactions, the amount of this payment and the fact 
that the source and nature of the compensation received in connection 
with the particular transaction will be furnished upon written request 
of the customer; provided, however, that brokers or dealers that do not 
receive payment for order flow have no disclosure obligation under this 
paragraph.
    (2) Transitional provision. (i) Broker-dealers are not required to 
comply with paragraph (e)(1)(iii) of this section until June 1, 2003, 
Provided that, if, not withstanding the absence of the disclosure 
required in that paragraph, the broker-dealer receives a written request 
from a customer for the information described in paragraph (e)(1)(iii) 
of this section, the broker-dealer must make the information available 
to the customer; and
    (ii) Broker-dealers are not required to comply with paragraph 
(e)(1)(iv) of this section until June 1, 2003.
    (f) The Commission may exempt any broker or dealer from the 
requirements of paragraphs (a) and (b) of this section with regard to 
specific transactions of specific classes of transactions for which the 
broker or dealer will provide alternative procedures to effect the 
purposes of this section; any such exemption may be granted subject to 
compliance with such alternative procedures and upon such other stated 
terms and conditions as the Commission may impose.

[43 FR 47503, Oct. 16, 1978, as amended at 48 FR 17585, Apr. 25, 1983; 
50 FR 37654, Sept. 17, 1985; 53 FR 40721, Oct. 18, 1988; 59 FR 55012, 
Nov. 2, 1994; 59 FR 59620, Nov. 17, 1994; 59 FR 60555, Nov. 25, 1994; 67 
FR 58312, Sept. 13, 2002; 70 FR 37618, June 29, 2005; 79 FR 1549, Jan. 
8, 2014]

[[Page 101]]



Sec.240.10b-13  [Reserved]



Sec.240.10b-16  Disclosure of credit terms in margin transactions.

    (a) It shall be unlawful for any broker or dealer to extend credit, 
directly or indirectly, to any customer in connection with any 
securities transaction unless such broker or dealer has established 
procedures to assure that each customer:
    (1) Is given or sent at the time of opening the account, a written 
statement or statements disclosing (i) the conditions under which an 
interest charge will be imposed; (ii) the annual rate or rates of 
interest that can be imposed; (iii) the method of computing interest; 
(iv) if rates of interest are subject to change without prior notice, 
the specific conditions under which they can be changed; (v) the method 
of determining the debit balance or balances on which interest is to be 
charged and whether credit is to be given for credit balances in cash 
accounts; (vi) what other charges resulting from the extension of 
credit, if any, will be made and under what conditions; and (vii) the 
nature of any interest or lien retained by the broker or dealer in the 
security or other property held as collateral and the conditions under 
which additional collateral can be required: Provided, however, That the 
requirements of this subparagraph will be met in any case where the 
account is opened by telephone if the information required to be 
disclosed is orally communicated to the customer at that time and the 
required written statement or statements are sent to the customer 
immediately thereafter: And provided, further, That in the case of 
customers to whom credit is already being extended on the effective date 
of this section, the written statement or statements required hereunder 
must be given or sent to said customers within 90 days after the 
effective date of this section; and
    (2) Is given or sent a written statement or statements, at least 
quarterly, for each account in which credit was extended, disclosing (i) 
the balance at the beginning of the period; the date, amount and a brief 
description of each debit and credit entered during such period; the 
closing balance; and, if interest is charged for a period different from 
the period covered by the statement, the balance as of the last day of 
the interest period; (ii) the total interest charge for the period 
during which interest is charged (or, if interest is charged separately 
for separate accounts, the total interest charge for each such account), 
itemized to show the dates on which the interest period began and ended; 
the annual rate or rates of interest charged and the interest charge for 
each such different annual rate of interest; and either each different 
debit balance on which an interest calculation was based or the average 
debit balance for the interest period, except that if an average debit 
balance is used, a separate average debit balance must be disclosed for 
each interest rate applied; and (iii) all other charges resulting from 
the extension of credit in that account: Provided, however, That if the 
interest charge disclosed on a statement is for a period different from 
the period covered by the statement, there must be printed on the 
statement appropriate language to the effect that it should be retained 
for use in conjunction with the next statement containing the remainder 
of the required information: And provided further, That in the case of 
``equity funding programs'' registered under the Securities Act of 1933, 
the requirements of this paragraph will be met if the broker or dealer 
furnishes to the customer, within 1 month after each extension of 
credit, a written statement or statements containing the information 
required to be disclosed under this paragraph.
    (b) It shall be unlawful for any broker or dealer to make any 
changes in the terms and conditions under which credit charges will be 
made (as described in the initial statement made under paragraph (a) of 
this section), unless the customer shall have been given not less than 
thirty (30) days written notice of such changes, except that no such 
prior notice shall be necessary where such changes are required by law: 
Provided, however, That if any change for which prior notice would 
otherwise be required under this paragraph results in a lower interest 
charge to the customer than would have been imposed before the change, 
notice of

[[Page 102]]

such change may be given within a reasonable time after the effective 
date of the change.

(15 U.S.C. 78j)

[34 FR 19718, Dec. 16, 1969]



Sec.240.10b-17  Untimely announcements of record dates.

    (a) It shall constitute a ``manipulative or deceptive device or 
contrivance'' as used in section 10(b) of the Act for any issuer of a 
class of securities publicly traded by the use of any means or 
instrumentality of interstate commerce or of the mails or of any 
facility of any national securities exchange to fail to give notice in 
accordance with paragraph (b) of this section of the following actions 
relating to such class of securities:
    (1) A dividend or other distribution in cash or in kind, except an 
ordinary interest payment on a debt security, but including a dividend 
or distribution of any security of the same or another issuer;
    (2) A stock split or reverse split; or
    (3) A rights or other subscription offering.
    (b) Notice shall be deemed to have been given in accordance with 
this section only if:
    (1) Given to the National Association of Securities Dealers, Inc., 
no later than 10 days prior to the record date involved or, in case of a 
rights subscription or other offering if such 10 days advance notice is 
not practical, on or before the record date and in no event later than 
the effective date of the registration statement to which the offering 
relates, and such notice includes:
    (i) Title of the security to which the declaration relates;
    (ii) Date of declaration;
    (iii) Date of record for determining holders entitled to receive the 
dividend or other distribution or to participate in the stock or reverse 
split;
    (iv) Date of payment or distribution or, in the case of a stock or 
reverse split or rights or other subscription offering, the date of 
delivery;
    (v) For a dividend or other distribution including a stock or 
reverse split or rights or other subscription offering:
    (a) In cash, the amount of cash to be paid or distributed per share, 
except if exact per share cash distributions cannot be given because of 
existing conversion rights which may be exercised during the notice 
period and which may affect the per share cash distribution, then a 
reasonable approximation of the per share distribution may be provided 
so long as the actual per share distribution is subsequently provided on 
the record date,
    (b) In the same security, the amount of the security outstanding 
immediately prior to and immediately following the dividend or 
distribution and the rate of the dividend or distribution,
    (c) In any other security of the same issuer, the amount to be paid 
or distributed and the rate of the dividend or distribution,
    (d) In any security of another issuer, the name of the issuer and 
title of that security, the amount to be paid or distributed, and the 
rate of the dividend or distribution and if that security is a right or 
a warrant, the subscription price,
    (e) In any other property (including securities not covered under 
paragraphs (b)(1)(v) (b) through (d) of this section) the identity of 
the property and its value and basis for assigning that value;
    (vi) Method of settlement of fractional interests;
    (vii) Details of any condition which must be satisfied or Government 
approval which must be secured to enable payment of distribution; and in
    (viii) The case of stock or reverse split in addition to the 
aforementioned information;
    (a) The name and address of the transfer or exchange agent; or
    (2) The Commission, upon written request or upon its own motion, 
exempts the issuer from compliance with paragraph (b)(1) of this section 
either unconditionally or on specified terms or conditions, as not 
constituting a manipulative or deceptive device or contrivance 
comprehended within the purpose of this section; or
    (3) Given in accordance with procedures of the national securities 
exchange or exchanges upon which a security of such issuer is registered 
pursuant to section 12 of the Act which contain requirements 
substantially

[[Page 103]]

comparable to those set forth in paragraph (b)(1) of this section.
    (c) The provisions of this rule shall not apply, however, to 
redeemable securities issued by open-end investment companies and unit 
investment trusts registered with the Commission under the Investment 
Company Act of 1940.

(Secs. 10(b), 23(a), 48 Stat. 891, as amended, 49 Stat. 1379, 15 U.S.C. 
78j)

[36 FR 11514, June 15, 1971, as amended at 37 FR 4330, Mar. 2, 1972]



Sec.240.10b-18  Purchases of certain equity securities by the 
issuer and others.

    Preliminary Notes to Sec.240.10b-18
    1. Section 240.10b-18 provides an issuer (and its affiliated 
purchasers) with a ``safe harbor'' from liability for manipulation under 
sections 9(a)(2) of the Act and Sec.240.10b-5 under the Act solely by 
reason of the manner, timing, price, and volume of their repurchases 
when they repurchase the issuer's common stock in the market in 
accordance with the section's manner, timing, price, and volume 
conditions. As a safe harbor, compliance with Sec.240.10b-18 is 
voluntary. To come within the safe harbor, however, an issuer's 
repurchases must satisfy (on a daily basis) each of the section's four 
conditions. Failure to meet any one of the four conditions will remove 
all of the issuer's repurchases from the safe harbor for that day. The 
safe harbor, moreover, is not available for repurchases that, although 
made in technical compliance with the section, are part of a plan or 
scheme to evade the federal securities laws.
    2. Regardless of whether the repurchases are effected in accordance 
with Sec.240.10b-18, reporting issuers must report their repurchasing 
activity as required by Item 703 of Regulations S-K and S-B (17 CFR 
229.703 and 228.703) and Item 15(e) of Form 20-F (17 CFR 249.220f) 
(regarding foreign private issuers), and closed-end management 
investment companies that are registered under the Investment Company 
Act of 1940 must report their repurchasing activity as required by Item 
8 of Form N-CSR (17 CFR 249.331; 17 CFR 274.128).

    (a) Definitions. Unless otherwise provided, all terms used in this 
section shall have the same meaning as in the Act. In addition, the 
following definitions shall apply:
    (1) ADTV means the average daily trading volume reported for the 
security during the four calendar weeks preceding the week in which the 
Rule 10b-18 purchase is to be effected.
    (2) Affiliate means any person that directly or indirectly controls, 
is controlled by, or is under common control with, the issuer.
    (3) Affiliated purchaser means:
    (i) A person acting, directly or indirectly, in concert with the 
issuer for the purpose of acquiring the issuer's securities; or
    (ii) An affiliate who, directly or indirectly, controls the issuer's 
purchases of such securities, whose purchases are controlled by the 
issuer, or whose purchases are under common control with those of the 
issuer; Provided, however, that ``affiliated purchaser'' shall not 
include a broker, dealer, or other person solely by reason of such 
broker, dealer, or other person effecting Rule 10b-18 purchases on 
behalf of the issuer or for its account, and shall not include an 
officer or director of the issuer solely by reason of that officer or 
director's participation in the decision to authorize Rule 10b-18 
purchases by or on behalf of the issuer.
    (4) Agent independent of the issuer has the meaning contained in 
Sec.242.100 of this chapter.
    (5) Block means a quantity of stock that either:
    (i) Has a purchase price of $200,000 or more; or
    (ii) Is at least 5,000 shares and has a purchase price of at least 
$50,000; or
    (iii) Is at least 20 round lots of the security and totals 150 
percent or more of the trading volume for that security or, in the event 
that trading volume data are unavailable, is at least 20 round lots of 
the security and totals at least one-tenth of one percent (.001) of the 
outstanding shares of the security, exclusive of any shares owned by any 
affiliate; Provided, however, That a block under paragraph (a)(5)(i), 
(ii), and (iii) shall not include any amount a broker or dealer, acting 
as principal, has accumulated for the purpose of sale or resale to the 
issuer or to any affiliated purchaser of the issuer if the issuer or 
such affiliated purchaser knows or has reason to know that such amount 
was accumulated for such purpose, nor shall it include any amount that a 
broker or dealer has sold short to the issuer or to any affiliated 
purchaser of the issuer if the issuer or such affiliated purchaser knows 
or has

[[Page 104]]

reason to know that the sale was a short sale.
    (6) Consolidated system means a consolidated transaction or 
quotation reporting system that collects and publicly disseminates on a 
current and continuous basis transaction or quotation information in 
common equity securities pursuant to an effective transaction reporting 
plan or an effective national market system plan (as those terms are 
defined in Sec.242.600 of this chapter).
    (7) Market-wide trading suspension means a market-wide trading halt 
of 30 minutes or more that is:
    (i) Imposed pursuant to the rules of a national securities exchange 
or a national securities association in response to a market-wide 
decline during a single trading session; or
    (ii) Declared by the Commission pursuant to its authority under 
section 12(k) of the Act (15 U.S.C. 78l (k)).
    (8) Plan has the meaning contained in Sec.242.100 of this chapter.
    (9) Principal market for a security means the single securities 
market with the largest reported trading volume for the security during 
the six full calendar months preceding the week in which the Rule 10b-18 
purchase is to be effected.
    (10) Public float value has the meaning contained in Sec.242.100 
of this chapter.
    (11) Purchase price means the price paid per share as reported, 
exclusive of any commission paid to a broker acting as agent, or 
commission equivalent, mark-up, or differential paid to a dealer.
    (12) Riskless principal transaction means a transaction in which a 
broker or dealer after having received an order from an issuer to buy 
its security, buys the security as principal in the market at the same 
price to satisfy the issuer's buy order. The issuer's buy order must be 
effected at the same price per-share at which the broker or dealer 
bought the shares to satisfy the issuer's buy order, exclusive of any 
explicitly disclosed markup or markdown, commission equivalent, or other 
fee. In addition, only the first leg of the transaction, when the broker 
or dealer buys the security in the market as principal, is reported 
under the rules of a self-regulatory organization or under the Act. For 
purposes of this section, the broker or dealer must have written 
policies and procedures in place to assure that, at a minimum, the 
issuer's buy order was received prior to the offsetting transaction; the 
offsetting transaction is allocated to a riskless principal account or 
the issuer's account within 60 seconds of the execution; and the broker 
or dealer has supervisory systems in place to produce records that 
enable the broker or dealer to accurately and readily reconstruct, in a 
time-sequenced manner, all orders effected on a riskless principal 
basis.
    (13) Rule 10b-18 purchase means a purchase (or any bid or limit 
order that would effect such purchase) of an issuer's common stock (or 
an equivalent interest, including a unit of beneficial interest in a 
trust or limited partnership or a depository share) by or for the issuer 
or any affiliated purchaser (including riskless principal transactions). 
However, it does not include any purchase of such security:
    (i) Effected during the applicable restricted period of a 
distribution that is subject to Sec.242.102 of this chapter;
    (ii) Effected by or for an issuer plan by an agent independent of 
the issuer;
    (iii) Effected as a fractional share purchase (a fractional interest 
in a security) evidenced by a script certificate, order form, or similar 
document;
    (iv) Effected during the period from the time of public announcement 
(as defined in Sec.230.165(f)) of a merger, acquisition, or similar 
transaction involving a recapitalization, until the earlier of the 
completion of such transaction or the completion of the vote by target 
shareholders. This exclusion does not apply to Rule 10b-18 purchases:
    (A) Effected during such transaction in which the consideration is 
solely cash and there is no valuation period; or
    (B) Where:
    (1) The total volume of Rule 10b-18 purchases effected on any single 
day does not exceed the lesser of 25% of the security's four-week ADTV 
or the issuer's average daily Rule 10b-18 purchases during the three 
full calendar months preceding the date of the announcement of such 
transaction;

[[Page 105]]

    (2) The issuer's block purchases effected pursuant to paragraph 
(b)(4) of this section do not exceed the average size and frequency of 
the issuer's block purchases effected pursuant to paragraph (b)(4) of 
this section during the three full calendar months preceding the date of 
the announcement of such transaction; and
    (3) Such purchases are not otherwise restricted or prohibited;
    (v) Effected pursuant to Sec.240.13e-1;
    (vi) Effected pursuant to a tender offer that is subject to Sec.
240.13e-4 or specifically excepted from Sec.240.13e-4; or
    (vii) Effected pursuant to a tender offer that is subject to section 
14(d) of the Act (15 U.S.C. 78n(d)) and the rules and regulations 
thereunder.
    (b) Conditions to be met. Rule 10b-18 purchases shall not be deemed 
to have violated the anti-manipulation provisions of sections 9(a)(2) or 
10(b) of the Act (15 U.S.C. 78i(a)(2) or 78j(b)), or Sec.240.10b-5 
under the Act, solely by reason of the time, price, or amount of the 
Rule 10b-18 purchases, or the number of brokers or dealers used in 
connection with such purchases, if the issuer or affiliated purchaser of 
the issuer effects the Rule 10b-18 purchases according to each of the 
following conditions:
    (1) One broker or dealer. Rule 10b-18 purchases must be effected 
from or through only one broker or dealer on any single day; Provided, 
however, that:
    (i) The ``one broker or dealer'' condition shall not apply to Rule 
10b-18 purchases that are not solicited by or on behalf of the issuer or 
its affiliated purchaser(s);
    (ii) Where Rule 10b-18 purchases are effected by or on behalf of 
more than one affiliated purchaser of the issuer (or the issuer and one 
or more of its affiliated purchasers) on a single day, the issuer and 
all affiliated purchasers must use the same broker or dealer; and
    (iii) Where Rule 10b-18 purchases are effected on behalf of the 
issuer by a broker-dealer that is not an electronic communication 
network (ECN) or other alternative trading system (ATS), that broker-
dealer can access ECN or other ATS liquidity in order to execute 
repurchases on behalf of the issuer (or any affiliated purchaser of the 
issuer) on that day.
    (2) Time of purchases. Rule 10b-18 purchases must not be:
    (i) The opening (regular way) purchase reported in the consolidated 
system;
    (ii) Effected during the 10 minutes before the scheduled close of 
the primary trading session in the principal market for the security, 
and the 10 minutes before the scheduled close of the primary trading 
session in the market where the purchase is effected, for a security 
that has an ADTV value of $1 million or more and a public float value of 
$150 million or more; and
    (iii) Effected during the 30 minutes before the scheduled close of 
the primary trading session in the principal market for the security, 
and the 30 minutes before the scheduled close of the primary trading 
session in the market where the purchase is effected, for all other 
securities;
    (iv) However, for purposes of this section, Rule 10b-18 purchases 
may be effected following the close of the primary trading session until 
the termination of the period in which last sale prices are reported in 
the consolidated system so long as such purchases are effected at prices 
that do not exceed the lower of the closing price of the primary trading 
session in the principal market for the security and any lower bids or 
sale prices subsequently reported in the consolidated system, and all of 
this section's conditions are met. However, for purposes of this 
section, the issuer may use one broker or dealer to effect Rule 10b-18 
purchases during this period that may be different from the broker or 
dealer that it used during the primary trading session. However, the 
issuer's Rule 10b-18 purchase may not be the opening transaction of the 
session following the close of the primary trading session.
    (3) Price of purchases. Rule 10b-18 purchases must be effected at a 
purchase price that:
    (i) Does not exceed the highest independent bid or the last 
independent transaction price, whichever is higher, quoted or reported 
in the consolidated system at the time the Rule 10b-18 purchase is 
effected;
    (ii) For securities for which bids and transaction prices are not 
quoted or reported in the consolidated system,

[[Page 106]]

Rule 10b-18 purchases must be effected at a purchase price that does not 
exceed the highest independent bid or the last independent transaction 
price, whichever is higher, displayed and disseminated on any national 
securities exchange or on any inter-dealer quotation system (as defined 
in Sec.240.15c2-11) that displays at least two priced quotations for 
the security, at the time the Rule 10b-18 purchase is effected; and
    (iii) For all other securities, Rule 10b-18 purchases must be 
effected at a price no higher than the highest independent bid obtained 
from three independent dealers.
    (4) Volume of purchases. The total volume of Rule 10b-18 purchases 
effected by or for the issuer and any affiliated purchasers effected on 
any single day must not exceed 25 percent of the ADTV for that security; 
However, once each week, in lieu of purchasing under the 25 percent of 
ADTV limit for that day, the issuer or an affiliated purchaser of the 
issuer may effect one block purchase if:
    (i) No other Rule 10b-18 purchases are effected that day, and
    (ii) The block purchase is not included when calculating a 
security's four week ADTV under this section.
    (c) Alternative conditions. The conditions of paragraph (b) of this 
section shall apply in connection with Rule 10b-18 purchases effected 
during a trading session following the imposition of a market-wide 
trading suspension, except:
    (1) That the time of purchases condition in paragraph (b)(2) of this 
section shall not apply, either:
    (i) From the reopening of trading until the scheduled close of 
trading on the day that the market-wide trading suspension is imposed; 
or
    (ii) At the opening of trading on the next trading day until the 
scheduled close of trading that day, if a market-wide trading suspension 
was in effect at the close of trading on the preceding day; and
    (2) The volume of purchases condition in paragraph (b)(4) of this 
section is modified so that the amount of Rule 10b-18 purchases must not 
exceed 100 percent of the ADTV for that security.
    (d) Other purchases. No presumption shall arise that an issuer or an 
affiliated purchaser has violated the anti-manipulation provisions of 
sections 9(a)(2) or 10(b) of the Act (15 U.S.C. 78i(a)(2) or 78j(b)), or 
Sec.240.10b-5 under the Act, if the Rule 10b-18 purchases of such 
issuer or affiliated purchaser do not meet the conditions specified in 
paragraph (b) or (c) of this section.

[68 FR 64970, Nov. 17, 2003, as amended at 70 FR 37618, June 29, 2005]



Sec.240.10b-21  Deception in connection with a seller's ability
or intent to deliver securities on the date delivery is due.

    Preliminary Note to Sec.240.10b-21: This rule is not intended to 
limit, or restrict, the applicability of the general antifraud 
provisions of the federal securities laws, such as section 10(b) of the 
Act and rule 10b-5 thereunder.

    (a) It shall also constitute a ``manipulative or deceptive device or 
contrivance'' as used in section 10(b) of this Act for any person to 
submit an order to sell an equity security if such person deceives a 
broker or dealer, a participant of a registered clearing agency, or a 
purchaser about its intention or ability to deliver the security on or 
before the settlement date, and such person fails to deliver the 
security on or before the settlement date.
    (b) For purposes of this rule, the term settlement date shall mean 
the business day on which delivery of a security and payment of money is 
to be made through the facilities of a registered clearing agency in 
connection with the sale of a security.

[73 FR 61677, Oct. 17, 2008]

                        Reports Under Section 10A



Sec.240.10A-1  Notice to the Commission Pursuant to Section 10A of
the Act.

    (a)(1) If any issuer with a reporting obligation under the Act 
receives a report requiring a notice to the Commission in accordance 
with section 10A(b)(3) of the Act, 15 U.S.C. 78j-1(b)(3), the issuer 
shall submit such notice to the Commission's Office of the Chief 
Accountant within the time period prescribed in that section. The notice 
may be provided by facsimile, telegraph, personal delivery, or any other

[[Page 107]]

means, provided it is received by the Office of the Chief Accountant 
within the required time period.
    (2) The notice specified in paragraph (a)(1) of this section shall 
be in writing and:
    (i) Shall identify the issuer (including the issuer's name, address, 
phone number, and file number assigned to the issuer's filings by the 
Commission) and the independent accountant (including the independent 
accountant's name and phone number, and the address of the independent 
accountant's principal office);
    (ii) Shall state the date that the issuer received from the 
independent accountant the report specified in section 10A(b)(2) of the 
Act, 15 U.S.C. 78j-1(b)(2);
    (iii) Shall provide, at the election of the issuer, either:
    (A) A summary of the independent accountant's report, including a 
description of the act that the independent accountant has identified as 
a likely illegal act and the possible effect of that act on all affected 
financial statements of the issuer or those related to the most current 
three-year period, whichever is shorter; or
    (B) A copy of the independent accountant's report; and
    (iv) May provide additional information regarding the issuer's views 
of and response to the independent accountant's report.
    (3) Reports of the independent accountant submitted by the issuer to 
the Commission's Office of the Chief Accountant in accordance with 
paragraph (a)(2)(iii)(B) of this section shall be deemed to have been 
made pursuant to section 10A(b)(3) or section 10A(b)(4) of the Act, 15 
U.S.C. 78j-1(b)(3) or 78j-1(b)(4), for purposes of the safe harbor 
provided by section 10A(c) of the Act, 15 U.S.C. 78j-1(c).
    (4) Submission of the notice in paragraphs (a)(1) and (a)(2) of this 
section shall not relieve the issuer from its obligations to comply 
fully with all other reporting requirements, including, without 
limitation:
    (i) The filing requirements of Form 8-K, Sec.249.308 of this 
chapter, and Form N-CSR, Sec.274.128 of this chapter, regarding a 
change in the issuer's certifying accountant and
    (ii) The disclosure requirements of Item 304 of Regulation S-K, 
Sec.229.304 of this chapter.
    (b)(1) Any independent accountant furnishing to the Commission a 
copy of a report (or the documentation of any oral report) in accordance 
with section 10A(b)(3) or section 10A(b)(4) of the Act, 15 U.S.C. 78j-
1(b)(3) or 78j-1(b)(4), shall submit that report (or documentation) to 
the Commission's Office of the Chief Accountant within the time period 
prescribed by the appropriate section of the Act. The report (or 
documentation) may be submitted to the Commission's Office of the Chief 
Accountant by facsimile, telegraph, personal delivery, or any other 
means, provided it is received by the Office of the Chief Accountant 
within the time period set forth in section 10A(b)(3) or 10A(b)(4) of 
the Act, 15 U.S.C. 78j-1(b)(3) or 78j-(b)(4), whichever is applicable in 
the circumstances.
    (2) If the report (or documentation) submitted to the Office of the 
Chief Accountant in accordance with paragraph (b)(1) of this section 
does not clearly identify both the issuer (including the issuer's name, 
address, phone number, and file number assigned to the issuer's filings 
with the Commission) and the independent accountant (including the 
independent accountant's name and phone number, and the address of the 
independent accountant's principal office), then the independent 
accountant shall place that information in a prominent attachment to the 
report (or documentation) and shall submit that attachment to the Office 
of the Chief Accountant at the same time and in the same manner as the 
report (or documentation) is submitted to that Office.
    (3) Submission of the report (or documentation) by the independent 
accountant as described in paragraphs (b)(1) and (2) of this section 
shall not replace, or otherwise satisfy the need for, the newly engaged 
and former accountants' letters under Sec.Sec.229.304(a)(2)(D) and 
229.304(a)(3) of this chapter (Items 304(a)(2)(D) and 304(a)(3) of 
Regulation S-K, respectively) and shall not limit, reduce, or affect in 
any way the independent accountant's obligations to comply fully

[[Page 108]]

with all other legal and professional responsibilities, including, 
without limitation, those under the standards of the Public Company 
Accounting Oversight Board (United States) (``PCAOB'') and the rules or 
interpretations of the Commission that modify or supplement those 
auditing standards.
    (c) A notice or report submitted to the Office of the Chief 
Accountant in accordance with paragraphs (a) and (b) of this section 
shall be deemed to be an investigative record and shall be nonpublic and 
exempt from disclosure pursuant to the Freedom of Information Act to the 
same extent and for the same periods of time that the Commission's 
investigative records are nonpublic and exempt from disclosure under, 
among other applicable provisions, 5 U.S.C. 552(b)(7). Nothing in this 
paragraph, however, shall relieve, limit, delay, or affect in any way, 
the obligation of any issuer or any independent accountant to make all 
public disclosures required by law, by any Commission disclosure item, 
rule, report, or form, or by any applicable accounting, auditing, or 
professional standard.

    Instruction to paragraph (c): Issuers and independent accountants 
may apply for additional bases for confidential treatment for a notice, 
report, or part thereof, in accordance with Sec.200.83 of this 
chapter. That section indicates, in part, that any person who, pursuant 
to any requirement of law, submits any information or causes or permits 
any information to be submitted to the Commission, may request that the 
Commission afford it confidential treatment by reason of personal 
privacy or business confidentiality, or for any other reason permitted 
by Federal law.

[62 FR 12749, Mar. 18, 1997, as amended at 73 FR 973, Jan. 4, 2008; 81 
FR 82020, Nov. 18, 2016; 83 FR 50221, Oct. 4, 2018; 84 FR 50739, Sept. 
26, 2019]



Sec.240.10A-2  Auditor independence.

    It shall be unlawful for an auditor not to be independent under 
Sec.210.2-01(c)(2)(iii)(B), (c)(4), (c)(6), (c)(7), and Sec.210.2-
07.

[68 FR 6048, Feb. 5, 2003]



Sec.240.10A-3  Listing standards relating to audit committees.

    (a) Pursuant to section 10A(m) of the Act (15 U.S.C. 78j-1(m)) and 
section 3 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7202):
    (1) National securities exchanges. The rules of each national 
securities exchange registered pursuant to section 6 of the Act (15 
U.S.C. 78f) must, in accordance with the provisions of this section, 
prohibit the initial or continued listing of any security of an issuer 
that is not in compliance with the requirements of any portion of 
paragraph (b) or (c) of this section.
    (2) National securities associations. The rules of each national 
securities association registered pursuant to section 15A of the Act (15 
U.S.C. 78o-3) must, in accordance with the provisions of this section, 
prohibit the initial or continued listing in an automated inter-dealer 
quotation system of any security of an issuer that is not in compliance 
with the requirements of any portion of paragraph (b) or (c) of this 
section.
    (3) Opportunity to cure defects. The rules required by paragraphs 
(a)(1) and (a)(2) of this section must provide for appropriate 
procedures for a listed issuer to have an opportunity to cure any 
defects that would be the basis for a prohibition under paragraph (a) of 
this section, before the imposition of such prohibition. Such rules also 
may provide that if a member of an audit committee ceases to be 
independent in accordance with the requirements of this section for 
reasons outside the member's reasonable control, that person, with 
notice by the issuer to the applicable national securities exchange or 
national securities association, may remain an audit committee member of 
the listed issuer until the earlier of the next annual shareholders 
meeting of the listed issuer or one year from the occurrence of the 
event that caused the member to be no longer independent.
    (4) Notification of noncompliance. The rules required by paragraphs 
(a)(1) and (a)(2) of this section must include a requirement that a 
listed issuer must notify the applicable national securities exchange or 
national securities association promptly after an executive officer of 
the listed issuer becomes aware of any material noncompliance by the 
listed issuer with the requirements of this section.
    (5) Implementation. (i) The rules of each national securities 
exchange or

[[Page 109]]

national securities association meeting the requirements of this section 
must be operative, and listed issuers must be in compliance with those 
rules, by the following dates:
    (A) July 31, 2005 for foreign private issuers and smaller reporting 
companies (as defined in Sec.240.12b-2); and
    (B) For all other listed issuers, the earlier of the listed issuer's 
first annual shareholders meeting after January 15, 2004, or October 31, 
2004.
    (ii) Each national securities exchange and national securities 
association must provide to the Commission, no later than July 15, 2003, 
proposed rules or rule amendments that comply with this section.
    (iii) Each national securities exchange and national securities 
association must have final rules or rule amendments that comply with 
this section approved by the Commission no later than December 1, 2003.
    (b) Required standards--(1) Independence. (i) Each member of the 
audit committee must be a member of the board of directors of the listed 
issuer, and must otherwise be independent; provided that, where a listed 
issuer is one of two dual holding companies, those companies may 
designate one audit committee for both companies so long as each member 
of the audit committee is a member of the board of directors of at least 
one of such dual holding companies.
    (ii) Independence requirements for non-investment company issuers. 
In order to be considered to be independent for purposes of this 
paragraph (b)(1), a member of an audit committee of a listed issuer that 
is not an investment company may not, other than in his or her capacity 
as a member of the audit committee, the board of directors, or any other 
board committee:
    (A) Accept directly or indirectly any consulting, advisory, or other 
compensatory fee from the issuer or any subsidiary thereof, provided 
that, unless the rules of the national securities exchange or national 
securities association provide otherwise, compensatory fees do not 
include the receipt of fixed amounts of compensation under a retirement 
plan (including deferred compensation) for prior service with the listed 
issuer (provided that such compensation is not contingent in any way on 
continued service); or
    (B) Be an affiliated person of the issuer or any subsidiary thereof.
    (iii) Independence requirements for investment company issuers. In 
order to be considered to be independent for purposes of this paragraph 
(b)(1), a member of an audit committee of a listed issuer that is an 
investment company may not, other than in his or her capacity as a 
member of the audit committee, the board of directors, or any other 
board committee:
    (A) Accept directly or indirectly any consulting, advisory, or other 
compensatory fee from the issuer or any subsidiary thereof, provided 
that, unless the rules of the national securities exchange or national 
securities association provide otherwise, compensatory fees do not 
include the receipt of fixed amounts of compensation under a retirement 
plan (including deferred compensation) for prior service with the listed 
issuer (provided that such compensation is not contingent in any way on 
continued service); or
    (B) Be an ``interested person'' of the issuer as defined in section 
2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)).
    (iv) Exemptions from the independence requirements. (A) For an 
issuer listing securities pursuant to a registration statement under 
section 12 of the Act (15 U.S.C. 78l), or for an issuer that has a 
registration statement under the Securities Act of 1933 (15 U.S.C. 77a 
et seq.) covering an initial public offering of securities to be listed 
by the issuer, where in each case the listed issuer was not, immediately 
prior to the effective date of such registration statement, required to 
file reports with the Commission pursuant to section 13(a) or 15(d) of 
the Act (15 U.S.C. 78m(a) or 78o(d)):
    (1) All but one of the members of the listed issuer's audit 
committee may be exempt from the independence requirements of paragraph 
(b)(1)(ii) of this section for 90 days from the date of effectiveness of 
such registration statement; and
    (2) A minority of the members of the listed issuer's audit committee 
may be

[[Page 110]]

exempt from the independence requirements of paragraph (b)(1)(ii) of 
this section for one year from the date of effectiveness of such 
registration statement.
    (B) An audit committee member that sits on the board of directors of 
a listed issuer and an affiliate of the listed issuer is exempt from the 
requirements of paragraph (b)(1)(ii)(B) of this section if the member, 
except for being a director on each such board of directors, otherwise 
meets the independence requirements of paragraph (b)(1)(ii) of this 
section for each such entity, including the receipt of only ordinary-
course compensation for serving as a member of the board of directors, 
audit committee or any other board committee of each such entity.
    (C) An employee of a foreign private issuer who is not an executive 
officer of the foreign private issuer is exempt from the requirements of 
paragraph (b)(1)(ii) of this section if the employee is elected or named 
to the board of directors or audit committee of the foreign private 
issuer pursuant to the issuer's governing law or documents, an employee 
collective bargaining or similar agreement or other home country legal 
or listing requirements.
    (D) An audit committee member of a foreign private issuer may be 
exempt from the requirements of paragraph (b)(1)(ii)(B) of this section 
if that member meets the following requirements:
    (1) The member is an affiliate of the foreign private issuer or a 
representative of such an affiliate;
    (2) The member has only observer status on, and is not a voting 
member or the chair of, the audit committee; and
    (3) Neither the member nor the affiliate is an executive officer of 
the foreign private issuer.
    (E) An audit committee member of a foreign private issuer may be 
exempt from the requirements of paragraph (b)(1)(ii)(B) of this section 
if that member meets the following requirements:
    (1) The member is a representative or designee of a foreign 
government or foreign governmental entity that is an affiliate of the 
foreign private issuer; and
    (2) The member is not an executive officer of the foreign private 
issuer.
    (F) In addition to paragraphs (b)(1)(iv)(A) through (E) of this 
section, the Commission may exempt from the requirements of paragraphs 
(b)(1)(ii) or (b)(1)(iii) of this section a particular relationship with 
respect to audit committee members, as the Commission determines 
appropriate in light of the circumstances.
    (2) Responsibilities relating to registered public accounting firms. 
The audit committee of each listed issuer, in its capacity as a 
committee of the board of directors, must be directly responsible for 
the appointment, compensation, retention and oversight of the work of 
any registered public accounting firm engaged (including resolution of 
disagreements between management and the auditor regarding financial 
reporting) for the purpose of preparing or issuing an audit report or 
performing other audit, review or attest services for the listed issuer, 
and each such registered public accounting firm must report directly to 
the audit committee.
    (3) Complaints. Each audit committee must establish procedures for:
    (i) The receipt, retention, and treatment of complaints received by 
the listed issuer regarding accounting, internal accounting controls, or 
auditing matters; and
    (ii) The confidential, anonymous submission by employees of the 
listed issuer of concerns regarding questionable accounting or auditing 
matters.
    (4) Authority to engage advisers. Each audit committee must have the 
authority to engage independent counsel and other advisers, as it 
determines necessary to carry out its duties.
    (5) Funding. Each listed issuer must provide for appropriate 
funding, as determined by the audit committee, in its capacity as a 
committee of the board of directors, for payment of:
    (i) Compensation to any registered public accounting firm engaged 
for the purpose of preparing or issuing an audit report or performing 
other audit, review or attest services for the listed issuer;
    (ii) Compensation to any advisers employed by the audit committee 
under paragraph (b)(4) of this section; and
    (iii) Ordinary administrative expenses of the audit committee that 
are

[[Page 111]]

necessary or appropriate in carrying out its duties.
    (c) General exemptions. (1) At any time when an issuer has a class 
of securities that is listed on a national securities exchange or 
national securities association subject to the requirements of this 
section, the listing of other classes of securities of the listed issuer 
on a national securities exchange or national securities association is 
not subject to the requirements of this section.
    (2) At any time when an issuer has a class of common equity 
securities (or similar securities) that is listed on a national 
securities exchange or national securities association subject to the 
requirements of this section, the listing of classes of securities of a 
direct or indirect consolidated subsidiary or an at least 50% 
beneficially owned subsidiary of the issuer (except classes of equity 
securities, other than non-convertible, non-participating preferred 
securities, of such subsidiary) is not subject to the requirements of 
this section.
    (3) The listing of securities of a foreign private issuer is not 
subject to the requirements of paragraphs (b)(1) through (b)(5) of this 
section if the foreign private issuer meets the following requirements:
    (i) The foreign private issuer has a board of auditors (or similar 
body), or has statutory auditors, established and selected pursuant to 
home country legal or listing provisions expressly requiring or 
permitting such a board or similar body;
    (ii) The board or body, or statutory auditors is required under home 
country legal or listing requirements to be either:
    (A) Separate from the board of directors; or
    (B) Composed of one or more members of the board of directors and 
one or more members that are not also members of the board of directors;
    (iii) The board or body, or statutory auditors, are not elected by 
management of such issuer and no executive officer of the foreign 
private issuer is a member of such board or body, or statutory auditors;
    (iv) Home country legal or listing provisions set forth or provide 
for standards for the independence of such board or body, or statutory 
auditors, from the foreign private issuer or the management of such 
issuer;
    (v) Such board or body, or statutory auditors, in accordance with 
any applicable home country legal or listing requirements or the 
issuer's governing documents, are responsible, to the extent permitted 
by law, for the appointment, retention and oversight of the work of any 
registered public accounting firm engaged (including, to the extent 
permitted by law, the resolution of disagreements between management and 
the auditor regarding financial reporting) for the purpose of preparing 
or issuing an audit report or performing other audit, review or attest 
services for the issuer; and
    (vi) The audit committee requirements of paragraphs (b)(3), (b)(4) 
and (b)(5) of this section apply to such board or body, or statutory 
auditors, to the extent permitted by law.
    (4) The listing of a security futures product cleared by a clearing 
agency that is registered pursuant to section 17A of the Act (15 U.S.C. 
78q-1) or that is exempt from the registration requirements of section 
17A pursuant to paragraph (b)(7)(A) of such section is not subject to 
the requirements of this section.
    (5) The listing of a standardized option, as defined in Sec.
240.9b-1(a)(4), issued by a clearing agency that is registered pursuant 
to section 17A of the Act (15 U.S.C. 78q-1) is not subject to the 
requirements of this section.
    (6) The listing of securities of the following listed issuers are 
not subject to the requirements of this section:
    (i) Asset-Backed Issuers (as defined in Sec.229.1101 of this 
chapter);
    (ii) Unit investment trusts (as defined in 15 U.S.C. 80a-4(2)); and
    (iii)Foreign governments (as defined in Sec.240.3b-4(a)).
    (7) The listing of securities of a listed issuer is not subject to 
the requirements of this section if:
    (i) The listed issuer, as reflected in the applicable listing 
application, is organized as a trust or other unincorporated association 
that does not have a board of directors or persons acting in a similar 
capacity; and

[[Page 112]]

    (ii) The activities of the listed issuer that is described in 
paragraph (c)(7)(i) of this section are limited to passively owning or 
holding (as well as administering and distributing amounts in respect 
of) securities, rights, collateral or other assets on behalf of or for 
the benefit of the holders of the listed securities.
    (d) Disclosure. Any listed issuer availing itself of an exemption 
from the independence standards contained in paragraph (b)(1)(iv) of 
this section (except paragraph (b)(1)(iv)(B) of this section), the 
general exemption contained in paragraph (c)(3) of this section or the 
last sentence of paragraph (a)(3) of this section, must:
    (1) Disclose its reliance on the exemption and its assessment of 
whether, and if so, how, such reliance would materially adversely affect 
the ability of the audit committee to act independently and to satisfy 
the other requirements of this section in any proxy or information 
statement for a meeting of shareholders at which directors are elected 
that is filed with the Commission pursuant to the requirements of 
section 14 of the Act (15 U.S.C. 78n); and
    (2) Disclose the information specified in paragraph (d)(1) of this 
section in, or incorporate such information by reference from such proxy 
or information statement filed with the Commission into, its annual 
report filed with the Commission pursuant to the requirements of section 
13(a) or 15(d) of the Act (15 U.S.C. 78m(a) or 78o(d)).
    (e) Definitions. Unless the context otherwise requires, all terms 
used in this section have the same meaning as in the Act. In addition, 
unless the context otherwise requires, the following definitions apply 
for purposes of this section:
    (1)(i) The term affiliate of, or a person affiliated with, a 
specified person, means a person that directly, or indirectly through 
one or more intermediaries, controls, or is controlled by, or is under 
common control with, the person specified.
    (ii)(A) A person will be deemed not to be in control of a specified 
person for purposes of this section if the person:
    (1) Is not the beneficial owner, directly or indirectly, of more 
than 10% of any class of voting equity securities of the specified 
person; and
    (2) Is not an executive officer of the specified person.
    (B) Paragraph (e)(1)(ii)(A) of this section only creates a safe 
harbor position that a person does not control a specified person. The 
existence of the safe harbor does not create a presumption in any way 
that a person exceeding the ownership requirement in paragraph 
(e)(1)(ii)(A)(1) of this section controls or is otherwise an affiliate 
of a specified person.
    (iii) The following will be deemed to be affiliates:
    (A) An executive officer of an affiliate;
    (B) A director who also is an employee of an affiliate;
    (C) A general partner of an affiliate; and
    (D) A managing member of an affiliate.
    (iv) For purposes of paragraph (e)(1)(i) of this section, dual 
holding companies will not be deemed to be affiliates of or persons 
affiliated with each other by virtue of their dual holding company 
arrangements with each other, including where directors of one dual 
holding company are also directors of the other dual holding company, or 
where directors of one or both dual holding companies are also directors 
of the businesses jointly controlled, directly or indirectly, by the 
dual holding companies (and, in each case, receive only ordinary-course 
compensation for serving as a member of the board of directors, audit 
committee or any other board committee of the dual holding companies or 
any entity that is jointly controlled, directly or indirectly, by the 
dual holding companies).
    (2) In the case of foreign private issuers with a two-tier board 
system, the term board of directors means the supervisory or non-
management board.
    (3) In the case of a listed issuer that is a limited partnership or 
limited liability company where such entity does not have a board of 
directors or equivalent body, the term board of directors means the 
board of directors of the managing general partner, managing member or 
equivalent body.

[[Page 113]]

    (4) The term control (including the terms controlling, controlled by 
and under common control with) means the possession, direct or indirect, 
of the power to direct or cause the direction of the management and 
policies of a person, whether through the ownership of voting 
securities, by contract, or otherwise.
    (5) The term dual holding companies means two foreign private 
issuers that:
    (i) Are organized in different national jurisdictions;
    (ii) Collectively own and supervise the management of one or more 
businesses which are conducted as a single economic enterprise; and
    (iii) Do not conduct any business other than collectively owning and 
supervising such businesses and activities reasonably incidental 
thereto.
    (6) The term executive officer has the meaning set forth in Sec.
240.3b-7.
    (7) The term foreign private issuer has the meaning set forth in 
Sec.240.3b-4(c).
    (8) The term indirect acceptance by a member of an audit committee 
of any consulting, advisory or other compensatory fee includes 
acceptance of such a fee by a spouse, a minor child or stepchild or a 
child or stepchild sharing a home with the member or by an entity in 
which such member is a partner, member, an officer such as a managing 
director occupying a comparable position or executive officer, or 
occupies a similar position (except limited partners, non-managing 
members and those occupying similar positions who, in each case, have no 
active role in providing services to the entity) and which provides 
accounting, consulting, legal, investment banking or financial advisory 
services to the issuer or any subsidiary of the issuer.
    (9) The terms listed and listing refer to securities listed on a 
national securities exchange or listed in an automated inter-dealer 
quotation system of a national securities association or to issuers of 
such securities.

    Instructions to Sec.240.10A-3: 1. The requirements in paragraphs 
(b)(2) through (b)(5), (c)(3)(v) and (c)(3)(vi) of this section do not 
conflict with, and do not affect the application of, any requirement or 
ability under a listed issuer's governing law or documents or other home 
country legal or listing provisions that requires or permits 
shareholders to ultimately vote on, approve or ratify such requirements. 
The requirements instead relate to the assignment of responsibility as 
between the audit committee and management. In such an instance, 
however, if the listed issuer provides a recommendation or nomination 
regarding such responsibilities to shareholders, the audit committee of 
the listed issuer, or body performing similar functions, must be 
responsible for making the recommendation or nomination.
    2. The requirements in paragraphs (b)(2) through (b)(5), (c)(3)(v), 
(c)(3)(vi) and Instruction 1 of this section do not conflict with any 
legal or listing requirement in a listed issuer's home jurisdiction that 
prohibits the full board of directors from delegating such 
responsibilities to the listed issuer's audit committee or limits the 
degree of such delegation. In that case, the audit committee, or body 
performing similar functions, must be granted such responsibilities, 
which can include advisory powers, with respect to such matters to the 
extent permitted by law, including submitting nominations or 
recommendations to the full board.
    3. The requirements in paragraphs (b)(2) through (b)(5), (c)(3)(v) 
and (c)(3)(vi) of this section do not conflict with any legal or listing 
requirement in a listed issuer's home jurisdiction that vests such 
responsibilities with a government entity or tribunal. In that case, the 
audit committee, or body performing similar functions, must be granted 
such responsibilities, which can include advisory powers, with respect 
to such matters to the extent permitted by law.
    4. For purposes of this section, the determination of a person's 
beneficial ownership must be made in accordance with Sec.240.13d-3.

[68 FR 18818, Apr. 16, 2003, as amended at 70 FR 1620, Jan. 7, 2005; 73 
FR 973, Jan. 4, 2008]

                     Requirements Under Section 10C



Sec.240.10C-1  Listing standards relating to compensation committees.

    (a) Pursuant to section 10C(a) of the Act (15 U.S.C. 78j-3(a)) and 
section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act of 2010 (Pub. L. 111-203, 124 Stat. 1900):
    (1) National securities exchanges. The rules of each national 
securities exchange registered pursuant to section 6 of the Act (15 
U.S.C. 78f), to the extent such national securities exchange lists 
equity securities, must, in accordance with the provisions of this 
section, prohibit the initial or continued listing of any equity 
security of an issuer that is not in compliance with the requirements of 
any portion of paragraph (b) or (c) of this section.

[[Page 114]]

    (2) National securities associations. The rules of each national 
securities association registered pursuant to section 15A of the Act (15 
U.S.C. 78o-3), to the extent such national securities association lists 
equity securities in an automated inter-dealer quotation system, must, 
in accordance with the provisions of this section, prohibit the initial 
or continued listing in an automated inter-dealer quotation system of 
any equity security of an issuer that is not in compliance with the 
requirements of any portion of paragraph (b) or (c) of this section.
    (3) Opportunity to cure defects. The rules required by paragraphs 
(a)(1) and (a)(2) of this section must provide for appropriate 
procedures for a listed issuer to have a reasonable opportunity to cure 
any defects that would be the basis for a prohibition under paragraph 
(a) of this section, before the imposition of such prohibition. Such 
rules may provide that if a member of a compensation committee ceases to 
be independent in accordance with the requirements of this section for 
reasons outside the member's reasonable control, that person, with 
notice by the issuer to the applicable national securities exchange or 
national securities association, may remain a compensation committee 
member of the listed issuer until the earlier of the next annual 
shareholders meeting of the listed issuer or one year from the 
occurrence of the event that caused the member to be no longer 
independent.
    (4) Implementation. (i) Each national securities exchange and 
national securities association that lists equity securities must 
provide to the Commission, no later than 90 days after publication of 
this section in the Federal Register, proposed rules or rule amendments 
that comply with this section. Each submission must include, in addition 
to any other information required under section 19(b) of the Act (15 
U.S.C. 78s(b)) and the rules thereunder, a review of whether and how 
existing or proposed listing standards satisfy the requirements of this 
rule, a discussion of the consideration of factors relevant to 
compensation committee independence conducted by the national securities 
exchange or national securities association, and the definition of 
independence applicable to compensation committee members that the 
national securities exchange or national securities association proposes 
to adopt or retain in light of such review.
    (ii) Each national securities exchange and national securities 
association that lists equity securities must have rules or rule 
amendments that comply with this section approved by the Commission no 
later than one year after publication of this section in the Federal 
Register.
    (b) Required standards. The requirements of this section apply to 
the compensation committees of listed issuers.
    (1) Independence. (i) Each member of the compensation committee must 
be a member of the board of directors of the listed issuer, and must 
otherwise be independent.
    (ii) Independence requirements. In determining independence 
requirements for members of compensation committees, the national 
securities exchanges and national securities associations shall consider 
relevant factors, including, but not limited to:
    (A) The source of compensation of a member of the board of directors 
of an issuer, including any consulting, advisory or other compensatory 
fee paid by the issuer to such member of the board of directors; and
    (B) Whether a member of the board of directors of an issuer is 
affiliated with the issuer, a subsidiary of the issuer or an affiliate 
of a subsidiary of the issuer.
    (iii) Exemptions from the independence requirements. (A) The listing 
of equity securities of the following categories of listed issuers is 
not subject to the requirements of paragraph (b)(1) of this section:
    (1) Limited partnerships;
    (2) Companies in bankruptcy proceedings;
    (3) Open-end management investment companies registered under the 
Investment Company Act of 1940; and
    (4) Any foreign private issuer that discloses in its annual report 
the reasons that the foreign private issuer does not have an independent 
compensation committee.
    (B) In addition to the issuer exemptions set forth in paragraph

[[Page 115]]

(b)(1)(iii)(A) of this section, a national securities exchange or a 
national securities association, pursuant to section 19(b) of the Act 
(15 U.S.C. 78s(b)) and the rules thereunder, may exempt from the 
requirements of paragraph (b)(1) of this section a particular 
relationship with respect to members of the compensation committee, as 
each national securities exchange or national securities association 
determines is appropriate, taking into consideration the size of an 
issuer and any other relevant factors.
    (2) Authority to retain compensation consultants, independent legal 
counsel and other compensation advisers. (i) The compensation committee 
of a listed issuer, in its capacity as a committee of the board of 
directors, may, in its sole discretion, retain or obtain the advice of a 
compensation consultant, independent legal counsel or other adviser.
    (ii) The compensation committee shall be directly responsible for 
the appointment, compensation and oversight of the work of any 
compensation consultant, independent legal counsel and other adviser 
retained by the compensation committee.
    (iii) Nothing in this paragraph (b)(2) shall be construed:
    (A) To require the compensation committee to implement or act 
consistently with the advice or recommendations of the compensation 
consultant, independent legal counsel or other adviser to the 
compensation committee; or
    (B) To affect the ability or obligation of a compensation committee 
to exercise its own judgment in fulfillment of the duties of the 
compensation committee.
    (3) Funding. Each listed issuer must provide for appropriate 
funding, as determined by the compensation committee, in its capacity as 
a committee of the board of directors, for payment of reasonable 
compensation to a compensation consultant, independent legal counsel or 
any other adviser retained by the compensation committee.
    (4) Independence of compensation consultants and other advisers. The 
compensation committee of a listed issuer may select a compensation 
consultant, legal counsel or other adviser to the compensation committee 
only after taking into consideration the following factors, as well as 
any other factors identified by the relevant national securities 
exchange or national securities association in its listing standards:
    (i) The provision of other services to the issuer by the person that 
employs the compensation consultant, legal counsel or other adviser;
    (ii) The amount of fees received from the issuer by the person that 
employs the compensation consultant, legal counsel or other adviser, as 
a percentage of the total revenue of the person that employs the 
compensation consultant, legal counsel or other adviser;
    (iii) The policies and procedures of the person that employs the 
compensation consultant, legal counsel or other adviser that are 
designed to prevent conflicts of interest;
    (iv) Any business or personal relationship of the compensation 
consultant, legal counsel or other adviser with a member of the 
compensation committee;
    (v) Any stock of the issuer owned by the compensation consultant, 
legal counsel or other adviser; and
    (vi) Any business or personal relationship of the compensation 
consultant, legal counsel, other adviser or the person employing the 
adviser with an executive officer of the issuer.

    Instruction to paragraph (b)(4) of this section: A listed issuer's 
compensation committee is required to conduct the independence 
assessment outlined in paragraph (b)(4) of this section with respect to 
any compensation consultant, legal counsel or other adviser that 
provides advice to the compensation committee, other than in-house legal 
counsel.

    (5) General exemptions. (i) The national securities exchanges and 
national securities associations, pursuant to section 19(b) of the Act 
(15 U.S.C. 78s(b)) and the rules thereunder, may exempt from the 
requirements of this section certain categories of issuers, as the 
national securities exchange or national securities association 
determines is appropriate, taking into consideration, among other 
relevant factors, the potential impact of such requirements on smaller 
reporting issuers.

[[Page 116]]

    (ii) The requirements of this section shall not apply to any 
controlled company or to any smaller reporting company.
    (iii) The listing of a security futures product cleared by a 
clearing agency that is registered pursuant to section 17A of the Act 
(15 U.S.C. 78q-1) or that is exempt from the registration requirements 
of section 17A(b)(7)(A) (15 U.S.C. 78q-1(b)(7)(A)) is not subject to the 
requirements of this section.
    (iv) The listing of a standardized option, as defined in Sec.
240.9b-1(a)(4), issued by a clearing agency that is registered pursuant 
to section 17A of the Act (15 U.S.C. 78q-1) is not subject to the 
requirements of this section.
    (c) Definitions. Unless the context otherwise requires, all terms 
used in this section have the same meaning as in the Act and the rules 
and regulations thereunder. In addition, unless the context otherwise 
requires, the following definitions apply for purposes of this section:
    (1) In the case of foreign private issuers with a two-tier board 
system, the term board of directors means the supervisory or non-
management board.
    (2) The term compensation committee means:
    (i) A committee of the board of directors that is designated as the 
compensation committee; or
    (ii) In the absence of a committee of the board of directors that is 
designated as the compensation committee, a committee of the board of 
directors performing functions typically performed by a compensation 
committee, including oversight of executive compensation, even if it is 
not designated as the compensation committee or also performs other 
functions; or
    (iii) For purposes of this section other than paragraphs (b)(2)(i) 
and (b)(3), in the absence of a committee as described in paragraphs 
(c)(2)(i) or (ii) of this section, the members of the board of directors 
who oversee executive compensation matters on behalf of the board of 
directors.
    (3) The term controlled company means an issuer:
    (i) That is listed on a national securities exchange or by a 
national securities association; and
    (ii) Of which more than 50 percent of the voting power for the 
election of directors is held by an individual, a group or another 
company.
    (4) The terms listed and listing refer to equity securities listed 
on a national securities exchange or listed in an automated inter-dealer 
quotation system of a national securities association or to issuers of 
such securities.
    (5) The term open-end management investment company means an open-
end company, as defined by Section 5(a)(1) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-5(a)(1)), that is registered under that Act.

[77 FR 38454, June 27, 2012]

            Adoption of Floor Trading Regulation (Rule 11a-1)



Sec.240.11a-1  Regulation of floor trading.

    (a) No member of a national securities exchange, while on the floor 
of such exchange, shall initiate, directly or indirectly, any 
transaction in any security admitted to trading on such exchange, for 
any account in which such member has an interest, or for any such 
account with respect to which such member has discretion as to the time 
of execution, the choice of security to be bought or sold, the total 
amount of any security to be bought or sold, or whether any such 
transaction shall be one of purchase or sale.
    (b) The provisions of paragraph (a) of this section shall not apply 
to:
    (1) Any transaction by a registered specialist in a security in 
which he is so registered on such exchange;
    (2) Any transaction for the account of an odd-lot dealer in a 
security in which he is so registered on such exchange;
    (3) Any stabilizing transaction effected in compliance with Sec.
242.104 of this chapter to facilitate a distribution of such security in 
which such member is participating;
    (4) Any bona fide arbitrage transaction;
    (5) Any transaction made with the prior approval of a floor official 
of such exchange to permit such member to contribute to the maintenance 
of a fair and orderly market in such security, or any purchase or sale 
to reverse any such transaction;

[[Page 117]]

    (6) Any transaction to offset a transaction made in error; or
    (7) Any transaction effected in conformity with a plan designed to 
eliminate floor trading activities which are not beneficial to the 
market and which plan has been adopted by an exchange and declared 
effective by the Commission. For the purpose of this rule, a plan filed 
with the Commission by a national securities exchange shall not become 
effective unless the Commission, having due regard for the maintenance 
of fair and orderly markets, for the public interest, and for the 
protection of investors, declares the plan to be effective.
    (c) For the purpose of this rule the term ``on the floor of such 
exchange'' shall include the trading floor; the rooms, lobbies, and 
other premises immediately adjacent thereto for use of members 
generally; other rooms, lobbies and premises made available primarily 
for use by members generally; and the telephone and other facilities in 
any such place.
    (d) Any national securities exchange may apply for an exemption from 
the provisions of this rule in compliance with the provisions of section 
11(c) of the Act.

(Sec.11, 48 Stat. 891; 15 U.S.C. 78k)

[29 FR 7381, June 6, 1964, as amended at 62 FR 544, Jan. 3, 1997]
    Note 1: The Commission finding that the floor trading plan of the 
New York Stock Exchange filed on May 25, 1964 is designed to eliminate 
floor trading activities not beneficial to the market hereby declares 
such plan effective August 3, 1964 subject to suspension or termination 
on sixty days written notice from the Commission, 29 FR 7381, June 6, 
1964.
    Note 2: The text of the Commission's action declaring effective the 
amendments to the Floor Trading Plan of the American Stock Exchange (33 
FR 1073, Jan. 27, 1968) is as follows:
    The Securities and Exchange Commission acting pursuant to the 
Securities Exchange Act of 1934, particularly sections 11(a) and 23(a) 
thereof, and Rule 11a-1 (17 CFR 240.11a-1) under the Act, deeming it 
necessary for the exercise of the functions vested in it, and having due 
regard for the maintenance of fair and orderly markets, for the public 
interest, and for the protection of investors, hereby declares the Floor 
Trading Plan of the American Stock Exchange, as amended by amendments 
filed on May 11, 1967, effective January 31, 1968. If at any time it 
appears to the Commission to be necessary or appropriate in the public 
interest, for the protection of investors, or for the maintenance of 
fair and orderly markets, or that floor trading activities which are not 
beneficial to the market have not been eliminated by the Floor Trading 
Plan of the American Stock Exchange, the Commission may suspend or 
terminate the effectiveness of the plan by sending at least 60 days 
written notice to the American Stock Exchange. The American Stock 
Exchange shall have the opportunity to submit any written data, facts, 
arguments, or modifications in its plan within such 60-day period in 
such form as the Commission deems appropriate under the circumstances. 
The Commission has been informed that all persons subject to the Floor 
Trading Plan of the American Stock Exchange, as amended, have had actual 
notice thereof, and the Commission finds that notice and procedure 
pursuant to section 4 of the Administrative Procedure Act (5 U.S.C. 
section 553) are impracticable and unnecessary and that such Plan, as 
amended, may be, and is hereby, declared effective on January 31, 1968.



Sec.240.11a1-1(T)  Transactions yielding priority, parity, 
and precedence.

    (a) A transaction effected on a national securities exchange for the 
account of a member which meets the requirements of section 
11(a)(1)(G)(i) of the Act shall be deemed, in accordance with the 
requirements of section 11(a)(1)(G)(ii), to be not inconsistent with the 
maintenance of fair and orderly markets and to yield priority, parity, 
and precedence in execution to orders for the account of persons who are 
not members or associated with members of the exchange if such 
transaction is effected in compliance with each of the following 
requirements:
    (1) A member shall disclose that a bid or offer for its account is 
for its account to any member with whom such bid or offer is placed or 
to whom it is communicated, and any such member through whom that bid or 
offer is communicated shall disclose to others participating in 
effecting the order that it is for the account of a member.
    (2) Immediately before executing the order, a member (other than the 
specialist in such security) presenting any order for the account of a 
member on the exchange shall clearly announce or otherwise indicate to 
the specialist and to other members then present for the

[[Page 118]]

trading in such security on the exchange that he is presenting an order 
for the account of a member.
    (3) Notwithstanding rules of priority, parity, and precedence 
otherwise applicable, any member presenting for execution a bid or offer 
for its own account or for the account of another member shall grant 
priority to any bid or offer at the same price for the account of a 
person who is not, or is not associated with, a member, irrespective of 
the size of any such bid or offer or the time when entered.
    (b) A member shall be deemed to meet the requirements of section 
11(a)(1)(G)(i) of the Act if during its preceding fiscal year more than 
50 percent of its gross revenues was derived from one or more of the 
sources specified in that section. In addition to any revenue which 
independently meets the requirements of section 11(a)(1)(G)(i), revenue 
derived from any transaction specified in paragraph (A), (B), or (D) of 
section 11(a)(1) of the Act or specified in 17 CFR 240.11a1-4(T) shall 
be deemed to be revenue derived from one or more of the sources 
specified in section 11(a)(1)(G)(i). A member may rely on a list of 
members which are stated to meet the requirements of section 
11(a)(1)(G)(i) if such list is prepared, and updated at least annually, 
by the exchange. In preparing any such list, an exchange may rely on a 
report which sets forth a statement of gross revenues of a member if 
covered by a report of independent accountants for such member to the 
effect that such report has been prepared in accordance with generally 
accepted accounting principles.

(Secs. 2, 3, 6, 11, 11A, and 23, 89 Stat. 97, 104, 110, 111, 156 (15 
U.S.C. 78b, 78c, 78f, 78k, 78k-1, 78w); secs. 2, 3, 11, 23, 48 Stat. 
881, 882, 885, 891, 901, as amended)

[43 FR 11553, Mar. 17, 1978, as amended at 43 FR 18562, May 1, 1978; 44 
FR 6093, Jan. 31, 1979]



Sec.240.11a1-2  Transactions for certain accounts of associated 
persons of members.

    A transaction effected by a member of a national securities exchange 
for the account of an associated person thereof shall be deemed to be of 
a kind which is consistent with the purposes of section 11(a)(1) of the 
Act, the protection of investors, and the maintenance of fair and 
orderly markets if the transaction is effected:
    (a) For the account of and for the benefit of an associated person, 
if, assuming such transaction were for the account of a member, or
    (b) For the account of an associated person but for the benefit of 
an account carried by such associated person, if, assuming such account 
were carried on the same basis by a member.

The member would have been permitted, under section 11(a) of the Act and 
the other rules thereunder, to effect the transaction: Provided, 
however, That a transaction may not be effected by a member for the 
account of and for the benefit of an associated person under section 
11(a)(1)(G) of the Act and Rule 11a1-1(T) thereunder unless the 
associated person derived, during its preceding fiscal year, more than 
50 percent of its gross revenues from one or more of the sources 
specified in section 11(a)(1)(G)(i) of the Act.

(Secs. 2, 3, 4, 6, 7, 11, 18, 89 Stat. 97, 104, 110, 111, 121, 155 (15 
U.S.C. 78b, 78c, 78f, 78k, 78k-1, 78o, 78w); secs. 2, 3, 10, 23, 48 
Stat. 881, 882, 891, 901, as amended (15 U.S.C. 78j))

[43 FR 11553, Mar. 17, 1978; 43 FR 14451, Apr. 6, 1978]



Sec.240.11a1-3(T)  Bona fide hedge transactions in certain securities.

    A bona fide hedge transaction effected on a national securities 
exchange by a member for its own account or an account of an associated 
person thereof and involving a long or short position in a security 
entitling the holder to acquire or sell an equity security, and a long 
or short position in one or more other securities entitling the holder 
to acquire or sell such equity security, shall be deemed to be of a kind 
which is consistent with the purposes of section 11(a)(1) of the Act, 
the protection of investors, and the maintenance of fair and orderly 
markets.

(Secs. 2, 3, 6, 11, 11A, and 23, 89 Stat. 97, 104, 110, 111, 156 (15 
U.S.C. 78b, 78c, 78f, 78k, 78k-1, 78w); secs. 2, 3, 11, 23, 48 Stat. 
881, 882, 885, 891, 901, as amended)

[44 FR 6093, Jan. 31, 1979]

[[Page 119]]



Sec.240.11a1-4(T)  Bond transactions on national securities exchanges.

    A transaction in a bond, note, debenture, or other form of 
indebtedness effected on a national securities exchange by a member for 
its own account or the account of an associated person thereof shall be 
deemed to be of a kind which is consistent with the purposes of section 
11(a)(1) of the Act, the protection of investors, and the maintenance of 
fair and orderly markets.

(Secs. 2, 3, 6, 10, 11, 11A, 15 and 23 of the Securities Exchange Act of 
1934 (15 U.S.C. 78b, 78c, 78f, 78j, 78k, 78k-1, 78o, and 78w))

[43 FR 18562, May 1, 1978]



Sec.240.11a1-5  Transactions by registered competitive market makers 
and registered equity market makers.

    Any transaction by a New York Stock Exchange registered competitive 
market maker or an American Stock Exchange registered equity market 
maker effected in compliance with their respective governing rules shall 
be deemed to be of a kind which is consistent with the purposes of 
section 11(a)(1) of the Act, the protection of investors, and the 
maintenance of fair and orderly markets.

[46 FR 14889, Mar. 3, 1981]



Sec.240.11a1-6  Transactions for certain accounts of OTC derivatives
dealers.

    A transaction effected by a member of a national securities exchange 
for the account of an OTC derivatives dealer that is an associated 
person of that member shall be deemed to be of a kind that is consistent 
with the purposes of section 11(a)(1) of the Act (15 U.S.C. 78k(a)(1)), 
the protection of investors, and the maintenance of fair and orderly 
markets if, assuming such transaction were for the account of a member, 
the member would have been permitted, under section 11(a) of the Act and 
the other rules thereunder (with the exception of Sec.240.11a1-2), to 
effect the transaction.

[63 FR 59396, Nov. 3, 1998]



Sec.240.11a2-2(T)  Transactions effected by exchange members through
other members.

    (a) A member of a national securities exchange (the ``initiating 
member'') may not effect a transaction on that exchange for its own 
account, the account of an associated person, or an account with respect 
to which it or an associated person thereof exercises investment 
discretion unless:
    (1) The transaction is of a kind described in paragraphs A through H 
of section 11(a)(1) of the Act and is effected in accordance with 
applicable rules and regulations thereunder; or
    (2) The transaction is effected in compliance with each of the 
following conditions:
    (i) The transaction is executed on the floor, or through use of the 
facilities, of the exchange by a member (the ``executing member'') which 
is not an associated person of the initiating member;
    (ii) The order for the transaction is transmitted from off the 
exchange floor;
    (iii) Neither the initiating member nor an associated person of the 
initiating member participates in the execution of the transaction at 
any time after the order for the transaction has been so transmitted; 
and
    (iv) In the case of a transaction effected for an account with 
respect to which the initiating member or an associated person thereof 
exercises investment discretion, neither the initiating member nor any 
associated person thereof retains any compensation in connection with 
effecting the transaction: Provided, however, That this condition shall 
not apply to the extent that the person or persons authorized to 
transact business for the account have expressly provided otherwise by 
written contract referring to section 11(a) of the Act and this section 
executed on or after March 15, 1978, by each of them and by such 
exchange member or associated person exercising investment discretion.
    (b) For purposes of this section, a member ``effects'' a securities 
transaction when it performs any function in connection with the 
processing of that transaction, including, but not limited to, (1) 
transmission of an order

[[Page 120]]

for execution, (2) execution of the order, (3) clearance and settlement 
of the transaction, and (4) arranging for the performance of any such 
function.
    (c) For purposes of this section, the term ``compensation in 
connection with effecting the transaction'' refers to compensation 
directly or indirectly received or calculated on a transaction-related 
basis for the performance of any function involved in effecting a 
securities transaction.
    (d) A member, or an associated person of a member, authorized by 
written contract to retain compensation in connection with effecting 
transactions pursuant to paragraph (a)(2)(iv) of this section shall 
furnish at least annually to the person or persons authorized to 
transact business for the account a statement setting forth the total 
amount of all compensation retained by the member or any associated 
person thereof in connection with effecting transactions for that 
account during the period covered by the statement, which amount shall 
be exclusive of all amounts paid to others during that period for 
services rendered in effecting such transactions.
    (e) A transaction effected in compliance with the requirements of 
this section shall be deemed to be of a kind which is consistent with 
the purposes of section 11(a)(1) of the Act, the protection of 
investors, and the maintenance of fair and orderly markets.
    (f) The provisions of this section shall not apply to transactions 
by exchange members to which, by operation of section 11(a)(3) of the 
Act, section 11(a)(1) of the Act is not effective.

(Secs. 2, 3, 4, 6, 7, 11, 18, 89 Stat. 97, 104, 110, 111, 121, 155 (15 
U.S.C. 78b, 78c, 78f, 78k, 78k-1, 78o, 78w); secs. 2, 3, 10, 23, 48 
Stat. 881, 882, 891, 901, as amended (15 U.S.C. 78j))

[43 FR 11554, Mar. 17, 1978, as amended at 43 FR 18562, May 1, 1978]

            Adoption of Regulation on Conduct of Specialists



Sec.240.11b-1  Regulation of specialists.

    (a)(1) The rules of a national securities exchange may permit a 
member of such exchange to register as a specialist and to act as a 
dealer.
    (2) The rules of a national securities exchange permitting a member 
of such exchange to register as a specialist and to act as a dealer 
shall include:
    (i) Adequate minimum capital requirements in view of the markets for 
securities on such exchange;
    (ii) Requirements, as a condition of a specialist's registration, 
that a specialist engage in a course of dealings for his own account to 
assist in the maintenance, so far as practicable, of a fair and orderly 
market, and that a finding by the exchange of any substantial or 
continued failure by a specialist to engage in such a course of dealings 
will result in the suspension or cancellation of such specialist's 
registration in one or more of the securities in which such specialist 
is registered;
    (iii) Provisions restricting his dealings so far as practicable to 
those reasonably necessary to permit him to maintain a fair and orderly 
market or necessary to permit him to act as an odd-lot dealer;
    (iv) Provisions stating the responsibilities of a specialist acting 
as a broker in securities in which he is registered; and
    (v) Procedures to provide for the effective and systematic 
surveillance of the activities of specialists.
    (b) If after appropriate notice and opportunity for hearing the 
Commission finds that a member of a national securities exchange 
registered with such exchange as a specialist in specified securities 
has, for any account in which he, his member organization, or any 
participant therein has any beneficial interest, direct or indirect, 
effected transactions in such securities which were not part of a course 
of dealings reasonably necessary to permit such specialist to maintain a 
fair and orderly market, or to act as an odd-lot dealer, in the 
securities in which he is registered and were not effected in a manner 
consistent with the rules adopted by such exchange pursuant to paragraph 
(a)(2)(iii) of this section, the Commission may by order direct such 
exchange to cancel, or to suspend for such period as the Commission may 
determine, such specialist's registration in one or more of the 
securities in which such specialist is registered: Provided, however, If 
such exchange has

[[Page 121]]

itself suspended or cancelled such specialist's registration in one or 
more of the securities in which such specialist is registered, no 
further sanction shall be imposed pursuant to this paragraph (b) except 
in a case where the Commission finds substantial or continued misconduct 
by a specialist: And provided, further, That the provisions of this 
paragraph (b) shall not apply to a member of a national securities 
exchange exempted pursuant to the provisions of paragraph (d) of this 
section.
    (c) For the purposes of this section, the term rules of an exchange 
shall mean its constitution, articles of incorporation, by-laws, or 
rules or instruments corresponding thereto, whatever the name, and its 
stated policies.
    (d) Any national securities exchange may apply for an exemption from 
the provisions of this section in compliance with the provisions of 
section 11(c) of the Act.

(Sec.11, 48 Stat. 891, 892; 15 U.S.C. 78k)

[29 FR 15863, Nov. 26, 1964, as amended at 46 FR 15135, Mar. 4, 1981]

          Exemption of Certain Securities From Section 11(d)(1)



Sec.240.11d1-1  Exemption of certain securities from section 11(d)(1).

    A security shall be exempt from the provisions of section 11(d)(1) 
with respect to any transaction by a broker and dealer who, directly or 
indirectly extends or maintains or arranges for the extension or 
maintenance of credit on the security to or for a customer if:
    (a) The broker and dealer has not sold the security to the customer 
or bought the security for the customer's account; or
    (b) The security is acquired by the customer in exchange with the 
issuer thereof for an outstanding security of the same issuer on which 
credit was lawfully maintained for the customer at the time of the 
exchange; or
    (c) The customer is a broker or dealer or bank; or
    (d) The security is acquired by the customer through the exercise of 
a right evidenced by a warrant or certificate expiring within 90 days 
after issuance, provided such right was originally issued to the 
customer as a stockholder of the corporation issuing the security upon 
which credit is to be extended. The right shall be deemed to be issued 
to the customer as a stockholder if he actually owned the stock giving 
rise to the right when such right accrued, even though such stock was 
not registered in his name; and in determining such fact the broker and 
dealer may rely upon a signed statement of the customer which the broker 
and dealer accepts in good faith; or
    (e) Such broker and dealer would otherwise be subject to the 
prohibition of section 11(d)(1) with respect to 50 percent or less of 
all the securities of the same class which are outstanding or currently 
being distributed, and such broker and dealer sold the security to the 
customer or bought the security for the customer's account on a day when 
he was not participating in the distribution of any new issue of such 
security. A brokerdealer shall be deemed to be participating in a 
distribution of a new issue if (1) he owns, directly or indirectly, any 
undistributed security of such issue, or (2) he is engaged in any 
stabilizing activities to facilitate a distribution of such issue, or 
(3) he is a party to any syndicate agreement under which such 
stabilizing activities are being or may be undertaken, or (4) he is a 
party to an executory agreement to purchase or distribute such issue.

[13 FR 8184, Dec. 22, 1948, as amended at 76 FR 71876, Nov. 21, 2011]



Sec.240.11d1-2  Exemption from section 11(d)(1) for certain investment
company securities held by broker-dealers as collateral in margin
accounts.

    Any securities issued by a registered open-end investment company or 
unit investment trust as defined in the Investment Company Act of 1940 
shall be exempted from the provisions of section 11(d)(1) with respect 
to any transaction by a person who is a broker and a dealer who, 
directly or indirectly, extends or maintains or arranges for the 
extension or maintenance of credit on such security, provided such 
security has been owned by the person to whom credit would be provided 
for more than 30 days, or purchased by such person pursuant to a plan 
for the automatic

[[Page 122]]

reinvestment of the dividends of such company or trust.

(Secs. 2, 3, 11, and 23, Exchange Act, 15 U.S.C. 78b, 78c, 78k and 78w)

[49 FR 50174, Dec. 27, 1984]



Sec.240.11d2-1  Exemption from Section 11(d)(2) for certain broker-
dealers effecting transactions for customers security futures products
in futures accounts.

    A broker or dealer registered pursuant to section 15(b)(1) of the 
Act (15 U.S.C. 78o(b)(1)) that is also a futures commission merchant 
registered pursuant to section 4f(a)(1) of the Commodity Exchange Act (7 
U.S.C. 6f(a)(1)), to the extent that it effects transactions for 
customers in security futures products in a futures account (as that 
term is defined in Sec.240.15c3-3(a)(15)), is exempt from section 
11(d)(2) of the Act (15 U.S.C. 78k(d)(2)).

[67 FR 58313, Sept. 13, 2002]

                  Securities Exempted From Registration



Sec.240.12a-4  Exemption of certain warrants from section 12(a).

    (a) When used in this section, the following terms shall have the 
meaning indicated unless the context otherwise requires:
    (1) The term warrant means any warrant or certificate evidencing a 
right to subscribe to or otherwise acquire another security, issued or 
unissued.
    (2) The term beneficiary security means a security to the holders of 
which a warrant or right to subscribe to or otherwise acquire another 
security is granted.
    (3) The term subject security means a security which is the subject 
of a warrant or right to subscribe to or otherwise acquire such 
security.
    (4) The term in the process of admission to dealing, in respect of a 
specified security means that (i) an application has been filed pursuant 
to section 12 (b) and (c) of the Act for the registration of such 
security on a national securities exchange; or (ii) the Commission has 
granted an application made pursuant to section 12(f) of the Act to 
continue or extend unlisted trading privileges to such security on a 
national securities exchange; or (iii) written notice has been filed 
with the Commission by a national securities exchange to the effect that 
such security has been approved for admission to dealing as a security 
exempted from the operation of section 12(a) of the Act.
    (b) Any issued or unissued warrant granted to the holders of a 
security admitted to dealing on a national securities exchange, shall be 
exempt from the operation of section 12(a) of the Act to the extent 
necessary to render lawful the effecting of transactions therein on any 
national securities exchange (i) on which the beneficiary security is 
admitted to dealing or (ii) on which the subject security is admitted to 
dealing or is in the process of admission to dealing, subject to the 
following terms and conditions:
    (1) Such warrant by its terms expires within 90 days after the 
issuance thereof;
    (2) A registration statement under the Securities Act of 1933 is in 
effect as to such warrant and as to each subject security, or the 
applicable terms of any exemption from such registration have been met 
in respect to such warrant and each subject security; and
    (3) Within five days after the exchange has taken official action to 
admit such warrant to dealing, it shall notify the Commission of such 
action.
    (c) Notwithstanding paragraph (b) of this section, no exemption 
pursuant to this section shall be available for transactions in any such 
warrant on any exchange on which the beneficiary security is admitted to 
dealing unless:
    (1) Each subject security is admitted to dealing or is in process of 
admission to dealing on a national securities exchange; or
    (2) There is available from a registration statement and periodic 
reports or other data filed by the issuer of the subject security, 
pursuant to any act administered by the Commission, information 
substantially equivalent to that available with respect to a security 
listed and registered on a national securities exchange.
    (d) Notwithstanding the foregoing, an unissued warrant shall not be 
exempt pursuant to this section unless:
    (1) Formal or official announcement has been made by the issuer 
specifying (i) the terms upon which such warrant

[[Page 123]]

and each subject security is to be issued, (ii) the date, if any, as of 
which the security holders entitled to receive such warrant will be 
determined, (iii) the approximate date of the issuance of such warrant, 
and (iv) the approximate date of the issuance of each subject security; 
and,
    (2) The members of the exchange are subject to rules which provide 
that the performance of the contract to purchase and sell an unissued 
warrant shall be conditioned upon the issuance of such warrant.
    (e) The Commission may by order deny or revoke the exemption of a 
warrant under this section, if, after appropriate notice and opportunity 
for hearing to the issuer of such warrant and to the exchange or 
exchanges on which such warrant is admitted to dealing as an exempted 
security, it finds that:
    (1) Any of the terms or conditions of this section have not been met 
with respect to such exemption, or
    (2) At any time during the period of such exemption transactions 
have been effected on any such exchanges in such warrant which (i) 
create or induce a false, misleading or artificial appearance of 
activity, (ii) unduly or improperly influence the market price, or (iii) 
make a price which does not reflect the true state of the market; or
    (3) Any other facts exist which make such denial or revocation 
necessary or appropriate in the public interest or for the protection of 
investors.
    (f) If it appears necessary or appropriate in the public interest or 
for the protection of investors, the Commission may summarily suspend 
the exemption of such warrant pending the determination by the 
Commission whether such exemption shall be denied or revoked.
    (g) Section 240.10b-1 shall be applicable to any warrant exempted by 
this section.

(Secs. 3, 12, 48 Stat. 882, as amended, 892; 15 U.S.C. 78c, 78l)

[15 FR 3450, June 2, 1950, as amended at 18 FR 128, Jan. 7, 1953]



Sec.240.12a-5  Temporary exemption of substituted or additional
securities.

    (a)(1) Subject to the conditions of paragraph (a)(2) of this 
section, whenever the holders of a security admitted to trading on a 
national securities exchange (hereinafter called the original security) 
obtain the right, by operation of law or otherwise, to acquire all or 
any part of a class of another or substitute security of the same or 
another issuer, or an additional amount of the original security, then:
    (i) All or any part of the class of such other or substituted 
security shall be temporarily exempted from the operation of section 
12(a) to the extent necessary to render lawful transactions therein on 
an issued or ``when-issued'' basis on any national securities exchange 
on which the original, the other or the substituted security is lawfully 
admitted to trading; and
    (ii) The additional amount of the original security shall be 
temporarily exempted from the operation of section 12(a) to the extent 
necessary to render lawful transactions therein on a ``when-issued'' 
basis on any national securities exchange on which the original security 
is lawfully admitted to trading.
    (2) The exemptions provided by paragraph (a)(1) of this section 
shall be available only if the following conditions are met:
    (i) A registration statement is in effect under the Securities Act 
of 1933 to the extent required as to the security which is the subject 
of such exemption, or the terms of any applicable exemption from 
registration under such act have been complied with, if required;
    (ii) Any stockholder approval necessary to the issuance of the 
security which is the subject of the exemption, has been obtained; and
    (iii) All other necessary official action, other than the filing or 
recording of charter amendments or other documents with the appropriate 
State authorities, has been taken to authorize and assure the issuance 
of the security which is the subject of such exemption.
    (b) The exemption provided by this section shall terminate on the 
earliest of the following dates:
    (1) When registration of the exempt security on the exchange become 
effective;
    (2) When the exempt security is granted unlisted trading privileges 
on the exchange;

[[Page 124]]

    (3) The close of business on the tenth day after (i) withdrawal of 
an application for registration of the exempt security on the exchange; 
(ii) withdrawal by the exchange of its certification of approval of the 
exempt security for listing and registration; (iii) withdrawal of an 
application for admission of the exempt security to unlisted trading 
privileges on the exchange; or (iv) the sending to the exchange of 
notice of the entry of an order by the Commission denying any 
application for admission of the exempt security to unlisted trading 
privileges on the exchange;
    (4) The close of business on the one hundred and twentieth day after 
the date on which the exempt security was admitted by action of the 
exchange to trading thereon as a security exempted from the operation of 
section 12 (a) by this section, unless prior thereto an application for 
registration of the exempt security or for admission of the exempt 
security to unlisted trading privileges on the exchange has been filed.
    (c) Notwithstanding paragraph (b) of this section, the Commission, 
having due regard for the public interest and the protection of 
investors, may at any time extend the period of exemption of any 
security by this rule or may sooner terminate the exemption upon notice 
to the exchange and to the issuer of the extension or termination 
thereof.
    (d) The Exchange shall file with the Commission a notification on 
Form 26 \1\ promptly after taking action to admit any security to 
trading under this section: Provided, however, That no notification need 
be filed under this section concerning the admission or proposed 
admission to trading of additional amounts of a class of security 
admitted to trading on such exchange.
---------------------------------------------------------------------------

    \1\ Copy filed with the Federal Register Division.
---------------------------------------------------------------------------

    (e) Section 240.10b-1 shall be applicable to all securities exempted 
from the operation of section 12(a) of the act by this section.

(Secs. 3, 12, 48 Stat. 882, 892; 15 U.S.C. 78c (12), 78l)

[13 FR 8185, Dec. 22, 1948, as amended at 19 FR 669, Feb. 5, 1954; 20 FR 
2081, Apr. 2, 1955; 53 FR 41206, Oct. 20, 1988]



Sec.240.12a-6  Exemption of securities underlying certain options 
from section 12(a).

    (a) When used in this rule, the following terms shall have the 
meanings indicated unless the context otherwise requires:
    (1) The term option shall include any put, call, spread, straddle, 
or other option or privilege of buying a security from or selling a 
security to another without being bound to do so, but such term shall 
not include any such option where the writer is: The issuer of the 
security which may be purchased or sold upon exercise of the option, or 
is a person that directly, or indirectly, through one or more 
intermediaries, controls, or is controlled by, or is under common 
control with such issuer;
    (2) The term underlying security means a security which relates to 
or is the subject of an option.
    (b) Any underlying security shall be exempt from the operation of 
section 12(a) of the Act if all of the following terms and conditions 
are met:
    (1) The related option is duly listed and registered on a national 
securities exchange;
    (2) The only transactions on such exchange with respect to such 
underlying securities consist of the delivery of and payment for such 
underlying securities pursuant to the terms of such options relating to 
the exercise thereof; and
    (3) Such underlying security is (i) duly listed and registered on 
another national securities exchange at the time the option is issued; 
or (ii) duly quoted on the National Association of Securities Dealers 
Automated Quotation System (``NASDAQ'') at the time the option is 
issued.

(Secs. 3(a)(12); 48 Stat. 882, 84 Stat. 718, 1435, 1499 (15 U.S.C. 
78(c)))

[38 FR 11449, May 8, 1973, as amended at 50 FR 20203, May 15, 1985]



Sec.240.12a-7  Exemption of stock contained in standardized market
baskets from section 12(a) of the Act.

    (a) Any component stock of a standardized market basket shall be 
exempt from the registration requirement of section 12(a) of the Act, 
solely for the purpose of inclusion in a standardized market basket, 
provided that all of the

[[Page 125]]

following terms and conditions are met:
    (1) The standardized market basket has been duly approved by the 
Commission for listing on a national securities exchange pursuant to the 
requirements of section 19(b) of the Act; and
    (2) The stock is an NMS stock as defined in Sec.242.600 of this 
chapter and is either:
    (i) Listed and registered for trading on a national securities 
exchange by the issuer or
    (ii) Quoted on the National Association of Securities Dealers 
Automated Quotation System;
    (b) When used in this rule, the term standardized market basket 
means a group of at least 100 stocks purchased or sold in a single 
execution and at a single trading location with physical delivery and 
transfer of ownership of each component stock resulting from such 
execution.

[56 FR 28322, June 20, 1991, as amended at 70 FR 37618, June 29, 2005]



Sec.240.12a-8  Exemption of depositary shares.

    Depositary shares (as that term is defined in Sec.240.12b-2) 
registered on Form F-6 (Sec.239.36 of this chapter), but not the 
underlying deposited securities, shall be exempt from the operation of 
section 12(a) of the Act (15 U.S.C. 78l(a)).

[62 FR 39766, July 24, 1997]



Sec.240.12a-9  Exemption of standardized options from section 12(a)
of the Act.

    The provisions of section 12(a) of the Act (15 U.S.C. 78l(a)) do not 
apply in respect of any standardized option, as defined by section 
240.9b-1(a)(4), issued by a clearing agency registered under section 17A 
of the Act (15 U.S.C. 78q-1) and traded on a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a)).

[68 FR 192, Jan. 2, 2003]

               Regulation 12B: Registration and Reporting

    Source: Sections 240.12b-1 through 240.12b-36 appear at 13 FR 9321, 
Dec. 31, 1948, unless otherwise noted.



ATTENTION ELECTRONIC FILERS--Table of Contents



THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec.240.12a-10  Exemption of security-based swaps from section 12(a)
of the Act.

    The provisions of Section 12(a) of the Act (15 U.S.C. 78l(a)) do not 
apply to any security-based swap that:
    (a) Is issued or will be issued by a clearing agency registered as a 
clearing agency under Section 17A of the Act (15 U.S.C. 78q-1) or exempt 
from registration under Section 17A of the Act pursuant to a rule, 
regulation, or order of the Commission, in its function as a central 
counterparty with respect to the security-based swap;
    (b) The Commission has determined is required to be cleared or that 
is permitted to be cleared pursuant to the clearing agency's rules;
    (c) Is sold to an eligible contract participant (as defined in 
Section 1a(18) of the Commodity Exchange Act (7 U.S.C. 1a(18))) in 
reliance on Rule 239 under the Securities Act of 1933 (17 CFR 230.239); 
and
    (d) Is traded on a national securities exchange registered pursuant 
to Section 6(a) of the Act (15 U.S.C. 78f(a)).

[77 FR 20549, Apr. 5, 2012]



Sec.240.12a-11  Exemption of security-based swaps sold in reliance on
Securities Act of 1933 Rule 240 (Sec.230.240) from section 12(a) 
of the Act.

    (a) The provisions of Section 12(a) of the Act (15 U.S.C. 78l(a)) do 
not apply to any security-based swap offered and sold in reliance on 
Sec.230.240 of this chapter.

[[Page 126]]

    (b) This section will expire on February 11, 2018.

[82 FR 10707, Feb. 15, 2017]

                                 General



Sec.240.12b-1  Scope of regulation.

    The rules contained in this regulation shall govern all registration 
statements pursuant to sections 12(b) and 12(g) of the Act and all 
reports filed pursuant to sections 13 and 15(d) of the Act, including 
all amendments to such statements and reports, except that any provision 
in a form covering the same subject matter as any such rule shall be 
controlling.

[47 FR 11464, Mar. 16, 1982]



Sec.240.12b-2  Definitions.

    Unless the context otherwise requires, the following terms, when 
used in the rules contained in this regulation or in Regulation 13A or 
15D or in the forms for statements and reports filed pursuant to 
sections 12, 13 or 15(d) of the act, shall have the respective meanings 
indicated in this rule:
    Accelerated filer and large accelerated filer--(1) Accelerated 
filer. The term accelerated filer means an issuer after it first meets 
the following conditions as of the end of its fiscal year:
    (i) The issuer had an aggregate worldwide market value of the voting 
and non-voting common equity held by its non-affiliates of $75 million 
or more, but less than $700 million, as of the last business day of the 
issuer's most recently completed second fiscal quarter;
    (ii) The issuer has been subject to the requirements of section 
13(a) or 15(d) of the Act (15 U.S.C. 78m or 78o(d)) for a period of at 
least twelve calendar months; and
    (iii) The issuer has filed at least one annual report pursuant to 
section 13(a) or 15(d) of the Act.
    (2) Large accelerated filer. The term large accelerated filer means 
an issuer after it first meets the following conditions as of the end of 
its fiscal year:
    (i) The issuer had an aggregate worldwide market value of the voting 
and non-voting common equity held by its non-affiliates of $700 million 
or more, as of the last business day of the issuer's most recently 
completed second fiscal quarter;
    (ii) The issuer has been subject to the requirements of section 
13(a) or 15(d) of the Act for a period of at least twelve calendar 
months; and
    (iii) The issuer has filed at least one annual report pursuant to 
section 13(a) or 15(d) of the Act.
    (3) Entering and exiting accelerated filer and large accelerated 
filer status.
    (i) The determination at the end of the issuer's fiscal year for 
whether a non-accelerated filer becomes an accelerated filer, or whether 
a non-accelerated filer or accelerated filer becomes a large accelerated 
filer, governs the deadlines for the annual report to be filed for that 
fiscal year, the quarterly and annual reports to be filed for the 
subsequent fiscal year and all annual and quarterly reports to be filed 
thereafter while the issuer remains an accelerated filer or large 
accelerated filer.
    (ii) Once an issuer becomes an accelerated filer, it will remain an 
accelerated filer unless the issuer determines at the end of a fiscal 
year that the aggregate worldwide market value of the voting and non-
voting common equity held by non-affiliates of the issuer was less than 
$50 million, as of the last business day of the issuer's most recently 
completed second fiscal quarter. An issuer making this determination 
becomes a non-accelerated filer. The issuer will not become an 
accelerated filer again unless it subsequently meets the conditions in 
paragraph (1) of this definition.
    (iii) Once an issuer becomes a large accelerated filer, it will 
remain a large accelerated filer unless the issuer determines at the end 
of a fiscal year that the aggregate worldwide market value of the voting 
and non-voting common equity held by non-affiliates of the issuer was 
less than $500 million, as of the last business day of the issuer's most 
recently completed second fiscal quarter. If the issuer's aggregate 
worldwide market value was $50 million or more, but less than $500 
million, as of the last business day of the issuer's most recently 
completed second fiscal quarter, the issuer becomes an accelerated 
filer. If the issuer's aggregate worldwide market value was less than 
$50 million, as of the last

[[Page 127]]

business day of the issuer's most recently completed second fiscal 
quarter, the issuer becomes a non-accelerated filer. An issuer will not 
become a large accelerated filer again unless it subsequently meets the 
conditions in paragraph (2) of this definition.
    (iv) The determination at the end of the issuer's fiscal year for 
whether an accelerated filer becomes a non-accelerated filer, or a large 
accelerated filer becomes an accelerated filer or a non-accelerated 
filer, governs the deadlines for the annual report to be filed for that 
fiscal year, the quarterly and annual reports to be filed for the 
subsequent fiscal year and all annual and quarterly reports to be filed 
thereafter while the issuer remains an accelerated filer or non-
accelerated filer.

    Note to paragraphs (1), (2) and (3): The aggregate worldwide market 
value of the issuer's outstanding voting and non-voting common equity 
shall be computed by use of the price at which the common equity was 
last sold, or the average of the bid and asked prices of such common 
equity, in the principal market for such common equity.

    Affiliate. An ``affiliate'' of, or a person ``affiliated'' with, a 
specified person, is a person that directly, or indirectly through one 
or more intermediaries, controls, or is controlled by, or is under 
common control with, the person specified.
    Amount. The term ``amount,'' when used in regard to securities, 
means the principal amount if relating to evidences of indebtedness, the 
number of shares if relating to shares, and the number of units if 
relating to any other kind of security.
    Associate. The term ``associate'' used to indicate a relationship 
with any person, means (1) any corporation or organization (other than 
the registrant or a majority-owned subsidiary of the registrant) of 
which such person is an officer or partner or is, directly or 
indirectly, the beneficial owner of 10 percent or more of any class of 
equity securities, (2) any trust or other estate in which such person 
has a substantial beneficial interest or as to which such person serves 
as trustee or in a similar fiduciary capacity, and (3) any relative or 
spouse of such person, or any relative of such spouse, who has the same 
home as such person or who is a director or officer of the registrant or 
any of its parents or subsidiaries.
    Business combination related shell company: The term business 
combination related shell company means a shell company (as defined in 
Sec.240.12b-2) that is:
    (1) Formed by an entity that is not a shell company solely for the 
purpose of changing the corporate domicile of that entity solely within 
the United States; or
    (2) Formed by an entity that is not a shell company solely for the 
purpose of completing a business combination transaction (as defined in 
Sec.230.165(f) of this chapter) among one or more entities other than 
the shell company, none of which is a shell company.
    Certified. The term ``certified,'' when used in regard to financial 
statements, means examined and reported upon with an opinion expressed 
by an independent public or certified public accountant.
    Charter. The term ``charter'' includes articles of incorporation, 
declarations of trust, articles of association or partnership, or any 
similar instrument, as amended, effecting (either with or without filing 
with any governmental agency) the organization or creation of an 
incorporated or unincorporated person.
    Common equity. The term ``common equity'' means any class of common 
stock or an equivalent interest, including but not limited to a unit of 
beneficial interest in a trust or a limited partnership interest.
    Control. The term ``control'' (including the terms ``controlling,'' 
``controlled by'' and ``under common control with'') means the 
possession, direct or indirect, of the power to direct or cause the 
direction of the management and policies of a person, whether through 
the ownership of voting securities, by contract, or otherwise.
    Depositary share. The term ``depositary share'' means a security, 
evidenced by an American Depositary Receipt, that represents a foreign 
security or a multiple of or fraction thereof deposited with a 
depositary.
    Emerging growth company. (1) The term emerging growth company means 
an issuer that had total annual gross

[[Page 128]]

revenues of less than $1,070,000,000 during its most recently completed 
fiscal year.
    (2) An issuer that is an emerging growth company as of the first day 
of that fiscal year shall continue to be deemed an emerging growth 
company until the earliest of:
    (i) The last day of the fiscal year of the issuer during which it 
had total annual gross revenues of $1,070,000,000 or more;
    (ii) The last day of the fiscal year of the issuer following the 
fifth anniversary of the date of the first sale of common equity 
securities of the issuer pursuant to an effective registration statement 
under the Securities Act of 1933;
    (iii) The date on which such issuer has, during the previous three 
year period, issued more than $1,000,000,000 in non-convertible debt; or
    (iv) The date on which such issuer is deemed to be a large 
accelerated filer, as defined in Rule 12b-2 (Sec.240.12b-2 of this 
chapter).
    Employee. The term ``employee'' does not include a director, 
trustee, or officer.
    Fiscal year. The term ``fiscal year'' means the annual accounting 
period or, if no closing date has been adopted, the calendar year ending 
on December 31.
    Majority-owned subsidiary. The term ``majority-owned subsidiary'' 
means a subsidiary more than 50 percent of whose outstanding securities 
representing the right, other than as affected by events of default, to 
vote for the election of directors, is owned by the subsidiary's parent 
and/or one or more of the parent's other majority-owned subsidiaries.
    Managing underwriter. The term ``managing underwriter'' includes an 
underwriter (or underwriters) who, by contract or otherwise, deals with 
the registrant; organizes the selling effort; receives some benefit 
directly or indirectly in which all other underwriters similarly 
situated do not share in proportion to their respective interests in the 
underwriting; or represents any other underwriters in such matters as 
maintaining the records of the distribution, arranging the allotments of 
securities offered or arranging for appropriate stabilization 
activities, if any.
    Material. The term ``material,'' when used to qualify a requirement 
for the furnishing of information as to any subject, limits the 
information required to those matters to which there is a substantial 
likelihood that a reasonable investor would attach importance in 
determining whether to buy or sell the securities registered.
    Material weakness. The term material weakness is a deficiency, or a 
combination of deficiencies, in internal control over financial 
reporting such that there is a reasonable possibility that a material 
misstatement of the registrant's annual or interim financial statements 
will not be prevented or detected on a timely basis.
    Parent. A ``parent'' of a specified person is an affiliate 
controlling such person directly, or indirectly through one or more 
intermediaries.
    Predecessor. The term ``predecessor'' means a person the major 
portion of the business and assets of which another person acquired in a 
single succession or in a series of related successions in each of which 
the acquiring person acquired the major portion of the business and 
assets of the acquired person.
    Previously filed or reported. The terms ``previously filed'' and 
``previously reported'' mean previously filed with, or reported in, a 
statement under section 12, a report under section 13 or 15(d), a 
definitive proxy statement or information statement under section 14 of 
the act, or a registration statement under the Securities Act of 1933: 
Provided, That information contained in any such document shall be 
deemed to have been previously filed with, or reported to, an exchange 
only if such document is filed with such exchange.
    Principal underwriter. The term ``principal underwriter'' means an 
underwriter in privity of contract with the issuer of the securities as 
to which he is underwriter.
    Promoter. (1) The term ``promoter'' includes:
    (i) Any person who, acting alone or in conjunction with one or more 
other persons, directly or indirectly takes initiative in founding and 
organizing the business or enterprise of an issuer; or

[[Page 129]]

    (ii) Any person who, in connection with the founding and organizing 
of the business or enterprise of an issuer, directly or indirectly 
receives in consideration of services or property, or both services and 
property, 10 percent or more of any class of securities of the issuer or 
10 percent or more of the proceeds from the sale of any class of such 
securities. However, a person who receives such securities or proceeds 
either solely as underwriting commissions or solely in consideration of 
property shall not be deemed a promoter within the meaning of this 
paragraph if such person does not otherwise take part in founding and 
organizing the enterprise.
    (2) All persons coming within the definition of ``promoter'' in 
paragraph (1) of this definition may be referred to as ``founders'' or 
``organizers'' or by another term provided that such term is reasonably 
descriptive of those persons' activities with respect to the issuer.
    Prospectus. Unless otherwise specified or the context otherwise 
requires, the term ``prospectus'' means a prospectus meeting the 
requirements of section 10(a) of the Securities Act of 1933 as amended.
    Registrant. The term ``registrant'' means an issuer of securities 
with respect to which a registration statement or report is to be filed.
    Registration statement. The term ``registration statement'' or 
``statement'', when used with reference to registration pursuant to 
section 12 of the act, includes both an application for registration of 
securities on a national securities exchange pursuant to section 12(b) 
of the act and a registration statement filed pursuant to section 12(g) 
of the act.
    Share. The term ``share'' means a share of stock in a corporation or 
unit of interest in an unincorporated person.
    Shell company: The term shell company means a registrant, other than 
an asset-backed issuer as defined in Item 1101(b) of Regulation AB 
(Sec.229.1101(b) of this chapter), that has:
    (1) No or nominal operations; and
    (2) Either:
    (i) No or nominal assets;
    (ii) Assets consisting solely of cash and cash equivalents; or
    (iii) Assets consisting of any amount of cash and cash equivalents 
and nominal other assets.

    Note: For purposes of this definition, the determination of a 
registrant's assets (including cash and cash equivalents) is based 
solely on the amount of assets that would be reflected on the 
registrant's balance sheet prepared in accordance with generally 
accepted accounting principles on the date of that determination.

    Significant deficiency. The term significant deficiency is a 
deficiency, or a combination of deficiencies, in internal control over 
financial reporting that is less severe than a material weakness, yet 
important enough to merit attention by those responsible for oversight 
of the registrant's financial reporting.
    Significant subsidiary. The term significant subsidiary means a 
subsidiary, including its subsidiaries, which meets any of the following 
conditions:
    (1) The registrant's and its other subsidiaries' investments in and 
advances to the subsidiary exceed 10 percent of the total assets of the 
registrant and its subsidiaries consolidated as of the end of the most 
recently completed fiscal year (for a proposed combination between 
entities under common control, this condition is also met when the 
number of common shares exchanged or to be exchanged by the registrant 
exceeds 10 percent of its total common shares outstanding at the date 
the combination is initiated); or
    (2) The registrant's and its other subsidiaries' proportionate share 
of the total assets (after intercompany eliminations) of the subsidiary 
exceeds 10 percent of the total assets of the registrant and its 
subsidiaries consolidated as of the end of the most recently completed 
fiscal year; or
    (3) The registrant's and its other subsidiaries' equity in the 
income from continuing operations before income taxes of the subsidiary 
exclusive of amounts attributable to any noncontrolling interests 
exceeds 10 percent of such income of the registrant and its subsidiaries 
consolidated for the most recently completed fiscal year.

    Note 1: A registrant that files its financial statements in 
accordance with or provides a reconciliation to U.S. Generally Accepted

[[Page 130]]

Accounting Principles shall make the prescribed tests using amounts 
determined under U.S. Generally Accepted Accounting Principles. A 
foreign private issuer that files its financial statements in accordance 
with IFRS as issued by the IASB shall make the prescribed tests using 
amounts determined under IFRS as issued by the IASB.
     Computational Note 1 to paragraph (3): For purposes of making the 
prescribed income test the following guidance should be applied:
    1. When a loss exclusive of amounts attributable to any 
noncontrolling interests has been incurred by either the parent and its 
subsidiaries consolidated or the tested subsidiary, but not both, the 
equity in the income or loss of the tested subsidiary exclusive of 
amounts attributable to any noncontrolling interests should be excluded 
from such income of the registrant and its subsidiaries consolidated for 
purposes of the computation.
    2. If income of the registrant and its subsidiaries consolidated 
exclusive of amounts attributable to any noncontrolling interests for 
the most recent fiscal year is at least 10 percent lower than the 
average of the income for the last five fiscal years, such average 
income should be substituted for purposes of the computation. Any loss 
years should be omitted for purposes of computing average income.

    Smaller reporting company. As used in this part, the term smaller 
reporting company means an issuer that is not an investment company, an 
asset-backed issuer (as defined in Sec.229.1101 of this chapter), or a 
majority-owned subsidiary of a parent that is not a smaller reporting 
company and that:
    (1) Had a public float of less than $250 million; or
    (2) Had annual revenues of less than $100 million and either:
    (i) No public float; or
    (ii) A public float of less than $700 million.
    (3) Whether an issuer is a smaller reporting company is determined 
on an annual basis.
    (i) For issuers that are required to file reports under section 
13(a) or 15(d) of the Exchange Act:
    (A) Public float is measured as of the last business day of the 
issuer's most recently completed second fiscal quarter and computed by 
multiplying the aggregate worldwide number of shares of its voting and 
non-voting common equity held by non-affiliates by the price at which 
the common equity was last sold, or the average of the bid and asked 
prices of common equity, in the principal market for the common equity;
    (B) Annual revenues are as of the most recently completed fiscal 
year for which audited financial statements are available; and
    (C) An issuer must reflect the determination of whether it came 
within the definition of smaller reporting company in its quarterly 
report on Form 10-Q for the first fiscal quarter of the next year, 
indicating on the cover page of that filing, and in subsequent filings 
for that fiscal year, whether it is a smaller reporting company, except 
that, if a determination based on public float indicates that the issuer 
is newly eligible to be a smaller reporting company, the issuer may 
choose to reflect this determination beginning with its first quarterly 
report on Form 10-Q following the determination, rather than waiting 
until the first fiscal quarter of the next year.
    (ii) For determinations based on an initial registration statement 
under the Securities Act or Exchange Act for shares of its common 
equity:
    (A) Public float is measured as of a date within 30 days of the date 
of the filing of the registration statement and computed by multiplying 
the aggregate worldwide number of shares of its voting and non-voting 
common equity held by non-affiliates before the registration plus, in 
the case of a Securities Act registration statement, the number of 
shares of its voting and non-voting common equity included in the 
registration statement by the estimated public offering price of the 
shares;
    (B) Annual revenues are as of the most recently completed fiscal 
year for which audited financial statements are available; and
    (C) The issuer must reflect the determination of whether it came 
within the definition of smaller reporting company in the registration 
statement and must appropriately indicate on the cover page of the 
filing, and subsequent filings for the fiscal year in which the filing 
is made, whether it is a smaller reporting company. The issuer must re-
determine its status at the end of its second fiscal quarter and then 
reflect any change in status as provided in

[[Page 131]]

paragraph (3)(i)(C) of this definition. In the case of a determination 
based on an initial Securities Act registration statement, an issuer 
that was not determined to be a smaller reporting company has the option 
to re-determine its status at the conclusion of the offering covered by 
the registration statement based on the actual offering price and number 
of shares sold.
    (iii) Once an issuer determines that it does not qualify for smaller 
reporting company status because it exceeded one or more of the current 
thresholds, it will remain unqualified unless when making its annual 
determination either:
    (A) It determines that its public float was less than $200 million; 
or
    (B) It determines that its public float and its annual revenues meet 
the requirements for subsequent qualification included in the following 
chart:

------------------------------------------------------------------------
                                          Prior public float
                             -------------------------------------------
    Prior annual revenues       None or less than
                                  $700 million      $700 million or more
------------------------------------------------------------------------
Less than $100 million......  Neither threshold     Public float--Less
                               exceeded.             than $560 million;
                                                     and
                                                    Revenues--Less than
                                                     $100 million.
$100 million or more........  Public float--None    Public float--Less
                               or less than $700     than $560 million;
                               million; and.         and
                              Revenues--Less than   Revenues--Less than
                               $80 million.          $80 million.
------------------------------------------------------------------------


    Instruction 1 to definition of ``smaller reporting company'': A 
registrant that qualifies as a smaller reporting company under the 
public float thresholds identified in paragraphs (1) and (3)(iii)(A) of 
this definition will qualify as a smaller reporting company regardless 
of its revenues.
    Succession: The term succession means the direct acquisition of the 
assets comprising a going business, whether by merger, consolidation, 
purchase, or other direct transfer; or the acquisition of control of a 
shell company in a transaction required to be reported on Form 8-K 
(Sec.249.308 of this chapter) in compliance with Item 5.01 of that 
Form or on Form 20-F (Sec.249.220f of this chapter) in compliance with 
Rule 13a-19 (Sec.240.13a-19) or Rule 15d-19 (Sec.240.15d-19). Except 
for an acquisition of control of a shell company, the term does not 
include the acquisition of control of a business unless followed by the 
direct acquisition of its assets. The terms succeed and successor have 
meanings correlative to the foregoing.
    Totally held subsidiary. The term ``totally held subsidiary'' means 
a subsidiary (1) substantially all of whose outstanding securities are 
owned by its parent and/or the parent's other totally held subsidiaries, 
and (2) which is not indebted to any person other than its parent and/or 
the parent's other totally held subsidiaries in an amount which is 
material in relation to the particular subsidiary, excepting 
indebtedness incurred in the ordinary course of business which is not 
overdue and which matures within one year from the date of its creation, 
whether evidenced by securities or not.
    Voting securities. The term ``voting securities'' means securities 
the holders of which are presently entitled to vote for the election of 
directors.
    Wholly-owned subsidiary. The term ``wholly-owned subsidiary'' means 
a subsidiary substantially all of whose outstanding voting securities 
are owned by its parent and/or the parent's other wholly-owned 
subsidiaries.

[13 FR 9321, Dec. 31, 1948]

    Editorial Note: For Federal Register citations affecting Sec.
240.12b-2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.

    Effective Date Note: At 85 FR 17241, Mar. 26, 2020, effective Apr. 
27, 2020, Sec.240.12b-2 was amended un the definition of ``Accelerated 
filer and large accelerated filer'' by:
    i. Removing ``.'' at the end of paragraph (1)(iii) and adding in its 
place ``; and'';
    ii. Adding paragraph (1)(iv);
    iii. Removing ``.'' at the end of paragraph (2)(iii) and adding in 
its place ``; and'';
    iv. Adding paragraph (2)(iv);
    v. Revising paragraphs (3)(ii) and (3)(iii);
    vi. Adding paragraph (4); and by
    b. Adding Instruction 2 to the definition of ``smaller reporting 
company''.
    For the convenience of the user, the added and revised text is set 
forth as follows:

[[Page 132]]



Sec.240.12b-2  Definitions.

                                * * * * *

    Accelerated filer and large accelerated filer--(1) * * *
    (iv) The issuer is not eligible to use the requirements for smaller 
reporting companies under the revenue test in paragraph (2) or 
(3)(iii)(B) of the ``smaller reporting company'' definition in this 
section, as applicable.
    (2) * * *
    (iv) The issuer is not eligible to use the requirements for smaller 
reporting companies under the revenue test in paragraph (2) or 
(3)(iii)(B) of the ``smaller reporting company'' definition in this 
section, as applicable.
    (3) * * *
    (ii) Once an issuer becomes an accelerated filer, it will remain an 
accelerated filer unless: The issuer determines, at the end of a fiscal 
year, that the aggregate worldwide market value of the voting and non-
voting common equity held by its non-affiliates was less than $60 
million, as of the last business day of the issuer's most recently 
completed second fiscal quarter; or it determines that it is eligible to 
use the requirements for smaller reporting companies under the revenue 
test in paragraph (2) or (3)(iii)(B) of the ``smaller reporting 
company'' definition in this section, as applicable. An issuer that 
makes either of these determinations becomes a non-accelerated filer. 
The issuer will not become an accelerated filer again unless it 
subsequently meets the conditions in paragraph (1) of this definition.
    (iii) Once an issuer becomes a large accelerated filer, it will 
remain a large accelerated filer unless: It determines, at the end of a 
fiscal year, that the aggregate worldwide market value of the voting and 
non-voting common equity held by its non-affiliates (``aggregate 
worldwide market value'') was less than $560 million, as of the last 
business day of the issuer's most recently completed second fiscal 
quarter or it determines that it is eligible to use the requirements for 
smaller reporting companies under the revenue test in paragraph (2) or 
(3)(iii)(B) of the ``smaller reporting company'' definition in this 
section, as applicable. If the issuer's aggregate worldwide market value 
was $60 million or more, but less than $560 million, as of the last 
business day of the issuer's most recently completed second fiscal 
quarter, and it is not eligible to use the requirements for smaller 
reporting companies under the revenue test in paragraph (2) or 
(3)(iii)(B) of the ``smaller reporting company'' definition in this 
section, as applicable, it becomes an accelerated filer. If the issuer's 
aggregate worldwide market value was less than $60 million, as of the 
last business day of the issuer's most recently completed second fiscal 
quarter, or it is eligible to use the requirements for smaller reporting 
companies under the revenue test in paragraph (2) or (3)(iii)(B) of the 
``smaller reporting company'' definition in this section, it becomes a 
non-accelerated filer. An issuer will not become a large accelerated 
filer again unless it subsequently meets the conditions in paragraph (2) 
of this definition.

                                * * * * *

    (4) For purposes of paragraphs (1), (2), and (3) of this definition 
only, a business development company is considered to be eligible to use 
the requirements for smaller reporting companies under the revenue test 
in paragraph (2) or (3)(iii)(B) of the ``smaller reporting company'' 
definition in this section, provided that the business development 
company meets the requirements of the test using annual investment 
income under Rule 6-07.1 of Regulation S-X (17 CFR 210.6-07.1) as the 
measure of its ``annual revenues'' for purposes of the test.

                                * * * * *

    Smaller reporting company. * * *
    Instruction 2 to definition of ``smaller reporting company'': A 
foreign private issuer is not eligible to use the requirements for 
smaller reporting companies unless it uses the forms and rules 
designated for domestic issuers and provides financial statements 
prepared in accordance with U.S. Generally Accepted Accounting 
Principles.

                                * * * * *



Sec.240.12b-3  Title of securities.

    Wherever the title of securities is required to be stated there 
shall be given such information as will indicate the type and general 
character of the securities, including the following:
    (a) In the case of shares, the par or stated value, if any; the rate 
of dividends, if fixed, and whether cumulative or noncumulative; a brief 
indication of the preference, if any; and if convertible, a statement to 
that effect.
    (b) In the case of funded debt, the rate of interest; the date of 
maturity, or if the issue matures serially, a brief indication of the 
serial maturities, such as ``maturing serially from 1950 to 1960''; if 
the payment of principal or interest is contingent, an appropriate 
indication of such contingency; a brief indication of the priority of 
the issue; and if convertible, a statement to that effect.

[[Page 133]]

    (c) In the case of any other kind of security, appropriate 
information of comparable character.



Sec.240.12b-4  Supplemental information.

    The Commission or its staff may, where it is deemed appropriate, 
request supplemental information concerning the registrant, a 
registration statement or a periodic or other report under the Act. This 
information shall not be required to be filed with or deemed part of the 
registration statement or report. The information shall be returned to 
the registrant upon request, provided that:
    (a) Such request is made at the time such information is furnished 
to the staff;
    (b) The return of such information is consistent with the protection 
of investors; and
    (c) The return of such information is consistent with the provisions 
of the Freedom of Information Act (5 U.S.C. 552).

[47 FR 11465, Mar. 16, 1982]



Sec.240.12b-5  Determination of affiliates of banks.

    In determining whether a person is an ``affiliate'' or ``parent'' of 
a bank or whether a bank is a ``subsidiary'' or ``majority-owner 
subsidiary'' of a person within the meaning of those terms as defined in 
Sec.240.12b-2, voting securities of the bank held by a corporation all 
of the stock of which is directly owned by the United States Government 
shall not be taken into consideration.



Sec.240.12b-6  When securities are deemed to be registered.

    A class of securities with respect to which a registration statement 
has been filed pursuant to section 12 of the act shall be deemed to be 
registered for the purposes of sections 13, 14, 15(d) and 16 of the act 
and the rules and regulations thereunder only when such statement has 
become effective as provided in section 12, and securities of said class 
shall not be subject to sections 13, 14 and 16 of the act until such 
statement has become effective as provided in section 12.

(Secs. 3, 14, 16, 48 Stat. 882, 895, 896, Sec.3(d), 78 Stat. 568; 15 
U.S.C. 78c, 78n, 78p, 78l)

[30 FR 482, Jan. 14, 1965]



Sec.240.12b-7  [Reserved]

                           Formal Requirements



Sec.240.12b-10  Requirements as to proper form.

    Every statement or report shall be on the form prescribed therefor 
by the Commission, as in effect on the date of filing. Any statement or 
report shall be deemed to be filed on the proper form unless objection 
to the form is made by the Commission within thirty days after the date 
of filing.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[30 FR 2022, Feb. 13, 1965]



Sec.240.12b-11  Number of copies; signatures; binding.

    (a) Except as provided in a particular form, three complete copies 
of each statement or report, including exhibits and all other papers and 
documents filed as a part thereof, shall be filed with the Commission. 
At least one complete copy of each statement shall be filed with each 
exchange on which the securities covered thereby are to be registered. 
At least one complete copy of each report under section 13 of the Act 
shall be filed with each exchange on which the registrant has securities 
registered.
    (b) At least one copy of each statement or report filed with the 
Commission and one copy thereof filed with each exchange shall be signed 
in the manner prescribed by the appropriate form.
    (c) Each copy of a statement or report filed with the Commission or 
with an exchange shall be bound in one or more parts. Copies filed with 
the Commission shall be bound without stiff covers. The statement or 
report shall be bound on the left side in such a manner as to leave the 
reading matter legible.
    (d) Signatures. Where the Act or the rules, forms, reports or 
schedules thereunder, including paragraph (b) of

[[Page 134]]

this section, require a document filed with or furnished to the 
Commission to be signed, such document shall be manually signed, or 
signed using either typed signatures or duplicated or facsimile versions 
of manual signatures. Where typed, duplicated or facsimile signatures 
are used, each signatory to the filing shall manually sign a signature 
page or other document authenticating, acknowledging or otherwise 
adopting his or her signature that appears in the filing. Such document 
shall be executed before or at the time the filing is made and shall be 
retained by the filer for a period of five years. Upon request, the 
filer shall furnish to the Commission or its staff a copy of any or all 
documents retained pursuant to this section.

[47 FR 11465, Mar. 16, 1982, as amended at 60 FR 26622, May 17, 1995; 61 
FR 30403, June 14, 1996]



Sec.240.12b-12  Requirements as to paper, printing and language.

    (a) Statements and reports shall be filed on good quality, unglazed 
white paper, no larger than 8\1/2\ x 11 inches in size, insofar as 
practicable. To the extent that the reduction of larger documents would 
render them illegible, such documents may be filed on paper larger than 
8\1/2\ x 11 inches in size.
    (b) The statement or report and, insofar as practicable, all papers 
and documents filed as a part thereof, shall be printed, lithographed, 
mimeographed, or typewritten. However, the statement or report or any 
portion thereof may be prepared by any similar process which, in the 
opinion of the Commission, produces copies suitable for a permanent 
record and microfilming. Irrespective of the process used, all copies of 
any such material shall be clear, easily readable and suitable for 
repeated photocopying. Debits in credit categories and credits in debit 
categories shall be designated so as to be clearly distinguishable as 
such on photocopies.
    (c) The body of all printed statements and reports and all notes to 
financial statements and other tabular data included therein shall be in 
roman type at least as large and as legible as 10-point modern type. 
However, to the extent necessary for convenient presentation, financial 
statements and other tabular data, including tabular data in notes, may 
be in roman type at least as large and as legible as 8-point modern 
type. All such type shall be leaded at least 2 points.
    (d)(1) All Exchange Act filings and submissions must be in the 
English language, except as otherwise provided by this section. If a 
filing or submission requires the inclusion of a document that is in a 
foreign language, a party must submit instead a fair and accurate 
English translation of the entire foreign language document, except as 
provided by paragraph (d)(3) of this section.
    (2) If a filing or submission subject to review by the Division of 
Corporation Finance requires the inclusion of a foreign language 
document as an exhibit or attachment, a party must submit a fair and 
accurate English translation of the foreign language document if 
consisting of any of the following, or an amendment of any of the 
following:
    (i) Articles of incorporation, memoranda of association, bylaws, and 
other comparable documents, whether original or restated;
    (ii) Instruments defining the rights of security holders, including 
indentures qualified or to be qualified under the Trust Indenture Act of 
1939;
    (iii) Voting agreements, including voting trust agreements;
    (iv) Contracts to which directors, officers, promoters, voting 
trustees or security holders named in a registration statement, report 
or other document are parties;
    (v) Contracts upon which a filer's business is substantially 
dependent;
    (vi) Audited annual and interim consolidated financial information; 
and
    (vii) Any document that is or will be the subject of a confidential 
treatment request under Sec.240.24b-2 or Sec.230.406 of this 
chapter.
    (3)(i) A party may submit an English summary instead of an English 
translation of a foreign language document as an exhibit or attachment 
to a filing or submission subject to review by the Division of 
Corporation Finance, as long as:
    (A) The foreign language document does not consist of any of the 
subject

[[Page 135]]

matter enumerated in paragraph (d)(2) of this section; or
    (B) The applicable form permits the use of an English summary.
    (ii) Any English summary submitted under paragraph (d)(3) of this 
section must:
    (A) Fairly and accurately summarize the terms of each material 
provision of the foreign language document; and
    (B) Fairly and accurately describe the terms that have been omitted 
or abridged.
    (4) When submitting an English summary or English translation of a 
foreign language document under this section, a party must identify the 
submission as either an English summary or English translation. A party 
may submit a copy of the unabridged foreign language document when 
including an English summary or English translation of a foreign 
language document in a filing or submission. A party must provide a copy 
of any foreign language document upon the request of Commission staff.
    (5) A foreign government or its political subdivision must provide a 
fair and accurate English translation of its latest annual budget 
submitted as Exhibit B to Form 18 (Sec.249.218 of this chapter) or 
Exhibit (c) to Form 18-K (Sec.249.318 of this chapter) only if one is 
available. If no English translation is available, a filer must provide 
a copy of the foreign language version of its latest annual budget as an 
exhibit.
    (6) A Canadian issuer may file an exhibit, attachment or other part 
of a Form 40-F registration statement or annual report (Sec.249.240f 
of this chapter), Schedule 13E-4F (Sec.240.13e-102), Schedule 14D-1F 
(Sec.240.14d-102), or Schedule 14D-9F (Sec.240.14d-103), that 
contains text in both French and English if the issuer included the 
French text to comply with the requirements of the Canadian securities 
administrator or other Canadian authority and, for an electronic filing, 
if the filing is an HTML document, as defined in Regulation S-T Rule 11 
(17 CFR 232.11).
    (e) Where a statement or report is distributed to investors through 
an electronic medium, issuers may satisfy legibility requirements 
applicable to printed documents, such as paper size and type size and 
font, by presenting all required information in a format readily 
communicated to investors.

[47 FR 11466, Mar. 16, 1982, as amended at 47 FR 58238, Dec. 30, 1982; 
61 FR 24656, May 15, 1996; 67 FR 36704, May 24, 2002]



Sec.240.12b-13  Preparation of statement or report.

    The statement or report shall contain the numbers and captions of 
all items of the appropriate form, but the text of the items may be 
omitted provided the answers thereto are so prepared as to indicate to 
the reader the coverage of the items without the necessity of his 
referring to the text of the items or instructions thereto. However, 
where any item requires information to be given in tabular form, it 
shall be given in substantially the tabular form specified in the item. 
All instructions, whether appearing under the items of the form or 
elsewhere therein, are to be omitted. Unless expressly provided 
otherwise, if any item is inapplicable or the answer thereto is in the 
negative, an appropriate statement to that effect shall be made.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[30 FR 2023, Feb. 13, 1965]



Sec.240.12b-14  Riders; inserts.

    Riders shall not be used. If the statement or report is typed on a 
printed form, and the space provided for the answer to any given item is 
insufficient, reference shall be made in such space to a full insert 
page or pages on which the item number and caption and the complete 
answer are given.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[30 FR 2023, Feb. 13, 1965]



Sec.240.12b-15  Amendments.

    All amendments must be filed under cover of the form amended, marked 
with the letter ``A'' to designate the document as an amendment, e.g., 
``10-K/A,'' and in compliance with pertinent requirements applicable to 
statements and reports. Amendments filed pursuant to this section must 
set forth the complete text of each item as amended.

[[Page 136]]

Amendments must be numbered sequentially and be filed separately for 
each statement or report amended. Amendments to a statement may be filed 
either before or after registration becomes effective. Amendments must 
be signed on behalf of the registrant by a duly authorized 
representative of the registrant. An amendment to any report required to 
include the certifications as specified in Sec.240.13a-14(a) or Sec.
240.15d-14(a) must include new certifications by each principal 
executive and principal financial officer of the registrant, and an 
amendment to any report required to be accompanied by the certifications 
as specified in Sec.240.13a-14(b) or Sec.240.15d-14(b) must be 
accompanied by new certifications by each principal executive and 
principal financial officer of the registrant. An amendment to any 
report required to include the certifications as specified in Sec.
240.13a-14(d) or Sec.240.15d-14(d) must include a new certification by 
an individual specified in Sec.240.13a-14(e) or Sec.240.15d-14(e), 
as applicable. The requirements of the form being amended will govern 
the number of copies to be filed in connection with a paper format 
amendment. Electronic filers satisfy the provisions dictating the number 
of copies by filing one copy of the amendment in electronic format. See 
Sec.232.309 of this chapter (Rule 309 of Regulation S-T).

[68 FR 36665, June 18, 2003, as amended at 70 FR 1620, Jan. 7, 2005]

                   General Requirements as to Contents



Sec.240.12b-20  Additional information.

    In addition to the information expressly required to be included in 
a statement or report, there shall be added such further material 
information, if any, as may be necessary to make the required 
statements, in the light of the circumstances under which they are made 
not misleading.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[30 FR 2023, Feb. 13, 1965]



Sec.240.12b-21  Information unknown or not available.

    Information required need be given only insofar as it is known or 
reasonably available to the registrant. If any required information is 
unknown and not reasonably available to the registrant, either because 
the obtaining thereof would involve unreasonable effort or expense, or 
because it rests peculiarly within the knowledge of another person not 
affiliated with the registrant, the information may be omitted, subject 
to the following conditions.
    (a) The registrant shall give such information on the subject as it 
possesses or can acquire without unreasonable effort or expense, 
together with the sources thereof.
    (b) The registrant shall include a statement either showing that 
unreasonable effort or expense would be involved or indicating the 
absence of any affiliation with the person within whose knowledge the 
information rests and stating the result of a request made to such 
person for the information.



Sec.240.12b-22  Disclaimer of control.

    If the existence of control is open to reasonable doubt in any 
instance, the registrant may disclaim the existence of control and any 
admission thereof; in such case, however, the registrant shall state the 
material facts pertinent to the possible existence of control.



Sec.240.12b-23  Incorporation by reference.

    (a) Registration statement or report. Except as provided by this 
section or in the appropriate form, information may be incorporated by 
reference in answer, or partial answer, to any item of a registration 
statement or report.
    (b) Financial information. Except as provided in the Commission's 
rules, financial information required to be given in comparative form 
for two or more fiscal years or periods must not be incorporated by 
reference unless the information incorporated by reference includes the 
entire period for which the

[[Page 137]]

comparative data is given. In the financial statements, incorporating by 
reference, or cross-referencing to, information outside of the financial 
statements is not permitted unless otherwise specifically permitted or 
required by the Commission's rules or by U.S. Generally Accepted 
Accounting Principles or International Financial Reporting Standards as 
issued by the International Accounting Standards Board, whichever is 
applicable.
    (c) Exhibits. Any document or part thereof filed with the Commission 
pursuant to any Act administered by the Commission may be incorporated 
by reference as an exhibit to any statement or report filed with the 
Commission by the same or any other person. Any document or part thereof 
filed with an exchange pursuant to the Act may be incorporated by 
reference as an exhibit to any statement or report filed with the 
exchange by the same or any other person. If any modification has 
occurred in the text of any document incorporated by reference since the 
filing thereof, the registrant must file with the reference a statement 
containing the text of any such modification and the date thereof.
    (d) Hyperlinks. You must include an active hyperlink to information 
incorporated into a registration statement or report by reference if 
such information is publicly available on the Commission's Electronic 
Data Gathering, Analysis and Retrieval System (``EDGAR'') at the time 
the registration statement or form is filed. For hyperlinking to 
exhibits, please refer to Item 601 of Regulation S-K (Sec.229.601 of 
this chapter) or the appropriate form.
    (e) General. Include an express statement clearly describing the 
specific location of the information you are incorporating by reference. 
The statement must identify the document where the information was 
originally filed or submitted and the location of the information within 
that document. The statement must be made at the particular place where 
the information is required, if applicable. Information must not be 
incorporated by reference in any case where such incorporation would 
render the disclosure incomplete, unclear, or confusing. For example, 
unless expressly permitted or required, disclosure must not be 
incorporated by reference from a second document if that second document 
incorporates information pertinent to such disclosure by reference to a 
third document.

[84 FR 12727, Apr. 2, 2019]



Sec.240.12b-24  [Reserved]



Sec.240.12b-25  Notification of inability to timely file all or any
required portion of a Form 10-K, 20-F, 11-K, N-CEN , N-CSR, 10-Q, 
or 10-D.

    (a) If all or any required portion of an annual or transition report 
on Form 10-K, 20-F or 11-K (17 CFR 249.310, 249.220f or 249.311), a 
quarterly or transition report on Form 10-Q (17 CFR 249.308a), or a 
distribution report on Form 10-D (17 CFR 249.312) required to be filed 
pursuant to Section 13 or 15(d) of the Act (15 U.S.C. 78m or 78o(d)) and 
rules thereunder, or if all or any required portion of a semi-annual, 
annual or transition report on Form N-CSR (17 CFR 249.331; 17 CFR 
274.128) or Form N-CEN (17 CFR 249.330; 17 CFR 274.101) required to be 
filed pursuant to Section 13 or 15(d) of the Act or section 30 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-29) and the rules 
thereunder, is not filed within the time period prescribed for such 
report, the registrant, no later than one business day after the due 
date for such report, shall file a Form 12b-25 (17 CFR 249.322) with the 
Commission which shall contain disclosure of its inability to file the 
report timely and the reasons therefore in reasonable detail.
    (b) With respect to any report or portion of any report described in 
paragraph (a) of this section which is not timely filed because the 
registrant is unable to do so without unreasonable effort or expense, 
such report shall be deemed to be filed on the prescribed due date for 
such report if:
    (1) The registrant files the Form 12b-25 in compliance with 
paragraph (a) of this section and, when applicable, furnishes the 
exhibit required by paragraph (c) of this section;
    (2) The registrant represents in the Form 12b-25 that:
    (i) The reason(s) causing the inability to file timely could not be 
eliminated

[[Page 138]]

by the registrant without unreasonable effort or expense; and
    (ii) The subject annual report, semi-annual report or transition 
report on Form 10-K, 20-F, 11-K, N-CEN , or N-CSR, or portion thereof, 
will be filed no later than the fifteenth calendar day following the 
prescribed due date; or the subject quarterly report or transition 
report on Form 10-Q or distribution report on Form 10-D, or portion 
thereof, will be filed no later than the fifth calendar day following 
the prescribed due date; and
    (3) The report/portion thereof is actually filed within the period 
specified by paragraph (b)(2)(ii) of this section.
    (c) If paragraph (b) of this section is applicable and the reason 
the subject report/portion thereof cannot be filed timely without 
unreasonable effort or expense relates to the inability of any person, 
other than the registrant, to furnish any required opinion, report or 
certification, the Form 12b-25 shall have attached as an exhibit a 
statement signed by such person stating the specific reasons why such 
person is unable to furnish the required opinion, report or 
certification on or before the date such report must be filed.
    (d) Notwithstanding paragraph (b) of this section, a registrant will 
not be eligible to use any registration statement form under the 
Securities Act of 1933 the use of which is predicated on timely filed 
reports until the subject report is actually filed pursuant to paragraph 
(b)(3) of this section.
    (e) If a Form 12b-25 filed pursuant to paragraph (a) of this sectin 
relates only to a portion of a subject report, the registrant shall:
    (1) File the balance of such report and indicate on the cover page 
thereof which disclosure items are omitted; and
    (2) Include, on the upper right corner of the amendment to the 
report which includes the previously omitted information, the following 
statement:

    The following items were the subject of a Form 12b-25 and are 
included herein: (List Item Numbers)

    (f) The provisions of this section shall not apply to financial 
statements to be filed by amendment to a form 10-K as provided for by 
paragraph (a) of Sec.210.3-09 or schedules to be filed by amendment in 
accordance with General Instruction A to form 10-K.
    (g) Electronic filings. The provisions of this section shall not 
apply to reports required to be filed in electronic format if the sole 
reason the report is not filed within the time period prescribed is that 
the filer is unable to file the report in electronic format. Filers 
unable to submit a report in electronic format within the time period 
prescribed solely due to difficulties with electronic filing should 
comply with either Rule 201 or 202 of Regulation S-T (Sec.Sec.232.201 
and 232.202 of this chapter), or apply for an adjustment of filing date 
pursuant to Rule 13(b) of Regulation S-T (Sec.232.13(c) of this 
chapter).
    (h) Interactive data submissions. The provisions of this section 
shall not apply to the submission or posting of an Interactive Data File 
(Sec.232.11 of this chapter). Filers unable to submit or post an 
Interactive Data File within the time period prescribed should comply 
with either Rule 201 or 202 of Regulation S-T (Sec.Sec.232.201 and 
232.202 of this chapter).

[45 FR 23652, Apr. 8, 1980, as amended at 50 FR 1449, Jan. 11, 1985; 50 
FR 2957, Jan. 23, 1985; 54 FR 10316, Mar. 13, 1989; 58 FR 14683, Mar. 
18, 1993; 58 FR 21349, Apr. 21, 1993; 59 FR 67764, Dec. 30, 1994; 68 FR 
5364, Feb. 3, 2003; 70 FR 1620, Jan. 7, 2005; 73 FR 974, Jan. 4, 2008; 
74 FR 6818, Feb. 10, 2009; 81 82020, Nov. 18, 2016]

                                Exhibits



Sec.240.12b-30  Additional exhibits.

    The registrant may file such exhibits as it may desire, in addition 
to those required by the appropriate form. Such exhibits shall be so 
marked as to indicate clearly the subject matters to which they refer.



Sec.240.12b-31  Omission of substantially identical documents.

    In any case where two or more indentures, contracts, franchises, or 
other documents required to be filed as exhibits are substantially 
identical in all material respects except as to the parties thereto, the 
dates of execution, or other details, the registrant need file a copy of 
only one of such documents, with a schedule identifying the other 
documents omitted and setting forth

[[Page 139]]

the material details in which such documents differ from the document of 
which a copy is filed. The Commission may at any time in its discretion 
require the filing of copies of any documents so omitted.



Sec.240.12b-32  [Reserved]



Sec.240.12b-33  Annual reports to other Federal agencies.

    Notwithstanding any rule or other requirement to the contrary, 
whenever copies of an annual report by a registrant to any other Federal 
agency are required or permitted to be filed as an exhibit to an 
application or report filed by such registrant with the Commission or 
with a securities exchange, only one copy of such annual report need be 
filed with the Commission and one copy thereof with each such exchange, 
provided appropriate reference to such copy is made in each copy of the 
application or report filed with the Commission or with such exchange.

[18 FR 1441, Mar. 13, 1953]

                           Special Provisions



Sec.240.12b-35  [Reserved]



Sec.240.12b-36  Use of financial statements filed under other acts.

    Where copies of certified financial statements filed under other 
acts administered by the Commission are filed with a statement or 
report, the accountant's certificate shall be manually signed or 
manually signed copies of the certificate shall be filed with the 
financial statements. Where such financial statements are incorporated 
by reference in a statement or report, the written consent of the 
accountant to such incorporation by reference shall be filed with the 
statement or report. Such consent shall be dated and signed manually.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[30 FR 2023, Feb. 13, 1965]



Sec.240.12b-37  Satisfaction of filing requirements.

    With regard to issuers eligible to rely on Release No. 34-45589 
(March 18, 2002) or Release No. IC-25463 (March 18, 2002) (each of which 
may be viewed on the Commission's website at www.sec.gov), filings made 
in accordance with the provisions of those Releases shall satisfy the 
issuer's requirement to make such a filing under Section 13(a), 14 or 
15(d) of the Act (15 U.S.C. 77m(a), 78n or 78o(d)), as applicable, and 
the Commission's rules and regulations thereunder.

[67 FR 13537, Mar. 22, 2002]

      Certification by Exchanges and Effectiveness of Registration

    Source: Sections 240.12d1-1 through 240.12d-6 appear at 19 FR 670, 
Feb. 5, 1954, unless otherwise noted.



Sec.240.12d1-1  Registration effective as to class or series.

    (a) An application filed pursuant to section 12 (b) and (c) of the 
act for registration of a security on a national securities exchange 
shall be deemed to apply for registration of the entire class of such 
security. Registration shall become effective, as provided in section 
12(d) of the act, (1) as to the shares or amounts of such class then 
issued, and (2), without further application for registration, upon 
issuance as to additional shares or amounts of such class then or 
thereafter authorized.
    (b) This section shall apply to classes of securities of which a 
specified number of shares or amounts was registered or registered upon 
notice of issuance, and to applications for registration filed, prior to 
the close of business on January 28, 1954, as well as to classes 
registered, or applications filed, thereafter.
    (c) This section shall not affect the right of a national securities 
exchange to require the issuer of a registered security to file 
documents with or pay fees to the exchange in connection with the 
modification of such security or the issuance of additional shares or 
amounts.
    (d) If a class of security is issuable in two or more series with 
different terms, each such series shall be deemed a separate class for 
the purposes of this section.

(Sec.12, 48 Stat. 892, as amended; 15 U.S.C. 78l)

[[Page 140]]



Sec.240.12d1-2  Effectiveness of registration.

    (a) A request for acceleration of the effective date of registration 
pursuant to section 12(d) of the act and Sec.240.12d1-1 shall be made 
in writing by either the registrant, the exchange, or both and shall 
briefly describe the reasons therefor.
    (b) A registration statement on Form 8-A (17 CFR 249.208a) for the 
registration of a class of securities under Section 12(b) of the Act (15 
U.S.C. 78l(b)) shall become effective:
    (1) If a class of securities is not concurrently being registered 
under the Securities Act of 1933 (``Securities Act''), upon the later of 
receipt by the Commission of certification from the national securities 
exchange or the filing of the Form 8-A with the Commission; or
    (2) If a class of securities is concurrently being registered under 
the Securities Act, upon the later of the filing of the Form 8-A with 
the Commission, receipt by the Commission of certification from the 
national securities exchange listed on the Form 8-A or effectiveness of 
the Securities Act registration statement relating to the class of 
securities.
    (c) A registration statement on Form 8-A (17 CFR 249.208a) for the 
registration of a class of securities under Section 12(g) of the Act (15 
U.S.C. 78l(g)) shall become effective:
    (1) If a class of securities is not concurrently being registered 
under the Securities Act, upon the filing of the Form 8-A with the 
Commission; or
    (2) If class of securities is concurrently being registered under 
the Securities Act, upon the later of the filing of the Form 8-A with 
the Commission or the effectiveness of the Securities Act registration 
statement relating to the class of securities.

(Sec.12, 48 Stat. 892, as amended; 15 U.S.C. 78l)

[19 FR 670, Feb. 5, 1954, as amended at 59 FR 55347, Nov. 7, 1994; 62 FR 
39766, July 24, 1997]



Sec.240.12d1-3  Requirements as to certification.

    (a) Certification that a security has been approved by an exchange 
for listing and registration pursuant to section 12(d) of the act and 
Sec.240.12d1-1 shall be made by the governing committee or other 
corresponding authority of the exchange.
    (b) The certification shall specify (1) the approval of the exchange 
for listing and registration; (2) the title of the security so approved; 
(3) the date of filing with the exchange of the application for 
registration and of any amendments thereto; and (4) any conditions 
imposed on such certification. The exchange shall promptly notify the 
Commission of the partial or complete satisfaction of any such 
conditions.
    (c) The certification may be made by telegram but in such case shall 
be confirmed in writing. All certifications in writing and all 
amendments thereto shall be filed with the Commission in duplicate and 
at least one copy shall be manually signed by the appropriate exchange 
authority.

(Sec.12, 48 Stat. 892, as amended; 15 U.S.C. 78l)



Sec.240.12d1-4  Date of receipt of certification by Commission.

    The date of receipt by the Commission of the certification approving 
a security for listing and registration shall be the date on which the 
certification is actually received by the Commission or the date on 
which the application for registration to which the certification 
relates is actually received by the Commission, whichever date is later.

(Sec.12, 48 Stat. 892, as amended; 15 U.S.C. 78l)



Sec.240.12d1-5  Operation of certification on subsequent amendments.

    If an amendment to the application for registration of a security is 
filed with the exchange and with the Commission after the receipt by the 
Commission of the certification of the exchange approving the security 
for listing and registration, the certification, unless withdrawn, shall 
be deemed made with reference to the application as amended.

(Sec.12, 48 Stat. 892, as amended; 15 U.S.C. 78l)

[[Page 141]]



Sec.240.12d1-6  Withdrawal of certification.

    An exchange may, by notice to the Commission, withdraw its 
certification prior to the time that the registration to which it 
relates first becomes effective pursuant to Sec.240.12d1-1.

(Sec.12, 48 Stat. 892, as amended; 15 U.S.C. 78l)

    Suspension of Trading, Withdrawal, and Striking From Listing and 
                              Registration



Sec.240.12d2-1  Suspension of trading.

    (a) A national securities exchange may suspend from trading a 
security listed and registered thereon in accordance with its rules. 
Such exchange shall promptly notify the Commission of any such 
suspension, the effective date thereof, and the reasons therefor.
    (b) Any such suspension may be continued until such time as it shall 
appear to the Commission that such suspension is designed to evade the 
provisions of section 12(d) and the rules and regulations thereunder 
relating to the withdrawal and striking of a security from listing and 
registration. During the continuance of such suspension the exchange 
shall notify the Commission promptly of any change in the reasons for 
the suspension. Upon the restoration to trading of any security 
suspended under this rule, the exchange shall notify the Commission 
promptly of the effective date thereof.
    (c) Suspension of trading shall not terminate the registration of 
any security.

(Sec.12, 48 Stat. 892, as amended; 15 U.S.C. 78l)

[28 FR 1506, Feb. 16, 1963]



Sec.240.12d2-2  Removal from listing and registration.

    Preliminary Notes: 1. The filing of the Form 25 (Sec.249.25 of this 
chapter) by an issuer relates solely to the withdrawal of a class of 
securities from listing on a national securities exchange and/or from 
registration under section 12(b) of the Act (15 U.S.C. 78l(b)), and 
shall not affect its obligation to be registered under section 12(g) of 
the Act and/or reporting obligations under section 15(d) of the Act (15 
U.S.C. 78o(d)).
    2. Implementation. The rules of each national securities exchange 
must be designed to meet the requirements of this section and must be 
operative no later than April 24, 2006. Each national securities 
exchange must submit to the Commission a proposed rule change that 
complies with section 19(b) of the Act (15 U.S.C. 78s) and Rule 19b-4 
(17 CFR 240.19b-4) thereunder, and this section no later than October 
24, 2005.

    (a) A national securities exchange must file with the Commission an 
application on Form 25 (17 CFR 249.25) to strike a class of securities 
from listing on a national securities exchange and/or registration under 
section 12(b) of the Act within a reasonable time after the national 
securities exchange is reliably informed that any of the following 
conditions exist with respect to such a security:
    (1) The entire class of the security has been called for redemption, 
maturity or retirement; appropriate notice thereof has been given; funds 
sufficient for the payment of all such securities have been deposited 
with an agency authorized to make such payments; and such funds have 
been made available to security holders.
    (2) The entire class of the security has been redeemed or paid at 
maturity or retirement.
    (3) The instruments representing the securities comprising the 
entire class have come to evidence, by operation of law or otherwise, 
other securities in substitution therefor and represent no other right, 
except, if such be the fact, the right to receive an immediate cash 
payment (the right of dissenters to receive the appraised or fair value 
of their holdings shall not prevent the application of this provision).
    (4) All rights pertaining to the entire class of the security have 
been extinguished; provided, however, that where such an event occurs as 
a result of an order of a court or other governmental authority, the 
order shall be final, all applicable appeal periods shall have expired, 
and no appeals shall be pending.

    Effective Date: Such an application shall be deemed to be granted 
and shall become effective at the opening of business on such date as 
the exchange shall specify in said application, but not less than 10 
days following the date on which said application is filed with the 
Commission; Provided, however, That in the event removal is being 
effected under paragraph (a)(3) of this section and the exchange has 
admitted or intends to admit a

[[Page 142]]

successor security to trading under the temporary exemption provided for 
by Sec.240.12a-5, such date shall not be earlier than the date on 
which the successor security is removed from its exempt status.

    (b)(1) In cases not provided for in paragraph (a) of this section, a 
national securities exchange may file an application on Form 25 to 
strike a class of securities from listing and/or withdraw the 
registration of such securities, in accordance with its rules, if the 
rules of such exchange, at a minimum, provide for:
    (i) Notice to the issuer of the exchange's decision to delist its 
securities;
    (ii) An opportunity for appeal to the national securities exchange's 
board of directors, or to a committee designated by the board; and
    (iii) Public notice of the national securities exchange's final 
determination to remove the security from listing and/or registration, 
by issuing a press release and posting notice on its Web site. Public 
notice under this paragraph shall be disseminated no fewer than 10 days 
before the delisting becomes effective pursuant to paragraph (d)(1) of 
this section, and must remain posted on its Web site until the delisting 
is effective.
    (2) A national securities exchange must promptly deliver a copy of 
the application on Form 25 to the issuer.
    (c)(1) The issuer of a class of securities listed on a national 
securities exchange and/or registered under section 12(b) of the Act may 
file an application on Form 25 to notify the Commission of its 
withdrawal of such securities from listing on such national securities 
exchange and its intention to withdraw the securities from registration 
under section 12(b) of the Act.
    (2) An issuer filing Form 25 under this paragraph must satisfy the 
requirements in paragraph (c)(2) of this section and represent on the 
Form 25 that such requirements have been met:
    (i) The issuer must comply with all applicable laws in effect in the 
state in which it is incorporated and with the national securities 
exchange's rules governing an issuer's voluntary withdrawal of a class 
of securities from listing and/or registration.
    (ii) No fewer than 10 days before the issuer files an application on 
Form 25 with the Commission, the issuer must provide written notice to 
the national securities exchange of its determination to withdraw the 
class of securities from listing and/or registration on such exchange. 
Such written notice must set forth a description of the security 
involved, together with a statement of all material facts relating to 
the reasons for withdrawal from listing and/or registration.
    (iii) Contemporaneous with providing written notice to the exchange 
of its intent to withdraw a class of securities from listing and/or 
registration, the issuer must publish notice of such intention, along 
with its reasons for such withdrawal, via a press release and, if it has 
a publicly accessible Web site, posting such notice on that Web site. 
Any notice provided on an issuer's Web site under this paragraph shall 
remain available until the delisting on Form 25 has become effective 
pursuant to paragraph (d)(1) of this section. If the issuer has not 
arranged for listing and/or registration on another national securities 
exchange or for quotation of its security in a quotation medium (as 
defined in Sec.240.15c2-11), then the press release and posting on the 
Web site must contain this information.
    (3) A national securities exchange, that receives, pursuant to 
paragraph (c)(2)(ii) of this section, written notice from an issuer that 
such issuer has determined to withdraw a class of securities from 
listing and/or registration on such exchange, must provide notice on its 
Web site of the issuer's intent to delist and/or withdraw from 
registration its securities by the next business day. Such notice must 
remain posted on the exchange's Web site until the delisting on Form 25 
is effective pursuant to paragraph (d)(1) of this section.
    (d)(1) An application on Form 25 to strike a class of securities 
from listing on a national securities exchange will be effective 10 days 
after Form 25 is filed with the Commission.
    (2) An application on Form 25 to withdraw the registration of a 
class of securities under section 12(b) of the Act

[[Page 143]]

will be effective 90 days, or such shorter period as the Commission may 
determine, after filing with the Commission.
    (3) Notwithstanding paragraphs (d)(1) and (d)(2) of this section, 
the Commission may, by written notice to the exchange and issuer, 
postpone the effectiveness of an application to delist and/or to 
deregister to determine whether the application on Form 25 to strike the 
security from registration under section 12(b) of the Act has been made 
in accordance with the rules of the exchange, or what terms should be 
imposed by the Commission for the protection of investors.
    (4) Notwithstanding paragraph (d)(2) of this section, whenever the 
Commission commences a proceeding against an issuer under section 12 of 
the Act prior to the withdrawal of the registration of a class of 
securities, such security will remain registered under section 12(b) of 
the Act until the final decision of such proceeding or until the 
Commission otherwise determines to suspend the effective date of, or 
revoke, the registration of a class of securities.
    (5) An issuer's duty to file any reports under section 13(a) of the 
Act (15 U.S.C. 78m(a)) and the rules and regulations thereunder solely 
because of such security's registration under section 12(b) of the Act 
will be suspended upon the effective date for the delisting pursuant to 
paragraph (d)(1) of this section. If, following the effective date of 
delisting on Form 25, the Commission, an exchange, or an issuer delays 
the withdrawal of a security's registration under section 12(b) of the 
Act, an issuer shall, within 60 days of such delay, file any reports 
that would have been required under section 13(a) of the Act and the 
rules and regulations thereunder, had the Form 25 not been filed. The 
issuer also shall timely file any subsequent reports required under 
section 13(a) of the Act for the duration of the delay.
    (6) An issuer whose reporting responsibilities under section 13(a) 
of the Act are suspended for a class of securities under paragraph 
(d)(5) of this section is, nevertheless, required to file any reports 
that an issuer with such a class of securities registered under section 
12 of the Act would be required to file under section 13(a) of the Act 
if such class of securities:
    (i) Is registered under section 12(g) of the Act; or
    (ii) Would be registered, or would be required to be registered, 
under section 12(g) of the Act but for the exemption from registration 
under section 12(g) of the Act provided by section 12(g)(2)(A) of the 
Act.
    (7)(i) An issuer whose reporting responsibilities under section 
13(a) of the Act are suspended under paragraph (d)(5) of this section 
is, nevertheless, required to file any reports that would be required 
under section 15(d) of the Act but for the fact that the reporting 
obligations are:
    (A) Suspended for a class of securities under paragraph (d)(5) of 
this section; and
    (B) Suspended, terminated, or otherwise absent under section 12(g) 
of the Act.
    (ii) The reporting responsibilities of an issuer under section 15(d) 
of the Act shall continue until the issuer is required to file reports 
under section 13(a) of the Act or the issuer's reporting 
responsibilities under section 15(d) of the Act are otherwise suspended.
    (8) In the event removal is being effected under paragraph (a)(3) of 
this section and the national securities exchange has admitted or 
intends to admit a successor security to trading under the temporary 
exemption provided for by Sec.240.12a-5, the effective date of the 
Form 25, as set forth in paragraph (d)(1) of this section, shall not be 
earlier than the date the successor security is removed from its exempt 
status.
    (e) The following are exempt from section 12(d) of the Act and the 
provisions of this section:
    (1) Any standardized option, as defined in Sec.240.9b-1, that is:
    (i) Issued by a clearing agency registered under section 17A of the 
Act (15 U.S.C. 78q-1); and
    (ii) Traded on a national securities exchange registered pursuant to 
section 6(a) of the Act (15 U.S.C. 78f(a)); and
    (2) Any security futures product that is:

[[Page 144]]

    (i) Traded on a national securities exchange registered under 
section 6(a) of the Act or on a national securities association 
registered pursuant to section 15A(a) of the Act (15 U.S.C. 78o-3(a)); 
and
    (ii) Cleared by a clearing agency registered as a clearing agency 
pursuant to section 17A of the Act or is exempt from registration under 
section 17A(b)(7) of the Act.

[28 FR 1506, Feb. 16, 1963, as amended at 70 FR 42468, July 22, 2005]

                            Unlisted Trading



Sec.240.12f-1  Applications for permission to reinstate unlisted
trading privileges.

    (a) An application to reinstate unlisted trading privileges may be 
made to the Commission by any national securities exchange for the 
extension of unlisted trading privileges to any security for which such 
unlisted trading privileges have been suspended by the Commission, 
pursuant to section 12(f)(2)(A) of the Act (15 U.S.C. 78l(2)(A)). One 
copy of such application, executed by a duly authorized officer of the 
exchange, shall be filed and shall set forth:
    (1) Name of issuer;
    (2) Title of security;
    (3) The name of each national securities exchange, if any, on which 
such security is listed or admitted to unlisted trading privileges;
    (4) Whether transaction information concerning such security is 
reported pursuant to an effective transaction reporting plan 
contemplated by Sec.242.601 of this chapter;
    (5) The date of the Commission's suspension of unlisted trading 
privileges in the security on the exchange;
    (6) Any other information which is deemed pertinent to the question 
of whether the reinstatement of unlisted trading privileges in such 
security is consistent with the maintenance of fair and orderly markets 
and the protection of investors; and
    (7) That a copy of the instant application has been mailed, or 
otherwise personally provided, to the issuer of the securities for which 
unlisted trading privileges are sought and to each exchange listed in 
item (3) of this section.

[44 FR 75134, Dec. 19, 1979, as amended at 45 FR 12390, Feb. 26, 1980; 
45 FR 36076, May 29, 1980; 60 FR 20896, Apr. 28, 1995; 70 FR 37618, June 
29, 2005]



Sec.240.12f-2  Extending unlisted trading privileges to a security 
that is the subject of an initial public offering.

    (a) General provision. A national securities exchange may extend 
unlisted trading privileges to a subject security when at least one 
transaction in the subject security has been effected on the national 
securities exchange upon which the security is listed and the 
transaction has been reported pursuant to an effective transaction 
reporting plan, as defined in Sec.242.600 of this chapter.
    (b) The extension of unlisted trading privileges pursuant to this 
section shall be subject to all the provisions set forth in Section 
12(f) of the Act (15 U.S.C. 78l(f)), as amended, and any rule or 
regulation promulgated thereunder, or which may be promulgated 
thereunder while the extension is in effect.
    (c) Definitions. For the purposes of this section:
    (1) The term subject security shall mean a security that is the 
subject of an initial public offering, as that term is defined in 
section 12(f)(1)(G)(i) of the Act (15 U.S.C. 78l(f)(1)(G)(i)), and
    (2) An initial public offering commences at such time as is 
described in section 12(f)(1)(G)(ii) of the Act (15 U.S.C. 
78l(f)(1)(G)(ii)).

[60 FR 20896, Apr. 28, 1995, as amended at 65 FR 53565, Sept. 5, 2000; 
70 FR 37618, June 29, 2005]



Sec.240.12f-3  Termination or suspension of unlisted trading 
privileges.

    (a) The issuer of any security for which unlisted trading privileges 
on any exchange have been continued or extended, or any broker or dealer 
who makes or creates a market for such security, or any other person 
having a bona fide interest in the question of termination or suspension 
of such unlisted trading privileges, may make application to the 
Commission for the termination or suspension of such unlisted trading 
privileges. One duly executed copy of such application shall be

[[Page 145]]

filed, and it shall contain the following information:
    (1) Name and address of applicant;
    (2) A brief statement of the applicant's interest in the question of 
termination or suspension of such unlisted trading privileges;
    (3) Title of security;
    (4) Names of issuer;
    (5) Amount of such security issued and outstanding (number of shares 
of stock or principal amount of bonds), stating source of information;
    (6) Annual volume of public trading in such security (number of 
shares of stock or principal amount of bonds) on such exchange for each 
of the three calendar years immediately preceding the date of such 
application, and monthly volume of trading in such security for each of 
the twelve calendar months immediately preceding the date of such 
application;
    (7) Price range on such exchange for each of the twelve calendar 
months immediately preceding the date of such application; and
    (8) A brief statement of the information in the applicant's 
possession, and the source thereof, with respect to (i) the extent of 
public trading in such security on such exchange, and (ii) the character 
of trading in such security on such exchange; and
    (9) A brief statement that a copy of the instant application has 
been mailed, or otherwise personally provided, to the exchange from 
which the suspension or termination of unlisted trading privileges is 
sought, and to any other exchange on which such security is listed or 
traded pursuant to unlisted trading privileges.
    (b) Unlisted trading privileges in any security on any national 
securities exchange may be suspended or terminated by such exchange in 
accordance with its rules.

(Secs. 12(f) and 23, 15 U.S.C. 78l and 78w)

[20 FR 6702, Sept. 13, 1955, as amended at 44 FR 75135, Dec. 19, 1979; 
45 FR 36076, May 29, 1980; 60 FR 20896, Apr. 28, 1995]



Sec.240.12f-4  Exemption of securities admitted to unlisted trading 
privileges from sections 13, 14 and 16.

    (a) Any security for which unlisted trading privileges on any 
national securities exchange have been continued or extended pursuant to 
section 12(f) of the Act shall be exempt from section 13 of the Act 
unless (1) such security or another security of the same issuer is 
listed and registered on a national securities exchange or registered 
pursuant to section 12(g) of the Act, or (2) such issuer would be 
required to file information, documents and reports pursuant to section 
15(d) of the Act but for the fact that securities of the issuer are 
deemed to be ``registered on a national securities exchange'' within the 
meaning of section 12(f)(6) of the Act.
    (b) Any security for which unlisted trading privileges on any 
national securities exchange have been continued or extended pursuant to 
section 12(f) of the Act shall be exempt from section 14 of the Act 
unless such security is also listed and registered on a national 
securities exchange or registered pursuant to section 12(g) of the Act.
    (c)(1) Any equity security for which unlisted trading privileges on 
any national securities exchange have been continued or extended 
pursuant to section 12(f) of the Act shall be exempt from section 16 of 
the act unless such security or another equity security of the same 
issuer is listed and registered on a national securities exchange or 
registered pursuant to section 12(g) of the Act.
    (2) Any equity security for which unlisted trading privileges on any 
national securities exchange have been continued or extended pursuant to 
section 12(f) of the Act and which is not listed and registered on any 
other such exchange or registered pursuant to section 12(g) of the Act 
shall be exempt from section 16 of the Act insofar as that section would 
otherwise apply to any person who is directly or indirectly the 
beneficial owner of more than 10 percent of such security, unless 
another equity security of the issuer of such unlisted security is so 
listed or registered and such beneficial owner is a director or officer 
of such issuer or directly or indirectly the beneficial owner of more 
than 10 percent of any such listed security.
    (d) Any reference in this section to a security registered pursuant 
to section 12(g) of the Act shall include, and any reference to a 
security not so registered shall exclude, any security as

[[Page 146]]

to which a registration statement pursuant to such section is at the 
time required to be effective.

(Sec.3, 78 Stat. 565, 15 U.S.C. 78l)

[30 FR 482, Jan. 14, 1965]



Sec.240.12f-5  Exchange rules for securities to which unlisted trading
privileges are extended.

    A national securities exchange shall not extend unlisted trading 
privileges to any security unless the national securities exchange has 
in effect a rule or rules providing for transactions in the class or 
type of security to which the exchange extends unlisted trading 
privileges.

[60 FR 20896, Apr. 28, 1995]



Sec.240.12f-6  [Reserved]

            Extensions and Temporary Exemptions; Definitions



Sec.240.12g-1  Registration of securities; exemption from section 12(g).

    An issuer is not required to register a class of equity securities 
pursuant to section 12(g)(1) of the Act (15 U.S.C. 78l(g)(1)) if on the 
last day of its most recent fiscal year:
    (a) The issuer had total assets not exceeding $10 million; or
    (b)(1) The class of equity securities was held of record by fewer 
than 2,000 persons and fewer than 500 of those persons were not 
accredited investors (as such term is defined in Sec.230.501(a) of 
this chapter, determined as of such day rather than at the time of the 
sale of the securities); or
    (2) The class of equity securities was held of record by fewer than 
2,000 persons in the case of a bank; a savings and loan holding company, 
as such term is defined in section 10 of the Home Owners' Loan Act (12 
U.S.C. 1461); or a bank holding company, as such term is defined in 
section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841).

81 FR 28705, May 10, 2016, as amended at 81 FR 95458, Dec. 28, 2016]



Sec.240.12g-2  Securities deemed to be registered pursuant to section
12(g)(1) upon termination of exemption pursuant to section 12(g)(2)
(A) or (B).

    Any class of securities that would have been required to be 
registered pursuant to section 12(g)(1) of the Act (15 U.S.C. 78l(g)(1)) 
except for the fact that it was exempt from such registration by section 
12(g)(2)(A) of the Act (15 U.S.C. 78l(g)(2)(A)) because it was listed 
and registered on a national securities exchange, or by section 
12(g)(2)(B) of the Act (15 U.S.C. 78l(g)(2)(B)) because it was issued by 
an investment company registered pursuant to section 8 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-8), shall upon the termination of the 
listing and registration of such class or the termination of the 
registration of such company and without the filing of an additional 
registration statement be deemed to be registered pursuant to section 
12(g)(1) of the Act if at the time of such termination:
    (a) The issuer of such class of securities has elected to be 
regulated as a business development company pursuant to sections 55 
through 65 of the Investment Company Act of 1940 (15 U.S.C. 80a-54 
through 64) and such election has not been withdrawn; or
    (b) Securities of the class are not exempt from such registration 
pursuant to section 12 of the Act (15 U.S.C. 78l) or rules thereunder 
and all securities of such class are held of record by 300 or more 
persons, or 1,200 or more persons in the case of a bank; a savings and 
loan holding company, as such term is defined in section 10 of the Home 
Owners' Loan Act (12 U.S.C. 1461); or a bank holding company, as such 
term is defined in section 2 of the Bank Holding Company Act of 1956 (12 
U.S.C. 1841).

[81 FR 28705, May 10, 2016]



Sec.240.12g-3  Registration of securities of successor issuers under
section 12(b) or 12(g).

    (a) Where in connection with a succession by merger, consolidation, 
exchange of securities, acquisition of assets or otherwise, securities 
of an issuer that are not already registered pursuant to section 12 of 
the Act (15 U.S.C. 78l) are issued to the holders of

[[Page 147]]

any class of securities of another issuer that is registered pursuant to 
either section 12 (b) or (g) of the Act (15 U.S.C. 78l (b) or (g)), the 
class of securities so issued shall be deemed to be registered under the 
same paragraph of section 12 of the Act unless upon consummation of the 
succession:
    (1) Such class is exempt from such registration other than by Sec.
240.12g3-2;
    (2) All securities of such class are held of record by fewer than 
300 persons, or 1,200 persons in the case of a bank; a savings and loan 
holding company, as such term is defined in section 10 of the Home 
Owners' Loan Act (12 U.S.C. 1461); or a bank holding company, as such 
term is defined in section 2 of the Bank Holding Company Act of 1956 (12 
U.S.C. 1841); or
    (3) The securities issued in connection with the succession were 
registered on Form F-8 or Form F-80 (Sec.239.38 or Sec.239.41 of 
this chapter) and following succession the successor would not be 
required to register such class of securities under section 12 of the 
Act (15 U.S.C. 78l) but for this section.
    (b) Where in connection with a succession by merger, consolidation, 
exchange of securities, acquisition of assets or otherwise, securities 
of an issuer that are not already registered pursuant to section 12 of 
the Act (15 U.S.C. 78l) are issued to the holders of any class of 
securities of another issuer that is required to file a registration 
statement pursuant to either section 12(b) or (g) of the Act (15 U.S.C. 
78l(b) or (g)) but has not yet done so, the duty to file such statement 
shall be deemed to have been assumed by the issuer of the class of 
securities so issued. The successor issuer shall file a registration 
statement pursuant to the same paragraph of section 12 of the Act with 
respect to such class within the period of time the predecessor issuer 
would have been required to file such a statement unless upon 
consummation of the succession:
    (1) Such class is exempt from such registration other than by Sec.
240.12g3-2;
    (2) All securities of such class are held of record by fewer than 
300 persons, or 1,200 persons in the case of a bank; a savings and loan 
holding company, as such term is defined in section 10 of the Home 
Owners' Loan Act (12 U.S.C. 1461); or a bank holding company, as such 
term is defined in section 2 of the Bank Holding Company Act of 1956 (12 
U.S.C. 1841); or
    (3) The securities issued in connection with the succession were 
registered on Form F-8 or Form F-80 (Sec.239.38 or Sec.239.41 of 
this chapter) and following the succession the successor would not be 
required to register such class of securities under section 12 of the 
Act (15 U.S.C. 78l) but for this section.
    (c) Where in connection with a succession by merger, consolidation, 
exchange of securities, acquisition of assets or otherwise, securities 
of an issuer that are not already registered pursuant to section 12 of 
the Act (15 U.S.C. 78l) are issued to the holders of classes of 
securities of two or more other issuers that are each registered 
pursuant to section 12 of the Act, the class of securities so issued 
shall be deemed to be registered under section 12 of the Act unless upon 
consummation of the succession:
    (1) Such class is exempt from such registration other than by Sec.
240.12g3-2;
    (2) All securities of such class are held of record by fewer than 
300 persons, or 1,200 persons in the case of a bank; a savings and loan 
holding company, as such term is defined in section 10 of the Home 
Owners' Loan Act (12 U.S.C. 1461); or a bank holding company, as such 
term is defined in section 2 of the Bank Holding Company Act of 1956 (12 
U.S.C. 1841); or
    (3) The securities issued in connection with the succession were 
registered on Form F-8 or Form F-80 (Sec.239.38 or Sec.239.41 of 
this chapter) and following succession the successor would not be 
required to register such class of securities under section 12 of the 
Act (15 U.S.C. 78l) but for this section.
    (d) If the classes of securities issued by two or more predecessor 
issuers (as described in paragraph (c) of this section) are registered 
under the same paragraph of section 12 of the Act (15 U.S.C. 78l), the 
class of securities issued by the successor issuer shall be deemed 
registered under the same paragraph of section 12 of the Act. If the 
classes of securities issued by the

[[Page 148]]

predecessor issuers are not registered under the same paragraph of 
section 12 of the Act, the class of securities issued by the successor 
issuer shall be deemed registered under section 12(g) of the Act (15 
U.S.C. 78l(g)).
    (e) An issuer that is deemed to have a class of securities 
registered pursuant to section 12 of the Act (15 U.S.C. 78l) according 
to paragraph (a), (b), (c) or (d) of this section shall file reports on 
the same forms and such class of securities shall be subject to the 
provisions of sections 14 and 16 of the Act (15 U.S.C. 78n and 78p) to 
the same extent as the predecessor issuers, except as follows:
    (1) An issuer that is not a foreign issuer shall not be eligible to 
file on Form 20-F (Sec.249.220f of this chapter) or to use the 
exemption in Sec.240.3a12-3.
    (2) A foreign private issuer shall be eligible to file on Form 20-F 
(Sec.249.220f of this chapter) and to use the exemption in Sec.
240.3a12-3.
    (f) An issuer that is deemed to have a class of securities 
registered pursuant to section 12 of the Act (15 U.S.C. 78l) according 
to paragraphs (a), (b), (c) or (d) of this section shall indicate in the 
Form 8-K (Sec.249.308 of this chapter) report filed with the 
Commission in connection with the succession, pursuant to the 
requirements of Form 8-K, the paragraph of section 12 of the Act under 
which the class of securities issued by the successor issuer is deemed 
registered by operation of paragraphs (a), (b), (c) or (d) of this 
section. If a successor issuer that is deemed registered under section 
12(g) of the Act (15 U.S.C. 78l(g)) by paragraph (d) of this section 
intends to list a class of securities on a national securities exchange, 
it must file a registration statement pursuant to section 12(b) of the 
Act (15 U.S.C. 78l(b)) with respect to that class of securities.
    (g) An issuer that is deemed to have a class of securities 
registered pursuant to section 12 of the Act (15 U.S.C. 78l) according 
to paragraph (a), (b), (c) or (d) of this section shall file an annual 
report for each fiscal year beginning on or after the date as of which 
the succession occurred. Annual reports shall be filed within the period 
specified in the appropriate form. Each such issuer shall file an annual 
report for each of its predecessors that had securities registered 
pursuant to section 12 of the Act (15 U.S.C. 78l) covering the last full 
fiscal year of the predecessor before the registrant's succession, 
unless such report has been filed by the predecessor. Such annual report 
shall contain information that would be required if filed by the 
predecessor.

[62 FR 39767, July 24, 1997, as amended at 81 FR 28706, May 10, 2016; 83 
FR 50221, Oct. 4, 2018]



Sec.240.12g-4  Certifications of termination of registration under
section 12(g).

    (a) Termination of registration of a class of securities under 
section 12(g) of the Act (15 U.S.C. 78l(g)) shall take effect 90 days, 
or such shorter period as the Commission may determine, after the issuer 
certifies to the Commission on Form 15 (Sec.249.323 of this chapter) 
that the class of securities is held of record by:
    (1) Fewer than 300 persons, or in the case of a bank; a savings and 
loan holding company, as such term is defined in section 10 of the Home 
Owners' Loan Act (12 U.S.C. 1461); or a bank holding company, as such 
term is defined in section 2 of the Bank Holding Company Act of 1956 (12 
U.S.C. 1841), 1,200 persons; or
    (2) Fewer than 500 persons, where the total assets of the issuer 
have not exceeded $10 million on the last day of each of the issuer's 
most recent three fiscal years.
    (b) The issuer's duty to file any reports required under section 
13(a) shall be suspended immediately upon filing a certification on Form 
15; Provided, however, That if the certification on Form 15 is 
subsequently withdrawn or denied, the issuer shall, within 60 days after 
the date of such withdrawal or denial, file with the Commission all 
reports which would have been required had the certification on Form 15 
not been filed. If the suspension resulted from the issuer's merger 
into, or consolidation with, another issuer or issuers, the 
certification shall be filed by the successor issuer.

[49 FR 12689, Mar. 30, 1984, as amended at 51 FR 25362, July 14, 1986; 
61 FR 21356, May 9, 1996; 72 FR 16956, Apr. 5, 2007; 81 FR 28706, May 
10, 2016]

[[Page 149]]



Sec.240.12g-6  Exemption for securities issued pursuant to section 
4(a)(6) of the Securities Act of 1933.

    (a) For purposes of determining whether an issuer is required to 
register a security with the Commission pursuant to Section 12(g)(1) of 
the Act (15 U.S.C. 78l(g)(1)), the definition of held of record shall 
not include securities issued pursuant to the offering exemption under 
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) by an issuer 
that:
    (1) Is current in filing its ongoing annual reports required 
pursuant to Sec.227.202 of this chapter;
    (2) Has total assets not in excess of $25 million as of the end of 
its most recently completed fiscal year; and
    (3) Has engaged a transfer agent registered pursuant to Section 
17A(c) of the Act to perform the function of a transfer agent with 
respect to such securities.
    (b) An issuer that would be required to register a class of 
securities under Section 12(g) of the Act as a result of exceeding the 
asset threshold in paragraph (a)(2) of this section may continue to 
exclude the relevant securities from the definition of ``held of 
record'' for a transition period ending on the penultimate day of the 
fiscal year two years after the date it became ineligible. The 
transition period terminates immediately upon the failure of an issuer 
to timely file any periodic report due pursuant to Sec.227.202 at 
which time the issuer must file a registration statement that registers 
that class of securities under the Act within 120 days.

[80 FR 71750, Nov. 16, 2015]



Sec.240.12g3-2  Exemptions for American depositary receipts and 
certain foreign securities.

    (a) Securities of any class issued by any foreign private issuer 
shall be exempt from section 12(g) (15 U.S.C. 78l(g)) of the Act if the 
class has fewer than 300 holders resident in the United States. This 
exemption shall continue until the next fiscal year end at which the 
issuer has a class of equity securities held by 300 or more persons 
resident in the United States. For the purpose of determining whether a 
security is exempt pursuant to this paragraph:
    (1) Securities held of record by persons resident in the United 
States shall be determined as provided in Sec.240.12g5-1 except that 
securities held of record by a broker, dealer, bank or nominee for any 
of them for the accounts of customers resident in the United States 
shall be counted as held in the United States by the number of separate 
accounts for which the securities are held. The issuer may rely in good 
faith on information as to the number of such separate accounts supplied 
by all owners of the class of its securities which are brokers, dealers, 
or banks or a nominee for any of them.
    (2) Persons in the United States who hold the security only through 
a Canadian Retirement Account (as that term is defined in rule 237(a)(2) 
under the Securities Act of 1933 (Sec.230.237(a)(2) of this chapter)), 
shall not be counted as holders resident in the United States.
    (b)(1) A foreign private issuer shall be exempt from the requirement 
to register a class of equity securities under section 12(g) of the Act 
(15 U.S.C. 78l(g)) if:
    (i) The issuer is not required to file or furnish reports under 
section 13(a) of the Act (15 U.S.C. 78m(a)) or section 15(d) of the Act 
(15 U.S.C. 78o(d));
    (ii) The issuer currently maintains a listing of the subject class 
of securities on one or more exchanges in a foreign jurisdiction that, 
either singly or together with the trading of the same class of the 
issuer's securities in another foreign jurisdiction, constitutes the 
primary trading market for those securities; and
    (iii) The issuer has published in English, on its Internet Web site 
or through an electronic information delivery system generally available 
to the public in its primary trading market, information that, since the 
first day of its most recently completed fiscal year, it:
    (A) Has made public or been required to make public pursuant to the 
laws of the country of its incorporation, organization or domicile;
    (B) Has filed or been required to file with the principal stock 
exchange in its primary trading market on which its securities are 
traded and which has been made public by that exchange; and

[[Page 150]]

    (C) Has distributed or been required to distribute to its security 
holders.

    Note 1 to paragraph (b)(1): For the purpose of paragraph (b) of this 
section, primary trading market means that at least 55 percent of the 
trading in the subject class of securities on a worldwide basis took 
place in, on or through the facilities of a securities market or markets 
in a single foreign jurisdiction or in no more than two foreign 
jurisdictions during the issuer's most recently completed fiscal year. 
If a foreign private issuer aggregates the trading of its subject class 
of securities in two foreign jurisdictions for the purpose of this 
paragraph, the trading for the issuer's securities in at least one of 
the two foreign jurisdictions must be larger than the trading in the 
United States for the same class of the issuer's securities. When 
determining an issuer's primary trading market under this paragraph, 
calculate average daily trading volume in the United States and on a 
worldwide basis as under Rule 12h-6 under the Act (Sec.240.12h-6).
    Note 2 to paragraph (b)(1): Paragraph (b)(1)(iii) of this section 
does not apply to an issuer when claiming the exemption under paragraph 
(b) of this section upon the effectiveness of the termination of its 
registration of a class of securities under section 12(g) of the Act, or 
the termination of its obligation to file or furnish reports under 
section 15(d) of the Act.
    Note 3 to paragraph (b)(1): Compensatory stock options for which the 
underlying securities are in a class exempt under paragraph (b) of this 
section are also exempt under that paragraph.

    (2)(i) In order to maintain the exemption under paragraph (b) of 
this section, a foreign private issuer shall publish, on an ongoing 
basis and for each subsequent fiscal year, in English, on its Internet 
Web site or through an electronic information delivery system generally 
available to the public in its primary trading market, the information 
specified in paragraph (b)(1)(iii) of this section.
    (ii) An issuer must electronically publish the information required 
by paragraph (b)(2) of this section promptly after the information has 
been made public.
    (3)(i) The information required to be published electronically under 
paragraph (b) of this section is information that is material to an 
investment decision regarding the subject securities, such as 
information concerning:
    (A) Results of operations or financial condition;
    (B) Changes in business;
    (C) Acquisitions or dispositions of assets;
    (D) The issuance, redemption or acquisition of securities;
    (E) Changes in management or control;
    (F) The granting of options or the payment of other remuneration to 
directors or officers; and
    (G) Transactions with directors, officers or principal security 
holders.
    (ii) At a minimum, a foreign private issuer shall electronically 
publish English translations of the following documents required to be 
published under paragraph (b) of this section if in a foreign language:
    (A) Its annual report, including or accompanied by annual financial 
statements;
    (B) Interim reports that include financial statements;
    (C) Press releases; and
    (D) All other communications and documents distributed directly to 
security holders of each class of securities to which the exemption 
relates.
    (c) The exemption under paragraph (b) of this section shall remain 
in effect until:
    (1) The issuer no longer satisfies the electronic publication 
condition of paragraph (b)(2) of this section;
    (2) The issuer no longer maintains a listing of the subject class of 
securities on one or more exchanges in a primary trading market, as 
defined under paragraph (b)(1) of this section; or
    (3) The issuer registers a class of securities under section 12 of 
the Act or incurs reporting obligations under section 15(d) of the Act.
    (d) Depositary shares registered on Form F-6 (Sec.239.36 of this 
chapter), but not the underlying deposited securities, are exempt from 
section 12(g) of the Act under this paragraph.

[48 FR 46739, Oct. 14, 1983, as amended at 49 FR 12689, Mar. 30, 1984; 
56 FR 30068, July 1, 1991; 65 FR 37676, June 15, 2000; 72 FR 16955, Apr. 
5, 2007; 73 FR 52768, Sept. 10, 2008]



Sec.240.12g5-1  Definition of securities ``held of record''.

    (a) For the purpose of determining whether an issuer is subject to 
the provisions of sections 12(g) and 15(d) of the Act, securities shall 
be deemed to be

[[Page 151]]

``held of record'' by each person who is identified as the owner of such 
securities on records of security holders maintained by or on behalf of 
the issuer, subject to the following:
    (1) In any case where the records of security holders have not been 
maintained in accordance with accepted practice, any additional person 
who would be identified as such an owner on such records if they had 
been maintained in accordance with accepted practice shall be included 
as a holder of record.
    (2) Securities identified as held of record by a corporation, a 
partnership, a trust whether or not the trustees are named, or other 
organization shall be included as so held by one person.
    (3) Securities identified as held of record by one or more persons 
as trustees, executors, guardians, custodians or in other fiduciary 
capacities with respect to a single trust, estate or account shall be 
included as held of record by one person.
    (4) Securities held by two or more persons as coowners shall be 
included as held by one person.
    (5) Each outstanding unregistered or bearer certificate shall be 
included as held of record by a separate person, except to the extent 
that the issuer can establish that, if such securities were registered, 
they would be held of record, under the provisions of this rule, by a 
lesser number of persons.
    (6) Securities registered in substantially similar names where the 
issuer has reason to believe because of the address or other indications 
that such names represent the same person, may be included as held of 
record by one person.
    (7) Other than when determining compliance with Rule 257(d)(2) of 
Regulation A (Sec.230.257(d)(2) of this chapter), the definition of 
``held of record'' shall not include securities issued in a Tier 2 
offering pursuant to Regulation A by an issuer that:
    (i) Is required to file reports pursuant to Rule 257(b) of 
Regulation A (Sec.230.257(b) of this chapter);
    (ii) Is current in filing annual, semiannual and special financial 
reports pursuant to such rule as of its most recently completed fiscal 
year end;
    (iii) Has engaged a transfer agent registered pursuant to Section 
17A(c) of the Act to perform the function of a transfer agent with 
respect to such securities; and
    (iv) Had a public float of less than $75 million as of the last 
business day of its most recently completed semiannual period, computed 
by multiplying the aggregate worldwide number of shares of its common 
equity securities held by non-affiliates by the price at which such 
securities were last sold (or the average bid and asked prices of such 
securities) in the principal market for such securities or, in the event 
the result of such public float calculation was zero, had annual 
revenues of less than $50 million as of its most recently completed 
fiscal year. An issuer that would be required to register a class of 
securities under Section 12(g) of the Act as a result of exceeding the 
applicable threshold in this paragraph (a)(7)(iv), may continue to 
exclude the relevant securities from the definition of ``held of 
record'' for a transition period ending on the penultimate day of the 
fiscal year two years after the date it became ineligible. The 
transition period terminates immediately upon the failure of an issuer 
to timely file any periodic report due pursuant to Rule 257 (Sec.
230.257 of this chapter) at which time the issuer must file a 
registration statement that registers that class of securities under the 
Act within 120 days.
    (8)(i) For purposes of determining whether an issuer is required to 
register a class of equity securities with the Commission pursuant to 
section 12(g)(1) of the Act (15 U.S.C. 78l(g)(1)), an issuer may exclude 
securities:
    (A) Held by persons who received the securities pursuant to an 
employee compensation plan in transactions exempt from, or not subject 
to, the registration requirements of section 5 of the Securities Act of 
1933 (15 U.S.C. 77e); and
    (B) Held by persons who received the securities in a transaction 
exempt from, or not subject to, the registration requirements of section 
5 of the Securities Act (15 U.S.C. 77e) from the issuer, a predecessor 
of the issuer or an acquired company in substitution or exchange for 
excludable securities

[[Page 152]]

under paragraph (a)(8)(i)(A) of this section, as long as the persons 
were eligible to receive securities pursuant to Sec.230.701(c) of this 
chapter at the time the excludable securities were originally issued to 
them.
    (ii) As a non-exclusive safe harbor under this paragraph (a)(8):
    (A) An issuer may deem a person to have received the securities 
pursuant to an employee compensation plan if such plan and the person 
who received the securities pursuant to the plan met the plan and 
participant conditions of Sec.230.701(c) of this chapter; and
    (B) An issuer may, solely for the purposes of Section 12(g) of the 
Act (15 U.S.C. 78l(g)(1)), deem the securities to have been issued in a 
transaction exempt from, or not subject to, the registration 
requirements of Section 5 of the Securities Act (15 U.S.C. 77e) if the 
issuer had a reasonable belief at the time of the issuance that the 
securities were issued in such a transaction.
    (b) Notwithstanding paragraph (a) of this section:
    (1) Securities held, to the knowledge of the issuer, subject to a 
voting trust, deposit agreement or similar arrangement shall be included 
as held of record by the record holders of the voting trust 
certificates, certificates of deposit, receipts or similar evidences of 
interest in such securities: Provided, however, That the issuer may rely 
in good faith on such information as is received in response to its 
request from a non-affiliated issuer of the certificates or evidences of 
interest.
    (2) Whole or fractional securities issued by a savings and loan 
association, building and loan association, cooperative bank, homestead 
association, or similar institution for the sole purpose of qualifying a 
borrower for membership in the issuer, and which are to be redeemed or 
repurchased by the issuer when the borrower's loan is terminated, shall 
not be included as held of record by any person.
    (3) If the issuer knows or has reason to know that the form of 
holding securities of record is used primarily to circumvent the 
provisions of section 12(g) or 15(d) of the Act, the beneficial owners 
of such securities shall be deemed to be the record owners thereof.

(Sec.3, 48 Stat. 882, as amended, Sec.3, 78 Stat. 566; 15 U.S.C. 78c, 
78l)

[30 FR 484, Jan. 14, 1965, as amended at 80 FR 21922, Apr. 20, 2015; 81 
FR 28706, May 10, 2016]



Sec.240.12g5-2  Definition of ``total assets''.

    For the purpose of section 12(g)(1) of the Act, the term total 
assets shall mean the total assets as shown on the issuer's balance 
sheet or the balance sheet of the issuer and its subsidiaries 
consolidated, whichever is larger, as required to be filed on the form 
prescribed for registration under this section and prepared in 
accordance with the pertinent provisions of Regulation S-X (17 CFR part 
210). Where the security is a certificate of deposit, voting trust 
certificate, or certificate or other evidence of interest in a similar 
trust or agreement, the ``total assets'' of the issuer of the security 
held under the trust or agreement shall be deemed to be the ``total 
assets'' of the issuer of such certificate or evidence of interest.

(Sec.3, 48 Stat. 882, as amended, Sec.3, 78 Stat. 566; 15 U.S.C. 78c, 
78l)

[30 FR 484, Jan. 14, 1965]



Sec.240.12h-1  Exemptions from registration under section 12(g) 
of the Act.

    Issuers shall be exempt from the provisions of section 12(g) of the 
Act with respect to the following securities:
    (a) Any interest or participation in an employee stock bonus, stock 
purchase, profit sharing, pension, retirement, incentive, thrift, 
savings or similar plan which is not transferable by the holder except 
in the event of death or mental incompetency, or any security issued 
solely to fund such plans;
    (b) Any interest or participation in any common trust fund or 
similar fund maintained by a bank exclusively for the collective 
investment and reinvestment of monies contributed thereto by the bank in 
its capacity as a trustee, executor, administrator, or guardian. For 
purposes of this paragraph (b), the term ``common trust fund'' shall 
include a common trust fund which is maintained by a bank which is a 
member of an affiliated group, as defined in section 1504(a) of the 
Internal Revenue

[[Page 153]]

Code of 1954 (26 U.S.C. 1504(a)), and which is maintained exclusively 
for the investment and reinvestment of monies contributed thereto by one 
or more bank members of such affilated group in the capacity of trustee, 
executor, administrator, or guardian; Provided, That:
    (1) The common trust fund is operated in compliance with the same 
state and Federal regulatory requirements as would apply if the bank 
maintaining such fund as any other contributing banks were the same 
entity; and
    (2) The rights of persons for whose benefit a contributiong bank 
acts as trustee, executor, administrator or guardian would not be 
diminished by reason of the maintenance of such common trust fund by 
another bank member of the affiliated group;
    (c) Any class of equity security which would not be outstanding 60 
days after a registration statement would be required to be filed with 
respect thereto;
    (d) Any standardized option, as that term is defined in section 
240.9b-1(a)(4), that is issued by a clearing agency registered under 
section 17A of the Act (15 U.S.C. 78q-1) and traded on a national 
securities exchange registered pursuant to section 6(a) of the Act (15 
U.S.C. 78f(a)) or on a national securities association registered 
pursuant to section 15A(a) of the Act (15 U.S.C. 780-3(a));
    (e) Any security futures product that is traded on a national 
securities exchange registered pursuant to section 6 of the Act (15 
U.S.C. 78f) or on a national securities association registered pursuant 
to section 15A(a) of the Act (15 U.S.C. 780-3(a)) and cleared by a 
clearing agency that is registered pursuant to section 17A of the Act 
(15 U.S.C. 78q-1) or is exempt from registration under section 17A(b)(7) 
of the Act (15 U.S.C. 78q-1(b)(7)).
    (f)(1) Stock options issued under written compensatory stock option 
plans under the following conditions:
    (i) The issuer of the equity security underlying the stock options 
does not have a class of security registered under section 12 of the Act 
and is not required to file reports pursuant to section 15(d) of the 
Act;
    (ii) The stock options have been issued pursuant to one or more 
written compensatory stock option plans established by the issuer, its 
parents, its majority-owned subsidiaries or majority-owned subsidiaries 
of the issuer's parents;

    Note to paragraph (f)(1)(ii): All stock options issued under all 
written compensatory stock option plans on the same class of equity 
security of the issuer will be considered part of the same class of 
equity security for purposes of the provisions of paragraph (f) of this 
section.

    (iii) The stock options are held only by those persons described in 
Rule 701(c) under the Securities Act (17 CFR 230.701(c)) or their 
permitted transferees as provided in paragraph (f)(1)(iv) of this 
section;
    (iv) The stock options and, prior to exercise, the shares to be 
issued on exercise of the stock options are restricted as to transfer by 
the optionholder other than to persons who are family members (as 
defined in Rule 701(c)(3) under the Securities Act (17 CFR 
230.701(c)(3)) through gifts or domestic relations orders, or to an 
executor or guardian of the optionholder upon the death or disability of 
the optionholder until the issuer becomes subject to the reporting 
requirements of section 13 or 15(d) of the Act or is no longer relying 
on the exemption pursuant to this section; provided that the 
optionholder may transfer the stock options to the issuer, or in 
connection with a change of control or other acquisition transaction 
involving the issuer, if after such transaction the stock options no 
longer will be outstanding and the issuer no longer will be relying on 
the exemption pursuant to this section;

    Note to paragraph (f)(1)(iv): For purposes of this section, 
optionholders may include any permitted transferee under paragraph 
(f)(1)(iv) of this section; provided that such permitted transferees may 
not further transfer the stock options.

    (v) The stock options and the shares issuable upon exercise of such 
stock options are restricted as to any pledge, hypothecation, or other 
transfer, including any short position, any ``put equivalent position'' 
(as defined in Sec.240.16a-1(h) of this chapter), or any ``call 
equivalent position'' (as defined in Sec.240.16a-1(b) of this chapter) 
by the

[[Page 154]]

optionholder prior to exercise of an option, except in the circumstances 
permitted in paragraph (f)(1)(iv) of this section, until the issuer 
becomes subject to the reporting requirements of section 13 or 15(d) of 
the Act or is no longer relying on the exemption pursuant paragraph 
(f)(1) of this section; and

    Note to paragraphs (f)(1)(iv) and (f)(1)(v): The transferability 
restrictions in paragraphs (f)(1)(iv) and (f)(1)(v) of this section must 
be contained in a written compensatory stock option plan, individual 
written compensatory stock option agreement, other stock purchase or 
stockholder agreement to which the issuer and the optionholder are a 
signatory or party, other enforceable agreement by or against the issuer 
and the optionholder, or in the issuer's by-laws or certificate or 
articles of incorporation.

    (vi) The issuer has agreed in the written compensatory stock option 
plan, the individual written compensatory stock option agreement, or 
another agreement enforceable against the issuer to provide the 
following information to optionholders once the issuer is relying on the 
exemption pursuant to paragraph (f)(1) of this section until the issuer 
becomes subject to the reporting requirements of section 13 or 15(d) of 
the Act or is no longer relying on the exemption pursuant paragraph 
(f)(1) of this section:
    The information described in Rules 701(e)(3), (4), and (5) under the 
Securities Act (17 CFR 230.701(e)(3), (4), and (5)), every six months 
with the financial statements being not more than 180 days old and with 
such information provided either by physical or electronic delivery to 
the optionholders or by written notice to the optionholders of the 
availability of the information on an Internet site that may be 
password-protected and of any password needed to access the information.

    Note to paragraph (f)(1)(vi): The issuer may request that the 
optionholder agree to keep the information to be provided pursuant to 
this section confidential. If an optionholder does not agree to keep the 
information to be provided pursuant to this section confidential, then 
the issuer is not required to provide the information.

    (2) If the exemption provided by paragraph (f)(1) of this section 
ceases to be available, the issuer of the stock options that is relying 
on the exemption provided by this section must file a registration 
statement to register the class of stock options under section 12 of the 
Act within 120 calendar days after the exemption provided by paragraph 
(f)(1) of this section ceases to be available; and
    (g)(1) Stock options issued under written compensatory stock option 
plans under the following conditions:
    (i) The issuer of the equity security underlying the stock options 
has registered a class of security under section 12 of the Act or is 
required to file periodic reports pursuant to section 15(d) of the Act;
    (ii) The stock options have been issued pursuant to one or more 
written compensatory stock option plans established by the issuer, its 
parents, its majority-owned subsidiaries or majority-owned subsidiaries 
of the issuer's parents;

    Note to paragraph (g)(1)(ii): All stock options issued under all of 
the written compensatory stock option plans on the same class of equity 
security of the issuer will be considered part of the same class of 
equity security of the issuer for purposes of the provisions of 
paragraph (g) of this section.

    (iii) The stock options are held only by those persons described in 
Rule 701(c) under the Securities Act (17 CFR 230.701(c)) or those 
persons specified in General Instruction A.1(a) of Form S-8 (17 CFR 
239.16b); provided that an issuer can still rely on this exemption if 
there is an insignificant deviation from satisfaction of the condition 
in this paragraph (g)(1)(iii) and after December 7, 2007 the issuer has 
made a good faith and reasonable attempt to comply with the conditions 
of this paragraph (g)(1)(iii). For purposes of this paragraph 
(g)(1)(iii), an insignificant deviation exists if the number of 
optionholders that do not meet the condition in this paragraph 
(g)(1)(iii) are insignificant both as to the aggregate number of 
optionholders and number of outstanding stock options.
    (2) If the exemption provided by paragraph (g)(1) of this section 
ceases to be available, the issuer of the stock options that is relying 
on the exemption provided by this section must file a registration 
statement to register the

[[Page 155]]

class of stock options or a class of security under section 12 of the 
Act within 60 calendar days after the exemption provided in paragraph 
(g)(1) of this section ceases to be available.
    (h) Any security-based swap that is issued by a clearing agency 
registered as a clearing agency under Section 17A of the Act (15 U.S.C. 
78q-1) or exempt from registration under Section 17A of the Act pursuant 
to a rule, regulation, or order of the Commission in its function as a 
central counterparty that the Commission has determined must be cleared 
or that is permitted to be cleared pursuant to the clearing agency's 
rules, and that was sold to an eligible contract participant (as defined 
in Section 1a(18) of the Commodity Exchange Act (7 U.S.C. 1a(18))) in 
reliance on Rule 239 under the Securities Act of 1933 (17 CFR 230.239).
    (i) Any security-based swap offered and sold in reliance on Sec.
230.240 of this chapter. This section will expire on February 11, 2018.

[30 FR 6114, Apr. 30, 1965, as amended at 43 FR 2392, Jan. 17, 1978. 
Redesignated at 47 FR 17052, Apr. 21, 1982; 68 FR 192, Jan. 2, 2003; 72 
FR 69566, Dec. 7, 2007; 76 FR 40612, July 11, 2011; 77 FR 20549, Apr. 5, 
2012; 78 FR 7659, Feb. 4, 2013; 79 FR 7576, Feb. 10, 2014; 82 FR 10707, 
Feb. 15, 2017]



Sec.240.12h-2  [Reserved]



Sec.240.12h-3  Suspension of duty to file reports under section 15(d).

    (a) Subject to paragraphs (c) and (d) of this section, the duty 
under section 15(d) to file reports required by section 13(a) of the Act 
with respect to a class of securities specified in paragraph (b) of this 
section shall be suspended for such class of securities immediately upon 
filing with the Commission a certification on Form 15 (17 CFR 249.323) 
if the issuer of such class has filed all reports required by section 
13(a), without regard to Rule 12b-25 (17 CFR 249.322), for the shorter 
of its most recent three fiscal years and the portion of the current 
year preceding the date of filing Form 15, or the period since the 
issuer became subject to such reporting obligation. If the certification 
on Form 15 is subsequently withdrawn or denied, the issuer shall, within 
60 days, file with the Commission all reports which would have been 
required if such certification had not been filed.
    (b) The classes of securities eligible for the suspension provided 
in paragraph (a) of this section are:
    (1) Any class of securities, other than any class of asset-backed 
securities, held of record by:
    (i) Fewer than 300 persons, or in the case of a bank; a savings and 
loan holding company, as such term is defined in section 10 of the Home 
Owners' Loan Act (12 U.S.C. 1461); or a bank holding company, as such 
term is defined in section 2 of the Bank Holding Company Act of 1956 (12 
U.S.C. 1841), 1,200 persons; or
    (ii) Fewer than 500 persons, where the total assets of the issuer 
have not exceeded $10 million on the last day of each of the issuer's 
three most recent fiscal years; and
    (2) Any class or securities deregistered pursuant to section 12(d) 
of the Act if such class would not thereupon be deemed registered under 
section 12(g) of the Act or the rules thereunder.

    Note to paragraph (b): The suspension of classes of asset-backed 
securities is addressed in Sec.240.15d-22.

    (c) This section shall not be available for any class of securities 
for a fiscal year in which a registration statement relating to that 
class becomes effective under the Securities Act of 1933, or is required 
to be updated pursuant to section 10(a)(3) of the Act, and, in the case 
of paragraph (b)(1)(ii), the two succeeding fiscal years; Provided, 
however, That this paragraph shall not apply to the duty to file reports 
which arises solely from a registration statement filed by an issuer 
with no significant assets, for the reorganization of a non-reporting 
issuer into a one subsidiary holding company in which equity security 
holders receive the same proportional interest in the holding company as 
they held in the non-reporting issuer, except for changes resulting from 
the exercise of dissenting shareholder rights under state law.
    (d) The suspension provided by this rule relates only to the 
reporting obligation under section 15(d) with respect to a class of 
securities, does not affect any other duties imposed on that class of 
securities, and shall continue as long

[[Page 156]]

as either criteria (i) or (ii) of paragraph (b)(1) is met on the first 
day of any subsequent fiscal year; Provided, however, That such criteria 
need not be met if the duty to file reports arises solely from a 
registration statement filed by an issuer with no significant assets in 
a reorganization of a non-reporting company into a one subsidiary 
holding company in which equity security holders receive the same 
proportional interest in the holding company as they held in the non-
reporting issuer except for changes resulting from the exercise of 
dissenting shareholder rights under state law.
    (e) If the suspension provided by this section is discontinued 
because a class of securities does not meet the eligibility criteria of 
paragraph (b) of this section on the first day of an issuer's fiscal 
year, then the issuer shall resume periodic reporting pursuant to 
section 15(d) of the Act by filing an annual report on Form 10-K for its 
preceding fiscal year, not later than 120 days after the end of such 
fiscal year.

[49 FR 12689, Mar. 30, 1984, as amended at 51 FR 25362, July 14, 1986; 
61 FR 21356, May 9, 1996; 72 FR 16956, Apr. 5, 2007; 73 FR 975, Jan. 4, 
2008; 76 FR 52555, Aug. 23, 2011; 81 FR 28706, May 10, 2016]



Sec.240.12h-4  Exemption from duty to file reports under section 15(d).

    An issuer shall be exempt from the duty under section 15(d) of the 
Act to file reports required by section 13(a) of the Act with respect to 
securities registered under the Securities Act of 1933 on Form F-7, Form 
F-8 or Form F-80, provided that the issuer is exempt from the 
obligations of Section 12(g) of the Act pursuant to Rule 12g3-2(b).

[56 FR 30068, July 1, 1991]



Sec.240.12h-5  Exemption for subsidiary issuers of guaranteed 
securities and subsidiary guarantors.

    (a) Any issuer of a guaranteed security, or guarantor of a security, 
that is permitted to omit financial statements by Sec.210.3-10 of 
Regulation S-X of this chapter is exempt from the requirements of 
Section 13(a) or 15(d) of the Act (15 U.S.C. 78m(a) or 78o(d)).
    (b) Any issuer of a guaranteed security, or guarantor of a security, 
that would be permitted to omit financial statements by Sec.210.3-10 
of Regulation S-X of this chapter, but is required to file financial 
statements in accordance with the operation of Sec.210.3-10(g) of 
Regulation S-X of this chapter, is exempt from the requirements of 
Section 13(a) or 15(d) of the Act (15 U.S.C. 78m(a) or 78o(d)).

[65 FR 51711, Aug. 24, 2000]



Sec.240.12h-6  Certification by a foreign private issuer regarding
the termination of registration of a class of securities under 
section 12(g) or the duty to file reports under section 13(a) 
or section 15(d)
          .

    (a) A foreign private issuer may terminate the registration of a 
class of securities under section 12(g) of the Act (15 U.S.C. 78l(g)), 
or terminate the obligation under section 15(d) of the Act (15 U.S.C. 
78o(d)) to file or furnish reports required by section 13(a) of the Act 
(15 U.S.C. 78m(a)) with respect to a class of equity securities, or 
both, after certifying to the Commission on Form 15F (17 CFR 249.324) 
that:
    (1) The foreign private issuer has had reporting obligations under 
section 13(a) or section 15(d) of the Act for at least the 12 months 
preceding the filing of the Form 15F, has filed or furnished all reports 
required for this period, and has filed at least one annual report 
pursuant to section 13(a) of the Act;
    (2) The foreign private issuer's securities have not been sold in 
the United States in a registered offering under the Securities Act of 
1933 (15 U.S.C. 77a et seq.) during the 12 months preceding the filing 
of the Form 15F, other than securities issued:
    (i) To the issuer's employees;
    (ii) By selling security holders in non-underwritten offerings;
    (iii) Upon the exercise of outstanding rights granted by the issuer 
if the rights are granted pro rata to all existing security holders of 
the class of the issuer's securities to which the rights attach;
    (iv) Pursuant to a dividend or interest reinvestment plan; or
    (v) Upon the conversion of outstanding convertible securities or 
upon the exercise of outstanding transferable warrants issued by the 
issuer;

    Note to paragraph (a)(2): The exceptions in paragraphs (a)(2)(iii) 
through (v) do not

[[Page 157]]

apply to securities issued pursuant to a standby underwritten offering 
or other similar arrangement in the United States.

    (3) The foreign private issuer has maintained a listing of the 
subject class of securities for at least the 12 months preceding the 
filing of the Form 15F on one or more exchanges in a foreign 
jurisdiction that, either singly or together with the trading of the 
same class of the issuer' s securities in another foreign jurisdiction, 
constitutes the primary trading market for those securities; and
    (4)(i) The average daily trading volume of the subject class of 
securities in the United States for a recent 12-month period has been no 
greater than 5 percent of the average daily trading volume of that class 
of securities on a worldwide basis for the same period; or
    (ii) On a date within 120 days before the filing date of the Form 
15F, a foreign private issuer's subject class of equity securities is 
either held of record by:
    (A) Less than 300 persons on a worldwide basis; or
    (B) Less than 300 persons resident in the United States.

    Note to paragraph (a)(4): If an issuer's equity securities trade in 
the form of American Depositary Receipts in the United States, for 
purposes of paragraph (a)(4)(i), it must calculate the trading volume of 
its American Depositary Receipts in terms of the number of securities 
represented by those American Depositary Receipts.

    (b) A foreign private issuer must wait at least 12 months before it 
may file a Form 15F to terminate its section 13(a) or 15(d) reporting 
obligations in reliance on paragraph (a)(4)(i) of this section if:
    (1) The issuer has delisted a class of equity securities from a 
national securities exchange or inter-dealer quotation system in the 
United States, and at the time of delisting, the average daily trading 
volume of that class of securities in the United States exceeded 5 
percent of the average daily trading volume of that class of securities 
on a worldwide basis for the preceding 12 months; or
    (2) The issuer has terminated a sponsored American Depositary 
Receipts facility, and at the time of termination the average daily 
trading volume in the United States of the American Depositary Receipts 
exceeded 5 percent of the average daily trading volume of the underlying 
class of securities on a worldwide basis for the preceding 12 months.
    (c) A foreign private issuer may terminate its duty to file or 
furnish reports pursuant to section 13(a) or section 15(d) of the Act 
with respect to a class of debt securities after certifying to the 
Commission on Form 15F that:
    (1) The foreign private issuer has filed or furnished all reports 
required by section 13(a) or section 15(d) of the Act, including at 
least one annual report pursuant to section 13(a) of the Act; and
    (2) On a date within 120 days before the filing date of the Form 
15F, the class of debt securities is either held of record by:
    (i) Less than 300 persons on a worldwide basis; or
    (ii) Less than 300 persons resident in the United States.
    (d)(1) Following a merger, consolidation, exchange of securities, 
acquisition of assets or otherwise, a foreign private issuer that has 
succeeded to the registration of a class of securities under section 
12(g) of the Act of another issuer pursuant to Sec.240.12g-3, or to 
the reporting obligations of another issuer under section 15(d) of the 
Act pursuant to Sec.240.15d-5, may file a Form 15F to terminate that 
registration or those reporting obligations if:
    (i) Regarding a class of equity securities, the successor issuer 
meets the conditions under paragraph (a) of this section; or
    (ii) Regarding a class of debt securities, the successor issuer 
meets the conditions under paragraph (c) of this section.
    (2) When determining whether it meets the prior reporting 
requirement under paragraph (a)(1) or paragraph (c)(1) of this section, 
a successor issuer may take into account the reporting history of the 
issuer whose reporting obligations it has assumed pursuant to Sec.
240.12g-3 or Sec.240.15d-5.
    (e) Counting method. When determining under this section the number 
of United States residents holding a foreign private issuer's equity or 
debt securities:

[[Page 158]]

    (1)(i) Use the method for calculating record ownership Sec.
240.12g3-2(a), except that you may limit your inquiry regarding the 
amount of securities represented by accounts of customers resident in 
the United States to brokers, dealers, banks and other nominees located 
in:
    (A) The United States;
    (B) The foreign private issuer's jurisdiction of incorporation, 
legal organization or establishment; and
    (C) The foreign private issuer's primary trading market, if 
different from the issuer's jurisdiction of incorporation, legal 
organization or establishment.
    (ii) If you aggregate the trading volume of the issuer's securities 
in two foreign jurisdictions for the purpose of complying with paragraph 
(a)(3) of this section, you must include both of those foreign 
jurisdictions when conducting your inquiry under paragraph (e)(1)(i) of 
this section.
    (2) If, after reasonable inquiry, you are unable without 
unreasonable effort to obtain information about the amount of securities 
represented by accounts of customers resident in the United States, for 
purposes of this section, you may assume that the customers are the 
residents of the jurisdiction in which the nominee has its principal 
place of business.
    (3) You must count securities as owned by United States holders when 
publicly filed reports of beneficial ownership or other reliable 
information that is provided to you indicates that the securities are 
held by United States residents.
    (4) When calculating under this section the number of your United 
States resident security holders, you may rely in good faith on the 
assistance of an independent information services provider that in the 
regular course of its business assists issuers in determining the number 
of, and collecting other information concerning, their security holders.
    (f) Definitions. For the purpose of this section:
    (1) Debt security means any security other than an equity security 
as defined under Sec.240.3a11-1, including:
    (i) Non-participatory preferred stock, which is defined as non-
convertible capital stock, the holders of which are entitled to a 
preference in payment of dividends and in distribution of assets on 
liquidation, dissolution, or winding up of the issuer, but are not 
entitled to participate in residual earnings or assets of the issuer; 
and
    (ii) Notwithstanding Sec.240.3a11-1, any debt security described 
in paragraph (f)(3)(i) and (ii) of this section;
    (2) Employee has the same meaning as the definition of employee 
provided in Form S-8 (Sec.239.16b of this chapter).
    (3) Equity security means the same as under Sec.240.3a11-1, but, 
for purposes of paragraphs (a)(3) and (a)(4)(i) of this section, does 
not include:
    (i) Any debt security that is convertible into an equity security, 
with or without consideration;
    (ii) Any debt security that includes a warrant or right to subscribe 
to or purchase an equity security;
    (iii) Any such warrant or right; or
    (iv) Any put, call, straddle, or other option or privilege that 
gives the holder the option of buying or selling a security but does not 
require the holder to do so.
    (4) Foreign private issuer has the same meaning as under Sec.
240.3b-4.
    (5) Primary trading market means that:
    (i) At least 55 percent of the trading in a foreign private issuer's 
class of securities that is the subject of Form 15F took place in, on or 
through the facilities of a securities market or markets in a single 
foreign jurisdiction or in no more than two foreign jurisdictions during 
a recent 12-month period; and
    (ii) If a foreign private issuer aggregates the trading of its 
subject class of securities in two foreign jurisdictions for the purpose 
of paragraph (a)(3) of this section, the trading for the issuer's 
securities in at least one of the two foreign jurisdictions must be 
larger than the trading in the United States for the same class of the 
issuer's securities.
    (6) Recent 12-month period means a 12-calendar-month period that 
ended no more than 60 days before the filing date of the Form 15F.
    (g)(1) Suspension of a foreign private issuer's duty to file reports 
under section 13(a) or section 15(d) of the Act shall occur immediately 
upon filing the Form 15F with the Commission if

[[Page 159]]

filing pursuant to paragraph (a), (c) or (d) of this section. If there 
are no objections from the Commission, 90 days, or such shorter period 
as the Commission may determine, after the issuer has filed its Form 
15F, the effectiveness of any of the following shall occur:
    (i) The termination of registration of a class of securities under 
section 12(g); and
    (ii) The termination of a foreign private issuer's duty to file 
reports under section 13(a) or section 15(d) of the Act.
    (2) If the Form 15F is subsequently withdrawn or denied, the issuer 
shall, within 60 days after the date of the withdrawal or denial, file 
with or submit to the Commission all reports that would have been 
required had the issuer not filed the Form 15F.
    (h) As a condition to termination of registration or reporting under 
paragraph (a), (c) or (d) of this section, a foreign private issuer 
must, either before or on the date that it files its Form 15F, publish a 
notice in the United States that discloses its intent to terminate its 
registration of a class of securities under section 12(g) of the Act, or 
its reporting obligations under section 13(a) or section 15(d) of the 
Act, or both. The issuer must publish the notice through a means 
reasonably designed to provide broad dissemination of the information to 
the public in the United States. The issuer must also submit a copy of 
the notice to the Commission, either under cover of a Form 6-K (17 CFR 
249.306) before or at the time of filing of the Form 15F, or as an 
exhibit to the Form 15F.
    (i)(1) A foreign private issuer that, before the effective date of 
this section, terminated the registration of a class of securities under 
section 12(g) of the Act or suspended its reporting obligations 
regarding a class of equity or debt securities under section 15(d) of 
the Act may file a Form 15F in order to:
    (i) Terminate under this section the registration of a class of 
equity securities that was the subject of a Form 15 (Sec.249.323 of 
this chapter) filed by the issuer pursuant to Sec.240.12g-4; or
    (ii) Terminate its reporting obligations under section 15(d) of the 
Act, which had been suspended by the terms of that section or by the 
issuer's filing of a Form 15 pursuant to Sec.240.12h-3, regarding a 
class of equity or debt securities.
    (2) In order to be eligible to file a Form 15F under this paragraph:
    (i) If a foreign private issuer terminated the registration of a 
class of securities pursuant to Sec.240.12g-4 or suspended its 
reporting obligations pursuant to Sec.240.12h-3 or section 15(d) of 
the Act regarding a class of equity securities, the issuer must meet the 
requirements under paragraph (a)(3) and paragraph (a)(4)(i) or 
(a)(4)(ii) of this section; or
    (ii) If a foreign private issuer suspended its reporting obligations 
pursuant to Sec.240.12h-3 or section 15(d) of the Act regarding a 
class of debt securities, the issuer must meet the requirements under 
paragraph (c)(2) of this section.
    (3)(i) If the Commission does not object, 90 days after the filing 
of a Form 15F under this paragraph, or such shorter period as the 
Commission may determine, the effectiveness of any of the following 
shall occur:
    (A) The termination under this section of the registration of a 
class of equity securities, which was the subject of a Form 15 filed 
pursuant to Sec.240.12g-4, and the duty to file reports required by 
section 13(a) of the Act regarding that class of securities; or
    (B) The termination of a foreign private issuer's reporting 
obligations under section 15(d) of the Act, which had previously been 
suspended by the terms of that section or by the issuer's filing of a 
Form 15 pursuant to Sec.240.12h-3, regarding a class of equity or debt 
securities.
    (ii) If the Form 15F is subsequently withdrawn or denied, the 
foreign private issuer shall, within 60 days after the date of the 
withdrawal or denial, file with or submit to the Commission all reports 
that would have been required had the issuer not filed the Form 15F.

    Note to Sec.240.12h-6: The suspension of classes of asset-backed 
securities is addressed in Sec.240.15d-22.

[72 FR 16956, Apr. 5, 2007, as amended at 76 FR 52555, Aug. 23, 2011]

[[Page 160]]



Sec.240.12h-7  Exemption for issuers of securities that are subject
to insurance regulation.

    An issuer shall be exempt from the duty under section 15(d) of the 
Act (15 U.S.C. 78o(d)) to file reports required by section 13(a) of the 
Act (15 U.S.C. 78m(a)) with respect to securities registered under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.), provided that:
    (a) The issuer is a corporation subject to the supervision of the 
insurance commissioner, bank commissioner, or any agency or officer 
performing like functions, of any State;
    (b) The securities do not constitute an equity interest in the 
issuer and are either subject to regulation under the insurance laws of 
the domiciliary State of the issuer or are guarantees of securities that 
are subject to regulation under the insurance laws of that jurisdiction;
    (c) The issuer files an annual statement of its financial condition 
with, and is supervised and its financial condition examined 
periodically by, the insurance commissioner, bank commissioner, or any 
agency or officer performing like functions, of the issuer's domiciliary 
State;
    (d) The securities are not listed, traded, or quoted on an exchange, 
alternative trading system (as defined in Sec.242.300(a) of this 
chapter), inter-dealer quotation system (as defined in Sec.240.15c2-
11(e)(2)), electronic communications network, or any other similar 
system, network, or publication for trading or quoting;
    (e) The issuer takes steps reasonably designed to ensure that a 
trading market for the securities does not develop, including, except to 
the extent prohibited by the law of any State or by action of the 
insurance commissioner, bank commissioner, or any agency or officer 
performing like functions of any State, requiring written notice to, and 
acceptance by, the issuer prior to any assignment or other transfer of 
the securities and reserving the right to refuse assignments or other 
transfers at any time on a non-discriminatory basis; and
    (f) The prospectus for the securities contains a statement 
indicating that the issuer is relying on the exemption provided by this 
rule.

[74 FR 3175, Jan. 16, 2009]

Regulation 13A: Reports of Issuers of Securities Registered Pursuant to 
                               Section 12



Annual Reports--Table of Contents





Sec.240.13a-1  Requirements of annual reports.

    Every issuer having securities registered pursuant to section 12 of 
the Act (15 U.S.C. 78l) shall file an annual report on the appropriate 
form authorized or prescribed therefor for each fiscal year after the 
last full fiscal year for which financial statements were filed in its 
registration statement. Annual reports shall be filed within the period 
specified in the appropriate form.

[62 FR 39767, July 24, 1997]



Sec.240.13a-2  [Reserved]



Sec.240.13a-3  Reporting by Form 40-F registrant.

    A registrant that is eligible to use Forms 40-F and 6-K and files 
reports in accordance therewith shall be deemed to satisfy the 
requirements of Regulation 13A (Sec.Sec.240.13a-1 through 240.13a-17 
of this chapter).

[56 FR 30068, July 1, 1991]

                              Other Reports



Sec.240.13a-10  Transition reports.

    (a) Every issuer that changes its fiscal closing date shall file a 
report covering the resulting transition period between the closing date 
of its most recent fiscal year and the opening date of its new fiscal 
year; Provided, however, that an issuer shall file an annual report for 
any fiscal year that ended before the date on which the issuer 
determined to change its fiscal year end. In no event shall the 
transition report cover a period of 12 or more months.
    (b) The report pursuant to this section shall be filed for the 
transition period not more than the number of days

[[Page 161]]

specified in paragraph (j) of this section after either the close of the 
transition period or the date of the determination to change the fiscal 
closing date, whichever is later. The report shall be filed on the form 
appropriate for annual reports of the issuer, shall cover the period 
from the close of the last fiscal year end and shall indicate clearly 
the period covered. The financial statements for the transition period 
filed therewith shall be audited. Financial statements, which may be 
unaudited, shall be filed for the comparable period of the prior year, 
or a footnote, which may be unaudited, shall state for the comparable 
period of the prior year, revenues, gross profits, income taxes, income 
or loss from continuing operations and net income or loss. The effects 
of any discontinued operations as classified under the provisions of 
generally accepted accounting principles also shall be shown, if 
applicable. Per share data based upon such income or loss and net income 
or loss shall be presented in conformity with applicable accounting 
standards. Where called for by the time span to be covered, the 
comparable period financial statements or footnote shall be included in 
subsequent filings.
    (c) If the transition period covers a period of less than six 
months, in lieu of the report required by paragraph (b) of this section, 
a report may be filed for the transition period on Form 10-Q (Sec.
249.308a of this chapter) not more than the number of days specified in 
paragraph (j) of this section after either the close of the transition 
period or the date of the determination to change the fiscal closing 
date, whichever is later. The report on Form 10-Q shall cover the period 
from the close of the last fiscal year end and shall indicate clearly 
the period covered. The financial statements filed therewith need not be 
audited but, if they are not audited, the issuer shall file with the 
first annual report for the newly adopted fiscal year separate audited 
statements of income and cash flows covering the transition period. The 
notes to financial statements for the transition period included in such 
first annual report may be integrated with the notes to financial 
statements for the full fiscal period. A separate audited balance sheet 
as of the end of the transition period shall be filed in the annual 
report only if the audited balance sheet as of the end of the fiscal 
year prior to the transition period is not filed. Schedules need not be 
filed in transition reports on Form 10-Q.
    (d) Notwithstanding the foregoing in paragraphs (a), (b), and (c) of 
this section, if the transition period covers a period of one month or 
less, the issuer need not file a separate transition report if either:
    (1) The first report required to be filed by the issuer for the 
newly adopted fiscal year after the date of the determination to change 
the fiscal year end is an annual report, and that report covers the 
transition period as well as the fiscal year; or
    (2)(i) The issuer files with the first annual report for the newly 
adopted fiscal year separate audited statements of income and cash flows 
covering the transition period; and
    (ii) The first report required to be filed by the issuer for the 
newly adopted fiscal year after the date of the determination to change 
the fiscal year end is a quarterly report on Form 10-Q; and
    (iii) Information on the transition period is included in the 
issuer's quarterly report on Form 10-Q for the first quarterly period 
(except the fourth quarter) of the newly adopted fiscal year that ends 
after the date of the determination to change the fiscal year. The 
information covering the transition period required by Part II and Item 
2 of Part I may be combined with the information regarding the quarter. 
However, the financial statements required by Part I, which may be 
unaudited, shall be furnished separately for the transition period.
    (e) Every issuer required to file quarterly reports on Form 10-Q 
pursuant to Sec.240.13a-13 of this chapter that changes its fiscal 
year end shall:
    (1) File a quarterly report on Form 10-Q within the time period 
specified in General Instruction A.1. to that form for any quarterly 
period (except the fourth quarter) of the old fiscal year that ends 
before the date on which the issuer determined to change its fiscal year 
end, except that the issuer need not file such quarterly report if the

[[Page 162]]

date on which the quarterly period ends also is the date on which the 
transition period ends;
    (2) File a quarterly report on Form 10-Q within the time specified 
in General Instruction A.1. to that form for each quarterly period of 
the old fiscal year within the transition period. In lieu of a quarterly 
report for any quarter of the old fiscal year within the transition 
period, the issuer may file a quarterly report on Form 10-Q for any 
period of three months within the transition period that coincides with 
a quarter of the newly adopted fiscal year if the quarterly report is 
filed within the number of days specified in paragraph (j) of this 
section after the end of such three month period, provided the issuer 
thereafter continues filing quarterly reports on the basis of the 
quarters of the newly adopted fiscal year;
    (3) Commence filing quarterly reports for the quarters of the new 
fiscal year no later than the quarterly report for the first quarter of 
the new fiscal year that ends after the date on which the issuer 
determined to change the fiscal year end; and
    (4) Unless such information is or will be included in the transition 
report, or the first annual report on Form 10-K for the newly adopted 
fiscal year, include in the initial quarterly report on Form 10-Q for 
the newly adopted fiscal year information on any period beginning on the 
first day subsequent to the period covered by the issuer's final 
quarterly report on Form 10-Q or annual report on Form 10-K for the old 
fiscal year. The information covering such period required by Part II 
and Item 2 of Part I may be combined with the information regarding the 
quarter. However, the financial statements required by Part I, which may 
be unaudited, shall be furnished separately for such period.

    Note to paragraphs (c) and (e): If it is not practicable or cannot 
be cost-justified to furnish in a transition report on Form 10-Q or a 
quarterly report for the newly adopted fiscal year financial statements 
for corresponding periods of the prior year where required, financial 
statements may be furnished for the quarters of the preceding fiscal 
year that most nearly are comparable if the issuer furnishes an adequate 
discussion of seasonal and other factors that could affect the 
comparability of information or trends reflected, an assessment of the 
comparability of the data, and a representation as to the reason 
recasting has not been undertaken.

    (f) Every successor issuer with securities registered under Section 
12 of this Act that has a different fiscal year from that of its 
predecessor(s) shall file a transition report pursuant to this section, 
containing the required information about each predecessor, for the 
transition period, if any, between the close of the fiscal year covered 
by the last annual report of each predecessor and the date of 
succession. The report shall be filed for the transition period on the 
form appropriate for annual reports of the issuer not more than the 
number of days specified in paragraph (j) of this section after the date 
of the succession, with financial statements in conformity with the 
requirements set forth in paragraph (b) of this section. If the 
transition period covers a period of less than six months, in lieu of a 
transition report on the form appropriate for the issuer's annual 
reports, the report may be filed for the transition period on Form 10-Q 
and Form 10-QSB not more than the number of days specified in paragraph 
(j) of this section after the date of the succession, with financial 
statements in conformity with the requirements set forth in paragraph 
(c) of this section. Notwithstanding the foregoing, if the transition 
period covers a period of one month or less, the successor issuer need 
not file a separate transition report if the information is reported by 
the successor issuer in conformity with the requirements set forth in 
paragraph (d) of this section.
    (g)(1) Paragraphs (a) through (f) of this section shall not apply to 
foreign private issuers.
    (2) Every foreign private issuer that changes its fiscal closing 
date shall file a report covering the resulting transition period 
between the closing date of its most recent fiscal year and the opening 
date of its new fiscal year. In no event shall a transition report cover 
a period longer than 12 months.
    (3) The report for the transition period shall be filed on Form 20-F 
(Sec.249.220f of this chapter) responding to

[[Page 163]]

all items to which such issuer is required to respond when Form 20-F is 
used as an annual report. The financial statements for the transition 
period filed therewith shall be audited. The report shall be filed 
within four months after either the close of the transition period or 
the date on which the issuer made the determination to change the fiscal 
closing date, whichever is later.
    (4) If the transition period covers a period of six or fewer months, 
in lieu of the report required by paragraph (g)(3) of this section, a 
report for the transition period may be filed on Form 20-F responding to 
Items 5, 8.A.7., 13, 14, and 17 or 18 within three months after either 
the close of the transition period or the date on which the issuer made 
the determination to change the fiscal closing date, whichever is later. 
The financial statements required by either Item 17 or Item 18 shall be 
furnished for the transition period. Such financial statements may be 
unaudited and condensed as permitted in Article 10 of Regulation S-X 
(Sec.210.10-01 of this chapter), but if the financial statements are 
unaudited and condensed, the issuer shall file with the first annual 
report for the newly adopted fiscal year separate audited statements of 
income and cash flows covering the transition period.
    (5) Notwithstanding the foregoing in paragraphs (g)(2), (g)(3), and 
(g)(4) of this section, if the transition period covers a period of one 
month or less, a foreign private issuer need not file a separate 
transition report if the first annual report for the newly adopted 
fiscal year covers the transition period as well as the fiscal year.
    (h) The provisions of this rule shall not apply to investment 
companies required to file reports pursuant to Rule 30a-1 (Sec.
270.30a-1 of this chapter) under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.).
    (i) No filing fee shall be required for a transition report filed 
pursuant to this section.
    (j)(1) For transition reports to be filed on the form appropriate 
for annual reports of the issuer, the number of days shall be:
    (i) 60 days (75 days for fiscal years ending before December 15, 
2006) for large accelerated filers (as defined in Sec.240.12b-2);
    (ii) 75 days for accelerated filers (as defined in Sec.240.12b-2); 
and
    (iii) 90 days for all other issuers; and
    (2) For transition reports to be filed on Form 10-Q (Sec.249.308a 
of this chapter) the number of days shall be:
    (i) 40 days for large accelerated filers and accelerated filers (as 
defined in Sec.240.12b-2); and
    (ii) 45 days for all other issuers.
    (k)(1) Paragraphs (a) through (g) of this section shall not apply to 
asset-backed issuers.
    (2) Every asset-backed issuer that changes its fiscal closing date 
shall file a report covering the resulting transition period between the 
closing date of its most recent fiscal year and the opening date of its 
new fiscal year. In no event shall a transition report cover a period 
longer than 12 months.
    (3) The report for the transition period shall be filed on Form 10-K 
(Sec.249.310 of this chapter) responding to all items to which such 
asset-backed issuer is required to respond pursuant to General 
Instruction J. of Form 10-K. Such report shall be filed within 90 days 
after the later of either the close of the transition period or the date 
on which the issuer made the determination to change the fiscal closing 
date.
    (4) Notwithstanding the foregoing in paragraphs (k)(2) and (k)(3) of 
this section, if the transition period covers a period of one month or 
less, an asset-backed issuer need not file a separate transition report 
if the first annual report for the newly adopted fiscal year covers the 
transition period as well as the fiscal year.
    (5) Any obligation of the asset-backed issuer to file distribution 
reports pursuant to Sec.240.13a-17 will continue to apply regardless 
of a change in the asset-backed issuer's fiscal closing date.

    Note 1: In addition to the report or reports required to be filed 
pursuant to this section, every issuer, except a foreign private issuer 
or an investment company required to file reports pursuant to Sec.
270.30a-1 of this chapter, that changes its fiscal closing date is 
required to file a Form 8-K (Sec.249.308 of this chapter) report that 
includes the information required by Item 5.03 of Form 8-K within the 
period specified in General Instruction B.1. to that form.

[[Page 164]]

    Note 2: The report or reports to be filed pursuant to this section 
must include the certification required by Sec.240.13a-14.

[54 FR 10316, Mar. 13, 1989, as amended at 56 FR 30068, July 1, 1991; 64 
FR 53912, Oct. 5, 1999; 67 FR 57288, Sept. 9, 2002; 67 FR 58505, Sept. 
16, 2002; 69 FR 15618, Mar. 25, 2004; 69 FR 68325, Nov. 23, 2004; 70 FR 
1621, Jan. 7, 2005; 70 FR 76641, Dec. 27, 2005; 73 FR 975, Jan. 4, 2008; 
73 FR 58323, Oct. 6, 2008; 81 FR 82020, Nov. 18, 2016; 83 FR 50221, Oct. 
4, 2018]



Sec.240.13a-11  Current reports on Form 8-K (Sec.249.308 
of this chapter).

    (a) Except as provided in paragraph (b) of this section, every 
registrant subject to Sec.240.13a-1 shall file a current report on 
Form 8-K within the period specified in that form unless substantially 
the same information as that required by Form 8-K has been previously 
reported by the registrant.
    (b) This section shall not apply to foreign governments, foreign 
private issuers required to make reports on Form 6-K (17 CFR 249.306) 
pursuant to Sec.240.13a-16, issuers of American Depositary Receipts 
for securities of any foreign issuer, or investment companies required 
to file reports pursuant to Sec.270.30a-1 of this chapter under the 
Investment Company Act of 1940, except where such an investment company 
is required to file:
    (1) Notice of a blackout period pursuant to Sec.245.104 of this 
chapter;
    (2) Disclosure pursuant to Instruction 2 to Sec.240.14a-11(b)(1) 
of information concerning outstanding shares and voting; or
    (3) Disclosure pursuant to Instruction 2 to Sec.240.14a-11(b)(10) 
of the date by which a nominating shareholder or nominating shareholder 
group must submit the notice required pursuant to Sec.240.14a-
11(b)(10).
    (c) No failure to file a report on Form 8-K that is required solely 
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e) or 
6.03 of Form 8-K shall be deemed to be a violation of 15 U.S.C. 78j(b) 
and Sec.240.10b-5.

[42 FR 4428, Jan. 25, 1977, as amended at 50 FR 27939, July 9, 1985; 68 
FR 4355, Jan. 28, 2003; 69 FR 15618, Mar. 25, 2004; 70 FR 1621, Jan. 7, 
2005; 71 FR 53260, Sept. 8, 2006; 75 FR 56780, Sept. 16, 2010; 81 FR 
82020, Nov. 18, 2016]



Sec.240.13a-13  Quarterly reports on Form 10-Q (Sec.249.308a
of this chapter).

    (a) Except as provided in paragraphs (b) and (c) of this section, 
every issuer that has securities registered pursuant to section 12 of 
the Act and is required to file annual reports pursuant to section 13 of 
the Act, and has filed or intends to file such reports on Form 10-K 
(Sec.249.310 of this chapter), shall file a quarterly report on Form 
10-Q (Sec.249.308a of this chapter) within the period specified in 
General Instruction A.1. to that form for each of the first three 
quarters of each fiscal year of the issuer, commencing with the first 
fiscal quarter following the most recent fiscal year for which full 
financial statements were included in the registration statement, or, if 
the registration statement included financial statements for an interim 
period subsequent to the most recent fiscal year end meeting the 
requirements of Article 10 of Regulation S-X and Rule 8-03 of Regulation 
S-X for smaller reporting companies, for the first fiscal quarter 
subsequent to the quarter reported upon in the registration statement. 
The first quarterly report of the issuer shall be filed either within 45 
days after the effective date of the registration statement or on or 
before the date on which such report would have been required to be 
filed if the issuer has been required to file reports on Form 10-Q as of 
its last fiscal quarter, whichever is later.
    (b) The provisions of this rule shall not apply to the following 
issuers:
    (1) Investment companies required to file reports pursuant to Sec.
270.30a-1;
    (2) Foreign private issuers required to file reports pursuant to 
Sec.240.13a-16; and
    (3) Asset-backed issuers required to file reports pursuant to Sec.
240.13a-17.
    (c) Part I of the quarterly reports on Form 10-Q need not be filed 
by:
    (1) Mutual life insurance companies; or
    (2) Mining companies not in the production stage but engaged 
primarily in the exploration for the development of mineral deposits 
other than oil, gas or coal, if all of the following conditions are met:

[[Page 165]]

    (i) The registrant has not been in production during the current 
fiscal year or the two years immediately prior thereto; except that 
being in production for an aggregate period of not more than eight 
months over the three-year period shall not be a violation of this 
condition.
    (ii) Receipts from the sale of mineral products or from the 
operations of mineral producing properties by the registrant and its 
subsidiaries combined have not exceeded $500,000 in any of the most 
recent six years and have not aggregated more than $1,500,000 in the 
most recent six fiscal years.
    (d) Notwithstanding the foregoing provisions of this section, the 
financial information required by Part I of Form 10-Q shall not be 
deemed to be ``filed'' for the purpose of Section 18 of the Act or 
otherwise subject to the liabilities of that section of the Act, but 
shall be subject to all other provisions of the Act.

[42 FR 24064, May 12, 1977, as amended at 48 FR 19877, May 3, 1983; 50 
FR 27939, July 9, 1985; 54 FR 10317, Mar. 13, 1989; 57 FR 10615, Mar. 
27, 1992; 61 FR 30403, June 14, 1996; 70 FR 1621, Jan. 7, 2005; 73 FR 
975, Jan. 4, 2008; 81 FR 82020, Nov. 18, 2016]



Sec.240.13a-14  Certification of disclosure in annual and quarterly 
reports.

    (a) Each report, including transition reports, filed on Form 10-Q, 
Form 10-K, Form 20-F or Form 40-F (Sec.249.308a, Sec.249.310, Sec.
249.220f or Sec.249.240f of this chapter) under Section 13(a) of the 
Act (15 U.S.C. 78m(a)), other than a report filed by an Asset-Backed 
Issuer (as defined in Sec.229.1101 of this chapter) or a report on 
Form 20-F filed under Sec.240.13a-19, must include certifications in 
the form specified in the applicable exhibit filing requirements of such 
report and such certifications must be filed as an exhibit to such 
report. Each principal executive and principal financial officer of the 
issuer, or persons performing similar functions, at the time of filing 
of the report must sign a certification. The principal executive and 
principal financial officers of an issuer may omit the portion of the 
introductory language in paragraph 4 as well as language in paragraph 
4(b) of the certification that refers to the certifying officers' 
responsibility for designing, establishing and maintaining internal 
control over financial reporting for the issuer until the issuer becomes 
subject to the internal control over financial reporting requirements in 
Sec.240.13a-15 or Sec.240.15d-15.
    (b) Each periodic report containing financial statements filed by an 
issuer pursuant to section 13(a) of the Act (15 U.S.C. 78m(a)) must be 
accompanied by the certifications required by Section 1350 of Chapter 63 
of Title 18 of the United States Code (18 U.S.C. 1350) and such 
certifications must be furnished as an exhibit to such report as 
specified in the applicable exhibit requirements for such report. Each 
principal executive and principal financial officer of the issuer (or 
equivalent thereof) must sign a certification. This requirement may be 
satisfied by a single certification signed by an issuer's principal 
executive and principal financial officers.
    (c) A person required to provide a certification specified in 
paragraph (a), (b) or (d) of this section may not have the certification 
signed on his or her behalf pursuant to a power of attorney or other 
form of confirming authority.
    (d) Each annual report and transition report filed on Form 10-K 
(Sec.249.310 of this chapter) by an asset-backed issuer under section 
13(a) of the Act (15 U.S.C. 78m(a)) must include a certification in the 
form specified in the applicable exhibit filing requirements of such 
report and such certification must be filed as an exhibit to such 
report. Terms used in paragraphs (d) and (e) of this section have the 
same meaning as in Item 1101 of Regulation AB (Sec.229.1101 of this 
chapter).
    (e) With respect to asset-backed issuers, the certification required 
by paragraph (d) of this section must be signed by either:
    (1) The senior officer in charge of securitization of the depositor 
if the depositor is signing the report; or
    (2) The senior officer in charge of the servicing function of the 
servicer if the servicer is signing the report on behalf of the issuing 
entity. If multiple servicers are involved in servicing the pool assets, 
the senior officer in charge of the servicing function of the master 
servicer (or entity performing the

[[Page 166]]

equivalent function) must sign if a representative of the servicer is to 
sign the report on behalf of the issuing entity.
    (f) The certification requirements of this section do not apply to 
an Interactive Data File, as defined in Sec.232.11 of this chapter 
(Rule 11 of Regulation S-T).

[67 FR 57288, Sept. 9, 2002, as amended at 68 FR 36665, June 18, 2003; 
70 FR 1621, Jan. 7, 2005; 70 FR 6572, Feb. 8, 2005; 70 FR 42247, July 
21, 2005; 71 FR 76596, Dec. 21, 2006; 73 FR 976, Jan. 4, 2008; 74 FR 
6818, Feb. 10, 2009; 83 FR 40878, Aug. 16, 2018]



Sec.240.13a-15  Controls and procedures.

    (a) Every issuer that has a class of securities registered pursuant 
to section 12 of the Act (15 U.S.C. 781), other than an Asset-Backed 
Issuer (as defined in Sec.229.1101 of this chapter), a small business 
investment company registered on Form N-5 (Sec.Sec.239.24 and 274.5 
of this chapter), or a unit investment trust as defined in section 4(2) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-4(2)), must 
maintain disclosure controls and procedures (as defined in paragraph (e) 
of this section) and, if the issuer either had been required to file an 
annual report pursuant to section 13(a) or 15(d) of the Act (15 U.S.C. 
78m(a) or 78o(d)) for the prior fiscal year or had filed an annual 
report with the Commission for the prior fiscal year, internal control 
over financial reporting (as defined in paragraph (f) of this section).
    (b) Each such issuer's management must evaluate, with the 
participation of the issuer's principal executive and principal 
financial officers, or persons performing similar functions, the 
effectiveness of the issuer's disclosure controls and procedures, as of 
the end of each fiscal quarter, except that management must perform this 
evaluation:
    (1) In the case of a foreign private issuer (as defined in Sec.
240.3b-4) as of the end of each fiscal year; and
    (2) In the case of an investment company registered under section 8 
of the Investment Company Act of 1940 (15 U.S.C. 80a-8), within the 90-
day period prior to the filing date of each report requiring 
certification under Sec.270.30a-2 of this chapter.
    (c) The management of each such issuer, that either had been 
required to file an annual report pursuant to section 13(a) or 15(d) of 
the Act (15 U.S.C. 78m(a) or 78o(d)) for the prior fiscal year or 
previously had filed an annual report with the Commission for the prior 
fiscal year, other than an investment company registered under section 8 
of the Investment Company Act of 1940, must evaluate, with the 
participation of the issuer's principal executive and principal 
financial officers, or persons performing similar functions, the 
effectiveness, as of the end of each fiscal year, of the issuer's 
internal control over financial reporting. The framework on which 
management's evaluation of the issuer's internal control over financial 
reporting is based must be a suitable, recognized control framework that 
is established by a body or group that has followed due-process 
procedures, including the broad distribution of the framework for public 
comment. Although there are many different ways to conduct an evaluation 
of the effectiveness of internal control over financial reporting to 
meet the requirements of this paragraph, an evaluation that is conducted 
in accordance with the interpretive guidance issued by the Commission in 
Release No. 34-55929 will satisfy the evaluation required by this 
paragraph.
    (d) The management of each such issuer that either had been required 
to file an annual report pursuant to section 13(a) or 15(d) of the Act 
(15 U.S.C. 78m(a) or 78o(d) for the prior fiscal year or had filed an 
annual report with the Commission for the prior fiscal year, other than 
an investment company registered under section 8 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-8), must evaluate, with the 
participation of the issuer's principal executive and principal 
financial officers, or persons performing similar functions, any change 
in the issuer's internal control over financial reporting, that occurred 
during each of the issuer's fiscal quarters, or fiscal year in the case 
of a foreign private issuer, that has materially affected, or is 
reasonably likely to materially affect, the issuer's internal control 
over financial reporting.

[[Page 167]]

    (e) For purposes of this section, the term disclosure controls and 
procedures means controls and other procedures of an issuer that are 
designed to ensure that information required to be disclosed by the 
issuer in the reports that it files or submits under the Act (15 U.S.C. 
78a et seq.) is recorded, processed, summarized and reported, within the 
time periods specified in the Commission's rules and forms. Disclosure 
controls and procedures include, without limitation, controls and 
procedures designed to ensure that information required to be disclosed 
by an issuer in the reports that it files or submits under the Act is 
accumulated and communicated to the issuer's management, including its 
principal executive and principal financial officers, or persons 
performing similar functions, as appropriate to allow timely decisions 
regarding required disclosure.
    (f) The term internal control over financial reporting is defined as 
a process designed by, or under the supervision of, the issuer's 
principal executive and principal financial officers, or persons 
performing similar functions, and effected by the issuer's board of 
directors, management and other personnel, to provide reasonable 
assurance regarding the reliability of financial reporting and the 
preparation of financial statements for external purposes in accordance 
with generally accepted accounting principles and includes those 
policies and procedures that:
    (1) Pertain to the maintenance of records that in reasonable detail 
accurately and fairly reflect the transactions and dispositions of the 
assets of the issuer;
    (2) Provide reasonable assurance that transactions are recorded as 
necessary to permit preparation of financial statements in accordance 
with generally accepted accounting principles, and that receipts and 
expenditures of the issuer are being made only in accordance with 
authorizations of management and directors of the issuer; and
    (3) Provide reasonable assurance regarding prevention or timely 
detection of unauthorized acquisition, use or disposition of the 
issuer's assets that could have a material effect on the financial 
statements.

[68 FR 36666, June 18, 2003, as amended at 70 FR 1621, Jan. 7, 2005; 71 
FR 76596, Dec. 21, 2006; 72 FR 35321, June 27, 2007]



Sec.240.13a-16  Reports of foreign private issuers on Form 6-K 
(17 CFR 249.306).

    (a) Every foreign private issuer which is subject to Rule 13a-1 (17 
CFR 240.13a-1) shall make reports on Form 6-K, except that this rule 
shall not apply to:
    (1) Investment companies required to file reports pursuant to Sec.
270.30a-1 of this chapter ;
    (2) Issuers of American depositary receipts for securities of any 
foreign issuer;
    (3) Issuers filing periodic reports on Form 10-K, Form 10-Q, and 
Form 8-K; or
    (4) Asset-backed issuers, as defined in Sec.229.1101 of this 
chapter.
    (b) Such reports shall be transmitted promptly after the information 
required by Form 6-K is made public by the issuer, by the country of its 
domicile or under the laws of which it was incorporated or organized, or 
by a foreign securities exchange with which the issuer has filed the 
information.
    (c) Reports furnished pursuant to this rule shall not be deemed to 
be ``filed'' for the purpose of section 18 of the Act or otherwise 
subject to the liabilities of that section.

[32 FR 7849, May 30, 1967, as amended at 44 FR 70137, Dec. 6, 1979; 47 
FR 54781, Dec. 6, 1982; 50 FR 27939, July 9, 1985; 57 FR 10615, Mar. 27, 
1991; 70 FR 1621, Jan. 7, 2005; 73 FR 976, Jan. 4, 2008; 81 FR 82020, 
Nov. 18, 2016]



Sec.240.13a-17  Reports of asset-backed issuers on Form 10-D 
(Sec.249.312 of this chapter).

    Every asset-backed issuer subject to Sec.240.13a-1 shall make 
reports on Form 10-D (Sec.249.312 of this chapter). Such reports shall 
be filed within the period specified in Form 10-D.

[70 FR 1621, Jan. 7, 2005]



Sec.240.13a-18  Compliance with servicing criteria for asset-backed 
securities.

    (a) This section applies to every class of asset-backed securities 
subject to the reporting requirements of section

[[Page 168]]

13(a) of the Act (15 U.S.C. 78m(a)). Terms used in this section have the 
same meaning as in Item 1101 of Regulation AB (Sec.229.1101 of this 
chapter).
    (b) Reports on assessments of compliance with servicing criteria for 
asset-backed securities required. With regard to a class of asset-backed 
securities subject to the reporting requirements of section 13(a) of the 
Act, the annual report on Form 10-K (Sec.249.308 of this chapter) for 
such class must include from each party participating in the servicing 
function a report regarding its assessment of compliance with the 
servicing criteria specified in paragraph (d) of Item 1122 of Regulation 
AB (Sec.229.1122(d) of this chapter), as of and for the period ending 
the end of each fiscal year, with respect to asset-backed securities 
transactions taken as a whole involving the party participating in the 
servicing function and that are backed by the same asset type backing 
the class of asset-backed securities (including the asset-backed 
securities transaction that is to be the subject of the report on Form 
10-K for that fiscal year).
    (c) Attestation reports on assessments of compliance with servicing 
criteria for asset-backed securities required. With respect to each 
report included pursuant to paragraph (b) of this section, the annual 
report on Form 10-K must also include a report by a registered public 
accounting firm that attests to, and reports on, the assessment made by 
the asserting party. The attestation report on assessment of compliance 
with servicing criteria for asset-backed securities must be made in 
accordance with standards for attestation engagements issued or adopted 
by the Public Company Accounting Oversight Board.

    Note to Sec.240.13a-18. If multiple parties are participating in 
the servicing function, a separate assessment report and attestation 
report must be included for each party participating in the servicing 
function. A party participating in the servicing function means any 
entity (e.g., master servicer, primary servicers, trustees) that is 
performing activities that address the criteria in paragraph (d) of Item 
1122 of Regulation AB (Sec.229.1122(d) of this chapter), unless such 
entity's activities relate only to 5% or less of the pool assets.

[70 FR 1621, Jan. 7, 2005]



Sec.240.13a-19  Reports by shell companies on Form 20-F.

    Every foreign private issuer that was a shell company, other than a 
business combination related shell company, immediately before a 
transaction that causes it to cease to be a shell company shall, within 
four business days of completion of that transaction, file a report on 
Form 20-F (Sec.249.220f of this chapter) containing the information 
that would be required if the issuer were filing a form for registration 
of securities on Form 20-F to register under the Act all classes of the 
issuer's securities subject to the reporting requirements of section 13 
(15 U.S.C. 78m) or section 15(d) (15 U.S.C. 78o(d)) of the Act upon 
consummation of the transaction, with such information reflecting the 
registrant and its securities upon consummation of the transaction.

[70 FR 42247, July 21, 2005]



Sec.240.13a-20  Plain English presentation of specified information.

    (a) Any information included or incorporated by reference in a 
report filed under section 13(a) of the Act (15 U.S.C. 78m(a)) that is 
required to be disclosed pursuant to Item 402, 403, 404 or 407 of 
Regulation S-K (Sec.229.402, Sec.229.403, Sec.229.404 or Sec.
229.407 of this chapter) must be presented in a clear, concise and 
understandable manner. You must prepare the disclosure using the 
following standards:
    (1) Present information in clear, concise sections, paragraphs and 
sentences;
    (2) Use short sentences;
    (3) Use definite, concrete, everyday words;
    (4) Use the active voice;
    (5) Avoid multiple negatives;
    (6) Use descriptive headings and subheadings;
    (7) Use a tabular presentation or bullet lists for complex material, 
wherever possible;
    (8) Avoid legal jargon and highly technical business and other 
terminology;
    (9) Avoid frequent reliance on glossaries or defined terms as the 
primary means of explaining information. Define terms in a glossary or 
other section of the document only if the meaning is unclear from the 
context. Use a

[[Page 169]]

glossary only if it facilitates understanding of the disclosure; and
    (10) In designing the presentation of the information you may 
include pictures, logos, charts, graphs and other design elements so 
long as the design is not misleading and the required information is 
clear. You are encouraged to use tables, schedules, charts and graphic 
illustrations that present relevant data in an understandable manner, so 
long as such presentations are consistent with applicable disclosure 
requirements and consistent with other information in the document. You 
must draw graphs and charts to scale. Any information you provide must 
not be misleading.
    (b) [Reserved]

    Note to Sec.240.13a-20: In drafting the disclosure to comply with 
this section, you should avoid the following:
    1. Legalistic or overly complex presentations that make the 
substance of the disclosure difficult to understand;
    2. Vague ``boilerplate'' explanations that are imprecise and readily 
subject to different interpretations;
    3. Complex information copied directly from legal documents without 
any clear and concise explanation of the provision(s); and
    4. Disclosure repeated in different sections of the document that 
increases the size of the document but does not enhance the quality of 
the information.

[71 FR 53261, Sept. 8, 2006, as amended at 73 FR 976, Jan. 4, 2008]

  Regulation 13b-2: Maintenance of Records and Preparation of Required 
                                 Reports



Sec.240.13b2-1  Falsification of accounting records.

    No person shall directly or indirectly, falsify or cause to be 
falsified, any book, record or account subject to section 13(b)(2)(A) of 
the Securities Exchange Act.

(15 U.S.C. 78m(b)(2); 15 U.S.C. 78m(a), 78m(b)(1), 78o(d), 78j(b), 
78n(a), 78t(b), 78t(c))

[44 FR 10970, Feb. 23, 1979]



Sec.240.13b2-2  Representations and conduct in connection with the 
preparation of required reports and documents.

    (a) No director or officer of an issuer shall, directly or 
indirectly:
    (1) Make or cause to be made a materially false or misleading 
statement to an accountant in connection with; or
    (2) Omit to state, or cause another person to omit to state, any 
material fact necessary in order to make statements made, in light of 
the circumstances under which such statements were made, not misleading, 
to an accountant in connection with:
    (i) Any audit, review or examination of the financial statements of 
the issuer required to be made pursuant to this subpart; or
    (ii) The preparation or filing of any document or report required to 
be filed with the Commission pursuant to this subpart or otherwise.
    (b)(1) No officer or director of an issuer, or any other person 
acting under the direction thereof, shall directly or indirectly take 
any action to coerce, manipulate, mislead, or fraudulently influence any 
independent public or certified public accountant engaged in the 
performance of an audit or review of the financial statements of that 
issuer that are required to be filed with the Commission pursuant to 
this subpart or otherwise if that person knew or should have known that 
such action, if successful, could result in rendering the issuer's 
financial statements materially misleading.
    (2) For purposes of paragraphs (b)(1) and (c)(2) of this section, 
actions that, ``if successful, could result in rendering the issuer's 
financial statements materially misleading'' include, but are not 
limited to, actions taken at any time with respect to the professional 
engagement period to coerce, manipulate, mislead, or fraudulently 
influence an auditor:
    (i) To issue or reissue a report on an issuer's financial statements 
that is not warranted in the circumstances (due to material violations 
of generally accepted accounting principles, the standards of the PCAOB, 
or other professional or regulatory standards);
    (ii) Not to perform audit, review or other procedures required by 
the standards of the PCAOB or other professional standards;
    (iii) Not to withdraw an issued report; or
    (iv) Not to communicate matters to an issuer's audit committee.

[[Page 170]]

    (c) In addition, in the case of an investment company registered 
under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8), 
or a business development company as defined in section 2(a)(48) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), no officer or 
director of the company's investment adviser, sponsor, depositor, 
trustee, or administrator (or, in the case of paragraph (c)(2) of this 
section, any other person acting under the direction thereof) shall, 
directly or indirectly:
    (1)(i) Make or cause to be made a materially false or misleading 
statement to an accountant in connection with; or
    (ii) Omit to state, or cause another person to omit to state, any 
material fact necessary in order to make statements made, in light of 
the circumstances under which such statements were made, not misleading 
to an accountant in connection with:
    (A) Any audit, review, or examination of the financial statements of 
the investment company required to be made pursuant to this subpart; or
    (B) The preparation or filing of any document or report required to 
be filed with the Commission pursuant to this subpart or otherwise; or
    (2) Take any action to coerce, manipulate, mislead, or fraudulently 
influence any independent public or certified public accountant engaged 
in the performance of an audit or review of the financial statements of 
that investment company that are required to be filed with the 
Commission pursuant to this subpart or otherwise if that person knew or 
should have known that such action, if successful, could result in 
rendering the investment company's financial statements materially 
misleading.

[68 FR 31830, May 28, 2003, as amended at 83 FR 50222, Oct. 4, 2018]

                            Regulation 13D-G

    Source: Sections 240.13d-1 through 240.13f-1 appear at 43 FR 18495, 
Apr. 28, 1978, unless otherwise noted.

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec.240.13d-1  Filing of Schedules 13D and 13G.

    (a) Any person who, after acquiring directly or indirectly the 
beneficial ownership of any equity security of a class which is 
specified in paragraph (i) of this section, is directly or indirectly 
the beneficial owner of more than five percent of the class shall, 
within 10 days after the acquisition, file with the Commission, a 
statement containing the information required by Schedule 13D (Sec.
240.13d-101).
    (b)(1) A person who would otherwise be obligated under paragraph (a) 
of this section to file a statement on Schedule 13D (Sec.240.13d-101) 
may, in lieu thereof, file with the Commission, a short-form statement 
on Schedule 13G (Sec.240.13d-102), Provided, That:
    (i) Such person has acquired such securities in the ordinary course 
of his business and not with the purpose nor with the effect of changing 
or influencing the control of the issuer, nor in connection with or as a 
participant in any transaction having such purpose or effect, including 
any transaction subject to Sec.240.13d-3(b), other than activities 
solely in connection with a nomination under Sec.240.14a-11; and
    (ii) Such person is:
    (A) A broker or dealer registered under section 15 of the Act (15 
U.S.C. 78o);
    (B) A bank as defined in section 3(a)(6) of the Act (15 U.S.C. 78c);
    (C) An insurance company as defined in section 3(a)(19) of the Act 
(15 U.S.C. 78c);
    (D) An investment company registered under section 8 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-8);
    (E) Any person registered as an investment adviser under Section 203 
of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3) or under the 
laws of any state;

[[Page 171]]

    (F) An employee benefit plan as defined in Section 3(3) of the 
Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. 
1001 et seq. (``ERISA'') that is subject to the provisions of ERISA, or 
any such plan that is not subject to ERISA that is maintained primarily 
for the benefit of the employees of a state or local government or 
instrumentality, or an endowment fund;
    (G) A parent holding company or control person, provided the 
aggregate amount held directly by the parent or control person, and 
directly and indirectly by their subsidiaries or affiliates that are not 
persons specified in Sec.240.13d-1(b)(1)(ii)(A) through (J), does not 
exceed one percent of the securities of the subject class;
    (H) A savings association as defined in Section 3(b) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813);
    (I) A church plan that is excluded from the definition of an 
investment company under section 3(c)(14) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-3);
    (J) A non-U.S. institution that is the functional equivalent of any 
of the institutions listed in Sec.240.13d-1 (b)(1)(ii)(A) through (I), 
so long as the non-U.S. institution is subject to a regulatory scheme 
that is substantially comparable to the regulatory scheme applicable to 
the equivalent U.S. institution; and
    (K) A group, provided that all the members are persons specified in 
Sec.240.13d-1(b)(1)(ii)(A) through (J).
    (iii) Such person has promptly notified any other person (or group 
within the meaning of section 13(d)(3) of the Act) on whose behalf it 
holds, on a discretionary basis, securities exceeding five percent of 
the class, of any acquisition or transaction on behalf of such other 
person which might be reportable by that person under section 13(d) of 
the Act. This paragraph only requires notice to the account owner of 
information which the filing person reasonably should be expected to 
know and which would advise the account owner of an obligation he may 
have to file a statement pursuant to section 13(d) of the Act or an 
amendment thereto.

    Instruction 1 to paragraph (b)(1). For purposes of paragraph 
(b)(1)(i) of this section, the exception for activities solely in 
connection with a nomination under Sec.240.14a-11 will not be 
available after the election of directors.

    (2) The Schedule 13G filed pursuant to paragraph (b)(1) of this 
section shall be filed within 45 days after the end of the calendar year 
in which the person became obligated under paragraph (b)(1) of this 
section to report the person's beneficial ownership as of the last day 
of the calendar year, Provided, That it shall not be necessary to file a 
Schedule 13G unless the percentage of the class of equity security 
specified in paragraph (i) of this section beneficially owned as of the 
end of the calendar year is more than five percent; However, if the 
person's direct or indirect beneficial ownership exceeds 10 percent of 
the class of equity securities prior to the end of the calendar year, 
the initial Schedule 13G shall be filed within 10 days after the end of 
the first month in which the person's direct or indirect beneficial 
ownership exceeds 10 percent of the class of equity securities, computed 
as of the last day of the month.
    (c) A person who would otherwise be obligated under paragraph (a) of 
this section to file a statement on Schedule 13D (Sec.240.13d-101) 
may, in lieu thereof, file with the Commission, within 10 days after an 
acquisition described in paragraph (a) of this section, a short-form 
statement on Schedule 13G (Sec.240.13d-102). Provided, That the 
person:
    (1) Has not acquired the securities with any purpose, or with the 
effect, of changing or influencing the control of the issuer, or in 
connection with or as a participant in any transaction having that 
purpose or effect, including any transaction subject to Sec.240.13d-
3(b), other than activities solely in connection with a nomination under 
Sec.240.14a-11;

    Instruction 1 to paragraph (c)(1). For purposes of paragraph (c)(1) 
of this section, the exception for activities solely in connection with 
a nomination under Sec.240.14a-11 will not be available after the 
election of directors.
    (2) Is not a person reporting pursuant to paragraph (b)(1) of this 
section; and
    (3) Is not directly or indirectly the beneficial owner of 20 percent 
or more of the class.


[[Page 172]]


    (d) Any person who, as of the end of any calendar year, is or 
becomes directly or indirectly the beneficial owner of more than five 
percent of any equity security of a class specified in paragraph (i) of 
this section and who is not required to file a statement under paragraph 
(a) of this section by virtue of the exemption provided by Section 
13(d)(6)(A) or (B) of the Act (15 U.S.C. 78m(d)(6)(A) or 78m(d)(6)(B)), 
or because the beneficial ownership was acquired prior to December 22, 
1970, or because the person otherwise (except for the exemption provided 
by Section 13(d)(6)(C) of the Act (15 U.S.C. 78m(d)(6)(C))) is not 
required to file a statement, shall file with the Commission, within 45 
days after the end of the calendar year in which the person became 
obligated to report under this paragraph (d), a statement containing the 
information required by Schedule 13G (Sec.240.13d-102).
    (e)(1) Notwithstanding paragraphs (b) and (c) of this section and 
Sec.240.13d-2(b), a person that has reported that it is the beneficial 
owner of more than five percent of a class of equity securities in a 
statement on Schedule 13G (Sec.240.13d-102) pursuant to paragraph (b) 
or (c) of this section, or is required to report the acquisition but has 
not yet filed the schedule, shall immediately become subject to 
Sec.Sec.240.13d-1(a) and 240.13d-2(a) and shall file a statement on 
Schedule 13D (Sec.240.13d-101) within 10 days if, and shall remain 
subject to those requirements for so long as, the person:
    (i) Has acquired or holds the securities with a purpose or effect of 
changing or influencing control of the issuer, or in connection with or 
as a participant in any transaction having that purpose or effect, 
including any transaction subject to Sec.240.13d-3(b); and
    (ii) Is at that time the beneficial owner of more than five percent 
of a class of equity securities described in Sec.240.13d-1(i).
    (2) From the time the person has acquired or holds the securities 
with a purpose or effect of changing or influencing control of the 
issuer, or in connection with or as a participant in any transaction 
having that purpose or effect until the expiration of the tenth day from 
the date of the filing of the Schedule 13D (Sec.240.13d-101) pursuant 
to this section, that person shall not:
    (i) Vote or direct the voting of the securities described therein; 
or
    (ii) Acquire an additional beneficial ownership interest in any 
equity securities of the issuer of the securities, nor of any person 
controlling the issuer.
    (f)(1) Notwithstanding paragraph (c) of this section and Sec.
240.13d-2(b), persons reporting on Schedule 13G (Sec.240.13d-102) 
pursuant to paragraph (c) of this section shall immediately become 
subject to Sec.Sec.240.13d-1(a) and 240.13d-2(a) and shall remain 
subject to those requirements for so long as, and shall file a statement 
on Schedule 13D (Sec.240.13d-101) within 10 days of the date on which, 
the person's beneficial ownership equals or exceeds 20 percent of the 
class of equity securities.
    (2) From the time of the acquisition of 20 percent or more of the 
class of equity securities until the expiration of the tenth day from 
the date of the filing of the Schedule 13D (Sec.240.13d-101) pursuant 
to this section, the person shall not:
    (i) Vote or direct the voting of the securities described therein, 
or
    (ii) Acquire an additional beneficial ownership interest in any 
equity securities of the issuer of the securities, nor of any person 
controlling the issuer.
    (g) Any person who has reported an acquisition of securities in a 
statement on Schedule 13G (Sec.240.13d-102) pursuant to paragraph (b) 
of this section, or has become obligated to report on the Schedule 13G 
(Sec.240.13d-102) but has not yet filed the Schedule, and thereafter 
ceases to be a person specified in paragraph (b)(1)(ii) of this section 
or determines that it no longer has acquired or holds the securities in 
the ordinary course of business shall immediately become subject to 
Sec.240.13d-1(a) or Sec.240.13d-1(c) (if the person satisfies the 
requirements specified in Sec.240.13d-1(c)), and Sec.Sec.240.13d-2 
(a), (b) or (d), and shall file, within 10 days thereafter, a statement 
on Schedule 13D (Sec.240.13d-101) or amendment to Schedule 13G, as 
applicable, if the person is a beneficial owner at that time of more 
than five percent of the class of equity securities.

[[Page 173]]

    (h) Any person who has filed a Schedule 13D (Sec.240.13d-101) 
pursuant to paragraph (e), (f) or (g) of this section may again report 
its beneficial ownership on Schedule 13G (Sec.240.13d-102) pursuant to 
paragraphs (b) or (c) of this section provided the person qualifies 
thereunder, as applicable, by filing a Schedule 13G (Sec.240.13d-102) 
once the person determines that the provisions of paragraph (e), (f) or 
(g) of this section no longer apply.
    (i) For the purpose of this regulation, the term ``equity security'' 
means any equity security of a class which is registered pursuant to 
section 12 of that Act, or any equity security of any insurance company 
which would have been required to be so registered except for the 
exemption contained in section 12(g)(2)(G) of the Act, or any equity 
security issued by a closed-end investment company registered under the 
Investment Company Act of 1940; Provided, Such term shall not include 
securities of a class of non-voting securities.
    (j) For the purpose of sections 13(d) and 13(g), any person, in 
determining the amount of outstanding securities of a class of equity 
securities, may rely upon information set forth in the issuer's most 
recent quarterly or annual report, and any current report subsequent 
thereto, filed with the Commission pursuant to this Act, unless he knows 
or has reason to believe that the information contained therein is 
inaccurate.
    (k)(1) Whenever two or more persons are required to file a statement 
containing the information required by Schedule 13D or Schedule 13G with 
respect to the same securities, only one statement need be filed: 
Provided, That:
    (i) Each person on whose behalf the statement is filed is 
individually eligible to use the Schedule on which the information is 
filed;
    (ii) Each person on whose behalf the statement is filed is 
responsible for the timely filing of such statement and any amendments 
thereto, and for the completeness and accuracy of the information 
concerning such person contained therein; such person is not responsible 
for the completeness or accuracy of the information concerning the other 
persons making the filing, unless such person knows or has reason to 
believe that such information is inaccurate; and
    (iii) Such statement identifies all such persons, contains the 
required information with regard to each such person, indicates that 
such statement is filed on behalf of all such persons, and includes, as 
an exhibit, their agreement in writing that such a statement is filed on 
behalf of each of them.
    (2) A group's filing obligation may be satisfied either by a single 
joint filing or by each of the group's members making an individual 
filing. If the group's members elect to make their own filings, each 
such filing should identify all members of the group but the information 
provided concerning the other persons making the filing need only 
reflect information which the filing person knows or has reason to know.

[43 FR 18495, Apr. 28, 1978, as amended at 43 FR 29768, July 11, 1978; 
43 FR 55755, Nov. 29, 1978; 44 FR 10703, Feb. 23, 1979; 63 FR 2865, Jan. 
16, 1998; 63 FR 15287, Mar. 31, 1998; 73 FR 60089, Oct. 9, 2008; 75 FR 
56780, Sept. 16, 2010]



Sec.240.13d-2  Filing of amendments to Schedules 13D or 13G.

    (a) If any material change occurs in the facts set forth in the 
Schedule 13D (Sec.240.13d-101) required by Sec.240.13d-1(a), 
including, but not limited to, any material increase or decrease in the 
percentage of the class beneficially owned, the person or persons who 
were required to file the statement shall promptly file or cause to be 
filed with the Commission an amendment disclosing that change. An 
acquisition or disposition of beneficial ownership of securities in an 
amount equal to one percent or more of the class of securities shall be 
deemed ``material'' for purposes of this section; acquisitions or 
dispositions of less than those amounts may be material, depending upon 
the facts and circumstances.
    (b) Notwithstanding paragraph (a) of this section, and provided that 
the person filing a Schedule 13G (Sec.240.13d-102) pursuant to Sec.
240.13d-1(b) or Sec.240.13d-1(c) continues to meet the requirements 
set forth therein, any person who has filed a Schedule 13G (Sec.
240.13d-102) pursuant to Sec.240.13d-1(b), Sec.240.13d-1(c) or Sec.
240.13d-1(d) shall amend the

[[Page 174]]

statement within forty-five days after the end of each calendar year if, 
as of the end of the calendar year, there are any changes in the 
information reported in the previous filing on that Schedule: Provided, 
however, That an amendment need not be filed with respect to a change in 
the percent of class outstanding previously reported if the change 
results solely from a change in the aggregate number of securities 
outstanding. Once an amendment has been filed reflecting beneficial 
ownership of five percent or less of the class of securities, no 
additional filings are required unless the person thereafter becomes the 
beneficial owner of more than five percent of the class and is required 
to file pursuant to Sec.240.13d-1.
    (c) Any person relying on Sec.240.13d-1(b) that has filed its 
initial Schedule 13G (Sec.240.13d-102) pursuant to that paragraph 
shall, in addition to filing any amendments pursuant to Sec.240.13d-
2(b), file an amendment on Schedule 13G (Sec.240.13d-102) within 10 
days after the end of the first month in which the person's direct or 
indirect beneficial ownership, computed as of the last day of the month, 
exceeds 10 percent of the class of equity securities. Thereafter, that 
person shall, in addition to filing any amendments pursuant to Sec.
240.13d-2(b), file an amendment on Schedule 13G (Sec.240.13d-102) 
within 10 days after the end of the first month in which the person's 
direct or indirect beneficial ownership, computed as of the last day of 
the month, increases or decreases by more than five percent of the class 
of equity securities. Once an amendment has been filed reflecting 
beneficial ownership of five percent or less of the class of securities, 
no additional filings are required by this paragraph (c).
    (d) Any person relying on Sec.240.13d-1(c) and has filed its 
initial Schedule 13G (Sec.240.13d-102) pursuant to that paragraph 
shall, in addition to filing any amendments pursuant to Sec.240.13d-
2(b), file an amendment on Schedule 13G (Sec.240.13d-102) promptly 
upon acquiring, directly or indirectly, greater than 10 percent of a 
class of equity securities specified in Sec.240.13d-1(d), and 
thereafter promptly upon increasing or decreasing its beneficial 
ownership by more than five percent of the class of equity securities. 
Once an amendment has been filed reflecting beneficial ownership of five 
percent or less of the class of securities, no additional filings are 
required by this paragraph (d).
    (e) The first electronic amendment to a paper format Schedule 13D 
(Sec.240.13d-101 of this chapter) or Schedule 13G (Sec.240.13d-102 
of this chapter) shall restate the entire text of the Schedule 13D or 
13G, but previously filed paper exhibits to such Schedules are not 
required to be restated electronically. See Rule 102 of Regulation S-T 
(Sec.232.102 of this chapter) regarding amendments to exhibits 
previously filed in paper format. Notwithstanding the foregoing, if the 
sole purpose of filing the first electronic Schedule 13D or 13G 
amendment is to report a change in beneficial ownership that would 
terminate the filer's obligation to report, the amendment need not 
include a restatement of the entire text of the Schedule being amended.

    Note to Sec.240.13d-2: For persons filing a short-form statement 
pursuant to Rule 13d-1(b) or (c), see also Rules 13d-1(e), (f), and (g).

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 14(d)(1), 23; 48 
Stat. 882, 894, 895, 901; Sec.203(a), 49 Stat. 704, Sec.8, 49 Stat. 
1379; Sec.10, 78 Stat. 88a; secs. 2, 3, 82 Stat. 454, 455; secs. 1, 2, 
3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 
78m(d)(1), 89m(d)(2), 78m(d)(5), 78m(d)(6), 78n(d)(1), 78w); Sec.23, 48 
Stat. 901; Sec.203(a), 49 Stat. 704; Sec.8, 49 Stat. 1379; Sec.10, 78 
Stat. 580; Sec.18, 89 Stat. 155; secs. 102, 202, 203, 91 Stat. 1494, 
1498, 1499; 15 U.S.C. 78m(g), 78w(a))

[43 FR 18495, Apr. 28, 1978, as amended at 45 FR 81558, Dec. 11, 1980; 
47 FR 49964, Nov. 4, 1982; 58 FR 14683, Mar. 18, 1993; 59 FR 67764, Dec. 
30, 1994; 62 FR 36459, July 8, 1997; 63 FR 2866, Jan. 16, 1998]



Sec.240.13d-3  Determination of beneficial owner.

    (a) For the purposes of sections 13(d) and 13(g) of the Act a 
beneficial owner of a security includes any person who, directly or 
indirectly, through any contract, arrangement, understanding, 
relationship, or otherwise has or shares:
    (1) Voting power which includes the power to vote, or to direct the 
voting of, such security; and/or,
    (2) Investment power which includes the power to dispose, or to 
direct the disposition of, such security.

[[Page 175]]

    (b) Any person who, directly or indirectly, creates or uses a trust, 
proxy, power of attorney, pooling arrangement or any other contract, 
arrangement, or device with the purpose of effect of divesting such 
person of beneficial ownership of a security or preventing the vesting 
of such beneficial ownership as part of a plan or scheme to evade the 
reporting requirements of section 13(d) or (g) of the Act shall be 
deemed for purposes of such sections to be the beneficial owner of such 
security.
    (c) All securities of the same class beneficially owned by a person, 
regardless of the form which such beneficial ownership takes, shall be 
aggregated in calculating the number of shares beneficially owned by 
such person.
    (d) Notwithstanding the provisions of paragraphs (a) and (c) of this 
rule:
    (1)(i) A person shall be deemed to be the beneficial owner of a 
security, subject to the provisions of paragraph (b) of this rule, if 
that person has the right to acquire beneficial ownership of such 
security, as defined in Rule 13d-3(a) (Sec.240.13d-3(a)) within sixty 
days, including but not limited to any right to acquire: (A) Through the 
exercise of any option, warrant or right; (B) through the conversion of 
a security; (C) pursuant to the power to revoke a trust, discretionary 
account, or similar arrangement; or (D) pursuant to the automatic 
termination of a trust, discretionary account or similar arrangement; 
provided, however, any person who acquires a security or power specified 
in paragraphs (d)(1)(i)(A), (B) or (C), of this section, with the 
purpose or effect of changing or influencing the control of the issuer, 
or in connection with or as a participant in any transaction having such 
purpose or effect, immediately upon such acquisition shall be deemed to 
be the beneficial owner of the securities which may be acquired through 
the exercise or conversion of such security or power. Any securities not 
outstanding which are subject to such options, warrants, rights or 
conversion privileges shall be deemed to be outstanding for the purpose 
of computing the percentage of outstanding securities of the class owned 
by such person but shall not be deemed to be outstanding for the purpose 
of computing the percentage of the class by any other person.
    (ii) Paragraph (d)(1)(i) of this section remains applicable for the 
purpose of determining the obligation to file with respect to the 
underlying security even though the option, warrant, right or 
convertible security is of a class of equity security, as defined in 
Sec.240.13d-1(i), and may therefore give rise to a separate obligation 
to file.
    (2) A member of a national securities exchange shall not be deemed 
to be a beneficial owner of securities held directly or indirectly by it 
on behalf of another person solely because such member is the record 
holder of such securities and, pursuant to the rules of such exchange, 
may direct the vote of such securities, without instruction, on other 
than contested matters or matters that may affect substantially the 
rights or privileges of the holders of the securities to be voted, but 
is otherwise precluded by the rules of such exchange from voting without 
instruction.
    (3) A person who in the ordinary course of his business is a pledgee 
of securities under a written pledge agreement shall not be deemed to be 
the beneficial owner of such pledged securities until the pledgee has 
taken all formal steps necessary which are required to declare a default 
and determines that the power to vote or to direct the vote or to 
dispose or to direct the disposition of such pledged securities will be 
exercised, provided, that:
    (i) The pledgee agreement is bona fide and was not entered into with 
the purpose nor with the effect of changing or influencing the control 
of the issuer, nor in connection with any transaction having such 
purpose or effect, including any transaction subject to Rule 13d-3(b);
    (ii) The pledgee is a person specified in Rule 13d-1(b)(ii), 
including persons meeting the conditions set forth in paragraph (G) 
thereof; and
    (iii) The pledgee agreement, prior to default, does not grant to the 
pledgee;
    (A) The power to vote or to direct the vote of the pledged 
securities; or
    (B) The power to dispose or direct the disposition of the pledged 
securities, other than the grant of such power(s) pursuant to a pledge 
agreement under

[[Page 176]]

which credit is extended subject to regulation T (12 CFR 220.1 to 220.8) 
and in which the pledgee is a broker or dealer registered under section 
15 of the act.
    (4) A person engaged in business as an underwriter of securities who 
acquires securities through his participation in good faith in a firm 
commitment underwriting registered under the Securities Act of 1933 
shall not be deemed to be the beneficial owner of such securities until 
the expiration of forty days after the date of such acquisition.

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 14(d)(1), 23; 48 
Stat. 882, 894, 895, 901; Sec.203(a), 49 Stat. 704, Sec.8, 49 Stat. 
1379; Sec.10, 78 Stat. 88a; secs. 2, 3, 82 Stat. 454, 455; secs. 1, 2, 
3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 
78m(d)(1), 89m(d)(2), 78m(d)(5), 78m(d)(6), 78n(d)(1), 78w)

[43 FR 18495, Apr. 28, 1978, as amended at 43 FR 29768, July 11, 1978; 
63 FR 2867, Jan. 16, 1998]



Sec.240.13d-4  Disclaimer of beneficial ownership.

    Any person may expressly declare in any statement filed that the 
filing of such statement shall not be construed as an admission that 
such person is, for the purposes of sections 13(d) or 13(g) of the Act, 
the beneficial owner of any securities covered by the statement.

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 14(d)(1), 23; 48 
Stat. 882, 894, 895, 901; Sec.203(a), 49 Stat. 704, Sec.8, 49 Stat. 
1379; Sec.10, 78 Stat. 88a; secs. 2, 3, 82 Stat. 454, 455; secs. 1, 2, 
3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 
78m(d)(1), 89m(d)(2), 78m(d)(5), 78m(d)(6), 78n(d)(1), 78w)



Sec.240.13d-5  Acquisition of securities.

    (a) A person who becomes a beneficial owner of securities shall be 
deemed to have acquired such securities for purposes of section 13(d)(1) 
of the Act, whether such acquisition was through purchase or otherwise. 
However, executors or administrators of a decedent's estate generally 
will be presumed not to have acquired beneficial ownership of the 
securities in the decedent's estate until such time as such executors or 
administrators are qualified under local law to perform their duties.
    (b)(1) When two or more persons agree to act together for the 
purpose of acquiring, holding, voting or disposing of equity securities 
of an issuer, the group formed thereby shall be deemed to have acquired 
beneficial ownership, for purposes of sections 13(d) and (g) of the Act, 
as of the date of such agreement, of all equity securities of that 
issuer beneficially owned by any such persons.
    (2) Notwithstanding the previous paragraph, a group shall be deemed 
not to have acquired any equity securities beneficially owned by the 
other members of the group solely by virtue of their concerted actions 
relating to the purchase of equity securities directly from an issuer in 
a transaction not involving a public offering: Provided, That:
    (i) All the members of the group are persons specified in Rule 13d-
1(b)(1)(ii);
    (ii) The purchase is in the ordinary course of each member's 
business and not with the purpose nor with the effect of changing or 
influencing control of the issuer, nor in connection with or as a 
participant in any transaction having such purpose or effect, including 
any transaction subject to Rule 13d-3(b);
    (iii) There is no agreement among, or between any members of the 
group to act together with respect to the issuer or its securities 
except for the purpose of facilitating the specific purchase involved; 
and
    (iv) The only actions among or between any members of the group with 
respect to the issuer or its securities subsequent to the closing date 
of the non-public offering are those which are necessary to conclude 
ministerial matters directly related to the completion of the offer or 
sale of the securities.

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 14(d)(1), 23; 48 
Stat. 882, 894, 895, 901; Sec.203(a), 49 Stat. 704, Sec.8, 49 Stat. 
1379; Sec.10, 78 Stat. 88a; secs. 2, 3, 82 Stat. 454, 455; secs. 1, 2, 
3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 
78m(d)(1), 89m(d)(2), 78m(d)(5), 78m(d)(6), 78n(d)(1), 78w))



Sec.240.13d-6  Exemption of certain acquisitions.

    The acquisition of securities of an issuer by a person who, prior to 
such acquisition, was a beneficial owner of more than five percent of 
the outstanding securities of the same class as

[[Page 177]]

those acquired shall be exempt from section 13(d) of the Act: Provided, 
That:
    (a) The acquisition is made pursuant to preemptive subscription 
rights in an offering made to all holders of securities of the class to 
which the preemptive subscription rights pertain;
    (b) Such person does not acquire additional securities except 
through the exercise of his pro rata share of the preemptive 
subscription rights; and
    (c) The acquisition is duly reported, if required, pursuant to 
section 16(a) of the Act and the rules and regulations thereunder.

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 14(d)(1), 23; 48 
Stat. 882, 894, 895, 901; Sec.203(a), 49 Stat. 704, Sec.8, 49 Stat. 
1379; Sec.10, 78 Stat. 88a; secs. 2, 3, 82 Stat. 454, 455; secs. 1, 2, 
3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 
78m(d)(1), 89m(d)(2), 78m(d)(5), 78m(d)(6), 78n(d)(1), 78w))



Sec.240.13d-7  Dissemination.

    One copy of the Schedule filed pursuant to Sec.Sec.240.13d-1 and 
240.13d-2 shall be sent to the issuer of the security at its principal 
executive office by registered or certified mail. A copy of Schedules 
filed pursuant to Sec.Sec.240.13d-1(a) and 240.13d-2(a) shall also be 
sent to each national securities exchange where the security is traded.

[63 FR 2867, Jan. 16, 1998]



Sec.240.13d-101  Schedule 13D--Information to be included in 
statements filed pursuant to Sec.240.13d-1(a) and amendments thereto
filed pursuant to Sec.240.13d-2(a).
          

Securities and Exchange Commission, Washington, D.C. 20549

Schedule 13D

Under the Securities Exchange Act of 1934

(Amendment No._)*
________________________________________________________________________
(Name of Issuer)
________________________________________________________________________
(Title of Class of Securities)
________________________________________________________________________
(CUSIP Number)
________________________________________________________________________
(Name, Address and Telephone Number of Person Authorized to Receive 
          Notices and Communications)
________________________________________________________________________
(Date of Event Which Requires Filing of This Statement)

    If the filing person has previously filed a statement on Schedule 
13G to report the acquisition that is the subject of this Schedule 13D, 
and is filing this schedule because of Sec.Sec.240.13d-1(e), 240.13d-
1(f) or 240.13d-1(g), check the following box. [squ]

    Note: Schedules filed in paper format shall include a signed 
original and five copies of the schedule, including all exhibits. See 
Rule 13d-7 for other parties to whom copies are to be sent.

    * The remainder of this cover page shall be filled out for a 
reporting person's initial filing on this form with respect to the 
subject class of securities, and for any subsequent amendment containing 
information which would alter disclosures provided in a prior cover 
page.
    The information required on the remainder of this cover page shall 
not be deemed to be ``filed'' for the purpose of section 18 of the 
Securities Exchange Act of 1934 (``Act'') or otherwise subject to the 
liabilities of that section of the Act but shall be subject to all other 
provisions of the Act (however, see the Notes).

------------------------------------------------------------------------
 
------------------------------------------------------------------------
                              CUSIP No.___
------------------------------------------------------------------------
(1) Names of reporting persons.........
(2) Check the appropriate box if a       (a)
 member of a group
                                        --------------------------------
           (see instructions)            (b)
------------------------------------------------------------------------
(3) SEC use only.......................
------------------------------------------------------------------------
(4) Source of funds (see instructions).
------------------------------------------------------------------------
(5) Check if disclosure of legal
 proceedings is required pursuant to
 Items 2(d) or 2(e).
------------------------------------------------------------------------
(6) Citizenship or place of
 organization.
------------------------------------------------------------------------
Number of shares beneficially owned by
 each reporting person with:
  (7) Sole voting power................
                                        --------------------------------
  (8) Shared voting power..............
                                        --------------------------------

[[Page 178]]

 
  (9) Sole dispositive power...........
                                        --------------------------------
  (10) Shared dispositive power........
------------------------------------------------------------------------
(11) Aggregate amount beneficially
 owned by each reporting person.
------------------------------------------------------------------------
(12) Check if the aggregate amount in
 Row (11) excludes certain shares (see
 instructions).
------------------------------------------------------------------------
(13) Percent of class represented by
 amount in Row (11).
------------------------------------------------------------------------
(14) Type of reporting person (see
 instructions).
------------------------------------------------------------------------

                            Page _ of _ Pages

Instructions for Cover Page

    (1) Names of Reporting Persons--Furnish the full legal name of each 
person for whom the report is filed--i.e., each person required to sign 
the schedule itself--including each member of a group. Do not include 
the name of a person required to be identified in the report but who is 
not a reporting person.
    (2) If any of the shares beneficially owned by a reporting person 
are held as a member of the group and the membership is expressly 
affirmed, please check row 2(a). If the reporting person disclaims 
membership in a group or describes a relationship with other person but 
does not affirm the existence of a group, please check row 2(b) (unless 
it is a joint filing pursuant to Rule 13d-1(k)(1) in which case it may 
not be necessary to check row 2(b)).
    (3) The 3rd row is for SEC internal use; please leave blank.
    (4) Classify the source of funds or other consideration used or to 
be used in making the purchases as required to be disclosed pursuant to 
Item 3 of Schedule 13D and insert the appropriate symbol (or symbols if 
more than one is necessary) in row (4):

------------------------------------------------------------------------
              Category of Source                         Symbol
------------------------------------------------------------------------
Subject Company (Company whose securities are  SC
 being acquired).
Bank.........................................  BK
Affiliate (of reporting person)..............  AF
Working Capital (of reporting person)........  WC
Personal Funds (of reporting person).........  PF
Other........................................  OO
------------------------------------------------------------------------

    (5) If disclosure of legal proceedings or actions is required 
pursuant to either Items 2(d) or 2(e) of Schedule 13D, row 5 should be 
checked.
    (6) Citizenship or Place of Organization--Furnish citizenship if the 
named reporting person is a natural person. Otherwise, Furnish place of 
organization. (See Item 2 of Schedule 13D).
    (7)-(11) [Reserved]
    (12) Check if the aggregate amount reported as beneficially owned in 
row (11) does not include shares which the reporting person discloses in 
the report but as to which beneficial ownership is disclaimed pursuant 
to Rule 13d-4 [17 CFR 240.13d-4] under the Securities Exchange Act of 
1934.
    (13) Aggregate Amount Beneficially Owned by Each Reporting Person, 
Etc.--Rows (7) through (11), inclusive, and (13) are to be completed in 
accordance with the provisions of Item 5 of Schedule 13D. All 
percentages are to be rounded off to nearest tenth (one place after 
decimal point).
    (14) Type of Reporting Person--Please classify each ``reporting 
person'' according to the following breakdown and place the appropriate 
symbol (or symbols, i.e., if more than one is applicable, insert all 
applicable symbols) on the form:

------------------------------------------------------------------------
                  Category                              Symbol
------------------------------------------------------------------------
Broker Dealer...............................  BD
Bank........................................  BK
Insurance Company...........................  IC
Investment Company..........................  IV
Investment Adviser..........................  IA
Employee Benefit Plan or Endowment Fund.....  EP
Parent Holding Company/Control Person.......  HC
Savings Association.........................  SA
Church Plan.................................  CP
Corporation.................................  CO
Partnership.................................  PN
Individual..................................  IN
Other.......................................  OO
------------------------------------------------------------------------

    Notes: Attach as many copies of the second part of the cover page as 
are needed, one reporting person per page.
    Filing persons may, in order to avoid unnecessary duplication, 
answer items on the schedules (Schedule 13D, 13G or TO) by appropriate 
cross references to an item or items on the cover page(s). This approach 
may only be used where the cover page item or items provide all the 
disclosure required by the schedule item. Moreover, such a use of a 
cover page item will result in the item becoming a part of the schedule 
and accordingly being considered as ``filed'' for purposes of section 18 
of the Securities Exchange Act or otherwise subject to the liabilities 
of that section of the Act.
    Reporting persons may comply with their cover page filing 
requirements by filing either completed copies of the blank forms

[[Page 179]]

available from the Commission, printed or typed facsimiles, or computer 
printed facsimiles, provided the documents filed have identical formats 
to the forms prescribed in the Commission's regulations and meet 
existing Securities Exchange Act rules as to such matters as clarity and 
size (Securities Exchange Act Rule 12b-12).

          Special Instructions for Complying With Schedule 13D

    Under sections 13(d) and 23 of the Securities Exchange Act of 1934 
and the rules and regulations thereunder, the Commission is authorized 
to solicit the information required to be supplied by this schedule by 
certain security holders of certain issuers.
    Disclosure of the information specified in this schedule is 
mandatory. The information will be used for the primary purpose of 
determining and disclosing the holdings of certain beneficial owners of 
certain equity securities. This statement will be made a matter of 
public record. Therefore, any information given will be available for 
inspection by any member of the public.
    Because of the public nature of the information, the Commission can 
use it for a variety of purposes, including referral to other 
governmental authorities or securities self-regulatory organizations for 
investigatory purposes or in connection with litigation involving the 
federal securities laws or other civil, criminal or regulatory statutes 
or provisions.
    Failure to disclose the information requested by this schedule may 
result in civil or criminal action against the persons involved for 
violation of the federal securities laws and rules promulgated 
thereunder.

    Instructions. A. The item numbers and captions of the items shall be 
included but the text of the items is to be omitted. The answers to the 
items shall be so prepared as to indicate clearly the coverage of the 
items without referring to the text of the items. Answer every item. If 
an item is inapplicable or the answer is in the negative, so state.
    B. Information contained in exhibits to the statement may be 
incorporated by reference in answer or partial answer to any item or 
sub-item of the statement unless it would render such answer misleading, 
incomplete, unclear or confusing. Material incorporated by reference 
shall be clearly identified in the reference by page, paragraph, caption 
or otherwise. An express statement that the specified matter is 
incorporated by reference shall be made at the particular place in the 
statement where the information is required. A copy of any information 
or a copy of the pertinent pages of a document containing such 
information which is incorporated by reference shall be submitted with 
this statement as an exhibit and shall be deemed to be filed with the 
Commission for all purposes of the Act.
    C. If the statement is filed by a general or limited partnership, 
syndicate, or other group, the information called for by Items 2-6, 
inclusive, shall be given with respect to (i) each partner of such 
general partnership; (ii) each partner who is denominated as a general 
partner or who functions as a general partner of such limited 
partnership; (iii) each member of such syndicate or group; and (iv) each 
person controlling such partner or member. If the statement is filed by 
a corporation or if a person referred to in (i), (ii), (iii) or (iv) of 
this Instruction is a corporation, the information called for by the 
above mentioned items shall be given with respect to (a) each executive 
officer and director of such corporation; (b) each person controlling 
such corporation; and (c) each executive officer and director of any 
corporation or other person ultimately in control of such corporation.
    Item 1. Security and Issuer. State the title of the class of equity 
securities to which this statement relates and the name and address of 
the principal executive offices of the issuer of such securities.
    Item 2. Identity and Background. If the person filing this statement 
or any person enumerated in Instruction C of this statement is a 
corporation, general partnership, limited partnership, syndicate or 
other group of persons, state its name, the state or other place of its 
organization, its principal business, the address of its principal 
office and the information required by (d) and (e) of this Item. If the 
person filing this statement or any person enumerated in Instruction C 
is a natural person, provide the information specified in (a) through 
(f) of this Item with respect to such person(s).
    (a) Name;
    (b) Residence or business address;
    (c) Present principal occupation or employment and the name, 
principal business and address of any corporation or other organization 
in which such employment is conducted;
    (d) Whether or not, during the last five years, such person has been 
convicted in a criminal proceeding (excluding traffic violations or 
similar misdemeanors) and, if so, give the dates, nature of conviction, 
name and location of court, any penalty imposed, or other disposition of 
the case;
    (e) Whether or not, during the last five years, such person was a 
party to a civil proceeding of a judicial or administrative body of 
competent jurisdiction and as a result of such proceeding was or is 
subject to a judgment, decree or final order enjoining future violations 
of, or prohibiting or mandating activities subject to, federal or state 
securities laws or finding any violation with respect to such laws; and, 
if so, identify and describe such proceedings and summarize the

[[Page 180]]

terms of such judgment, decree or final order; and
    (f) Citizenship.
    Item 3. Source and Amount of Funds or Other Consideration. State the 
source and the amount of funds or other consideration used or to be used 
in making the purchases, and if any part of the purchase price is or 
will be represented by funds or other consideration borrowed or 
otherwise obtained for the purpose of acquiring, holding, trading or 
voting the securities, a description of the transaction and the names of 
the parties thereto. Where material, such information should also be 
provided with respect to prior acquisitions not previously reported 
pursuant to this regulation. If the source of all or any part of the 
funds is a loan made in the ordinary course of business by a bank, as 
defined in section 3(a)(6) of the Act, the name of the bank shall not be 
made available to the public if the person at the time of filing the 
statement so requests in writing and files such request, naming such 
bank, with the Secretary of the Commission. If the securities were 
acquired other than by purchase, describe the method of acquisition.
    Item 4. Purpose of Transaction. State the purpose or purposes of the 
acquisition of securities of the issuer. Describe any plans or proposals 
which the reporting persons may have which relate to or would result in:
    (a) The acquisition by any person of additional securities of the 
issuer, or the disposition of securities of the issuer;
    (b) An extraordinary corporate transaction, such as a merger, 
reorganization or liquidation, involving the issuer or any of its 
subsidiaries;
    (c) A sale or transfer of a material amount of assets of the issuer 
or any of its subsidiaries;
    (d) Any change in the present board of directors or management of 
the issuer, including any plans or proposals to change the number or 
term of directors or to fill any existing vacancies on the board;
    (e) Any material change in the present capitalization or dividend 
policy of the issuer;
    (f) Any other material change in the issuer's business or corporate 
structure, including but not limited to, if the issuer is a registered 
closed-end investment company, any plans or proposals to make any 
changes in its investment policy for which a vote is required by section 
13 of the Investment Company Act of 1940;
    (g) Changes in the issuer's charter, bylaws or instruments 
corresponding thereto or other actions which may impede the acquisition 
of control of the issuer by any person;
    (h) Causing a class of securities of the issuer to be delisted from 
a national securities exchange or to cease to be authorized to be quoted 
in an inter-dealer quotation system of a registered national securities 
association;
    (i) A class of equity securities of the issuer becoming eligible for 
termination of registration pursuant to section 12(g)(4) of the Act; or
    (j) Any action similar to any of those enumerated above.
    Item 5. Interest in Securities of the Issuer. (a) State the 
aggregate number and percentage of the class of securities identified 
pursuant to Item 1 (which may be based on the number of securities 
outstanding as contained in the most recently available filing with the 
Commission by the issuer unless the filing person has reason to believe 
such information is not current) beneficially owned (identifying those 
shares which there is a right to acquire) by each person named in Item 
2. The above mentioned information should also be furnished with respect 
to persons who, together with any of the persons named in Item 2, 
comprise a group within the meaning of section 13(d)(3) of the Act;
    (b) For each person named in response to paragraph (a), indicate the 
number of shares as to which there is sole power to vote or to direct 
the vote, sole power to dispose or to direct the disposition, or shared 
power to dispose or to direct the disposition. Provide the applicable 
information required by Item 2 with respect to each person with whom the 
power to vote or to direct the vote or to dispose or direct the 
disposition is shared;
    (c) Describe any transactions in the class of securities reported on 
that were effected during the past sixty days or since the most recent 
filing of Schedule 13D (Sec.240.13d-101), whichever is less, by the 
persons named in response to paragraph (a).
    Instruction. The description of a transaction required by Item 5(c) 
shall include, but not necessarily be limited to: (1) The identity of 
the person covered by Item 5(c) who effected the transaction; (2) the 
date of transaction; (3) the amount of securities involved; (4) the 
price per share or unit; and (5) where and how the transaction was 
effected.
    (d) If any other person is known to have the right to receive or the 
power to direct the receipt of dividends from, or the proceeds from the 
sale of, such securities, a statement to that effect should be included 
in response to this item and, if such interest relates to more than five 
percent of the class, such person should be identified. A listing of the 
shareholders of an investment company registered under the Investment 
Company Act of 1940 or the beneficiaries of an employee benefit plan, 
pension fund or endowment fund is not required.
    (e) If applicable, state the date on which the reporting person 
ceased to be the beneficial owner of more than five percent of the class 
of securities.
    Instruction. For computations regarding securities which represent a 
right to acquire an underlying security, see Rule 13d-3(d)(1) and the 
note thereto.

[[Page 181]]

    Item 6. Contracts, Arrangements, Understandings or Relationships 
With Respect to Securities of the Issuer. Describe any contracts, 
arrangements, understandings or relationships (legal or otherwise) among 
the persons named in Item 2 and between such persons and any person with 
respect to any securities of the issuer, including but not limited to 
transfer or voting of any of the securities, finder's fees, joint 
ventures, loan or option arrangements, puts or calls, guarantees of 
profits, division of profits or loss, or the giving or withholding of 
proxies, naming the persons with whom such contracts, arrangements, 
understandings or relationships have been entered into. Include such 
information for any of the securities that are pledged or otherwise 
subject to a contingency the occurrence of which would give another 
person voting power or investment power over such securities except that 
disclosure of standard default and similar provisions contained in loan 
agreements need not be included.
    Item 7. Material to be Filed as Exhibits. The following shall be 
filed as exhibits: Copies of written agreements relating to the filing 
of joint acquisition statements as required by Rule 13d-1(k) and copies 
of all written agreements, contracts, arrangements, understanding, plans 
or proposals relating to: (1) The borrowing of funds to finance the 
acquisition as disclosed in Item 3; (2) the acquisition of issuer 
control, liquidation, sale of assets, merger, or change in business or 
corporate structure, or any other matter as disclosed in Item 4; and (3) 
the transfer or voting of the securities, finder's fees, joint ventures, 
options, puts, calls, guarantees of loans, guarantees against loss or of 
profit, or the giving or withholding of any proxy as disclosed in Item 
6.
    Signature. After reasonable inquiry and to the best of my knowledge 
and belief, I certify that the information set forth in this statement 
is true, complete and correct.
Date____________________________________________________________________
Signature_______________________________________________________________
Name/Title______________________________________________________________
    The original statement shall be signed by each person on whose 
behalf the statement is filed or his authorized representative. If the 
statement is signed on behalf of a person by his authorized 
representative (other than an executive officer or general partner of 
the filing person), evidence of the representative's authority to sign 
on behalf of such person shall be filed with the statement: Provided, 
however, That a power of attorney for this purpose which is already on 
file with the Commission may be incorporated by reference. The name and 
any title of each person who signs the statement shall be typed or 
printed beneath his signature.
    Attention--Intentional misstatements or omissions of fact constitute 
Federal criminal violations (See 18 U.S.C. 1001).

[44 FR 2145, Jan. 9, 1979; 44 FR 11751, Mar. 2, 1979; 44 FR 70340, Dec. 
6, 1979; 47 FR 11466, Mar. 16, 1982; 61 FR 49959, Sept. 24, 1996; 62 FR 
35340, July 1, 1997; 63 FR 2867, Jan. 16, 1998; 63 FR 15287, Mar. 31, 
1998; 72 FR 45111, Aug. 10, 2007; 73 FR 17813, Apr. 1, 2008]



Sec.240.13d-102  Schedule 13G--Information to be included in 
statements filed pursuant to Sec.240.13d-1(b), (c), and (d) 
and amendments thereto filed pursuant to Sec.240.13d-2.
          

Securities and Exchange Commission, Washington, D.C. 20549

Schedule 13G

Under the Securities Exchange Act of 1934

(Amendment No._)*
________________________________________________________________________
(Name of Issuer)
________________________________________________________________________
(Title of Class of Securities)
________________________________________________________________________
(CUSIP Number)
________________________________________________________________________
(Date of Event Which Requires Filing of this Statement)

    Check the appropriate box to designate the rule pursuant to which 
this Schedule is filed:

[ ] Rule 13d-1(b)
[ ] Rule 13d-1(c)
[ ] Rule 13d-1(d)

    * The remainder of this cover page shall be filled out for a 
reporting person's initial filing on this form with respect to the 
subject class of securities, and for any subsequent amendment containing 
information which would alter the disclosures provided in a prior cover 
page.
    The information required in the remainder of this cover page shall 
not be deemed to be ``filed'' for the purpose of Section 18 of the 
Securities Exchange Act of 1934 (``Act'') or otherwise subject to the 
liabilities of that section of the Act but shall be subject to all other 
provisions of the Act (however, see the Notes).

------------------------------------------------------------------------
 
------------------------------------------------------------------------
                              CUSIP No.___
------------------------------------------------------------------------
(1) Names of reporting persons.........
(2) Check the appropriate box if a       (a)
 member of a group
                                        --------------------------------
           (see instructions)            (b)
------------------------------------------------------------------------
(3) SEC use only.......................
------------------------------------------------------------------------

[[Page 182]]

 
(4) Citizenship or place of
 organization.
------------------------------------------------------------------------
Number of shares beneficially owned by
 each reporting person with:
  (5) Sole voting power................
                                        --------------------------------
  (6) Shared voting power..............
                                        --------------------------------
  (7) Sole dispositive power...........
                                        --------------------------------
  (8) Shared dispositive power.........
------------------------------------------------------------------------
(9) Aggregate amount beneficially owned
 by each reporting person.
------------------------------------------------------------------------
(10) Check if the aggregate amount in
 Row (9) excludes certain shares (see
 instructions).
------------------------------------------------------------------------
(11) Percent of class represented by
 amount in Row (9).
------------------------------------------------------------------------
(12) Type of reporting person (see
 instructions).
------------------------------------------------------------------------

                            Page _ of _ Pages

Instructions for Cover Page:

    (1) Names of Reporting Persons--Furnish the full legal name of each 
person for whom the report is filed--i.e., each person required to sign 
the schedule itself--including each member of a group. Do not include 
the name of a person required to be identified in the report but who is 
not a reporting person.
    (2) If any of the shares beneficially owned by a reporting person 
are held as a member of a group and that membership is expressly 
affirmed, please check row 2(a). If the reporting person disclaims 
membership in a group or describes a relationship with other person but 
does not affirm the existence of a group, please check row 2(b) [unless 
it is a joint filing pursuant to Rule 13d-1(k)(1) in which case it may 
not be necessary to check row 2(b)].
    (3) The third row is for SEC internal use; please leave blank.
    (4) Citizenship or Place of Organization--Furnish citizenship if the 
named reporting person is a natural person. Otherwise, furnish place of 
organization.
    (5)-(9), (11) Aggregated Amount Beneficially Owned By Each Reporting 
Person, etc.--Rows (5) through (9) inclusive, and (11) are to be 
completed in accordance with the provisions of Item 4 of Schedule 13G. 
All percentages are to be rounded off to the nearest tenth (one place 
after decimal point).
    (10) Check if the aggregate amount reported as beneficially owned in 
row (9) does not include shares as to which beneficial ownership is 
disclaimed pursuant to Rule 13d-4 [17 CFR 240.13d-4] under the 
Securities Exchange Act of 1934.
    (12) Type of Reporting Person--Please classify each ``reporting 
person'' according to the following breakdown (see Item 3 of Schedule 
13G) and place the appropriate Symbol on the form:

------------------------------------------------------------------------
                           Category                              Symbol
------------------------------------------------------------------------
Broker Dealer................................................         BD
Bank.........................................................         BK
Insurance Company............................................         IC
Investment Company...........................................         IV
Investment Adviser...........................................         IA
Employee Benefit Plan or Endowment Fund......................         EP
Parent Holding Company/Control Person........................         HC
Savings Association..........................................         SA
Church Plan..................................................         CP
Corporation..................................................         CO
Partnership..................................................         PN
Individual...................................................         IN
Non-U.S. Institution.........................................         FI
Other........................................................         OO
------------------------------------------------------------------------

    Notes: Attach as many copies of the second part of the cover page as 
are needed, one reporting person per page.
    Filing persons may, in order to avoid unnecessary duplication, 
answer items on the schedules (Schedule 13D, 13G or TO) by appropriate 
cross references to an item or items on the cover page(s). This approach 
may only be used where the cover page item or items provide all the 
disclosure required by the schedule item. Moreover, such a use of a 
cover page item will result in the item becoming a part of the schedule 
and accordingly being considered as ``filed'' for purposes of section 18 
of the Securities Exchange Act or otherwise subject to the liabilities 
of that section of the Act.
    Reporting persons may comply with their cover page filing 
requirements by filing either completed copies of the blank forms 
available from the Commission, printed or typed facsimiles, or computer 
printed facsimiles, provided the documents filed have identical formats 
to the forms prescribed in the Commission's regulations and meet 
existing Securities Exchange Act rules as to such matters as clarity and 
size (Securities Exchange Act Rule 12b-12).

[[Page 183]]

          Special Instructions for Complying With Schedule 13G

    Under Sections 13(d), 13(g) and 23 of the Securities Exchange Act of 
1934 and the rules and regulations thereunder, the Commission is 
authorized to solicit the information required to be supplied by this 
schedule by certain security holders of certain issuers.
    Disclosure of the information specified in this schedule is 
mandatory. The information will be used for the primary purpose of 
determining and disclosing the holdings of certain beneficial owners of 
certain equity securities. This statement will be made a matter of 
public record. Therefore, any information given will be available for 
inspection by any member of the public.
    Because of the public nature of the information, the Commission can 
use it for a variety of purposes, including referral to other 
governmental authorities or securities self-regulatory organizations for 
investigatory purposes or in connection with litigation involving the 
Federal securities laws or other civil, criminal or regulatory statutes 
or provisions.
    Failure to disclose the information requested by this schedule may 
result in civil or criminal action against the persons involved for 
violation of the Federal securities laws and rules promulgated 
thereunder.
    Instructions. A. Statements filed pursuant to Rule 13d-1(b) 
containing the information required by this schedule shall be filed not 
later than February 14 following the calendar year covered by the 
statement or within the time specified in Rules 13d-1(b)(2) and 13d-
2(c). Statements filed pursuant to Rule 13d-1(d) shall be filed within 
the time specified in Rules 13d-1(c), 13d-2(b) and 13d-2(d). Statements 
filed pursuant to Rule 13d-1(c) shall be filed not later than February 
14 following the calendar year covered by the statement pursuant to 
Rules 13d-1(d) and 13d-2(b).
    B. Information contained in a form which is required to be filed by 
rules under section 13(f) (15 U.S.C. 78m(f)) for the same calendar year 
as that covered by a statement on this schedule may be incorporated by 
reference in response to any of the items of this schedule. If such 
information is incorporated by reference in this schedule, copies of the 
relevant pages of such form shall be filed as an exhibit to this 
schedule.
    C. The item numbers and captions of the items shall be included but 
the text of the items is to be omitted. The answers to the items shall 
be so prepared as to indicate clearly the coverage of the items without 
referring to the text of the items. Answer every item. If an item is 
inapplicable or the answer is in the negative, so state.
    Item 1(a) Name of issuer:___
    Item 1(b) Address of issuer's principal executive offices:____
    2(a) Name of person filing:
________________________________________________________________________
    2(b) Address or principal business office or, if none, residence:
________________________________________________________________________
    2(c) Citizenship:
________________________________________________________________________
    2(d) Title of class of securities:
________________________________________________________________________
    2(e) CUSIP No.:
________________________________________________________________________
    Item 3. If this statement is filed pursuant to Sec.Sec.240.13d-
1(b) or 240.13d-2(b) or (c), check whether the person filing is a:
    (a) [ ] Broker or dealer registered under section 15 of the Act (15 
U.S.C. 78o);
    (b) [ ] Bank as defined in section 3(a)(6) of the Act (15 U.S.C. 
78c);
    (c) [ ] Insurance company as defined in section 3(a)(19) of the Act 
(15 U.S.C. 78c);
    (d) [ ] Investment company registered under section 8 of the 
Investment Company Act of 1940 (15 U.S.C 80a-8);
    (e) [ ] An investment adviser in accordance with Sec.240.13d-
1(b)(1)(ii)(E);
    (f) [ ] An employee benefit plan or endowment fund in accordance 
with Sec.240.13d-1(b)(1)(ii)(F);
    (g) [ ] A parent holding company or control person in accordance 
with Sec.240.13d-1(b)(1)(ii)(G);
    (h) [ ] A savings associations as defined in Section 3(b) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813);
    (i) [ ] A church plan that is excluded from the definition of an 
investment company under section 3(c)(14) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-3);
    (j) [ ] A non-U.S. institution in accordance with Sec.240.13d-
1(b)(1)(ii)(J);
    (k) [ ] Group, in accordance with Sec.240.13d-1(b)(1)(ii)(K). If 
filing as a non-U.S. institution in accordance with Sec.240.13d-
1(b)(1)(ii)(J), please specify the type of institution: ____

                            Item 4. Ownership

    Provide the following information regarding the aggregate number and 
percentage of the class of securities of the issuer identified in Item 
1.
    (a) Amount beneficially owned: _____.
    (b) Percent of class: _____.
    (c) Number of shares as to which the person has:
    (i) Sole power to vote or to direct the vote _____.
    (ii) Shared power to vote or to direct the vote _____.
    (iii) Sole power to dispose or to direct the disposition of _____.
    (iv) Shared power to dispose or to direct the disposition of _____.
    Instruction. For computations regarding securities which represent a 
right to acquire an underlying security see Sec.240.13d-3(d)(1).

[[Page 184]]

    Item 5. Ownership of 5 Percent or Less of a Class. If this statement 
is being filed to report the fact that as of the date hereof the 
reporting person has ceased to be the beneficial owner of more than 5 
percent of the class of securities, check the following [ ].
    Instruction. Dissolution of a group requires a response to this 
item.
    Item 6. Ownership of More than 5 Percent on Behalf of Another 
Person. If any other person is known to have the right to receive or the 
power to direct the receipt of dividends from, or the proceeds from the 
sale of, such securities, a statement to that effect should be included 
in response to this item and, if such interest relates to more than 5 
percent of the class, such person should be identified. A listing of the 
shareholders of an investment company registered under the Investment 
Company Act of 1940 or the beneficiaries of employee benefit plan, 
pension fund or endowment fund is not required.
    Item 7. Identification and Classification of the Subsidiary Which 
Acquired the Security Being Reported on by the Parent Holding Company or 
Control Person. If a parent holding company or control person has filed 
this schedule pursuant to Rule 13d-1(b)(1)(ii)(G), so indicate under 
Item 3(g) and attach an exhibit stating the identity and the Item 3 
classification of the relevant subsidiary. If a parent holding company 
or control person has filed this schedule pursuant to Rule 13d-1(c) or 
Rule 13d-1(d), attach an exhibit stating the identification of the 
relevant subsidiary.

    Item 8. Identification and Classification of Members of the Group

    If a group has filed this schedule pursuant to Sec.240.13d-
1(b)(1)(ii)(J), so indicate under Item 3(j) and attach an exhibit 
stating the identity and Item 3 classification of each member of the 
group. If a group has filed this schedule pursuant to Rule 13d-1(c) or 
Rule 13d-1(d), attach an exhibit stating the identity of each member of 
the group.
    Item 9. Notice of Dissolution of Group. Notice of dissolution of a 
group may be furnished as an exhibit stating the date of the dissolution 
and that all further filings with respect to transactions in the 
security reported on will be filed, if required, by members of the 
group, in their individual capacity. See Item 5.

                         Item 10. Certifications

    (a) The following certification shall be included if the statement 
is filed pursuant to Sec.240.13d-1(b):
    By signing below I certify that, to the best of my knowledge and 
belief, the securities referred to above were acquired and are held in 
the ordinary course of business and were not acquired and are not held 
for the purpose of or with the effect of changing or influencing the 
control of the issuer of the securities and were not acquired and are 
not held in connection with or as a participant in any transaction 
having that purpose or effect, other than activities solely in 
connection with a nomination under Sec.240.14a-11.
    (b) The following certification shall be included if the statement 
is filed pursuant to Sec.240.13d-1(b)(1)(ii)(J), or if the statement 
is filed pursuant to Sec.240.13d-1(b)(1)(ii)(K) and a member of the 
group is a non-U.S. institution eligible to file pursuant to Sec.
240.13d-1(b)(1)(ii)(J):
    By signing below I certify that, to the best of my knowledge and 
belief, the foreign regulatory scheme applicable to [insert particular 
category of institutional investor] is substantially comparable to the 
regulatory scheme applicable to the functionally equivalent U.S. 
institution(s). I also undertake to furnish to the Commission staff, 
upon request, information that would otherwise be disclosed in a 
Schedule 13D.
    (c) The following certification shall be included if the statement 
is filed pursuant to Sec.240.13d-1(c):
    By signing below I certify that, to the best of my knowledge and 
belief, the securities referred to above were not acquired and are not 
held for the purpose of or with the effect of changing or influencing 
the control of the issuer of the securities and were not acquired and 
are not held in connection with or as a participant in any transaction 
having that purpose or effect, other than activities solely in 
connection with a nomination under Sec.240.14a-11.
    Signature. After reasonable inquiry and to the best of my knowledge 
and belief, I certify that the information set forth in this statement 
is true, complete and correct.
    Dated:__
                                                                  _____.
                                                              Signature.
                                                                  _____.
                                                             Name/Title.

    The original statement shall be signed by each person on whose 
behalf the statement is filed or his authorized representative. If the 
statement is signed on behalf of a person by his authorized 
representative other than an executive officer or general partner of the 
filing person, evidence of the representative's authority to sign on 
behalf of such person shall be filed with the statement, Provided, 
however, That a power of attorney for this purpose which is already on 
file with the Commission may be incorporated by reference. The name and 
any title of each person who signs the statement shall be typed or 
printed beneath his signature.

    Note: Schedules filed in paper format shall include a signed 
original and five copies of the schedule, including all exhibits. See 
Rule 13d-7 for other parties for whom copies are to be sent.


[[Page 185]]


    Attention: Intentional misstatements or omissions of fact constitute 
Federal criminal violations (see 18 U.S.C. 1001).

[43 FR 18499, Apr. 28, 1978, as amended at 43 FR 55756, Nov. 29, 1978; 
44 FR 2148, Jan. 9, 1979; 44 FR 11751, Mar. 2, 1979; 61 FR 49959, Sept. 
24, 1996; 62 FR 35340, July 1, 1997; 63 FR 2867, Jan. 16, 1998; 63 FR 
15287, Mar. 31, 1998; 72 FR 45112, Aug. 10, 2007; 73 FR 17813, Apr. 1, 
2008; 73 FR 60089, Oct. 9, 2008; 75 FR 56780, Sept. 16, 2010]



Sec.240.13e-1  Purchase of securities by the issuer during 
a third-party tender offer.

    An issuer that has received notice that it is the subject of a 
tender offer made under Section 14(d)(1) of the Act (15 U.S.C. 78n), 
that has commenced under Sec.240.14d-2 must not purchase any of its 
equity securities during the tender offer unless the issuer first:
    (a) Files a statement with the Commission containing the following 
information:
    (1) The title and number of securities to be purchased;
    (2) The names of the persons or classes of persons from whom the 
issuer will purchase the securities;
    (3) The name of any exchange, inter-dealer quotation system or any 
other market on or through which the securities will be purchased;
    (4) The purpose of the purchase;
    (5) Whether the issuer will retire the securities, hold the 
securities in its treasury, or dispose of the securities. If the issuer 
intends to dispose of the securities, describe how it intends to do so; 
and
    (6) The source and amount of funds or other consideration to be used 
to make the purchase. If the issuer borrows any funds or other 
consideration to make the purchase or enters any agreement for the 
purpose of acquiring, holding, or trading the securities, describe the 
transaction and agreement and identify the parties; and
    (b) Pays the fee required by Sec.240.0-11 when it files the 
initial statement.
    (c) This section does not apply to periodic repurchases in 
connection with an employee benefit plan or other similar plan of the 
issuer so long as the purchases are made in the ordinary course and not 
in response to the tender offer.

    Instruction to Sec.240.13e-1: File eight copies if paper filing is 
permitted.

[64 FR 61452, Nov. 10, 1999]



Sec.240.13e-2  [Reserved]



Sec.240.13e-3  Going private transactions by certain issuers or their 
affiliates.

    (a) Definitions. Unless indicated otherwise or the context otherwise 
requires, all terms used in this section and in Schedule 13E-3 [Sec.
240.13e-100] shall have the same meaning as in the Act or elsewhere in 
the General Rules and Regulations thereunder. In addition, the following 
definitions apply:
    (1) An affiliate of an issuer is a person that directly or 
indirectly through one or more intermediaries controls, is controlled 
by, or is under common control with such issuer. For the purposes of 
this section only, a person who is not an affiliate of an issuer at the 
commencement of such person's tender offer for a class of equity 
securities of such issuer will not be deemed an affiliate of such issuer 
prior to the stated termination of such tender offer and any extensions 
thereof;
    (2) The term purchase means any acquisition for value including, but 
not limited to, (i) any acquisition pursuant to the dissolution of an 
issuer subsequent to the sale or other disposition of substantially all 
the assets of such issuer to its affiliate, (ii) any acquisition 
pursuant to a merger, (iii) any acquisition of fractional interests in 
connection with a reverse stock split, and (iv) any acquisition subject 
to the control of an issuer or an affiliate of such issuer;
    (3) A Rule 13e-3 transaction is any transaction or series of 
transactions involving one or more of the transactions described in 
paragraph (a)(3)(i) of this section which has either a reasonable 
likelihood or a purpose of producing, either directly or indirectly, any 
of the effects described in paragraph (a)(3)(ii) of this section;
    (i) The transactions referred to in paragraph (a)(3) of this section 
are:
    (A) A purchase of any equity security by the issuer of such security 
or by an affiliate of such issuer;
    (B) A tender offer for or request or invitation for tenders of any 
equity security made by the issuer of such class

[[Page 186]]

of securities or by an affiliate of such issuer; or
    (C) A solicitation subject to Regulation 14A [Sec.Sec.240.14a-1 
to 240.14b-1] of any proxy, consent or authorization of, or a 
distribution subject to Regulation 14C [Sec.Sec.240.14c-1 to 14c-101] 
of information statements to, any equity security holder by the issuer 
of the class of securities or by an affiliate of such issuer, in 
connection with: a merger, consolidation, reclassification, 
recapitalization, reorganization or similar corporate transaction of an 
issuer or between an issuer (or its subsidiaries) and its affiliate; a 
sale of substantially all the assets of an issuer to its affiliate or 
group of affiliates; or a reverse stock split of any class of equity 
securities of the issuer involving the purchase of fractional interests.
    (ii) The effects referred to in paragraph (a)(3) of this section 
are:
    (A) Causing any class of equity securities of the issuer which is 
subject to section 12(g) or section 15(d) of the Act to become eligible 
for termination of registration under Rule 12g-4 (Sec.240.12g-4) or 
Rule 12h-6 (Sec.240.12h-6), or causing the reporting obligations with 
respect to such class to become eligible for termination under Rule 12h-
6 (Sec.240.12h-6); or suspension under Rule 12h-3 (Sec.240.12h-3) or 
section 15(d); or
    (B) Causing any class of equity securities of the issuer which is 
either listed on a national securities exchange or authorized to be 
quoted in an inter-dealer quotation system of a registered national 
securities association to be neither listed on any national securities 
exchange nor authorized to be quoted on an inter-dealer quotation system 
of any registered national securities association.
    (4) An unaffiliated security holder is any security holder of an 
equity security subject to a Rule 13e-3 transaction who is not an 
affiliate of the issuer of such security.
    (b) Application of section to an issuer (or an affiliate of such 
issuer) subject to section 12 of the Act. (1) It shall be a fraudulent, 
deceptive or manipulative act or practice, in connection with a Rule 
13e-3 transaction, for an issuer which has a class of equity securities 
registered pursuant to section 12 of the Act or which is a closed-end 
investment company registered under the Investment Company Act of 1940, 
or an affiliate of such issuer, directly or indirectly
    (i) To employ any device, scheme or artifice to defraud any person;
    (ii) To make any untrue statement of a material fact or to omit to 
state a material fact necessary in order to make the statements made, in 
light of the circumstances under which they were made, not misleading; 
or
    (iii) To engage in any act, practice or course of business which 
operates or would operate as a fraud or deceit upon any person.
    (2) As a means reasonably designed to prevent fraudulent, deceptive 
or manipulative acts or practices in connection with any Rule 13e-3 
transaction, it shall be unlawful for an issuer which has a class of 
equity securities registered pursuant to section 12 of the Act, or an 
affiliate of such issuer, to engage, directly or indirectly, in a Rule 
13e-3 transaction unless:
    (i) Such issuer or affiliate complies with the requirements of 
paragraphs (d), (e) and (f) of this section; and
    (ii) The Rule 13e-3 transaction is not in violation of paragraph 
(b)(1) of this section.
    (c) Application of section to an issuer (or an affiliate of such 
issuer) subject to section 15(d) of the Act. (1) It shall be unlawful as 
a fraudulent, deceptive or manipulative act or practice for an issuer 
which is required to file periodic reports pursuant to Section 15(d) of 
the Act, or an affiliate of such issuer, to engage, directly or 
indirectly, in a Rule 13e-3 transaction unless such issuer or affiliate 
complies with the requirements of paragraphs (d), (e) and (f) of this 
section.
    (2) An issuer or affiliate which is subject to paragraph (c)(1) of 
this section and which is soliciting proxies or distributing information 
statements in connection with a transaction described in paragraph 
(a)(3)(i)(A) of this section may elect to use the timing procedures for 
conducting a solicitation subject to Regulation 14A (Sec.Sec.240.14a-
1 to 240.14b-1) or a distribution subject to Regulation 14C (Sec.Sec.
240.14c-1 to 240.14c-101) in complying with paragraphs (d), (e) and (f) 
of this section, provided that if an election is

[[Page 187]]

made, such solicitation or distribution is conducted in accordance with 
the requirements of the respective regulations, including the filing of 
preliminary copies of soliciting materials or an information statement 
at the time specified in Regulation 14A or 14C, respectively.
    (d) Material required to be filed. The issuer or affiliate engaging 
in a Rule 13e-3 transaction must file with the Commission:
    (1) A Schedule 13E-3 (Sec.240.13e-100), including all exhibits;
    (2) An amendment to Schedule 13E-3 reporting promptly any material 
changes in the information set forth in the schedule previously filed; 
and
    (3) A final amendment to Schedule 13E-3 reporting promptly the 
results of the Rule 13e-3 transaction.
    (e) Disclosure of information to security holders. (1) In addition 
to disclosing the information required by any other applicable rule or 
regulation under the federal securities laws, the issuer or affiliate 
engaging in a Sec.240.13e-3 transaction must disclose to security 
holders of the class that is the subject of the transaction, as 
specified in paragraph (f) of this section, the following:
    (i) The information required by Item 1 of Schedule 13E-3 (Sec.
240.13e-100) (Summary Term Sheet);
    (ii) The information required by Items 7, 8 and 9 of Schedule 13E-3, 
which must be prominently disclosed in a ``Special Factors'' section in 
the front of the disclosure document;
    (iii) A prominent legend on the outside front cover page that 
indicates that neither the Securities and Exchange Commission nor any 
state securities commission has: approved or disapproved of the 
transaction; passed upon the merits or fairness of the transaction; or 
passed upon the adequacy or accuracy of the disclosure in the document. 
The legend also must make it clear that any representation to the 
contrary is a criminal offense;
    (iv) The information concerning appraisal rights required by Sec.
229.1016(f) of this chapter; and
    (v) The information required by the remaining items of Schedule 13E-
3, except for Sec.229.1016 of this chapter (exhibits), or a fair and 
adequate summary of the information.

    Instructions to paragraph (e)(1): 1. If the Rule 13e-3 transaction 
also is subject to Regulation 14A (Sec.Sec.240.14a-1 through 240.14b-
2) or 14C (Sec.Sec.240.14c-1 through 240.14c-101), the registration 
provisions and rules of the Securities Act of 1933, Regulation 14D or 
Sec.240.13e-4, the information required by paragraph (e)(1) of this 
section must be combined with the proxy statement, information 
statement, prospectus or tender offer material sent or given to security 
holders.
    2. If the Rule 13e-3 transaction involves a registered securities 
offering, the legend required by Sec.229.501(b)(7) of this chapter 
must be combined with the legend required by paragraph (e)(1)(iii) of 
this section.
    3. The required legend must be written in clear, plain language.

    (2) If there is any material change in the information previously 
disclosed to security holders, the issuer or affiliate must disclose the 
change promptly to security holders as specified in paragraph 
(f)(1)(iii) of this section.
    (f) Dissemination of information to security holders. (1) If the 
Rule 13e-3 transaction involves a purchase as described in paragraph 
(a)(3)(i)(A) of this section or a vote, consent, authorization, or 
distribution of information statements as described in paragraph 
(a)(3)(i)(C) of this section, the issuer or affiliate engaging in the 
Rule 13e-3 transaction shall:
    (i) Provide the information required by paragraph (e) of this 
section: (A) In accordance with the provisions of any applicable Federal 
or State law, but in no event later than 20 days prior to: any such 
purchase; any such vote, consent or authorization; or with respect to 
the distribution of information statements, the meeting date, or if 
corporate action is to be taken by means of the written authorization or 
consent of security holders, the earliest date on which corporate action 
may be taken: Provided, however, That if the purchase subject to this 
section is pursuant to a tender offer excepted from Rule 13e-4 by 
paragraph (g)(5) of Rule 13e-4, the information required by paragraph 
(e) of this section shall be disseminated in accordance with paragraph 
(e) of Rule 13e-4 no later than 10 business days prior to any purchase 
pursuant to such tender offer, (B) to each person who is a record holder 
of a class of equity securities subject to the Rule 13e-3 transaction as 
of a date not more than 20

[[Page 188]]

days prior to the date of dissemination of such information.
    (ii) If the issuer or affiliate knows that securities of the class 
of securities subject to the Rule 13e-3 transaction are held of record 
by a broker, dealer, bank or voting trustee or their nominees, such 
issuer or affiliate shall (unless Rule 14a-13(a) [Sec.240.14a-13(a)] 
or 14c-7 [Sec.240.14c-7] is applicable) furnish the number of copies 
of the information required by paragraph (e) of this section that are 
requested by such persons (pursuant to inquiries by or on behalf of the 
issuer or affiliate), instruct such persons to forward such information 
to the beneficial owners of such securities in a timely manner and 
undertake to pay the reasonable expenses incurred by such persons in 
forwarding such information; and
    (iii) Promptly disseminate disclosure of material changes to the 
information required by paragraph (d) of this section in a manner 
reasonably calculated to inform security holders.
    (2) If the Rule 13e-3 transaction is a tender offer or a request or 
invitation for tenders of equity securities which is subject to 
Regulation 14D [Sec.Sec.240.14d-1 to 240.14d-101] or Rule 13e-4 
[Sec.240.13e-4], the tender offer containing the information required 
by paragraph (e) of this section, and any material change with respect 
thereto, shall be published, sent or given in accordance with Regulation 
14D or Rule 13e-4, respectively, to security holders of the class of 
securities being sought by the issuer or affiliate.
    (g) Exceptions. This section shall not apply to:
    (1) Any Rule 13e-3 transaction by or on behalf of a person which 
occurs within one year of the date of termination of a tender offer in 
which such person was the bidder and became an affiliate of the issuer 
as a result of such tender offer: Provided, That the consideration 
offered to unaffiliated security holders in such Rule 13e-3 transaction 
is at least equal to the highest consideration offered during such 
tender offer and Provided further, That:
    (i) If such tender offer was made for any or all securities of a 
class of the issuer;
    (A) Such tender offer fully disclosed such person's intention to 
engage in a Rule 13e-3 transaction, the form and effect of such 
transaction and, to the extent known, the proposed terms thereof; and
    (B) Such Rule 13e-3 transaction is substantially similar to that 
described in such tender offer; or
    (ii) If such tender offer was made for less than all the securities 
of a class of the issuer:
    (A) Such tender offer fully disclosed a plan of merger, a plan of 
liquidation or a similar binding agreement between such person and the 
issuer with respect to a Rule 13e-3 transaction; and
    (B) Such Rule 13e-3 transaction occurs pursuant to the plan of 
merger, plan of liquidation or similar binding agreement disclosed in 
the bidder's tender offer.
    (2) Any Rule 13e-3 transaction in which the security holders are 
offered or receive only an equity security Provided, That:
    (i) Such equity security has substantially the same rights as the 
equity security which is the subject of the Rule 13e-3 transaction 
including, but not limited to, voting, dividends, redemption and 
liquidation rights except that this requirement shall be deemed to be 
satisfied if unaffiliated security holders are offered common stock;
    (ii) Such equity security is registered pursuant to section 12 of 
the Act or reports are required to be filed by the issuer thereof 
pursuant to section 15(d) of the Act; and
    (iii) If the security which is the subject of the Rule 13e-3 
transaction was either listed on a national securities exchange or 
authorized to be quoted in an interdealer quotation system of a 
registered national securities association, such equity security is 
either listed on a national securities exchange or authorized to be 
quoted in an inter-dealer quotation system of a registered national 
securities association.
    (3) [Reserved]
    (4) Redemptions, calls or similar purchases of an equity security by 
an issuer pursuant to specific provisions set forth in the instrument(s) 
creating or governing that class of equity securities; or
    (5) Any solicitation by an issuer with respect to a plan of 
reorganization under Chapter XI of the Bankruptcy

[[Page 189]]

Act, as amended, if made after the entry of an order approving such plan 
pursuant to section 1125(b) of that Act and after, or concurrently with, 
the transmittal of information concerning such plan as required by 
section 1125(b) of that Act.
    (6) Any tender offer or business combination made in compliance with 
Sec.230.802 of this chapter, Sec.240.13e-4(h)(8) or Sec.240.14d-
1(c) or any other kind of transaction that otherwise meets the 
conditions for reliance on the cross-border exemptions set forth in 
Sec.240.13e-4(h)(8), Sec.240.14d-1(c) or Sec.230.802 of this 
chapter except for the fact that it is not technically subject to those 
rules.

    Instruction to Sec.240.13e-3(g)(6): To the extent applicable, the 
acquiror must comply with the conditions set forth in Sec.230.802 of 
this chapter, and Sec.Sec.240.13e-4(h)(8) and 14d-1(c). If the 
acquiror publishes or otherwise disseminates an informational document 
to the holders of the subject securities in connection with the 
transaction, the acquiror must furnish an English translation of that 
informational document, including any amendments thereto, to the 
Commission under cover of Form CB (Sec.239.800 of this chapter) by the 
first business day after publication or dissemination. If the acquiror 
is a foreign entity, it must also file a Form F-X (Sec.239.42 of this 
chapter) with the Commission at the same time as the submission of the 
Form CB to appoint an agent for service in the United States.

[44 FR 46741, Aug. 8, 1979, as amended at 47 FR 11466, Mar. 16, 1982; 48 
FR 19877, May 3, 1983; 48 FR 34253, July 28, 1983; 51 FR 42059, Nov. 20, 
1986; 61 FR 24656, May 15, 1996; 64 FR 61403, 64 FR 61452, Nov. 10, 
1999; 73 FR 17813, Apr. 1, 2008; 73 FR 58323, Oct. 6, 2008; 73 FR 60090, 
Oct. 9, 2008]



Sec.240.13e-4  Tender offers by issuers.

    (a) Definitions. Unless the context otherwise requires, all terms 
used in this section and in Schedule TO (Sec.240.14d-100) shall have 
the same meaning as in the Act or elsewhere in the General Rules and 
Regulations thereunder. In addition, the following definitions shall 
apply:
    (1) The term issuer means any issuer which has a class of equity 
security registered pursuant to section 12 of the Act, or which is 
required to file periodic reports pursuant to section 15(d) of the Act, 
or which is a closed-end investment company registered under the 
Investment Company Act of 1940.
    (2) The term issuer tender offer refers to a tender offer for, or a 
request or invitation for tenders of, any class of equity security, made 
by the issuer of such class of equity security or by an affiliate of 
such issuer.
    (3) As used in this section and in Schedule TO (Sec.240.14d-100), 
the term business day means any day, other than Saturday, Sunday, or a 
Federal holiday, and shall consist of the time period from 12:01 a.m. 
through 12:00 midnight Eastern Time. In computing any time period under 
this Rule or Schedule TO, the date of the event that begins the running 
of such time period shall be included except that if such event occurs 
on other than a business day such period shall begin to run on and shall 
include the first business day thereafter.
    (4) The term commencement means 12:01 a.m. on the date that the 
issuer or affiliate has first published, sent or given the means to 
tender to security holders. For purposes of this section, the means to 
tender includes the transmittal form or a statement regarding how the 
transmittal form may be obtained.
    (5) The term termination means the date after which securities may 
not be tendered pursuant to an issuer tender offer.
    (6) The term security holders means holders of record and beneficial 
owners of securities of the class of equity security which is the 
subject of an issuer tender offer.
    (7) The term security position listing means, with respect to the 
securities of any issuer held by a registered clearing agency in the 
name of the clearing agency or its nominee, a list of those participants 
in the clearing agency on whose behalf the clearing agency holds the 
issuer's securities and of the participants' respective positions in 
such securities as of a specified date.
    (b) Filing, disclosure and dissemination. As soon as practicable on 
the date of commencement of the issuer tender offer, the issuer or 
affiliate making the issuer tender offer must comply with:
    (1) The filing requirements of paragraph (c)(2) of this section;
    (2) The disclosure requirements of paragraph (d)(1) of this section; 
and

[[Page 190]]

    (3) The dissemination requirements of paragraph (e) of this section.
    (c) Material required to be filed. The issuer or affiliate making 
the issuer tender offer must file with the Commission:
    (1) All written communications made by the issuer or affiliate 
relating to the issuer tender offer, from and including the first public 
announcement, as soon as practicable on the date of the communication;
    (2) A Schedule TO (Sec.240.14d-100), including all exhibits;
    (3) An amendment to Schedule TO (Sec.240.14d-100) reporting 
promptly any material changes in the information set forth in the 
schedule previously filed; and
    (4) A final amendment to Schedule TO (Sec.240.14d-100) reporting 
promptly the results of the issuer tender offer.

    Instructions to Sec.240.13e-4(c): 1. Pre-commencement 
communications must be filed under cover of Schedule TO (Sec.240.14d-
100) and the box on the cover page of the schedule must be marked.
    2. Any communications made in connection with an exchange offer 
registered under the Securities Act of 1933 need only be filed under 
Sec.230.425 of this chapter and will be deemed filed under this 
section.
    3. Each pre-commencement written communication must include a 
prominent legend in clear, plain language advising security holders to 
read the tender offer statement when it is available because it contains 
important information. The legend also must advise investors that they 
can get the tender offer statement and other filed documents for free at 
the Commission's web site and explain which documents are free from the 
issuer.
    4. See Sec.Sec.230.135, 230.165 and 230.166 of this chapter for 
pre-commencement communications made in connection with registered 
exchange offers.
    5. ``Public announcement'' is any oral or written communication by 
the issuer, affiliate or any person authorized to act on their behalf 
that is reasonably designed to, or has the effect of, informing the 
public or security holders in general about the issuer tender offer.

    (d) Disclosure of tender offer information to security holders. (1) 
The issuer or affiliate making the issuer tender offer must disclose, in 
a manner prescribed by paragraph (e)(1) of this section, the following:
    (i) The information required by Item 1 of Schedule TO (Sec.
240.14d-100) (summary term sheet); and
    (ii) The information required by the remaining items of Schedule TO 
for issuer tender offers, except for Item 12 (exhibits), or a fair and 
adequate summary of the information.
    (2) If there are any material changes in the information previously 
disclosed to security holders, the issuer or affiliate must disclose the 
changes promptly to security holders in a manner specified in paragraph 
(e)(3) of this section.
    (3) If the issuer or affiliate disseminates the issuer tender offer 
by means of summary publication as described in paragraph (e)(1)(iii) of 
this section, the summary advertisement must not include a transmittal 
letter that would permit security holders to tender securities sought in 
the offer and must disclose at least the following information:
    (i) The identity of the issuer or affiliate making the issuer tender 
offer;
    (ii) The information required by Sec.229.1004(a)(1) and Sec.
229.1006(a) of this chapter;
    (iii) Instructions on how security holders can obtain promptly a 
copy of the statement required by paragraph (d)(1) of this section, at 
the issuer or affiliate's expense; and
    (iv) A statement that the information contained in the statement 
required by paragraph (d)(1) of this section is incorporated by 
reference.
    (e) Dissemination of tender offers to security holders. An issuer 
tender offer will be deemed to be published, sent or given to security 
holders if the issuer or affiliate making the issuer tender offer 
complies fully with one or more of the methods described in this 
section.
    (1) For issuer tender offers in which the consideration offered 
consists solely of cash and/or securities exempt from registration under 
section 3 of the Securities Act of 1933 (15 U.S.C. 77c):
    (i) Dissemination of cash issuer tender offers by long-form 
publication: By making adequate publication of the information required 
by paragraph (d)(1) of this section in a newspaper or newspapers, on the 
date of commencement of the issuer tender offer.

[[Page 191]]

    (ii) Dissemination of any issuer tender offer by use of stockholder 
and other lists:
    (A) By mailing or otherwise furnishing promptly a statement 
containing the information required by paragraph (d)(1) of this section 
to each security holder whose name appears on the most recent 
stockholder list of the issuer;
    (B) By contacting each participant on the most recent security 
position listing of any clearing agency within the possession or access 
of the issuer or affiliate making the issuer tender offer, and making 
inquiry of each participant as to the approximate number of beneficial 
owners of the securities sought in the offer that are held by the 
participant;
    (C) By furnishing to each participant a sufficient number of copies 
of the statement required by paragraph (d)(1) of this section for 
transmittal to the beneficial owners; and
    (D) By agreeing to reimburse each participant promptly for its 
reasonable expenses incurred in forwarding the statement to beneficial 
owners.
    (iii) Dissemination of certain cash issuer tender offers by summary 
publication:
    (A) If the issuer tender offer is not subject to Sec.240.13e-3, by 
making adequate publication of a summary advertisement containing the 
information required by paragraph (d)(3) of this section in a newspaper 
or newspapers, on the date of commencement of the issuer tender offer; 
and
    (B) By mailing or otherwise furnishing promptly the statement 
required by paragraph (d)(1) of this section and a transmittal letter to 
any security holder who requests a copy of the statement or transmittal 
letter.

    Instruction to paragraph (e)(1): For purposes of paragraphs 
(e)(1)(i) and (e)(1)(iii) of this section, adequate publication of the 
issuer tender offer may require publication in a newspaper with a 
national circulation, a newspaper with metropolitan or regional 
circulation, or a combination of the two, depending upon the facts and 
circumstances involved.

    (2) For tender offers in which the consideration consists solely or 
partially of securities registered under the Securities Act of 1933, a 
registration statement containing all of the required information, 
including pricing information, has been filed and a preliminary 
prospectus or a prospectus that meets the requirements of Section 10(a) 
of the Securities Act (15 U.S.C. 77j(a)), including a letter of 
transmittal, is delivered to security holders. However, for going-
private transactions (as defined by Sec.240.13e-3) and roll-up 
transactions (as described by Item 901 of Regulation S-K (Sec.229.901 
of this chapter)), a registration statement registering the securities 
to be offered must have become effective and only a prospectus that 
meets the requirements of Section 10(a) of the Securities Act may be 
delivered to security holders on the date of commencement.

    Instructions to paragraph (e)(2): 1. If the prospectus is being 
delivered by mail, mailing on the date of commencement is sufficient.
    2. A preliminary prospectus used under this section may not omit 
information under Sec.230.430 or Sec.230.430A of this chapter.
    3. If a preliminary prospectus is used under this section and the 
issuer must disseminate material changes, the tender offer must remain 
open for the period specified in paragraph (e)(3) of this section.
    4. If a preliminary prospectus is used under this section, tenders 
may be requested in accordance with Sec.230.162(a) of this chapter.

    (3) If a material change occurs in the information published, sent 
or given to security holders, the issuer or affiliate must disseminate 
promptly disclosure of the change in a manner reasonably calculated to 
inform security holders of the change. In a registered securities offer 
where the issuer or affiliate disseminates the preliminary prospectus as 
permitted by paragraph (e)(2) of this section, the offer must remain 
open from the date that material changes to the tender offer materials 
are disseminated to security holders, as follows:
    (i) Five business days for a prospectus supplement containing a 
material change other than price or share levels;
    (ii) Ten business days for a prospectus supplement containing a 
change in price, the amount of securities sought, the dealer's 
soliciting fee, or other similarly significant change;
    (iii) Ten business days for a prospectus supplement included as part 
of a post-effective amendment; and

[[Page 192]]

    (iv) Twenty business days for a revised prospectus when the initial 
prospectus was materially deficient.
    (f) Manner of making tender offer. (1) The issuer tender offer, 
unless withdrawn, shall remain open until the expiration of:
    (i) At least twenty business days from its commencement; and
    (ii) At least ten business days from the date that notice of an 
increase or decrease in the percentage of the class of securities being 
sought or the consideration offered or the dealer's soliciting fee to be 
given is first published, sent or given to security holders.

Provided, however, That, for purposes of this paragraph, the acceptance 
for payment by the issuer or affiliate of an additional amount of 
securities not to exceed two percent of the class of securities that is 
the subject of the tender offer shall not be deemed to be an increase. 
For purposes of this paragraph, the percentage of a class of securities 
shall be calculated in accordance with section 14(d)(3) of the Act.
    (2) The issuer or affiliate making the issuer tender offer shall 
permit securities tendered pursuant to the issuer tender offer to be 
withdrawn:
    (i) At any time during the period such issuer tender offer remains 
open; and
    (ii) If not yet accepted for payment, after the expiration of forty 
business days from the commencement of the issuer tender offer.
    (3) If the issuer or affiliate makes a tender offer for less than 
all of the outstanding equity securities of a class, and if a greater 
number of securities is tendered pursuant thereto than the issuer or 
affiliate is bound or willing to take up and pay for, the securities 
taken up and paid for shall be taken up and paid for as nearly as may be 
pro rata, disregarding fractions, according to the number of securities 
tendered by each security holder during the period such offer remains 
open; Provided, however, That this provision shall not prohibit the 
issuer or affiliate making the issuer tender offer from:
    (i) Accepting all securities tendered by persons who own, 
beneficially or of record, an aggregate of not more than a specified 
number which is less than one hundred shares of such security and who 
tender all their securities, before prorating securities tendered by 
others; or
    (ii) Accepting by lot securities tendered by security holders who 
tender all securities held by them and who, when tendering their 
securities, elect to have either all or none or at least a minimum 
amount or none accepted, if the issuer or affiliate first accepts all 
securities tendered by security holders who do not so elect;
    (4) In the event the issuer or affiliate making the issuer tender 
increases the consideration offered after the issuer tender offer has 
commenced, such issuer or affiliate shall pay such increased 
consideration to all security holders whose tendered securities are 
accepted for payment by such issuer or affiliate.
    (5) The issuer or affiliate making the tender offer shall either pay 
the consideration offered, or return the tendered securities, promptly 
after the termination or withdrawal of the tender offer.
    (6) Until the expiration of at least ten business days after the 
date of termination of the issuer tender offer, neither the issuer nor 
any affiliate shall make any purchases, otherwise than pursuant to the 
tender offer, of:
    (i) Any security which is the subject of the issuer tender offer, or 
any security of the same class and series, or any right to purchase any 
such securities; and
    (ii) In the case of an issuer tender offer which is an exchange 
offer, any security being offered pursuant to such exchange offer, or 
any security of the same class and series, or any right to purchase any 
such security.
    (7) The time periods for the minimum offering periods pursuant to 
this section shall be computed on a concurrent as opposed to a 
consecutive basis.
    (8) No issuer or affiliate shall make a tender offer unless:
    (i) The tender offer is open to all security holders of the class of 
securities subject to the tender offer; and
    (ii) The consideration paid to any security holder for securities 
tendered in the tender offer is the highest consideration paid to any 
other security holder for securities tendered in the tender offer.

[[Page 193]]

    (9) Paragraph (f)(8)(i) of this section shall not:
    (i) Affect dissemination under paragraph (e) of this section; or
    (ii) Prohibit an issuer or affiliate from making a tender offer 
excluding all security holders in a state where the issuer or affiliate 
is prohibited from making the tender offer by administrative or judicial 
action pursuant to a state statute after a good faith effort by the 
issuer or affiliate to comply with such statute.
    (10) Paragraph (f)(8)(ii) of this section shall not prohibit the 
offer of more than one type of consideration in a tender offer, provided 
that:
    (i) Security holders are afforded equal right to elect among each of 
the types of consideration offered; and
    (ii) The highest consideration of each type paid to any security 
holder is paid to any other security holder receiving that type of 
consideration.
    (11) If the offer and sale of securities constituting consideration 
offered in an issuer tender offer is prohibited by the appropriate 
authority of a state after a good faith effort by the issuer or 
affiliate to register or qualify the offer and sale of such securities 
in such state:
    (i) The issuer or affiliate may offer security holders in such state 
an alternative form of consideration; and
    (ii) Paragraph (f)(10) of this section shall not operate to require 
the issuer or affiliate to offer or pay the alternative form of 
consideration to security holders in any other state.
    (12)(i) Paragraph (f)(8)(ii) of this section shall not prohibit the 
negotiation, execution or amendment of an employment compensation, 
severance or other employee benefit arrangement, or payments made or to 
be made or benefits granted or to be granted according to such an 
arrangement, with respect to any security holder of the issuer, where 
the amount payable under the arrangement:
    (A) Is being paid or granted as compensation for past services 
performed, future services to be performed, or future services to be 
refrained from performing, by the security holder (and matters 
incidental thereto); and
    (B) Is not calculated based on the number of securities tendered or 
to be tendered in the tender offer by the security holder.
    (ii) The provisions of paragraph (f)(12)(i) of this section shall be 
satisfied and, therefore, pursuant to this non-exclusive safe harbor, 
the negotiation, execution or amendment of an arrangement and any 
payments made or to be made or benefits granted or to be granted 
according to that arrangement shall not be prohibited by paragraph 
(f)(8)(ii) of this section, if the arrangement is approved as an 
employment compensation, severance or other employee benefit arrangement 
solely by independent directors as follows:
    (A) The compensation committee or a committee of the board of 
directors that performs functions similar to a compensation committee of 
the issuer approves the arrangement, regardless of whether the issuer is 
a party to the arrangement, or, if an affiliate is a party to the 
arrangement, the compensation committee or a committee of the board of 
directors that performs functions similar to a compensation committee of 
the affiliate approves the arrangement; or
    (B) If the issuer's or affiliate's board of directors, as 
applicable, does not have a compensation committee or a committee of the 
board of directors that performs functions similar to a compensation 
committee or if none of the members of the issuer's or affiliate's 
compensation committee or committee that performs functions similar to a 
compensation committee is independent, a special committee of the board 
of directors formed to consider and approve the arrangement approves the 
arrangement; or
    (C) If the issuer or affiliate, as applicable, is a foreign private 
issuer, any or all members of the board of directors or any committee of 
the board of directors authorized to approve employment compensation, 
severance or other employee benefit arrangements under the laws or 
regulations of the home country approves the arrangement.

    Instructions to paragraph (f)(12)(ii): For purposes of determining 
whether the members of the committee approving an arrangement in 
accordance with the provisions of paragraph (f)(12)(ii) of this section 
are independent, the following provisions shall apply:

[[Page 194]]

    1. If the issuer or affiliate, as applicable, is a listed issuer (as 
defined in Sec.240.10A-3 of this chapter) whose securities are listed 
either on a national securities exchange registered pursuant to section 
6(a) of the Exchange Act (15 U.S.C. 78f(a)) or in an inter-dealer 
quotation system of a national securities association registered 
pursuant to section 15A(a) of the Exchange Act (15 U.S.C. 78o-3(a)) that 
has independence requirements for compensation committee members that 
have been approved by the Commission (as those requirements may be 
modified or supplemented), apply the issuer's or affiliate's definition 
of independence that it uses for determining that the members of the 
compensation committee are independent in compliance with the listing 
standards applicable to compensation committee members of the listed 
issuer.
    2. If the issuer or affiliate, as applicable, is not a listed issuer 
(as defined in Sec.240.10A-3 of this chapter), apply the independence 
requirements for compensation committee members of a national securities 
exchange registered pursuant to section 6(a) of the Exchange Act (15 
U.S.C. 78f(a)) or an inter-dealer quotation system of a national 
securities association registered pursuant to section 15A(a) of the 
Exchange Act (15 U.S.C. 78o-3(a)) that have been approved by the 
Commission (as those requirements may be modified or supplemented). 
Whatever definition the issuer or affiliate, as applicable, chooses, it 
must apply that definition consistently to all members of the committee 
approving the arrangement.
    3. Notwithstanding Instructions 1 and 2 to paragraph (f)(12)(ii), if 
the issuer or affiliate, as applicable, is a closed-end investment 
company registered under the Investment Company Act of 1940, a director 
is considered to be independent if the director is not, other than in 
his or her capacity as a member of the board of directors or any board 
committee, an ``interested person'' of the investment company, as 
defined in section 2(a)(19) of the Investment Company Act of 1940 (15 
U.S.C. 80a-2(a)(19)).
    4. If the issuer or affiliate, as applicable, is a foreign private 
issuer, apply either the independence standards set forth in 
Instructions 1 and 2 to paragraph (f)(12)(ii) or the independence 
requirements of the laws, regulations, codes or standards of the home 
country of the issuer or affiliate, as applicable, for members of the 
board of directors or the committee of the board of directors approving 
the arrangement.
    5. A determination by the issuer's or affiliate's board of 
directors, as applicable, that the members of the board of directors or 
the committee of the board of directors, as applicable, approving an 
arrangement in accordance with the provisions of paragraph (f)(12)(ii) 
are independent in accordance with the provisions of this instruction to 
paragraph (f)(12)(ii) shall satisfy the independence requirements of 
paragraph (f)(12)(ii).

    Instruction to paragraph (f)(12): The fact that the provisions of 
paragraph (f)(12) of this section extend only to employment 
compensation, severance and other employee benefit arrangements and not 
to other arrangements, such as commercial arrangements, does not raise 
any inference that a payment under any such other arrangement 
constitutes consideration paid for securities in a tender offer.

    (13) Electronic filings. If the issuer or affiliate is an electronic 
filer, the minimum offering periods set forth in paragraph (f)(1) of 
this section shall be tolled for any period during which it fails to 
file in electronic format, absent a hardship exemption (Sec.Sec.
232.201 and 232.202 of this chapter), the Schedule TO (Sec.240.14d-
100), the tender offer material specified in Item 1016(a)(1) of 
Regulation M-A (Sec.229.1016(a)(1) of this chapter), and any 
amendments thereto. If such documents were filed in paper pursuant to a 
hardship exemption (see Sec.232.201 and Sec.232.202 of this 
chapter), the minimum offering periods shall be tolled for any period 
during which a required confirming electronic copy of such Schedule and 
tender offer material is delinquent.
    (g) The requirements of section 13(e) (1) of the Act and Rule 13e-4 
and Schedule TO (Sec.240.14d-100) thereunder shall be deemed satisfied 
with respect to any issuer tender offer, including any exchange offer, 
where the issuer is incorporated or organized under the laws of Canada 
or any Canadian province or territory, is a foreign private issuer, and 
is not an investment company registered or required to be registered 
under the Investment Company Act of 1940, if less than 40 percent of the 
class of securities that is the subject of the tender offer is held by 
U. S. holders, and the tender offer is subject to, and the issuer 
complies with, the laws, regulations and policies of Canada and/or any 
of its provinces or territories governing the conduct of the offer 
(unless the issuer has received an exemption(s) from, and the issuer 
tender offer does not comply with, requirements that otherwise would be 
prescribed by this section), provided that:
    (1) Where the consideration for an issuer tender offer subject to 
this paragraph consists solely of cash, the entire

[[Page 195]]

disclosure document or documents required to be furnished to holders of 
the class of securities to be acquired shall be filed with the 
Commission on Schedule 13E-4F (Sec.240.13e-102) and disseminated to 
shareholders residing in the United States in accordance with such 
Canadian laws, regulations and policies; or
    (2) Where the consideration for an issuer tender offer subject to 
this paragraph includes securities to be issued pursuant to the offer, 
any registration statement and/or prospectus relating thereto shall be 
filed with the Commission along with the Schedule 13E-4F referred to in 
paragraph (g)(1) of this section, and shall be disseminated, together 
with the home jurisdiction document(s) accompanying such Schedule, to 
shareholders of the issuer residing in the United States in accordance 
with such Canadian laws, regulations and policies.

    Note: Notwithstanding the grant of an exemption from one or more of 
the applicable Canadian regulatory provisions imposing requirements that 
otherwise would be prescribed by this section, the issuer tender offer 
will be eligible to proceed in accordance with the requirements of this 
section if the Commission by order determines that the applicable 
Canadian regulatory provisions are adequate to protect the interest of 
investors.

    (h) This section shall not apply to:
    (1) Calls or redemptions of any security in accordance with the 
terms and conditions of its governing instruments;
    (2) Offers to purchase securities evidenced by a scrip certificate, 
order form or similar document which represents a fractional interest in 
a share of stock or similar security;
    (3) Offers to purchase securities pursuant to a statutory procedure 
for the purchase of dissenting security holders' securities;
    (4) Any tender offer which is subject to section 14(d) of the Act;
    (5) Offers to purchase from security holders who own an aggregate of 
not more than a specified number of shares that is less than one 
hundred: Provided, however, That:
    (i) The offer complies with paragraph (f)(8)(i) of this section with 
respect to security holders who own a number of shares equal to or less 
than the specified number of shares, except that an issuer can elect to 
exclude participants in a plan as that term is defined in Sec.242.100 
of this chapter, or to exclude security holders who do not own their 
shares as of a specified date determined by the issuer; and
    (ii) The offer complies with paragraph (f)(8)(ii) of this section or 
the consideration paid pursuant to the offer is determined on the basis 
of a uniformly applied formula based on the market price of the subject 
security;
    (6) An issuer tender offer made solely to effect a rescission offer: 
Provided, however, That the offer is registered under the Securities Act 
of 1933 (15 U.S.C. 77a et seq.), and the consideration is equal to the 
price paid by each security holder, plus legal interest if the issuer 
elects to or is required to pay legal interest;
    (7) Offers by closed-end management investment companies to 
repurchase equity securities pursuant to Sec.270.23c-3 of this 
chapter;
    (8) Cross-border tender offers (Tier I). Any issuer tender offer 
(including any exchange offer) where the issuer is a foreign private 
issuer as defined in Sec.240.3b-4 if the following conditions are 
satisfied.
    (i) Except in the case of an issuer tender offer that is commenced 
during the pendency of a tender offer made by a third party in reliance 
on Sec.240.14d-1(c), U.S. holders do not hold more than 10 percent of 
the subject class sought in the offer (as determined under Instructions 
2 or 3 to paragraph (h)(8) and paragraph (i) of this section);
    (ii) The issuer or affiliate must permit U.S. holders to participate 
in the offer on terms at least as favorable as those offered any other 
holder of the same class of securities that is the subject of the offer; 
however:
    (A) Registered exchange offers. If the issuer or affiliate offers 
securities registered under the Securities Act of 1933 (15 U.S.C. 77a et 
seq.), the issuer or affiliate need not extend the offer to security 
holders in those states or jurisdictions that prohibit the offer or sale 
of the securities after the issuer or affiliate has made a good faith 
effort to register or qualify the offer and sale of securities in that 
state or jurisdiction, except that the issuer or affiliate must

[[Page 196]]

offer the same cash alternative to security holders in any such state or 
jurisdiction that it has offered to security holders in any other state 
or jurisdiction.
    (B) Exempt exchange offers. If the issuer or affiliate offers 
securities exempt from registration under Sec.230.802 of this chapter, 
the issuer or affiliate need not extend the offer to security holders in 
those states or jurisdictions that require registration or 
qualification, except that the issuer or affiliate must offer the same 
cash alternative to security holders in any such state or jurisdiction 
that it has offered to security holders in any other state or 
jurisdiction.
    (C) Cash only consideration. The issuer or affiliate may offer U.S. 
holders cash only consideration for the tender of the subject 
securities, notwithstanding the fact that the issuer or affiliate is 
offering security holders outside the United States a consideration that 
consists in whole or in part of securities of the issuer or affiliate, 
if the issuer or affiliate has a reasonable basis for believing that the 
amount of cash is substantially equivalent to the value of the 
consideration offered to non-U.S. holders, and either of the following 
conditions are satisfied:
    (1) The offered security is a ``margin security'' within the meaning 
of Regulation T (12 CFR 220.2) and the issuer or affiliate undertakes to 
provide, upon the request of any U.S. holder or the Commission staff, 
the closing price and daily trading volume of the security on the 
principal trading market for the security as of the last trading day of 
each of the six months preceding the announcement of the offer and each 
of the trading days thereafter; or
    (2) If the offered security is not a ``margin security'' within the 
meaning of Regulation T (12 CFR 220.2), the issuer or affiliate 
undertakes to provide, upon the request of any U.S. holder or the 
Commission staff, an opinion of an independent expert stating that the 
cash consideration offered to U.S. holders is substantially equivalent 
to the value of the consideration offered security holders outside the 
United States.
    (D) Disparate tax treatment. If the issuer or affiliate offers 
``loan notes'' solely to offer sellers tax advantages not available in 
the United States and these notes are neither listed on any organized 
securities market nor registered under the Securities Act of 1933 (15 
U.S.C. 77a et seq.), the loan notes need not be offered to U.S. holders.
    (iii) Informational documents. (A) If the issuer or affiliate 
publishes or otherwise disseminates an informational document to the 
holders of the securities in connection with the issuer tender offer 
(including any exchange offer), the issuer or affiliate must furnish 
that informational document, including any amendments thereto, in 
English, to the Commission on Form CB (Sec.249.480 of this chapter) by 
the first business day after publication or dissemination. If the issuer 
or affiliate is a foreign company, it must also file a Form F-X (Sec.
239.42 of this chapter) with the Commission at the same time as the 
submission of Form CB to appoint an agent for service in the United 
States.
    (B) The issuer or affiliate must disseminate any informational 
document to U.S. holders, including any amendments thereto, in English, 
on a comparable basis to that provided to security holders in the home 
jurisdiction.
    (C) If the issuer or affiliate disseminates by publication in its 
home jurisdiction, the issuer or affiliate must publish the information 
in the United States in a manner reasonably calculated to inform U.S. 
holders of the offer.
    (iv) An investment company registered or required to be registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), 
other than a registered closed-end investment company, may not use this 
paragraph (h)(8); or
    (9) Any other transaction or transactions, if the Commission, upon 
written request or upon its own motion, exempts such transaction or 
transactions, either unconditionally, or on specified terms and 
conditions, as not constituting a fraudulent, deceptive or manipulative 
act or practice comprehended within the purpose of this section.
    (i) Cross-border tender offers (Tier II). Any issuer tender offer 
(including any

[[Page 197]]

exchange offer) that meets the conditions in paragraph (i)(1) of this 
section shall be entitled to the exemptive relief specified in paragraph 
(i)(2) of this section, provided that such issuer tender offer complies 
with all the requirements of this section other than those for which an 
exemption has been specifically provided in paragraph (i)(2) of this 
section. In addition, any issuer tender offer (including any exchange 
offer) subject only to the requirements of section 14(e) of the Act and 
Regulation 14E (Sec.Sec.240.14e-1 through 240.14e-8) thereunder that 
meets the conditions in paragraph (i)(1) of this section also shall be 
entitled to the exemptive relief specified in paragraph (i)(2) of this 
section, to the extent needed under the requirements of Regulation 14E, 
so long as the tender offer complies with all requirements of Regulation 
14E other than those for which an exemption has been specifically 
provided in paragraph (i)(2) of this section:
    (1) Conditions. (i) The issuer is a foreign private issuer as 
defined in Sec.240.3b-4 and is not an investment company registered or 
required to be registered under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.), other than a registered closed-end investment 
company; and
    (ii) Except in the case of an issuer tender offer commenced during 
the pendency of a tender offer made by a third party in reliance on 
Sec.240.14d-1(d), U.S. holders do not hold more than 40 percent of the 
class of securities sought in the offer (as determined in accordance 
with Instructions 2 or 3 to paragraphs (h)(8) and (i) of this section).
    (2) Exemptions. The issuer tender offer shall comply with all 
requirements of this section other than the following:
    (i) Equal treatment--loan notes. If the issuer or affiliate offers 
loan notes solely to offer sellers tax advantages not available in the 
United States and these notes are neither listed on any organized 
securities market nor registered under the Securities Act (15 U.S.C. 77a 
et seq.), the loan notes need not be offered to U.S. holders, 
notwithstanding paragraph (f)(8) and (h)(9) of this section.
    (ii) Equal treatment--separate U.S. and foreign offers. 
Notwithstanding the provisions of paragraph (f)(8) of this section, an 
issuer or affiliate conducting an issuer tender offer meeting the 
conditions of paragraph (i)(1) of this section may separate the offer 
into multiple offers: one offer made to U.S. holders, which also may 
include all holders of American Depositary Shares representing interests 
in the subject securities, and one or more offers made to non-U.S. 
holders. The U.S. offer must be made on terms at least as favorable as 
those offered any other holder of the same class of securities that is 
the subject of the tender offers. U.S. holders may be included in the 
foreign offer(s) only where the laws of the jurisdiction governing such 
foreign offer(s) expressly preclude the exclusion of U.S. holders from 
the foreign offer(s) and where the offer materials distributed to U.S. 
holders fully and adequately disclose the risks of participating in the 
foreign offer(s).
    (iii) Notice of extensions. Notice of extensions made in accordance 
with the requirements of the home jurisdiction law or practice will 
satisfy the requirements of Sec.240.14e-1(d).
    (iv) Prompt payment. Payment made in accordance with the 
requirements of the home jurisdiction law or practice will satisfy the 
requirements of Sec.240.14e-1(c).
    (v) Suspension of withdrawal rights during counting of tendered 
securities. The issuer or affiliate may suspend withdrawal rights 
required under paragraph (f)(2) of this section at the end of the offer 
and during the period that securities tendered into the offer are being 
counted, provided that:
    (A) The issuer or affiliate has provided an offer period, including 
withdrawal rights, for a period of at least 20 U.S. business days;
    (B) At the time withdrawal rights are suspended, all offer 
conditions have been satisfied or waived, except to the extent that the 
issuer or affiliate is in the process of determining whether a minimum 
acceptance condition included in the terms of the offer has been 
satisfied by counting tendered securities; and
    (C) Withdrawal rights are suspended only during the counting process 
and are reinstated immediately thereafter,

[[Page 198]]

except to the extent that they are terminated through the acceptance of 
tendered securities.
    (vi) Early termination of an initial offering period. An issuer or 
affiliate conducting an issuer tender offer may terminate an initial 
offering period, including a voluntary extension of that period, if at 
the time the initial offering period and withdrawal rights terminate, 
the following conditions are met:
    (A) The initial offering period has been open for at least 20 U.S. 
business days;
    (B) The issuer or affiliate has adequately discussed the possibility 
of and the impact of the early termination in the original offer 
materials;
    (C) The issuer or affiliate provides a subsequent offering period 
after the termination of the initial offering period;
    (D) All offer conditions are satisfied as of the time when the 
initial offering period ends; and
    (E) The issuer or affiliate does not terminate the initial offering 
period or any extension of that period during any mandatory extension 
required under U.S. tender offer rules.

    Instructions to paragraph (h)(8) and (i) of this section: 1. Home 
jurisdiction means both the jurisdiction of the issuer's incorporation, 
organization or chartering and the principal foreign market where the 
issuer's securities are listed or quoted.
    2. U.S. holder means any security holder resident in the United 
States. To determine the percentage of outstanding securities held by 
U.S. holders:
    i. Calculate the U.S. ownership as of a date no more than 60 days 
before and no more than 30 days after the public announcement of the 
tender offer. If you are unable to calculate as of a date within these 
time frames, the calculation may be made as of the most recent 
practicable date before public announcement, but in no event earlier 
than 120 days before announcement;
    ii. Include securities underlying American Depositary Shares 
convertible or exchangeable into the securities that are the subject of 
the tender offer when calculating the number of subject securities 
outstanding, as well as the number held by U.S. holders. Exclude from 
the calculations other types of securities that are convertible or 
exchangeable into the securities that are the subject of the tender 
offer, such as warrants, options and convertible securities;
    iii. Use the method of calculating record ownership in Sec.
240.12g3-2(a), except that your inquiry as to the amount of securities 
represented by accounts of customers resident in the United States may 
be limited to brokers, dealers, banks and other nominees located in the 
United States, your jurisdiction of incorporation, and the jurisdiction 
that is the primary trading market for the subject securities, if 
different than your jurisdiction of incorporation;
    iv. If, after reasonable inquiry, you are unable to obtain 
information about the amount of securities represented by accounts of 
customers resident in the United States, you may assume, for purposes of 
this definition, that the customers are residents of the jurisdiction in 
which the nominee has its principal place of business; and
    v. Count securities as beneficially owned by residents of the United 
States as reported on reports of beneficial ownership that are provided 
to you or publicly filed and based on information otherwise provided to 
you.
    3. If you are unable to conduct the analysis of U.S. ownership set 
forth in Instruction 2 above, U.S. holders will be presumed to hold 10 
percent or less of the outstanding subject securities (40 percent for 
Tier II) so long as there is a primary trading market outside the United 
States, as defined in Sec.240.12h-6(f)(5) of this chapter, unless:
    i. Average daily trading volume of the subject securities in the 
United States for a recent twelve-month period ending on a date no more 
than 60 days before the public announcement of the tender offer exceeds 
10 percent (or 40 percent) of the average daily trading volume of that 
class of securities on a worldwide basis for the same period; or
    ii. The most recent annual report or annual information filed or 
submitted by the issuer with securities regulators of the home 
jurisdiction or with the Commission or any jurisdiction in which the 
subject securities trade before the public announcement of the offer 
indicates that U.S. holders hold more than 10 percent (or 40 percent) of 
the outstanding subject class of securities; or
    iii. You know or have reason to know, before the public announcement 
of the offer, that the level of U.S. ownership of the subject securities 
exceeds 10 percent (or 40 percent) of such securities. As an example, 
you are deemed to know information about U.S. ownership of the subject 
class of securities that is publicly available and that appears in any 
filing with the Commission or any regulatory body in the home 
jurisdiction and, if different, the non-U.S. jurisdiction in which the 
primary trading market for the subject class of securities is located. 
You are also deemed to know information obtained or readily available 
from any other source that is reasonably reliable, including from 
persons you have retained to advise you about the transaction, as well 
as from third-party

[[Page 199]]

information providers. These examples are not intended to be exclusive.
    4. United States means the United States of America, its territories 
and possessions, any State of the United States, and the District of 
Columbia.
    5. The exemptions provided by paragraphs (h)(8) and (i) of this 
section are not available for any securities transaction or series of 
transactions that technically complies with paragraph (h)(8) and (i) of 
this section but are part of a plan or scheme to evade the provisions of 
this section.

    (j)(1) It shall be a fraudulent, deceptive or manipulative act or 
practice, in connection with an issuer tender offer, for an issuer or an 
affiliate of such issuer, in connection with an issuer tender offer:
    (i) To employ any device, scheme or artifice to defraud any person;
    (ii) To make any untrue statement of a material fact or to omit to 
state a material fact necessary in order to make the statements made, in 
the light of the circumstances under which they were made, not 
misleading; or
    (iii) To engage in any act, practice or course of business which 
operates or would operate as a fraud or deceit upon any person.
    (2) As a means reasonably designed to prevent fraudulent, deceptive 
or manipulative acts or practices in connection with any issuer tender 
offer, it shall be unlawful for an issuer or an affiliate of such issuer 
to make an issuer tender offer unless:
    (i) Such issuer or affiliate complies with the requirements of 
paragraphs (b), (c), (d), (e) and (f) of this section; and
    (ii) The issuer tender offer is not in violation of paragraph (j)(1) 
of this section.

[44 FR 49410, Aug. 22, 1979]

    Editorial Note: For Federal Register citations affecting Sec.
240.13e-4, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.240.13e-100  Schedule 13E-3, Transaction statement under section 
13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 
(Sec.240.13e-3) thereunder.

Securities and Exchange Commission,
Washington, D.C. 20549

Rule 13e-3 Transaction Statement under Section 13(e) of the Securities 
Exchange Act of 1934 (Amendment No. _)
________________________________________________________________________

(Name of the Issuer)

________________________________________________________________________

(Names of Persons Filing Statement)

________________________________________________________________________

(Title of Class of Securities)

________________________________________________________________________

(CUSIP Number of Class of Securities)

________________________________________________________________________

(Name, Address, and Telephone Numbers of Person Authorized to Receive 
Notices and Communications on Behalf of the Persons Filing Statement)

    This statement is filed in connection with (check the appropriate 
box):
    a. [ ] The filing of solicitation materials or an information 
statement subject to Regulation 14A (Sec.Sec.240.14a-1 through 
240.14b-2), Regulation 14C (Sec.Sec.240.14c-1 through 240.14c-101) or 
Rule 13e-3(c) (Sec.240.13e-3(c)) under the Securities Exchange Act of 
1934 (``the Act'').
    b. [ ] The filing of a registration statement under the Securities 
Act of 1933.
    c. [ ] A tender offer.
    d. [ ] None of the above.
    Check the following box if the soliciting materials or information 
statement referred to in checking box (a) are preliminary copies: [ ]
    Check the following box if the filing is a final amendment reporting 
the results of the transaction [ ]

                        Calculation of Filing Fee
------------------------------------------------------------------------
          Transaction valuation *               Amount of filing fee
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 * Set forth the amount on which the filing fee is calculated and state
  how it was determined.

    [ ] Check the box if any part of the fee is offset as provided by 
Sec.240.0-11(a)(2) and identify the filing with which the offsetting 
fee was previously paid. Identify the previous filing by registration 
statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid:_________________________________________________
Form or Registration No.:_______________________________________________
Filing Party:___________________________________________________________
Date Filed:_____________________________________________________________
    General Instructions:
    A. File eight copies of the statement, including all exhibits, with 
the Commission if paper filing is permitted.
    B. This filing must be accompanied by a fee payable to the 
Commission as required by Sec.240.0-11(b).
    C. If the statement is filed by a general or limited partnership, 
syndicate or other group, the information called for by Items 3,

[[Page 200]]

5, 6, 10 and 11 must be given with respect to: (i) Each partner of the 
general partnership; (ii) each partner who is, or functions as, a 
general partner of the limited partnership; (iii) each member of the 
syndicate or group; and (iv) each person controlling the partner or 
member. If the statement is filed by a corporation or if a person 
referred to in (i), (ii), (iii) or (iv) of this Instruction is a 
corporation, the information called for by the items specified above 
must be given with respect to: (a) Each executive officer and director 
of the corporation; (b) each person controlling the corporation; and (c) 
each executive officer and director of any corporation or other person 
ultimately in control of the corporation.
    D. Depending on the type of Rule 13e-3 transaction (Sec.240.13e-
3(a)(3)), this statement must be filed with the Commission:
    1. At the same time as filing preliminary or definitive soliciting 
materials or an information statement under Regulations 14A or 14C of 
the Act;
    2. At the same time as filing a registration statement under the 
Securities Act of 1933;
    3. As soon as practicable on the date a tender offer is first 
published, sent or given to security holders; or
    4. At least 30 days before any purchase of securities of the class 
of securities subject to the Rule 13e-3 transaction, if the transaction 
does not involve a solicitation, an information statement, the 
registration of securities or a tender offer, as described in paragraphs 
1, 2 or 3 of this Instruction; and
    5. If the Rule 13e-3 transaction involves a series of transactions, 
the issuer or affiliate must file this statement at the time indicated 
in paragraphs 1 through 4 of this Instruction for the first transaction 
and must amend the schedule promptly with respect to each subsequent 
transaction.
    E. If an item is inapplicable or the answer is in the negative, so 
state. The statement published, sent or given to security holders may 
omit negative and not applicable responses, except that responses to 
Items 7, 8 and 9 of this schedule must be provided in full. If the 
schedule includes any information that is not published, sent or given 
to security holders, provide that information or specifically 
incorporate it by reference under the appropriate item number and 
heading in the schedule. Do not recite the text of disclosure 
requirements in the schedule or any document published, sent or given to 
security holders. Indicate clearly the coverage of the requirements 
without referring to the text of the items.
    F. Information contained in exhibits to the statement may be 
incorporated by reference in answer or partial answer to any item unless 
it would render the answer misleading, incomplete, unclear or confusing. 
A copy of any information that is incorporated by reference or a copy of 
the pertinent pages of a document containing the information must be 
submitted with this statement as an exhibit, unless it was previously 
filed with the Commission electronically on EDGAR. If an exhibit 
contains information responding to more than one item in the schedule, 
all information in that exhibit may be incorporated by reference once in 
response to the several items in the schedule for which it provides an 
answer. Information incorporated by reference is deemed filed with the 
Commission for all purposes of the Act.
    G. If the Rule 13e-3 transaction also involves a transaction subject 
to Regulation 14A (Sec.Sec.240.14a-1 through 240.14b-2) or 14C 
(Sec.Sec.240.14c-1 through 240.14c-101) of the Act, the registration 
of securities under the Securities Act of 1933 and the General Rules and 
Regulations of that Act, or a tender offer subject to Regulation 14D 
(Sec.Sec.240.14d-1 through 240.14d-101) or Sec.240.13e-4, this 
statement must incorporate by reference the information contained in the 
proxy, information, registration or tender offer statement in answer to 
the items of this statement.
    H. The information required by the items of this statement is 
intended to be in addition to any disclosure requirements of any other 
form or schedule that may be filed with the Commission in connection 
with the Rule 13e-3 transaction. If those forms or schedules require 
less information on any topic than this statement, the requirements of 
this statement control.
    I. If the Rule 13e-3 transaction involves a tender offer, then a 
combined statement on Schedules 13E-3 and TO may be filed with the 
Commission under cover of Schedule TO (Sec.240.14d-100). See 
Instruction J of Schedule TO (Sec.240.14d-100).
    J. Amendments disclosing a material change in the information set 
forth in this statement may omit any information previously disclosed in 
this statement.

                       Item 1. Summary Term Sheet

    Furnish the information required by Item 1001 of Regulation M-A 
(Sec.229.1001 of this chapter) unless information is disclosed to 
security holders in a prospectus that meets the requirements of Sec.
230.421(d) of this chapter.

                   Item 2. Subject Company Information

    Furnish the information required by Item 1002 of Regulation M-A 
(Sec.229.1002 of this chapter).

            Item 3. Identity and Background of Filing Person

    Furnish the information required by Item 1003(a) through (c) of 
Regulation M-A (Sec.229.1003 of this chapter).

[[Page 201]]

                    Item 4. Terms of the Transaction

    Furnish the information required by Item 1004(a) and (c) through (f) 
of Regulation M-A (Sec.229.1004 of this chapter).

    Item 5. Past Contacts, Transactions, Negotiations and Agreements

    Furnish the information required by Item 1005(a) through (c) and (e) 
of Regulation M-A (Sec.229.1005 of this chapter).

       Item 6. Purposes of the Transaction and Plans or Proposals

    Furnish the information required by Item 1006(b) and (c)(1) through 
(8) of Regulation M-A (Sec.229.1006 of this chapter).
    Instruction to Item 6: In providing the information specified in 
Item 1006(c) for this item, discuss any activities or transactions that 
would occur after the Rule 13e-3 transaction.

           Item 7. Purposes, Alternatives, Reasons and Effects

    Furnish the information required by Item 1013 of Regulation M-A 
(Sec.229.1013 of this chapter).

                   Item 8. Fairness of the Transaction

    Furnish the information required by Item 1014 of Regulation M-A 
(Sec.229.1014 of this chapter).

         Item 9. Reports, Opinions, Appraisals and Negotiations

    Furnish the information required by Item 1015 of Regulation M-A 
(Sec.229.1015 of this chapter).

       Item 10. Source and Amounts of Funds or Other Consideration

    Furnish the information required by Item 1007 of Regulation M-A 
(Sec.229.1007 of this chapter).

         Item 11. Interest in Securities of the Subject Company

    Furnish the information required by Item 1008 of Regulation M-A 
(Sec.229.1008 of this chapter).

               Item 12. The Solicitation or Recommendation

    Furnish the information required by Item 1012(d) and (e) of 
Regulation M-A (Sec.229.1012 of this chapter).

                      Item 13. Financial Statements

    Furnish the information required by Item 1010(a) through (b) of 
Regulation M-A (Sec.229.1010 of this chapter) for the issuer of the 
subject class of securities.
    Instructions to Item 13: 1. The disclosure materials disseminated to 
security holders may contain the summarized financial information 
required by Item 1010(c) of Regulation M-A (Sec.229.1010 of this 
chapter) instead of the financial information required by Item 1010(a) 
and (b). In that case, the financial information required by Item 
1010(a) and (b) of Regulation M-A must be disclosed directly or 
incorporated by reference in the statement. If summarized financial 
information is disseminated to security holders, include appropriate 
instructions on how more complete financial information can be obtained. 
If the summarized financial information is prepared on the basis of a 
comprehensive body of accounting principles other than U.S. GAAP, the 
summarized financial information must be accompanied by a reconciliation 
as described in Instruction 2.
    2. If the financial statements required by this Item are prepared on 
the basis of a comprehensive body of accounting principles other than 
U.S. GAAP, provide a reconciliation to U.S. GAAP in accordance with Item 
17 of Form 20-F (Sec.249.220f of this chapter).
    3. The filing person may incorporate by reference financial 
statements contained in any document filed with the Commission, solely 
for the purposes of this schedule, if: (a) The financial statements 
substantially meet the requirements of this Item; (b) an express 
statement is made that the financial statements are incorporated by 
reference; (c) the matter incorporated by reference is clearly 
identified by page, paragraph, caption or otherwise; and (d) if the 
matter incorporated by reference is not filed with this Schedule, an 
indication is made where the information may be inspected and copies 
obtained. Financial statements that are required to be presented in 
comparative form for two or more fiscal years or periods may not be 
incorporated by reference unless the material incorporated by reference 
includes the entire period for which the comparative data is required to 
be given. See General Instruction F to this Schedule.

    Item 14. Persons/Assets, Retained, Employed, Compensated or Used

    Furnish the information required by Item 1009 of Regulation M-A 
(Sec.229.1009 of this chapter).

                     Item 15. Additional Information

    Furnish the information required by Item 1011(b) and (c) of 
Regulation M-A (Sec.229.1011(b) and (c) of this chapter).

                            Item 16. Exhibits

    File as an exhibit to the Schedule all documents specified in Item 
1016(a) through (d), (f) and (g) of Regulation M-A (Sec.229.1016 of 
this chapter).

Signature. After due inquiry and to the best of my knowledge and belief, 
I certify that the information set forth in this statement is true, 
complete and correct.


[[Page 202]]


________________________________________________________________________
(Signature)

________________________________________________________________________
(Name and title)

________________________________________________________________________
(Date)

    Instruction to Signature: The statement must be signed by the filing 
person or that person's authorized representative. If the statement is 
signed on behalf of a person by an authorized representative (other than 
an executive officer of a corporation or general partner of a 
partnership), evidence of the representative's authority to sign on 
behalf of the person must be filed with the statement. The name and any 
title of each person who signs the statement must be typed or printed 
beneath the signature. See Sec.240.12b-11 with respect to signature 
requirements.

[64 FR 61454, Nov. 10, 1999, as amended at 76 FR 6045, Feb. 2, 2011]



Sec.240.13e-101  [Reserved]



Sec.240.13e-102  Schedule 13E-4F. Tender offer statement pursuant 
to section 13(e) (1) of the Securities Exchange Act of 1934 and
Sec.240.13e-4 thereunder.

Securities and Exchange Commission
Washington, DC 20549
Schedule 13E-4F
Issuer Tender Offer Statement Pursuant to Section 13(e)(1) of the 
Securities Exchange Act of 1934
[Amendment No. __]
________________________________________________________________________
    (Exact name of Issuer as specified in its charter)
________________________________________________________________________
    (Translation of Issuer's Name into English (if applicable))
________________________________________________________________________
    (Jurisdiction of Issuer's Incorporation or Organization)
________________________________________________________________________
    (Name(s) of Person(s) Filing Statement)
________________________________________________________________________
    (Title of Class of Securities)
________________________________________________________________________
    (CUSIP Number of Class of Securities) (if applicable)
________________________________________________________________________
    (Name, address (including zip code) and telephone number (including 
area code) of person authorized to receive notices and communications on 
behalf of the person(s) filing statement)
________________________________________________________________________
    (Date tender offer first published, sent or given to 
securityholders)

Calculation of Filing Fee *
    Transaction Valuation
    Amount of Filing Fee

    * Set forth the amount on which the filing fee is calculated and 
state how it was determined. See General Instruction II. C. for rules 
governing the calculation of the filing fee.

[ ] Check box if any part of the fee is offset as provided by Rule 0-
          11(a)(2) and identify the filing with which the offsetting fee 
          was previously paid. Identify the previous filing by 
          registration statement number, or the Form or Schedule and the 
          date of its filing.

    Amount Previously Paid: ____
    Registration No.: ____
    Filing Party:
________________________________________________________________________
    Form: ____ Date Filed: ____

                          General Instructions

         I. Eligibility Requirements for Use of Schedule 13E-4F

    A. Schedule 13E-4F may be used by any foreign private issuer if: (1) 
The issuer is incorporated or organized under the laws of Canada or any 
Canadian province or territory; (2) the issuer is making a cash tender 
or exchange offer for the issuer's own securities; and (3) less than 40 
percent of the class of such issuer's securities outstanding that is the 
subject of the tender offer is held by U.S. holders. The calculation of 
securities held by U.S. holders shall be made as of the end of the 
issuer's last quarter or, if such quarter terminated within 60 days of 
the filing date, as of the end of the issuer's preceding quarter.

                              Instructions

    1. For purposes of this Schedule, ``foreign private issuer'' shall 
be construed in accordance with Rule 405 under the Securities Act.
    2. For purposes of this Schedule, the term ``U.S. holder'' shall 
mean any person whose address appears on the records of the issuer, any 
voting trustee, any depositary, any share transfer agent or any person 
acting in a similar capacity on behalf of the issuer as being located in 
the United States.
    3. If this Schedule is filed during the pendency of one or more 
ongoing cash tender or exchange offers for securities of the class 
subject to this offer that was commenced or was eligible to be commenced 
on Schedule 14D-1F and/or Form F-8 or Form F-80, the date for 
calculation of U.S. ownership for purposes of this Schedule shall be the 
same as that date used by the initial bidder or issuer.
    4. For purposes of this Schedule, the class of subject securities 
shall not include any securities that may be converted into or are 
exchangeable for the subject securities.
    B. Any issuer using this Schedule must extend the cash tender or 
exchange offer to U.S. holders of the class of securities subject

[[Page 203]]

to the offer upon terms and conditions not less favorable than those 
extended to any other holder of the same class of such securities, and 
must comply with the requirements of any Canadian federal, provincial 
and/or territorial law, regulation or policy relating to the terms and 
conditions of the offer.
    C. This Schedule shall not be used if the issuer is an investment 
company registered or required to be registered under the Investment 
Company Act of 1940.

                    II. Filing Instructions and Fees

    A.(1) The issuer must file this Schedule and any amendment to the 
Schedule (see Part I, Item 1.(b)), including all exhibits and other 
documents filed as part of the Schedule or amendment, in electronic 
format via the Commission's Electronic Data Gathering, Analysis, and 
Retrieval (EDGAR) system in accordance with the EDGAR rules set forth in 
Regulation S-T (17 CFR Part 232). For assistance with technical 
questions about EDGAR or to request an access code, call the EDGAR Filer 
Support Office at (202) 551-8900. For assistance with the EDGAR rules, 
call the Office of EDGAR and Information Analysis at (202) 551-3610.
    (2) If filing the Schedule in paper under a hardship exemption in 17 
CFR 232.201 or 232.202 of Regulation S-T, or as otherwise permitted, the 
issuer must file with the Commission at its principal office five copies 
of the complete Schedule and any amendment, including exhibits and all 
other documents filed as a part of the Schedule or amendment. The issuer 
must bind, staple or otherwise compile each copy in one or more parts 
without stiff covers. The issuer must further bind the Schedule or 
amendment on the side or stitching margin in a manner that leaves the 
reading matter legible. The issuer must provide three additional copies 
of the Schedule or amendment without exhibits to the Commission.
    B. An electronic filer must provide the signatures required for the 
Schedule or amendment in accordance with 17 CFR 232.302 of Regulation S-
T. An issuer filing in paper must have the original and at least one 
copy of the Schedule and any amendment signed in accordance with 
Exchange Act Rule 12b-11(d) (17 CFR 12b-11(d)) by the persons whose 
signatures are required for this Schedule or amendment. The issuer must 
also conform the unsigned copies.
    C. At the time of filing this Schedule with the Commission, the 
issuer shall pay to the Commission in accordance with Rule 0-11 of the 
Exchange Act, a fee in U.S. dollars in the amount prescribed by section 
13(e)(3) of the Exchange Act. See also Rule 0-9 of the Exchange Act.
    (1) The value of the securities to be acquired solely for cash shall 
be the amount of cash to be paid for them, calculated into U.S. dollars.
    (2) The value of the securities to be acquired with securities or 
other non-cash consideration, whether or not in combination with a cash 
payment for the same securities, shall be based on the market value of 
the securities to be acquired by the issuer as established in accordance 
with paragraph (3) of this section.
    (3) When the fee is based upon the market value of the securities, 
such market value shall be established by either the average of the high 
and low prices reported on the consolidated reporting system (for 
exchange-traded securities and last sale reported for over-the-counter 
securities) or the average of the bid and asked price (for other over-
the-counter securities) as of a specified date within 5 business days 
prior to the date of filing the Schedule. If there is no market for the 
securities to be acquired by the issuer, the value shall be based upon 
the book value of such securities computed as of the latest practicable 
date prior to the date of filing of the Schedule, unless the issuer of 
the securities is in bankruptcy or receivership or has an accumulated 
capital deficit, in which case one-third of the principal amount, par 
value or stated value of such securities shall be used.
    D. If at any time after the initial payment of the fee the aggregate 
consideration offered is increased, an additional filing fee based upon 
such increase shall be paid with the required amended filing.
    E. The issuer must file the Schedule or amendment in electronic 
format in the English language in accordance with 17 CFR 232.306 of 
Regulation S-T. The issuer may file part of the Schedule or amendment, 
or exhibit or other attachment to the Schedule or amendment, in both 
French and English if the issuer included the French text to comply with 
the requirements of the Canadian securities administrator or other 
Canadian authority and, for an electronic filing, if the filing is an 
HTML document, as defined in 17 CFR 232.11 of Regulation S-T. For both 
an electronic filing and a paper filing, the issuer may provide an 
English translation or English summary of a foreign language document as 
an exhibit or other attachment to the Schedule or amendment as permitted 
by the rules of the applicable Canadian securities administrator.
    F. A paper filer must number sequentially the signed original of the 
Schedule or amendment (in addition to any internal numbering that 
otherwise may be present) by handwritten, typed, printed or other 
legible form of notation from the first page through the last page of 
the Schedule or amendment, including any exhibits or attachments. A 
paper filer must disclose the total number of pages on the first page of 
the sequentially numbered Schedule or amendment.

[[Page 204]]

                  III. Compliance with the Exchange Act

    A. Pursuant to Rule 13e-4(g) under the Exchange Act, the issuer 
shall be deemed to comply with the requirements of section 13(e)(1) of 
the Exchange Act and Rule 13e-4 and Schedule TO thereunder in connection 
with a cash tender or exchange offer for securities that may be made 
pursuant to this Schedule, provided that, if an exemption has been 
granted from the requirements of Canadian federal, provincial and/or 
territorial laws, regulations or policies, and the tender offer does not 
comply with requirements that otherwise would be prescribed by Rule 13e-
4, the issuer (absent an order from the Commission) shall comply with 
the provisions of section 13(e)(1) of the Exchange Act and Rule 13e-4 
and Schedule TO thereunder.
    B. Any cash tender or exchange offer made pursuant to this Schedule 
is not exempt from the antifraud provisions of section 10(b) of the 
Exchange Act and Rule 10b-5 thereunder, section 13(e)(1) of the Exchange 
Act and Rule 13e-4(b)(1) thereunder, and section 14(e) of the Exchange 
Act and Rule 14e-3 thereunder, and this Schedule shall be deemed 
``filed'' for purposes of section 18 of the Exchange Act.
    C. The issuer's attention is directed to Regulation M (Sec.Sec.
242.100 through 242.105 of this chapter), in the case of an issuer 
exchange offer, and to Rule 14e-5 under the Exchange Act (Sec.240.14e-
5), in the case of an issuer cash tender offer or issuer exchange offer. 
[See Exchange Act Release No. 29355 (June 21, 1991) containing an 
exemption from Rule 10b-13, the predecessor to Rule 14e-5.]

         Part I--Information Required To Be Sent to Shareholders

                   Item 1. Home Jurisdiction Documents

    (a) This Schedule shall be accompanied by the entire disclosure 
document or documents required to be delivered to holders of securities 
to be acquired by the issuer in the proposed transaction pursuant to the 
laws, regulations or policies of the Canadian jurisdiction in which the 
issuer is incorporated or organized, and any other Canadian federal, 
provincial and/or territorial law, regulation or policy relating to the 
terms and conditions of the offer. The Schedule need not include any 
documents incorporated by reference into such disclosure document(s) and 
not distributed to offerees pursuant to any such law, regulation or 
policy.
    (b) Any amendment made by the issuer to a home jurisdiction document 
or documents shall be filed with the Commission under cover of this 
Schedule, which must indicate on the cover page the number of the 
amendment.
    (c) In an exchange offer where securities of the issuer have been or 
are to be offered or cancelled in the transaction, such securities shall 
be registered on forms promulgated by the Commission under the 
Securities Act of 1933 including, where available, the Commission's Form 
F-8 or F-80 providing for inclusion in that registration statement of 
the home jurisdiction prospectus.

                      Item 2. Informational Legends

    The following legends, to the extent applicable, shall appear on the 
outside front cover page of the home jurisdiction document(s) in bold-
face roman type at least as high as ten-point modern type and at least 
two-points leaded:
    ``This tender offer is made by a foreign issuer for its own 
securities, and while the offer is subject to disclosure requirements of 
the country in which the issuer is incorporated or organized, investors 
should be aware that these requirements are different from those of the 
United States. Financial statements included herein, if any, have been 
prepared in accordance with foreign generally accepted accounting 
principles and thus may not be comparable to financial statements of 
United States companies.
    ``The enforcement by investors of civil liabilities under the 
federal securities laws may be affected adversely by the fact that the 
issuer is located in a foreign country, and that some or all of its 
officers and directors are residents of a foreign country.
    ``Investors should be aware that the issuer or its affiliates, 
directly or indirectly, may bid for or make purchases of the securities 
of the issuer subject to the offer, or of its related securities, during 
the period of the issuer tender offer, as permitted by applicable 
Canadian laws or provincial laws or regulations.''

    Note to Item 2. If the home jurisdiction document(s) are delivered 
through an electronic medium, the issuer may satisfy the legibility 
requirements for the required legends relating to type size and fonts by 
presenting the legend in any manner reasonably calculated to draw 
security holder attention to it.

      Part II--Information Not Required To Be Sent to Shareholders

    The exhibits specified below shall be filed as part of the Schedule, 
but are not required to be sent to shareholders unless so required 
pursuant to the laws, regulations or policies of Canada and/or any of 
its provinces or territories. Exhibits shall be lettered or numbered 
appropriately for convenient reference.
    (1) File any reports or information that, in accordance with the 
requirements of the home jurisdiction(s), must be made publicly 
available by the issuer in connection with the transaction, but need not 
be disseminated to shareholders.

[[Page 205]]

    (2) File copies of any documents incorporated by reference into the 
home jurisdiction document(s) .
    (3) If any name is signed to the Schedule pursuant to power of 
attorney, manually signed copies of any such power of attorney shall be 
filed. If the name of any officer signing on behalf of the issuer is 
signed pursuant to a power of attorney, certified copies of a resolution 
of the issuer's board of directors authorizing such signature also shall 
be filed.

        Part III--Undertakings and Consent to Service of Process

                             1. Undertakings

    The Schedule shall set forth the following undertakings of the 
issuer:
    (a) The issuer undertakes to make available, in person or by 
telephone, representatives to respond to inquiries made by the 
Commission staff, and to furnish promptly, when requested to do so by 
the Commission staff, information relating to this Schedule or to 
transactions in said securities.
    (b) The issuer also undertakes to disclose in the United States, on 
the same basis as it is required to make such disclosure pursuant to 
applicable Canadian federal and/or provincial or territorial laws, 
regulations or policies, or otherwise discloses, information regarding 
purchases of the issuer's securities in connection with the cash tender 
or exchange offer covered by this Schedule. Such information shall be 
set forth in amendments to this Schedule.

                    2. Consent to Service of Process

    (a) At the time of filing this Schedule, the issuer shall file with 
the Commission a written irrevocable consent and power of attorney on 
Form F-X.
    (b) Any change to the name or address of a registrant's agent for 
service shall be communicated promptly to the Commission by amendment to 
Form F-X referencing the file number of the registrant.

                           Part IV--Signatures

    A. The Schedule shall be signed by each person on whose behalf the 
Schedule is filed or its authorized representative. If the Schedule is 
signed on behalf of a person by his authorized representative (other 
than an executive officer or general partner of the company), evidence 
of the representative's authority shall be filed with the Schedule.
    B. The name of each person who signs the Schedule shall be typed or 
printed beneath his signature.
    C. By signing this Schedule, the person(s) filing the Schedule 
consents without power of revocation that any administrative subpoena 
may be served, or any administrative proceeding, civil suit or civil 
action where the cause of action arises out of or relates to or concerns 
any offering made or purported to be made in connection with the filing 
on Schedule 13E-4F or any purchases or sales of any security in 
connection therewith, may be commenced against it in any administrative 
tribunal or in any appropriate court in any place subject to the 
jurisdiction of any state or of the United States by service of said 
subpoena or process upon the registrant's designated agent.
    After due inquiry and to the best of my knowledge and belief, I 
certify that the information set forth in this statement is true, 
complete and correct.
________________________________________________________________________
    (Signature)
________________________________________________________________________
    (Name and Title)
________________________________________________________________________
    (Date)

[56 FR 30069, July 1, 1991, as amended at 61 FR 24656, May 15, 1996; 62 
FR 544, Jan. 3, 1997; 67 FR 36705, May 24, 2002; 73 FR 17814, Apr. 1, 
2008]



Sec.240.13f-1  Reporting by institutional investment managers of 
information with respect to accounts over which they exercise 
investment discretion.

    (a)(1) Every institutional investment manager which exercises 
investment discretion with respect to accounts holding section 13(f) 
securities, as defined in paragraph (c) of this section, having an 
aggregate fair market value on the last trading day of any month of any 
calendar year of at least $100,000,000 shall file a report on Form 13F 
(Sec.249.325 of this chapter) with the Commission within 45 days after 
the last day of such calendar year and within 45 days after the last day 
of each of the first three calendar quarters of the subsequent calendar 
year.
    (2) An amendment to a Form 13F (Sec.249.325 of this chapter) 
report, other than one reporting only holdings that were not previously 
reported in a public filing for the same period, must set forth the 
complete text of the Form 13F. Amendments must be numbered sequentially.
    (b) For the purposes of this rule, ``investment descretion'' has the 
meaning set forth in section 3(a)(35) of the Act (15 U.S.C. 78c(a)(35)). 
An institutional investment manager shall also be deemed to exercise 
``investment discretion'' with respect to all accounts over

[[Page 206]]

which any person under its control exercises investment discretion.
    (c) For purposes of this rule ``section 13(f) securities'' shall 
mean equity securities of a class described in section 13(d)(1) of the 
Act that are admitted to trading on a national securities exchange or 
quoted on the automated quotation system of a registered securities 
association. In determining what classes of securities are section 13(f) 
securities, an institutional investment manager may rely on the most 
recent list of such securities published by the Commission pursuant to 
section 13(f)(4) of the Act (15 U.S.C. 78m(f)(4)). Only securities of a 
class on such list shall be counted in determining whether an 
institutional investment manager must file a report under this rule 
(Sec.240.13f-1(a)) and only those securities shall be reported in such 
report. Where a person controls the issuer of a class of equity 
securities which are ``section 13(f) securities'' as defined in this 
rule, those securities shall not be deemed to be ``section 13(f) 
securities'' with respect to the controlling person, provided that such 
person does not otherwise exercise investment descretion with respect to 
accounts with fair market value of at least $100,000,000 within the 
meaning of paragraph (a) of this section.

(Secs. 3(b), 13(f) and 23 of the Exchange Act (15 U.S.C. 78c(b), 78m(f) 
and 78w))

[43 FR 26705, June 22, 1978, as amended at 44 FR 3034, Jan. 15, 1979; 64 
FR 2849, Jan. 19, 1999; 76 FR 71876, Nov. 21, 2011]



Sec.240.13h-l  Large trader reporting.

    (a) Definitions. For purposes of this section:
    (1) The term large trader means any person that:
    (i) Directly or indirectly, including through other persons 
controlled by such person, exercises investment discretion over one or 
more accounts and effects transactions for the purchase or sale of any 
NMS security for or on behalf of such accounts, by or through one or 
more registered broker-dealers, in an aggregate amount equal to or 
greater than the identifying activity level; or
    (ii) Voluntarily registers as a large trader by filing 
electronically with the Commission Form 13H (Sec.249.327 of this 
chapter).
    (2) The term person has the same meaning as in Section 13(h)(8)(E) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78m(h)(8)(E)).
    (3) The term control (including the terms controlling, controlled by 
and under common control with) means the possession, direct or indirect, 
of the power to direct or cause the direction of the management and 
policies of a person, whether through the ownership of securities, by 
contract, or otherwise. For purposes of this section only, any person 
that directly or indirectly has the right to vote or direct the vote of 
25% or more of a class of voting securities of an entity or has the 
power to sell or direct the sale of 25% or more of a class of voting 
securities of such entity, or in the case of a partnership, has the 
right to receive, upon dissolution, or has contributed, 25% or more of 
the capital, is presumed to control that entity.
    (4) The term investment discretion has the same meaning as in 
Section 3(a)(35) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(3)(a)(35)). A person's employees who exercise investment discretion 
within the scope of their employment are deemed to do so on behalf of 
such person.
    (5) The term NMS security has the meaning provided for in Section 
242.600(b)(47) of this chapter.
    (6) The term transaction or transactions means all transactions in 
NMS securities, excluding the purchase or sale of such securities 
pursuant to exercises or assignments of option contracts. For the sole 
purpose of determining whether a person is a large trader, the following 
transactions are excluded from this definition:
    (i) Any journal or bookkeeping entry made to an account in order to 
record or memorialize the receipt or delivery of funds or securities 
pursuant to the settlement of a transaction;
    (ii) Any transaction that is part of an offering of securities by or 
on behalf of an issuer, or by an underwriter on behalf of an issuer, or 
an agent for an issuer, whether or not such offering is subject to 
registration under the Securities Act of 1933 (15 U.S.C. 77a), provided, 
however, that this exemption

[[Page 207]]

shall not include an offering of securities effected through the 
facilities of a national securities exchange;
    (iii) Any transaction that constitutes a gift;
    (iv) Any transaction effected by a court appointed executor, 
administrator, or fiduciary pursuant to the distribution of a decedent's 
estate;
    (v) Any transaction effected pursuant to a court order or judgment;
    (vi) Any transaction effected pursuant to a rollover of qualified 
plan or trust assets subject to Section 402(a)(5) of the Internal 
Revenue Code (26 U.S.C. 1 et seq.);
    (vii) Any transaction between an employer and its employees effected 
pursuant to the award, allocation, sale, grant, or exercise of a NMS 
security, option or other right to acquire securities at a pre-
established price pursuant to a plan which is primarily for the purpose 
of an issuer benefit plan or compensatory arrangement; or
    (viii) Any transaction to effect a business combination, including a 
reclassification, merger, consolidation, or tender offer subject to 
Section 14(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78n(d)); 
an issuer tender offer or other stock buyback by an issuer; or a stock 
loan or equity repurchase agreement.
    (7) The term identifying activity level means: aggregate 
transactions in NMS securities that are equal to or greater than:
    (i) During a calendar day, either two million shares or shares with 
a fair market value of $20 million; or
    (ii) During a calendar month, either twenty million shares or shares 
with a fair market value of $200 million.
    (8) The term reporting activity level means:
    (i) Each transaction in NMS securities, effected in a single account 
during a calendar day, that is equal to or greater than 100 shares;
    (ii) Any transaction in NMS securities for fewer than 100 shares, 
effected in a single account during a calendar day, that a registered 
broker-dealer may deem appropriate; or
    (iii) Such other amount that may be established by order of the 
Commission from time to time.
    (9) The term Unidentified Large Trader means each person who has not 
complied with the identification requirements of paragraphs (b)(1) and 
(b)(2) of this section that a registered broker-dealer knows or has 
reason to know is a large trader. For purposes of determining under this 
section whether a registered broker-dealer has reason to know that a 
person is large trader, a registered broker-dealer need take into 
account only transactions in NMS securities effected by or through such 
broker-dealer.
    (b) Identification requirements for large traders--(1) Form 13H. 
Except as provided in paragraph (b)(3) of this section, each large 
trader shall file electronically Form 13H (17 CFR 249.327) with the 
Commission, in accordance with the instructions contained therein:
    (i) Promptly after first effecting aggregate transactions, or after 
effecting aggregate transactions subsequent to becoming inactive 
pursuant to paragraph (b)(3) of this section, equal to or greater than 
the identifying activity level;
    (ii) Within 45 days after the end of each full calendar year; and
    (iii) Promptly following the end of a calendar quarter in the event 
that any of the information contained in a Form 13H filing becomes 
inaccurate for any reason.
    (2) Disclosure of large trader status. Each large trader shall 
disclose to the registered broker-dealers effecting transactions on its 
behalf its large trader identification number and each account to which 
it applies. A large trader on Inactive Status pursuant to paragraph 
(b)(3) of this section must notify broker-dealers promptly after filing 
for reactivated status with the Commission.
    (3) Filing requirement--(i) Compliance by controlling person. A 
large trader shall not be required to separately comply with the 
requirements of this paragraph (b) if a person who controls the large 
trader complies with all of the requirements under paragraphs (b)(1), 
(b)(2), and (b)(4) of this section applicable to such large trader with 
respect to all of its accounts.
    (ii) Compliance by controlled person. A large trader shall not be 
required to

[[Page 208]]

separately comply with the requirements of this paragraph (b) if one or 
more persons controlled by such large trader collectively comply with 
all of the requirements under paragraphs (b)(1), (b)(2), and (b)(4) of 
this section applicable to such large trader with respect to all of its 
accounts.
    (iii) Inactive status. A large trader that has not effected 
aggregate transactions at any time during the previous full calendar 
year in an amount equal to or greater than the identifying activity 
level shall become inactive upon filing a Form 13H (17 CFR 249.327) and 
thereafter shall not be required to file Form 13H or disclose its large 
trader status unless and until its transactions again are equal to or 
greater than the identifying activity level. A large trader that has 
ceased operations may elect to become inactive by filing an amended Form 
13H to indicate its terminated status.
    (4) Other information. Upon request, a large trader must promptly 
provide additional descriptive or clarifying information that would 
allow the Commission to further identify the large trader and all 
accounts through which the large trader effects transactions.
    (c) Aggregation--(1) Transactions. For the purpose of determining 
whether a person is a large trader, the following shall apply:
    (i) The volume or fair market value of transactions in equity 
securities and the volume or fair market value of the equity securities 
underlying transactions in options on equity securities, purchased and 
sold, shall be aggregated;
    (ii) The fair market value of transactions in options on a group or 
index of equity securities (or based on the value thereof), purchased 
and sold, shall be aggregated; and
    (iii) Under no circumstances shall a person subtract, offset, or net 
purchase and sale transactions, in equity securities or option 
contracts, and among or within accounts, when aggregating the volume or 
fair market value of transactions for purposes of this section.
    (2) Accounts. Under no circumstances shall a person disaggregate 
accounts to avoid the identification requirements of this section.
    (d) Recordkeeping requirements for broker and dealers--(1) 
Generally. Every registered broker-dealer shall maintain records of all 
information required under paragraphs (d)(2) and (d)(3) of this section 
for all transactions effected directly or indirectly by or through:
    (i) An account such broker-dealer carries for a large trader or an 
Unidentified Large Trader, or
    (ii) If the broker-dealer is a large trader, any proprietary or 
other account over which such broker-dealer exercises investment 
discretion.
    (iii) Additionally, where a non-broker-dealer carries an account for 
a large trader or an Unidentified Large Trader, the broker-dealer 
effecting transactions directly or indirectly for such large trader or 
Unidentified Large Trader shall maintain records of all of the 
information required under paragraphs (d)(2) and (d)(3) of this section 
for those transactions.
    (2) Information. The information required to be maintained for all 
transactions shall include:
    (i) The clearing house number or alpha symbol of the broker or 
dealer submitting the information and the clearing house numbers or 
alpha symbols of the entities on the opposite side of the transaction;
    (ii) Identifying symbol assigned to the security;
    (iii) Date transaction was executed;
    (iv) The number of shares or option contracts traded in each 
specific transaction; whether each transaction was a purchase, sale, or 
short sale; and, if an option contract, whether the transaction was a 
call or put option, an opening purchase or sale, a closing purchase or 
sale, or an exercise or assignment;
    (v) Transaction price;
    (vi) Account number;
    (vii) Identity of the exchange or other market center where the 
transaction was executed.
    (viii) A designation of whether the transaction was effected or 
caused to be effected for the account of a customer of such registered 
broker-dealer, or was a proprietary transaction effected or caused to be 
effected for the account of such broker-dealer;

[[Page 209]]

    (ix) If part or all of an account's transactions at the registered 
broker-dealer have been transferred or otherwise forwarded to one or 
more accounts at another registered broker-dealer, an identifier for 
this type of transaction; and if part or all of an account's 
transactions at the reporting broker-dealer have been transferred or 
otherwise received from one or more other registered broker-dealers, an 
identifier for this type of transaction;
    (x) If part or all of an account's transactions at the reporting 
broker-dealer have been transferred or otherwise received from another 
account at the reporting broker-dealer, an identifier for this type of 
transaction; and if part or all of an account's transactions at the 
reporting broker-dealer have been transferred or otherwise forwarded to 
one or more other accounts at the reporting broker-dealer, an identifier 
for this type of transaction;
    (xi) If a transaction was processed by a depository institution, the 
identifier assigned to the account by the depository institution;
    (xii) The time that the transaction was executed; and
    (xiii) The large trader identification number(s) associated with the 
account, unless the account is for an Unidentified Large Trader.
    (3) Information relating to Unidentified Large Traders. With respect 
to transactions effected directly or indirectly by or through the 
account of an Unidentified Large Trader, the information required to be 
maintained for all transactions also shall include such Unidentified 
Large Trader's name, address, date the account was opened, and tax 
identification number(s).
    (4) Retention. The records and information required to be made and 
kept pursuant to the provisions of this section shall be kept for such 
periods of time as provided in Sec.240.17a-4(b).
    (5) Availability of information. The records and information 
required to be made and kept pursuant to the provisions of this rule 
shall be available on the morning after the day the transactions were 
effected (including Saturdays and holidays).
    (e) Reporting requirements for brokers and dealers. Upon the request 
of the Commission, every registered broker-dealer who is itself a large 
trader or carries an account for a large trader or an Unidentified Large 
Trader shall electronically report to the Commission, using the 
infrastructure supporting Sec.240.17a-25, in machine-readable form and 
in accordance with instructions issued by the Commission, all 
information required under paragraphs (d)(2) and (d)(3) of this section 
for all transactions effected directly or indirectly by or through 
accounts carried by such broker-dealer for large traders and 
Unidentified Large Traders, equal to or greater than the reporting 
activity level. Additionally, where a non-broker-dealer carries an 
account for a large trader or an Unidentified Large Trader, the broker-
dealer effecting such transactions directly or indirectly for a large 
trader shall electronically report using the infrastructure supporting 
Sec.240.17a-25, in machine-readable form and in accordance with 
instructions issued by the Commission, all information required under 
paragraphs (d)(2) and (d)(3) of this section for such transactions equal 
to or greater than the reporting activity level. Such reports shall be 
submitted to the Commission no later than the day and time specified in 
the request for transaction information, which shall be no earlier than 
the opening of business of the day following such request, unless in 
unusual circumstances the same-day submission of information is 
requested.
    (f) Monitoring safe harbor. For the purposes of this rule, a 
registered broker-dealer shall be deemed not to know or have reason to 
know that a person is a large trader if it does not have actual 
knowledge that a person is a large trader and it establishes policies 
and procedures reasonably designed to:
    (1) Identify persons who have not complied with the identification 
requirements of paragraphs (b)(1) and (b)(2) of this section but whose 
transactions effected through an account or a group of accounts carried 
by such broker-dealer or through which such broker-dealer executes 
transactions, as applicable (and considering account name, tax 
identification number, or other identifying information available on the 
books and records of such

[[Page 210]]

broker-dealer) equal or exceed the identifying activity level;
    (2) Treat any persons identified in paragraph (f)(1) of this section 
as an Unidentified Large Trader for purposes of this section; and
    (3) Inform any person identified in paragraph (f)(1) of this section 
of its potential obligations under this section.
    (g) Exemptions. Upon written application or upon its own motion, the 
Commission may by order exempt, upon specified terms and conditions or 
for stated periods, any person or class of persons or any transaction or 
class of transactions from the provisions of this section to the extent 
that such exemption is consistent with the purposes of the Securities 
Exchange Act of 1934 (15 U.S.C. 78a).

[76 FR 47002, Aug. 3, 2011, as amended at 83 FR 58427, Nov. 19, 2018]



Sec.240.13k-1  Foreign bank exemption from the insider lending
prohibition under section 13(k).

    (a) For the purpose of this section:
    (1) Foreign bank means an institution:
    (i) The home jurisdiction of which is other than the United States;
    (ii) That is regulated as a bank in its home jurisdiction; and
    (iii) That engages directly in the business of banking.
    (2) Home jurisdiction means the country, political subdivision or 
other place in which a foreign bank is incorporated or organized.
    (3) Engages directly in the business of banking means that an 
institution engages directly in banking activities that are usual for 
the business of banking in its home jurisdiction.
    (4) Affiliate, parent and subsidiary have the same meaning as under 
17 CFR 240.12b-2.
    (b) An issuer that is a foreign bank or the parent or other 
affiliate of a foreign bank is exempt from the prohibition of extending, 
maintaining, arranging for, or renewing credit in the form of a personal 
loan to or for any of its directors or executive officers under section 
13(k) of the Act (15 U.S.C. 78m(k)) with respect to any such loan made 
by the foreign bank as long as:
    (1) Either:
    (i) The laws or regulations of the foreign bank's home jurisdiction 
require the bank to insure its deposits or be subject to a deposit 
guarantee or protection scheme; or
    (ii) The Board of Governors of the Federal Reserve System has 
determined that the foreign bank or another bank organized in the 
foreign bank's home jurisdiction is subject to comprehensive supervision 
or regulation on a consolidated basis by the bank supervisor in its home 
jurisdiction under 12 CFR 211.24(c); and
    (2) The loan by the foreign bank to any of its directors or 
executive officers or those of its parent or other affiliate:
    (i) Is on substantially the same terms as those prevailing at the 
time for comparable transactions by the foreign bank with other persons 
who are not executive officers, directors or employees of the foreign 
bank, its parent or other affiliate; or
    (ii) Is pursuant to a benefit or compensation program that is widely 
available to the employees of the foreign bank, its parent or other 
affiliate and does not give preference to any of the executive officers 
or directors of the foreign bank, its parent or other affiliate over any 
other employees of the foreign bank, its parent or other affiliate; or
    (iii) Has received express approval by the bank supervisor in the 
foreign bank's home jurisdiction.

    Notes to paragraph (b): 1. The exemption provided in paragraph (b) 
of this section applies to a loan by the subsidiary of a foreign bank to 
a director or executive officer of the foreign bank, its parent or other 
affiliate as long as the subsidiary is under the supervision or 
regulation of the bank supervisor in the foreign bank's home 
jurisdiction, the subsidiary's loan meets the requirements of paragraph 
(b)(2) of this section, and the foreign bank meets the requirements of 
paragraph (b)(1) of this section.
    2. For the purpose of paragraph (b)(1)(ii) of this section, a 
foreign bank may rely on a determination by the Board of Governors of 
the Federal Reserve System that another bank in the foreign bank's home 
jurisdiction is subject to comprehensive supervision or regulation on a 
consolidated basis by the bank supervisor under 12 CFR 211.24(c) as

[[Page 211]]

long as the foreign bank is under substantially the same banking 
supervision or regulation as the other bank in their home jurisdiction.

    (c) As used in paragraph (1) of section 13(k) of the Act (15 U.S.C. 
78m(k)(1)), issuer does not include a foreign government, as defined 
under 17 CFR 230.405, that files a registration statement under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.) on Schedule B.

[69 FR 24024, Apr. 30, 2004]



Sec.240.13n-1  Registration of security-based swap data repository.

    (a) Definitions. For purposes of this section --
    (1) Non-resident security-based swap data repository means:
    (i) In the case of an individual, one who resides in or has his 
principal place of business in any place not in the United States;
    (ii) In the case of a corporation, one incorporated in or having its 
principal place of business in any place not in the United States; or
    (iii) In the case of a partnership or other unincorporated 
organization or association, one having its principal place of business 
in any place not in the United States.
    (2) Tag (including the term tagged) has the same meaning as set 
forth in Rule 11 of Regulation S-T (17 CFR 232.11).
    (b) An application for the registration of a security-based swap 
data repository and all amendments thereto shall be filed electronically 
in a tagged data format on Form SDR (17 CFR 249.1500) with the 
Commission in accordance with the instructions contained therein. As 
part of the application process, each security-based swap data 
repository shall provide additional information to any representative of 
the Commission upon request.
    (c) Within 90 days of the date of the publication of notice of the 
filing of such application (or within such longer period as to which the 
applicant consents), the Commission shall -
    (1) By order grant registration; or
    (2) Institute proceedings to determine whether registration should 
be granted or denied. Such proceedings shall include notice of the 
issues under consideration and opportunity for hearing on the record and 
shall be concluded within 180 days of the date of the publication of 
notice of the filing of the application for registration under paragraph 
(b) of this section. At the conclusion of such proceedings, the 
Commission, by order, shall grant or deny such registration. The 
Commission may extend the time for conclusion of such proceedings for up 
to 90 days if it finds good cause for such extension and publishes its 
reasons for so finding or for such longer period as to which the 
applicant consents.
    (3) The Commission shall grant the registration of a security-based 
swap data repository if the Commission finds that such security-based 
swap data repository is so organized, and has the capacity, to be able 
to assure the prompt, accurate, and reliable performance of its 
functions as a security-based swap data repository, comply with any 
applicable provision of the federal securities laws and the rules and 
regulations thereunder, and carry out its functions in a manner 
consistent with the purposes of section 13(n) of the Act (15 U.S.C. 
78m(n)) and the rules and regulations thereunder. The Commission shall 
deny the registration of a security-based swap data repository if it 
does not make any such finding.
    (d) If any information reported in items 1 through 17, 26, and 48 of 
Form SDR (17 CFR 249.1500) or in any amendment thereto is or becomes 
inaccurate for any reason, whether before or after the registration has 
been granted, the security-based swap data repository shall promptly 
file an amendment on Form SDR updating such information. In addition, 
the security-based swap data repository shall annually file an amendment 
on Form SDR within 60 days after the end of each fiscal year of such 
security-based swap data repository.
    (e) Each security-based swap data repository shall designate and 
authorize on Form SDR an agent in the United States, other than a 
Commission member, official, or employee, who shall accept any notice or 
service of process, pleadings, or other documents in any action or 
proceedings brought against the security-based swap data repository to 
enforce the federal securities

[[Page 212]]

laws and the rules and regulations thereunder.
    (f) Any non-resident security-based swap data repository applying 
for registration pursuant to this section shall:
    (1) Certify on Form SDR that the security-based swap data repository 
can, as a matter of law, and will provide the Commission with prompt 
access to the books and records of such security-based swap data 
repository and can, as a matter of law, and will submit to onsite 
inspection and examination by the Commission, and
    (2) Provide an opinion of counsel that the security-based swap data 
repository can, as a matter of law, provide the Commission with prompt 
access to the books and records of such security-based swap data 
repository and can, as a matter of law, submit to onsite inspection and 
examination by the Commission.
    (g) An application for registration or any amendment thereto that is 
filed pursuant to this section shall be considered a ``report'' filed 
with the Commission for purposes of sections 18(a) and 32(a) of the Act 
(15 U.S.C. 78r(a) and 78ff(a)) and the rules and regulations thereunder 
and other applicable provisions of the United States Code and the rules 
and regulations thereunder.

[80 FR 14550, Mar. 19, 2015]



Sec.240.13n-2  Withdrawal from registration; revocation and 
cancellation.

    (a) Definition. For purposes of this section, tag (including the 
term tagged) has the same meaning as set forth in Rule 11 of Regulation 
S-T (17 CFR 232.11).
    (b) A registered security-based swap data repository may withdraw 
from registration by filing a withdrawal from registration on Form SDR 
(17 CFR 249.1500) electronically in a tagged data format. The security-
based swap data repository shall designate on Form SDR a person to serve 
as the custodian of the security-based swap data repository's books and 
records. When filing a withdrawal from registration on Form SDR, a 
security-based swap data repository shall update any inaccurate 
information.
    (c) A withdrawal from registration filed by a security-based swap 
data repository shall become effective for all matters (except as 
provided in this paragraph (c)) on the 60th day after the filing thereof 
with the Commission, within such longer period of time as to which such 
security-based swap data repository consents or which the Commission, by 
order, may determine as necessary or appropriate in the public interest 
or for the protection of investors, or within such shorter period of 
time as the Commission may determine.
    (d) A withdrawal from registration that is filed pursuant to this 
section shall be considered a ``report'' filed with the Commission for 
purposes of sections 18(a) and 32(a) of the Act (15 U.S.C. 78r(a) and 
78ff(a)) and the rules and regulations thereunder and other applicable 
provisions of the United States Code and the rules and regulations 
thereunder.
    (e) If the Commission finds, on the record after notice and 
opportunity for hearing, that any registered security-based swap data 
repository has obtained its registration by making any false and 
misleading statements with respect to any material fact or has violated 
or failed to comply with any provision of the federal securities laws 
and the rules and regulations thereunder, the Commission, by order, may 
revoke the registration. Pending final determination of whether any 
registration shall be revoked, the Commission, by order, may suspend 
such registration, if such suspension appears to the Commission, after 
notice and opportunity for hearing on the record, to be necessary or 
appropriate in the public interest or for the protection of investors.
    (f) If the Commission finds that a registered security-based swap 
data repository is no longer in existence or has ceased to do business 
in the capacity specified in its application for registration, the 
Commission, by order, may cancel the registration.

[80 FR 14550, Mar. 19, 2015]



Sec.240.13n-3  Registration of successor to registered security-based 
swap data repository.

    (a) In the event that a security-based swap data repository succeeds 
to and continues the business of a security-

[[Page 213]]

based swap data repository registered pursuant to section 13(n) of the 
Act (15 U.S.C. 78m(n)), the registration of the predecessor shall be 
deemed to remain effective as the registration of the successor if, 
within 30 days after such succession, the successor files an application 
for registration on Form SDR (17 CFR 249.1500), and the predecessor 
files a withdrawal from registration on Form SDR; provided, however, 
that the registration of the predecessor security-based swap data 
repository shall cease to be effective 90 days after the publication of 
notice of the filing of the application for registration on Form SDR 
filed by the successor security-based swap data repository.
    (b) Notwithstanding paragraph (a) of this section, if a security-
based swap data repository succeeds to and continues the business of a 
registered predecessor security-based swap data repository, and the 
succession is based solely on a change in the predecessor's date or 
state of incorporation, form of organization, or composition of a 
partnership, the successor may, within 30 days after the succession, 
amend the registration of the predecessor security-based swap data 
repository on Form SDR (17 CFR 249.1500) to reflect these changes. This 
amendment shall be deemed an application for registration filed by the 
predecessor and adopted by the successor.

[80 FR 14550, Mar. 19, 2015]



Sec.240.13n-4  Duties and core principles of security-based swap
data repository.

    (a) Definitions. For purposes of this section--
    (1) Affiliate of a security-based swap data repository means a 
person that, directly or indirectly, controls, is controlled by, or is 
under common control with the security-based swap data repository.
    (2) Board means the board of directors of the security-based swap 
data repository or a body performing a function similar to the board of 
directors of the security-based swap data repository.
    (3) Control (including the terms controlled by and under common 
control with) means the possession, direct or indirect, of the power to 
direct or cause the direction of the management and policies of a 
person, whether through the ownership of voting securities, by contract, 
or otherwise. A person is presumed to control another person if the 
person:
    (i) Is a director, general partner, or officer exercising executive 
responsibility (or having similar status or functions);
    (ii) Directly or indirectly has the right to vote 25 percent or more 
of a class of voting securities or has the power to sell or direct the 
sale of 25 percent or more of a class of voting securities; or
    (iii) In the case of a partnership, has the right to receive, upon 
dissolution, or has contributed, 25 percent or more of the capital.
    (4) Director means any member of the board.
    (5) Direct electronic access means access, which shall be in a form 
and manner acceptable to the Commission, to data stored by a security-
based swap data repository in an electronic format and updated at the 
same time as the security-based swap data repository's data is updated 
so as to provide the Commission or any of its designees with the ability 
to query or analyze the data in the same manner that the security-based 
swap data repository can query or analyze the data.
    (6) Market participant means any person participating in the 
security-based swap market, including, but not limited to, security-
based swap dealers, major security-based swap participants, and any 
other counterparties to a security-based swap transaction.
    (7) Nonaffiliated third party of a security-based swap data 
repository means any person except:
    (i) The security-based swap data repository;
    (ii) Any affiliate of the security-based swap data repository; or
    (iii) A person employed by a security-based swap data repository and 
any entity that is not the security-based swap data repository's 
affiliate (and ``nonaffiliated third party'' includes such entity that 
jointly employs the person).
    (8) Person associated with a security-based swap data repository 
means:

[[Page 214]]

    (i) Any partner, officer, or director of such security-based swap 
data repository (or any person occupying a similar status or performing 
similar functions);
    (ii) Any person directly or indirectly controlling, controlled by, 
or under common control with such security-based swap data repository; 
or
    (iii) Any employee of such security-based swap data repository.
    (b) Duties. To be registered, and maintain registration, as a 
security-based swap data repository, a security-based swap data 
repository shall:
    (1) Subject itself to inspection and examination by any 
representative of the Commission;
    (2) Accept data as prescribed in Regulation SBSR (17 CFR 242.900 
through 242.909) for each security-based swap;
    (3) Confirm, as prescribed in Rule 13n-5 (Sec.240.13n-5), with 
both counterparties to the security-based swap the accuracy of the data 
that was submitted;
    (4) Maintain, as prescribed in Rule 13n-5, the data described in 
Regulation SBSR in such form, in such manner, and for such period as 
provided therein and in the Act and the rules and regulations 
thereunder;
    (5) Provide direct electronic access to the Commission (or any 
designee of the Commission, including another registered entity);
    (6) Provide the information described in Regulation SBSR in such 
form and at such frequency as prescribed in Regulation SBSR to comply 
with the public reporting requirements set forth in section 13(m) of the 
Act (15 U.S.C. 78m(m)) and the rules and regulations thereunder;
    (7) At such time and in such manner as may be directed by the 
Commission, establish automated systems for monitoring, screening, and 
analyzing security-based swap data;
    (8) Maintain the privacy of any and all security-based swap 
transaction information that the security-based swap data repository 
receives from a security-based swap dealer, counterparty, or any 
registered entity as prescribed in Rule 13n-9 (Sec.240.13n-9);
    (9) On a confidential basis, pursuant to section 24 of the Act (15 
U.S.C. 78x), upon request, and after notifying the Commission of the 
request in a manner consistent with paragraph (d) of this section, make 
available security-based swap data obtained by the security-based swap 
data repository, including individual counterparty trade and position 
data, to the following:
    (i) The Board of Governors of the Federal Reserve System and any 
Federal Reserve Bank;
    (ii) The Office of the Comptroller of the Currency;
    (iii) The Federal Deposit Insurance Corporation;
    (iv) The Farm Credit Administration;
    (v) The Federal Housing Finance Agency;
    (vi) The Financial Stability Oversight Council;
    (vii) The Commodity Futures Trading Commission;
    (viii) The Department of Justice;
    (ix) The Office of Financial Research; and
    (x) Any other person that the Commission determines to be 
appropriate, conditionally or unconditionally, by order, including, but 
not limited to--
    (A) Foreign financial supervisors (including foreign futures 
authorities);
    (B) Foreign central banks;
    (C) Foreign ministries; and
    (D) Other foreign authorities;
    (10) Before sharing information with any entity described in 
paragraph (b)(9) of this section, there shall be in effect an 
arrangement between the Commission and the entity (in the form of a 
memorandum of understanding or otherwise) to address the confidentiality 
of the security-based swap information made available to the entity; 
this arrangement shall be deemed to satisfy the requirement, set forth 
in section 13(n)(5)(H) of the Act (15 U.S.C. 78m(n)(5)(H)), that the 
security-based swap data repository receive a written agreement from the 
entity stating that the entity shall abide by the confidentiality 
requirements described in section 24 of the Act (15 U.S.C. 78x) relating 
to the information on security-based swap transactions that is provided; 
and
    (11) Designate an individual to serve as a chief compliance officer.
    (c) Compliance with core principles. A security-based swap data 
repository

[[Page 215]]

shall comply with the core principles as described in this paragraph.
    (1) Market access to services and data. Unless necessary or 
appropriate to achieve the purposes of the Act and the rules and 
regulations thereunder, the security-based swap data repository shall 
not adopt any policies or procedures or take any action that results in 
an unreasonable restraint of trade or impose any material 
anticompetitive burden on the trading, clearing, or reporting of 
transactions. To comply with this core principle, each security-based 
swap data repository shall:
    (i) Ensure that any dues, fees, or other charges imposed by, and any 
discounts or rebates offered by, a security-based swap data repository 
are fair and reasonable and not unreasonably discriminatory. Such dues, 
fees, other charges, discounts, or rebates shall be applied consistently 
across all similarly-situated users of such security-based swap data 
repository's services, including, but not limited to, market 
participants, market infrastructures (including central counterparties), 
venues from which data can be submitted to the security-based swap data 
repository (including exchanges, security-based swap execution 
facilities, electronic trading venues, and matching and confirmation 
platforms), and third party service providers;
    (ii) Permit market participants to access specific services offered 
by the security-based swap data repository separately;
    (iii) Establish, monitor on an ongoing basis, and enforce clearly 
stated objective criteria that would permit fair, open, and not 
unreasonably discriminatory access to services offered and data 
maintained by the security-based swap data repository as well as fair, 
open, and not unreasonably discriminatory participation by market 
participants, market infrastructures, venues from which data can be 
submitted to the security-based swap data repository, and third party 
service providers that seek to connect to or link with the security-
based swap data repository; and
    (iv) Establish, maintain, and enforce written policies and 
procedures reasonably designed to review any prohibition or limitation 
of any person with respect to access to services offered, directly or 
indirectly, or data maintained by the security-based swap data 
repository and to grant such person access to such services or data if 
such person has been discriminated against unfairly.
    (2) Governance arrangements. Each security-based swap data 
repository shall establish governance arrangements that are transparent 
to fulfill public interest requirements under the Act and the rules and 
regulations thereunder; to carry out functions consistent with the Act, 
the rules and regulations thereunder, and the purposes of the Act; and 
to support the objectives of the Federal Government, owners, and 
participants. To comply with this core principle, each security-based 
swap data repository shall:
    (i) Establish governance arrangements that are well defined and 
include a clear organizational structure with effective internal 
controls;
    (ii) Establish governance arrangements that provide for fair 
representation of market participants;
    (iii) Provide representatives of market participants, including end-
users, with the opportunity to participate in the process for nominating 
directors and with the right to petition for alternative candidates; and
    (iv) Establish, maintain, and enforce written policies and 
procedures reasonably designed to ensure that the security-based swap 
data repository's senior management and each member of the board or 
committee that has the authority to act on behalf of the board possess 
requisite skills and expertise to fulfill their responsibilities in the 
management and governance of the security-based swap data repository, 
have a clear understanding of their responsibilities, and exercise sound 
judgment about the security-based swap data repository's affairs.
    (3) Conflicts of interest. Each security-based swap data repository 
shall establish and enforce written policies and procedures reasonably 
designed to minimize conflicts of interest in the decision-making 
process of the security-based swap data repository and establish a 
process for resolving any such conflicts of interest. Such conflicts of 
interest include, but are not limited to:

[[Page 216]]

conflicts between the commercial interests of a security-based swap data 
repository and its statutory and regulatory responsibilities; conflicts 
in connection with the commercial interests of certain market 
participants or linked market infrastructures, third party service 
providers, and others; conflicts between, among, or with persons 
associated with the security-based swap data repository, market 
participants, affiliates of the security-based swap data repository, and 
nonaffiliated third parties; and misuse of confidential information, 
material, nonpublic information, and/or intellectual property. To comply 
with this core principle, each security-based swap data repository 
shall:
    (i) Establish, maintain, and enforce written policies and procedures 
reasonably designed to identify and mitigate potential and existing 
conflicts of interest in the security-based swap data repository's 
decision-making process on an ongoing basis;
    (ii) With respect to the decision-making process for resolving any 
conflicts of interest, require the recusal of any person involved in 
such conflict from such decision-making; and
    (iii) Establish, maintain, and enforce reasonable written policies 
and procedures regarding the security-based swap data repository's non-
commercial and/or commercial use of the security-based swap transaction 
information that it receives from a market participant, any registered 
entity, or any other person.
    (d) Notification requirement compliance. To satisfy the notification 
requirement of the data access provisions of paragraph (b)(9) of this 
section, a security-based swap data repository shall inform the 
Commission upon its receipt of the first request for security-based swap 
data from a particular entity (which may include any request to be 
provided ongoing online or electronic access to the data), and the 
repository shall maintain records of all information related to the 
initial and all subsequent requests for data access from that entity, 
including records of all instances of online or electronic access, and 
records of all data provided in connection with such requests or access.

    Note to Sec.240.13n-4: This rule is not intended to limit, or 
restrict, the applicability of other provisions of the federal 
securities laws, including, but not limited to, section 13(m) of the Act 
(15 U.S.C. 78m(m)) and the rules and regulations thereunder.

[80 FR 14550, Mar. 19, 2015, as amended at 81 FR 60607, Nov. 1, 2016]



Sec.240.13n-5  Data collection and maintenance.

    (a) Definitions. For purposes of this section--
    (1) Asset class means those security-based swaps in a particular 
broad category, including, but not limited to, credit derivatives and 
equity derivatives.
    (2) Position means the gross and net notional amounts of open 
security-based swap transactions aggregated by one or more attributes, 
including, but not limited to, the:
    (i) Underlying instrument, index, or reference entity;
    (ii) Counterparty;
    (iii) Asset class;
    (iv) Long risk of the underlying instrument, index, or reference 
entity; and
    (v) Short risk of the underlying instrument, index, or reference 
entity.
    (3) Transaction data means all information reported to a security-
based swap data repository pursuant to the Act and the rules and 
regulations thereunder, except for information provided pursuant to Rule 
906(b) of Regulation SBSR (17 CFR 242.906(b)).
    (b) Requirements. Every security-based swap data repository 
registered with the Commission shall comply with the following data 
collection and data maintenance standards:
    (1) Transaction data. (i) Every security-based swap data repository 
shall establish, maintain, and enforce written policies and procedures 
reasonably designed for the reporting of complete and accurate 
transaction data to the security-based swap data repository and shall 
accept all transaction data that is reported in accordance with such 
policies and procedures.
    (ii) If a security-based swap data repository accepts any security-
based swap in a particular asset class, the security-based swap data 
repository shall accept all security-based swaps in that

[[Page 217]]

asset class that are reported to it in accordance with its policies and 
procedures required by paragraph (b)(1)(i) of this section.
    (iii) Every security-based swap data repository shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed to satisfy itself that the transaction data that has been 
submitted to the security-based swap data repository is complete and 
accurate, and clearly identifies the source for each trade side and the 
pairing method (if any) for each transaction in order to identify the 
level of quality of the transaction data.
    (iv) Every security-based swap data repository shall promptly record 
the transaction data it receives.
    (2) Positions. Every security-based swap data repository shall 
establish, maintain, and enforce written policies and procedures 
reasonably designed to calculate positions for all persons with open 
security-based swaps for which the security-based swap data repository 
maintains records.
    (3) Every security-based swap data repository shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that the transaction data and positions that it 
maintains are complete and accurate.
    (4) Every security-based swap data repository shall maintain 
transaction data and related identifying information for not less than 
five years after the applicable security-based swap expires and 
historical positions for not less than five years:
    (i) In a place and format that is readily accessible and usable to 
the Commission and other persons with authority to access or view such 
information; and
    (ii) In an electronic format that is non-rewriteable and non-
erasable.
    (5) Every security-based swap data repository shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent any provision in a valid security-based swap from 
being invalidated or modified through the procedures or operations of 
the security-based swap data repository.
    (6) Every security-based swap data repository shall establish 
procedures and provide facilities reasonably designed to effectively 
resolve disputes over the accuracy of the transaction data and positions 
that are recorded in the security-based swap data repository.
    (7) If a security-based swap data repository ceases doing business, 
or ceases to be registered pursuant to section 13(n) of the Act (15 
U.S.C. 78m(n)) and the rules and regulations thereunder, it must 
continue to preserve, maintain, and make accessible the transaction data 
and historical positions required to be collected, maintained, and 
preserved by this section in the manner required by the Act and the 
rules and regulations thereunder and for the remainder of the period 
required by this section.
    (8) Every security-based swap data repository shall make and keep 
current a plan to ensure that the transaction data and positions that 
are recorded in the security-based swap data repository continue to be 
maintained in accordance with Rule 13n-5(b)(7) (Sec.240.13n-5(b)(7)), 
which shall include procedures for transferring the transaction data and 
positions to the Commission or its designee (including another 
registered security-based swap data repository).

[80 FR 14550, Mar. 19, 2015]



Sec.240.13n-6  Automated systems.

    Every security-based swap data repository, with respect to those 
systems that support or are integrally related to the performance of its 
activities, shall establish, maintain, and enforce written policies and 
procedures reasonably designed to ensure that its systems provide 
adequate levels of capacity, integrity, resiliency, availability, and 
security.

[80 FR 14550, Mar. 19, 2015]



Sec.240.13n-7  Recordkeeping of security-based swap data repository.

    (a) Every security-based swap data repository shall make and keep 
current the following books and records relating to its business:
    (1) A record for each office listing, by name or title, each person 
at that office who, without delay, can explain the types of records the 
security-based

[[Page 218]]

swap data repository maintains at that office and the information 
contained in those records; and
    (2) A record listing each officer, manager, or person performing 
similar functions of the security-based swap data repository responsible 
for establishing policies and procedures that are reasonably designed to 
ensure compliance with the Act and the rules and regulations thereunder.
    (b) Recordkeeping rule for security-based swap data repositories. 
(1) Every security-based swap data repository shall keep and preserve at 
least one copy of all documents, including all documents and policies 
and procedures required by the Act and the rules and regulations 
thereunder, correspondence, memoranda, papers, books, notices, accounts, 
and other such records as shall be made or received by it in the course 
of its business as such.
    (2) Every security-based swap data repository shall keep all such 
documents for a period of not less than five years, the first two years 
in a place that is immediately available to representatives of the 
Commission for inspection and examination.
    (3) Every security-based swap data repository shall, upon request of 
any representative of the Commission, promptly furnish to the possession 
of such representative copies of any documents required to be kept and 
preserved by it pursuant to paragraphs (a) and (b) of this section.
    (c) If a security-based swap data repository ceases doing business, 
or ceases to be registered pursuant to section 13(n) of the Act (15 
U.S.C. 78m(n)) and the rules and regulations thereunder, it must 
continue to preserve, maintain, and make accessible the records and data 
required to be collected, maintained and preserved by this section in 
the manner required by this section and for the remainder of the period 
required by this section.
    (d) This section does not apply to transaction data and positions 
collected and maintained pursuant to Rule 13n-5 (Sec.240.13n-5).

[80 FR 14550, Mar. 19, 2015]



Sec.240.13n-8  Reports to be provided to the Commission.

    Every security-based swap data repository shall promptly report to 
the Commission, in a form and manner acceptable to the Commission, such 
information as the Commission determines to be necessary or appropriate 
for the Commission to perform the duties of the Commission under the Act 
and the rules and regulations thereunder.

[80 FR 14550, Mar. 19, 2015]



Sec.240.13n-9  Privacy requirements of security-based swap data 
repository.

    (a) Definitions. For purposes of this section--
    (1) Affiliate of a security-based swap data repository means a 
person that, directly or indirectly, controls, is controlled by, or is 
under common control with the security-based swap data repository.
    (2) Control (including the terms controlled by and under common 
control with) means the possession, direct or indirect, of the power to 
direct or cause the direction of the management and policies of a 
person, whether through the ownership of voting securities, by contract, 
or otherwise. A person is presumed to control another person if the 
person:
    (i) Is a director, general partner, or officer exercising executive 
responsibility (or having similar status or functions);
    (ii) Directly or indirectly has the right to vote 25 percent or more 
of a class of voting securities or has the power to sell or direct the 
sale of 25 percent or more of a class of voting securities; or
    (iii) In the case of a partnership, has the right to receive, upon 
dissolution, or has contributed, 25 percent or more of the capital.
    (3) Market participant means any person participating in the 
security-based swap market, including, but not limited to, security-
based swap dealers, major security-based swap participants, and any 
other counterparties to a security-based swap transaction.
    (4) Nonaffiliated third party of a security-based swap data 
repository means any person except:

[[Page 219]]

    (i) The security-based swap data repository;
    (ii) The security-based swap data repository's affiliate; or
    (iii) A person employed by a security-based swap data repository and 
any entity that is not the security-based swap data repository's 
affiliate (and nonaffiliated third party includes such entity that 
jointly employs the person).
    (5) Nonpublic personal information means:
    (i) Personally identifiable information that is not publicly 
available information; and
    (ii) Any list, description, or other grouping of market participants 
(and publicly available information pertaining to them) that is derived 
using personally identifiable information that is not publicly available 
information.
    (6) Personally identifiable information means any information:
    (i) A market participant provides to a security-based swap data 
repository to obtain service from the security-based swap data 
repository;
    (ii) About a market participant resulting from any transaction 
involving a service between the security-based swap data repository and 
the market participant; or
    (iii) The security-based swap data repository obtains about a market 
participant in connection with providing a service to that market 
participant.
    (7) Person associated with a security-based swap data repository 
means:
    (i) Any partner, officer, or director of such security-based swap 
data repository (or any person occupying a similar status or performing 
similar functions);
    (ii) Any person directly or indirectly controlling, controlled by, 
or under common control with such security-based swap data repository; 
or
    (iii) Any employee of such security-based swap data repository.
    (b) Each security-based swap data repository shall:
    (1) Establish, maintain, and enforce written policies and procedures 
reasonably designed to protect the privacy of any and all security-based 
swap transaction information that the security-based swap data 
repository receives from a security-based swap dealer, counterparty, or 
any registered entity. Such policies and procedures shall include, but 
are not limited to, policies and procedures to protect the privacy of 
any and all security-based swap transaction information that the 
security-based swap data repository shares with affiliates and 
nonaffiliated third parties; and
    (2) Establish and maintain safeguards, policies, and procedures 
reasonably designed to prevent the misappropriation or misuse, directly 
or indirectly, of:
    (i) Any confidential information received by the security-based swap 
data repository, including, but not limited to, trade data, position 
data, and any nonpublic personal information about a market participant 
or any of its customers;
    (ii) Material, nonpublic information; and/or
    (iii) Intellectual property, such as trading strategies or portfolio 
positions, by the security-based swap data repository or any person 
associated with the security-based swap data repository for their 
personal benefit or the benefit of others. Such safeguards, policies, 
and procedures shall address, without limitation:
    (A) Limiting access to such confidential information, material, 
nonpublic information, and intellectual property;
    (B) Standards pertaining to the trading by persons associated with 
the security-based swap data repository for their personal benefit or 
the benefit of others; and
    (C) Adequate oversight to ensure compliance with this subparagraph.

[80 FR 14550, Mar. 19, 2015]



Sec.240.13n-10  Disclosure requirements of security-based swap data 
repository.

    (a) Definition. For purposes of this section, market participant 
means any person participating in the over-the-counter derivatives 
market, including, but not limited to, security-based swap dealers, 
major security-based swap participants, and any other counterparties to 
a security-based swap transaction.

[[Page 220]]

    (b) Before accepting any security-based swap data from a market 
participant or upon a market participant's request, a security-based 
swap data repository shall furnish to the market participant a 
disclosure document that contains the following written information, 
which must reasonably enable the market participant to identify and 
evaluate accurately the risks and costs associated with using the 
services of the security-based swap data repository:
    (1) The security-based swap data repository's criteria for providing 
others with access to services offered and data maintained by the 
security-based swap data repository;
    (2) The security-based swap data repository's criteria for those 
seeking to connect to or link with the security-based swap data 
repository;
    (3) A description of the security-based swap data repository's 
policies and procedures regarding its safeguarding of data and 
operational reliability, as described in Rule 13n-6 (Sec.240.13n-6);
    (4) A description of the security-based swap data repository's 
policies and procedures reasonably designed to protect the privacy of 
any and all security-based swap transaction information that the 
security-based swap data repository receives from a security-based swap 
dealer, counterparty, or any registered entity, as described in Rule 
13n-9(b)(1) (Sec.240.13n-9(b)(1));
    (5) A description of the security-based swap data repository's 
policies and procedures regarding its non-commercial and/or commercial 
use of the security-based swap transaction information that it receives 
from a market participant, any registered entity, or any other person;
    (6) A description of the security-based swap data repository's 
dispute resolution procedures involving market participants, as 
described in Rule 13n-5(b)(6) (Sec.240.13n-5(b)(6));
    (7) A description of all the security-based swap data repository's 
services, including any ancillary services;
    (8) The security-based swap data repository's updated schedule of 
any dues; unbundled prices, rates, or other fees for all of its 
services, including any ancillary services; any discounts or rebates 
offered; and the criteria to benefit from such discounts or rebates; and
    (9) A description of the security-based swap data repository's 
governance arrangements.

[80 FR 14550, Mar. 19, 2015]



Sec.240.13n-11  Chief compliance officer of security-based swap data 
repository; compliance reports and financial reports.

    (a) In general. Each security-based swap data repository shall 
identify on Form SDR (17 CFR 249.1500) a person who has been designated 
by the board to serve as a chief compliance officer of the security-
based swap data repository. The compensation, appointment, and removal 
of the chief compliance officer shall require the approval of a majority 
of the security-based swap data repository's board.
    (b) Definitions. For purposes of this section--
    (1) Board means the board of directors of the security-based swap 
data repository or a body performing a function similar to the board of 
directors of the security-based swap data repository.
    (2) Director means any member of the board.
    (3) EDGAR Filer Manual has the same meaning as set forth in Rule 11 
of Regulation S-T (17 CFR 232.11).
    (4) Interactive Data Financial Report has the same meaning as set 
forth in Rule 11 of Regulation S-T (17 CFR 232.11).
    (5) Material change means a change that a chief compliance officer 
would reasonably need to know in order to oversee compliance of the 
security-based swap data repository.
    (6) Material compliance matter means any compliance matter that the 
board would reasonably need to know to oversee the compliance of the 
security-based swap data repository and that involves, without 
limitation:
    (i) A violation of the federal securities laws by the security-based 
swap data repository, its officers, directors, employees, or agents;
    (ii) A violation of the policies and procedures of the security-
based swap data repository by the security-based

[[Page 221]]

swap data repository, its officers, directors, employees, or agents; or
    (iii) A weakness in the design or implementation of the policies and 
procedures of the security-based swap data repository.
    (7) Official filing has the same meaning as set forth in Rule 11 of 
Regulation S-T (17 CFR 232.11).
    (8) Senior officer means the chief executive officer or other 
equivalent officer.
    (9) Tag (including the term tagged) has the same meaning as set 
forth in Rule 11 of Regulation S-T (17 CFR 232.11).
    (c) Duties. Each chief compliance officer of a security-based swap 
data repository shall:
    (1) Report directly to the board or to the senior officer of the 
security-based swap data repository;
    (2) Review the compliance of the security-based swap data repository 
with respect to the requirements and core principles described in 
section 13(n) of the Act (15 U.S.C. 78m(n)) and the rules and 
regulations thereunder;
    (3) In consultation with the board or the senior officer of the 
security-based swap data repository, take reasonable steps to resolve 
any material conflicts of interest that may arise;
    (4) Be responsible for administering each policy and procedure that 
is required to be established pursuant to section 13 of the Act (15 
U.S.C. 78m) and the rules and regulations thereunder;
    (5) Take reasonable steps to ensure compliance with the Act and the 
rules and regulations thereunder relating to security-based swaps, 
including each rule prescribed by the Commission under section 13 of the 
Act (15 U.S.C. 78m);
    (6) Establish procedures for the remediation of noncompliance issues 
identified by the chief compliance officer through any--
    (i) Compliance office review;
    (ii) Look-back;
    (iii) Internal or external audit finding;
    (iv) Self-reported error; or
    (v) Validated complaint; and
    (7) Establish and follow appropriate procedures for the handling, 
management response, remediation, retesting, and closing of 
noncompliance issues.
    (d) Compliance reports--(1) In general. The chief compliance officer 
shall annually prepare and sign a report that contains a description of 
the compliance of the security-based swap data repository with respect 
to the Act and the rules and regulations thereunder and each policy and 
procedure of the security-based swap data repository (including the code 
of ethics and conflicts of interest policies of the security-based swap 
data repository). Each compliance report shall also contain, at a 
minimum, a description of:
    (i) The security-based swap data repository's enforcement of its 
policies and procedures;
    (ii) Any material changes to the policies and procedures since the 
date of the preceding compliance report;
    (iii) Any recommendation for material changes to the policies and 
procedures as a result of the annual review, the rationale for such 
recommendation, and whether such policies and procedures were or will be 
modified by the security-based swap data repository to incorporate such 
recommendation; and
    (iv) Any material compliance matters identified since the date of 
the preceding compliance report.
    (2) Requirements. A financial report of the security-based swap data 
repository shall be filed with the Commission as described in paragraph 
(g) of this section and shall accompany a compliance report as described 
in paragraph (d)(1) of this section. The compliance report shall include 
a certification by the chief compliance officer that, to the best of his 
or her knowledge and reasonable belief, and under penalty of law, the 
compliance report is accurate and complete. The compliance report shall 
also be filed in a tagged data format in accordance with the 
instructions contained in the EDGAR Filer Manual, as described in Rule 
301 of Regulation S-T (17 CFR 232.301).
    (e) The chief compliance officer shall submit the annual compliance 
report to the board for its review prior to the filing of the report 
with the Commission.

[[Page 222]]

    (f) Financial reports. Each financial report filed with a compliance 
report shall:
    (1) Be a complete set of financial statements of the security-based 
swap data repository that are prepared in accordance with U.S. generally 
accepted accounting principles for the most recent two fiscal years of 
the security-based swap data repository;
    (2) Be audited in accordance with the standards of the Public 
Company Accounting Oversight Board by a registered public accounting 
firm that is qualified and independent in accordance with Rule 2-01 of 
Regulation S-X (17 CFR 210.2-01);
    (3) Include a report of the registered public accounting firm that 
complies with paragraphs (a) through (d) of Rule 2-02 of Regulation S-X 
(17 CFR 210.2-02);
    (4) If the security-based swap data repository's financial 
statements contain consolidated information of a subsidiary of the 
security-based swap data repository, provide condensed financial 
information, in a financial statement footnote, as to the financial 
position, changes in financial position and results of operations of the 
security-based swap data repository, as of the same dates and for the 
same periods for which audited consolidated financial statements are 
required. Such financial information need not be presented in greater 
detail than is required for condensed statements by Rules 10-01(a)(2), 
(3), and (4) of Regulation S-X (17 CFR 210.10-01). Detailed footnote 
disclosure that would normally be included with complete financial 
statements may be omitted with the exception of disclosures regarding 
material contingencies, long-term obligations, and guarantees. 
Descriptions of significant provisions of the security-based swap data 
repository's long-term obligations, mandatory dividend or redemption 
requirements of redeemable stocks, and guarantees of the security-based 
swap data repository shall be provided along with a five-year schedule 
of maturities of debt. If the material contingencies, long-term 
obligations, redeemable stock requirements, and guarantees of the 
security-based swap data repository have been separately disclosed in 
the consolidated statements, then they need not be repeated in this 
schedule; and
    (5) Be provided as an official filing in accordance with the EDGAR 
Filer Manual and include, as part of the official filing, an Interactive 
Data Financial Report filed in accordance with Rule 407 of Regulation S-
T (17 CFR 232.407).
    (g) Reports filed pursuant to paragraphs (d) and (f) of this section 
shall be filed within 60 days after the end of the fiscal year covered 
by such reports.
    (h) No officer, director, or employee of a security-based swap data 
repository may directly or indirectly take any action to coerce, 
manipulate, mislead, or fraudulently influence the security-based swap 
data repository's chief compliance officer in the performance of his or 
her duties under this section.

[80 FR 14550, Mar. 19, 2015]



Sec.240.13n-12  Exemption from requirements governing security-based
swap data repositories for certain non-U.S. persons.

    (a) Definitions. For purposes of this section--
    (1) Non-U.S. person means a person that is not a U.S. person.
    (2) U.S. person shall have the same meaning as set forth in Rule 
3a71-3(a)(4)(i) (Sec.240.3a71-3(a)(4)(i)).
    (b) A non-U.S. person that performs the functions of a security-
based swap data repository within the United States shall be exempt from 
the registration and other requirements set forth in section 13(n) of 
the Act (15 U.S.C. 78m(n)), and the rules and regulations thereunder, 
provided that each regulator with supervisory authority over such non-
U.S. person has entered into a memorandum of understanding or other 
arrangement with the Commission that addresses the confidentiality of 
data collected and maintained by such non-U.S. person, access by the 
Commission to such data, and any other matters determined by the 
Commission.

[80 FR 14550, Mar. 19, 2015]

[[Page 223]]



Sec.240.13p-1  Requirement of report regarding disclosure of 
registrant's supply chain information regarding conflict minerals.

    Every registrant that files reports with the Commission under 
Sections 13(a) (15 U.S.C. 78m(a)) or 15(d) (15 U.S.C. 78o(d)) of the 
Exchange Act, having conflict minerals that are necessary to the 
functionality or production of a product manufactured or contracted by 
that registrant to be manufactured, shall file a report on Form SD 
within the period specified in that Form disclosing the information 
required by the applicable items of Form SD as specified in that Form 
(17 CFR 249b.400).

[77 FR 56362, Sept. 12, 2012]



Sec.240.13q-1  Disclosure of payments made by resource extraction 
issuers.

    (a) Resource extraction issuers. Every issuer that is required to 
file an annual report with the Commission pursuant to Section 13 or 
15(d) of the Exchange Act (15 U.S.C. 78m or 78o(d)) and engages in the 
commercial development of oil, natural gas, or minerals must file a 
report on Form SD (17 CFR 249b.400) within the period specified in that 
Form disclosing the information required by the applicable items of Form 
SD as specified in that Form.
    (b) Anti-evasion. Disclosure is required under this section in 
circumstances in which an activity related to the commercial development 
of oil, natural gas, or minerals, or a payment or series of payments 
made by a resource extraction issuer to a foreign government or the 
Federal Government for the purpose of commercial development of oil, 
natural gas, or minerals is not, in form or characterization, within one 
of the categories of activities or payments specified in Form SD, but is 
part of a plan or scheme to evade the disclosure required under this 
section.
    (c) Alternative reporting. An application for recognition of a 
regime as substantially similar for purposes of alternative reporting 
must be filed in accordance with the procedures set forth in Rule 0-13 
(Sec.240.0-13), except that, for purposes of this paragraph (c), 
applications may be submitted by resource extraction issuers, 
governments, industry groups, or trade associations.
    (d) Exemptive relief. An application for exemptive relief under this 
section may be filed in accordance with the procedures set forth in Rule 
0-12 (Sec.240.0-12).
    (e) Public compilation. To the extent practicable, the staff will 
periodically make a compilation of the information required to be filed 
under this section publicly available online. The staff may determine 
the form, manner and timing of the compilation, except that no 
information included therein may be anonymized (whether by redacting the 
names of the resource extraction issuer or otherwise).

[81 FR 49426, July 27, 2016]

                 Regulation 14A: Solicitation of Proxies

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec.240.14a-1  Definitions.

    Unless the context otherwise requires, all terms used in this 
regulation have the same meanings as in the Act or elsewhere in the 
general rules and regulations thereunder. In addition, the following 
definitions apply unless the context otherwise requires:
    (a) Associate. The term ``associate,'' used to indicate a 
relationship with any person, means:
    (1) Any corporation or organization (other than the registrant or a 
majority owned subsidiary of the registrant) of which such person is an 
officer or partner or is, directly or indirectly, the beneficial owner 
of 10 percent or more of any class of equity securities;

[[Page 224]]

    (2) Any trust or other estate in which such person has a substantial 
beneficial interest or as to which such person serves as trustee or in a 
similar fiduciary capacity; and
    (3) Any relative or spouse of such person, or any relative of such 
spouse, who has the same home as such person or who is a director or 
officer of the registrant or any of its parents or subsidiaries.
    (b) Employee benefit plan. For purposes of Sec.Sec.240.14a-13, 
240.14b-1 and 240.14b-2, the term ``employee benefit plan'' means any 
purchase, savings, option, bonus, appreciation, profit sharing, thrift, 
incentive, pension or similar plan primarily for employees, directors, 
trustees or officers.
    (c) Entity that exercises fiduciary powers. The term ``entity that 
exercises fiduciary powers'' means any entity that holds securities in 
nominee name or otherwise on behalf of a beneficial owner but does not 
include a clearing agency registered pursuant to section 17A of the Act 
or a broker or a dealer.
    (d) Exempt employee benefit plan securities. For purposes of 
Sec.Sec.240.14a-13, 240.14b-1 and 240.14b-2, the term ``exempt 
employee benefit plan securities'' means:
    (1) Securities of the registrant held by an employee benefit plan, 
as defined in paragraph (b) of this section, where such plan is 
established by the registrant; or
    (2) If notice regarding the current solicitation has been given 
pursuant to Sec.240.14a-13(a)(1)(ii)(C) or if notice regarding the 
current request for a list of names, addresses and securities positions 
of beneficial owners has been given pursuant to Sec.240.14a-13(b)(3), 
securities of the registrant held by an employee benefit plan, as 
defined in paragraph (b) of this section, where such plan is established 
by an affiliate of the registrant.
    (e) Last fiscal year. The term ``last fiscal year'' of the 
registrant means the last fiscal year of the registrant ending prior to 
the date of the meeting for which proxies are to be solicited or if the 
solicitation involves written authorizations or consents in lieu of a 
meeting, the earliest date they may be used to effect corporate action.
    (f) Proxy. The term ``proxy'' includes every proxy, consent or 
authorization within the meaning of section 14(a) of the Act. The 
consent or authorization may take the form of failure to object or to 
dissent.
    (g) Proxy statement. The term ``proxy statement'' means the 
statement required by Sec.240.14a-3(a) whether or not contained in a 
single document.
    (h) Record date. The term ``record date'' means the date as of which 
the record holders of securities entitled to vote at a meeting or by 
written consent or authorization shall be determined.
    (i) Record holder. For purposes of Sec.Sec.240.14a-13, 240.14b-1 
and 240.14b-2, the term ``record holder'' means any broker, dealer, 
voting trustee, bank, association or other entity that exercises 
fiduciary powers which holds securities of record in nominee name or 
otherwise or as a participant in a clearing agency registered pursuant 
to section 17A of the Act.
    (j) Registrant. The term ``registrant'' means the issuer of the 
securities in respect of which proxies are to be solicited.
    (k) Respondent bank. For purposes of Sec.Sec.240.14a-13, 240.14b-
1 and 240.14b-2, the term ``respondent bank'' means any bank, 
association or other entity that exercises fiduciary powers which holds 
securities on behalf of beneficial owners and deposits such securities 
for safekeeping with another bank, association or other entity that 
exercises fiduciary powers.
    (l) Solicitation. (1) The terms ``solicit'' and ``solicitation'' 
include:
    (i) Any request for a proxy whether or not accompanied by or 
included in a form of proxy:
    (ii) Any request to execute or not to execute, or to revoke, a 
proxy; or
    (iii) The furnishing of a form of proxy or other communication to 
security holders under circumstances reasonably calculated to result in 
the procurement, withholding or revocation of a proxy.
    (2) The terms do not apply, however, to:
    (i) The furnishing of a form of proxy to a security holder upon the 
unsolicited request of such security holder;

[[Page 225]]

    (ii) The performance by the registrant of acts required by Sec.
240.14a-7;
    (iii) The performance by any person of ministerial acts on behalf of 
a person soliciting a proxy; or
    (iv) A communication by a security holder who does not otherwise 
engage in a proxy solicitation (other than a solicitation exempt under 
Sec.240.14a-2) stating how the security holder intends to vote and the 
reasons therefor, provided that the communication:
    (A) Is made by means of speeches in public forums, press releases, 
published or broadcast opinions, statements, or advertisements appearing 
in a broadcast media, or newspaper, magazine or other bona fide 
publication disseminated on a regular basis,
    (B) Is directed to persons to whom the security holder owes a 
fiduciary duty in connection with the voting of securities of a 
registrant held by the security holder, or
    (C) Is made in response to unsolicited requests for additional 
information with respect to a prior communication by the security holder 
made pursuant to this paragraph (l)(2)(iv).

[51 FR 44275, Dec. 9, 1986, as amended at 52 FR 23648, June 24, 1987; 53 
FR 16405, May 9, 1988; 57 FR 48290, Oct. 22, 1992]



Sec.240.14a-2  Solicitations to which Sec.240.14a-3 to Sec.240.14a-15
apply.

    Sections 240.14a-3 to 240.14a-15, except as specified, apply to 
every solicitation of a proxy with respect to securities registered 
pursuant to section 12 of the Act (15 U.S.C. 78l), whether or not 
trading in such securities has been suspended. To the extent specified 
below, certain of these sections also apply to roll-up transactions that 
do not involve an entity with securities registered pursuant to section 
12 of the Act.
    (a) Sections 240.14a-3 to 240.14a-15 do not apply to the following:
    (1) Any solicitation by a person in respect to securities carried in 
his name or in the name of his nominee (otherwise than as voting 
trustee) or held in his custody, if such person--
    (i) Receives no commission or remuneration for such solicitation, 
directly or indirectly, other than reimbursement of reasonable expenses,
    (ii) Furnishes promptly to the person solicited (or such person's 
household in accordance with Sec.240.14a-3(e)(1)) a copy of all 
soliciting material with respect to the same subject matter or meeting 
received from all persons who shall furnish copies thereof for such 
purpose and who shall, if requested, defray the reasonable expenses to 
be incurred in forwarding such material, and
    (iii) In addition, does no more than impartially instruct the person 
solicited to forward a proxy to the person, if any, to whom the person 
solicited desires to give a proxy, or impartially request from the 
person solicited instructions as to the authority to be conferred by the 
proxy and state that a proxy will be given if no instructions are 
received by a certain date.
    (2) Any solicitation by a person in respect of securities of which 
he is the beneficial owner;
    (3) Any solicitation involved in the offer and sale of securities 
registered under the Securities Act of 1933: Provided, That this 
paragraph shall not apply to securities to be issued in any transaction 
of the character specified in paragraph (a) of Rule 145 under that Act;
    (4) Any solicitation with respect to a plan of reorganization under 
Chapter 11 of the Bankruptcy Reform Act of 1978, as amended, if made 
after the entry of an order approving the written disclosure statement 
concerning a plan of reorganization pursuant to section 1125 of said Act 
and after, or concurrently with, the transmittal of such disclosure 
statement as required by section 1125 of said Act;
    (5) [Reserved]
    (6) Any solicitation through the medium of a newspaper advertisement 
which informs security holders of a source from which they may obtain 
copies of a proxy statement, form of proxy and any other soliciting 
material and does no more than:
    (i) Name the registrant,
    (ii) State the reason for the advertisement, and
    (iii) Identify the proposal or proposals to be acted upon by 
security holders.
    (b) Sections 240.14a-3 to 240.14a-6 (other than paragraphs 14a-6(g) 
and 14a-6(p)), Sec.240.14a-8, Sec.240.14a-10, and

[[Page 226]]

Sec.Sec.240.14a-12 to 240.14a-15 do not apply to the following:
    (1) Any solicitation by or on behalf of any person who does not, at 
any time during such solicitation, seek directly or indirectly, either 
on its own or another's behalf, the power to act as proxy for a security 
holder and does not furnish or otherwise request, or act on behalf of a 
person who furnishes or requests, a form of revocation, abstention, 
consent or authorization. Provided, however, That the exemption set 
forth in this paragraph shall not apply to:
    (i) The registrant or an affiliate or associate of the registrant 
(other than an officer or director or any person serving in a similar 
capacity);
    (ii) An officer or director of the registrant or any person serving 
in a similar capacity engaging in a solicitation financed directly or 
indirectly by the registrant;
    (iii) An officer, director, affiliate or associate of a person that 
is ineligible to rely on the exemption set forth in this paragraph 
(other than persons specified in paragraph (b)(1)(i) of this section), 
or any person serving in a similar capacity;
    (iv) Any nominee for whose election as a director proxies are 
solicited;
    (v) Any person soliciting in opposition to a merger, 
recapitalization, reorganization, sale of assets or other extraordinary 
transaction recommended or approved by the board of directors of the 
registrant who is proposing or intends to propose an alternative 
transaction to which such person or one of its affiliates is a party;
    (vi) Any person who is required to report beneficial ownership of 
the registrant's equity securities on a Schedule 13D (Sec.240.13d-
101), unless such person has filed a Schedule 13D and has not disclosed 
pursuant to Item 4 thereto an intent, or reserved the right, to engage 
in a control transaction, or any contested solicitation for the election 
of directors;
    (vii) Any person who receives compensation from an ineligible person 
directly related to the solicitation of proxies, other than pursuant to 
Sec.240.14a-13;
    (viii) Where the registrant is an investment company registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), an 
``interested person'' of that investment company, as that term is 
defined in section 2(a)(19) of the Investment Company Act (15 U.S.C. 
80a-2);
    (ix) Any person who, because of a substantial interest in the 
subject matter of the solicitation, is likely to receive a benefit from 
a successful solicitation that would not be shared pro rata by all other 
holders of the same class of securities, other than a benefit arising 
from the person's employment with the registrant; and
    (x) Any person acting on behalf of any of the foregoing.
    (2) Any solicitation made otherwise than on behalf of the registrant 
where the total number of persons solicited is not more than ten;
    (3) The furnishing of proxy voting advice by any person (the 
``advisor'') to any other person with whom the advisor has a business 
relationship, if:
    (i) The advisor renders financial advice in the ordinary course of 
his business;
    (ii) The advisor discloses to the recipient of the advice any 
significant relationship with the registrant or any of its affiliates, 
or a security holder proponent of the matter on which advice is given, 
as well as any material interests of the advisor in such matter;
    (iii) The advisor receives no special commission or remuneration for 
furnishing the proxy voting advice from any person other than a 
recipient of the advice and other persons who receive similar advice 
under this subsection; and
    (iv) The proxy voting advice is not furnished on behalf of any 
person soliciting proxies or on behalf of a participant in an election 
subject to the provisions of Sec.240.14a-12(c); and
    (4) Any solicitation in connection with a roll-up transaction as 
defined in Item 901(c) of Regulation S-K (Sec.229.901 of this chapter) 
in which the holder of a security that is the subject of a proposed 
roll-up transaction engages in preliminary communications with other 
holders of securities that are the subject of the same limited 
partnership roll-up transaction for the purpose of determining whether 
to solicit proxies,

[[Page 227]]

consents, or authorizations in opposition to the proposed limited 
partnership roll-up transaction; provided, however, that:
    (i) This exemption shall not apply to a security holder who is an 
affiliate of the registrant or general partner or sponsor; and
    (ii) This exemption shall not apply to a holder of five percent (5%) 
or more of the outstanding securities of a class that is the subject of 
the proposed roll-up transaction who engages in the business of buying 
and selling limited partnership interests in the secondary market unless 
that holder discloses to the persons to whom the communications are made 
such ownership interest and any relations of the holder to the parties 
of the transaction or to the transaction itself, as required by Sec.
240.14a-6(n)(1) and specified in the Notice of Exempt Preliminary Roll-
up Communication (Sec.240.14a-104). If the communication is oral, this 
disclosure may be provided to the security holder orally. Whether the 
communication is written or oral, the notice required by Sec.240.14a-
6(n) and Sec.240.14a-104 shall be furnished to the Commission.
    (5) Publication or distribution by a broker or a dealer of a 
research report in accordance with Rule 138 (Sec.230.138 of this 
chapter) or Rule 139 (Sec.230.139 of this chapter) during a 
transaction in which the broker or dealer or its affiliate participates 
or acts in a an advisory role.
    (6) Any solicitation by or on behalf of any person who does not seek 
directly or indirectly, either on its own or another's behalf, the power 
to act as proxy for a shareholder and does not furnish or otherwise 
request, or act on behalf of a person who furnishes or requests, a form 
of revocation, abstention, consent, or authorization in an electronic 
shareholder forum that is established, maintained or operated pursuant 
to the provisions of Sec.240.14a-17, provided that the solicitation is 
made more than 60 days prior to the date announced by a registrant for 
its next annual or special meeting of shareholders. If the registrant 
announces the date of its next annual or special meeting of shareholders 
less than 60 days before the meeting date, then the solicitation may not 
be made more than two days following the date of the registrant's 
announcement of the meeting date. Participation in an electronic 
shareholder forum does not eliminate a person's eligibility to solicit 
proxies after the date that this exemption is no longer available, or is 
no longer being relied upon, provided that any such solicitation is 
conducted in accordance with this regulation.
    (7) Any solicitation by or on behalf of any shareholder in 
connection with the formation of a nominating shareholder group pursuant 
to Sec.240.14a-11, provided that:
    (i) The soliciting shareholder is not holding the registrant's 
securities with the purpose, or with the effect, of changing control of 
the registrant or to gain a number of seats on the board of directors 
that exceeds the maximum number of nominees that the registrant could be 
required to include under Sec.240.14a-11(d);
    (ii) Each written communication includes no more than:
    (A) A statement of each soliciting shareholder's intent to form a 
nominating shareholder group in order to nominate one or more directors 
under Sec.240.14a-11;
    (B) Identification of, and a brief statement regarding, the 
potential nominee or nominees or, where no nominee or nominees have been 
identified, the characteristics of the nominee or nominees that the 
shareholder intends to nominate, if any;
    (C) The percentage of voting power of the registrant's securities 
that are entitled to be voted on the election of directors that each 
soliciting shareholder holds or the aggregate percentage held by any 
group to which the shareholder belongs; and
    (D) The means by which shareholders may contact the soliciting 
party.
    (iii) Any written soliciting material published, sent or given to 
shareholders in accordance with this paragraph must be filed by the 
shareholder with the Commission, under the registrant's Exchange Act 
file number, or, in the case of a registrant that is an investment 
company registered under the Investment Company Act of 1940 (15 U.S.C. 
80a-1 et seq.), under the registrant's Investment Company Act file

[[Page 228]]

number, no later than the date the material is first published, sent or 
given to shareholders. Three copies of the material must at the same 
time be filed with, or mailed for filing to, each national securities 
exchange upon which any class of securities of the registrant is listed 
and registered. The soliciting material must include a cover page in the 
form set forth in Schedule 14N (Sec.240.14n-101) and the appropriate 
box on the cover page must be marked.
    (iv) In the case of an oral solicitation made in accordance with the 
terms of this section, the nominating shareholder must file a cover page 
in the form set forth in Schedule 14N (Sec.240.14n-101), with the 
appropriate box on the cover page marked, under the registrant's 
Exchange Act file number (or in the case of an investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et 
seq.), under the registrant's Investment Company Act file number), no 
later than the date of the first such communication.

    Instruction to paragraph (b)(7). The exemption provided in paragraph 
(b)(7) of this section shall not apply to a shareholder that 
subsequently engages in soliciting or other nominating activities 
outside the scope of Sec.240.14a-2(b)(8) and Sec.240.14a-11 in 
connection with the subject election of directors or is or becomes a 
member of any other group, as determined under section 13(d)(3) of the 
Act (15 U.S.C. 78m(d)(3) and Sec.240.13d-5(b)), or otherwise, with 
persons engaged in soliciting or other nominating activities in 
connection with the subject election of directors.

    (8) Any solicitation by or on behalf of a nominating shareholder or 
nominating shareholder group in support of its nominee that is included 
or that will be included on the registrant's form of proxy in accordance 
with Sec.240.14a-11 or for or against the registrant's nominee or 
nominees, provided that:
    (i) The soliciting party does not, at any time during such 
solicitation, seek directly or indirectly, either on its own or 
another's behalf, the power to act as proxy for a shareholder and does 
not furnish or otherwise request, or act on behalf of a person who 
furnishes or requests, a form of revocation, abstention, consent or 
authorization;
    (ii) Any written communication includes:
    (A) The identity of each nominating shareholder and a description of 
his or her direct or indirect interests, by security holdings or 
otherwise;
    (B) A prominent legend in clear, plain language advising 
shareholders that a shareholder nominee is or will be included in the 
registrant's proxy statement and that they should read the registrant's 
proxy statement when available because it includes important information 
(or, if the registrant's proxy statement is publicly available, advising 
shareholders of that fact and encouraging shareholders to read the 
registrant's proxy statement because it includes important information). 
The legend also must explain to shareholders that they can find the 
registrant's proxy statement, other soliciting material, and any other 
relevant documents at no charge on the Commission's Web site; and
    (iii) Any written soliciting material published, sent or given to 
shareholders in accordance with this paragraph must be filed by the 
nominating shareholder or nominating shareholder group with the 
Commission, under the registrant's Exchange Act file number, or, in the 
case of a registrant that is an investment company registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), under the 
registrant's Investment Company Act file number, no later than the date 
the material is first published, sent or given to shareholders. Three 
copies of the material must at the same time be filed with, or mailed 
for filing to, each national securities exchange upon which any class of 
securities of the registrant is listed and registered. The soliciting 
material must include a cover page in the form set forth in Schedule 14N 
(Sec.240.14n-101) and the appropriate box on the cover page must be 
marked.

    Instruction 1 to paragraph (b)(8). A nominating shareholder or 
nominating shareholder group may rely on the exemption provided in 
paragraph (b)(8) of this section only after receiving notice from the 
registrant in accordance with Sec.240.14a-11(g)(1) or Sec.240.14a-
11(g)(3)(iv) that the registrant will include the nominating 
shareholder's or nominating shareholder group's nominee or nominees in 
its form of proxy.
    Instruction 2 to paragraph (b)(8). Any solicitation by or on behalf 
of a nominating shareholder or nominating shareholder group

[[Page 229]]

in support of its nominee included or to be included on the registrant's 
form of proxy in accordance with Sec.240.14a-11 or for or against the 
registrant's nominee or nominees must be made in reliance on the 
exemption provided in paragraph (b)(8) of this section and not on any 
other exemption.
    Instruction 3 to paragraph (b)(8). The exemption provided in 
paragraph (b)(8) of this section shall not apply to a person that 
subsequently engages in soliciting or other nominating activities 
outside the scope of Sec.240.14a-11 in connection with the subject 
election of directors or is or becomes a member of any other group, as 
determined under section 13(d)(3) of the Act (15 U.S.C. 78m(d)(3) and 
Sec.240.13d-5(b)), or otherwise, with persons engaged in soliciting or 
other nominating activities in connection with the subject election of 
directors.

[44 FR 68769, Nov. 29, 1979, as amended at 51 FR 42059, Nov. 20, 1986; 
52 FR 21936, June 10, 1987; 57 FR 48290, Oct. 22, 1992; 59 FR 63684, 
Dec. 8, 1994; 65 FR 65749, Nov. 2, 2000; 70 FR 44829, Aug. 3, 2005; 72 
FR 4166, Jan. 29, 2007; 73 FR 4458, Jan. 25, 2008; 73 FR 17814, Apr. 1, 
2008; 75 FR 56780, Sept. 16, 2010]



Sec.240.14a-3  Information to be furnished to security holders.

    (a) No solicitation subject to this regulation shall be made unless 
each person solicited is concurrently furnished or has previously been 
furnished with:
    (1) A publicly-filed preliminary or definitive proxy statement, in 
the form and manner described in Sec.240.14a-16, containing the 
information specified in Schedule 14A (Sec.240.14a-101);
    (2) A preliminary or definitive written proxy statement included in 
a registration statement filed under the Securities Act of 1933 on Form 
S-4 or F-4 (Sec.239.25 or Sec.239.34 of this chapter) or Form N-14 
(Sec.239.23 of this chapter) and containing the information specified 
in such Form; or
    (3) A publicly-filed preliminary or definitive proxy statement, not 
in the form and manner described in Sec.240.14a-16, containing the 
information specified in Schedule 14A (Sec.240.14a-101), if:
    (i) The solicitation relates to a business combination transaction 
as defined in Sec.230.165 of this chapter, as well as transactions for 
cash consideration requiring disclosure under Item 14 of Sec.240.14a-
101.
    (ii) The solicitation may not follow the form and manner described 
in Sec.240.14a-16 pursuant to the laws of the state of incorporation 
of the registrant;
    (b) If the solicitation is made on behalf of the registrant, other 
than an investment company registered under the Investment Company Act 
of 1940, and relates to an annual (or special meeting in lieu of the 
annual) meeting of security holders, or written consent in lieu of such 
meeting, at which directors are to be elected, each proxy statement 
furnished pursuant to paragraph (a) of this section shall be accompanied 
or preceded by an annual report to security holders as follows:
    (1) The report shall include, for the registrant and its 
subsidiaries, consolidated and audited balance sheets as of the end of 
the two most recent fiscal years and audited statements of income and 
cash flows for each of the three most recent fiscal years prepared in 
accordance with Regulation S-X (part 210 of this chapter), except that 
the provisions of Article 3 (other than Sec.Sec.210.3-03(e), 210.3-04 
and 210.3-20) and Article 11 shall not apply. Any financial statement 
schedules or exhibits or separate financial statements which may 
otherwise be required in filings with the Commission may be omitted. If 
the financial statements of the registrant and its subsidiaries 
consolidated in the annual report filed or to be filed with the 
Commission are not required to be audited, the financial statements 
required by this paragraph may be unaudited. A smaller reporting company 
may provide the information in Article 8 of Regulation S-X (Sec.210.8 
of this chapter) in lieu of the financial information required by this 
paragraph 9(b)(1).

    Note 1 to paragraph (b)(1): If the financial statements for a period 
prior to the most recently completed fiscal year have been examined by a 
predecessor accountant, the separate report of the predecessor 
accountant may be omitted in the report to security holders, provided 
the registrant has obtained from the predecessor accountant a reissued 
report covering the prior period presented and the successor accountant 
clearly indicates in the scope paragraph of his or her report (a) that 
the financial statements of the prior period were examined by other 
accountants, (b) the date of their report, (c) the type of opinion 
expressed by the predecessor accountant and (d) the substantive reasons 
therefore, if it was other than unqualified. It should be noted, 
however, that

[[Page 230]]

the separate report of any predecessor accountant is required in filings 
with the Commission. If, for instance, the financial statements in the 
annual report to security holders are incorporated by reference in a 
Form 10-K, the separate report of a predecessor accountant shall be 
filed in Part II or in Part IV as a financial statement schedule.
    Note 2 to paragraph (b)(1): For purposes of complying with Sec.
240.14a-3, if the registrant has changed its fiscal closing date, 
financial statements covering two years and one period of 9 to 12 months 
shall be deemed to satisfy the requirements for statements of income and 
cash flows for the three most recent fiscal years.

    (2)(i) Financial statements and notes thereto shall be presented in 
roman type at least as large and as legible as 10-point modern type. If 
necessary for convenient presentation, the financial statements may be 
in roman type as large and as legible as 8-point modern type. All type 
shall be leaded at least 2 points.
    (ii) Where the annual report to security holders is delivered 
through an electronic medium, issuers may satisfy legibility 
requirements applicable to printed documents, such as type size and 
font, by presenting all required information in a format readily 
communicated to investors.
    (3) The report shall contain the supplementary financial information 
required by item 302 of Regulation S-K (Sec.229.302 of this chapter).
    (4) The report shall contain information concerning changes in and 
disagreements with accountants on accounting and financial disclosure 
required by Item 304 of Regulation S-K (Sec.229.304 of this chapter).
    (5)(i) The report shall contain the selected financial data required 
by Item 301 of Regulation S-K (Sec.229.301 of this chapter).
    (ii) The report shall contain management's discussion and analysis 
of financial condition and results of operations required by Item 303 of 
Regulation S-K (Sec.229.303 of this chapter).
    (iii) The report shall contain the quantitative and qualitative 
disclosures about market risk required by Item 305 of Regulation S-K 
(Sec.229.305 of this chapter).
    (6) The report shall contain a brief description of the business 
done by the registrant and its subsidiaries during the most recent 
fiscal year which will, in the opinion of management, indicate the 
general nature and scope of the business of the registrant and its 
subsidiaries.
    (7) The report shall contain information relating to the 
registrant's industry segments, classes of similar products or services, 
foreign and domestic operations and exports sales required by paragraphs 
(b), (c)(1)(i) and (d) of Item 101 of Regulation S-K (Sec.229.101 of 
this chapter).
    (8) The report shall identify each of the registrant's directors and 
executive officers, and shall indicate the principal occupation or 
employment of each such person and the name and principal business of 
any organization by which such person is employed.
    (9) The report shall contain the market price of and dividends on 
the registrant's common equity and related security holder matters 
required by Items 201(a), (b) and (c) of Regulation S-K (Sec.
229.201(a), (b) and (c) of this chapter). If the report precedes or 
accompanies a proxy statement or information statement relating to an 
annual meeting of security holders at which directors are to be elected 
(or special meeting or written consents in lieu of such meeting), 
furnish the performance graph required by Item 201(e) (Sec.229.201(e) 
of this chapter).
    (10) The registrant's proxy statement, or the report, shall contain 
an undertaking in bold face or otherwise reasonably prominent type to 
provide without charge to each person solicited upon the written request 
of any such person, a copy of the registrant's annual report on Form 10-
K, including the financial statements and the financial statement 
schedules, required to be filed with the Commission pursuant to Rule 
13a-1 (Sec.240.13a-1 of this chapter) under the Act for the 
registrant's most recent fiscal year, and shall indicate the name and 
address (including title or department) of the person to whom such a 
written request is to be directed. In the discretion of management, a 
registrant need not undertake to furnish without charge copies of all 
exhibits to its Form 10-K, provided that the copy of the annual report 
on Form 10-K furnished without charge to requesting security holders is 
accompanied by a list briefly describing all

[[Page 231]]

the exhibits not contained therein and indicating that the registrant 
will furnish any exhibit upon the payment of a specified reasonable fee, 
which fee shall be limited to the registrant's reasonable expenses in 
furnishing such exhibit. If the registrant's annual report to security 
holders complies with all of the disclosure requirements of Form 10-K 
and is filed with the Commission in satisfaction of its Form 10-K filing 
requirements, such registrant need not furnish a separate Form 10-K to 
security holders who receive a copy of such annual report.

    Note to paragraph (b)(10): Pursuant to the undertaking required by 
paragraph (b)(10) of this section, a registrant shall furnish a copy of 
its annual report on Form 10-K (Sec.249.310 of this chapter) to a 
beneficial owner of its securities upon receipt of a written request 
from such person. Each request must set forth a good faith 
representation that, as of the record date for the solicitation 
requiring the furnishing of the annual report to security holders 
pursuant to paragraph (b) of this section, the person making the request 
was a beneficial owner of securities entitled to vote.

    (11) Subject to the foregoing requirements, the report may be in any 
form deemed suitable by management and the information required by 
paragraphs (b)(5) to (10) of this section may be presented in an 
appendix or other separate section of the report, provided that the 
attention of security holders is called to such presentation.

    Note: Registrants are encouraged to utilize tables, schedules, 
charts and graphic illustrations of present financial information in an 
understandable manner. Any presentation of financial information must be 
consistent with the data in the financial statements contained in the 
report and, if appropriate, should refer to relevant portions of the 
financial statements and notes thereto.

    (12) [Reserved]
    (13) Paragraph (b) of this section shall not apply, however, to 
solicitations made on behalf of the registrant before the financial 
statements are available if a solicitation is being made at the same 
time in opposition to the registrant and if the registrant's proxy 
statement includes an undertaking in bold face type to furnish such 
annual report to security holders to all persons being solicited at 
least 20 calendar days before the date of the meeting or, if the 
solicitation refers to a written consent or authorization in lieu of a 
meeting, at least 20 calendar days prior to the earliest date on which 
it may be used to effect corporate action.
    (c) Seven copies of the report sent to security holders pursuant to 
this rule shall be mailed to the Commission, solely for its information, 
not later than the date on which such report is first sent or given to 
security holders or the date on which preliminary copies, or definitive 
copies, if preliminary filing was not required, of solicitation material 
are filed with the Commission pursuant to Rule 14a-6, whichever date is 
later. The report is not deemed to be ``soliciting material'' or to be 
``filed'' with the Commission or subject to this regulation otherwise 
than as provided in this Rule, or to the liabilities of section 18 of 
the Act, except to the extent that the registrant specifically requests 
that it be treated as a part of the proxy soliciting material or 
incorporates it in the proxy statement or other filed report by 
reference.
    (d) An annual report to security holders prepared on an integrated 
basis pursuant to General Instruction H to Form 10-K (Sec.249.310 of 
this chapter) may also be submitted in satisfaction of this section. 
When filed as the annual report on Form 10-K, responses to the Items of 
that form are subject to section 18 of the Act notwithstanding paragraph 
(c) of this section.
    (e)(1)(i) A registrant will be considered to have delivered an 
annual report to security holders, proxy statement or Notice of Internet 
Availability of Proxy Materials, as described in Sec.240.14a-16, to 
all security holders of record who share an address if:
    (A) The registrant delivers one annual report to security holders, 
proxy statement or Notice of Internet Availability of Proxy Materials, 
as applicable, to the shared address;
    (B) The registrant addresses the annual report to security holders, 
proxy statement or Notice of Internet Availability of Proxy Materials, 
as applicable, to the security holders as a group (for example, ``ABC 
Fund [or Corporation] Security Holders,'' ``Jane Doe and Household,'' 
``The Smith Family''), to each of the security holders individually (for 
example, ``John Doe and

[[Page 232]]

Richard Jones'') or to the security holders in a form to which each of 
the security holders has consented in writing;

    Note to paragraph (e)(1)(i)(B): Unless the registrant addresses the 
annual report to security holders, proxy statement or Notice of Internet 
Availability of Proxy Materials to the security holders as a group or to 
each of the security holders individually, it must obtain, from each 
security holder to be included in the household group, a separate 
affirmative written consent to the specific form of address the 
registrant will use.

    (C) The security holders consent, in accordance with paragraph 
(e)(1)(ii) of this section, to delivery of one annual report to security 
holders or proxy statement, as applicable;
    (D) With respect to delivery of the proxy statement or Notice of 
Internet Availability of Proxy Materials, the registrant delivers, 
together with or subsequent to delivery of the proxy statement, a 
separate proxy card for each security holder at the shared address; and
    (E) The registrant includes an undertaking in the proxy statement to 
deliver promptly upon written or oral request a separate copy of the 
annual report to security holders, proxy statement or Notice of Internet 
Availability of Proxy Materials, as applicable, to a security holder at 
a shared address to which a single copy of the document was delivered.
    (ii) Consent--(A) Affirmative written consent. Each security holder 
must affirmatively consent, in writing, to delivery of one annual report 
to security holders or proxy statement, as applicable. A security 
holder's affirmative written consent will be considered valid only if 
the security holder has been informed of:
    (1) The duration of the consent;
    (2) The specific types of documents to which the consent will apply;
    (3) The procedures the security holder must follow to revoke 
consent; and
    (4) The registrant's obligation to begin sending individual copies 
to a security holder within thirty days after the security holder 
revokes consent.
    (B) Implied consent. The registrant need not obtain affirmative 
written consent from a security holder for purposes of paragraph 
(e)(1)(ii)(A) of this section if all of the following conditions are 
met:
    (1) The security holder has the same last name as the other security 
holders at the shared address or the registrant reasonably believes that 
the security holders are members of the same family;
    (2) The registrant has sent the security holder a notice at least 60 
days before the registrant begins to rely on this section concerning 
delivery of annual reports to security holders, proxy statements or 
Notices of Internet Availability of Proxy Materials to that security 
holder. The notice must:
    (i) Be a separate written document;
    (ii) State that only one annual report to security holders, proxy 
statement or Notice of Internet Availability of Proxy Materials, as 
applicable, will be delivered to the shared address unless the 
registrant receives contrary instructions;
    (iii) Include a toll-free telephone number, or be accompanied by a 
reply form that is pre-addressed with postage provided, that the 
security holder can use to notify the registrant that the security 
holder wishes to receive a separate annual report to security holders, 
proxy statement or Notice of Internet Availability of Proxy Materials;
    (iv) State the duration of the consent;
    (v) Explain how a security holder can revoke consent;
    (vi) State that the registrant will begin sending individual copies 
to a security holder within thirty days after the security holder 
revokes consent; and
    (vii) Contain the following prominent statement, or similar clear 
and understandable statement, in bold-face type: ``Important Notice 
Regarding Delivery of Security Holder Documents.'' This statement also 
must appear on the envelope in which the notice is delivered. 
Alternatively, if the notice is delivered separately from other 
communications to security holders, this statement may appear either on 
the notice or on the envelope in which the notice is delivered.

    Note to paragraph (e)(1)(ii)(B)(2): The notice should be written in 
plain English. See Sec.230.421(d)(2) of this chapter for a discussion 
of plain English principles.


[[Page 233]]


    (3) The registrant has not received the reply form or other 
notification indicating that the security holder wishes to continue to 
receive an individual copy of the annual report to security holders, 
proxy statement or Notice of Internet Availability of Proxy Materials, 
as applicable, within 60 days after the registrant sent the notice 
required by paragraph (e)(1)(ii)(B)(2) of this section; and
    (4) The registrant delivers the document to a post office box or 
residential street address.

    Note to paragraph (e)(1)(ii)(B)(4): The registrant can assume that a 
street address is residential unless the registrant has information that 
indicates the street address is a business.

    (iii) Revocation of consent. If a security holder, orally or in 
writing, revokes consent to delivery of one annual report to security 
holders, proxy statement or Notice of Internet Availability of Proxy 
Materials to a shared address, the registrant must begin sending 
individual copies to that security holder within 30 days after the 
registrant receives revocation of the security holder's consent.
    (iv) Definition of address. Unless otherwise indicated, for purposes 
of this section, address means a street address, a post office box 
number, an electronic mail address, a facsimile telephone number or 
other similar destination to which paper or electronic documents are 
delivered, unless otherwise provided in this section. If the registrant 
has reason to believe that the address is a street address of a multi-
unit building, the address must include the unit number.

    Note to paragraph (e)(1): A person other than the registrant making 
a proxy solicitation may deliver a single proxy statement to security 
holders of record or beneficial owners who have separate accounts and 
share an address if: (a) the registrant or intermediary has followed the 
procedures in this section; and (b) the registrant or intermediary makes 
available the shared address information to the person in accordance 
with Sec.240.14a-7(a)(2)(i) and (ii).

    (2) Notwithstanding paragraphs (a) and (b) of this section, unless 
state law requires otherwise, a registrant is not required to send an 
annual report to security holders, proxy statement or Notice of Internet 
Availability of Proxy Materials to a security holder if:
    (i) An annual report to security holders and a proxy statement, or a 
Notice of Internet Availability of Proxy Materials, for two consecutive 
annual meetings; or
    (ii) All, and at least two, payments (if sent by first class mail) 
of dividends or interest on securities, or dividend reinvestment 
confirmations, during a twelve month period, have been mailed to such 
security holder's address and have been returned as undeliverable. If 
any such security holder delivers or causes to be delivered to the 
registrant written notice setting forth his then current address for 
security holder communications purposes, the registrant's obligation to 
deliver an annual report to security holders, a proxy statement or a 
Notice of Internet Availability of Proxy Materials under this section is 
reinstated.
    (f) The provisions of paragraph (a) of this section shall not apply 
to a communication made by means of speeches in public forums, press 
releases, published or broadcast opinions, statements, or advertisements 
appearing in a broadcast media, newspaper, magazine or other bona fide 
publication disseminated on a regular basis, provided that:
    (1) No form of proxy, consent or authorization or means to execute 
the same is provided to a security holder in connection with the 
communication; and
    (2) At the time the communication is made, a definitive proxy 
statement is on file with the Commission pursuant to Sec.240.14a-6(b).

[39 FR 40768, Nov. 20, 1974]

    Editorial Note: For Federal Register citations affecting Sec.
240.14a-3, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.240.14a-4  Requirements as to proxy.

    (a) The form of proxy (1) shall indicate in bold-face type whether 
or not the proxy is solicited on behalf of the registrant's board of 
directors or, if provided other than by a majority of the board of 
directors, shall indicate in bold-face type on whose behalf the 
solicitation is made;

[[Page 234]]

    (2) Shall provide a specifically designated blank space for dating 
the proxy card; and
    (3) Shall identify clearly and impartially each separate matter 
intended to be acted upon, whether or not related to or conditioned on 
the approval of other matters, and whether proposed by the registrant or 
by security holders. No reference need be made, however, to proposals as 
to which discretionary authority is conferred pursuant to paragraph (c) 
of this section.

    Note to paragraph (a)(3) (Electronic filers): Electronic filers 
shall satisfy the filing requirements of Rule 14a-6(a) or (b) (Sec.
240.14a-6(a) or (b)) with respect to the form of proxy by filing the 
form of proxy as an appendix at the end of the proxy statement. Forms of 
proxy shall not be filed as exhibits or separate documents within an 
electronic submission.

    (b)(1) Means shall be provided in the form of proxy whereby the 
person solicited is afforded an opportunity to specify by boxes a choice 
between approval or disapproval of, or abstention with respect to each 
separate matter referred to therein as intended to be acted upon, other 
than elections to office and votes to determine the frequency of 
shareholder votes on executive compensation pursuant to Sec.240.14a-
21(b) of this chapter. A proxy may confer discretionary authority with 
respect to matters as to which a choice is not specified by the security 
holder provided that the form of proxy states in bold-face type how it 
is intended to vote the shares represented by the proxy in each such 
case.
    (2) A form of proxy that provides for the election of directors 
shall set forth the names of persons nominated for election as 
directors, including any person whose nomination by a shareholder or 
shareholder group satisfies the requirements of Sec.240.14a-11, an 
applicable state or foreign law provision, or a registrant's governing 
documents as they relate to the inclusion of shareholder director 
nominees in the registrant's proxy materials. Such form of proxy shall 
clearly provide any of the following means for security holders to 
withhold authority to vote for each nominee:
    (i) A box opposite the name of each nominee which may be marked to 
indicate that authority to vote for such nominee is withheld; or
    (ii) An instruction in bold-face type which indicates that the 
security holder may withhold authority to vote for any nominee by lining 
through or otherwise striking out the name of any nominee; or
    (iii) Designated blank spaces in which the security holder may enter 
the names of nominees with respect to whom the security holder chooses 
to withhold authority to vote; or
    (iv) Any other similar means, provided that clear instructions are 
furnished indicating how the security holder may withhold authority to 
vote for any nominee.

Such form of proxy also may provide a means for the security holder to 
grant authority to vote for the nominees set forth, as a group, provided 
that there is a similar means for the security holder to withhold 
authority to vote for such group of nominees. Any such form of proxy 
which is executed by the security holder in such manner as not to 
withhold authority to vote for the election of any nominee shall be 
deemed to grant such authority, provided that the form of proxy so 
states in bold-face type. Means to grant authority to vote for any 
nominees as a group or to withhold authority for any nominees as a group 
may not be provided if the form of proxy includes one or more 
shareholder nominees in accordance with Sec.240.14a-11, an applicable 
state or foreign law provision, or a registrant's governing documents as 
they relate to the inclusion of shareholder director nominees in the 
registrant's proxy materials.
    Instructions. 1. Paragraph (2) does not apply in the case of a 
merger, consolidation or other plan if the election of directors is an 
integral part of the plan.
    2. If applicable state law gives legal effect to votes cast against 
a nominee, then in lieu of, or in addition to, providing a means for 
security holders to withhold authority to vote, the registrant should 
provide a similar means for security holders to vote against each 
nominee.
    (3) A form of proxy which provides for a shareholder vote on the 
frequency of shareholder votes to approve the

[[Page 235]]

compensation of executives required by section 14A(a)(2) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78n-1(a)(2)) shall provide 
means whereby the person solicited is afforded an opportunity to specify 
by boxes a choice among 1, 2 or 3 years, or abstain.
    (c) A proxy may confer discretionary authority to vote on any of the 
following matters:
    (1) For an annual meeting of shareholders, if the registrant did not 
have notice of the matter at least 45 days before the date on which the 
registrant first sent its proxy materials for the prior year's annual 
meeting of shareholders (or date specified by an advance notice 
provision), and a specific statement to that effect is made in the proxy 
statement or form of proxy. If during the prior year the registrant did 
not hold an annual meeting, or if the date of the meeting has changed 
more than 30 days from the prior year, then notice must not have been 
received a reasonable time before the registrant sends its proxy 
materials for the current year.
    (2) In the case in which the registrant has received timely notice 
in connection with an annual meeting of shareholders (as determined 
under paragraph (c)(1) of this section), if the registrant includes, in 
the proxy statement, advice on the nature of the matter and how the 
registrant intends to exercise its discretion to vote on each matter. 
However, even if the registrant includes this information in its proxy 
statement, it may not exercise discretionary voting authority on a 
particular proposal if the proponent:
    (i) Provides the registrant with a written statement, within the 
time-frame determined under paragraph (c)(1) of this section, that the 
proponent intends to deliver a proxy statement and form of proxy to 
holders of at least the percentage of the company's voting shares 
required under applicable law to carry the proposal;
    (ii) Includes the same statement in its proxy materials filed under 
Sec.240.14a-6; and
    (iii) Immediately after soliciting the percentage of shareholders 
required to carry the proposal, provides the registrant with a statement 
from any solicitor or other person with knowledge that the necessary 
steps have been taken to deliver a proxy statement and form of proxy to 
holders of at least the percentage of the company's voting shares 
required under applicable law to carry the proposal.
    (3) For solicitations other than for annual meetings or for 
solicitations by persons other than the registrant, matters which the 
persons making the solicitation do not know, a reasonable time before 
the solicitation, are to be presented at the meeting, if a specific 
statement to that effect is made in the proxy statement or form of 
proxy.
    (4) Approval of the minutes of the prior meeting if such approval 
does not amount to ratification of the action taken at that meeting;
    (5) The election of any person to any office for which a bona fide 
nominee is named in the proxy statement and such nominee is unable to 
serve or for good cause will not serve.
    (6) Any proposal omitted from the proxy statement and form of proxy 
pursuant to Sec.240.14a-8 or Sec.240.14a-9 of this chapter.
    (7) Matters incident to the conduct of the meeting.
    (d) No proxy shall confer authority:
    (1) To vote for the election of any person to any office for which a 
bona fide nominee is not named in the proxy statement,
    (2) To vote at any annual meeting other than the next annual meeting 
(or any adjournment thereof) to be held after the date on which the 
proxy statement and form of proxy are first sent or given to security 
holders,
    (3) To vote with respect to more than one meeting (and any 
adjournment thereof) or more than one consent solicitation or
    (4) To consent to or authorize any action other than the action 
proposed to be taken in the proxy statement, or matters referred to in 
paragraph (c) of this rule. A person shall not be deemed to be a bona 
fide nominee and he shall not be named as such unless he has consented 
to being named in the proxy statement and to serve if elected. Provided, 
however, That nothing in this section 240.14a-4 shall prevent any person 
soliciting in support of nominees who, if elected, would constitute a 
minority of the board of directors, from

[[Page 236]]

seeking authority to vote for nominees named in the registrant's proxy 
statement, so long as the soliciting party:
    (i) Seeks authority to vote in the aggregate for the number of 
director positions then subject to election;
    (ii) Represents that it will vote for all the registrant nominees, 
other than those registrant nominees specified by the soliciting party;
    (iii) Provides the security holder an opportunity to withhold 
authority with respect to any other registrant nominee by writing the 
name of that nominee on the form of proxy; and
    (iv) States on the form of proxy and in the proxy statement that 
there is no assurance that the registrant's nominees will serve if 
elected with any of the soliciting party's nominees.
    (e) The proxy statement or form of proxy shall provide, subject to 
reasonable specified conditions, that the shares represented by the 
proxy will be voted and that where the person solicited specifies by 
means of a ballot provided pursuant to paragraph (b) of this section a 
choice with respect to any matter to be acted upon, the shares will be 
voted in accordance with the specifications so made.
    (f) No person conducting a solicitation subject to this regulation 
shall deliver a form of proxy, consent or authorization to any security 
holder unless the security holder concurrently receives, or has 
previously received, a definitive proxy statement that has been filed 
with the Commission pursuant to Sec.240.14a-6(b).

[17 FR 11432, Dec. 18, 1952, as amended at 31 FR 212, Jan. 7, 1966; 32 
FR 20963, Dec. 29, 1967; 44 FR 68770, Nov. 29, 1979; 45 FR 76979, Nov. 
21, 1980; 51 FR 42060, Nov. 20, 1986; 57 FR 48291, Oct. 22, 1992; 59 FR 
67764, Dec. 30, 1994; 63 FR 29118, May 28, 1998; 63 FR 50622, Sept. 22, 
1998; 64 FR 61456, Nov. 10, 1999; 72 FR 4167, Jan. 29, 2007; 76 FR 6045, 
Feb. 2, 2011; 75 FR 56781, Sept. 16, 2010]



Sec.240.14a-5  Presentation of information in proxy statement.

    (a) The information included in the proxy statement shall be clearly 
presented and the statements made shall be divided into groups according 
to subject matter and the various groups of statements shall be preceded 
by appropriate headings. The order of items and sub-items in the 
schedule need not be followed. Where practicable and appropriate, the 
information shall be presented in tabular form. All amounts shall be 
stated in figures. Information required by more than one applicable item 
need not be repeated. No statement need be made in response to any item 
or sub-item which is inapplicable.
    (b) Any information required to be included in the proxy statement 
as to terms of securities or other subject matter which from a 
standpoint of practical necessity must be determined in the future may 
be stated in terms of present knowledge and intention. To the extent 
practicable, the authority to be conferred concerning each such matter 
shall be confined within limits reasonably related to the need for 
discretionary authority. Subject to the foregoing, information which is 
not known to the persons on whose behalf the solicitation is to be made 
and which it is not reasonably within the power of such persons to 
ascertain or procure may be omitted, if a brief statement of the 
circumstances rendering such information unavailable is made.
    (c) Any information contained in any other proxy soliciting material 
which has been furnished to each person solicited in connection with the 
same meeting or subject matter may be omitted from the proxy statement, 
if a clear reference is made to the particular document containing such 
information.
    (d)(1) All printed proxy statements shall be in roman type at least 
as large and as legible as 10-point modern type, except that to the 
extent necessary for convenient presentation financial statements and 
other tabular data, but not the notes thereto, may be in roman type at 
least as large and as legible as 8-point modern type. All such type 
shall be leaded at least 2 points.
    (2) Where a proxy statement is delivered through an electronic 
medium, issuers may satisfy legibility requirements applicable to 
printed documents, such as type size and font, by presenting all 
required information in a format readily communicated to investors.
    (e) All proxy statements shall disclose, under an appropriate 
caption, the following dates:

[[Page 237]]

    (1) The deadline for submitting shareholder proposals for inclusion 
in the registrant's proxy statement and form of proxy for the 
registrant's next annual meeting, calculated in the manner provided in 
Sec.240.14a-8(e)(Question 5);
    (2) The date after which notice of a shareholder proposal submitted 
outside the processes of Sec.240.14a-8 is considered untimely, either 
calculated in the manner provided by Sec.240.14a-4(c)(1) or as 
established by the registrant's advance notice provision, if any, 
authorized by applicable state law; and
    (3) The deadline for submitting nominees for inclusion in the 
registrant's proxy statement and form of proxy pursuant to Sec.
240.14a-11, an applicable state or foreign law provision, or a 
registrant's governing documents as they relate to the inclusion of 
shareholder director nominees in the registrant's proxy materials for 
the registrant's next annual meeting of shareholders.
    (f) If the date of the next annual meeting is subsequently advanced 
or delayed by more than 30 calendar days from the date of the annual 
meeting to which the proxy statement relates, the registrant shall, in a 
timely manner, inform shareholders of such change, and the new dates 
referred to in paragraphs (e)(1) and (e)(2) of this section, by 
including a notice, under Item 5, in its earliest possible quarterly 
report on Form 10-Q (Sec.249.308a of this chapter), or, in the case of 
investment companies, in a shareholder report under Sec.270.30d-1 of 
this chapter under the Investment Company Act of 1940, or, if 
impracticable, any means reasonably calculated to inform shareholders.

[17 FR 11432, Dec. 18, 1952, as amended at 36 FR 8935, May 15, 1971; 37 
FR 23179, Oct. 31, 1972; 44 FR 68770, Nov. 29, 1979; 51 FR 42061, Nov. 
20, 1986; 61 FR 24656, May 15, 1996; 63 FR 29118, May 28, 1998; 63 FR 
46881, Sept. 3, 1998; 73 FR 977, Jan. 4, 2008; 75 FR 56782, Sept. 16, 
2010]



Sec.240.14a-6  Filing requirements.

    (a) Preliminary proxy statement. Five preliminary copies of the 
proxy statement and form of proxy shall be filed with the Commission at 
least 10 calendar days prior to the date definitive copies of such 
material are first sent or given to security holders, or such shorter 
period prior to that date as the Commission may authorize upon a showing 
of good cause thereunder. A registrant, however, shall not file with the 
Commission a preliminary proxy statement, form of proxy or other 
soliciting material to be furnished to security holders concurrently 
therewith if the solicitation relates to an annual (or special meeting 
in lieu of the annual) meeting, or for an investment company registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or a 
business development company, if the solicitation relates to any meeting 
of security holders at which the only matters to be acted upon are:
    (1) The election of directors;
    (2) The election, approval or ratification of accountant(s);
    (3) A security holder proposal included pursuant to Rule 14a-8 
(Sec.240.14a-8 of this chapter);
    (4) A shareholder nominee for director included pursuant to Sec.
240.14a-11, an applicable state or foreign law provision, or a 
registrant's governing documents as they relate to the inclusion of 
shareholder director nominees in the registrant's proxy materials.
    (5) The approval or ratification of a plan as defined in paragraph 
(a)(6)(ii) of Item 402 of Regulation S-K (Sec.229.402(a)(6)(ii) of 
this chapter) or amendments to such a plan;
    (6) With respect to an investment company registered under the 
Investment Company Act of 1940 or a business development company, a 
proposal to continue, without change, any advisory or other contract or 
agreement that previously has been the subject of a proxy solicitation 
for which proxy material was filed with the Commission pursuant to this 
section;
    (7) With respect to an open-end investment company registered under 
the Investment Company Act of 1940, a proposal to increase the number of 
shares authorized to be issued; and/or
    (8) A vote to approve the compensation of executives as required 
pursuant to section 14A(a)(1) of the Securities Exchange Act of 1934 (15 
U.S.C. 78n-1(a)(1)) and Sec.240.14a-21(a) of this chapter, or pursuant 
to section 111(e)(1) of the Emergency Economic Stabilization Act of 2008 
(12 U.S.C. 5221(e)(1)) and

[[Page 238]]

Sec.240.14a-20 of this chapter, a vote to determine the frequency of 
shareholder votes to approve the compensation of executives as required 
pursuant to Section 14A(a)(2) of the Securities Exchange Act of 1934 (15 
U.S.C. 78n-1(a)(2)) and Sec.240.14a-21(b) of this chapter, or any 
other shareholder advisory vote on executive compensation.

This exclusion from filing preliminary proxy material does not apply if 
the registrant comments upon or refers to a solicitation in opposition 
in connection with the meeting in its proxy material.

    Note 1 to paragraph (a): The filing of revised material does not 
recommence the ten day time period unless the revised material contains 
material revisions or material new proposal(s) that constitute a 
fundamental change in the proxy material.
    Note 2 to paragraph (a): The official responsible for the 
preparation of the proxy material should make every effort to verify the 
accuracy and completeness of the information required by the applicable 
rules. The preliminary material should be filed with the Commission at 
the earliest practicable date.
    Note 3 to paragraph (a): Solicitation in Opposition. For purposes of 
the exclusion from filing preliminary proxy material, a ``solicitation 
in opposition'' includes: (a) Any solicitation opposing a proposal 
supported by the registrant; and (b) any solicitation supporting a 
proposal that the registrant does not expressly support, other than a 
security holder proposal included in the registrant's proxy material 
pursuant to Rule 14a-8 (Sec.240.14a-8 of this chapter). The inclusion 
of a security holder proposal in the registrant's proxy material 
pursuant to Rule 14a-8 does not constitute a ``solicitation in 
opposition,'' even if the registrant opposes the proposal and/or 
includes a statement in opposition to the proposal. The inclusion of a 
shareholder nominee in the registrant's proxy materials pursuant to 
Sec.240.14a-11, an applicable state or foreign law provision, or a 
registrant's governing documents as they relate to the inclusion of 
shareholder director nominees in the registrant's proxy materials does 
not constitute a ``solicitation in opposition'' for purposes of Rule 
14a-6(a) (Sec.240.14a-6(a)), even if the registrant opposes the 
shareholder nominee and solicits against the shareholder nominee and in 
favor of a registrant nominee.
    Note 4 to paragraph (a): A registrant that is filing proxy material 
in preliminary form only because the registrant has commented on or 
referred to a solicitation in opposition should indicate that fact in a 
transmittal letter when filing the preliminary material with the 
Commission.

    (b) Definitive proxy statement and other soliciting material. Eight 
definitive copies of the proxy statement, form of proxy and all other 
soliciting materials, in the same form as the materials sent to security 
holders, must be filed with the Commission no later than the date they 
are first sent or given to security holders. Three copies of these 
materials also must be filed with, or mailed for filing to, each 
national securities exchange on which the registrant has a class of 
securities listed and registered.
    (c) Personal solicitation materials. If part or all of the 
solicitation involves personal solicitation, then eight copies of all 
written instructions or other materials that discuss, review or comment 
on the merits of any matter to be acted on, that are furnished to 
persons making the actual solicitation for their use directly or 
indirectly in connection with the solicitation, must be filed with the 
Commission no later than the date the materials are first sent or given 
to these persons.
    (d) Release dates. All preliminary proxy statements and forms of 
proxy filed pursuant to paragraph (a) of this section shall be 
accompanied by a statement of the date on which definitive copies 
thereof filed pursuant to paragraph (b) of this section are intended to 
be released to security holders. All definitive material filed pursuant 
to paragraph (b) of this section shall be accompanied by a statement of 
the date on which copies of such material were released to security 
holders, or, if not released, the date on which copies thereof are 
intended to be released. All material filed pursuant to paragraph (c) of 
this section shall be accompanied by a statement of the date on which 
copies thereof were released to the individual who will make the actual 
solicitation or if not released, the date on which copies thereof are 
intended to be released.
    (e)(1) Public availability of information. All copies of preliminary 
proxy statements and forms of proxy filed pursuant to paragraph (a) of 
this section shall be clearly marked ``Preliminary Copies,'' and shall 
be deemed immediately available for public inspection

[[Page 239]]

unless confidential treatment is obtained pursuant to paragraph (e)(2) 
of this section.
    (2) Confidential treatment. If action will be taken on any matter 
specified in Item 14 of Schedule 14A (Sec.240.14a-101), all copies of 
the preliminary proxy statement and form of proxy filed under paragraph 
(a) of this section will be for the information of the Commission only 
and will not be deemed available for public inspection until filed with 
the Commission in definitive form so long as:
    (i) The proxy statement does not relate to a matter or proposal 
subject to Sec.240.13e-3 or a roll-up transaction as defined in Item 
901(c) of Regulation S-K (Sec.229.901(c) of this chapter);
    (ii) Neither the parties to the transaction nor any persons 
authorized to act on their behalf have made any public communications 
relating to the transaction except for statements where the content is 
limited to the information specified in Sec.230.135 of this chapter; 
and
    (iii) The materials are filed in paper and marked ``Confidential, 
For Use of the Commission Only.'' In all cases, the materials may be 
disclosed to any department or agency of the United States Government 
and to the Congress, and the Commission may make any inquiries or 
investigation into the materials as may be necessary to conduct an 
adequate review by the Commission.

    Instruction to paragraph (e)(2): If communications are made publicly 
that go beyond the information specified in Sec.230.135 of this 
chapter, the preliminary proxy materials must be re-filed promptly with 
the Commission as public materials.

    (f) Communications not required to be filed. Copies of replies to 
inquiries from security holders requesting further information and 
copies of communications which do no more than request that forms of 
proxy theretofore solicited be signed and returned need not be filed 
pursuant to this section.
    (g) Solicitations subject to Sec.240.14a-2(b)(1). (1) Any person 
who:
    (i) Engages in a solicitation pursuant to Sec.240.14a-2(b)(1), and
    (ii) At the commencement of that solicitation owns beneficially 
securities of the class which is the subject of the solicitation with a 
market value of over $5 million,


shall furnish or mail to the Commission, not later than three days after 
the date the written solicitation is first sent or given to any security 
holder, five copies of a statement containing the information specified 
in the Notice of Exempt Solicitation (Sec.240.14a-103) which statement 
shall attach as an exhibit all written soliciting materials. Five copies 
of an amendment to such statement shall be furnished or mailed to the 
Commission, in connection with dissemination of any additional 
communications, not later than three days after the date the additional 
material is first sent or given to any security holder. Three copies of 
the Notice of Exempt Solicitation and amendments thereto shall, at the 
same time the materials are furnished or mailed to the Commission, be 
furnished or mailed to each national securities exchange upon which any 
class of securities of the registrant is listed and registered.
    (2) Notwithstanding paragraph (g)(1) of this section, no such 
submission need be made with respect to oral solicitations (other than 
with respect to scripts used in connection with such oral 
solicitations), speeches delivered in a public forum, press releases, 
published or broadcast opinions, statements, and advertisements 
appearing in a broadcast media, or a newspaper, magazine or other bona 
fide publication disseminated on a regular basis.
    (h) Revised material. Where any proxy statement, form of proxy or 
other material filed pursuant to this section is amended or revised, two 
of the copies of such amended or revised material filed pursuant to this 
section (or in the case of investment companies registered under the 
Investment Company Act of 1940, three of such copies) shall be marked to 
indicate clearly and precisely the changes effected therein. If the 
amendment or revision alters the text of the material the changes in 
such text shall be indicated by means of underscoring or in some other 
appropriate manner.
    (i) Fees. At the time of filing the proxy solicitation material, the 
persons upon whose behalf the solicitation

[[Page 240]]

is made, other than investment companies registered under the Investment 
Company Act of 1940, shall pay to the Commission the following 
applicable fee:
    (1) For preliminary proxy material involving acquisitions, mergers, 
spinoffs, consolidations or proposed sales or other dispositions of 
substantially all the assets of the company, a fee established in 
accordance with Rule 0-11 (Sec.240.0-11 of this chapter) shall be 
paid. No refund shall be given.
    (2) For all other proxy submissions and submissions made pursuant to 
Sec.240.14a-6(g), no fee shall be required.
    (j) Merger proxy materials. (1) Any proxy statement, form of proxy 
or other soliciting material required to be filed by this section that 
also is either
    (i) Included in a registration statement filed under the Securities 
Act of 1933 on Forms S-4 (Sec.239.25 of this chapter), F-4 (Sec.
239.34 of this chapter) or N-14 (Sec.239.23 of this chapter); or
    (ii) Filed under Sec.230.424, Sec.230.425 or Sec.230.497 of 
this chapter is required to be filed only under the Securities Act, and 
is deemed filed under this section.
    (2) Under paragraph (j)(1) of this section, the fee required by 
paragraph (i) of this section need not be paid.
    (k) Computing time periods. In computing time periods beginning with 
the filing date specified in Regulation 14A (Sec.Sec.240.14a-1 to 
240.14b-1 of this chapter), the filing date shall be counted as the 
first day of the time period and midnight of the last day shall 
constitute the end of the specified time period.
    (l) Roll-up transactions. If a transaction is a roll-up transaction 
as defined in Item 901(c) of Regulation S-K (17 CFR 229.901(c)) and is 
registered (or authorized to be registered) on Form S-4 (17 CFR 229.25) 
or Form F-4 (17 CFR 229.34), the proxy statement of the sponsor or the 
general partner as defined in Item 901(d) and Item 901(a), respectively, 
of Regulation S-K (17 CFR 229.901) must be distributed to security 
holders no later than the lesser of 60 calendar days prior to the date 
on which the meeting of security holders is held or action is taken, or 
the maximum number of days permitted for giving notice under applicable 
state law.
    (m) Cover page. Proxy materials filed with the Commission shall 
include a cover page in the form set forth in Schedule 14A (Sec.
240.14a-101 of this chapter). The cover page required by this paragraph 
need not be distributed to security holders.
    (n) Solicitations subject to Sec.240.14a-2(b)(4). Any person who:
    (1) Engages in a solicitation pursuant to Sec.240.14a-2(b)(4); and
    (2) At the commencement of that solicitation both owns five percent 
(5%) or more of the outstanding securities of a class that is the 
subject of the proposed roll-up transaction, and engages in the business 
of buying and selling limited partnership interests in the secondary 
market, shall furnish or mail to the Commission, not later than three 
days after the date an oral or written solicitation by that person is 
first made, sent or provided to any security holder, five copies of a 
statement containing the information specified in the Notice of Exempt 
Preliminary Roll-up Communication (Sec.240.14a-104). Five copies of 
any amendment to such statement shall be furnished or mailed to the 
Commission not later than three days after a communication containing 
revised material is first made, sent or provided to any security holder.
    (o) Solicitations before furnishing a definitive proxy statement. 
Solicitations that are published, sent or given to security holders 
before they have been furnished a definitive proxy statement must be 
made in accordance with Sec.240.14a-12 unless there is an exemption 
available under Sec.240.14a-2.
    (p) Solicitations subject to Sec.240.14a-11. Any soliciting 
material that is published, sent or given to shareholders in connection 
with Sec.240.14a-2(b)(7) or (b)(8) must be filed with the Commission 
as specified in that section.

[17 FR 11432, Dec. 18, 1952]

    Editorial Note: For Federal Register citations affecting Sec.
240.14a-6, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.

[[Page 241]]



Sec.240.14a-7  Obligations of registrants to provide a list of,
or mail soliciting material to, security holders.

    (a) If the registrant has made or intends to make a proxy 
solicitation in connection with a security holder meeting or action by 
consent or authorization, upon the written request by any record or 
beneficial holder of securities of the class entitled to vote at the 
meeting or to execute a consent or authorization to provide a list of 
security holders or to mail the requesting security holder's materials, 
regardless of whether the request references this section, the 
registrant shall:
    (1) Deliver to the requesting security holder within five business 
days after receipt of the request:
    (i) Notification as to whether the registrant has elected to mail 
the security holder's soliciting materials or provide a security holder 
list if the election under paragraph (b) of this section is to be made 
by the registrant;
    (ii) A statement of the approximate number of record holders and 
beneficial holders, separated by type of holder and class, owning 
securities in the same class or classes as holders which have been or 
are to be solicited on management's behalf, or any more limited group of 
such holders designated by the security holder if available or 
retrievable under the registrant's or its transfer agent's security 
holder data systems; and
    (iii) The estimated cost of mailing a proxy statement, form of proxy 
or other communication to such holders, including to the extent known or 
reasonably available, the estimated costs of any bank, broker, and 
similar person through whom the registrant has solicited or intends to 
solicit beneficial owners in connection with the security holder meeting 
or action;
    (2) Perform the acts set forth in either paragraphs (a)(2)(i) or 
(a)(2)(ii) of this section, at the registrant's or requesting security 
holder's option, as specified in paragraph (b) of this section:
    (i) Send copies of any proxy statement, form of proxy, or other 
soliciting material, including a Notice of Internet Availability of 
Proxy Materials (as described in Sec.240.14a-16), furnished by the 
security holder to the record holders, including banks, brokers, and 
similar entities, designated by the security holder. A sufficient number 
of copies must be sent to the banks, brokers, and similar entities for 
distribution to all beneficial owners designated by the security holder. 
The security holder may designate only record holders and/or beneficial 
owners who have not requested paper and/ or e-mail copies of the proxy 
statement. If the registrant has received affirmative written or implied 
consent to deliver a single proxy statement to security holders at a 
shared address in accordance with the procedures in Sec.240.14a-
3(e)(1), a single copy of the proxy statement or Notice of Internet 
Availability of Proxy Materials furnished by the security holder shall 
be sent to that address, provided that if multiple copies of the Notice 
of Internet Availability of Proxy Materials are furnished by the 
security holder for that address, the registrant shall deliver those 
copies in a single envelope to that address. The registrant shall send 
the security holder material with reasonable promptness after tender of 
the material to be sent, envelopes or other containers therefore, 
postage or payment for postage and other reasonable expenses of 
effecting such distribution. The registrant shall not be responsible for 
the content of the material; or
    (ii) Deliver the following information to the requesting security 
holder within five business days of receipt of the request:
    (A) A reasonably current list of the names, addresses and security 
positions of the record holders, including banks, brokers and similar 
entities holding securities in the same class or classes as holders 
which have been or are to be solicited on management's behalf, or any 
more limited group of such holders designated by the security holder if 
available or retrievable under the registrant's or its transfer agent's 
security holder data systems;
    (B) The most recent list of names, addresses and security positions 
of beneficial owners as specified in Sec.240.14a-13(b), in the 
possession, or which subsequently comes into the possession, of the 
registrant;
    (C) The names of security holders at a shared address that have 
consented

[[Page 242]]

to delivery of a single copy of proxy materials to a shared address, if 
the registrant has received written or implied consent in accordance 
with Sec.240.14a-3(e)(1); and
    (D) If the registrant has relied on Sec.240.14a-16, the names of 
security holders who have requested paper copies of the proxy materials 
for all meetings and the names of security holders who, as of the date 
that the registrant receives the request, have requested paper copies of 
the proxy materials only for the meeting to which the solicitation 
relates.
    (iii) All security holder list information shall be in the form 
requested by the security holder to the extent that such form is 
available to the registrant without undue burden or expense. The 
registrant shall furnish the security holder with updated record holder 
information on a daily basis or, if not available on a daily basis, at 
the shortest reasonable intervals; provided, however, the registrant 
need not provide beneficial or record holder information more current 
than the record date for the meeting or action.
    (b)(1) The requesting security holder shall have the options set 
forth in paragraph (a)(2) of this section, and the registrant shall have 
corresponding obligations, if the registrant or general partner or 
sponsor is soliciting or intends to solicit with respect to:
    (i) A proposal that is subject to Sec.240.13e-3;
    (ii) A roll-up transaction as defined in Item 901(c) of Regulation 
S-K (Sec.229.901(c) of this chapter) that involves an entity with 
securities registered pursuant to Section 12 of the Act (15 U.S.C. 78l); 
or
    (iii) A roll-up transaction as defined in Item 901(c) of Regulation 
S-K (Sec.229.901(c) of this chapter) that involves a limited 
partnership, unless the transaction involves only:
    (A) Partnerships whose investors will receive new securities or 
securities in another entity that are not reported under a transaction 
reporting plan declared effective before December 17, 1993 by the 
Commission under Section 11A of the Act (15 U.S.C. 78k-1); or
    (B) Partnerships whose investors' securities are reported under a 
transaction reporting plan declared effective before December 17, 1993 
by the Commission under Section 11A of the Act (15 U.S.C. 78k-1).
    (2) With respect to all other requests pursuant to this section, the 
registrant shall have the option to either mail the security holder's 
material or furnish the security holder list as set forth in this 
section.
    (c) At the time of a list request, the security holder making the 
request shall:
    (1) If holding the registrant's securities through a nominee, 
provide the registrant with a statement by the nominee or other 
independent third party, or a copy of a current filing made with the 
Commission and furnished to the registrant, confirming such holder's 
beneficial ownership; and
    (2) Provide the registrant with an affidavit, declaration, 
affirmation or other similar document provided for under applicable 
state law identifying the proposal or other corporate action that will 
be the subject of the security holder's solicitation or communication 
and attesting that:
    (i) The security holder will not use the list information for any 
purpose other than to solicit security holders with respect to the same 
meeting or action by consent or authorization for which the registrant 
is soliciting or intends to solicit or to communicate with security 
holders with respect to a solicitation commenced by the registrant; and
    (ii) The security holder will not disclose such information to any 
person other than a beneficial owner for whom the request was made and 
an employee or agent to the extent necessary to effectuate the 
communication or solicitation.
    (d) The security holder shall not use the information furnished by 
the registrant pursuant to paragraph (a)(2)(ii) of this section for any 
purpose other than to solicit security holders with respect to the same 
meeting or action by consent or authorization for which the registrant 
is soliciting or intends to solicit or to communicate with security 
holders with respect to a solicitation commenced by the registrant; or 
disclose such information to any person other than an employee, agent, 
or beneficial owner for whom a request was

[[Page 243]]

made to the extent necessary to effectuate the communication or 
solicitation. The security holder shall return the information provided 
pursuant to paragraph (a)(2)(ii) of this section and shall not retain 
any copies thereof or of any information derived from such information 
after the termination of the solicitation.
    (e) The security holder shall reimburse the reasonable expenses 
incurred by the registrant in performing the acts requested pursuant to 
paragraph (a) of this section.

    Note 1 to Sec.240.14a-7. Reasonably prompt methods of distribution 
to security holders may be used instead of mailing. If an alternative 
distribution method is chosen, the costs of that method should be 
considered where necessary rather than the costs of mailing.
    Note 2 to Sec.240.14a-7 When providing the information required by 
Sec.240.14a-7(a)(1)(ii), if the registrant has received affirmative 
written or implied consent to delivery of a single copy of proxy 
materials to a shared address in accordance with Sec.240.14a-3(e)(1), 
it shall exclude from the number of record holders those to whom it does 
not have to deliver a separate proxy statement.

[57 FR 48292, Oct. 22, 1992, as amended at 59 FR 63684, Dec. 8, 1994; 61 
FR 24657, May 15, 1996; 65 FR 65750, Nov. 2, 2000; 72 FR 4167, Jan. 29, 
2007; 72 FR 42238, Aug. 1, 2007]



Sec.240.14a-8  Shareholder proposals.

    This section addresses when a company must include a shareholder's 
proposal in its proxy statement and identify the proposal in its form of 
proxy when the company holds an annual or special meeting of 
shareholders. In summary, in order to have your shareholder proposal 
included on a company's proxy card, and included along with any 
supporting statement in its proxy statement, you must be eligible and 
follow certain procedures. Under a few specific circumstances, the 
company is permitted to exclude your proposal, but only after submitting 
its reasons to the Commission. We structured this section in a question-
and-answer format so that it is easier to understand. The references to 
``you'' are to a shareholder seeking to submit the proposal.
    (a) Question 1: What is a proposal? A shareholder proposal is your 
recommendation or requirement that the company and/or its board of 
directors take action, which you intend to present at a meeting of the 
company's shareholders. Your proposal should state as clearly as 
possible the course of action that you believe the company should 
follow. If your proposal is placed on the company's proxy card, the 
company must also provide in the form of proxy means for shareholders to 
specify by boxes a choice between approval or disapproval, or 
abstention. Unless otherwise indicated, the word ``proposal'' as used in 
this section refers both to your proposal, and to your corresponding 
statement in support of your proposal (if any).
    (b) Question 2: Who is eligible to submit a proposal, and how do I 
demonstrate to the company that I am eligible? (1) In order to be 
eligible to submit a proposal, you must have continuously held at least 
$2,000 in market value, or 1%, of the company's securities entitled to 
be voted on the proposal at the meeting for at least one year by the 
date you submit the proposal. You must continue to hold those securities 
through the date of the meeting.
    (2) If you are the registered holder of your securities, which means 
that your name appears in the company's records as a shareholder, the 
company can verify your eligibility on its own, although you will still 
have to provide the company with a written statement that you intend to 
continue to hold the securities through the date of the meeting of 
shareholders. However, if like many shareholders you are not a 
registered holder, the company likely does not know that you are a 
shareholder, or how many shares you own. In this case, at the time you 
submit your proposal, you must prove your eligibility to the company in 
one of two ways:
    (i) The first way is to submit to the company a written statement 
from the ``record'' holder of your securities (usually a broker or bank) 
verifying that, at the time you submitted your proposal, you 
continuously held the securities for at least one year. You must also 
include your own written statement that you intend to continue to hold 
the securities through the date of the meeting of shareholders; or

[[Page 244]]

    (ii) The second way to prove ownership applies only if you have 
filed a Schedule 13D (Sec.240.13d-101), Schedule 13G (Sec.240.13d-
102), Form 3 (Sec.249.103 of this chapter), Form 4 (Sec.249.104 of 
this chapter) and/or Form 5 (Sec.249.105 of this chapter), or 
amendments to those documents or updated forms, reflecting your 
ownership of the shares as of or before the date on which the one-year 
eligibility period begins. If you have filed one of these documents with 
the SEC, you may demonstrate your eligibility by submitting to the 
company:
    (A) A copy of the schedule and/or form, and any subsequent 
amendments reporting a change in your ownership level;
    (B) Your written statement that you continuously held the required 
number of shares for the one-year period as of the date of the 
statement; and
    (C) Your written statement that you intend to continue ownership of 
the shares through the date of the company's annual or special meeting.
    (c) Question 3: How many proposals may I submit? Each shareholder 
may submit no more than one proposal to a company for a particular 
shareholders' meeting.
    (d) Question 4: How long can my proposal be? The proposal, including 
any accompanying supporting statement, may not exceed 500 words.
    (e) Question 5: What is the deadline for submitting a proposal? (1) 
If you are submitting your proposal for the company's annual meeting, 
you can in most cases find the deadline in last year's proxy statement. 
However, if the company did not hold an annual meeting last year, or has 
changed the date of its meeting for this year more than 30 days from 
last year's meeting, you can usually find the deadline in one of the 
company's quarterly reports on Form 10-Q (Sec.249.308a of this 
chapter), or in shareholder reports of investment companies under Sec.
270.30d-1 of this chapter of the Investment Company Act of 1940. In 
order to avoid controversy, shareholders should submit their proposals 
by means, including electronic means, that permit them to prove the date 
of delivery.
    (2) The deadline is calculated in the following manner if the 
proposal is submitted for a regularly scheduled annual meeting. The 
proposal must be received at the company's principal executive offices 
not less than 120 calendar days before the date of the company's proxy 
statement released to shareholders in connection with the previous 
year's annual meeting. However, if the company did not hold an annual 
meeting the previous year, or if the date of this year's annual meeting 
has been changed by more than 30 days from the date of the previous 
year's meeting, then the deadline is a reasonable time before the 
company begins to print and send its proxy materials.
    (3) If you are submitting your proposal for a meeting of 
shareholders other than a regularly scheduled annual meeting, the 
deadline is a reasonable time before the company begins to print and 
send its proxy materials.
    (f) Question 6: What if I fail to follow one of the eligibility or 
procedural requirements explained in answers to Questions 1 through 4 of 
this section? (1) The company may exclude your proposal, but only after 
it has notified you of the problem, and you have failed adequately to 
correct it. Within 14 calendar days of receiving your proposal, the 
company must notify you in writing of any procedural or eligibility 
deficiencies, as well as of the time frame for your response. Your 
response must be postmarked, or transmitted electronically, no later 
than 14 days from the date you received the company's notification. A 
company need not provide you such notice of a deficiency if the 
deficiency cannot be remedied, such as if you fail to submit a proposal 
by the company's properly determined deadline. If the company intends to 
exclude the proposal, it will later have to make a submission under 
Sec.240.14a-8 and provide you with a copy under Question 10 below, 
Sec.240.14a-8(j).
    (2) If you fail in your promise to hold the required number of 
securities through the date of the meeting of shareholders, then the 
company will be permitted to exclude all of your proposals from its 
proxy materials for any meeting held in the following two calendar 
years.
    (g) Question 7: Who has the burden of persuading the Commission or 
its staff that my proposal can be excluded? Except as otherwise noted, 
the burden is

[[Page 245]]

on the company to demonstrate that it is entitled to exclude a proposal.
    (h) Question 8: Must I appear personally at the shareholders' 
meeting to present the proposal? (1) Either you, or your representative 
who is qualified under state law to present the proposal on your behalf, 
must attend the meeting to present the proposal. Whether you attend the 
meeting yourself or send a qualified representative to the meeting in 
your place, you should make sure that you, or your representative, 
follow the proper state law procedures for attending the meeting and/or 
presenting your proposal.
    (2) If the company holds its shareholder meeting in whole or in part 
via electronic media, and the company permits you or your representative 
to present your proposal via such media, then you may appear through 
electronic media rather than traveling to the meeting to appear in 
person.
    (3) If you or your qualified representative fail to appear and 
present the proposal, without good cause, the company will be permitted 
to exclude all of your proposals from its proxy materials for any 
meetings held in the following two calendar years.
    (i) Question 9: If I have complied with the procedural requirements, 
on what other bases may a company rely to exclude my proposal? (1) 
Improper under state law: If the proposal is not a proper subject for 
action by shareholders under the laws of the jurisdiction of the 
company's organization;

    Note to paragraph (i)(1): Depending on the subject matter, some 
proposals are not considered proper under state law if they would be 
binding on the company if approved by shareholders. In our experience, 
most proposals that are cast as recommendations or requests that the 
board of directors take specified action are proper under state law. 
Accordingly, we will assume that a proposal drafted as a recommendation 
or suggestion is proper unless the company demonstrates otherwise.

    (2) Violation of law: If the proposal would, if implemented, cause 
the company to violate any state, federal, or foreign law to which it is 
subject;

    Note to paragraph (i)(2): We will not apply this basis for exclusion 
to permit exclusion of a proposal on grounds that it would violate 
foreign law if compliance with the foreign law would result in a 
violation of any state or federal law.

    (3) Violation of proxy rules: If the proposal or supporting 
statement is contrary to any of the Commission's proxy rules, including 
Sec.240.14a-9, which prohibits materially false or misleading 
statements in proxy soliciting materials;
    (4) Personal grievance; special interest: If the proposal relates to 
the redress of a personal claim or grievance against the company or any 
other person, or if it is designed to result in a benefit to you, or to 
further a personal interest, which is not shared by the other 
shareholders at large;
    (5) Relevance: If the proposal relates to operations which account 
for less than 5 percent of the company's total assets at the end of its 
most recent fiscal year, and for less than 5 percent of its net earnings 
and gross sales for its most recent fiscal year, and is not otherwise 
significantly related to the company's business;
    (6) Absence of power/authority: If the company would lack the power 
or authority to implement the proposal;
    (7) Management functions: If the proposal deals with a matter 
relating to the company's ordinary business operations;
    (8) Director elections: If the proposal:
    (i) Would disqualify a nominee who is standing for election;
    (ii) Would remove a director from office before his or her term 
expired;
    (iii) Questions the competence, business judgment, or character of 
one or more nominees or directors;
    (iv) Seeks to include a specific individual in the company's proxy 
materials for election to the board of directors; or
    (v) Otherwise could affect the outcome of the upcoming election of 
directors.
    (9) Conflicts with company's proposal: If the proposal directly 
conflicts with one of the company's own proposals to be submitted to 
shareholders at the same meeting;

    Note to paragraph (i)(9): A company's submission to the Commission 
under this section should specify the points of conflict with the 
company's proposal.


[[Page 246]]


    (10) Substantially implemented: If the company has already 
substantially implemented the proposal;

    Note to paragraph (i)(10): A company may exclude a shareholder 
proposal that would provide an advisory vote or seek future advisory 
votes to approve the compensation of executives as disclosed pursuant to 
Item 402 of Regulation S-K (Sec.229.402 of this chapter) or any 
successor to Item 402 (a ``say-on-pay vote'') or that relates to the 
frequency of say-on-pay votes, provided that in the most recent 
shareholder vote required by Sec.240.14a-21(b) of this chapter a 
single year (i.e., one, two, or three years) received approval of a 
majority of votes cast on the matter and the company has adopted a 
policy on the frequency of say-on-pay votes that is consistent with the 
choice of the majority of votes cast in the most recent shareholder vote 
required by Sec.240.14a-21(b) of this chapter.

    (11) Duplication: If the proposal substantially duplicates another 
proposal previously submitted to the company by another proponent that 
will be included in the company's proxy materials for the same meeting;
    (12) Resubmissions: If the proposal deals with substantially the 
same subject matter as another proposal or proposals that has or have 
been previously included in the company's proxy materials within the 
preceding 5 calendar years, a company may exclude it from its proxy 
materials for any meeting held within 3 calendar years of the last time 
it was included if the proposal received:
    (i) Less than 3% of the vote if proposed once within the preceding 5 
calendar years;
    (ii) Less than 6% of the vote on its last submission to shareholders 
if proposed twice previously within the preceding 5 calendar years; or
    (iii) Less than 10% of the vote on its last submission to 
shareholders if proposed three times or more previously within the 
preceding 5 calendar years; and
    (13) Specific amount of dividends: If the proposal relates to 
specific amounts of cash or stock dividends.
    (j) Question 10: What procedures must the company follow if it 
intends to exclude my proposal? (1) If the company intends to exclude a 
proposal from its proxy materials, it must file its reasons with the 
Commission no later than 80 calendar days before it files its definitive 
proxy statement and form of proxy with the Commission. The company must 
simultaneously provide you with a copy of its submission. The Commission 
staff may permit the company to make its submission later than 80 days 
before the company files its definitive proxy statement and form of 
proxy, if the company demonstrates good cause for missing the deadline.
    (2) The company must file six paper copies of the following:
    (i) The proposal;
    (ii) An explanation of why the company believes that it may exclude 
the proposal, which should, if possible, refer to the most recent 
applicable authority, such as prior Division letters issued under the 
rule; and
    (iii) A supporting opinion of counsel when such reasons are based on 
matters of state or foreign law.
    (k) Question 11: May I submit my own statement to the Commission 
responding to the company's arguments?
    Yes, you may submit a response, but it is not required. You should 
try to submit any response to us, with a copy to the company, as soon as 
possible after the company makes its submission. This way, the 
Commission staff will have time to consider fully your submission before 
it issues its response. You should submit six paper copies of your 
response.
    (l) Question 12: If the company includes my shareholder proposal in 
its proxy materials, what information about me must it include along 
with the proposal itself?
    (1) The company's proxy statement must include your name and 
address, as well as the number of the company's voting securities that 
you hold. However, instead of providing that information, the company 
may instead include a statement that it will provide the information to 
shareholders promptly upon receiving an oral or written request.
    (2) The company is not responsible for the contents of your proposal 
or supporting statement.
    (m) Question 13: What can I do if the company includes in its proxy 
statement reasons why it believes shareholders should not vote in favor 
of my

[[Page 247]]

proposal, and I disagree with some of its statements?
    (1) The company may elect to include in its proxy statement reasons 
why it believes shareholders should vote against your proposal. The 
company is allowed to make arguments reflecting its own point of view, 
just as you may express your own point of view in your proposal's 
supporting statement.
    (2) However, if you believe that the company's opposition to your 
proposal contains materially false or misleading statements that may 
violate our anti-fraud rule, Sec.240.14a-9, you should promptly send 
to the Commission staff and the company a letter explaining the reasons 
for your view, along with a copy of the company's statements opposing 
your proposal. To the extent possible, your letter should include 
specific factual information demonstrating the inaccuracy of the 
company's claims. Time permitting, you may wish to try to work out your 
differences with the company by yourself before contacting the 
Commission staff.
    (3) We require the company to send you a copy of its statements 
opposing your proposal before it sends its proxy materials, so that you 
may bring to our attention any materially false or misleading 
statements, under the following timeframes:
    (i) If our no-action response requires that you make revisions to 
your proposal or supporting statement as a condition to requiring the 
company to include it in its proxy materials, then the company must 
provide you with a copy of its opposition statements no later than 5 
calendar days after the company receives a copy of your revised 
proposal; or
    (ii) In all other cases, the company must provide you with a copy of 
its opposition statements no later than 30 calendar days before its 
files definitive copies of its proxy statement and form of proxy under 
Sec.240.14a-6.

[63 FR 29119, May 28, 1998; 63 FR 50622, 50623, Sept. 22, 1998, as 
amended at 72 FR 4168, Jan. 29, 2007; 72 FR 70456, Dec. 11, 2007; 73 FR 
977, Jan. 4, 2008; 76 FR 6045, Feb. 2, 2011; 75 FR 56782, Sept. 16, 
2010]



Sec.240.14a-9  False or misleading statements.

    (a) No solicitation subject to this regulation shall be made by 
means of any proxy statement, form of proxy, notice of meeting or other 
communication, written or oral, containing any statement which, at the 
time and in the light of the circumstances under which it is made, is 
false or misleading with respect to any material fact, or which omits to 
state any material fact necessary in order to make the statements 
therein not false or misleading or necessary to correct any statement in 
any earlier communication with respect to the solicitation of a proxy 
for the same meeting or subject matter which has become false or 
misleading.
    (b) The fact that a proxy statement, form of proxy or other 
soliciting material has been filed with or examined by the Commission 
shall not be deemed a finding by the Commission that such material is 
accurate or complete or not false or misleading, or that the Commission 
has passed upon the merits of or approved any statement contained 
therein or any matter to be acted upon by security holders. No 
representation contrary to the foregoing shall be made.
    (c) No nominee, nominating shareholder or nominating shareholder 
group, or any member thereof, shall cause to be included in a 
registrant's proxy materials, either pursuant to the Federal proxy 
rules, an applicable state or foreign law provision, or a registrant's 
governing documents as they relate to including shareholder nominees for 
director in a registrant's proxy materials, include in a notice on 
Schedule 14N (Sec.240.14n-101), or include in any other related 
communication, any statement which, at the time and in the light of the 
circumstances under which it is made, is false or misleading with 
respect to any material fact, or which omits to state any material fact 
necessary in order to make the statements therein not false or 
misleading or necessary to correct any statement in any earlier 
communication with respect to a solicitation for the same meeting or 
subject matter which has become false or misleading.

    Note: The following are some examples of what, depending upon 
particular facts and

[[Page 248]]

circumstances, may be misleading within the meaning of this section.
    a. Predictions as to specific future market values.
    b. Material which directly or indirectly impugns character, 
integrity or personal reputation, or directly or indirectly makes 
charges concerning improper, illegal or immoral conduct or associations, 
without factual foundation.
    c. Failure to so identify a proxy statement, form of proxy and other 
soliciting material as to clearly distinguish it from the soliciting 
material of any other person or persons soliciting for the same meeting 
or subject matter.
    d. Claims made prior to a meeting regarding the results of a 
solicitation.

[31 FR 212, Jan. 7, 1966, as amended at 41 FR 19933, May 14, 1976; 44 FR 
38815, July 2, 1979; 44 FR 68456, Nov. 29, 1979; 75 FR 56782, Sept. 16, 
2010]



Sec.240.14a-10  Prohibition of certain solicitations.

    No person making a solicitation which is subject to Sec.Sec.
240.14a-1 to 240.14a-10 shall solicit:
    (a) Any undated or postdated proxy; or
    (b) Any proxy which provides that it shall be deemed to be dated as 
of any date subsequent to the date on which it is signed by the security 
holder.

[17 FR 11434, Dec. 18, 1952]



Sec.240.14a-12  Solicitation before furnishing a proxy statement.

    (a) Notwithstanding the provisions of Sec.240.14a-3(a), a 
solicitation may be made before furnishing security holders with a proxy 
statement meeting the requirements of Sec.240.14a-3(a) if:
    (1) Each written communication includes:
    (i) The identity of the participants in the solicitation (as defined 
in Instruction 3 to Item 4 of Schedule 14A (Sec.240.14a-101)) and a 
description of their direct or indirect interests, by security holdings 
or otherwise, or a prominent legend in clear, plain language advising 
security holders where they can obtain that information; and
    (ii) A prominent legend in clear, plain language advising security 
holders to read the proxy statement when it is available because it 
contains important information. The legend also must explain to 
investors that they can get the proxy statement, and any other relevant 
documents, for free at the Commission's web site and describe which 
documents are available free from the participants; and
    (2) A definitive proxy statement meeting the requirements of Sec.
240.14a-3(a) is sent or given to security holders solicited in reliance 
on this section before or at the same time as the forms of proxy, 
consent or authorization are furnished to or requested from security 
holders.
    (b) Any soliciting material published, sent or given to security 
holders in accordance with paragraph (a) of this section must be filed 
with the Commission no later than the date the material is first 
published, sent or given to security holders. Three copies of the 
material must at the same time be filed with, or mailed for filing to, 
each national securities exchange upon which any class of securities of 
the registrant is listed and registered. The soliciting material must 
include a cover page in the form set forth in Schedule 14A (Sec.
240.14a-101) and the appropriate box on the cover page must be marked. 
Soliciting material in connection with a registered offering is required 
to be filed only under Sec.230.424 or Sec.230.425 of this chapter, 
and will be deemed filed under this section.
    (c) Solicitations by any person or group of persons for the purpose 
of opposing a solicitation subject to this regulation by any other 
person or group of persons with respect to the election or removal of 
directors at any annual or special meeting of security holders also are 
subject to the following provisions:
    (1) Application of this rule to annual report to security holders. 
Notwithstanding the provisions of Sec.240.14a-3 (b) and (c), any 
portion of the annual report to security holders referred to in Sec.
240.14a-3(b) that comments upon or refers to any solicitation subject to 
this rule, or to any participant in the solicitation, other than the 
solicitation by the management, must be filed with the Commission as 
proxy material subject to this regulation. This must be filed in 
electronic format unless an exemption is available under Rules 201 or 
202 of Regulation S-T (Sec.232.201 or Sec.232.202 of this chapter).

[[Page 249]]

    (2) Use of reprints or reproductions. In any solicitation subject to 
this Sec.240.14a-12(c), soliciting material that includes, in whole or 
part, any reprints or reproductions of any previously published material 
must:
    (i) State the name of the author and publication, the date of prior 
publication, and identify any person who is quoted without being named 
in the previously published material.
    (ii) Except in the case of a public or official document or 
statement, state whether or not the consent of the author and 
publication has been obtained to the use of the previously published 
material as proxy soliciting material.
    (iii) If any participant using the previously published material, or 
anyone on his or her behalf, paid, directly or indirectly, for the 
preparation or prior publication of the previously published material, 
or has made or proposes to make any payments or give any other 
consideration in connection with the publication or republication of the 
material, state the circumstances.

    Instruction 1 to Sec.240.14a-12. If paper filing is permitted, 
file eight copies of the soliciting material with the Commission, except 
that only three copies of the material specified by Sec.240.14a-
12(c)(1) need be filed.
    Instruction 2 to Sec.240.14a-12. Any communications made under 
this section after the definitive proxy statement is on file but before 
it is disseminated also must specify that the proxy statement is 
publicly available and the anticipated date of dissemination.
    Instruction 3 to Sec.240.14a-12. Inclusion of a nominee pursuant 
to Sec.240.14a-11, an applicable state or foreign law provision, or a 
registrant's governing documents as they relate to the inclusion of 
shareholder director nominees in the registrant's proxy materials, or 
solicitations by a nominating shareholder or nominating shareholder 
group that are made in connection with that nomination constitute 
solicitations in opposition subject to Sec.240.14a-12(c), except for 
purposes of Sec.240.14a-6(a).

[64 FR 61456, Nov. 10, 1999, as amended at 72 FR 4168, Jan. 29, 2007; 75 
FR 56787, Sept. 16, 2010]



Sec.240.14a-13  Obligation of registrants in communicating with 
beneficial owners.

    (a) If the registrant knows that securities of any class entitled to 
vote at a meeting (or by written consents or authorizations if no 
meeting is held) with respect to which the registrant intends to solicit 
proxies, consents or authorizations are held of record by a broker, 
dealer, voting trustee, bank, association, or other entity that 
exercises fiduciary powers in nominee name or otherwise, the registrant 
shall:
    (1) By first class mail or other equally prompt means:
    (i) Inquire of each such record holder:
    (A) Whether other persons are the beneficial owners of such 
securities and if so, the number of copies of the proxy and other 
soliciting material necessary to supply such material to such beneficial 
owners;
    (B) In the case of an annual (or special meeting in lieu of the 
annual) meeting, or written consents in lieu of such meeting, at which 
directors are to be elected, the number of copies of the annual report 
to security holders necessary to supply such report to beneficial owners 
to whom such reports are to be distributed by such record holder or its 
nominee and not by the registrant;
    (C) If the record holder has an obligation under Sec.240.14b-
1(b)(3) or Sec.240.14b-2(b)(4)(ii) and (iii), whether an agent has 
been designated to act on its behalf in fulfilling such obligation and, 
if so, the name and address of such agent; and
    (D) Whether it holds the registrant's securities on behalf of any 
respondent bank and, if so, the name and address of each such respondent 
bank; and
    (ii) Indicate to each such record holder:
    (A) Whether the registrant, pursuant to paragraph (c) of this 
section, intends to distribute the annual report to security holders to 
beneficial owners of its securities whose names, addresses and 
securities positions are disclosed pursuant to Sec.240.14b-1(b)(3) or 
Sec.240.14b-2(b)(4)(ii) and (iii);
    (B) The record date; and
    (C) At the option of the registrant, any employee benefit plan 
established by an affiliate of the registrant that holds securities of 
the registrant that the registrant elects to treat as exempt employee 
benefit plan securities;
    (2) Upon receipt of a record holder's or respondent bank's response 
indicating, pursuant to Sec.240.14b-2(b)(1)(i),

[[Page 250]]

the names and addresses of its respondent banks, within one business day 
after the date such response is received, make an inquiry of and give 
notification to each such respondent bank in the same manner required by 
paragraph (a)(1) of this section; Provided, however, the inquiry 
required by paragraphs (a)(1) and (a)(2) of this section shall not cover 
beneficial owners of exempt employee benefit plan securities;
    (3) Make the inquiry required by paragraph (a)(1) of this section at 
least 20 business days prior to the record date of the meeting of 
security holders, or
    (i) If such inquiry is impracticable 20 business days prior to the 
record date of a special meeting, as many days before the record date of 
such meeting as is practicable or,
    (ii) If consents or authorizations are solicited, and such inquiry 
is impracticable 20 business days before the earliest date on which they 
may be used to effect corporate action, as many days before that date as 
is practicable, or
    (iii) At such later time as the rules of a national securities 
exchange on which the class of securities in question is listed may 
permit for good cause shown; Provided, however, That if a record holder 
or respondent bank has informed the registrant that a designated 
office(s) or department(s) is to receive such inquiries, the inquiry 
shall be made to such designated office(s) or department(s); and
    (4) Supply, in a timely manner, each record holder and respondent 
bank of whom the inquiries required by paragraphs (a)(1) and (a)(2) of 
this section are made with copies of the proxy, other proxy soliciting 
material, and/or the annual report to security holders, in such 
quantities, assembled in such form and at such place(s), as the record 
holder or respondent bank may reasonably request in order to send such 
material to each beneficial owner of securities who is to be furnished 
with such material by the record holder or respondent bank; and
    (5) Upon the request of any record holder or respondent bank that is 
supplied with proxy soliciting material and/or annual reports to 
security holders pursuant to paragraph (a)(4) of this section, pay its 
reasonable expenses for completing the sending of such material to 
beneficial owners.

    Note 1: If the registrant's list of security holders indicates that 
some of its securities are registered in the name of a clearing agency 
registered pursuant to Section 17A of the Act (e.g., ``Cede & Co.,'' 
nominee for the Depository Trust Company), the registrant shall make 
appropriate inquiry of the clearing agency and thereafter of the 
participants in such clearing agency who may hold on behalf of a 
beneficial owner or respondent bank, and shall comply with the above 
paragraph with respect to any such participant (see Sec.240.14a-1(i)).
    Note 2: The attention of registrants is called to the fact that each 
broker, dealer, bank, association, and other entity that exercises 
fiduciary powers has an obligation pursuant to Sec.240.14b-1 and Sec.
240.14b-2 (except as provided therein with respect to exempt employee 
benefit plan securities held in nominee name) and, with respect to 
brokers and dealers, applicable self-regulatory organization 
requirements to obtain and forward, within the time periods prescribed 
therein, (a) proxies (or in lieu thereof requests for voting 
instructions) and proxy soliciting materials to beneficial owners on 
whose behalf it holds securities, and (b) annual reports to security 
holders to beneficial owners on whose behalf it holds securities, unless 
the registrant has notified the record holder or respondent bank that it 
has assumed responsibility to send such material to beneficial owners 
whose names, addresses, and securities positions are disclosed pursuant 
to Sec.240.14b-1(b)(3) and Sec.240.14b-2(b)(4)(ii) and (iii).
    Note 3: The attention of registrants is called to the fact that 
registrants have an obligation, pursuant to paragraph (d) of this 
section, to cause proxies (or in lieu thereof requests for voting 
instructions), proxy soliciting material and annual reports to security 
holders to be furnished, in a timely manner, to beneficial owners of 
exempt employee benefit plan securities.

    (b) Any registrant requesting pursuant to Sec.240.14b-1(b)(3) or 
Sec.240.14b-2(b)(4)(ii) and (iii) a list of names, addresses and 
securities positions of beneficial owners of its securities who either 
have consented or have not objected to disclosure of such information 
shall:
    (1) By first class mail or other equally prompt means, inquire of 
each record holder and each respondent bank identified to the registrant 
pursuant to Sec.240.14b-2(b)(4)(i) whether such

[[Page 251]]

record holder or respondent bank holds the registrant's securities on 
behalf of any respondent banks and, if so, the name and address of each 
such respondent bank;
    (2) Request such list to be compiled as of a date no earlier than 
five business days after the date the registrant's request is received 
by the record holder or respondent bank; Provided, however, That if the 
record holder or respondent bank has informed the registrant that a 
designated office(s) or department(s) is to receive such requests, the 
request shall be made to such designated office(s) or department(s);
    (3) Make such request to the following persons that hold the 
registrant's securities on behalf of beneficial owners: all brokers, 
dealers, banks, associations and other entities that exercises fiduciary 
powers; Provided however, such request shall not cover beneficial owners 
of exempt employee benefit plan securities as defined in Sec.240.14a-
1(d)(1); and, at the option of the registrant, such request may give 
notice of any employee benefit plan established by an affiliate of the 
registrant that holds securities of the registrant that the registrant 
elects to treat as exempt employee benefit plan securities;
    (4) Use the information furnished in response to such request 
exclusively for purposes of corporate communications; and
    (5) Upon the request of any record holder or respondent bank to whom 
such request is made, pay the reasonable expenses, both direct and 
indirect, of providing beneficial owner information.

    Note: A registrant will be deemed to have satisfied its obligations 
under paragraph (b) of this section by requesting consenting and non-
objecting beneficial owner lists from a designated agent acting on 
behalf of the record holder or respondent bank and paying to that 
designated agent the reasonable expenses of providing the beneficial 
owner information.

    (c) A registrant, at its option, may send its annual report to 
security holders to the beneficial owners whose identifying information 
is provided by record holders and respondent banks, pursuant to Sec.
240.14b-1(b)(3) or Sec.240.14b-2(b)(4)(ii) and (iii), provided that 
such registrant notifies the record holders and respondent banks, at the 
time it makes the inquiry required by paragraph (a) of this section, 
that the registrant will send the annual report to security holders to 
the beneficial owners so identified.
    (d) If a registrant solicits proxies, consents or authorizations 
from record holders and respondent banks who hold securities on behalf 
of beneficial owners, the registrant shall cause proxies (or in lieu 
thereof requests or voting instructions), proxy soliciting material and 
annual reports to security holders to be furnished, in a timely manner, 
to beneficial owners of exempt employee benefit plan securities.

[51 FR 44276, Dec. 9, 1986; 52 FR 2220, Jan. 21, 1987, as amended at 52 
FR 23648, June 24, 1987; 53 FR 16405, May 9, 1988; 57 FR 1099, Jan. 10, 
1992; 72 FR 4168, Jan. 29, 2007]



Sec.240.14a-14  Modified or superseded documents.

    (a) Any statement contained in a document incorporated or deemed to 
be incorporated by reference shall be deemed to be modified or 
superseded, for purposes of the proxy statement, to the extent that a 
statement contained in the proxy statement or in any other subsequently 
filed document that also is or is deemed to be incorporated by reference 
modifies or replaces such statement.
    (b) The modifying or superseding statement may, but need not, state 
it has modified or superseded a prior statement or include any other 
information set forth in the document that is not so modified or 
superseded. The making of a modifying or superseding statement shall not 
be deemed an admission that the modified or superseded statement, when 
made, constituted an untrue statement of a material fact, an omission to 
state a material fact necessary to make a statement not misleading, or 
the employment of a manipulative, deceptive, or fraudulent device, 
contrivance, scheme, transaction, act, practice, course of business or 
artifice to defraud, as those terms are used in the Securities Act of 
1933, the Securities Exchange Act of 1934 (``the Act''), the

[[Page 252]]

Investment Company Act of 1940, or the rules and regulations thereunder.
    (c) Any statement so modified shall not be deemed in its unmodified 
form to constitute part of the proxy statement for purposes of the Act. 
Any statement so superseded shall not be deemed to constitute a part of 
the proxy statement for purposes of the Act.

[52 FR 21936, June 10, 1987, as amended at 73 FR 17814, Apr. 1, 2008]



Sec.240.14a-15  Differential and contingent compensation in
connection with roll-up transactions.

    (a) It shall be unlawful for any person to receive compensation for 
soliciting proxies, consents, or authorizations directly from security 
holders in connection with a roll-up transaction as provided in 
paragraph (b) of this section, if the compensation is:
    (1) Based on whether the solicited proxy, consent, or authorization 
either approves or disapproves the proposed roll-up transaction; or
    (2) Contingent on the approval, disapproval, or completion of the 
roll-up transaction.
    (b) This section is applicable to a roll-up transaction as defined 
in Item 901(c) of Regulation S-K (Sec.229.901(c) of this chapter), 
except for a transaction involving only:
    (1) Finite-life entities that are not limited partnerships;
    (2) Partnerships whose investors will receive new securities or 
securities in another entity that are not reported under a transaction 
reporting plan declared effective before December 17, 1993 by the 
Commission under section 11A of the Act (15 U.S.C. 78k-1); or
    (3) Partnerships whose investors' securities are reported under a 
transaction reporting plan declared effective before December 17, 1993 
by the Commission under section 11A of the Act (15 U.S.C. 78k-1).

[59 FR 63684, Dec. 8, 1994]



Sec.240.14a-16  Internet availability of proxy materials.

    (a)(1) A registrant shall furnish a proxy statement pursuant to 
Sec.240.14a-3(a), or an annual report to security holders pursuant to 
Sec.240.14a-3(b), to a security holder by sending the security holder 
a Notice of Internet Availability of Proxy Materials, as described in 
this section, 40 calendar days or more prior to the security holder 
meeting date, or if no meeting is to be held, 40 calendar days or more 
prior to the date the votes, consents or authorizations may be used to 
effect the corporate action, and complying with all other requirements 
of this section.
    (2) Unless the registrant chooses to follow the full set delivery 
option set forth in paragraph (n) of this section, it must provide the 
record holder or respondent bank with all information listed in 
paragraph (d) of this section in sufficient time for the record holder 
or respondent bank to prepare, print and send a Notice of Internet 
Availability of Proxy Materials to beneficial owners at least 40 
calendar days before the meeting date.
    (b)(1) All materials identified in the Notice of Internet 
Availability of Proxy Materials must be publicly accessible, free of 
charge, at the Web site address specified in the notice on or before the 
time that the notice is sent to the security holder and such materials 
must remain available on that Web site through the conclusion of the 
meeting of security holders.
    (2) All additional soliciting materials sent to security holders or 
made public after the Notice of Internet Availability of Proxy Materials 
has been sent must be made publicly accessible at the specified Web site 
address no later than the day on which such materials are first sent to 
security holders or made public.
    (3) The Web site address relied upon for compliance under this 
section may not be the address of the Commission's electronic filing 
system.
    (4) The registrant must provide security holders with a means to 
execute a proxy as of the time the Notice of Internet Availability of 
Proxy Materials is first sent to security holders.
    (c) The materials must be presented on the Web site in a format, or 
formats, convenient for both reading online and printing on paper.
    (d) The Notice of Internet Availability of Proxy Materials must 
contain the following:

[[Page 253]]

    (1) A prominent legend in bold-face type that states ``Important 
Notice Regarding the Availability of Proxy Materials for the Shareholder 
Meeting To Be Held on [insert meeting date]'';
    (2) An indication that the communication is not a form for voting 
and presents only an overview of the more complete proxy materials, 
which contain important information and are available on the Internet or 
by mail, and encouraging a security holder to access and review the 
proxy materials before voting;
    (3) The Internet Web site address where the proxy materials are 
available;
    (4) Instructions regarding how a security holder may request a paper 
or e-mail copy of the proxy materials at no charge, including the date 
by which they should make the request to facilitate timely delivery, and 
an indication that they will not otherwise receive a paper or e-mail 
copy;
    (5) The date, time, and location of the meeting, or if corporate 
action is to be taken by written consent, the earliest date on which the 
corporate action may be effected;
    (6) A clear and impartial identification of each separate matter 
intended to be acted on and the soliciting person's recommendations, if 
any, regarding those matters, but no supporting statements;
    (7) A list of the materials being made available at the specified 
Web site;
    (8) A toll-free telephone number, an e-mail address, and an Internet 
Web site where the security holder can request a copy of the proxy 
statement, annual report to security holders, and form of proxy, 
relating to all of the registrant's future security holder meetings and 
for the particular meeting to which the proxy materials being furnished 
relate;
    (9) Any control/identification numbers that the security holder 
needs to access his or her form of proxy;
    (10) Instructions on how to access the form of proxy, provided that 
such instructions do not enable a security holder to execute a proxy 
without having access to the proxy statement and, if required by Sec.
240.14a-3(b), the annual report to security holders; and
    (11) Information on how to obtain directions to be able to attend 
the meeting and vote in person.
    (e)(1) The Notice of Internet Availability of Proxy Materials may 
not be incorporated into, or combined with, another document, except 
that it may be incorporated into, or combined with, a notice of security 
holder meeting required under state law, unless state law prohibits such 
incorporation or combination.
    (2) The Notice of Internet Availability of Proxy Materials may 
contain only the information required by paragraph (d) of this section 
and any additional information required to be included in a notice of 
security holders meeting under state law; provided that:
    (i) The registrant must revise the information on the Notice of 
Internet Availability of Proxy Materials, including any title to the 
document, to reflect the fact that:
    (A) The registrant is conducting a consent solicitation rather than 
a proxy solicitation; or
    (B) The registrant is not soliciting proxy or consent authority, but 
is furnishing an information statement pursuant to Sec.240.14c-2; and
    (ii) The registrant may include a statement on the Notice to educate 
security holders that no personal information other than the 
identification or control number is necessary to execute a proxy.
    (f)(1) Except as provided in paragraph (h) of this section, the 
Notice of Internet Availability of Proxy Materials must be sent 
separately from other types of security holder communications and may 
not accompany any other document or materials, including the form of 
proxy.
    (2) Notwithstanding paragraph (f)(1) of this section, the registrant 
may accompany the Notice of Internet Availability of Proxy Materials 
with:
    (i) A pre-addressed, postage-paid reply card for requesting a copy 
of the proxy materials;
    (ii) A copy of any notice of security holder meeting required under 
state law if that notice is not combined with the Notice of Internet 
Availability of Proxy Materials;

[[Page 254]]

    (iii) In the case of an investment company registered under the 
Investment Company Act of 1940, the company's prospectus, a summary 
prospectus that satisfies the requirements of Sec.230.498(b) of this 
chapter, a Notice under Sec.270.30e-3 of this chapter, or a report 
that is required to be transmitted to stockholders by section 30(e) of 
the Investment Company Act (15 U.S.C. 80a-29(e)) and the rules 
thereunder; and
    (iv) An explanation of the reasons for a registrant's use of the 
rules detailed in this section and the process of receiving and 
reviewing the proxy materials and voting as detailed in this section.
    (g) Plain English. (1) To enhance the readability of the Notice of 
Internet Availability of Proxy Materials, the registrant must use plain 
English principles in the organization, language, and design of the 
notice.
    (2) The registrant must draft the language in the Notice of Internet 
Availability of Proxy Materials so that, at a minimum, it substantially 
complies with each of the following plain English writing principles:
    (i) Short sentences;
    (ii) Definite, concrete, everyday words;
    (iii) Active voice;
    (iv) Tabular presentation or bullet lists for complex material, 
whenever possible;
    (v) No legal jargon or highly technical business terms; and
    (vi) No multiple negatives.
    (3) In designing the Notice of Internet Availability of Proxy 
Materials, the registrant may include pictures, logos, or similar design 
elements so long as the design is not misleading and the required 
information is clear.
    (h) The registrant may send a form of proxy to security holders if:
    (1) At least 10 calendar days or more have passed since the date it 
first sent the Notice of Internet Availability of Proxy Materials to 
security holders and the form of proxy is accompanied by a copy of the 
Notice of Internet Availability of Proxy Materials; or
    (2) The form of proxy is accompanied or preceded by a copy, via the 
same medium, of the proxy statement and any annual report to security 
holders that is required by Sec.240.14a-3(b).
    (i) The registrant must file a form of the Notice of Internet 
Availability of Proxy Materials with the Commission pursuant to Sec.
240.14a-6(b) no later than the date that the registrant first sends the 
notice to security holders.
    (j) Obligation to provide copies. (1) The registrant must send, at 
no cost to the record holder or respondent bank and by U.S. first class 
mail or other reasonably prompt means, a paper copy of the proxy 
statement, information statement, annual report to security holders, and 
form of proxy (to the extent each of those documents is applicable) to 
any record holder or respondent bank requesting such a copy within three 
business days after receiving a request for a paper copy.
    (2) The registrant must send, at no cost to the record holder or 
respondent bank and via e-mail, an electronic copy of the proxy 
statement, information statement, annual report to security holders, and 
form of proxy (to the extent each of those documents is applicable) to 
any record holder or respondent bank requesting such a copy within three 
business days after receiving a request for an electronic copy via e-
mail.
    (3) The registrant must provide copies of the proxy materials for 
one year after the conclusion of the meeting or corporate action to 
which the proxy materials relate, provided that, if the registrant 
receives the request after the conclusion of the meeting or corporate 
action to which the proxy materials relate, the registrant need not send 
copies via First Class mail and need not respond to such request within 
three business days.
    (4) The registrant must maintain records of security holder requests 
to receive materials in paper or via e-mail for future solicitations and 
must continue to provide copies of the materials to a security holder 
who has made such a request until the security holder revokes such 
request.
    (k) Security holder information. (1) A registrant or its agent shall 
maintain the Internet Web site on which it posts its proxy materials in 
a manner that does not infringe on the anonymity of a person accessing 
such Web site.
    (2) The registrant and its agents shall not use any e-mail address 
obtained

[[Page 255]]

from a security holder solely for the purpose of requesting a copy of 
proxy materials pursuant to paragraph (j) of this section for any 
purpose other than to send a copy of those materials to that security 
holder. The registrant shall not disclose such information to any person 
other than an employee or agent to the extent necessary to send a copy 
of the proxy materials pursuant to paragraph (j) of this section.
    (l) A person other than the registrant may solicit proxies pursuant 
to the conditions imposed on registrants by this section, provided that:
    (1) A soliciting person other than the registrant is required to 
provide copies of its proxy materials only to security holders to whom 
it has sent a Notice of Internet Availability of Proxy Materials; and
    (2) A soliciting person other than the registrant must send its 
Notice of Internet Availability of Proxy Materials by the later of:
    (i) 40 Calendar days prior to the security holder meeting date or, 
if no meeting is to be held, 40 calendar days prior to the date the 
votes, consents, or authorizations may be used to effect the corporate 
action; or
    (ii) The date on which it files its definitive proxy statement with 
the Commission, provided its preliminary proxy statement is filed no 
later than 10 calendar days after the date that the registrant files its 
definitive proxy statement.
    (3) Content of the soliciting person's Notice of Internet 
Availability of Proxy Materials. (i) If, at the time a soliciting person 
other than the registrant sends its Notice of Internet Availability of 
Proxy Materials, the soliciting person is not aware of all matters on 
the registrant's agenda for the meeting of security holders, the 
soliciting person's Notice on Internet Availability of Proxy Materials 
must provide a clear and impartial identification of each separate 
matter on the agenda to the extent known by the soliciting person at 
that time. The soliciting person's notice also must include a clear 
statement indicating that there may be additional agenda items of which 
the soliciting person is not aware and that the security holder cannot 
direct a vote for those items on the soliciting person's proxy card 
provided at that time.
    (ii) If a soliciting person other than the registrant sends a form 
of proxy not containing all matters intended to be acted upon, the 
Notice of Internet Availability of Proxy Materials must clearly state 
whether execution of the form of proxy will invalidate a security 
holder's prior vote on matters not presented on the form of proxy.
    (m) This section shall not apply to a proxy solicitation in 
connection with a business combination transaction, as defined in Sec.
230.165 of this chapter, as well as transactions for cash consideration 
requiring disclosure under Item 14 of Sec.240.14a-101.
    (n) Full Set Delivery Option. (1) For purposes of this paragraph 
(n), the term full set of proxy materials shall include all of the 
following documents:
    (i) A copy of the proxy statement;
    (ii) A copy of the annual report to security holders if required by 
Sec.240.14a-3(b); and
    (iii) A form of proxy.
    (2) Notwithstanding paragraphs (e) and (f)(2) of this section, a 
registrant or other soliciting person may:
    (i) Accompany the Notice of Internet Availability of Proxy Materials 
with a full set of proxy materials; or
    (ii) Send a full set of proxy materials without a Notice of Internet 
Availability of Proxy Materials if all of the information required in a 
Notice of Internet Availability of Proxy Materials pursuant to 
paragraphs (d) and (n)(4) of this section is incorporated in the proxy 
statement and the form of proxy.
    (3) A registrant or other soliciting person that sends a full set of 
proxy materials to a security holder pursuant to this paragraph (n) need 
not comply with
    (i) The timing provisions of paragraphs (a) and (l)(2) of this 
section; and
    (ii) The obligation to provide copies pursuant to paragraph (j) of 
this section.
    (4) A registrant or other soliciting person that sends a full set of 
proxy materials to a security holder pursuant to this paragraph (n) need 
not include in its Notice of Internet Availability of Proxy Materials, 
proxy statement, or form of proxy the following disclosures:

[[Page 256]]

    (i) Instructions regarding the nature of the communication pursuant 
to paragraph (d)(2) of this section;
    (ii) Instructions on how to request a copy of the proxy materials; 
and
    (iii) Instructions on how to access the form of proxy pursuant to 
paragraph (d)(10) of this section.

[72 FR 4168, Jan. 29, 2007, as amended at 72 FR 42238, Aug. 1, 2007; 72 
FR 42238, Aug. 1, 2007; 73 FR 17814, Apr. 1, 2008; 75 FR 9081, Feb. 26, 
2010; 83 FR 29204, June 22, 2018]



Sec.240.14a-17  Electronic shareholder forums.

    (a) A shareholder, registrant, or third party acting on behalf of a 
shareholder or registrant may establish, maintain, or operate an 
electronic shareholder forum to facilitate interaction among the 
registrant's shareholders and between the registrant and its 
shareholders as the shareholder or registrant deems appropriate. Subject 
to paragraphs (b) and (c) of this section, the forum must comply with 
the federal securities laws, including Section 14(a) of the Act and its 
associated regulations, other applicable federal laws, applicable state 
laws, and the registrant's governing documents.
    (b) No shareholder, registrant, or third party acting on behalf of a 
shareholder or registrant, by reason of establishing, maintaining, or 
operating an electronic shareholder forum, will be liable under the 
federal securities laws for any statement or information provided by 
another person to the electronic shareholder forum. Nothing in this 
section prevents or alters the application of the federal securities 
laws, including the provisions for liability for fraud, deception, or 
manipulation, or other applicable federal and state laws to the person 
or persons that provide a statement or information to an electronic 
shareholder forum.
    (c) Reliance on the exemption in Sec.240.14a-2(b)(6) to 
participate in an electronic shareholder forum does not eliminate a 
person's eligibility to solicit proxies after the date that the 
exemption in Sec.240.14a-2(b)(6) is no longer available, or is no 
longer being relied upon, provided that any such solicitation is 
conducted in accordance with this regulation.

[73 FR 4458, Jan. 25, 2008]



Sec.240.14a-18  Disclosure regarding nominating shareholders and
nominees submitted for inclusion in a registrant's proxy materials 
pursuant to applicable state or foreign law, or a registrant'
s governing documents.
          

    To have a nominee included in a registrant's proxy materials 
pursuant to a procedure set forth under applicable state or foreign law, 
or the registrant's governing documents addressing the inclusion of 
shareholder director nominees in the registrant's proxy materials, the 
nominating shareholder or nominating shareholder group must provide 
notice to the registrant of its intent to do so on a Schedule 14N (Sec.
240.14n-101) and file that notice, including the required disclosure, 
with the Commission on the date first transmitted to the registrant. 
This notice shall be postmarked or transmitted electronically to the 
registrant by the date specified by the registrant's advance notice 
provision or, where no such provision is in place, no later than 120 
calendar days before the anniversary of the date that the registrant 
mailed its proxy materials for the prior year's annual meeting, except 
that, if the registrant did not hold an annual meeting during the prior 
year, or if the date of the meeting has changed by more than 30 calendar 
days from the prior year, then the nominating shareholder or nominating 
shareholder group must provide notice a reasonable time before the 
registrant mails its proxy materials, as specified by the registrant in 
a Form 8-K (Sec.249.308 of this chapter) filed pursuant to Item 5.08 
of Form 8-K.

    Instruction to Sec.240.14a-18. The registrant is not responsible 
for any information provided in the Schedule 14N (Sec.240.14n-101) by 
the nominating shareholder or nominating shareholder group, which is 
submitted as required by this section or otherwise provided by the 
nominating shareholder or nominating shareholder group that is included 
in the registrant's proxy materials.

[75 FR 56787, Sept. 16, 2010]

[[Page 257]]



Sec.240.14a-20  Shareholder approval of executive compensation of
TARP recipients.

    If a solicitation is made by a registrant that is a TARP recipient, 
as defined in section 111(a)(3) of the Emergency Economic Stabilization 
Act of 2008 (12 U.S.C. 5221(a)(3)), during the period in which any 
obligation arising from financial assistance provided under the TARP, as 
defined in section 3(8) of the Emergency Economic Stabilization Act of 
2008 (12 U.S.C. 5202(8)), remains outstanding and the solicitation 
relates to an annual (or special meeting in lieu of the annual) meeting 
of security holders for which proxies will be solicited for the election 
of directors, as required pursuant to section 111(e)(1) of the Emergency 
Economic Stabilization Act of 2008 (12 U.S.C. 5221(e)(1)), the 
registrant shall provide a separate shareholder vote to approve the 
compensation of executives, as disclosed pursuant to Item 402 of 
Regulation S-K (Sec.229.402 of this chapter), including the 
compensation discussion and analysis, the compensation tables, and any 
related material.

    Note to Sec.240.14a-20: TARP recipients that are smaller reporting 
companies entitled to provide scaled disclosure pursuant to Item 402(l) 
of Regulation S-K are not required to include a compensation discussion 
and analysis in their proxy statements in order to comply with this 
section. In the case of these smaller reporting companies, the required 
vote must be to approve the compensation of executives as disclosed 
pursuant to Item 402(m) through (q) of Regulation S-K.

[75 FR 2794, Jan. 19, 2010]



Sec.240.14a-21  Shareholder approval of executive compensation,
frequency of votes for approval of executive compensation and 
shareholder approval of golden parachute compensation
          .

    (a) If a solicitation is made by a registrant, other than an 
emerging growth company as defined in Rule 12b-2 (Sec.240.12b-2), and 
the solicitation relates to an annual or other meeting of shareholders 
at which directors will be elected and for which the rules of the 
Commission require executive compensation disclosure pursuant to Item 
402 of Regulation S-K (Sec.229.402 of this chapter), the registrant 
shall, for the first annual or other meeting of shareholders on or after 
January 21, 2011, or for the first annual or other meeting of 
shareholders on or after January 21, 2013 if the registrant is a smaller 
reporting company, and thereafter no later than the annual or other 
meeting of shareholders held in the third calendar year after the 
immediately preceding vote under this subsection, include a separate 
resolution subject to shareholder advisory vote to approve the 
compensation of its named executive officers, as disclosed pursuant to 
Item 402 of Regulation S-K.

    Instruction to paragraph (a): The registrant's resolution shall 
indicate that the shareholder advisory vote under this subsection is to 
approve the compensation of the registrant's named executive officers as 
disclosed pursuant to Item 402 of Regulation S-K (Sec.229.402 of this 
chapter). The following is a non-exclusive example of a resolution that 
would satisfy the requirements of this subsection: ``RESOLVED, that the 
compensation paid to the company's named executive officers, as 
disclosed pursuant to Item 402 of Regulation S-K, including the 
Compensation Discussion and Analysis, compensation tables and narrative 
discussion is hereby APPROVED.''

    (b) If a solicitation is made by a registrant, other than an 
emerging growth company as defined in Rule 12b-2 (Sec.240.12b-2), and 
the solicitation relates to an annual or other meeting of shareholders 
at which directors will be elected and for which the rules of the 
Commission require executive compensation disclosure pursuant to Item 
402 of Regulation S-K (Sec.229.402 of this chapter), the registrant 
shall, for the first annual or other meeting of shareholders on or after 
January 21, 2011, or for the first annual or other meeting of 
shareholders on or after January 21, 2013 if the registrant is a smaller 
reporting company, and thereafter no later than the annual or other 
meeting of shareholders held in the sixth calendar year after the 
immediately preceding vote under this subsection, include a separate 
resolution subject to shareholder advisory vote as to whether the 
shareholder vote required by paragraph (a) of this section should occur 
every 1, 2 or 3 years. Registrants required to provide a separate 
shareholder vote pursuant to Sec.240.14a-20 of this chapter shall 
include the separate resolution required by this section for

[[Page 258]]

the first annual or other meeting of shareholders after the registrant 
has repaid all obligations arising from financial assistance provided 
under the TARP, as defined in section 3(8) of the Emergency Economic 
Stabilization Act of 2008 (12 U.S.C. 5202(8)), and thereafter no later 
than the annual or other meeting of shareholders held in the sixth 
calendar year after the immediately preceding vote under this 
subsection.
    (c) If a solicitation is made by a registrant, other than an 
emerging growth company as defined in Rule 12b-2 (Sec.240.12b-2), for 
a meeting of shareholders at which shareholders are asked to approve an 
acquisition, merger, consolidation or proposed sale or other disposition 
of all or substantially all the assets of the registrant, the registrant 
shall include a separate resolution subject to shareholder advisory vote 
to approve any agreements or understandings and compensation disclosed 
pursuant to Item 402(t) of Regulation S-K (Sec.229.402(t) of this 
chapter), unless such agreements or understandings have been subject to 
a shareholder advisory vote under paragraph (a) of this section. 
Consistent with section 14A(b) of the Exchange Act (15 U.S.C. 78n-1(b)), 
any agreements or understandings between an acquiring company and the 
named executive officers of the registrant, where the registrant is not 
the acquiring company, are not required to be subject to the separate 
shareholder advisory vote under this paragraph.

    Instructions to Sec.240.14a-21: 1. Disclosure relating to the 
compensation of directors required by Item 402(k) (Sec.229.402(k) of 
this chapter) and Item 402(r) of Regulation S-K (Sec.229.402(r) of 
this chapter) is not subject to the shareholder vote required by 
paragraph (a) of this section. If a registrant includes disclosure 
pursuant to Item 402(s) of Regulation S-K (Sec.229.402(s) of this 
chapter) about the registrant's compensation policies and practices as 
they relate to risk management and risk-taking incentives, these 
policies and practices would not be subject to the shareholder vote 
required by paragraph (a) of this section. To the extent that risk 
considerations are a material aspect of the registrant's compensation 
policies or decisions for named executive officers, the registrant is 
required to discuss them as part of its Compensation Discussion and 
Analysis under Sec.229.402(b) of this chapter, and therefore such 
disclosure would be considered by shareholders when voting on executive 
compensation.
    2. If a registrant includes disclosure of golden parachute 
compensation arrangements pursuant to Item 402(t) (Sec.229.402(t) of 
this chapter) in an annual meeting proxy statement, such disclosure 
would be subject to the shareholder advisory vote required by paragraph 
(a) of this section.
    3. Registrants that are smaller reporting companies entitled to 
provide scaled disclosure in accordance with Item 402(l) of Regulation 
S-K (Sec.229.402(l) of this chapter) are not required to include a 
Compensation Discussion and Analysis in their proxy statements in order 
to comply with this section. For smaller reporting companies, the vote 
required by paragraph (a) of this section must be to approve the 
compensation of the named executive officers as disclosed pursuant to 
Item 402(m) through (q) of Regulation S-K (Sec.229.402(m) through (q) 
of this chapter).
    4. A registrant that has ceased being an emerging growth company 
shall include the first separate resolution described under Sec.
240.14a-21(a) not later than the end of (i) in the case of a registrant 
that was an emerging growth company for less than two years after the 
date of first sale of common equity securities of the registrant 
pursuant to an effective registration statement under the Securities Act 
of 1933 (15 U.S.C 77a et seq.), the three-year period beginning on such 
date; and (ii) in the case of any other registrant, the one-year period 
beginning on the date the registrant is no longer an emerging growth 
company.

[76 FR 6045, Feb. 2, 2011, as amended at 82 FR 17555, Apr. 12, 2017]



Sec.240.14a-101  Schedule 14A. Information required in proxy statement.

                        Schedule 14A Information

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act 
                                 of 1934

                            (Amendment No. )

Filed by the Registrant [ ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 
          14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Sec.240.14a-12
________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[[Page 259]]

[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 
          0-11
    (1) Title of each class of securities to which transaction applies:
________________________________________________________________________
    (2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
    (3) Per unit price or other underlying value of transaction computed 
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the 
filing fee is calculated and state how it was determined):
________________________________________________________________________
    (4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
    (5) Total fee paid:
________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange 
          Act Rule 0-11(a)(2) and identify the filing for which the 
          offsetting fee was paid previously. Identify the previous 
          filing by registration statement number, or the Form or 
          Schedule and the date of its filing.
    (1) Amount Previously Paid:
________________________________________________________________________
    (2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
    (3) Filing Party:
________________________________________________________________________
    (4) Date Filed:
________________________________________________________________________

                                  Notes

    Notes: A. Where any item calls for information with respect to any 
matter to be acted upon and such matter involves other matters with 
respect to which information is called for by other items of this 
schedule, the information called for by such other items also shall be 
given. For example, where a solicitation of security holders is for the 
purpose of approving the authorization of additional securities which 
are to be used to acquire another specified company, and the 
registrants' security holders will not have a separate opportunity to 
vote upon the transaction, the solicitation to authorize the securities 
is also a solicitation with respect to the acquisition. Under those 
facts, information required by Items 11, 13 and 14 shall be furnished.
    B. Where any item calls for information with respect to any matter 
to be acted upon at the meeting, such item need be answered in the 
registrant's soliciting material only with respect to proposals to be 
made by or on behalf of the registrant.
    C. Except as otherwise specifically provided, where any item calls 
for information for a specified period with regard to directors, 
executive officers, officers or other persons holding specified 
positions or relationships, the information shall be given with regard 
to any person who held any of the specified positions or relationship at 
any time during the period. Information, other than information required 
by Item 404 of Regulation S-K (Sec.229.404 of this chapter), need not 
be included for any portion of the period during which such person did 
not hold any such position or relationship, provided a statement to that 
effect is made.
    D. Information may be incorporated by reference only in the manner 
and to the extent specifically permitted in the items of this schedule. 
Where incorporation by reference is used, the following shall apply:
    1. Disclosure must not be incorporated by reference from a second 
document if that second document incorporates information pertinent to 
such disclosure by reference to a third document. A registrant 
incorporating any documents, or portions of documents, shall include a 
statement on the last page(s) of the proxy statement as to which 
documents, or portions of documents, are incorporated by reference. 
Information shall not be incorporated by reference in any case where 
such incorporation would render the statement incomplete, unclear or 
confusing.
    2. If a document is incorporated by reference but not delivered to 
security holders, include an undertaking to provide, without charge, to 
each person to whom a proxy statement is delivered, upon written or oral 
request of such person and by first class mail or other equally prompt 
means within one business day of receipt of such request, a copy of any 
and all of the information that has been incorporated by reference in 
the proxy statement (not including exhibits to the information that is 
incorporated by reference unless such exhibits are specifically 
incorporated by reference into the information that the proxy statement 
incorporates), and the address (including title or department) and 
telephone numbers to which such a request is to be directed. This 
includes information contained in documents filed subsequent to the date 
on which definitive copies of the proxy statement are sent or given to 
security holders, up to the date of responding to the request.
    3. If a document or portion of a document other than an annual 
report sent to security holders pursuant to the requirements of Rule 
14a-3 (Sec.240.14a-3 of this chapter) with respect to the same meeting 
or solicitation of consents or authorizations as that to which the proxy 
statement relates is incorporated by reference in the manner permitted 
by Item 13(b) or 14(e)(1) of this schedule, the proxy statement must be 
sent to security holders no later than 20 business days prior to the 
date on which the meeting of such security holders is held or, if no 
meeting is held, at

[[Page 260]]

least 20 business days prior to the date the votes, consents or 
authorizations may be used to effect the corporate action.
    4. Electronic filings. If any of the information required by Items 
13 or 14 of this Schedule is incorporated by reference from an annual or 
quarterly report to security holders, such report, or any portion 
thereof incorporated by reference, shall be filed in electronic format 
with the proxy statement. This provision shall not apply to registered 
investment companies.
    E. In Item 13 of this Schedule, the reference to ``meets the 
requirement of Form S-3'' shall refer to a registrant who meets the 
following requirements:
    (1) The registrant meets the requirements of General Instruction 
I.A. of Form S-3 (Sec.239.13 of this chapter); and
    (2) One of the following is met:
    (i) The registrant meets the aggregate market value requirement of 
General Instruction I.B.1 of Form S-3; or
    (ii) Action is to be taken as described in Items 11, 12, and 14 of 
this schedule which concerns non-convertible debt or preferred 
securities issued by a registrant meeting the requirements of General 
Instruction I.B.2. of Form S-3 (referenced in 17 CFR 239.13 of this 
chapter); or
    (iii) The registrant is a majority-owned subsidiary and one of the 
conditions of General Instruction I.C. of Form S-3 is met.
    Item 1. Date, time and place information. (a) State the date, time 
and place of the meeting of security holders, and the complete mailing 
address, including ZIP Code, of the principal executive offices of the 
registrant, unless such information is otherwise disclosed in material 
furnished to security holders with or preceding the proxy statement. If 
action is to be taken by written consent, state the date by which 
consents are to be submitted if state law requires that such a date be 
specified or if the person soliciting intends to set a date.
    (b) On the first page of the proxy statement, as delivered to 
security holders, state the approximate date on which the proxy 
statement and form of proxy are first sent or given to security holders.
    (c) Furnish the information required to be in the proxy statement by 
Rule 14a-5(e) (Sec.240.14a-5(e) of this chapter).
    Item 2. Revocability of proxy. State whether or not the person 
giving the proxy has the power to revoke it. If the right of revocation 
before the proxy is exercised is limited or is subject to compliance 
with any formal procedure, briefly describe such limitation or 
procedure.
    Item 3. Dissenters' right of appraisal. Outline briefly the rights 
of appraisal or similar rights of dissenters with respect to any matter 
to be acted upon and indicate any statutory procedure required to be 
followed by dissenting security holders in order to perfect such rights. 
Where such rights may be exercised only within a limited time after the 
date of adoption of a proposal, the filing of a charter amendment or 
other similar act, state whether the persons solicited will be notified 
of such date.
    Instructions. 1. Indicate whether a security holder's failure to 
vote against a proposal will constitute a waiver of his appraisal or 
similar rights and whether a vote against a proposal will be deemed to 
satisfy any notice requirements under State law with respect to 
appraisal rights. If the State law is unclear, state what position will 
be taken in regard to these matters.
    2. Open-end investment companies registered under the Investment 
Company Act of 1940 are not required to respond to this item.
    Item 4. Persons Making the Solicitation--(a) Solicitations not 
subject to Rule 14a-12(c) (Sec.240.14a-12(c)). (1) If the solicitation 
is made by the registrant, so state. Give the name of any director of 
the registrant who has informed the registrant in writing that he 
intends to oppose any action intended to be taken by the registrant and 
indicate the action which he intends to oppose.
    (2) If the solicitation is made otherwise than by the registrant, so 
state and give the names of the participants in the solicitation, as 
defined in paragraphs (a) (iii), (iv), (v) and (vi) of Instruction 3 to 
this Item.
    (3) If the solicitation is to be made otherwise than by the use of 
the mails or pursuant to Sec.240.14a-16, describe the methods to be 
employed. If the solicitation is to be made by specially, engaged 
employees or paid solicitors, state (i) the material features of any 
contract or arrangement for such solicitation and identify the parties, 
and (ii) the cost or anticipated cost thereof.
    (4) State the names of the persons by whom the cost of solicitation 
has been or will be borne, directly or indirectly.
    (b) Solicitations subject to Rule 14a-12(c) (Sec.240.14a-12(c)). 
(1) State by whom the solicitation is made and describe the methods 
employed and to be employed to solicit security holders.
    (2) If regular employees of the registrant or any other participant 
in a solicitation have been or are to be employed to solicit security 
holders, describe the class or classes of employees to be so employed, 
and the manner and nature of their employment for such purpose.
    (3) If specially engaged employees, representatives or other persons 
have been or are to be employed to solicit security holders, state (i) 
the material features of any contract or arrangement for such 
solicitation and the identity of the parties, (ii) the cost or 
anticipated cost thereof and (iii) the approximate number of such 
employees of employees or any other person (naming such

[[Page 261]]

other person) who will solicit security holders).
    (4) State the total amount estimated to be spent and the total 
expenditures to date for, in furtherance of, or in connection with the 
solicitation of security holders.
    (5) State by whom the cost of the solicitation will be borne. If 
such cost is to be borne initially by any person other than the 
registrant, state whether reimbursement will be sought from the 
registrant, and, if so, whether the question of such reimbursement will 
be submitted to a vote of security holders.
    (6) If any such solicitation is terminated pursuant to a settlement 
between the registrant and any other participant in such solicitation, 
describe the terms of such settlement, including the cost or anticipated 
cost thereof to the registrant.
    Instructions. 1. With respect to solicitations subject to Rule 14a-
12(c) (Sec.240.14a-12(c)), costs and expenditures within the meaning 
of this Item 4 shall include fees for attorneys, accountants, public 
relations or financial advisers, solicitors, advertising, printing, 
transportation, litigation and other costs incidental to the 
solicitation, except that the registrant may exclude the amount of such 
costs represented by the amount normally expended for a solicitation for 
an election of directors in the absence of a contest, and costs 
represented by salaries and wages of regular employees and officers, 
provided a statement to that effect is included in the proxy statement.
    2. The information required pursuant to paragraph (b)(6) of this 
Item should be included in any amended or revised proxy statement or 
other soliciting materials relating to the same meeting or subject 
matter furnished to security holders by the registrant subsequent to the 
date of settlement.
    3. For purposes of this Item 4 and Item 5 of this Schedule 14A:
    (a) The terms ``participant'' and ``participant in a solicitation'' 
include the following:
    (i) The registrant;
    (ii) Any director of the registrant, and any nominee for whose 
election as a director proxies are solicited;
    (iii) Any committee or group which solicits proxies, any member of 
such committee or group, and any person whether or not named as a member 
who, acting alone or with one or more other persons, directly or 
indirectly takes the initiative, or engages, in organizing, directing, 
or arranging for the financing of any such committee or group;
    (iv) Any person who finances or joins with another to finance the 
solicitation of proxies, except persons who contribute not more than 
$500 and who are not otherwise participants;
    (v) Any person who lends money or furnishes credit or enters into 
any other arrangements, pursuant to any contract or understanding with a 
participant, for the purpose of financing or otherwise inducing the 
purchase, sale, holding or voting of securities of the registrant by any 
participant or other persons, in support of or in opposition to a 
participant; except that such terms do not include a bank, broker or 
dealer who, in the ordinary course of business, lends money or executes 
orders for the purchase or sale of securities and who is not otherwise a 
participant; and
    (vi) Any person who solicits proxies.
    (b) The terms ``participant'' and ``participant in a solicitation'' 
do not include:
    (i) Any person or organization retained or employed by a participant 
to solicit security holders and whose activities are limited to the 
duties required to be performed in the course of such employment;
    (ii) Any person who merely transmits proxy soliciting material or 
performs other ministerial or clerical duties;
    (iii) Any person employed by a participant in the capacity of 
attorney, accountant, or advertising, public relations or financial 
adviser, and whose activities are limited to the duties required to be 
performed in the course of such employment;
    (iv) Any person regularly employed as an officer or employee of the 
registrant or any of its subsidiaries who is not otherwise a 
participant; or
    (v) Any officer or director of, or any person regularly employed by, 
any other participant, if such officer, director or employee is not 
otherwise a participant.
    Item 5. Interest of certain Persons in Matters To Be Acted Upon (a) 
Solicitations not subject to Rule 14a-12(c) (Sec.240.14a-12(c)). 
Describe briefly any substantial interest, direct or indirect, by 
security holdings or otherwise, of each of the following persons in any 
matter to be acted upon, other than elections to office:
    (1) If the solicitation is made on behalf of the registrant, each 
person who has been a director or executive officer of the registrant at 
any time since the beginning of the last fiscal year.
    (2) If the solicitation is made otherwise than on behalf of the 
registrant, each participant in the solicitation, as defined in 
paragraphs (a) (iii), (iv), (v), and (vi) of Instruction 3 to Item 4 of 
this Schedule 14A.
    (3) Each nominee for election as a director of the registrant.
    (4) Each associate of any of the foregoing persons.
    (5) If the solicitation is made on behalf of the registrant, furnish 
the information required by Item 402(t) of Regulation S-K (Sec.
229.402(t) of this chapter).

    Instruction to paragraph (a). Except in the case of a solicitation 
subject to this regulation made in opposition to another solicitation 
subject to this regulation, this sub-

[[Page 262]]

item (a) shall not apply to any interest arising from the ownership of 
securities of the registrant where the security holder receives no extra 
or special benefit not shared on a pro rata basis by all other holders 
of the same class.

    (b) Solicitation subject to Rule 14a-12(c) (Sec.240.14a-12(c)). 
With respect to any solicitation subject to Rule 14a-12(c) (Sec.
240.14a-12(c)):
    (1) Describe briefly any substantial interest, direct or indirect, 
by security holdings or otherwise, of each participant as defined in 
paragraphs (a) (ii), (iii), (iv), (v) and (vi) of Instruction 3 to Item 
4 of this Schedule 14A, in any matter to be acted upon at the meeting, 
and include with respect to each participant the following information, 
or a fair and accurate summary thereof:
    (i) Name and business address of the participant.
    (ii) The participant's present principal occupation or employment 
and the name, principal business and address of any corporation or other 
organization in which such employment is carried on.
    (iii) State whether or not, during the past ten years, the 
participant has been convicted in a criminal proceeding (excluding 
traffic violations or similar misdemeanors) and, if so, give dates, 
nature of conviction, name and location of court, and penalty imposed or 
other disposition of the case. A negative answer need not be included in 
the proxy statement or other soliciting material.
    (iv) State the amount of each class of securities of the registrant 
which the participant owns beneficially, directly or indirectly.
    (v) State the amount of each class of securities of the registrant 
which the participant owns of record but not beneficially.
    (vi) State with respect to all securities of the registrant 
purchased or sold within the past two years, the dates on which they 
were purchased or sold and the amount purchased or sold on each such 
date.
    (vii) If any part of the purchase price or market value of any of 
the shares specified in paragraph (b)(1)(vi) of this Item is represented 
by funds borrowed or otherwise obtained for the purpose of acquiring or 
holding such securities, so state and indicate the amount of the 
indebtedness as of the latest practicable date. If such funds were 
borrowed or obtained otherwise than pursuant to a margin account or bank 
loan in the regular course of business of a bank, broker or dealer, 
briefly describe the transaction, and state the names of the parties.
    (viii) State whether or not the participant is, or was within the 
past year, a party to any contract, arrangements or understandings with 
any person with respect to any securities of the registrant, including, 
but not limited to joint ventures, loan or option arrangements, puts or 
calls, guarantees against loss or guarantees of profit, division of 
losses or profits, or the giving or withholding of proxies. If so, name 
the parties to such contracts, arrangements or understandings and give 
the details thereof.
    (ix) State the amount of securities of the registrant owned 
beneficially, directly or indirectly, by each of the participant's 
associates and the name and address of each such associate.
    (x) State the amount of each class of securities of any parent or 
subsidiary of the registrant which the participant owns beneficially, 
directly or indirectly.
    (xi) Furnish for the participant and associates of the participant 
the information required by Item 404(a) of Regulation S-K (Sec.
229.404(a) of this chapter).
    (xii) State whether or not the participant or any associates of the 
participant have any arrangement or understanding with any person--
(A) with respect to any future employment by the registrant or its 
affiliates; or
(B) with respect to any future transactions to which the registrant or 
any of its affiliates will or may be a party.

If so, describe such arrangement or understanding and state the names of 
the parties thereto.
    (2) With respect to any person, other than a director or executive 
officer of the registrant acting solely in that capacity, who is a party 
to an arrangement or understanding pursuant to which a nominee for 
election as director is proposed to be elected, describe any substantial 
interest, direct or indirect, by security holdings or otherwise, that 
such person has in any matter to be acted upon at the meeting, and 
furnish the information called for by paragraphs (b)(1) (xi) and (xii) 
of this Item.
    (3) If the solicitation is made on behalf of the registrant, furnish 
the information required by Item 402(t) of Regulation S-K (Sec.
229.402(t) of this chapter).

    Instruction to paragraph (b): For purposes of this Item 5, 
beneficial ownership shall be determined in accordance with Rule 13d-3 
under the Act (Section 240.13d-3 of this chapter).

    Item 6. Voting securities and principal holders thereof, (a) As to 
each class of voting securities of the registrant entitled to be voted 
at the meeting (or by written consents or authorizations if no meeting 
is held), state the number of shares outstanding and the number of votes 
to which each class is entitled.
    (b) State the record date, if any, with respect to this 
solicitation. If the right to vote or give consent is not to be 
determined, in whole or in part, by reference to a record date, indicate 
the criteria for the determination of security holders entitled to vote 
or give consent.
    (c) If action is to be taken with respect to the election of 
directors and if the persons

[[Page 263]]

solicited have cumulative voting rights: (1) Make a statement that they 
have such rights, (2) briefly describe such rights, (3) state briefly 
the conditions precedent to the exercise thereof, and (4) if 
discretionary authority to cumulate votes is solicited, so indicate.
    (d) Furnish the information required by Item 403 of Regulation S-K 
(Sec.229.403 of this chapter) to the extent known by the persons on 
whose behalf the solicitation is made.
    (e) If, to the knowledge of the persons on whose behalf the 
solicitation is made, a change in control of the registrant has occurred 
since the beginning of its last fiscal year, state the name of the 
person(s) who acquired such control, the amount and the source of the 
consideration used by such person or persons; the basis of the control, 
the date and a description of the transaction(s) which resulted in the 
change of control and the percentage of voting securities of the 
registrant now beneficially owned directly or indirectly by the 
person(s) who acquired control; and the identity of the person(s) from 
whom control was assumed. If the source of all or any part of the 
consideration used is a loan made in the ordinary course of business by 
a bank as defined by section 3(a)(6) of the Act, the identity of such 
bank shall be omitted provided a request for confidentiality has been 
made pursuant to section 13(d)(1)(B) of the Act by the person(s) who 
acquired control. In lieu thereof, the material shall indicate that the 
identity of the bank has been so omitted and filed separately with the 
Commission.
    Instruction. 1. State the terms of any loans or pledges obtained by 
the new control group for the purpose of acquiring control, and the 
names of the lenders or pledgees.
    2. Any arrangements or understandings among members of both the 
former and new control groups and their associates with respect to 
election of directors or other matters should be described.
    Item 7. Directors and executive officers. If action is to be taken 
with respect to the election of directors, furnish the following 
information in tabular form to the extent practicable. If, however, the 
solicitation is made on behalf of persons other than the registrant, the 
information required need be furnished only as to nominees of the 
persons making the solicitation.
    (a) The information required by instruction 4 to Item 103 of 
Regulation S-K (Sec.229.103 of this chapter) with respect to directors 
and executive officers.
    (b) The information required by Items 401, 404(a) and (b), 405 and 
407 of Regulation S-K (Sec.Sec.229.401, 229.404(a) and (b), 229.405 
and 229.407 of this chapter), other than the information required by:
    (i) Paragraph (c)(3) of Item 407 of Regulation S-K (Sec.
229.407(c)(3) of this chapter); and
    (ii) Paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K 
(Sec.Sec.229.407(e)(4) and 229.407(e)(5) of this chapter) (which are 
required by Item 8 of this Schedule 14A).
    (c) If a shareholder nominee or nominees are submitted to the 
registrant for inclusion in the registrant's proxy materials pursuant to 
Sec.240.14a-11 and the registrant is not permitted to exclude the 
nominee or nominees pursuant to the provisions of Sec.240.14a-11, the 
registrant must include in its proxy statement the disclosure required 
from the nominating shareholder or nominating shareholder group under 
Item 5 of Sec.240.14n-101 with regard to the nominee or nominees and 
the nominating shareholder or nominating shareholder group.
    (d) If a registrant is required to include a shareholder nominee or 
nominees submitted to the registrant for inclusion in the registrant's 
proxy materials pursuant to a procedure set forth under applicable state 
or foreign law, or the registrant's governing documents providing for 
the inclusion of shareholder director nominees in the registrant's proxy 
materials, the registrant must include in its proxy statement the 
disclosure required from the nominating shareholder or nominating 
shareholder group under Item 6 of Sec.240.14n-101 with regard to the 
nominee or nominees and the nominating shareholder or nominating 
shareholder group.

    Instruction to Item 7. The information disclosed pursuant to 
paragraphs (c) and (d) of this Item 7 will not be deemed incorporated by 
reference into any filing under the Securities Act of 1933 (15 U.S.C. 
77a et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.), or the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), 
except to the extent that the registrant specifically incorporates that 
information by reference.

    (e) In lieu of the information required by this Item 7, investment 
companies registered under the Investment Company Act of 1940 (15 U.S.C. 
80a) must furnish the information required by Item 22(b) of this 
Schedule 14A.
    Item 8. Compensation of directors and executive officers. Furnish 
the information required by Item 402 of Regulation S-K (Sec.229.402 of 
this chapter) and paragraphs (e)(4) and (e)(5) of Item 407 of Regulation 
S-K (Sec.229.407(e)(4) and (e)(5) of this chapter) if action is to be 
taken with regard to:
    (a) The election of directors;
    (b) Any bonus, profit sharing or other compensation plan, contract 
or arrangement in which any director, nominee for election as a 
director, or executive officer of the registrant will participate;
    (c) Any pension or retirement plan in which any such person will 
participate; or
    (d) The granting or extension to any such person of any options, 
warrants or rights to

[[Page 264]]

purchase any securities, other than warrants or rights issued to 
security holders as such, on a pro rata basis.
    However, if the solicitation is made on behalf of persons other than 
the registrant, the information required need be furnished only as to 
nominees of the persons making the solicitation and associates of such 
nominees. In the case of investment companies registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a), furnish the information 
required by Item 22(b)(13) of this Schedule 14A.
    Instruction. If an otherwise reportable compensation plan became 
subject to such requirements because of an acquisition or merger and, 
within one year of the acquisition or merger, such plan was terminated 
for purposes of prospective eligibility, the registrant may furnish a 
description of its obligation to the designated individuals pursuant to 
the compensation plan. Such description may be furnished in lieu of a 
description of the compensation plan in the proxy statement.
    Item 9. Independent public accountants. If the solicitation is made 
on behalf of the registrant and relates to: (1) The annual (or special 
meeting in lieu of annual) meeting of security holders at which 
directors are to be elected, or a solicitation of consents or 
authorizations in lieu of such meeting or (2) the election, approval or 
ratification of the registrant's accountant, furnish the following 
information describing the registrant's relationship with its 
independent public accountant:
    (a) The name of the principal accountant selected or being 
recommended to security holders for election, approval or ratification 
for the current year. If no accountant has been selected or recommended, 
so state and briefly describe the reasons therefor.
    (b) The name of the principal accountant for the fiscal year most 
recently completed if different from the accountant selected or 
recommended for the current year or if no accountant has yet been 
selected or recommended for the current year.
    (c) The proxy statement shall indicate: (1) Whether or not 
representatives of the principal accountant for the current year and for 
the most recently completed fiscal year are expected to be present at 
the security holders' meeting, (2) whether or not they will have the 
opportunity to make a statement if they desire to do so, and (3) whether 
or not such representatives are expected to be available to respond to 
appropriate questions.
    (d) If during the registrant's two most recent fiscal years or any 
subsequent interim period, (1) an independent accountant who was 
previously engaged as the principal accountant to audit the registrant's 
financial statements, or an independent accountant on whom the principal 
accountant expressed reliance in its report regarding a significant 
subsidiary, has resigned (or indicated it has declined to stand for re-
election after the completion of the current audit) or was dismissed, or 
(2) a new independent accountant has been engaged as either the 
principal accountant to audit the registrant's financial statements or 
as an independent accountant on whom the principal accountant has 
expressed or is expected to express reliance in its report regarding a 
significant subsidiary, then, notwithstanding any previous disclosure, 
provide the information required by Item 304(a) of Regulation S-K (Sec.
229.304 of this chapter).
    (e)(1) Disclose, under the caption Audit Fees, the aggregate fees 
billed for each of the last two fiscal years for professional services 
rendered by the principal accountant for the audit of the registrant's 
annual financial statements and review of financial statements included 
in the registrant's Form 10-Q (17 CFR 249.308a) or services that are 
normally provided by the accountant in connection with statutory and 
regulatory filings or engagements for those fiscal years.
    (2) Disclose, under the caption Audit-Related Fees, the aggregate 
fees billed in each of the last two fiscal years for assurance and 
related services by the principal accountant that are reasonably related 
to the performance of the audit or review of the registrant's financial 
statements and are not reported under paragraph (e)(1) of this section. 
Registrants shall describe the nature of the services comprising the 
fees disclosed under this category.
    (3) Disclose, under the caption Tax Fees, the aggregate fees billed 
in each of the last two fiscal years for professional services rendered 
by the principal accountant for tax compliance, tax advice, and tax 
planning. Registrants shall describe the nature of the services 
comprising the fees disclosed under this category.
    (4) Disclose, under the caption All Other Fees, the aggregate fees 
billed in each of the last two fiscal years for products and services 
provided by the principal accountant, other than the services reported 
in paragraphs (e)(1) through (e)(3) of this section. Registrants shall 
describe the nature of the services comprising the fees disclosed under 
this category.
    (5)(i) Disclose the audit committee's pre-approval policies and 
procedures described in 17 CFR 210.2-01(c)(7)(i).
    (ii) Disclose the percentage of services described in each of 
paragraphs (e)(2) through (e)(4) of this section that were approved by 
the audit committee pursuant to 17 CFR 210.2-01(c)(7)(i)(C).
    (6) If greater than 50 percent, disclose the percentage of hours 
expended on the principal accountant's engagement to audit the 
registrant's financial statements for the most recent fiscal year that 
were attributed

[[Page 265]]

to work performed by persons other than the principal accountant's full-
time, permanent employees.
    (7) If the registrant is an investment company, disclose the 
aggregate non-audit fees billed by the registrant's accountant for 
services rendered to the registrant, and to the registrant's investment 
adviser (not including any subadviser whose role is primarily portfolio 
management and is subcontracted with or overseen by another investment 
adviser), and any entity controlling, controlled by, or under common 
control with the adviser that provides ongoing services to the 
registrant for each of the last two fiscal years of the registrant.
    (8) If the registrant is an investment company, disclose whether the 
audit committee of the board of directors has considered whether the 
provision of non-audit services that were rendered to the registrant's 
investment adviser (not including any subadviser whose role is primarily 
portfolio management and is subcontracted with or overseen by another 
investment adviser), and any entity controlling, controlled by, or under 
common control with the investment adviser that provides ongoing 
services to the registrant that were not pre-approved pursuant to 17 CFR 
210.2-01(c)(7)(ii) is compatible with maintaining the principal 
accountant's independence.
    Instruction to Item 9(e). For purposes of Item 9(e)(2), (3), and 
(4), registrants that are investment companies must disclose fees billed 
for services rendered to the registrant and separately, disclose fees 
required to be approved by the investment company registrant's audit 
committee pursuant to 17 CFR 210.2-01(c)(7)(ii). Registered investment 
companies must also disclose the fee percentages as required by item 
9(e)(5)(ii) for the registrant and separately, disclose the fee 
percentages as required by item 9(e)(5)(ii) for the fees required to be 
approved by the investment company registrant's audit committee pursuant 
to 17 CFR 210.2-01(c)(7)(ii).
    Item 10. Compensation Plans. If action is to be taken with respect 
to any plan pursuant to which cash or noncash compensation may be paid 
or distributed, furnish the following information:
    (a) Plans subject to security holder action. (1) Describe briefly 
the material features of the plan being acted upon, identify each class 
of persons who will be eligible to participate therein, indicate the 
approximate number of persons in each such class, and state the basis of 
such participation.
    (2)(i) In the tabular format specified below, disclose the benefits 
or amounts that will be received by or allocated to each of the 
following under the plan being acted upon, if such benefits or amounts 
are determinable:

                            New Plan Benefits
------------------------------------------------------------------------
                                Plan name
-------------------------------------------------------------------------
         Name and position            Dollar value ($)   Number of units
------------------------------------------------------------------------
CEO................................
A..................................
B..................................
C..................................
D..................................
Executive Group....................
Non-Executive Director Group.......
Non-Executive Officer Employee
 Group.
------------------------------------------------------------------------

    (ii) The table required by paragraph (a)(2)(i) of this Item shall 
provide information as to the following persons:
    (A) Each person (stating name and position) specified in paragraph 
(a)(3) of Item 402 of Regulation S-K (Sec.229.402(a)(3) of this 
chapter);
    Instruction: In the case of investment companies registered under 
the Investment Company Act of 1940, furnish the information for 
Compensated Persons as defined in Item 22(b)(13) of this Schedule in 
lieu of the persons specified in paragraph (a)(3) of Item 402 of 
Regulation S-K (Sec.229.402(a)(3) of this chapter).
    (B) All current executive officers as a group;
    (C) All current directors who are not executive officers as a group; 
and
    (D) All employees, including all current officers who are not 
executive officers, as a group.

                 Instruction to New Plan Benefits Table

    Additional columns should be added for each plan with respect to 
which security holder action is to be taken.
    (iii) If the benefits or amounts specified in paragraph (a)(2)(i) of 
this item are not determinable, state the benefits or amounts which 
would have been received by or allocated to each of the following for 
the last completed fiscal year if the plan had been in effect, if such 
benefits or amounts may be determined, in the table specified in 
paragraph (a)(2)(i) of this Item:
    (A) Each person (stating name and position) specified in paragraph 
(a)(3) of Item 402 of Regulation S-K (Sec.229.402(a)(3) of this 
chapter);
    (B) All current executive officers as a group;
    (C) All current directors who are not executive officers as a group; 
and
    (D) All employees, including all current officers who are not 
executive officers, as a group.
    (3) If the plan to be acted upon can be amended, otherwise than by a 
vote of security holders, to increase the cost thereof to the registrant 
or to alter the allocation of the benefits as between the persons and

[[Page 266]]

groups specified in paragraph (a)(2) of this item, state the nature of 
the amendments which can be so made.
    (b)(1) Additional information regarding specified plans subject to 
security holder action. With respect to any pension or retirement plan 
submitted for security holder action, state:
    (i) The approximate total amount necessary to fund the plan with 
respect to past services, the period over which such amount is to be 
paid and the estimated annual payments necessary to pay the total amount 
over such period; and
    (ii) The estimated annual payment to be made with respect to current 
services. In the case of a pension or retirement plan, information 
called for by paragraph (a)(2) of this Item may be furnished in the 
format specified by paragraph (h)(2) of Item 402 of Regulation S-K 
(Sec.229.402(h)(2) of this chapter).

    Instruction to paragraph (b)(1)(ii). In the case of investment 
companies registered under the Investment Company Act of 1940 (15 U.S.C. 
80a), refer to Instruction 4 in Item 22(b)(13)(i) of this Schedule in 
lieu of paragraph (h)(2) of Item 402 of Regulation S-K (Sec.
229.402(h)(2) of this chapter).

    (2)(i) With respect to any specific grant of or any plan containing 
options, warrants or rights submitted for security holder action, state:
    (A) The title and amount of securities underlying such options, 
warrants or rights;
    (B) The prices, expiration dates and other material conditions upon 
which the options, warrants or rights may be exercised;
    (C) The consideration received or to be received by the registrant 
or subsidiary for the granting or extension of the options, warrants or 
rights;
    (D) The market value of the securities underlying the options, 
warrants, or rights as of the latest practicable date; and
    (E) In the case of options, the federal income tax consequences of 
the issuance and exercise of such options to the recipient and the 
registrant; and
    (ii) State separately the amount of such options received or to be 
received by the following persons if such benefits or amounts are 
determinable:
    (A) Each person (stating name and position) specified in paragraph 
(a)(3) of Item 402 of Regulation S-K (Sec.229.402(a)(3) of this 
chapter);
    (B) All current executive officers as a group;
    (C) All current directors who are not executive officers as a group;
    (D) Each nominee for election as a director;
    (E) Each associate of any of such directors, executive officers or 
nominees;
    (F) Each other person who received or is to receive 5 percent of 
such options, warrants or rights; and
    (G) All employees, including all current officers who are not 
executive officers, as a group.
    (c) Information regarding plans and other arrangements not subject 
to security holder action. Furnish the information required by Item 
201(d) of Regulation S-K (Sec.229.201(d) of this chapter).

    Instructions to paragraph (c). 1. If action is to be taken as 
described in paragraph (a) of this Item with respect to the approval of 
a new compensation plan under which equity securities of the registrant 
are authorized for issuance, information about the plan shall be 
disclosed as required under paragraphs (a) and (b) of this Item and 
shall not be included in the disclosure required by Item 201(d) of 
Regulation S-K (Sec.229.201(d) of this chapter). If action is to be 
taken as described in paragraph (a) of this Item with respect to the 
amendment or modification of an existing plan under which equity 
securities of the registrant are authorized for issuance, the registrant 
shall include information about securities previously authorized for 
issuance under the plan (including any outstanding options, warrants and 
rights previously granted pursuant to the plan and any securities 
remaining available for future issuance under the plan) in the 
disclosure required by Item 201(d) of Regulation S-K (Sec.229.201(d) 
of this chapter). Any additional securities that are the subject of the 
amendments or modification of the existing plan shall be disclosed as 
required under paragraphs (a) and (b) of this Item and shall not be 
included in the Item 201(d) disclosure.

                              Instructions

    1. The term plan as used in this Item means any plan as defined in 
paragraph (a)(6)(ii) of Item 402 of Regulation S-K (Sec.
229.402(a)(6)(ii) of this chapter).
    2. If action is to be taken with respect to a material amendment or 
modification of an existing plan, the item shall be answered with 
respect to the plan as proposed to be amended or modified and shall 
indicate any material differences from the existing plan.
    3. If the plan to be acted upon is set forth in a written document, 
three copies thereof shall be filed with the Commission at the time 
copies of the proxy statement and form of proxy are first filed pursuant 
to paragraph (a) or (b) of Sec.240.14a-6. Electronic filers shall file 
with the Commission a copy of such written plan document in electronic 
format as an appendix to the proxy statement. It need not be provided to 
security holders unless it is a part of the proxy statement.
    4. Paragraph (b)(2)(ii) does not apply to warrants or rights to be 
issued to security holders as such on a pro rata basis.

[[Page 267]]

    5. The Commission shall be informed, as supplemental information, 
when the proxy statement is first filed, as to when the options, 
warrants or rights and the shares called for thereby will be registered 
under the Securities Act or, if such registration is not contemplated, 
the section of the Securities Act or rule of the Commission under which 
exemption from such registration is claimed and the facts relied upon to 
make the exemption available.
    Item 11. Authorization or issuance of securities otherwise than for 
exchange. If action is to be taken with respect to the authorization or 
issuance of any securities otherwise than for exchange for outstanding 
securities of the registrant, furnish the following information:
    (a) State the title and amount of securities to be authorized or 
issued.
    (b) Furnish the information required by Item 202 of Regulation S-K 
(Sec.229.202 of this chapter). If the terms of the securities cannot 
be stated or estimated with respect to any or all of the securities to 
be authorized, because no offering thereof is contemplated in the 
proximate future, and if no further authorization by security holders 
for the issuance thereof is to be obtained, it should be stated that the 
terms of the securities to be authorized, including dividend or interest 
rates, conversion prices, voting rights, redemption prices, maturity 
dates, and similar matters will be determined by the board of directors. 
If the securities are additional shares of common stock of a class 
outstanding, the description may be omitted except for a statement of 
the preemptive rights, if any. Where the statutory provisions with 
respect to preemptive rights are so indefinite or complex that they 
cannot be stated in summarized form, it will suffice to make a statement 
in the form of an opinion of counsel as to the existence and extent of 
such rights.
    (c) Describe briefly the transaction in which the securities are to 
be issued including a statement as to (1) the nature and approximate 
amount of consideration received or to be received by the registrant and 
(2) the approximate amount devoted to each purpose so far as 
determinable for which the net proceeds have been or are to be used. If 
it is impracticable to describe the transaction in which the securities 
are to be issued, state the reason, indicate the purpose of the 
authorization of the securities, and state whether further authorization 
for the issuance of the securities by a vote of security holders will be 
solicited prior to such issuance.
    (d) If the securities are to be issued otherwise than in a public 
offering for cash, state the reasons for the proposed authorization or 
issuance and the general effect thereof upon the rights of existing 
security holders.
    (e) Furnish the information required by Item 13(a) of this schedule.
    Item 12. Modification or exchange of securities. If action is to be 
taken with respect to the modification of any class of securities of the 
registrant, or the issuance or authorization for issuance of securities 
of the registrant in exchange for outstanding securities of the 
registrant furnish the following information:
    (a) If outstanding securities are to be modified, state the title 
and amount thereof. If securities are to be issued in exchange for 
outstanding securities, state the title and amount of securities to be 
so issued, the title and amount of outstanding securities to be 
exchanged therefor and the basis of the exchange.
    (b) Describe any material differences between the outstanding 
securities and the modified or new securities in respect of any of the 
matters concerning which information would be required in the 
description of the securities in Item 202 of Regulation S-K (Sec.
229.202 of this chapter).
    (c) State the reasons for the proposed modification or exchange and 
the general effect thereof upon the rights of existing security holders.
    (d) Furnish a brief statement as to arrears in dividends or as to 
defaults in principal or interest in respect to the outstanding 
securities which are to be modified or exchanged and such other 
information as may be appropriate in the particular case to disclose 
adequately the nature and effect of the proposed action.
    (e) Outline briefly any other material features of the proposed 
modification or exchange. If the plan of proposed action is set forth in 
a written document, file copies thereof with the Commission in 
accordance with Sec.240.14a-6.
    (f) Furnish the information required by Item 13(a) of this Schedule.
    Instruction. If the existing security is presently listed and 
registered on a national securities exchange, state whether the 
registrant intends to apply for listing and registration of the new or 
reclassified security on such exchange or any other exchange. If the 
registrant does not intend to make such application, state the effect of 
the termination of such listing and registration.
    Item 13. Financial and other information. (See Notes D and E at the 
beginning of this Schedule.)
    (a) Information required. If action is to be taken with respect to 
any matter specified in Item 11 or 12, furnish the following 
information:
    (1) Financial statements meeting the requirements of Regulation S-X, 
including financial information required by Rule 3-05 and Article 11 of 
Regulation S-X with respect to transactions other than pursuant to which 
action is to be taken as described in

[[Page 268]]

this proxy statement (A smaller reporting company may provide the 
information in Rules 8-04 and 8-05 of Regulation S-X (Sec.Sec.210.8-
04 and 210.8-05 of this chapter) in lieu of the financial information 
required by Rule 3-05 and Article 11 of Regulation S-X);
    (2) Item 302 of Regulation S-K, supplementary financial information;
    (3) Item 303 of Regulation S-K, management's discussion and analysis 
of financial condition and results of operations;
    (4) Item 304 of Regulation S-K, changes in and disagreements with 
accountants on accounting and financial disclosure;
    (5) Item 305 of Regulation S-K, quantitative and qualitative 
disclosures about market risk; and
    (6) A statement as to whether or not representatives of the 
principal accountants for the current year and for the most recently 
completed fiscal year:
    (i) Are expected to be present at the security holders' meeting;
    (ii) Will have the opportunity to make a statement if they desire to 
do so; and
    (iii) Are expected to be available to respond to appropriate 
questions.
    (b) Incorporation by reference. The information required pursuant to 
paragraph (a) of this Item may be incorporated by reference into the 
proxy statement as follows:
    (1) S-3 registrants. If the registrant meets the requirements of 
Form S-3(see Note E to this Schedule), it may incorporate by reference 
to previously-filed documents any of the information required by 
paragraph (a) of this Item, provided that the requirements of paragraph 
(c) are met. Where the registrant meets the requirements of Form S-3 and 
has elected to furnish the required information by incorporation by 
reference, the registrant may elect to update the information so 
incorporated by reference to information in subsequently-filed 
documents.
    (2) All registrants. The registrant may incorporate by reference any 
of the information required by paragraph (a) of this Item, provided that 
the information is contained in an annual report to security holders or 
a previously-filed statement or report, such report or statement is 
delivered to security holders with the proxy statement and the 
requirements of paragraph (c) are met.
    (c) Certain conditions applicable to incorporation by reference. 
Registrants eligible to incorporate by reference into the proxy 
statement the information required by paragraph (a) of this Item in the 
manner specified by paragraphs (b)(1) and (b)(2) may do so only if:
    (1) The information is not required to be included in the proxy 
statement pursuant to the requirement of another Item;
    (2) The proxy statement identifies on the last page(s) the 
information incorporated by reference; and
    (3) The material incorporated by reference substantially meets the 
requirements of this Item or the appropriate portions of this Item.
    Instructions to Item 13. 1. Notwithstanding the provisions of this 
Item, any or all of the information required by paragraph (a) of this 
Item not material for the exercise of prudent judgment in regard to the 
matter to be acted upon may be omitted. In the usual case the 
information is deemed material to the exercise of prudent judgment where 
the matter to be acted upon is the authorization or issuance of a 
material amount of senior securities, but the information is not deemed 
material where the matter to be acted upon is the authorization or 
issuance of common stock, otherwise than in an exchange, merger, 
consolidation, acquisition or similar transaction, the authorization of 
preferred stock without present intent to issue or the authorization of 
preferred stock for issuance for cash in an amount constituting fair 
value.
    2. In order to facilitate compliance with Rule 2-02(a) of Regulation 
S-X, one copy of the definitive proxy statement filed with the 
Commission shall include a manually signed copy of the accountant's 
report. If the financial statements are incorporated by reference, a 
manually signed copy of the accountant's report shall be filed with the 
definitive proxy statement.
    3. Notwithstanding the provisions of Regulation S-X, no schedules 
other than those prepared in accordance with Rules 12-15, 12-28 and 12-
29 (or, for management investment companies, Rules 12-12 through 12-14) 
of that regulation need be furnished in the proxy statement.
    4. Unless registered on a national securities exchange or otherwise 
required to furnish such information, registered investment companies 
need not furnish the information required by paragraph (a)(2) or (3) of 
this Item.
    5. If the registrant submits preliminary proxy material 
incorporating by reference financial statements required by this Item, 
the registrant should furnish a draft of the financial statements if the 
document from which they are incorporated has not been filed with or 
furnished to the Commission.
    6. A registered investment company need not comply with items 
(a)(2), (a)(3), and (a)(5) of this Item 13.
    Item 14. Mergers, consolidations, acquisitions and similar matters. 
(See Notes A and D at the beginning of this Schedule)
    Instructions to Item 14: 1. In transactions in which the 
consideration offered to security holders consists wholly or in part of 
securities registered under the Securities Act of 1933, furnish the 
information required by Form S-4 (Sec.239.25 of this chapter), Form F-
4 (Sec.239.34 of this chapter), or Form N-14 (Sec.239.23 of this 
chapter), as applicable, instead of this Item. Only a Form S-4, Form F-

[[Page 269]]

4, or Form N-14 must be filed in accordance with Sec.240.14a-6(j).
    2. (a) In transactions in which the consideration offered to 
security holders consists wholly of cash, the information required by 
paragraph (c)(1) of this Item for the acquiring company need not be 
provided unless the information is material to an informed voting 
decision (e.g., the security holders of the target company are voting 
and financing is not assured).
    (b) Additionally, if only the security holders of the target company 
are voting:
    i. The financial information in paragraphs (b)(8)-(11) of this Item 
for the acquiring company and the target need not be provided; and
    ii. The information in paragraph (c)(2) of this Item for the target 
company need not be provided.
    If, however, the transaction is a going-private transaction (as 
defined by Sec.240.13e-3), then the information required by paragraph 
(c)(2) of this Item must be provided and to the extent that the going-
private rules require the information specified in paragraph (b)(8)-
(b)(11) of this Item, that information must be provided as well.
    3. In transactions in which the consideration offered to security 
holders consists wholly of securities exempt from registration under the 
Securities Act of 1933 or a combination of exempt securities and cash, 
information about the acquiring company required by paragraph (c)(1) of 
this Item need not be provided if only the security holders of the 
acquiring company are voting, unless the information is material to an 
informed voting decision. If only the security holders of the target 
company are voting, information about the target company in paragraph 
(c)(2) of this Item need not be provided. However, the information 
required by paragraph (c)(2) of this Item must be provided if the 
transaction is a going-private (as defined by Sec.240.13e-3) or roll-
up (as described by Item 901 of Regulation S-K (Sec.229.901 of this 
chapter)) transaction.
    4. The information required by paragraphs (b)(8)-(11) and (c) need 
not be provided if the plan being voted on involves only the acquiring 
company and one or more of its totally held subsidiaries and does not 
involve a liquidation or a spin off.
    5. To facilitate compliance with Rule 2-02(a) of Regulation S-X 
(Sec.210.2-02(a) of this chapter) (technical requirements relating to 
accountants' reports), one copy of the definitive proxy statement filed 
with the Commission must include a signed copy of the accountant's 
report. If the financial statements are incorporated by reference, a 
signed copy of the accountant's report must be filed with the definitive 
proxy statement. Signatures may be typed if the document is filed 
electronically on EDGAR. See Rule 302 of Regulation S-T (Sec.232.302 
of this chapter).
    6. Notwithstanding the provisions of Regulation S-X, no schedules 
other than those prepared in accordance with Sec.210.12-15, Sec.
210.12-28 and Sec.210.12-29 of this chapter (or, for management 
investment companies, Sec.Sec.210.12-12 through 210.12-14 of this 
chapter) of that regulation need be furnished in the proxy statement.
    7. If the preliminary proxy material incorporates by reference 
financial statements required by this Item, a draft of the financial 
statements must be furnished to the Commission staff upon request if the 
document from which they are incorporated has not been filed with or 
furnished to the Commission.
    (a) Applicability. If action is to be taken with respect to any of 
the following transactions, provide the information required by this 
Item:
    (1) A merger or consolidation;
    (2) An acquisition of securities of another person;
    (3) An acquisition of any other going business or the assets of a 
going business;
    (4) A sale or other transfer of all or any substantial part of 
assets; or
    (5) A liquidation or dissolution.
    (b) Transaction information. Provide the following information for 
each of the parties to the transaction unless otherwise specified:
    (1) Summary term sheet. The information required by Item 1001 of 
Regulation M-A (Sec.229.1001 of this chapter).
    (2) Contact information. The name, complete mailing address and 
telephone number of the principal executive offices.
    (3) Business conducted. A brief description of the general nature of 
the business conducted.
    (4) Terms of the transaction. The information required by Item 
1004(a)(2) of Regulation M-A (Sec.229.1004 of this chapter).
    (5) Regulatory approvals. A statement as to whether any federal or 
state regulatory requirements must be complied with or approval must be 
obtained in connection with the transaction and, if so, the status of 
the compliance or approval.
    (6) Reports, opinions, appraisals. If a report, opinion or appraisal 
materially relating to the transaction has been received from an outside 
party, and is referred to in the proxy statement, furnish the 
information required by Item 1015(b) of Regulation M-A (Sec.229.1015 
of this chapter).
    (7) Past contacts, transactions or negotiations. The information 
required by Items 1005(b) and 1011(a)(1) of Regulation M-A (Sec.
229.1005 of this chapter and Sec.229.1011 of this chapter), for the 
parties to the transaction and their affiliates during the periods for 
which financial statements are presented or incorporated by reference 
under this Item.
    (8) Selected financial data. The selected financial data required by 
Item 301 of Regulation S-K (Sec.229.301 of this chapter).

[[Page 270]]

    (9) Pro forma selected financial data. If material, the information 
required by Item 301 of Regulation S-K (Sec.229.301 of this chapter) 
for the acquiring company, showing the pro forma effect of the 
transaction.
    (10) Pro forma information. In a table designed to facilitate 
comparison, historical and pro forma per share data of the acquiring 
company and historical and equivalent pro forma per share data of the 
target company for the following Items:
    (i) Book value per share as of the date financial data is presented 
pursuant to Item 301 of Regulation S-K (Sec.229.301 of this chapter);
    (ii) Cash dividends declared per share for the periods for which 
financial data is presented pursuant to Item 301 of Regulation S-K 
(Sec.229.301 of this chapter); and
    (iii) Income (loss) per share from continuing operations for the 
periods for which financial data is presented pursuant to Item 301 of 
Regulation S-K (Sec.229.301 of this chapter).

    Instructions to paragraphs (b)(8), (b)(9) and (b)(10): 1. For a 
business combination, present the financial information required by 
paragraphs (b)(9) and (b)(10) only for the most recent fiscal year and 
interim period. For a combination between entities under common control, 
present the financial information required by paragraphs (b)(9) and 
(b)(10) (except for information with regard to book value) for the most 
recent three fiscal years and interim period. For purposes of these 
paragraphs, book value information need only be provided for the most 
recent balance sheet date.
    2. Calculate the equivalent pro forma per share amounts for one 
share of the company being acquired by multiplying the exchange ratio 
times each of:
    (i) The pro forma income (loss) per share before non-recurring 
charges or credits directly attributable to the transaction;
    (ii) The pro forma book value per share; and
    (iii) The pro forma dividends per share of the acquiring company.
    3. Unless registered on a national securities exchange or otherwise 
required to furnish such information, registered investment companies 
need not furnish the information required by paragraphs (b)(8) and 
(b)(9) of this Item.

    (11) Financial information. If material, financial information 
required by Article 11 of Regulation S-X (Sec.Sec.210.10-01 through 
229.11-03 of this chapter) with respect to this transaction.

    Instructions to paragraph (b)(11): 1. Present any Article 11 
information required with respect to transactions other than those being 
voted upon (where not incorporated by reference) together with the pro 
forma information relating to the transaction being voted upon. In 
presenting this information, you must clearly distinguish between the 
transaction being voted upon and any other transaction.
    2. If current pro forma financial information with respect to all 
other transactions is incorporated by reference, you need only present 
the pro forma effect of this transaction.

    (c) Information about the parties to the transaction--(1) Acquiring 
company. Furnish the information required by Part B (Registrant 
Information) of Form S-4 (Sec.239.25 of this chapter) or Form F-4 
(Sec.239.34 of this chapter), as applicable, for the acquiring 
company. However, financial statements need only be presented for the 
latest two fiscal years and interim periods.
    (2) Acquired company. Furnish the information required by Part C 
(Information with Respect to the Company Being Acquired) of Form S-4 
(Sec.239.25 of this chapter) or Form F-4 (Sec.239.34 of this 
chapter), as applicable.
    (d) Information about parties to the transaction: registered 
investment companies and business development companies. If the 
acquiring company or the acquired company is an investment company 
registered under the Investment Company Act of 1940 or a business 
development company as defined by Section 2(a)(48) of the Investment 
Company Act of 1940, provide the following information for that company 
instead of the information specified by paragraph (c) of this Item:
    (1) Information required by Item 101 of Regulation S-K (Sec.
229.101 of this chapter), description of business;
    (2) Information required by Item 102 of Regulation S-K (Sec.
229.102 of this chapter), description of property;
    (3) Information required by Item 103 of Regulation S-K (Sec.
229.103 of this chapter), legal proceedings;
    (4) Information required by Item 201(a), (b) and (c) of Regulation 
S-K (Sec.229.201(a), (b) and (c) of this chapter), market price of and 
dividends on the registrant's common equity and related stockholder 
matters;
    (5) Financial statements meeting the requirements of Regulation S-X, 
including financial information required by Rule 3-05 and Article 11 of 
Regulation S-X (Sec.210.3-05 and Sec.210.11-01 through Sec.210.11-
03 of this chapter) with respect to transactions other than that as to 
which action is to be taken as described in this proxy statement;
    (6) Information required by Item 301 of Regulation S-K (Sec.
229.301 of this chapter), selected financial data;
    (7) Information required by Item 302 of Regulation S-K (Sec.
229.302 of this chapter), supplementary financial information;
    (8) Information required by Item 303 of Regulation S-K (Sec.
229.303 of this chapter),

[[Page 271]]

management's discussion and analysis of financial condition and results 
of operations; and
    (9) Information required by Item 304 of Regulation S-K (Sec.
229.304 of this chapter), changes in and disagreements with accountants 
on accounting and financial disclosure.

    Instruction to paragraph (d) of Item 14: Unless registered on a 
national securities exchange or otherwise required to furnish such 
information, registered investment companies need not furnish the 
information required by paragraphs (d)(6), (d)(7) and (d)(8) of this 
Item.

    (e) Incorporation by reference. (1) The information required by 
paragraph (c) of this section may be incorporated by reference into the 
proxy statement to the same extent as would be permitted by Form S-4 
(Sec.239.25 of this chapter) or Form F-4 (Sec.239.34 of this 
chapter), as applicable.
    (2) Alternatively, the registrant may incorporate by reference into 
the proxy statement the information required by paragraph (c) of this 
Item if it is contained in an annual report sent to security holders in 
accordance with Sec.240.14a-3 of this chapter with respect to the same 
meeting or solicitation of consents or authorizations that the proxy 
statement relates to and the information substantially meets the 
disclosure requirements of Item 14 or Item 17 of Form S-4 (Sec.239.25 
of this chapter) or Form F-4 (Sec.239.34 of this chapter), as 
applicable.
    Item 15. Acquisition or disposition of property. If action is to be 
taken with respect to the acquisition or disposition of any property, 
furnish the following information:
    (a) Describe briefly the general character and location of the 
property.
    (b) State the nature and amount of consideration to be paid or 
received by the registrant or any subsidiary. To the extent practicable, 
outline briefly the facts bearing upon the question of the fairness of 
the consideration.
    (c) State the name and address of the transferer or transferee, as 
the case may be and the nature of any material relationship of such 
person to the registrant or any affiliate of the registrant.
    (d) Outline briefly any other material features of the contract or 
transaction.
    Item 16. Restatement of accounts. If action is to be taken with 
respect to the restatement of any asset, capital, or surplus account of 
the registrant furnish the following information:
    (a) State the nature of the restatement and the date as of which it 
is to be effective.
    (b) Outline briefly the reasons for the restatement and for the 
selection of the particular effective date.
    (c) State the name and amount of each account (including any reserve 
accounts) affected by the restatement and the effect of the restatement 
thereon. Tabular presentation of the amounts shall be made when 
appropriate, particularly in the case of recapitalizations.
    (d) To the extent practicable, state whether and the extent, if any, 
to which, the restatement will, as of the date thereof, alter the amount 
available for distribution to the holders of equity securities.
    Item 17. Action with respect to reports. If action is to be taken 
with respect to any report of the registrant or of its directors, 
officers or committees or any minutes of a meeting of its security 
holders, furnish the following information:
    (a) State whether or not such action is to constitute approval or 
disapproval of any of the matters referred to in such reports or 
minutes.
    (b) Identify each of such matters which it is intended will be 
approved or disapproved, and furnish the information required by the 
appropriate item or items of this schedule with respect to each such 
matter.
    Item 18. Matters not required to be submitted. If action is to be 
taken with respect to any matter which is not required to be submitted 
to a vote of security holders, state the nature of such matter, the 
reasons for submitting it to a vote of security holders and what action 
is intended to be taken by the registrant in the event of a negative 
vote on the matter by the security holders.
    Item 19. Amendment of character, bylaws or other documents. If 
action is to be taken with respect to any amendment of the registrant's 
charter, bylaws or other documents as to which information is not 
required above, state briefly the reasons for and the general effect of 
such amendment.
    Instructions. 1. Where the matter to be acted upon is the 
classification of directors, state whether vacancies which occur during 
the year may be filled by the board of directors to serve only until the 
next annual meeting or may be so filled for the remainder of the full 
term.
    2. Attention is directed to the discussion of disclosure regarding 
anti-takeover and similar proposals in Release No. 34-15230 (October 13, 
1978).
    Item 20. Other proposed action. If action is to be taken on any 
matter not specifically referred to in this Schedule 14A, describe 
briefly the substance of each such matter in substantially the same 
degree of detail as is required by Items 5 to 19, inclusive, of this 
Schedule, and, with respect to investment companies registered under the 
Investment Company Act of 1940, Item 22 of this Schedule. Registrants 
required to provide a separate shareholder vote pursuant to section 
111(e)(1) of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 
5221(e)(1)) and Sec.240.14a-20 shall disclose that they are providing 
such a vote as required pursuant to the Emergency Economic Stabilization 
Act

[[Page 272]]

of 2008, and briefly explain the general effect of the vote, such as 
whether the vote is non-binding.
    Item 21. Voting procedures. As to each matter which is to be 
submitted to a vote of security holders, furnish the following 
information:
    (a) State the vote required for approval or election, other than for 
the approval of auditors.
    (b) Disclose the method by which votes will be counted, including 
the treatment and effect of abstentions and broker non-votes under 
applicable state law as well as registrant charter and by-law 
provisions.
    Item 22. Information required in investment company proxy statement. 
(a) General.
    (1) Definitions. Unless the context otherwise requires, terms used 
in this Item that are defined in Sec.240.14a-1 (with respect to proxy 
soliciting material), in Sec.240.14c-1 (with respect to information 
statements), and in the Investment Company Act of 1940 shall have the 
same meanings provided therein and the following terms shall also apply:
    (i) Administrator. The term ``Administrator'' shall mean any person 
who provides significant administrative or business affairs management 
services to a Fund.
    (ii) Affiliated broker. The term ``Affiliated Broker'' shall mean 
any broker:
    (A) That is an affiliated person of the Fund;
    (B) That is an affiliated person of such person; or
    (C) An affiliated person of which is an affiliated person of the 
Fund, its investment adviser, principal underwriter, or Administrator.
    (iii) Distribution plan. The term ``Distribution Plan'' shall mean a 
plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 
1940 (Sec.270.12b-1 of this chapter).
    (iv) Family of Investment Companies. The term ``Family of Investment 
Companies'' shall mean any two or more registered investment companies 
that:
    (A) Share the same investment adviser or principal underwriter; and
    (B) Hold themselves out to investors as related companies for 
purposes of investment and investor services.
    (v) Fund. The term ``Fund'' shall mean a Registrant or, where the 
Registrant is a series company, a separate portfolio of the Registrant.
    (vi) Fund complex. The term ``Fund Complex'' shall mean two or more 
Funds that:
    (A) Hold themselves out to investors as related companies for 
purposes of investment and investor services; or
    (B) Have a common investment adviser or have an investment adviser 
that is an affiliated person of the investment adviser of any of the 
other Funds.
    (vii) Immediate Family Member. The term ``Immediate Family Member'' 
shall mean a person's spouse; child residing in the person's household 
(including step and adoptive children); and any dependent of the person, 
as defined in section 152 of the Internal Revenue Code (26 U.S.C. 152).
    (viii) Officer. The term ``Officer'' shall mean the president, vice-
president, secretary, treasurer, controller, or any other officer who 
performs policy-making functions.
    (ix) Parent. The term ``Parent'' shall mean the affiliated person of 
a specified person who controls the specified person directly or 
indirectly through one or more intermediaries.
    (x) Registrant. The term ``Registrant'' shall mean an investment 
company registered under the Investment Company Act of 1940 (15 U.S.C. 
80a) or a business development company as defined by section 2(a)(48) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)).
    (xi) Sponsoring Insurance Company. The term ``Sponsoring Insurance 
Company'' of a Fund that is a separate account shall mean the insurance 
company that establishes and maintains the separate account and that 
owns the assets of the separate account.
    (xii) Subsidiary. The term ``Subsidiary'' shall mean an affiliated 
person of a specified person who is controlled by the specified person 
directly, or indirectly through one or more intermediaries.
    (2) [Reserved]
    (3) General disclosure. Furnish the following information in the 
proxy statement of a Fund or Funds:
    (i) State the name and address of the Fund's investment adviser, 
principal underwriter, and Administrator.
    (ii) When a Fund proxy statement solicits a vote on proposals 
affecting more than one Fund or class of securities of a Fund (unless 
the proposal or proposals are the same and affect all Fund or class 
shareholders), present a summary of all of the proposals in tabular form 
on one of the first three pages of the proxy statement and indicate 
which Fund or class shareholders are solicited with respect to each 
proposal.
    (iii) Unless the proxy statement is accompanied by a copy of the 
Fund's most recent annual report, state prominently in the proxy 
statement that the Fund will furnish, without charge, a copy of the 
annual report and the most recent semi-annual report succeeding the 
annual report, if any, to a shareholder upon request, providing the 
name, address, and toll-free telephone number of the person to whom such 
request shall be directed (or, if no toll-free telephone number is 
provided, a self-addressed postage paid card for requesting the annual 
report). The Fund should provide a copy of the annual report and the 
most recent semi-annual report succeeding the annual report, if any, to 
the requesting shareholder by first class mail, or

[[Page 273]]

other means designed to assure prompt delivery, within three business 
days of the request.
    (iv) If the action to be taken would, directly or indirectly, 
establish a new fee or expense or increase any existing fee or expense 
to be paid by the Fund or its shareholders, provide a table showing the 
current and pro forma fees (with the required examples) using the format 
prescribed in the appropriate registration statement form under the 
Investment Company Act of 1940 (for open-end management investment 
companies, Item 3 of Form N-1A (Sec.239.15A); for closed-end 
management investment companies, Item 3 of Form N-2 (Sec.239.14); and 
for separate accounts that offer variable annuity contracts, Item 3 of 
Form N-3 (Sec.239.17a)).
    Instructions. 1. Where approval is sought only for a change in asset 
breakpoints for a pre-existing fee that would not have increased the fee 
for the previous year (or have the effect of increasing fees or 
expenses, but for any other reason would not be reflected in a pro forma 
fee table), describe the likely effect of the change in lieu of 
providing pro forma fee information.
    2. An action would indirectly establish or increase a fee or expense 
where, for example, the approval of a new investment advisory contract 
would result in higher custodial or transfer agency fees.
    3. The tables should be prepared in a manner designed to facilitate 
understanding of the impact of any change in fees or expenses.
    4. A Fund that offers its shares exclusively to one or more separate 
accounts and thus is not required to include a fee table in its 
prospectus (see Item 3 of Form N-1A (Sec.239.15A)) should nonetheless 
prepare a table showing current and pro forma expenses and disclose that 
the table does not reflect separate account expenses, including sales 
load.
    (v) If action is to be taken with respect to the election of 
directors or the approval of an advisory contract, describe any 
purchases or sales of securities of the investment adviser or its 
Parents, or Subsidiaries of either, since the beginning of the most 
recently completed fiscal year by any director or any nominee for 
election as a director of the Fund.
    Instructions. 1. Identify the parties, state the consideration, the 
terms of payment and describe any arrangement or understanding with 
respect to the composition of the board of directors of the Fund or of 
the investment adviser, or with respect to the selection of appointment 
of any person to any office with either such company.
    2. Transactions involving securities in an amount not exceeding one 
percent of the outstanding securities of any class of the investment 
adviser or any of its Parents or Subsidiaries may be omitted.
    (b) Election of Directors. If action is to be taken with respect to 
the election of directors of a Fund, furnish the following information 
in the proxy statement in addition to, in the case of business 
development companies, the information (and in the format) required by 
Item 7 and Item 8 of this Schedule 14A.

    Instructions to introductory text of paragraph (b). 1. Furnish 
information with respect to a prospective investment adviser to the 
extent applicable.
    2. If the solicitation is made by or on behalf of a person other 
than the Fund or an investment adviser of the Fund, provide information 
only as to nominees of the person making the solicitation.
    3. When providing information about directors and nominees for 
election as directors in response to this Item 22(b), furnish 
information for directors or nominees who are or would be ``interested 
persons'' of the Fund within the meaning of section 2(a)(19) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)) separately from 
the information for directors or nominees who are not or would not be 
interested persons of the Fund. For example, when furnishing information 
in a table, you should provide separate tables (or separate sections of 
a single table) for directors and nominees who are or would be 
interested persons and for directors or nominees who are not or would 
not be interested persons. When furnishing information in narrative 
form, indicate by heading or otherwise the directors or nominees who are 
or would be interested persons and the directors or nominees who are not 
or would not be interested persons.
    4. No information need be given about any director whose term of 
office as a director will not continue after the meeting to which the 
proxy statement relates.
    (1) Provide the information required by the following table for each 
director, nominee for election as director, Officer of the Fund, person 
chosen to become an Officer of the Fund, and, if the Fund has an 
advisory board, member of the board. Explain in a footnote to the table 
any family relationship between the persons listed.

[[Page 274]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                (1)                            (2)                     (3)                    (4)                    (5)                    (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name, Address, and Age.............  Position(s) Held with   Term of Office and      Principal              Number of Portfolios   Other Directorships
                                      Fund.                   Length of Time Served.  Occupation(s) During   in Fund Complex        Held by Director or
                                                                                      Past 5 Years.          Overseen by Director   Nominee for Director
                                                                                                             or Nominee for
                                                                                                             Director.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Instructions to paragraph (b)(1). 1. For purposes of this paragraph, 
the term ``family relationship'' means any relationship by blood, 
marriage, or adoption, not more remote than first cousin.
    2. No nominee or person chosen to become a director or Officer who 
has not consented to act as such may be named in response to this Item. 
In this regard, see Rule 14a-4(d) under the Exchange Act (Sec.240.14a-
4(d)).
    3. If fewer nominees are named than the number fixed by or pursuant 
to the governing instruments, state the reasons for this procedure and 
that the proxies cannot be voted for a greater number of persons than 
the number of nominees named.
    4. For each director or nominee for election as director who is or 
would be an ``interested person'' of the Fund within the meaning of 
section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(19)), describe, in a footnote or otherwise, the relationship, 
events, or transactions by reason of which the director or nominee is or 
would be an interested person.
    5. State the principal business of any company listed under column 
(4) unless the principal business is implicit in its name.
    6. Include in column (5) the total number of separate portfolios 
that a nominee for election as director would oversee if he were 
elected.
    7. Indicate in column (6) directorships not included in column (5) 
that are held by a director or nominee for election as director in any 
company with a class of securities registered pursuant to section 12 of 
the Exchange Act (15 U.S.C. 78l), or subject to the requirements of 
section 15(d) of the Exchange Act (15 U.S.C. 78o(d)), or any company 
registered as an investment company under the Investment Company Act of 
1940, (15 U.S.C. 80a), as amended, and name the companies in which the 
directorships are held. Where the other directorships include 
directorships overseeing two or more portfolios in the same Fund 
Complex, identify the Fund Complex and provide the number of portfolios 
overseen as a director in the Fund Complex rather than listing each 
portfolio separately.

    (2) For each individual listed in column (1) of the table required 
by paragraph (b)(1) of this Item, except for any director or nominee for 
election as director who is not or would not be an ``interested person'' 
of the Fund within the meaning of section 2(a)(19) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), describe any positions, 
including as an officer, employee, director, or general partner, held 
with affiliated persons or principal underwriters of the Fund.

    Instruction to paragraph (b)(2). When an individual holds the same 
position(s) with two or more registered investment companies that are 
part of the same Fund Complex, identify the Fund Complex and provide the 
number of registered investment companies for which the position(s) are 
held rather than listing each registered investment company separately.

    (3)(i) For each director or nominee for election as director, 
briefly discuss the specific experience, qualifications, attributes, or 
skills that led to the conclusion that the person should serve as a 
director for the Fund at the time that the disclosure is made in light 
of the Fund's business and structure. If material, this disclosure 
should cover more than the past five years, including information about 
the person's particular areas of expertise or other relevant 
qualifications.
    (ii) Describe briefly any arrangement or understanding between any 
director, nominee for election as director, Officer, or person chosen to 
become an Officer, and any other person(s) (naming the person(s)) 
pursuant to which he was or is to be selected as a director, nominee, or 
Officer.

    Instruction to paragraph (b)(3)(ii). Do not include arrangements or 
understandings with directors or Officers acting solely in their 
capacities as such.

    (4)(i) Unless disclosed in the table required by paragraph (b)(1) of 
this Item, describe any positions, including as an officer, employee, 
director, or general partner, held by any director or nominee for 
election as director, who is not or would not be an ``interested 
person'' of the Fund within the meaning of section 2(a)(19) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate 
Family Member of the director or nominee, during the past five years, 
with:
    (A) The Fund;
    (B) An investment company, or a person that would be an investment 
company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1) and 
(c)(7)), having

[[Page 275]]

the same investment adviser, principal underwriter, or Sponsoring 
Insurance Company as the Fund or having an investment adviser, principal 
underwriter, or Sponsoring Insurance Company that directly or indirectly 
controls, is controlled by, or is under common control with an 
investment adviser, principal underwriter, or Sponsoring Insurance 
Company of the Fund;
    (C) An investment adviser, principal underwriter, Sponsoring 
Insurance Company, or affiliated person of the Fund; or
    (D) Any person directly or indirectly controlling, controlled by, or 
under common control with an investment adviser, principal underwriter, 
or Sponsoring Insurance Company of the Fund.
    (ii) Unless disclosed in the table required by paragraph (b)(1) of 
this Item or in response to paragraph (b)(4)(i) of this Item, indicate 
any directorships held during the past five years by each director or 
nominee for election as director in any company with a class of 
securities registered pursuant to section 12 of the Exchange Act (15 
U.S.C. 78l) or subject to the requirements of section 15(d) of the 
Exchange Act (15 U.S.C. 78o(d)) or any company registered as an 
investment company under the Investment Company Act of 1940 (15 U.S.C. 
80a-1 et seq.), as amended, and name the companies in which the 
directorships were held.

    Instruction to paragraph (b)(4). When an individual holds the same 
position(s) with two or more portfolios that are part of the same Fund 
Complex, identify the Fund Complex and provide the number of portfolios 
for which the position(s) are held rather than listing each portfolio 
separately.

    (5) For each director or nominee for election as director, state the 
dollar range of equity securities beneficially owned by the director or 
nominee as required by the following table:
    (i) In the Fund; and
    (ii) On an aggregate basis, in any registered investment companies 
overseen or to be overseen by the director or nominee within the same 
Family of Investment Companies as the Fund.

------------------------------------------------------------------------
               (1)                        (2)                 (3)
------------------------------------------------------------------------
Name of Director or Nominee.....  Dollar Range of     Aggregate Dollar
                                   Equity Securities   Range of Equity
                                   in the Fund.        Securities in All
                                                       Funds Overseen or
                                                       to be Overseen by
                                                       Director or
                                                       Nominee in Family
                                                       of Investment
                                                       Companies
------------------------------------------------------------------------


    Instructions to paragraph (b)(5). 1. Information should be provided 
as of the most recent practicable date. Specify the valuation date by 
footnote or otherwise.
    2. Determine ``beneficial ownership'' in accordance with rule 16a-
1(a)(2) under the Exchange Act (Sec.240.16a-1(a)(2)).
    3. If action is to be taken with respect to more than one Fund, 
disclose in column (2) the dollar range of equity securities 
beneficially owned by a director or nominee in each such Fund overseen 
or to be overseen by the director or nominee.
    4. In disclosing the dollar range of equity securities beneficially 
owned by a director or nominee in columns (2) and (3), use the following 
ranges: none, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over 
$100,000.

    (6) For each director or nominee for election as director who is not 
or would not be an ``interested person'' of the Fund within the meaning 
of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(19), and his Immediate Family Members, furnish the information 
required by the following table as to each class of securities owned 
beneficially or of record in:
    (i) An investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund; or
    (ii) A person (other than a registered investment company) directly 
or indirectly controlling, controlled by, or under common control with 
an investment adviser, principal underwriter, or Sponsoring Insurance 
Company of the Fund:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                (1)                            (2)                     (3)                    (4)                    (5)                    (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name of Director or Nominee........  Name of Owners and      Company...............  Title of Class.......  Value of Securities..  Percent of Class
                                      Relationships to
                                      Director or Nominee.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Instructions to paragraph (b)(6). 1. Information should be provided 
as of the most recent practicable date. Specify the valuation date by 
footnote or otherwise.
    2. An individual is a ``beneficial owner'' of a security if he is a 
``beneficial owner'' under either rule 13d-3 or rule 16a-1(a)(2) under 
the Exchange Act (Sec.Sec.240.13d-3 or 240.16a-1(a)(2)).
    3. Identify the company in which the director, nominee, or Immediate 
Family Member of the director or nominee owns securities in

[[Page 276]]

column (3). When the company is a person directly or indirectly 
controlling, controlled by, or under common control with an investment 
adviser, principal underwriter, or Sponsoring Insurance Company, 
describe the company's relationship with the investment adviser, 
principal underwriter, or Sponsoring Insurance Company.
    4. Provide the information required by columns (5) and (6) on an 
aggregate basis for each director (or nominee) and his Immediate Family 
Members.

    (7) Unless disclosed in response to paragraph (b)(6) of this Item, 
describe any direct or indirect interest, the value of which exceeds 
$120,000, of each director or nominee for election as director who is 
not or would not be an ``interested person'' of the Fund within the 
meaning of section 2(a)(19) of the Investment Company Act of 1940 (15 
U.S.C. 80a-2(a)(19)), or Immediate Family Member of the director or 
nominee, during the past five years, in:
    (i) An investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund; or
    (ii) A person (other than a registered investment company) directly 
or indirectly controlling, controlled by, or under common control with 
an investment adviser, principal underwriter, or Sponsoring Insurance 
Company of the Fund.

    Instructions to paragraph (b)(7). 1. A director, nominee, or 
Immediate Family Member has an interest in a company if he is a party to 
a contract, arrangement, or understanding with respect to any securities 
of, or interest in, the company.
    2. The interest of the director (or nominee) and the interests of 
his Immediate Family Members should be aggregated in determining whether 
the value exceeds $120,000.

    (8) Describe briefly any material interest, direct or indirect, of 
any director or nominee for election as director who is not or would not 
be an ``interested person'' of the Fund within the meaning of section 
2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), 
or Immediate Family Member of the director or nominee, in any 
transaction, or series of similar transactions, since the beginning of 
the last two completed fiscal years of the Fund, or in any currently 
proposed transaction, or series of similar transactions, in which the 
amount involved exceeds $120,000 and to which any of the following 
persons was or is to be a party:
    (i) The Fund;
    (ii) An Officer of the Fund;
    (iii) An investment company, or a person that would be an investment 
company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1) and 
(c)(7)), having the same investment adviser, principal underwriter, or 
Sponsoring Insurance Company as the Fund or having an investment 
adviser, principal underwriter, or Sponsoring Insurance Company that 
directly or indirectly controls, is controlled by, or is under common 
control with an investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund;
    (iv) An Officer of an investment company, or a person that would be 
an investment company but for the exclusions provided by sections 
3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 (15 U.S.C. 
80a-3(c)(1) and (c)(7)), having the same investment adviser, principal 
underwriter, or Sponsoring Insurance Company as the Fund or having an 
investment adviser, principal underwriter, or Sponsoring Insurance 
Company that directly or indirectly controls, is controlled by, or is 
under common control with an investment adviser, principal underwriter, 
or Sponsoring Insurance Company of the Fund;
    (v) An investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund;
    (vi) An Officer of an investment adviser, principal underwriter, or 
Sponsoring Insurance Company of the Fund;
    (vii) A person directly or indirectly controlling, controlled by, or 
under common control with an investment adviser, principal underwriter, 
or Sponsoring Insurance Company of the Fund; or
    (viii) An Officer of a person directly or indirectly controlling, 
controlled by, or under common control with an investment adviser, 
principal underwriter, or Sponsoring Insurance Company of the Fund.

    Instructions to paragraph (b)(8). 1. Include the name of each 
director, nominee, or Immediate Family Member whose interest in

[[Page 277]]

any transaction or series of similar transactions is described and the 
nature of the circumstances by reason of which the interest is required 
to be described.
    2. State the nature of the interest, the approximate dollar amount 
involved in the transaction, and, where practicable, the approximate 
dollar amount of the interest.
    3. In computing the amount involved in the transaction or series of 
similar transactions, include all periodic payments in the case of any 
lease or other agreement providing for periodic payments.
    4. Compute the amount of the interest of any director, nominee, or 
Immediate Family Member of the director or nominee without regard to the 
amount of profit or loss involved in the transaction(s).
    5. As to any transaction involving the purchase or sale of assets, 
state the cost of the assets to the purchaser and, if acquired by the 
seller within two years prior to the transaction, the cost to the 
seller. Describe the method used in determining the purchase or sale 
price and the name of the person making the determination.
    6. If the proxy statement relates to multiple portfolios of a series 
Fund with different fiscal years, then, in determining the date that is 
the beginning of the last two completed fiscal years of the Fund, use 
the earliest date of any series covered by the proxy statement.
    7. Disclose indirect, as well as direct, material interests in 
transactions. A person who has a position or relationship with, or 
interest in, a company that engages in a transaction with one of the 
persons listed in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item 
may have an indirect interest in the transaction by reason of the 
position, relationship, or interest. The interest in the transaction, 
however, will not be deemed ``material'' within the meaning of paragraph 
(b)(8) of this Item where the interest of the director, nominee, or 
Immediate Family Member arises solely from the holding of an equity 
interest (including a limited partnership interest, but excluding a 
general partnership interest) or a creditor interest in a company that 
is a party to the transaction with one of the persons specified in 
paragraphs (b)(8)(i) through (b)(8)(viii) of this Item, and the 
transaction is not material to the company.
    8. The materiality of any interest is to be determined on the basis 
of the significance of the information to investors in light of all the 
circumstances of the particular case. The importance of the interest to 
the person having the interest, the relationship of the parties to the 
transaction with each other, and the amount involved in the transaction 
are among the factors to be considered in determining the significance 
of the information to investors.
    9. No information need be given as to any transaction where the 
interest of the director, nominee, or Immediate Family Member arises 
solely from the ownership of securities of a person specified in 
paragraphs (b)(8)(i) through (b)(8)(viii) of this Item and the director, 
nominee, or Immediate Family Member receives no extra or special benefit 
not shared on a pro rata basis by all holders of the class of 
securities.
    10. Transactions include loans, lines of credit, and other 
indebtedness. For indebtedness, indicate the largest aggregate amount of 
indebtedness outstanding at any time during the period, the nature of 
the indebtedness and the transaction in which it was incurred, the 
amount outstanding as of the latest practicable date, and the rate of 
interest paid or charged.
    11. No information need be given as to any routine, retail 
transaction. For example, the Fund need not disclose that a director has 
a credit card, bank or brokerage account, residential mortgage, or 
insurance policy with a person specified in paragraphs (b)(8)(i) through 
(b)(8)(viii) of this Item unless the director is accorded special 
treatment.

    (9) Describe briefly any direct or indirect relationship, in which 
the amount involved exceeds $120,000, of any director or nominee for 
election as director who is not or would not be an ``interested person'' 
of the Fund within the meaning of section 2(a)(19) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate Family Member 
of the director or nominee, that exists, or has existed at any time 
since the beginning of the last two completed fiscal years of the Fund, 
or is currently proposed, with any of the persons specified in 
paragraphs (b)(8)(i) through (b)(8)(viii) of this Item. Relationships 
include:
    (i) Payments for property or services to or from any person 
specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item;
    (ii) Provision of legal services to any person specified in 
paragraphs (b)(8)(i) through (b)(8)(viii) of this Item;
    (iii) Provision of investment banking services to any person 
specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item, 
other than as a participating underwriter in a syndicate; and
    (iv) Any consulting or other relationship that is substantially 
similar in nature and scope to the relationships listed in paragraphs 
(b)(9)(i) through (b)(9)(iii) of this Item.


[[Page 278]]


    Instructions to paragraph (b)(9). 1. Include the name of each 
director, nominee, or Immediate Family Member whose relationship is 
described and the nature of the circumstances by reason of which the 
relationship is required to be described.
    2. State the nature of the relationship and the amount of business 
conducted between the director, nominee, or Immediate Family Member and 
the person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of 
this Item as a result of the relationship since the beginning of the 
last two completed fiscal years of the Fund or proposed to be done 
during the Fund's current fiscal year.
    3. In computing the amount involved in a relationship, include all 
periodic payments in the case of any agreement providing for periodic 
payments.
    4. If the proxy statement relates to multiple portfolios of a series 
Fund with different fiscal years, then, in determining the date that is 
the beginning of the last two completed fiscal years of the Fund, use 
the earliest date of any series covered by the proxy statement.
    5. Disclose indirect, as well as direct, relationships. A person who 
has a position or relationship with, or interest in, a company that has 
a relationship with one of the persons listed in paragraphs (b)(8)(i) 
through (b)(8)(viii) of this Item may have an indirect relationship by 
reason of the position, relationship, or interest.
    6. In determining whether the amount involved in a relationship 
exceeds $120,000, amounts involved in a relationship of the director (or 
nominee) should be aggregated with those of his Immediate Family 
Members.
    7. In the case of an indirect interest, identify the company with 
which a person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of 
this Item has a relationship; the name of the director, nominee, or 
Immediate Family Member affiliated with the company and the nature of 
the affiliation; and the amount of business conducted between the 
company and the person specified in paragraphs (b)(8)(i) through 
(b)(8)(viii) of this Item since the beginning of the last two completed 
fiscal years of the Fund or proposed to be done during the Fund's 
current fiscal year.
    8. In calculating payments for property and services for purposes of 
paragraph (b)(9)(i) of this Item, the following may be excluded:
    A. Payments where the transaction involves the rendering of services 
as a common contract carrier, or public utility, at rates or charges 
fixed in conformity with law or governmental authority; or
    B. Payments that arise solely from the ownership of securities of a 
person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this 
Item and no extra or special benefit not shared on a pro rata basis by 
all holders of the class of securities is received.
    9. No information need be given as to any routine, retail 
relationship. For example, the Fund need not disclose that a director 
has a credit card, bank or brokerage account, residential mortgage, or 
insurance policy with a person specified in paragraphs (b)(8)(i) through 
(b)(8)(viii) of this Item unless the director is accorded special 
treatment.

    (10) If an Officer of an investment adviser, principal underwriter, 
or Sponsoring Insurance Company of the Fund, or an Officer of a person 
directly or indirectly controlling, controlled by, or under common 
control with an investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund, serves, or has served since the beginning 
of the last two completed fiscal years of the Fund, on the board of 
directors of a company where a director of the Fund or nominee for 
election as director who is not or would not be an ``interested person'' 
of the Fund within the meaning of section 2(a)(19) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate Family Member 
of the director or nominee, is, or was since the beginning of the last 
two completed fiscal years of the Fund, an Officer, identify:
    (i) The company;
    (ii) The individual who serves or has served as a director of the 
company and the period of service as director;
    (iii)The investment adviser, principal underwriter, or Sponsoring 
Insurance Company or person controlling, controlled by, or under common 
control with the investment adviser, principal underwriter, or 
Sponsoring Insurance Company where the individual named in paragraph 
(b)(10)(ii) of this Item holds or held office and the office held; and
    (iv) The director of the Fund, nominee for election as director, or 
Immediate Family Member who is or was an Officer of the company; the 
office held; and the period of holding the office.

    Instruction to paragraph (b)(10). If the proxy statement relates to 
multiple portfolios of a series Fund with different fiscal years, then, 
in determining the date that is the beginning of the last two completed 
fiscal years of the Fund, use the earliest date of any series covered by 
the proxy statement.


[[Page 279]]


    (11) Provide in tabular form, to the extent practicable, the 
information required by Items 401(f) and (g), 404(a), 405, and 407(h) of 
Regulation S-K (Sec.Sec.229.401(f) and (g), 229.404(a), 229.405, and 
229.407(h) of this chapter).

    Instruction to paragraph (b)(11). Information provided under 
paragraph (b)(8) of this Item 22 is deemed to satisfy the requirements 
of Item 404(a) of Regulation S-K for information about directors, 
nominees for election as directors, and Immediate Family Members of 
directors and nominees, and need not be provided under this paragraph 
(b)(11).

    (12) Describe briefly any material pending legal proceedings, other 
than ordinary routine litigation incidental to the Fund's business, to 
which any director or nominee for director or affiliated person of such 
director or nominee is a party adverse to the Fund or any of its 
affiliated persons or has a material interest adverse to the Fund or any 
of its affiliated persons. Include the name of the court where the case 
is pending, the date instituted, the principal parties, a description of 
the factual basis alleged to underlie the proceeding, and the relief 
sought.
    (13) In the case of a Fund that is an investment company registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a), for all 
directors, and for each of the three highest-paid Officers that have 
aggregate compensation from the Fund for the most recently completed 
fiscal year in excess of $60,000 (``Compensated Persons''):
    (i) Furnish the information required by the following table for the 
last fiscal year:

                                               Compensation Table
----------------------------------------------------------------------------------------------------------------
               (1)                        (2)                 (3)                 (4)                 (5)
----------------------------------------------------------------------------------------------------------------
Name of Person, Position........  Aggregate           Pension or          Estimated Annual    Total Compensation
                                   Compensation From   Retirement          Benefits Upon       From Fund and
                                   Fund.               Benefits Accrued    Retirement.         Complex Paid to
                                                       as Part of Fund                         Directors
                                                       Expenses.
----------------------------------------------------------------------------------------------------------------

    Instructions to paragraph (b)(13)(i). 1. For column (1), indicate, 
if necessary, the capacity in which the remuneration is received. For 
Compensated Persons that are directors of the Fund, compensation is 
amounts received for service as a director.
    2. If the Fund has not completed its first full year since its 
organization, furnish the information for the current fiscal year, 
estimating future payments that would be made pursuant to an existing 
agreement or understanding. Disclose in a footnote to the Compensation 
Table the period for which the information is furnished.
    3. Include in column (2) amounts deferred at the election of the 
Compensated Person, whether pursuant to a plan established under Section 
401(k) of the Internal Revenue Code (26 U.S.C. 401(k)) or otherwise, for 
the fiscal year in which earned. Disclose in a footnote to the 
Compensation Table the total amount of deferred compensation (including 
interest) payable to or accrued for any Compensated Person.
    4. Include in columns (3) and (4) all pension or retirement benefits 
proposed to be paid under any existing plan in the event of retirement 
at normal retirement date, directly or indirectly, by the Fund or any of 
its Subsidiaries, or by other companies in the Fund Complex. Omit column 
(4) where retirement benefits are not determinable.
    5. For any defined benefit or actuarial plan under which benefits 
are determined primarily by final compensation (or average final 
compensation) and years of service, provide the information required in 
column (4) in a separate table showing estimated annual benefits payable 
upon retirement (including amounts attributable to any defined benefit 
supplementary or excess pension award plans) in specified compensation 
and years of service classifications. Also provide the estimated 
credited years of service for each Compensated Person.
    6. Include in column (5) only aggregate compensation paid to a 
director for service on the board and other boards of investment 
companies in a Fund Complex specifying the number of such other 
investment companies.

    (ii) Describe briefly the material provisions of any pension, 
retirement, or other plan or any arrangement other than fee arrangements 
disclosed in paragraph (b)(13)(i) of this Item pursuant to which 
Compensated Persons are or may be compensated for any services provided, 
including amounts paid, if any, to the Compensated Person under any such 
arrangements during the most recently completed fiscal year. 
Specifically include the criteria

[[Page 280]]

used to determine amounts payable under any plan, the length of service 
or vesting period required by the plan, the retirement age or other 
event that gives rise to payments under the plan, and whether the 
payment of benefits is secured or funded by the Fund.
    (14) State whether or not the Fund has a separately designated audit 
committee established in accordance with section 3(a)(58)(A) of the Act 
(15 U.S.C. 78c(a)(58)(A)). If the entire board of directors is acting as 
the Fund's audit committee as specified in section 3(a)(58)(B) of the 
Act (15 U.S.C. 78c(a)(58)(B)), so state. If applicable, provide the 
disclosure required by Sec.240.10A-3(d) regarding an exemption from 
the listing standards for audit committees. Identify the other standing 
committees of the Fund's board of directors, and provide the following 
information about each committee, including any separately designated 
audit committee and any nominating committee:
    (i) A concise statement of the functions of the committee;
    (ii) The members of the committee and, in the case of a nominating 
committee, whether or not the members of the committee are ``interested 
persons'' of the Fund as defined in section 2(a)(19) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)); and
    (iii) The number of committee meetings held during the last fiscal 
year.

    Instruction to paragraph (b)(14): For purposes of Item 22(b)(14), 
the term ``nominating committee'' refers not only to nominating 
committees and committees performing similar functions, but also to 
groups of directors fulfilling the role of a nominating committee, 
including the entire board of directors.

    (15)(i) Provide the information (and in the format) required by 
Items 407(b)(1), (b)(2) and (f) of Regulation S-K (Sec.229.407(b)(1), 
(b)(2) and (f) of this chapter); and
    (ii) Provide the following regarding the requirements for the 
director nomination process:
    (A) The information (and in the format) required by Items 407(c)(1) 
and (c)(2) of Regulation S-K (Sec.229.407(c)(1) and (c)(2) of this 
chapter); and
    (B) If the Fund is a listed issuer (as defined in Sec.240.10A-3 of 
this chapter) whose securities are listed on a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a)) or in an automated inter-dealer quotation system of a national 
securities association registered pursuant to section 15A of the Act (15 
U.S.C. 78o-3(a)) that has independence requirements for nominating 
committee members, identify each director that is a member of the 
nominating committee that is not independent under the independence 
standards described in this paragraph. In determining whether the 
nominating committee members are independent, use the Fund's definition 
of independence that it uses for determining if the members of the 
nominating committee are independent in compliance with the independence 
standards applicable for the members of the nominating committee in the 
listing standards applicable to the Fund. If the Fund does not have 
independence standards for the nominating committee, use the 
independence standards for the nominating committee in the listing 
standards applicable to the Fund.

    Instruction to paragraph (b)(15)(ii)(B). If the national securities 
exchange or inter-dealer quotation system on which the Fund's securities 
are listed has exemptions to the independence requirements for 
nominating committee members upon which the Fund relied, disclose the 
exemption relied upon and explain the basis for the Fund's conclusion 
that such exemption is applicable.

    (16) In the case of a Fund that is a closed-end investment company:
    (i) Provide the information (and in the format) required by Item 
407(d)(1), (d)(2) and (d)(3) of Regulation S-K (Sec.229.407(d)(1), 
(d)(2) and (d)(3) of this chapter); and
    (ii) Identify each director that is a member of the Fund's audit 
committee that is not independent under the independence standards 
described in this paragraph. If the Fund does not have a separately 
designated audit committee, or committee performing similar functions, 
the Fund must provide the disclosure with respect to all members of its 
board of directors.
    (A) If the Fund is a listed issuer (as defined in Sec.240.10A-3 of 
this chapter) whose securities are listed on a national securities 
exchange registered

[[Page 281]]

pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or in an 
automated inter-dealer quotation system of a national securities 
association registered pursuant to section 15A of the Act (15 U.S.C. 
78o-3(a)) that has independence requirements for audit committee 
members, in determining whether the audit committee members are 
independent, use the Fund's definition of independence that it uses for 
determining if the members of the audit committee are independent in 
compliance with the independence standards applicable for the members of 
the audit committee in the listing standards applicable to the Fund. If 
the Fund does not have independence standards for the audit committee, 
use the independence standards for the audit committee in the listing 
standards applicable to the Fund.
    (B) If the Fund is not a listed issuer whose securities are listed 
on a national securities exchange registered pursuant to section 6(a) of 
the Act (15 U.S.C. 78f(a)) or in an automated inter-dealer quotation 
system of a national securities association registered pursuant to 
section 15A of the Act (15 U.S.C. 78o-3(a)), in determining whether the 
audit committee members are independent, use a definition of 
independence of a national securities exchange registered pursuant to 
section 6(a) of the Act (15 U.S.C. 78f(a)) or an automated inter-dealer 
quotation system of a national securities association registered 
pursuant to section 15A of the Act (15 U.S.C. 780-3(a)) which has 
requirements that a majority of the board of directors be independent 
and that has been approved by the Commission, and state which definition 
is used. Whatever such definition the Fund chooses, it must use the same 
definition with respect to all directors and nominees for director. If 
the national securities exchange or national securities association 
whose standards are used has independence standards for the members of 
the audit committee, use those specific standards.

    Instruction to paragraph (b)(16)(ii). If the national securities 
exchange or inter-dealer quotation system on which the Fund's securities 
are listed has exemptions to the independence requirements for 
nominating committee members upon which the Fund relied, disclose the 
exemption relied upon and explain the basis for the Fund's conclusion 
that such exemption is applicable. The same disclosure should be 
provided if the Fund is not a listed issuer and the national securities 
exchange or inter-dealer quotation system selected by the Fund has 
exemptions that are applicable to the Fund.

    (17) In the case of a Fund that is an investment company registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a), if a director 
has resigned or declined to stand for re-election to the board of 
directors since the date of the last annual meeting of security holders 
because of a disagreement with the registrant on any matter relating to 
the registrant's operations, policies or practices, and if the director 
has furnished the registrant with a letter describing such disagreement 
and requesting that the matter be disclosed, the registrant shall state 
the date of resignation or declination to stand for re-election and 
summarize the director's description of the disagreement. If the 
registrant believes that the description provided by the director is 
incorrect or incomplete, it may include a brief statement presenting its 
view of the disagreement.
    (18) If a shareholder nominee or nominees are submitted to the Fund 
for inclusion in the Fund's proxy materials pursuant to Sec.240.14a-11 
and the Fund is not permitted to exclude the nominee or nominees 
pursuant to the provisions of Sec.240.14a-11, the Fund must include in 
its proxy statement the disclosure required from the nominating 
shareholder or nominating shareholder group under Item 5 of Sec.
240.14n-101 with regard to the nominee or nominees and the nominating 
shareholder or nominating shareholder group.

    Instruction to paragraph (b)(18). The information disclosed pursuant 
to paragraph (b)(18) of this Item will not be deemed incorporated by 
reference into any filing under the Securities Act of 1933 (15 U.S.C. 
77a et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.), or the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), 
except to the extent that the Fund specifically incorporates that 
information by reference.

    (19) If a Fund is required to include a shareholder nominee or 
nominees submitted to the Fund for inclusion in the Fund's proxy 
materials pursuant to a procedure set forth under applicable

[[Page 282]]

state or foreign law or the Fund's governing documents providing for the 
inclusion of shareholder director nominees in the Fund's proxy 
materials, the Fund must include in its proxy statement the disclosure 
required from the nominating shareholder or nominating shareholder group 
under Item 6 of Sec.240.14n-101 with regard to the nominee or nominees 
and the nominating shareholder or nominating shareholder group.

    Instruction to paragraph (b)(19). The information disclosed pursuant 
to paragraph (b)(19) of this Item will not be deemed incorporated by 
reference into any filing under the Securities Act of 1933 (15 U.S.C. 
77a et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.), or the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), 
except to the extent that the Fund specifically incorporates that 
information by reference.

    (c) Approval of investment advisory contract. If action is to be 
taken with respect to an investment advisory contract, include the 
following information in the proxy statement.
    Instruction. Furnish information with respect to a prospective 
investment adviser to the extent applicable (including the name and 
address of the prospective investment adviser).
    (1) With respect to the existing investment advisory contract:
    (i) State the date of the contract and the date on which it was last 
submitted to a vote of security holders of the Fund, including the 
purpose of such submission;
    (ii) Briefly describe the terms of the contract, including the rate 
of compensation of the investment adviser;
    (iii) State the aggregate amount of the investment adviser's fee and 
the amount and purpose of any other material payments by the Fund to the 
investment adviser, or any affiliated person of the investment adviser, 
during the last fiscal year of the Fund;
    (iv) If any person is acting as an investment adviser of the Fund 
other than pursuant to a written contract that has been approved by the 
security holders of the company, identify the person and describe the 
nature of the services and arrangements;
    (v) Describe any action taken with respect to the investment 
advisory contract since the beginning of the Fund's last fiscal year by 
the board of directors of the Fund (unless described in response to 
paragraph (c)(1)(vi)) of this Item 22); and
    (vi) If an investment advisory contract was terminated or not 
renewed for any reason, state the date of such termination or non-
renewal, identify the parties involved, and describe the circumstances 
of such termination or non-renewal.
    (2) State the name, address and principal occupation of the 
principal executive officer and each director or general partner of the 
investment adviser.
    Instruction. If the investment adviser is a partnership with more 
than ten general partners, name:
    (i) The general partners with the five largest economic interests in 
the partnership, and, if different, those general partners comprising 
the management or executive committee of the partnership or exercising 
similar authority;
    (ii) The general partners with significant management 
responsibilities relating to the fund.
    (3) State the names and addresses of all Parents of the investment 
adviser and show the basis of control of the investment adviser and each 
Parent by its immediate Parent.
    Instructions. 1. If any person named is a corporation, include the 
percentage of its voting securities owned by its immediate Parent.
    2. If any person named is a partnership, name the general partners 
having the three largest partnership interests (computed by whatever 
method is appropriate in the particular case).
    (4) If the investment adviser is a corporation and if, to the 
knowledge of the persons making the solicitation or the persons on whose 
behalf the solicitation is made, any person not named in answer to 
paragraph (c)(3) of this Item 22 owns, of record or beneficially, ten 
percent or more of the outstanding voting securities of the investment 
adviser, indicate that fact and state the name and address of each such 
person.
    (5) Name each officer or director of the Fund who is an officer, 
employee, director, general partner or shareholder of the investment 
adviser. As to any officer or director who is not a director or general 
partner of the investment adviser and who owns securities

[[Page 283]]

or has any other material direct or indirect interest in the investment 
adviser or any other person controlling, controlled by or under common 
control with the investment adviser, describe the nature of such 
interest.
    (6) Describe briefly and state the approximate amount of, where 
practicable, any material interest, direct or indirect, of any director 
of the Fund in any material transactions since the beginning of the most 
recently completed fiscal year, or in any material proposed 
transactions, to which the investment adviser of the Fund, any Parent or 
Subsidiary of the investment adviser (other than another Fund), or any 
Subsidiary of the Parent of such entities was or is to be a party.
    Instructions. 1. Include the name of each person whose interest in 
any transaction is described and the nature of the relationship by 
reason of which such interest is required to be described. Where it is 
not practicable to state the approximate amount of the interest, 
indicate the approximate amount involved in the transaction.
    2. As to any transaction involving the purchase or sale of assets by 
or to the investment adviser, state the cost of the assets to the 
purchaser and the cost thereof to the seller if acquired by the seller 
within two years prior to the transaction.
    3. If the interest of any person arises from the position of the 
person as a partner in a partnership, the proportionate interest of such 
person in transactions to which the partnership is a party need not be 
set forth, but state the amount involved in the transaction with the 
partnership.
    4. No information need be given in response to this paragraph (c)(6) 
of Item 22 with respect to any transaction that is not related to the 
business or operations of the Fund and to which neither the Fund nor any 
of its Parents or Subsidiaries is a party.
    (7) Disclose any financial condition of the investment adviser that 
is reasonably likely to impair the financial ability of the adviser to 
fulfill its commitment to the fund under the proposed investment 
advisory contract.
    (8) Describe the nature of the action to be taken on the investment 
advisory contract and the reasons therefor, the terms of the contract to 
be acted upon, and, if the action is an amendment to, or a replacement 
of, an investment advisory contract, the material differences between 
the current and proposed contract.
    (9) If a change in the investment advisory fee is sought, state:
    (i) The aggregate amount of the investment adviser's fee during the 
last year;
    (ii) The amount that the adviser would have received had the 
proposed fee been in effect; and
    (iii) The difference between the aggregate amounts stated in 
response to paragraphs (i) and (ii) of this item (c)(9) as a percentage 
of the amount stated in response to paragraph (i) of this item (c)(9).
    (10) If the investment adviser acts as such with respect to any 
other Fund having a similar investment objective, identify and state the 
size of such other Fund and the rate of the investment adviser's 
compensation. Also indicate for any Fund identified whether the 
investment adviser has waived, reduced, or otherwise agreed to reduce 
its compensation under any applicable contract.
    Instruction. Furnish the information in response to this paragraph 
(c)(10) of Item 22 in tabular form.
    (11) Discuss in reasonable detail the material factors and the 
conclusions with respect thereto that form the basis for the 
recommendation of the board of directors that the shareholders approve 
an investment advisory contract. Include the following in the 
discussion:
    (i) Factors relating to both the board's selection of the investment 
adviser and approval of the advisory fee and any other amounts to be 
paid by the Fund under the contract. This would include, but not be 
limited to, a discussion of the nature, extent, and quality of the 
services to be provided by the investment adviser; the investment 
performance of the Fund and the investment adviser; the costs of the 
services to be provided and profits to be realized by the investment 
adviser and its affiliates from the relationship with the Fund; the 
extent to which economies of scale would be realized as the Fund grows; 
and whether fee levels

[[Page 284]]

reflect these economies of scale for the benefit of Fund investors. Also 
indicate in the discussion whether the board relied upon comparisons of 
the services to be rendered and the amounts to be paid under the 
contract with those under other investment advisory contracts, such as 
contracts of the same and other investment advisers with other 
registered investment companies or other types of clients (e.g., pension 
funds and other institutional investors). If the board relied upon such 
comparisons, describe the comparisons that were relied on and how they 
assisted the board in determining to recommend that the shareholders 
approve the advisory contract; and
    (ii) If applicable, any benefits derived or to be derived by the 
investment adviser from the relationship with the Fund such as soft 
dollar arrangements by which brokers provide research to the Fund or its 
investment adviser in return for allocating Fund brokerage.
    Instructions. 1. Conclusory statements or a list of factors will not 
be considered sufficient disclosure. Relate the factors to the specific 
circumstances of the Fund and the investment advisory contract for which 
approval is sought and state how the board evaluated each factor. For 
example, it is not sufficient to state that the board considered the 
amount of the investment advisory fee without stating what the board 
concluded about the amount of the fee and how that affected its 
determination to recommend approval of the contract.
    2. If any factor enumerated in paragraph (c)(11)(i) of this Item 22 
is not relevant to the board's evaluation of the investment advisory 
contract for which approval is sought, note this and explain the reasons 
why that factor is not relevant.
    (12) Describe any arrangement or understanding made in connection 
with the proposed investment advisory contract with respect to the 
composition of the board of directors of the Fund or the investment 
adviser or with respect to the selection or appointment of any person to 
any office with either such company.
    (13) For the most recently completed fiscal year, state:
    (i) The aggregate amount of commissions paid to any Affiliated 
Broker; and
    (ii) The percentage of the Fund's aggregate brokerage commissions 
paid to any such Affiliated Broker.
    Instruction. Identify each Affiliated Broker and the relationships 
that cause the broker to be an Affiliated Broker.
    (14) Disclose the amount of any fees paid by the Fund to the 
investment adviser, its affiliated persons or any affiliated person of 
such person during the most recent fiscal year for services provided to 
the Fund (other than under the investment advisory contract or for 
brokerage commissions). State whether these services will continue to be 
provided after the investment advisory contract is approved.
    (d) Approval of distribution plan. If action is to be taken with 
respect to a Distribution Plan, include the following information in the 
proxy statement.
    Instruction. Furnish information on a prospective basis to the 
extent applicable.
    (1) Describe the nature of the action to be taken on the 
Distribution Plan and the reason therefor, the terms of the Distribution 
Plan to be acted upon, and, if the action is an amendment to, or a 
replacement of, a Distribution Plan, the material differences between 
the current and proposed Distribution Plan.
    (2) If the Fund has a Distribution Plan in effect:
    (i) Provide the date that the Distribution Plan was adopted and the 
date of the last amendment, if any;
    (ii) Disclose the persons to whom payments may be made under the 
Distribution Plan, the rate of the distribution fee and the purposes for 
which such fee may be used;
    (iii) Disclose the amount of distribution fees paid by the Fund 
pursuant to the plan during its most recent fiscal year, both in the 
aggregate and as a percentage of the Fund's average net assets during 
the period;
    (iv) Disclose the name of, and the amount of any payments made under 
the Distribution Plan by the Fund during its most recent fiscal year to, 
any person who is an affiliated person of the Fund, its investment 
adviser, principal underwriter, or Administrator, an affiliated person 
of such person, or a

[[Page 285]]

person that during the most recent fiscal year received 10% or more of 
the aggregate amount paid under the Distribution Plan by the Fund;
    (v) Describe any action taken with respect to the Distribution Plan 
since the beginning of the Fund's most recent fiscal year by the board 
of directors of the Fund; and
    (vi) If a Distribution Plan was or is to be terminated or not 
renewed for any reason, state the date or prospective date of such 
termination or non-renewal, identify the parties involved, and describe 
the circumstances of such termination or non-renewal.
    (3) Describe briefly and state the approximate amount of, where 
practicable, any material interest, direct or indirect, of any director 
or nominee for election as a director of the Fund in any material 
transactions since the beginning of the most recently completed fiscal 
year, or in any material proposed transactions, to which any person 
identified in response to Item 22(d)(2)(iv) was or is to be a party.
    Instructions. 1. Include the name of each person whose interest in 
any transaction is described and the nature of the relationship by 
reason of which such interest is required to be described. Where it is 
not practicable to state the approximate amount of the interest, 
indicate the approximate amount involved in the transaction.
    2. As to any transaction involving the purchase or sale of assets, 
state the cost of the assets to the purchaser and the cost thereof to 
the seller if acquired by the seller within two years prior to the 
transaction.
    3. If the interest of any person arises from the position of the 
person as a partner in a partnership, the proportionate interest of such 
person in transactions to which the partnership is a party need not be 
set forth but state the amount involved in the transaction with the 
partnership.
    4. No information need be given in response to this paragraph (d)(3) 
of Item 22 with respect to any transaction that is not related to the 
business or operations of the Fund and to which neither the Fund nor any 
of its Parents or Subsidiaries is a party.
    (4) Discuss in reasonable detail the material factors and the 
conclusions with respect thereto which form the basis for the conclusion 
of the board of directors that there is a reasonable likelihood that the 
proposed Distribution Plan (or amendment thereto) will benefit the Fund 
and its shareholders.
    Instruction. Conclusory statements or a list of factors will not be 
considered sufficient disclosure.
    Item 23. Delivery of documents to security holders sharing an 
address. If one annual report to security holders, proxy statement, or 
Notice of Internet Availability of Proxy Materials is being delivered to 
two or more security holders who share an address in accordance with 
Sec.240.14a-3(e)(1), furnish the following information:
    (a) State that only one annual report to security holders, proxy 
statement, or Notice of Internet Availability of Proxy Materials, as 
applicable, is being delivered to multiple security holders sharing an 
address unless the registrant has received contrary instructions from 
one or more of the security holders;
    (b) Undertake to deliver promptly upon written or oral request a 
separate copy of the annual report to security holders, proxy statement, 
or Notice of Internet Availability of Proxy Materials, as applicable, to 
a security holder at a shared address to which a single copy of the 
documents was delivered and provide instructions as to how a security 
holder can notify the registrant that the security holder wishes to 
receive a separate copy of an annual report to security holders, proxy 
statement, or Notice of Internet Availability of Proxy Materials, as 
applicable;
    (c) Provide the phone number and mailing address to which a security 
holder can direct a notification to the registrant that the security 
holder wishes to receive a separate annual report to security holders, 
proxy statement, or Notice of Internet Availability of Proxy Materials, 
as applicable, in the future; and
    (d) Provide instructions how security holders sharing an address can 
request delivery of a single copy of annual reports to security holders, 
proxy statements, or Notices of Internet Availability of Proxy Materials 
if they are

[[Page 286]]

receiving multiple copies of annual reports to security holders, proxy 
statements, or Notices of Internet Availability of Proxy Materials.
    Item 24. Shareholder Approval of Executive Compensation. Registrants 
required to provide any of the separate shareholder votes pursuant to 
Sec.240.14a-21 of this chapter shall disclose that they are providing 
each such vote as required pursuant to section 14A of the Securities 
Exchange Act (15 U.S.C. 78n-1), briefly explain the general effect of 
each vote, such as whether each such vote is non-binding, and, when 
applicable, disclose the current frequency of shareholder advisory votes 
on executive compensation required by Rule 14a-21(a) and when the next 
such shareholder advisory vote will occur.
    Item 25. Exhibits. Provide the legal opinion required to be filed by 
Item 402(u)(4)(i) of Regulation S-K (17 CFR 229.402(u)) in an exhibit to 
this Schedule 14A.

[51 FR 42063, Nov. 20, 1986; 51 FR 45576, Dec. 19, 1986]

    Editorial Note: For Federal Register citations affecting Sec.
240.14a-101, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.240.14a-102  [Reserved]



Sec.240.14a-103  Notice of Exempt Solicitation. Information to be 
included in statements submitted by or on behalf of a person pursuant
to Sec.240.14a-6(g).

      U.S. Securities and Exchange Commission Washington, DC 20549

                      Notice of Exempt Solicitation

1. Name of the Registrant:
________________________________________________________________________
2. Name of person relying on exemption:
________________________________________________________________________
3. Address of person relying on exemption:
________________________________________________________________________
4. Written materials. Attach written material required to be submitted 
          pursuant to Rule 14a-6(g)(1) [Sec.240.14a-6(g)(1)].

[57 FR 48294, Oct. 22, 1992]



Sec.240.14a-104  Notice of Exempt Preliminary Roll-up Communication. 
Information regarding ownership interests and any potential conflicts
of interest to be included in statements submitted by or on behalf 
of a person pursuant to Sec.240.14a-2(b)(4) and Sec.240.14a-6(n)
          
          .

 United States Securities and Exchange Commission Washington, D.C. 20549

           Notice of Exempt Preliminary Roll-Up Communication

1. Name of registrant appearing on Securities Act of 1933 registration 
          statement for the roll-up transaction (or, if registration 
          statement has not been filed, name of entity into which 
          partnerships are to be rolled up):
________________________________________________________________________
2. Name of partnership that is the subject of the proposed roll-up 
          transaction:
________________________________________________________________________
3. Name of person relying on exemption:
________________________________________________________________________
4. Address of person relying on exemption:
________________________________________________________________________
5. Ownership interest of security holder in partnership that is the 
          subject of the proposed roll-up transaction:
________________________________________________________________________
________________________________________________________________________

    Note: To the extent that the holder owns securities in any other 
entities involved in this roll-up transaction, disclosure of these 
interests also should be made.

6. Describe any and all relations of the holder to the parties to the 
          transaction or to the transaction itself:
a. The holder is engaged in the business of buying and selling limited 
          partnership interests in the secondary market would be 
          adversely affected if the roll-up transaction were completed.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
b. The holder would suffer direct (or indirect) material financial 
          injury if the roll-up transaction were completed since it is a 
          service provider to an affected limited partnership.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
c. The holder is engaged in another transaction that may be competitive 
          with the pending roll-up transaction.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
d. Any other relations to the parties involved in the transaction or to 
          the transaction itself, or any benefits enjoyed by the holder 
          not shared on a pro rata basis

[[Page 287]]

          by all other holders of the same class of securities of the 
          partnership that is the subject of the proposed roll-up 
          transaction.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[59 FR 63685, Dec. 8, 1994]



Sec.240.14b-1  Obligation of registered brokers and dealers in  
connection with the prompt forwarding of certain communications
to beneficial owners.

    (a) Definitions. Unless the context otherwise requires, all terms 
used in this section shall have the same meanings as in the Act and, 
with respect to proxy soliciting material, as in Sec.240.14a-1 
thereunder and, with respect to information statements, as in Sec.
240.14c-1 thereunder. In addition, as used in this section, the term 
``registrant'' means:
    (1) The issuer of a class of securities registered pursuant to 
section 12 of the Act; or
    (2) An investment company registered under the Investment Company 
Act of 1940.
    (b) Dissemination and beneficial owner information requirements. A 
broker or dealer registered under Section 15 of the Act shall comply 
with the following requirements for disseminating certain communications 
to beneficial owners and providing beneficial owner information to 
registrants.
    (1) The broker or dealer shall respond, by first class mail or other 
equally prompt means, directly to the registrant no later than seven 
business days after the date it receives an inquiry made in accordance 
with Sec.240.14a-13(a) or Sec.240.14c-7(a) by indicting, by means of 
a search card or otherwise:
    (i) The approximate number of customers of the broker or dealer who 
are beneficial owners of the registrant's securities that are held of 
record by the broker, dealer, or its nominee;
    (ii) The number of customers of the broker or dealer who are 
beneficial owners of the registrant's securities who have objected to 
disclosure of their names, addresses,and securities positions if the 
registrant has indicated, pursuant to Sec.240.14a-13(a)(1)(ii)(A) or 
Sec.240.14c-7(a)(1)(ii)(A), that it will distribute the annual report 
to security holders to beneficial owners of its securities whose names, 
addresses and securities positions are disclosed pursuant to paragraph 
(b)(3) of this section; and
    (iii) The identity of the designated agent of the broker or dealer, 
if any, acting on its behalf in fulfilling its obligations under 
paragraph (b)(3) of this section; Provided, however, that if the broker 
or dealer has informed the registrant that a designated office(s) or 
department(s) is to receive such inquiries, receipt for purposes of 
paragraph (b)(1) of this section shall mean receipt by such designated 
office(s) or department(s).
    (2) The broker or dealer shall, upon receipt of the proxy, other 
proxy soliciting material, information statement, and/or annual report 
to security holders from the registrant or other soliciting person, 
forward such materials to its customers who are beneficial owners of the 
registrant's securities no later than five business days after receipt 
of the proxy material, information statement or annual report to 
security holders.

    Note to paragraph (b)(2): At the request of a registrant, or on its 
own initiative so long as the registrant does not object, a broker or 
dealer may, but is not required to, deliver one annual report to 
security holders, proxy statement, information statement, or Notice of 
Internet Availability of Proxy Materials to more than one beneficial 
owner sharing an address if the requirements set forth in Sec.240.14a-
3(e)(1) (with respect to annual reports to security holders, proxy 
statements, and Notices of Internet Availability of Proxy Materials) and 
Sec.240.14c-3(c) (with respect to annual reports to security holders, 
information statements, and Notices of Internet Availability of Proxy 
Materials) applicable to registrants, with the exception of Sec.
240.14a-3(e)(1)(i)(E), are satisfied instead by the broker or dealer.

    (3) The broker or dealer shall, through its agent or directly:
    (i) Provide the registrant, upon the registrant's request, with the 
names, addresses, and securities positions, compiled as of a date 
specified in the registrant's request which is no earlier than five 
business days after the date the registrant's request is received, of 
its customers who are beneficial owners of the registrant's securities 
and

[[Page 288]]

who have not objected to disclosure of such information; Provided , 
however, that if the broker or dealer has informed the registrant that a 
designated office(s) or department(s) is to receive such requests, 
receipt shall mean receipt by such designated office(s) or 
department(s); and
    (ii) Transmit the data specified in paragraph (b)(3)(i) of this 
section to the registrant no later than five business days after the 
record date or other date specified by the registrant.

    Note 1: Where a broker or dealer employs a designated agent to act 
on its behalf in performing the obligations imposed on the broker or 
dealer by paragraph (b)(3) of this section, the five business day time 
period for determining the date as of which the beneficial owner 
information is to be compiled is calculated from the date the designated 
agent receives the registrant's request. In complying with the 
registrant's request for beneficial owner information under paragraph 
(b)(3) of this section, a broker or dealer need only supply the 
registrant with the names, addresses, and securities positions of non-
objecting beneficial owners.
    Note 2: If a broker or dealer receives a registrant's request less 
than five business days before the requested compilation date, it must 
provide a list compiled as of a date that is no more than five business 
days after receipt and transmit the list within five business days after 
the compilation date.

    (c) Exceptions to dissemination and beneficial owner information 
requirements. A broker or dealer registered under section 15 of the Act 
shall be subject to the following with respect to its dissemination and 
beneficial owner information requirements.
    (1) With regard to beneficial owners of exempt employee benefit plan 
securities, the broker or dealer shall:
    (i) Not include information in its response pursuant to paragraph 
(b)(1) of this section or forward proxies (or in lieu thereof requests 
for voting instructions), proxy soliciting material, information 
statements, or annual reports to security holders pursuant to paragraph 
(b)(2) of this section to such beneficial owners; and
    (ii) Not include in its response, pursuant to paragraph (b)(3) of 
this section, data concerning such beneficial owners.
    (2) A broker or dealer need not satisfy:
    (i) Its obligations under paragraphs (b)(2), (b)(3) and (d) of this 
section if the registrant or other soliciting person, as applicable, 
does not provide assurance of reimbursement of the broker's or dealer's 
reasonable expenses, both direct and indirect, incurred in connection 
with performing the obligations imposed by paragraphs (b)(2), (b)(3) and 
(d) of this section; or
    (ii) Its obligation under paragraph (b)(2) of this section to 
forward annual reports to security holders to non-objecting beneficial 
owners identified by the broker or dealer, through its agent or 
directly, pursuant to paragraph (b)(3) of this section if the registrant 
notifies the broker or dealer pursuant to Sec.240.14a-13(c) or Sec.
240.14c-7(c) that the registrant will send the annual report to security 
holders to such non-objecting beneficial owners identified by the broker 
or dealer and delivered in a list to the registrant pursuant to 
paragraph (b)(3) of this section.
    (3) In its response pursuant to paragraph (b)(1) of this section, a 
broker or dealer shall not include information about annual reports to 
security holders, proxy statements or information statements that will 
not be delivered to security holders sharing an address because of the 
broker or dealer's reliance on the procedures referred to in the Note to 
paragraph (b)(2) of this section.
    (d) Upon receipt from the soliciting person of all of the 
information listed in Sec.240.14a-16(d), the broker or dealer shall:
    (1) Prepare and send a Notice of Internet Availability of Proxy 
Materials containing the information required in paragraph (e) of this 
section to beneficial owners no later than:
    (i) With respect to a registrant, 40 calendar days prior to the 
security holder meeting date or, if no meeting is to be held, 40 
calendar days prior to the date the votes, consents, or authorizations 
may be used to effect the corporate action; and
    (ii) With respect to a soliciting person other than the registrant, 
the later of:
    (A) 40 calendar days prior to the security holder meeting date or, 
if no meeting is to be held, 40 calendar days prior to the date the 
votes, consents, or

[[Page 289]]

authorizations may be used to effect the corporate action; or
    (B) 10 calendar days after the date that the registrant first sends 
its proxy statement or Notice of Internet Availability of Proxy 
Materials to security holders.
    (2) Establish a Web site at which beneficial owners are able to 
access the broker or dealer's request for voting instructions and, at 
the broker or dealer's option, establish a Web site at which beneficial 
owners are able to access the proxy statement and other soliciting 
materials, provided that such Web sites are maintained in a manner 
consistent with paragraphs (b), (c), and (k) of Sec.240.14a-16;
    (3) Upon receipt of a request from the registrant or other 
soliciting person, send to security holders specified by the registrant 
or other soliciting person a copy of the request for voting instructions 
accompanied by a copy of the intermediary's Notice of Internet 
Availability of Proxy Materials 10 calendar days or more after the 
broker or dealer sends its Notice of Internet Availability of Proxy 
Materials pursuant to paragraph (d)(1); and
    (4) Upon receipt of a request for a copy of the materials from a 
beneficial owner:
    (i) Request a copy of the soliciting materials from the registrant 
or other soliciting person, in the form requested by the beneficial 
owner, within three business days after receiving the beneficial owner's 
request;
    (ii) Forward a copy of the soliciting materials to the beneficial 
owner, in the form requested by the beneficial owner, within three 
business days after receiving the materials from the registrant or other 
soliciting person; and
    (iii) Maintain records of security holder requests to receive a 
paper or e-mail copy of the proxy materials in connection with future 
proxy solicitations and provide copies of the proxy materials to a 
security holder who has made such a request for all securities held in 
the account of that security holder until the security holder revokes 
such request.
    (5) Notwithstanding any other provisions in this paragraph (d), if 
the broker or dealer receives copies of the proxy statement and annual 
report to security holders (if applicable) from the soliciting person 
with instructions to forward such materials to beneficial owners, the 
broker or dealer:
    (i) Shall either:
    (A) Prepare a Notice of Internet Availability of Proxy Materials and 
forward it with the proxy statement and annual report to security 
holders (if applicable); or
    (B) Incorporate any information required in the Notice of Internet 
Availability of Proxy Materials that does not appear in the proxy 
statement into the broker or dealer's request for voting instructions to 
be sent with the proxy statement and annual report (if applicable);
    (ii) Need not comply with the following provisions:
    (A) The timing provisions of paragraph (d)(1)(ii) of this section; 
and
    (B) Paragraph (d)(4) of this section; and
    (iii) Need not include in its Notice of Internet Availability of 
Proxy Materials or request for voting instructions the following 
disclosures:
    (A) Legends 1 and 3 in Sec.240.14a-16(d)(1); and
    (B) Instructions on how to request a copy of the proxy materials.
    (e) Content of Notice of Internet Availability of Proxy Materials. 
The broker or dealer's Notice of Internet Availability of Proxy 
Materials shall:
    (1) Include all information, as it relates to beneficial owners, 
required in a registrant's Notice of Internet Availability of Proxy 
Materials under Sec.240.14a-16(d), provided that the broker or dealer 
shall provide its own, or its agent's, toll-free telephone number, an e-
mail address, and an Internet Web site to service requests for copies 
from beneficial owners;
    (2) Include a brief description, if applicable, of the rules that 
permit the broker or dealer to vote the securities if the beneficial 
owner does not return his or her voting instructions; and
    (3) Otherwise be prepared and sent in a manner consistent with 
paragraphs (e), (f), and (g) of Sec.240.14a-16.

[57 FR 1099, Jan. 10, 1992, as amended at 65 FR 65751, Nov. 2, 2000; 72 
FR 4170, Jan. 29, 2007; 72 FR 42238, Aug. 1, 2007; 73 FR 17814, Apr. 1, 
2008]

[[Page 290]]



Sec.240.14b-2  Obligation of banks, associations and other entities 
that exercise fiduciary powers in connection with the prompt 
forwarding of certain communications to beneficial owners.
          

    (a) Definitions. Unless the context otherwise requires, all terms 
used in this section shall have the same meanings as in the Act and, 
with respect to proxy soliciting material, as in Sec.240.14a-1 
thereunder and, with respect to information statements, as in Sec.
240.14c-1 thereunder. In addition, as used in this section, the 
following terms shall apply:
    (1) The term bank means a bank, association, or other entity that 
exercises fiduciary powers.
    (2) The term beneficial owner includes any person who has or shares, 
pursuant to an instrument, agreement, or otherwise, the power to vote, 
or to direct the voting of a security.

    Note 1: If more than one person shares voting power, the provisions 
of the instrument creating that voting power shall govern with respect 
to whether consent to disclosure of beneficial owner information has 
been given.
    Note 2: If more than one person shares voting power or if the 
instrument creating that voting power provides that such power shall be 
exercised by different persons depending on the nature of the corporate 
action involved, all persons entitled to exercise such power shall be 
deemed beneficial owners; Provided, however, that only one such 
beneficial owner need be designated among the beneficial owners to 
receive proxies or requests for voting instructions, other proxy 
soliciting material, information statements, and/or annual reports to 
security holders, if the person so designated assumes the obligation to 
disseminate, in a timely manner, such materials to the other beneficial 
owners.

    (3) The term registrant means:
    (i) The issuer of a class of securities registered pursuant to 
section 12 of the Act; or
    (ii) An investment company registered under the Investment Company 
Act of 1940.
    (b) Dissemination and beneficial owner information requirements. A 
bank shall comply with the following requirements for disseminating 
certain communications to beneficial owners and providing beneficial 
owner information to registrants.
    (1) The bank shall:
    (i) Respond, by first class mail or other equally prompt means, 
directly to the registrant, no later than one business day after the 
date it receives an inquiry made in accordance with Sec.240.14a-13(a) 
or Sec.240.14c-7(a) by indicating the name and address of each of its 
respondent banks that holds the registrant's securities on behalf of 
beneficial owners, if any; and
    (ii) Respond, by first class mail or other equally prompt means, 
directly to the registrant no later than seven business days after the 
date it receives an inquiry made in accordance with Sec.240.14a-13(a) 
or Sec.240.14c-7(a) by indicating, by means of a search card or 
otherwise:
    (A) The approximate number of customers of the bank who are 
beneficial owners of the registrant's securities that are held of record 
by the bank or its nominee;
    (B) If the registrant has indicated, pursuant to Sec.240.14a-
13(a)(1)(ii)(A) or Sec.240.14c-7(a)(1)(ii)(A), that it will distribute 
the annual report to security holders to beneficial owners of its 
securities whose names, addresses, and securities positions are 
disclosed pursuant to paragraphs (b)(4) (ii) and (iii) of this section:
    (1) With respect to customer accounts opened on or before December 
28, 1986, the number of beneficial owners of the registrant's securities 
who have affirmatively consented to disclosure of their names, 
addresses, and securities positions; and
    (2) With respect to customer accounts opened after December 28, 
1986, the number of beneficial owners of the registrant's securities who 
have not objected to disclosure of their names, addresses, and 
securities positions; and
    (C) The identity of its designated agent, if any, acting on its 
behalf in fulfilling its obligations under paragraphs (b)(4) (ii) and 
(iii) of this section;

Provided, however, that, if the bank or respondent bank has informed the 
registrant that a designated office(s) or department(s) is to receive 
such inquiries, receipt for purposes of paragraphs (b)(1) (i) and (ii) 
of this section shall mean receipt by such designated office(s) or 
department(s).

[[Page 291]]

    (2) Where proxies are solicited, the bank shall, within five 
business days after the record date:
    (i) Execute an omnibus proxy, including a power of substitution, in 
favor of its respondent banks and forward such proxy to the registrant; 
and
    (ii) Furnish a notice to each respondent bank in whose favor an 
omnibus proxy has been executed that it has executed such a proxy, 
including a power of substitution, in its favor pursuant to paragraph 
(b)(2)(i) of this section.
    (3) Upon receipt of the proxy, other proxy soliciting material, 
information statement, and/or annual report to security holders from the 
registrant or other soliciting person, the bank shall forward such 
materials to each beneficial owner on whose behalf it holds securities, 
no later than five business days after the date it receives such 
material and, where a proxy is solicited, the bank shall forward, with 
the other proxy soliciting material and/or the annual report to security 
holders, either:
    (i) A properly executed proxy:
    (A) Indicating the number of securities held for such beneficial 
owner;
    (B) Bearing the beneficial owner's account number or other form of 
identification, together with instructions as to the procedures to vote 
the securities;
    (C) Briefly stating which other proxies, if any, are required to 
permit securities to be voted under the terms of the instrument creating 
that voting power or applicable state law; and
    (D) Being accompanied by an envelope addressed to the registrant or 
its agent, if not provided by the registrant; or
    (ii) A request for voting instructions (for which registrant's form 
of proxy may be used and which shall be voted by the record holder bank 
or respondent bank in accordance with the instructions received), 
together with an envelope addressed to the record holder bank or 
respondent bank.

    Note to paragraph (b)(3): At the request of a registrant, or on its 
own initiative so long as the registrant does not object, a bank may, 
but is not required to, deliver one annual report to security holders, 
proxy statement, information statement, or Notice of Internet 
Availability of Proxy Materials to more than one beneficial owner 
sharing an address if the requirements set forth in Sec.240.14a-
3(e)(1) (with respect to annual reports to security holders, proxy 
statements, and Notices of Internet Availability of Proxy Materials) and 
Sec.240.14c-3(c) (with respect to annual reports to security holders, 
information statements, and Notices of Internet Availability of Proxy 
Materials) applicable to registrants, with the exception of Sec.
240.14a-3(e)(1)(i)(E), are satisfied instead by the bank.

    (4) The bank shall:
    (i) Respond, by first class mail or other equally prompt means, 
directly to the registrant no later than one business day after the date 
it receives an inquiry made in accordance with Sec.240.14a-13(b)(1) or 
Sec.240.14c-7(b)(1) by indicating the name and address of each of its 
respondent banks that holds the registrant's securities on behalf of 
beneficial owners, if any;
    (ii) Through its agent or directly, provide the registrant, upon the 
registrant's request, and within the time specified in paragraph 
(b)(4)(iii) of this section, with the names, addresses, and securities 
position, compiled as of a date specified in the registrant's request 
which is no earlier than five business days after the date the 
registrant's request is received, of:
    (A) With respect to customer accounts opened on or before December 
28, 1986, beneficial owners of the registrant's securities on whose 
behalf it holds securities who have consented affirmatively to 
disclosure of such information, subject to paragraph (b)(5) of this 
section; and
    (B) With respect to customer accounts opened after December 28, 
1986, beneficial owners of the registrant's securities on whose behalf 
it holds securities who have not objected to disclosure of such 
information;

Provided, however, that if the record holder bank or respondent bank has 
informed the registrant that a designated office(s) or department(s) is 
to receive such requests, receipt for purposes of paragraphs (b)(4) (i) 
and (ii) of this section shall mean receipt by such designated office(s) 
or department(s); and
    (iii) Through its agent or directly, transmit the data specified in 
paragraph (b)(4)(ii) of this section to the registrant no later than 
five business days after the date specified by the registrant.


[[Page 292]]


    Note 1: Where a record holder bank or respondent bank employs a 
designated agent to act on its behalf in performing the obligations 
imposed on it by paragraphs (b)(4) (ii) and (iii) of this section, the 
five business day time period for determining the date as of which the 
beneficial owner information is to be compiled is calculated from the 
date the designated agent receives the registrant's request. In 
complying with the registrant's request for beneficial owner information 
under paragraphs (b)(4) (ii) and (iii) of this section, a record holder 
bank or respondent bank need only supply the registrant with the names, 
addresses and securities positions of affirmatively consenting and non-
objecting beneficial owners.
    Note 2: If a record holder bank or respondent bank receives a 
registrant's request less than five business days before the requested 
compilation date, it must provide a list compiled as of a date that is 
no more than five business days after receipt and transmit the list 
within five business days after the compilation date.

    (5) For customer accounts opened on or before December 28, 1986, 
unless the bank has made a good faith effort to obtain affirmative 
consent to disclosure of beneficial owner information pursuant to 
paragraph (b)(4)(ii) of this section, the bank shall provide such 
information as to beneficial owners who do not object to disclosure of 
such information. A good faith effort to obtain affirmative consent to 
disclosure of beneficial owner information shall include, but shall not 
be limited to, making an inquiry:
    (i) Phrased in neutral language, explaining the purpose of the 
disclosure and the limitations on the registrant's use thereof;
    (ii) Either in at least one mailing separate from other account 
mailings or in repeated mailings; and
    (iii) In a mailing that includes a return card, postage paid 
enclosure.
    (c) Exceptions to dissemination and beneficial owner information 
requirements. The bank shall be subject to the following respect to its 
dissemination and beneficial owner requirements.
    (1) With regard to beneficial owners of exempt employee benefit plan 
securities, the bank shall not:
    (i) Include information in its response pursuant to paragraph (b)(1) 
of this section; or forward proxies (or in lieu thereof requests for 
voting instructions), proxy soliciting material, information statements, 
or annual reports to security holders pursuant to paragraph (b)(3) of 
this section to such beneficial owners; or
    (ii) Include in its response pursuant to paragraphs (b)(4) and 
(b)(5) of this section data concerning such beneficial owners.
    (2) The bank need not satisfy:
    (i) Its obligations under paragraphs (b)(2), (b)(3), (b)(4) and (d) 
of this section if the registrant or other soliciting person, as 
applicable, does not provide assurance of reimbursement of its 
reasonable expenses, both direct and indirect, incurred in connection 
with performing the obligations imposed by paragraphs (b)(2), (b)(3), 
(b)(4) and (d) of this section; or
    (ii) Its obligation under paragraph (b)(3) of this section to 
forward annual reports to security holders to consenting and non-
objecting beneficial owners identified pursuant to paragraphs (b)(4) 
(ii) and (iii) of this section if the registrant notifies the record 
holder bank or respondent bank, pursuant to Sec.240.14a-13(c) or Sec.
240.14c-7(c), that the registrant will send the annual report to 
security holders to beneficial owners whose names addresses and 
securities positions are disclosed pursuant to paragraphs (b)(4) (ii) 
and (iii) of this section.
    (3) For the purposes of determining the fees which may be charged to 
registrants pursuant to Sec.240.14a-13(b)(5), Sec.240.14c-7(a)(5), 
and paragraph (c)(2) of this section for performing obligations under 
paragraphs (b)(2), (b)(3), and (b)(4) of this section, an amount no 
greater than that permitted to be charged by brokers or dealers for 
reimbursement of their reasonable expenses, both direct and indirect, 
incurred in connection with performing the obligations imposed by 
paragraphs (b)(2) and (b)(3) of Sec.240.14b-1, shall be deemed to be 
reasonable.
    (4) In its response pursuant to paragraph (b)(1)(ii)(A) of this 
section, a bank shall not include information about annual reports to 
security holders, proxy statements or information statements that will 
not be delivered to security holders sharing an address because of the 
bank's reliance on the procedures referred to in the Note to paragraph 
(b)(3) of this section.

[[Page 293]]

    (d) Upon receipt from the soliciting person of all of the 
information listed in Sec.240.14a-16(d), the bank shall:
    (1) Prepare and send a Notice of Internet Availability of Proxy 
Materials containing the information required in paragraph (e) of this 
section to beneficial owners no later than:
    (i) With respect to a registrant, 40 calendar days prior to the 
security holder meeting date or, if no meeting is to be held, 40 
calendar days prior to the date the votes, consents, or authorizations 
may be used to effect the corporate action; and
    (ii) With respect to a soliciting person other than the registrant, 
the later of:
    (A) 40 calendar days prior to the security holder meeting date or, 
if no meeting is to be held, 40 calendar days prior to the date the 
votes, consents, or authorizations may be used to effect the corporate 
action; or
    (B) 10 calendar days after the date that the registrant first sends 
its proxy statement or Notice of Internet Availability of Proxy 
Materials to security holders.
    (2) Establish a Web site at which beneficial owners are able to 
access the bank's request for voting instructions and, at the bank's 
option, establish a Web site at which beneficial owners are able to 
access the proxy statement and other soliciting materials, provided that 
such Web sites are maintained in a manner consistent with paragraphs 
(b), (c), and (k) of Sec.240.14a-16;
    (3) Upon receipt of a request from the registrant or other 
soliciting person, send to security holders specified by the registrant 
or other soliciting person a copy of the request for voting instructions 
accompanied by a copy of the intermediary's Notice of Internet 
Availability of Proxy Materials 10 days or more after the bank sends its 
Notice of Internet Availability of Proxy Materials pursuant to paragraph 
(d)(1); and
    (4) Upon receipt of a request for a copy of the materials from a 
beneficial owner:
    (i) Request a copy of the soliciting materials from the registrant 
or other soliciting person, in the form requested by the beneficial 
owner, within three business days after receiving the beneficial owner's 
request;
    (ii) Forward a copy of the soliciting materials to the beneficial 
owner, in the form requested by the beneficial owner, within three 
business days after receiving the materials from the registrant or other 
soliciting person; and
    (iii) Maintain records of security holder requests to receive a 
paper or e-mail copy of the proxy materials in connection with future 
proxy solicitations and provide copies of the proxy materials to a 
security holder who has made such a request for all securities held in 
the account of that security holder until the security holder revokes 
such request.
    (5) Notwithstanding any other provisions in this paragraph (d), if 
the bank receives copies of the proxy statement and annual report to 
security holders (if applicable) from the soliciting person with 
instructions to forward such materials to beneficial owners, the bank:
    (i) Shall either:
    (A) Prepare a Notice of Internet Availability of Proxy Materials and 
forward it with the proxy statement and annual report to security 
holders (if applicable); or
    (B) Incorporate any information required in the Notice of Internet 
Availability of Proxy Materials that does not appear in the proxy 
statement into the bank's request for voting instructions to be sent 
with the proxy statement and annual report (if applicable);
    (ii) Need not comply with the following provisions:
    (A) The timing provisions of paragraph (d)(1)(ii) of this section; 
and
    (B) Paragraph (d)(4) of this section; and
    (iii) Need not include in its Notice of Internet Availability of 
Proxy Materials or request for voting instructions the following 
disclosures:
    (A) Legends 1 and 3 in Sec.240.14a-16(d)(1); and
    (B) Instructions on how to request a copy of the proxy materials.
    (e) Content of Notice of Internet Availability of Proxy Materials. 
The bank's Notice of Internet Availability of Proxy Materials shall:
    (1) Include all information, as it relates to beneficial owners, 
required in a registrant's Notice of Internet Availability of Proxy 
Materials under

[[Page 294]]

Sec.240.14a-16(d), provided that the bank shall provide its own, or 
its agent's, toll-free telephone number, e-mail address, and Internet 
Web site to service requests for copies from beneficial owners; and
    (2) Otherwise be prepared and sent in a manner consistent with 
paragraphs (e), (f), and (g) of Sec.240.14a-16.

[57 FR 1100, Jan. 10, 1992, as amended at 65 FR 65751, Nov. 2, 2000; 72 
FR 4171, Jan. 29, 2007; 72 FR 42239, Aug. 1, 2007; 73 FR 17814, Apr. 1, 
2008]

  Regulation 14C: Distribution of Information Pursuant to Section 14(c)

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec.240.14c-1  Definitions.

    Unless the context otherwise requires, all terms used in this 
regulation have the same meanings as in the Act or elsewhere in the 
general rules and regulations thereunder. In addition, the following 
definitions apply unless the context otherwise requires:
    (a) Associate. The term ``associate,'' used to indicate a 
relationship with any person, means:
    (1) Any corporation or organization (other than the registrant or a 
majority owned subsidiary of the registrant) of which such person is an 
officer or partner or is, directly or indirectly, the beneficial owner 
of 10 percent or more of any class of equity securities;
    (2) Any trust or other estate in which such person has a substantial 
beneficial interest or as to which such person serves as trustee or in a 
similar fidiciary capacity; and
    (3) Any relative or spouse of such person, or any relative of such 
spouse, who has the same home as such person or who is a director or 
officer of the registrant or any of its parents or subsidiaries.
    (b) Employee benefit plan. For purposes of Sec.240.14c-7, the term 
``employee benefit plan'' means any purchase, savings, option, bonus, 
appreciation, profit sharing, thrift, incentive, pension or similar plan 
primarily for employees, directors, trustees or officers.
    (c) Entity that exercises fiduciary powers. The term ``entity that 
exercises fiduciary powers'' means any entity that holds securities in 
nominee name or otherwise on behalf of a beneficial owner but does not 
include a clearing agency registered pursuant to section 17A of the Act, 
or a broker or a dealer.
    (d) Exempt employee benefit plan securities. For purposes of Sec.
240.14c-7, the term ``exempt employee benefit plan securities'' means:
    (1) Securities of the registrant held by an employee benefit plan, 
as defined in paragraph (b) of this section, where such plan is 
established by the registrant; or
    (2) If notice regarding the current distribution of information 
statements has been given pursuant to Sec.240.14c-7(a)(1)(ii)(C) or if 
notice regarding the current request for a list of names, addresses and 
securities positions of beneficial owners has been given pursuant to 
Sec.240.14c-7(b)(3), securities of the registrant held by an employee 
benefit plan, as defined in paragraph (b) of this section, where such 
plan is established by an affiliate of the registrant.
    (e) Information statement. The term ``information statement'' means 
the statement required by Sec.240.14c-2, whether or not contained in a 
single document.
    (f) Last fiscal year. The term ``last fiscal year'' of the 
registrant means the last fiscal year of the registrant ending prior to 
the date of the meeting with respect to which an information statement 
is required to be distributed, or if the information statement involves 
consents or authorizations in lieu of a meeting, the earliest date on 
which they may be used to effect corporate action.
    (g) Proxy. The term ``proxy'' includes every proxy, consent or 
authorization within the meaning of section 14(a) of the Act. The 
consent or authorization

[[Page 295]]

may take the form of failure to object or to dissent.
    (h) Record date. The term ``record date'' means the date as of which 
the record holders of securities entitled to vote at a meeting or by 
written consent or authorization shall be determined.
    (i) Record holder. For purposes of Sec.240.14c-7, the term 
``record holder'' means any broker, dealer, voting trustee, bank, 
association or other entity that exercises fiduciary powers which holds 
securities of record in nominee name or otherwise or as a participant in 
a clearing agency registered pursuant to section 17A of the Act.
    (j) Registrant. The term ``registrant'' means:
    (1) The issuer of a class of securities registered pursuant to 
section 12 of the Act; or
    (2) An investment company registered under the Investment Company 
Act of 1940 that has made a public offering of its securities.
    (k) Respondent bank. For purposes of Sec.240.14c-7, the term 
``respondent bank'' means any bank, association or other entity that 
exercises fiduciary powers which holds securities on behalf of 
beneficial owners and deposits such securities for safekeeping with 
another bank, association or other entity that exercises fiduciary 
powers.

[51 FR 44279, Dec. 9, 1986, as amended at 52 FR 23649, June 24, 1987; 53 
FR 16406, May 9, 1988; 57 FR 1101, Jan. 10, 1992]



Sec.240.14c-2  Distribution of information statement.

    (a)(1) In connection with every annual or other meeting of the 
holders of the class of securities registered pursuant to section 12 of 
the Act or of a class of securities issued by an investment company 
registered under the Investment Company Act of 1940 that has made a 
public offering of securities, including the taking of corporate action 
by the written authorization or consent of security holders, the 
registrant shall transmit to every security holder of the class that is 
entitled to vote or give an authorization or consent in regard to any 
matter to be acted upon and from whom proxy authorization or consent is 
not solicited on behalf of the registrant pursuant to section 14(a) of 
the Act:
    (i) A written information statement containing the information 
specified in Schedule 14C (Sec.240.14c-101);
    (ii) A publicly-filed information statement, in the form and manner 
described in Sec.240.14c-3(d), containing the information specified in 
Schedule 14C (Sec.240.14c-101); or
    (iii) A written information statement included in a registration 
statement filed under the Securities Act of 1933 on Form S-4 or F-4 
(Sec.239.25 or Sec.239.34 of this chapter) or Form N-14 (Sec.
239.23 of this chapter) and containing the information specified in such 
Form.
    (2) Notwithstanding paragraph (a)(1) of this section:
    (i) In the case of a class of securities in unregistered or bearer 
form, such statements need to be transmitted only to those security 
holders whose names are known to the registrant; and
    (ii) No such statements need to be transmitted to a security holder 
if a registrant would be excused from delivery of an annual report to 
security holders or a proxy statement under Sec.240.14a-3(e)(2) if 
such section were applicable.
    (b) The information statement shall be sent or given at least 20 
calendar days prior to the meeting date or, in the case of corporate 
action taken pursuant to the consents or authorizations of security 
holders, at least 20 calendar days prior to the earliest date on which 
the corporate action may be taken.
    (c) If a transaction is a roll-up transaction as defined in Item 
901(c) of Regulation S-K (17 CFR 229.901(c)) and is registered (or 
authorized to be registered) on Form S-4 (17 CFR 229.25) or Form F-4 (17 
CFR 229.34), the information statement must be distributed to security 
holders no later than the lesser of 60 calendar days prior to the date 
on which the meeting of security holders is held or action is taken, or 
the maximum number of days permitted for giving notice under applicable 
state law.
    (d) A registrant shall transmit an information statement to security 
holders pursuant to paragraph (a) of this section by satisfying the 
requirements set forth in Sec.240.14a-16; provided, however, that the 
registrant shall revise

[[Page 296]]

the information required in the Notice of Internet Availability of Proxy 
Materials, including changing the title of that notice, to reflect the 
fact that the registrant is not soliciting proxies for the meeting.

[51 FR 42070, Nov. 20, 1986, as amended at 56 FR 57254, Nov. 8, 1991; 57 
FR 1102, Jan. 10, 1992; 57 FR 48295, Oct. 22, 1992; 72 FR 4171, Jan. 29, 
2007; 72 FR 42239, Aug. 1, 2007]



Sec.240.14c-3  Annual report to be furnished security holders.

    (a) If the information statement relates to an annual (or special 
meeting in lieu of the annual) meeting, or written consent in lieu of 
such meeting, of security holders at which directors of the registrant, 
other than an investment company registered under the Investment Company 
Act of 1940, are to be elected, it shall be accompanied or preceded by 
an annual report to security holders:
    (1) The annual report to security holders shall contain the 
information specified in paragraphs (b)(1) through (b)(11) of Sec.
240.14a-3.
    (2) [Reserved]
    (b) Seven copies of the report sent to security holders pursuant to 
this rule shall be mailed to the Commission, solely for its information, 
not later than the date on which such report is first sent or given to 
security holders or the date on which preliminary copies, or definitive 
copies, if preliminary filing was not required, of the information 
statement are filed with the Commission pursuant to Rule 14c-5, 
whichever date is later. The report is not deemed to be ``filed'' with 
the Commission or subject to this regulation otherwise than as provided 
in this rule, or to the liabilities of section 18 of the Act, except to 
the extent that the registrant specifically requests that it be treated 
as a part of the information statement or incorporates it in the 
information statement or other filed report by reference.
    (c) A registrant will be considered to have delivered a Notice of 
Internet Availability of Proxy Materials, annual report to security 
holders or information statement to security holders of record who share 
an address if the requirements set forth in Sec.240.14a-3(e)(1) are 
satisfied with respect to the Notice of Internet Availability of Proxy 
Materials, annual report to security holders or information statement, 
as applicable.
    (d) A registrant shall furnish an annual report to security holders 
pursuant to paragraph (a) of this section by satisfying the requirements 
set forth in Sec.240.14a-16.

[39 FR 40770, Nov. 20, 1974, as amended at 45 FR 63647, Sept. 25, 1980; 
51 FR 42071, Nov. 20, 1986; 52 FR 48984, Dec. 29, 1987; 58 FR 26519, May 
4, 1993; 59 FR 52700, Oct. 19, 1994; 59 FR 67765, Dec. 30, 1994; 64 FR 
62547, Nov. 16, 1999; 65 FR 65751, Nov. 2, 2000; 72 FR 4172, Jan. 29, 
2007; 72 FR 42239, Aug. 1, 2007; 73 FR 977, Jan. 4, 2008]



Sec.240.14c-4  Presentation of information in information statement.

    (a) The information included in the information statement shall be 
clearly presented and the statements made shall be divided into groups 
according to subject matter and the various groups of statements shall 
be preceded by appropriate headings. The order of items and sub-items in 
the schedule need not be followed. Where practicable and appropriate, 
the information shall be presented in tabular form. All amounts shall be 
stated in figures. Information required by more than one applicable item 
need not be repeated. No statement need be made in response to any item 
or sub-item which is inapplicable.
    (b) Any information required to be included in the information 
statement as to terms of securities or other subject matters which from 
a standpoint of practical necessity must be determined in the future may 
be stated in terms of present knowledge and intention. Subject to the 
foregoing, information which is not known to the registrant and which it 
is not reasonably within the power of the registrant to ascertain or 
procure may be omitted, if a brief statement of the circumstances 
rendering such information unavailable is made.
    (c) All printed information statements shall be in roman type at 
least as large and as legible as 10-point modern type except that to the 
extent necessary for convenient presentation, financial statements and 
other tabular data, but not the notes thereto, may be in roman type at 
least as large and as

[[Page 297]]

legible as 8-point modern type. All such type shall be leaded at least 2 
points.
    (d) Where an information statement is delivered through an 
electronic medium, issuers may satisfy legibility requirements 
applicable to printed documents, such as type size and font, by 
presenting all required information in a format readily communicated to 
investors.

[31 FR 262, Jan. 8, 1966, as amended at 36 FR 8935, May 15, 1971; 51 FR 
42071, Nov. 20, 1986; 61 FR 24657, May 15, 1996]



Sec.240.14c-5  Filing requirements.

    (a) Preliminary information statement. Five preliminary copies of 
the information statement shall be filed with the Commission at least 10 
calendar days prior to the date definitive copies of such statement are 
first sent or given to security holders, or such shorter period prior to 
that date as the Commission may authorize upon a showing of good cause 
therefor. In computing the 10-day period, the filing date of the 
preliminary copies is to be counted as the first day and the 11th day is 
the date on which definitive copies of the information statement may be 
sent to security holders. A registrant, however, shall not file with the 
Commission a preliminary information statement if it relates to an 
annual (or special meeting in lieu of the annual) meeting, of security 
holders at which the only matters to be acted upon are:
    (1) The election of directors;
    (2) The election, approval or ratification of accountant(s);
    (3) A security holder proposal identified in the registrant's 
information statement pursuant to Item 4 of Schedule 14C (Sec.240.14c-
101); and/or
    (4) The approval or ratification of a plan as defined in paragraph 
(a)(6)(ii) of Item 402 of Regulation S-K (Sec.229.402(a)(6)(ii) of 
this chapter) or amendments to such a plan.

This exclusion from filing a preliminary information statement does not 
apply if the registrant comments upon or refers to a solicitation in 
opposition in connection with the meeting in its information statement.

    Note 1: The filing of revised material does not recommence the ten 
day time period unless the revised material contains material revisions 
or material new proposal(s) that constitute a fundamental change in the 
information statement.
    Note 2: The officials responsible for the preparation of the 
information statement should make every effort to verify the accuracy 
and completeness of the information required by the applicable rules. 
The preliminary statement should be filed with the Commission at the 
earliest practicable date.
    Note 3: Solicitation in Opposition--For purposes of the exclusion 
from filing a preliminary information statement, a ``solicitation in 
opposition'' includes: (a) Any solicitation opposing a proposal 
supported by the registrant; and (b) any solicitation supporting a 
proposal that the registrant does not expressly support, other than a 
security holder proposal identified in the registrant's information 
statement pursuant to Item 4 of Schedule 14C (Sec.240.14c-101 of this 
chapter). The identification of a security holder proposal in the 
registrant's information statement does not constitute a ``solicitation 
in opposition,'' even if the registrant opposes the proposal and/or 
includes a statement in opposition to the proposal.
    Note 4: A registrant that is filing an information statement in 
preliminary form only because the registrant has commented on or 
referred to an opposing solicitation should indicate that fact in a 
transmittal letter when filing the preliminary material with the 
Commission.

    (b) Definitive information statement. Eight definitive copies of the 
information statement, in the form in which it is furnished to security 
holders, must be filed with the Commission no later than the date the 
information statement is first sent or given to security holders. Three 
copies of these materials also must be filed with, or mailed for filing 
to, each national securities exchange on which the registrant has a 
class of securities listed and registered.
    (c) Release dates. All preliminary material filed pursuant to 
paragraph (a) of this section shall be accompanied by a statement of the 
date on which copies thereof filed pursuant to paragraph (b) of this 
section are intended to be released to security holders. All definitive 
material filed pursuant to paragraph (b) of this section shall be 
accompanied by a statement of the date on which copies of such material 
have been released to security holders or, if not released, the date on 
which copies thereof are intended to be released.
    (d)(1) Public availability of information. All copies of material 
filed pursuant to paragraph (a) of this section shall be

[[Page 298]]

clearly marked ``Preliminary Copies,'' and shall be deemed immediately 
available for public inspection unless confidential treatment is 
obtained pursuant to paragraph (d)(2) of this section.
    (2) Confidential treatment. If action will be taken on any matter 
specified in Item 14 of Schedule 14A (Sec.240.14a-101), all copies of 
the preliminary information statement filed under paragraph (a) of this 
section will be for the information of the Commission only and will not 
be deemed available for public inspection until filed with the 
Commission in definitive form so long as:
    (i) The information statement does not relate to a matter or 
proposal subject to Sec.240.13e-3 or a roll-up transaction as defined 
in Item 901(c) of Regulation S-K (Sec.229.901(c) of this chapter);
    (ii) Neither the parties to the transaction nor any persons 
authorized to act on their behalf have made any public communications 
relating to the transaction except for statements where the content is 
limited to the information specified in Sec.230.135 of this chapter; 
and
    (iii) The materials are filed in paper and marked ``Confidential, 
For Use of the Commission Only''. In all cases, the materials may be 
disclosed to any department or agency of the United States Government 
and to the Congress, and the Commission may make any inquiries or 
investigation into the materials as may be necessary to conduct an 
adequate review by the Commission.

    Instruction to paragraph (d)(2): If communications are made publicly 
that go beyond the information specified in Sec.230.135, the materials 
must be re-filed publicly with the Commission.

    (e) Revised information statements. Where any information statement 
filed pursuant to this section is amended or revised, two of the copies 
of such amended or revised material filed pursuant to this section shall 
be marked to indicate clearly and precisely the changes effected 
therein. If the amendment or revision alters the text of the material, 
the changes in such text shall be indicated by means of underscoring or 
in some other appropriate manner.
    (f) Merger material. Notwithstanding the foregoing provisions of 
this section, any information statement or other material included in a 
registration statement filed under the Securities Act of 1933 on Form N-
14, S-4, or F-4 (Sec.239.23, Sec.239.25 or Sec.239.34 of this 
chapter) shall be deemed filed both for the purposes of that Act and for 
the purposes of this section, but separate copies of such material need 
not be furnished pursuant to this section, nor shall any fee be required 
under paragraph (a) of this section. However, any additional material 
used after the effective date of the registration statement on Form N-
14, S-4, or F-4 shall be filed in accordance with this section, unless 
separate copies of such material are required to be filed as an 
amendment of such registration statement.
    (g) Fees. At the time of filing a preliminary information statement 
regarding an acquisition, merger, spinoff, consolidation or proposed 
sale or other disposition of substantially all the assets of the 
company, the registrant shall pay the Commission a fee, no part of which 
shall be refunded, established in accordance with Sec.240.0-11.
    (h) Cover page. Each information statement filed with the Commission 
shall include a cover page in the form set forth in Schedule 14C (Sec.
240.14c-101). The cover page required by this paragraph need not be 
distributed to security holders.

[51 FR 42071, Nov. 20, 1986, as amended at 52 FR 48984, Dec. 29, 1987; 
57 FR 48295, Oct. 22, 1992; 58 FR 14684, Mar. 18, 1993; 58 FR 69226, 
Dec. 30, 1993; 59 FR 67765, Dec. 30, 1994; 61 FR 49960, Sept. 24, 1996; 
64 FR 61459, Nov. 10, 1999; 71 FR 53263, Sept. 8, 2006; 72 FR 4172, Jan. 
29, 2007]



Sec.240.14c-6  False or misleading statements.

    (a) No information statement shall contain any statement which, at 
the time and in the light of the circumstances under which it is made, 
is false or misleading with respect to any material fact, or which omits 
to state any material fact necessary in order to make the statements 
therein not false or misleading or necessary to correct any statement in 
any earlier communication with respect to the same

[[Page 299]]

meeting or subject matter which has become false or misleading.
    (b) The fact that an information statement has been filed with or 
examined by the Commission shall not be deemed a finding by the 
Commission that such material is accurate or complete or not false or 
misleading, or that the Commission has passed upon the merits of or 
approved any statement contained therein or any matter to be acted upon 
by security holders. No representation contrary to the foregoing shall 
be made.

[31 FR 262, Jan. 8, 1966]



Sec.240.14c-7  Providing copies of material for certain beneficial owners.

    (a) If the registrant knows that securities of any class entitled to 
vote at a meeting, or by written authorizations or consents if no 
meeting is held, are held of record by a broker, dealer, voting trustee, 
or bank, association, or other entity that exercises fiduciary powers in 
nominee name or otherwise, the registrant shall:
    (1) By first class mail or other equally prompt means:
    (i) Inquire of each such record holder:
    (A) Whether other persons are the beneficial owners of such 
securities and, if so, the number of copies of the information statement 
necessary to supply such material to such beneficial owners;
    (B) In the case of an annual (or special meeting in lieu of the 
annual) meeting, or written consents in lieu of such meeting, at which 
directors are to be elected, the number of copies of the annual report 
to security holders, necessary to supply such report to such beneficial 
owners for whom proxy material has not been and is not to be made 
available and to whom such reports are to be distributed by such record 
holder or its nominee and not by the registrant;
    (C) If the record holder or respondent bank has an obligation under 
Sec.240.14b-1(b)(3) or Sec.240.14b-2(b)(4) (ii) and (iii), whether 
an agent has been designated to act on its behalf in fulfilling such 
obligation, and, if so, the name and address of such agent; and
    (D) Whether it holds the registrant's securities on behalf of any 
respondent bank and, if so, the name and address of each such respondent 
bank; and
    (ii) Indicate to each such record holder:
    (A) Whether the registrant pursuant to paragraph (c) of this 
section, intends to distribute the annual report to security holders to 
beneficial owners of its securities whose names, addresses and 
securities positions are disclosed pursuant to Sec.240.14b-1(b)(3) and 
Sec.240.14b-2(b)(4) (ii) and (iii);
    (B) The record date; and
    (C) At the option of the registrant, any employee benefit plan 
established by an affiliate of the registrant that holds securities of 
the registrant that the registrant elects to treat as exempt employee 
benefit plan securities;
    (2) Upon receipt of a record holder's or respondent bank's response 
indicating, pursuant to Sec.240.14b-2(a)(1), the names and addresses 
of its respondent banks, within one business day after the date such 
response is received, make an inquiry of and give notification to each 
such respondent bank in the same manner required by paragraph (a)(1) of 
this section; Provided, however, the inquiry required by paragraphs 
(a)(1) and (a)(2) of this section shall not cover beneficial owners of 
exempt employee benefit plan securities;
    (3) Make the inquiry required by paragraph (a)(1) of this section on 
the earlier of:
    (i) At least 20 business days prior to the record date of the 
meeting of security holders or the record date of written consents in 
lieu of a meeting; or
    (ii) At least 20 business days prior to the date the information 
statement is required to be sent or given pursuant to Sec.240.14c-
2(b);


Provided, however, That, if a record holder or respondent bank has 
informed the registrant that a designated office(s) or department(s) is 
to receive such inquiries, the inquiry shall be made to such designated 
office(s) or department(s);
    (4) Supply, in a timely manner, each record holder and respondent 
bank of whom the inquiries required by paragraphs (a)(1) and (a)(2) of 
this section are made with copies of the information statement and/or 
the annual report to security holders, in such quantities, assembled in 
such form and at

[[Page 300]]

such place(s), as the record holder or respondent bank may reasonably 
request in order to send such material to each beneficial owner of 
securities who is to be furnished with such material by the record 
holder or respondent bank; and
    (5) Upon the request of any record holder or respondent bank that is 
supplied with Notices of Internet Availability of Proxy Materials, 
information statements and/or annual reports to security holders 
pursuant to paragraph (a)(3) of this section, pay its reasonable 
expenses for completing the sending of such material to beneficial 
owners.

    Note 1: If the registrant's list of security holders indicates that 
some of its securities are registered in the name of a clearing agency 
registered pursuant to section 17A of the Act (e.g., ``Cede & Co.,'' 
nominee for the Depository Trust Company), the registrant shall make 
appropriate inquiry of the clearing agency and thereafter of the 
participants in such clearing agency who may hold on behalf of a 
beneficial owner or respondent bank, and shall comply with the above 
paragraph with respect to any such participant (see Sec.240.14c-1 
(h)).
    Note 2: The attention of registrants is called to the fact that each 
broker, dealer, bank, association, and other entity that exercises 
fiduciary powers has an obligation pursuant to Sec.240.14b-1 and Sec.
240.14b-2 (except as provided therein with respect to exempt employee 
benefit plan securities held in nominee name) and, with respect to 
brokers and dealers, applicable self-regulatory organization 
requirements to obtain and forward, within the time periods prescribed 
therein, (a) information statements to beneficial owners on whose behalf 
it holds securities, and (b) annual reports to security holders to 
beneficial owners on whose behalf it holds securities, unless the 
registrant has notified the record holder or respondent bank that it has 
assumed responsibility to send such material to beneficial owners whose 
names, addresses, and securities positions are disclosed pursuant to 
Sec.240.14b-1(b)(3) and Sec.240.14b-2(b)(4) (ii) and (iii).
    Note 3: The attention of registrants is called to the fact that 
registrants have an obligation, pursuant to paragraph (d) of this 
section, to cause information statements and annual reports to security 
holders to be furnished, in accordance with Sec.240.14c-2, to 
beneficial owners of exempt employee benefit plan securities.

    (b) Any registrant requesting pursuant to Sec.240.14b-1(b)(3) and 
Sec.240.14b-2(b)(4) (ii) and (iii) a list of names, addresses and 
securities positions of beneficial owners of its securities who either 
have consented or have not objected to disclosure of such information 
shall:
    (1) By first class mail or other equally prompt means, inquire of 
each record holder and each respondent bank identified to the registrant 
pursuant to Sec.240.14b-2(e)(1) whether such record holder or 
respondent bank holds the registrant's securities on behalf of any 
respondent banks and, if so, the name and address of each such 
respondent bank;
    (2) Request such list be compiled as of a date no earlier than five 
business days after the date the registant's request is received by the 
record holder or respondent bank; Provided, however, That if the record 
holder or respondent bank has informed the registrant that a designated 
office(s) or department(s) is to receive such requests, the request 
shall be made to such designated office(s) or department(s);
    (3) Make such request to the following persons that hold the 
registrant's securities on behalf of beneficial owners: all brokers, 
dealers, banks, associations and other entities that exercise fiduciary 
powers; Provided, however, such request shall not cover beneficial 
owners of exempt employee benefit plan securities as defined in Sec.
240.14a-1(d)(1); and, at the option of the registrant, such request may 
give notice of any employee benefit plan established by an affiliate of 
the registrant that holds securities of the registrant that the 
registrant elects to treat as exempt employee benefit plan securities;
    (4) Use the information furnished in response to such request 
exclusively for purposes of corporate communications; and
    (5) Upon the request of any record holder or respondent bank to whom 
such request is made, pay the reasonable expenses, both direct and 
indirect, of providing beneficial owner information.

    Note: A registrant will be deemed to have satisfied its obligations 
under paragraph (b) of this section by requesting consenting and non-
objecting beneficial owner lists from a designated agent acting on 
behalf of the record holder or respondent bank and paying

[[Page 301]]

to that designated agent the reasonable expenses of providing the 
beneficial owner information.

    (c) A registrant, at its option, may send by mail or other equally 
prompt means, its annual report to security holders to the beneficial 
owners whose identifying information is provided by record holders and 
respondent banks, pursuant to Sec.240.14b-1(b)(3) and Sec.240.14b-
2(b)(4) (ii) and (iii), provided that such registrant notifies the 
record holders and respondent banks at the time it makes the inquiry 
required by paragraph (a) of this section that the registrant will send 
the annual report to security holders to the beneficial owners so 
identified.
    (d) If a registrant furnishes information statements to record 
holders and respondent banks who hold securities on behalf of beneficial 
owners, the registrant shall cause information statements and annual 
reports to security holders to be furnished, in accordance with Sec.
240.14c-2, to beneficial owners of exempt employee benefit plan 
securities.

[51 FR 44280, Dec. 9, 1986, as amended at 52 FR 23649, June 24, 1987; 53 
FR 16406, May 9, 1988; 57 FR 1102, Jan. 10, 1992; 61 FR 24657, May 15, 
1996; 64 FR 62547, Nov. 16, 1999; 72 FR 4172, Jan. 29, 2007]



Sec.240.14c-101  Schedule 14C. Information required in information
statement.

                        Schedule 14C Information

   Information Statement Pursuant to Section 14(c) of the Securities 
                          Exchange Act of 1934

                            (Amendment No. )

Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 
          14c-5(d)(2))
[ ] Definitive Information Statement
________________________________________________________________________
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
    (1) Title of each class of securities to which transaction applies:
________________________________________________________________________
    (2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
    (3) Per unit price or other underlying value of transaction computed 
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the 
filing fee is calculated and state how it was determined):
________________________________________________________________________
    (4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
    (5) Total fee paid:
________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange 
          Act Rule 0-11(a)(2) and identify the filing for which the 
          offsetting fee was paid previously. Identify the previous 
          filing by registration statement number, or the Form or 
          Schedule and the date of its filing.
    (1) Amount Previously Paid:
________________________________________________________________________
    (2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
    (3) Filing Party:
________________________________________________________________________
    (4) Date Filed:
________________________________________________________________________

                                  Note

    Note to Cover Page: Where any item, other than Item 4, calls for 
information with respect to any matter to be acted upon at the meeting 
or, if no meeting is being held, by written authorization or consent, 
such item need be answered only with respect to proposals to be made by 
the registrant. Registrants and acquirees that meet the definition of 
``smaller reporting company'' under Rule 12b-2 of the Exchange Act 
(Sec.240.12b-2) shall refer to the disclosure items in Regulation S-K 
(Sec.Sec.229.10 through 229.1123 of this chapter) with specific 
attention to the scaled disclosure requirements for smaller reporting 
companies, if any. A smaller reporting company may provide the 
information in Article 8 of Regulation S-X in lieu of any financial 
statements required by Item 1 of Sec.240.14c-101.

    Item 1. Information required by Items of Schedule 14A (17 CFR 
240.14a-101). Furnish the information called for by all of the items of 
Schedule 14A of Regulation 14A (17 CFR 240.14a-101) (other than Items 
1(c). 2, 4 and 5 thereof) which would be applicable to any matter to be 
acted upon at the meeting if proxies were to be solicited in connection 
with the meeting. Notes A, C, D, and E to Schedule 14A are also 
applicable to Schedule 14C.
    Item 2. Statement that proxies are not solicited. The following 
statement shall be set forth on the first page of the information 
statement in bold-face type:

[[Page 302]]

We Are Not Asking You for a Proxy and You are Requested Not To Send Us a 
                                  Proxy

    Item 3. Interest of certain persons in or opposition to matters to 
be acted upon. (a) Describe briefly any substantial interest, direct or 
indirect, by security holdings or otherwise, of each of the following 
persons in any matter to be acted upon, other than elections to office:
    (1) Each person who has been a director or officer of the registrant 
at any time since the beginning of the last fiscal year;
    (2) Each nominee for election as a director of the registrant;
    (3) Each associate of any of the foregoing persons.
    (b) Give the name of any director of the registrant who has informed 
the registrant in writing that he intends to oppose any action to be 
taken by the registrant at the meeting and indicate the action which he 
intends to oppose.
    (c) Furnish the information required by Item 402(t) of Regulation S-
K (Sec.229.402(t) of this chapter).
    Item 4. Proposals by security holders. If any security holder 
entitled to vote at the meeting or by written authorization or consent 
has submitted to the registrant a reasonable time before the information 
statement is to be transmitted to security holders a proposal, other 
than elections to office, which is accompanied by notice of his 
intention to present the proposal for action at the meeting the 
registrant shall, if a meeting is held, make a statement to that effect, 
identify the proposal and indicate the disposition proposed to be made 
of the proposal by the registrant at the meeting.
    Instructions. 1. This item need not be answered as to any proposal 
submitted with respect to an annual meeting if such proposal is 
submitted less than 60 days in advance of a day corresponding to the 
date of sending a proxy statement or information statement in connection 
with the last annual meeting of security holders.
    2. If the registrant intends to rule a proposal out of order, the 
Commission shall be so advised 20 calendar days prior to the date the 
definitive copies of the information statement are filed with the 
Commission, together with a statement of the reasons why the proposal is 
not deemed to be a proper subject for action by security holders.
    Item 5. Delivery of documents to security holders sharing an 
address. If one annual report to security holders, information 
statement, or Notice of Internet Availability of Proxy Materials is 
being delivered to two or more security holders who share an address, 
furnish the following information in accordance with Sec.240.14a-
3(e)(1):
    (a) State that only one annual report to security holders, 
information statement, or Notice of Internet Availability of Proxy 
Materials, as applicable, is being delivered to multiple security 
holders sharing an address unless the registrant has received contrary 
instructions from one or more of the security holders;
    (b) Undertake to deliver promptly upon written or oral request a 
separate copy of the annual report to security holders, information 
statement, or Notice of Internet Availability of Proxy Materials, as 
applicable, to a security holder at a shared address to which a single 
copy of the documents was delivered and provide instructions as to how a 
security holder can notify the registrant that the security holder 
wishes to receive a separate copy of an annual report to security 
holders, information statement, or Notice of Internet Availability of 
Proxy Materials, as applicable;
    (c) Provide the phone number and mailing address to which a security 
holder can direct a notification to the registrant that the security 
holder wishes to receive a separate annual report to security holders, 
information statement, or Notice of Internet Availability of Proxy 
Materials, as applicable, in the future; and
    (d) Provide instructions how security holders sharing an address can 
request delivery of a single copy of annual reports to security holders, 
information statements, or Notices of Internet Availability of Proxy 
Materials if they are receiving multiple copies of annual reports to 
security holders, information statements, or Notices of Internet 
Availability of Proxy Materials.

[51 FR 42072, Nov. 20, 1986, as amended at 52 FR 48984, Dec. 29, 1987; 
57 FR 36495, Aug. 13, 1992; 58 FR 14684, Mar. 18, 1993; 59 FR 67765, 
Dec. 30, 1994; 61 FR 49960, Sept. 24, 1996; 65 FR 65752, Nov. 2, 2000; 
72 FR 4172, Jan. 29, 2007; 73 FR 977, Jan. 4, 2008; 76 FR 6046, Feb. 2, 
2011]

                             Regulation 14D

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING

[[Page 303]]

TO THE PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED 
IN THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T 
FOR DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec.240.14d-1  Scope of and definitions applicable to Regulations
14D and 14E.

    (a) Scope. Regulation 14D (Sec.Sec.240.14d-1 through 240.14d-101) 
shall apply to any tender offer that is subject to section 14(d)(1) of 
the Act (15 U.S.C. 78n(d)(1)), including, but not limited to, any tender 
offer for securities of a class described in that section that is made 
by an affiliate of the issuer of such class. Regulation 14E (Sec.Sec.
240.14e-1 through 240.14e-8) shall apply to any tender offer for 
securities (other than exempted securities) unless otherwise noted 
therein.
    (b) The requirements imposed by sections 14(d)(1) through 14(d)(7) 
of the Act, Regulation 14D and Schedules TO and 14D-9 thereunder, and 
Rule 14e-1 of Regulation 14E under the Act, shall be deemed satisfied 
with respect to any tender offer, including any exchange offer, for the 
securities of an issuer incorporated or organized under the laws of 
Canada or any Canadian province or territory, if such issuer is a 
foreign private issuer and is not an investment company registered or 
required to be registered under the Investment Company Act of 1940, if 
less than 40 percent of the class of securities outstanding that is the 
subject of the tender offer is held by U.S. holders, and the tender 
offer is subject to, and the bidder complies with, the laws, regulations 
and policies of Canada and/or any of its provinces or territories 
governing the conduct of the offer (unless the bidder has received an 
exemption(s) from, and the tender offer does not comply with, 
requirements that otherwise would be prescribed by Regulation 14D or 
14E), provided that:
    (1) In the case of tender offers subject to section 14(d)(1) of the 
Act, where the consideration for a tender offer subject to this section 
consists solely of cash, the entire disclosure document or documents 
required to be furnished to holders of the class of securities to be 
acquired shall be filed with the Commission on Schedule 14D-1F (Sec.
240.14d-102) and disseminated to shareholders of the subject company 
residing in the United States in accordance with such Canadian laws, 
regulations and policies; or
    (2) Where the consideration for a tender offer subject to this 
section includes securities of the bidder to be issued pursuant to the 
offer, any registration statement and/or prospectus relating thereto 
shall be filed with the Commission along with the Schedule 14D-1F 
referred to in paragraph (b)(1) of this section, and shall be 
disseminated, together with the home jurisdiction document(s) 
accompanying such Schedule, to shareholders of the subject company 
residing in the United States in accordance with such Canadian laws, 
regulations and policies.

    Notes: 1. For purposes of any tender offer, including any exchange 
offer, otherwise eligible to proceed in accordance with Rule 14d-1(b) 
under the Act, the issuer of the subject securities will be presumed to 
be a foreign private issuer and U.S. holders will be presumed to hold 
less than 40 percent of such outstanding securities, unless (a) the 
aggregate trading volume of that class on national securities exchanges 
in the United States and on NASDAQ exceeded its aggregate trading volume 
on securities exchanges in Canada and on the Canadian Dealing Network, 
Inc. (``CDN'') over the 12 calendar month period prior to commencement 
of this offer, or if commenced in response to a prior offer, over the 12 
calendar month period prior to the commencement of the initial offer 
(based on volume figures published by such exchanges and NASDAQ and 
CDN); (b) the most recent annual report or annual information form filed 
or submitted by the issuer with securities regulators of Ontario, 
Quebec, British Columbia or Alberta (or, if the issuer of the subject 
securities is not a reporting issuer in any of such provinces, with any 
other Canadian securities regulator) or with the Commission indicates 
that U.S. holders hold 40 percent or more of the outstanding subject 
class of securities; or (c) the offeror has actual knowledge that the 
level of U.S. ownership equals or exceeds 40 percent of such securities.
    2. Notwithstanding the grant of an exemption from one or more of the 
applicable Canadian regulatory provisions imposing requirements that 
otherwise would be prescribed by Regulation 14D or 14E, the tender offer 
will be eligible to proceed in accordance with the requirements of this 
section if the

[[Page 304]]

Commission by order determines that the applicable Canadian regulatory 
provisions are adequate to protect the interest of investors.

    (c) Tier I. Any tender offer for the securities of a foreign private 
issuer as defined in Sec.240.3b-4 is exempt from the requirements of 
sections 14(d)(1) through 14(d)(7) of the Act (15 U.S.C. 78n(d)(1) 
through 78n(d)(7)), Regulation 14D (Sec.Sec.240.14d-1 through 
240.14d-10) and Schedules TO (Sec.240.14d-100) and 14D-9 (Sec.
240.14d-101) thereunder, and Sec.240.14e-1 and Sec.240.14e-2 of 
Regulation 14E under the Act if the following conditions are satisfied:
    (1) U.S. ownership limitation. Except in the case of a tender offer 
that is commenced during the pendency of a tender offer made by a prior 
bidder in reliance on this paragraph or Sec.240.13e-4(h)(8), U.S. 
holders do not hold more than 10 percent of the class of securities 
sought in the offer (as determined under Instructions 2 or 3 to 
paragraphs (c) and (d) of this section).
    (2) Equal treatment. The bidder must permit U.S. holders to 
participate in the offer on terms at least as favorable as those offered 
any other holder of the same class of securities that is the subject of 
the tender offer; however:
    (i) Registered exchange offers. If the bidder offers securities 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
bidder need not extend the offer to security holders in those states or 
jurisdictions that prohibit the offer or sale of the securities after 
the bidder has made a good faith effort to register or qualify the offer 
and sale of securities in that state or jurisdiction, except that the 
bidder must offer the same cash alternative to security holders in any 
such state or jurisdiction that it has offered to security holders in 
any other state or jurisdiction.
    (ii) Exempt exchange offers. If the bidder offers securities exempt 
from registration under Sec.230.802 of this chapter, the bidder need 
not extend the offer to security holders in those states or 
jurisdictions that require registration or qualification, except that 
the bidder must offer the same cash alternative to security holders in 
any such state or jurisdiction that it has offered to security holders 
in any other state or jurisdiction.
    (iii) Cash only consideration. The bidder may offer U.S. holders 
only a cash consideration for the tender of the subject securities, 
notwithstanding the fact that the bidder is offering security holders 
outside the United States a consideration that consists in whole or in 
part of securities of the bidder, so long as the bidder has a reasonable 
basis for believing that the amount of cash is substantially equivalent 
to the value of the consideration offered to non-U.S. holders, and 
either of the following conditions are satisfied:
    (A) The offered security is a ``margin security'' within the meaning 
of Regulation T (12 CFR 220.2) and the issuer undertakes to provide, 
upon the request of any U.S. holder or the Commission staff, the closing 
price and daily trading volume of the security on the principal trading 
market for the security as of the last trading day of each of the six 
months preceding the announcement of the offer and each of the trading 
days thereafter; or
    (B) If the offered security is not a ``margin security'' within the 
meaning of Regulation T (12 CFR 220.2) the issuer undertakes to provide, 
upon the request of any U.S. holder or the Commission staff, an opinion 
of an independent expert stating that the cash consideration offered to 
U.S. holders is substantially equivalent to the value of the 
consideration offered security holders outside the United States.
    (iv) Disparate tax treatment. If the bidder offers loan notes solely 
to offer sellers tax advantages not available in the United States and 
these notes are neither listed on any organized securities market nor 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
loan notes need not be offered to U.S. holders.
    (3) Informational documents. (i) The bidder must disseminate any 
informational document to U.S. holders, including any amendments 
thereto, in English, on a comparable basis to that provided to security 
holders in the home jurisdiction.
    (ii) If the bidder disseminates by publication in its home 
jurisdiction, the bidder must publish the information in the United 
States in a manner reasonably calculated to inform U.S. holders of the 
offer.

[[Page 305]]

    (iii) In the case of tender offers for securities described in 
section 14(d)(1) of the Act (15 U.S.C. 78n(d)(1)), if the bidder 
publishes or otherwise disseminates an informational document to the 
holders of the securities in connection with the tender offer, the 
bidder must furnish that informational document, including any 
amendments thereto, in English, to the Commission on Form CB (Sec.
249.480 of this chapter) by the first business day after publication or 
dissemination. If the bidder is a foreign company, it must also file a 
Form F-X (Sec.239.42 of this chapter) with the Commission at the same 
time as the submission of Form CB to appoint an agent for service in the 
United States.
    (4) Investment companies. The issuer of the securities that are the 
subject of the tender offer is not an investment company registered or 
required to be registered under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.), other than a registered closed-end investment 
company.
    (d) Tier II. A person conducting a tender offer (including any 
exchange offer) that meets the conditions in paragraph (d)(1) of this 
section shall be entitled to the exemptive relief specified in paragraph 
(d)(2) of this section, provided that such tender offer complies with 
all the requirements of this section other than those for which an 
exemption has been specifically provided in paragraph (d)(2) of this 
section. In addition, a person conducting a tender offer subject only to 
the requirements of section 14(e) of the Act (15 U.S.C. 78n(e)) and 
Regulation 14E thereunder (Sec.Sec.240.14e-1 through 240.14e-8) that 
meets the conditions in paragraph (d)(1) of the section also shall be 
entitled to the exemptive relief specified in paragraph (d)(2) of this 
section, to the extent needed under the requirements of Regulation 14E, 
so long as the tender offer complies with all requirements of Regulation 
14E other than those for which an exemption has been specifically 
provided in paragraph (d)(2) of this section:
    (1) Conditions. (i) The subject company is a foreign private issuer 
as defined in Sec.240.3b-4 and is not an investment company registered 
or required to be registered under the Investment Company Act of 1940 
(15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment 
company;
    (ii) Except in the case of a tender offer that is commenced during 
the pendency of a tender offer made by a prior bidder in reliance on 
this paragraph or Sec.240.13e-4(i), U.S. holders do not hold more than 
40 percent of the class of securities sought in the offer (as determined 
under Instructions 2 or 3 to paragraphs (c) and (d) of this section); 
and
    (iii) The bidder complies with all applicable U.S. tender offer laws 
and regulations, other than those for which an exemption has been 
provided for in paragraph (d)(2) of this section.
    (2) Exemptions--(i) Equal treatment--loan notes. If the bidder 
offers loan notes solely to offer sellers tax advantages not available 
in the United States and these notes are neither listed on any organized 
securities market nor registered under the Securities Act of 1933 (15 
U.S.C. 77a et seq.), the loan notes need not be offered to U.S. holders, 
notwithstanding Sec.240.14d-10.
    (ii) Equal treatment--separate U.S. and foreign offers. 
Notwithstanding the provisions of Sec.240.14d-10, a bidder conducting 
a tender offer meeting the conditions of paragraph (d)(1) of this 
section may separate the offer into multiple offers: One offer made to 
U.S. holders, which also may include all holders of American Depositary 
Shares representing interests in the subject securities, and one or more 
offers made to non-U.S. holders. The U.S. offer must be made on terms at 
least as favorable as those offered any other holder of the same class 
of securities that is the subject of the tender offers. U.S. holders may 
be included in the foreign offer(s) only where the laws of the 
jurisdiction governing such foreign offer(s) expressly preclude the 
exclusion of U.S. holders from the foreign offer(s) and where the offer 
materials distributed to U.S. holders fully and adequately disclose the 
risks of participating in the foreign offer(s).
    (iii) Notice of extensions. Notice of extensions made in accordance 
with the requirements of the home jurisdiction law or practice will 
satisfy the requirements of Sec.240.14e-1(d).

[[Page 306]]

    (iv) Prompt payment. Payment made in accordance with the 
requirements of the home jurisdiction law or practice will satisfy the 
requirements of Sec.240.14e-1(c). Where payment may not be made on a 
more expedited basis under home jurisdiction law or practice, payment 
for securities tendered during any subsequent offering period within 20 
business days of the date of tender will satisfy the prompt payment 
requirements of Sec.240.14d-11(e). For purposes of this paragraph (d), 
a business day is determined with reference to the target's home 
jurisdiction.
    (v) Subsequent offering period/Withdrawal rights. A bidder will 
satisfy the announcement and prompt payment requirements of Sec.
240.14d-11(d), if the bidder announces the results of the tender offer, 
including the approximate number of securities deposited to date, and 
pays for tendered securities in accordance with the requirements of the 
home jurisdiction law or practice and the subsequent offering period 
commences immediately following such announcement. Notwithstanding 
section 14(d)(5) of the Act (15 U.S.C. 78n(d)(5)), the bidder need not 
extend withdrawal rights following the close of the offer and prior to 
the commencement of the subsequent offering period.
    (vi) Payment of interest on securities tendered during subsequent 
offering period. Notwithstanding the requirements of Sec.240.14d-
11(f), the bidder may pay interest on securities tendered during a 
subsequent offering period, if required under applicable foreign law. 
Paying interest on securities tendered during a subsequent offering 
period in accordance with this section will not be deemed to violate 
Sec.240.14d-10(a)(2).
    (vii) Suspension of withdrawal rights during counting of tendered 
securities. The bidder may suspend withdrawal rights required under 
section 14(d)(5) of the Act (15 U.S.C. 78n(d)(5)) at the end of the 
offer and during the period that securities tendered into the offer are 
being counted, provided that:
    (A) The bidder has provided an offer period including withdrawal 
rights for a period of at least 20 U.S. business days;
    (B) At the time withdrawal rights are suspended, all offer 
conditions have been satisfied or waived, except to the extent that the 
bidder is in the process of determining whether a minimum acceptance 
condition included in the terms of the offer has been satisfied by 
counting tendered securities; and
    (C) Withdrawal rights are suspended only during the counting process 
and are reinstated immediately thereafter, except to the extent that 
they are terminated through the acceptance of tendered securities.
    (viii) Mix and match elections and the subsequent offering period. 
Notwithstanding the requirements of Sec.240.14d-11(b), where the 
bidder offers target security holders a choice between different forms 
of consideration, it may establish a ceiling on one or more forms of 
consideration offered. Notwithstanding the requirements of Sec.
240.14d-11(f), a bidder that establishes a ceiling on one or more forms 
of consideration offered pursuant to this subsection may offset 
elections of tendering security holders against one another, subject to 
proration, so that elections are satisfied to the greatest extent 
possible and prorated to the extent that they cannot be satisfied in 
full. Such a bidder also may separately offset and prorate securities 
tendered during the initial offering period and those tendered during 
any subsequent offering period, notwithstanding the requirements of 
Sec.240.14d-10(c).
    (ix) Early termination of an initial offering period. A bidder may 
terminate an initial offering period, including a voluntary extension of 
that period, if at the time the initial offering period and withdrawal 
rights terminate, the following conditions are met:
    (A) The initial offering period has been open for at least 20 U.S. 
business days;
    (B) The bidder has adequately discussed the possibility of and the 
impact of the early termination in the original offer materials;
    (C) The bidder provides a subsequent offering period after the 
termination of the initial offering period;
    (D) All offer conditions are satisfied as of the time when the 
initial offering period ends; and
    (E) The bidder does not terminate the initial offering period or any 
extension of that period during any mandatory

[[Page 307]]

extension required under U.S. tender offer rules.

    Instructions to paragraphs (c) and (d): 1. Home jurisdiction means 
both the jurisdiction of the subject company's incorporation, 
organization or chartering and the principal foreign market where the 
subject company's securities are listed or quoted.
    2. U.S. holder means any security holder resident in the United 
States. Except as otherwise provided in Instruction 3 below, to 
determine the percentage of outstanding securities held by U.S. holders:
    i. Calculate the U.S. ownership as of a date no more than 60 before 
and no more than 30 days after public announcement of the tender offer. 
If you are unable to calculate as of a date within these time frames, 
the calculation may be made as of the most recent practicable date 
before public announcement, but in no event earlier than 120 days before 
announcement;
    ii. Include securities underlying American Depositary Shares 
convertible or exchangeable into the securities that are the subject of 
the tender offer when calculating the number of subject securities 
outstanding, as well as the number held by U.S. holders. Exclude from 
the calculations other types of securities that are convertible or 
exchangeable into the securities that are the subject of the tender 
offer, such as warrants, options and convertible securities. Exclude 
from those calculations securities held by the bidder;
    iii. Use the method of calculating record ownership in Rule 12g3-
2(a) under the Act (Sec.240.12g3-2(a) of this chapter), except that 
your inquiry as to the amount of securities represented by accounts of 
customers resident in the United States may be limited to brokers, 
dealers, banks and other nominees located in the United States, the 
subject company's jurisdiction of incorporation or that of each 
participant in a business combination, and the jurisdiction that is the 
primary trading market for the subject securities, if different than the 
subject company's jurisdiction of incorporation;
    iv. If, after reasonable inquiry, you are unable to obtain 
information about the amount of securities represented by accounts of 
customers resident in the United States, you may assume, for purposes of 
this definition, that the customers are residents of the jurisdiction in 
which the nominee has its principal place of business; and
    v. Count securities as beneficially owned by residents of the United 
States as reported on reports of beneficial ownership that are provided 
to you or publicly filed and based on information otherwise provided to 
you.
    3. In a tender offer by a bidder other than an affiliate of the 
issuer of the subject securities that is not made pursuant to an 
agreement with the issuer of the subject securities, the issuer of the 
subject securities will be presumed to be a foreign private issuer and 
U.S. holders will be presumed to hold less than 10 percent (40 percent 
in the case of paragraph (d) of this section) of such outstanding 
securities, unless paragraphs 3.i., ii., or iii. of the instructions to 
paragraphs (c) and (d) of this section indicate otherwise. In addition, 
where the bidder is unable to conduct the analysis of U.S. ownership set 
forth in Instruction 2 to paragraphs (c) and (d) of this section, the 
bidder may presume that the percentage of securities held by U.S. 
holders is less than 10 percent (40 percent in the case of paragraph (d) 
of this section) of the outstanding securities so long as there is a 
primary trading market for the subject securities outside the U.S., as 
defined in Sec.240.12h-6(f)(5) of this chapter, unless:
    i. Average daily trading volume of the subject securities in the 
United States for a recent twelve-month period ending on a date no more 
than 60 days before the public announcement of the offer exceeds 10 
percent (40 percent in the case of paragraph (d) of this section) of the 
average daily trading volume of that class of securities on a worldwide 
basis for the same period; or
    ii. The most recent annual report or annual information filed or 
submitted by the issuer with securities regulators of the home 
jurisdiction or with the Commission or any jurisdiction in which the 
subject securities trade before the public announcement of the offer 
indicates that U.S. holders hold more than 10 percent (40 percent in the 
case of paragraph (d) of this section) of the outstanding subject class 
of securities; or
    iii. The bidder knows or has reason to know, before the public 
announcement of the offer, that the level of U.S. ownership exceeds 10 
percent (40 percent in the case of paragraph (d) of this section) of 
such securities. As an example, a bidder is deemed to know information 
about U.S. ownership of the subject class of securities that is publicly 
available and that appears in any filing with the Commission or any 
regulatory body in the issuer's jurisdiction of incorporation or (if 
different) the non-U.S. jurisdiction in which the primary trading market 
for the subject securities is located. The bidder is deemed to know 
information about U.S. ownership available from the issuer or obtained 
or readily available from any other source that is reasonably reliable, 
including from persons it has retained to advise it about the 
transaction, as well as from third-party information providers. These 
examples are not intended to be exclusive.
    iv. The bidder knows or has reason to know that the level of U.S. 
ownership exceeds 10 percent (40 percent in the case of 14d-1(d)) of 
such securities.
    4. United States means the United States of America, its territories 
and possessions, any

[[Page 308]]

State of the United States, and the District of Columbia.
    5. The exemptions provided by paragraphs (c) and (d) of this section 
are not available for any securities transaction or series of 
transactions that technically complies with paragraph (c) or (d) of this 
section but are part of a plan or scheme to evade the provisions of 
Regulations 14D or 14E.
    (e) Notwithstanding paragraph (a) of this section, the requirements 
imposed by sections 14(d)(1) through 14(d)(7) of the Act [15 U.S.C. 
78n(d)(1) through 78n(d)(7)], Regulation 14D promulgated thereunder 
(Sec.Sec.240.14d-1 through 240.14d-10), and Sec.Sec.240.14e-1 and 
240.14e-2 shall not apply by virtue of the fact that a bidder for the 
securities of a foreign private issuer, as defined in Sec.240.3b-4, 
the subject company of such a tender offer, their representatives, or 
any other person specified in Sec.240.14d-9(d), provides any 
journalist with access to its press conferences held outside of the 
United States, to meetings with its representatives conducted outside of 
the United States, or to written press-related materials released 
outside the United States, at or in which a present or proposed tender 
offer is discussed, if:
    (1) Access is provided to both U.S. and foreign journalists; and
    (2) With respect to any written press-related materials released by 
the bidder or its representatives that discuss a present or proposed 
tender offer for equity securities registered under Section 12 of the 
Act [15 U.S.C. 78l], the written press-related materials must state that 
these written press-related materials are not an extension of a tender 
offer in the United States for a class of equity securities of the 
subject company. If the bidder intends to extend the tender offer in the 
United States at some future time, a statement regarding this intention, 
and that the procedural and filing requirements of the Williams Act will 
be satisfied at that time, also must be included in these written press-
related materials. No means to tender securities, or coupons that could 
be returned to indicate interest in the tender offer, may be provided as 
part of, or attached to, these written press-related materials.
    (f) For the purpose of Sec.240.14d-1(e), a bidder may presume that 
a target company qualifies as a foreign private issuer if the target 
company is a foreign issuer and files registration statements or reports 
on the disclosure forms specifically designated for foreign private 
issuers, claims the exemption from registration under the Act pursuant 
to Sec.240.12g3-2(b), or is not reporting in the United States.
    (g) Definitions. Unless the context otherwise requires, all terms 
used in Regulation 14D and Regulation 14E have the same meaning as in 
the Act and in Rule 12b-2 (Sec.240.12b-2) promulgated thereunder. In 
addition, for purposes of sections 14(d) and 14(e) of the Act and 
Regulations 14D and 14E, the following definitions apply:
    (1) The term beneficial owner shall have the same meaning as that 
set forth in Rule 13d-3: Provided, however, That, except with respect to 
Rule 14d-3, Rule 14d-9(d), the term shall not include a person who does 
not have or share investment power or who is deemed to be a beneficial 
owner by virtue of Rule 13d-3(d)(1) (Sec.240.13d-3(d)(1));
    (2) The term bidder means any person who makes a tender offer or on 
whose behalf a tender offer is made: Provided, however, That the term 
does not include an issuer which makes a tender offer for securities of 
any class of which it is the issuer;
    (3) The term business day means any day, other than Saturday, Sunday 
or a federal holiday, and shall consist of the time period from 12:01 
a.m. through 12:00 midnight Eastern time. In computing any time period 
under section 14(d)(5) or section 14(d)(6) of the Act or under 
Regulation 14D or Regulation 14E, the date of the event which begins the 
running of such time period shall be included except that if such event 
occurs on other than a business day such period shall begin to run on 
and shall include the first business day thereafter; and
    (4) The term initial offering period means the period from the time 
the offer commences until all minimum time periods, including 
extensions, required by Regulations 14D (Sec.Sec.240.14d-1 through 
240.14d-103) and 14E (Sec.Sec.240.14e-1 through 240.14e-8) have been 
satisfied and all conditions to the offer have been satisfied or waived 
within these time periods.

[[Page 309]]

    (5) The term security holders means holders of record and beneficial 
owners of securities which are the subject of a tender offer;
    (6) The term security position listing means, with respect to 
securities of any issuer held by a registered clearing agency in the 
name of the clearing agency or its nominee, a list of those participants 
in the clearing agency on whose behalf the clearing agency holds the 
issuer's securities and of the participants' respective positions in 
such securities as of a specified date.
    (7) The term subject company means any issuer of securities which 
are sought by a bidder pursuant to a tender offer;
    (8) The term subsequent offering period means the period immediately 
following the initial offering period meeting the conditions specified 
in Sec.240.14d-11.
    (9) The term tender offer material means:
    (i) The bidder's formal offer, including all the material terms and 
conditions of the tender offer and all amendments thereto;
    (ii) The related transmittal letter (whereby securities of the 
subject company which are sought in the tender offer may be transmitted 
to the bidder or its depositary) and all amendments thereto; and
    (iii) Press releases, advertisements, letters and other documents 
published by the bidder or sent or given by the bidder to security 
holders which, directly or indirectly, solicit, invite or request 
tenders of the securities being sought in the tender offer;
    (h) Signatures. Where the Act or the rules, forms, reports or 
schedules thereunder require a document filed with or furnished to the 
Commission to be signed, such document shall be manually signed, or 
signed using either typed signatures or duplicated or facsimile versions 
of manual signatures. Where typed, duplicated or facsimile signatures 
are used, each signatory to the filing shall manually sign a signature 
page or other document authenticating, acknowledging or otherwise 
adopting his or her signature that appears in the filing. Such document 
shall be executed before or at the time the filing is made and shall be 
retained by the filer for a period of five years. Upon request, the 
filer shall furnish to the Commission or its staff a copy of any or all 
documents retained pursuant to this section.

[44 FR 70340, Dec. 6, 1979, as amended at 47 FR 11470, Mar. 16, 1982; 56 
FR 30071, July 1, 1991; 60 FR 26622, May 17, 1995; 61 FR 30403, June 14, 
1996; 62 FR 53955, Oct. 17, 1997; 64 FR 61404, 61459, Nov. 10, 1999; 73 
FR 17814, Apr. 1, 2008; 73 FR 60091, Oct. 9, 2008]



Sec.240.14d-2  Commencement of a tender offer.

    (a) Date of commencement. A bidder will have commenced its tender 
offer for purposes of section 14(d) of the Act (15 U.S.C. 78n) and the 
rules under that section at 12:01 a.m. on the date when the bidder has 
first published, sent or given the means to tender to security holders. 
For purposes of this section, the means to tender includes the 
transmittal form or a statement regarding how the transmittal form may 
be obtained.
    (b) Pre-commencement communications. A communication by the bidder 
will not be deemed to constitute commencement of a tender offer if:
    (1) It does not include the means for security holders to tender 
their shares into the offer; and
    (2) All written communications relating to the tender offer, from 
and including the first public announcement, are filed under cover of 
Schedule TO (Sec.240.14d-100) with the Commission no later than the 
date of the communication. The bidder also must deliver to the subject 
company and any other bidder for the same class of securities the first 
communication relating to the transaction that is filed, or required to 
be filed, with the Commission.

    Instructions to paragraph (b)(2): 1. The box on the front of 
Schedule TO indicating that the filing contains pre-commencement 
communications must be checked.
    2. Any communications made in connection with an exchange offer 
registered under the Securities Act of 1933 need only be filed under 
Sec.230.425 of this chapter and will be deemed filed under this 
section.
    3. Each pre-commencement written communication must include a 
prominent legend in clear, plain language advising security holders to 
read the tender offer statement when it is available because it contains 
important information. The legend also must advise investors that they 
can get the tender

[[Page 310]]

offer statement and other filed documents for free at the Commission's 
web site and explain which documents are free from the offeror.
    4. See Sec.Sec.230.135, 230.165 and 230.166 of this chapter for 
pre-commencement communications made in connection with registered 
exchange offers.
    5. ``Public announcement'' is any oral or written communication by 
the bidder, or any person authorized to act on the bidder's behalf, that 
is reasonably designed to, or has the effect of, informing the public or 
security holders in general about the tender offer.

    (c) Filing and other obligations triggered by commencement. As soon 
as practicable on the date of commencement, a bidder must comply with 
the filing requirements of Sec.240.14d-3(a), the dissemination 
requirements of Sec.240.14d-4(a) or (b), and the disclosure 
requirements of Sec.240.14d-6(a).

[64 FR 61459, Nov. 10, 1999]



Sec.240.14d-3  Filing and transmission of tender offer statement.

    (a) Filing and transmittal. No bidder shall make a tender offer if, 
after consummation thereof, such bidder would be the beneficial owner of 
more than 5 percent of the class of the subject company's securities for 
which the tender offer is made, unless as soon as practicable on the 
date of the commencement of the tender offer such bidder:
    (1) Files with the Commission a Tender Offer Statement on Schedule 
TO (Sec.240.14d-100), including all exhibits thereto;
    (2) Delivers a copy of such Schedule TO, including all exhibits 
thereto:
    (i) To the subject company at its principal executive office; and
    (ii) To any other bidder, which has filed a Schedule TO with the 
Commission relating to a tender offer which has not yet terminated for 
the same class of securities of the subject company, at such bidder's 
principal executive office or at the address of the person authorized to 
receive notices and communications (which is disclosed on the cover 
sheet of such other bidder's Schedule TO);
    (3) Gives telephonic notice of the information required by Rule 14d-
6(d)(2)(i) and (ii) (Sec.240.14d-6(d)(2)(i) and (ii)) and mails by 
means of first class mail a copy of such Schedule TO, including all 
exhibits thereto:
    (i) To each national securities exchange where such class of the 
subject company's securities is registered and listed for trading (which 
may be based upon information contained in the subject company's most 
recent Annual Report on Form 10-K (Sec.249.310 of this chapter) filed 
with the Commission unless the bidder has reason to believe that such 
information is not current), which telephonic notice shall be made when 
practicable before the opening of each such exchange; and
    (ii) To the National Association of Securities Dealers, Inc. 
(``NASD'') if such class of the subject company's securities is 
authorized for quotation in the NASDAQ interdealer quotation system.
    (b) Post-commencement amendments and additional materials. The 
bidder making the tender offer must file with the Commission:
    (1) An amendment to Schedule TO (Sec.240.14d-100) reporting 
promptly any material changes in the information set forth in the 
schedule previously filed and including copies of any additional tender 
offer materials as exhibits; and
    (2) A final amendment to Schedule TO (Sec.240.14d-100) reporting 
promptly the results of the tender offer.

    Instruction to paragraph (b): A copy of any additional tender offer 
materials or amendment filed under this section must be sent promptly to 
the subject company and to any exchange and/or NASD, as required by 
paragraph (a) of this section, but in no event later than the date the 
materials are first published, sent or given to security holders.

    (c) Certain announcements. Notwithstanding the provisions of 
paragraph (b) of this section, if the additional tender offer material 
or an amendment to Schedule TO discloses only the number of shares 
deposited to date, and/or announces an extension of the time during 
which shares may be tendered, then the bidder may file such tender offer 
material or amendment and send a copy of such tender offer material or 
amendment to the subject company, any exchange and/or the NASD, as 
required by paragraph (a) of this section, promptly after the date such 
tender

[[Page 311]]

offer material is first published or sent or given to security holders.

[44 FR 70341, Dec. 6, 1979; 64 FR 61460, Nov. 10, 1999, as amended at 73 
FR 977, Jan. 4, 2008; 73 FR 17814, Apr. 1, 2008]



Sec.240.14d-4  Dissemination of tender offers to security holders.

    As soon as practicable on the date of commencement of a tender 
offer, the bidder must publish, send or give the disclosure required by 
Sec.240.14d-6 to security holders of the class of securities that is 
the subject of the offer, by complying with all of the requirements of 
any of the following:
    (a) Cash tender offers and exempt securities offers. For tender 
offers in which the consideration consists solely of cash and/or 
securities exempt from registration under section 3 of the Securities 
Act of 1933 (15 U.S.C. 77c):
    (1) Long-form publication. The bidder makes adequate publication in 
a newspaper or newspapers of long-form publication of the tender offer.
    (2) Summary publication. (i) If the tender offer is not subject to 
Rule 13e-3 (Sec.240.13e-3), the bidder makes adequate publication in a 
newspaper or newspapers of a summary advertisement of the tender offer; 
and
    (ii) Mails by first class mail or otherwise furnishes with 
reasonable promptness the bidder's tender offer materials to any 
security holder who requests such tender offer materials pursuant to the 
summary advertisement or otherwise.
    (3) Use of stockholder lists and security position listings. Any 
bidder using stockholder lists and security position listings under 
Sec.240.14d-5 must comply with paragraph (a)(1) or (2) of this section 
on or before the date of the bidder's request under Sec.240.14d-5(a).

    Instruction to paragraph (a): Tender offers may be published or sent 
or given to security holders by other methods, but with respect to 
summary publication and the use of stockholder lists and security 
position listings under Sec.240.14d-5, paragraphs (a)(2) and (a)(3) of 
this section are exclusive.

    (b) Registered securities offers. For tender offers in which the 
consideration consists solely or partially of securities registered 
under the Securities Act of 1933, a registration statement containing 
all of the required information, including pricing information, has been 
filed and a preliminary prospectus or a prospectus that meets the 
requirements of section 10(a) of the Securities Act (15 U.S.C. 77j(a)), 
including a letter of transmittal, is delivered to security holders. 
However, for going-private transactions (as defined by Sec.240.13e-3) 
and roll-up transactions (as described by Item 901 of Regulation S-K 
(Sec.229.901 of this chapter)), a registration statement registering 
the securities to be offered must have become effective and only a 
prospectus that meets the requirements of section 10(a) of the 
Securities Act may be delivered to security holders on the date of 
commencement.

    Instructions to paragraph (b): 1. If the prospectus is being 
delivered by mail, mailing on the date of commencement is sufficient.
    2. A preliminary prospectus used under this section may not omit 
information under Sec.Sec.230.430 or 230.430A of this chapter.
    3. If a preliminary prospectus is used under this section and the 
bidder must disseminate material changes, the tender offer must remain 
open for the period specified in paragraph (d)(2) of this section.
    4. If a preliminary prospectus is used under this section, tenders 
may be requested in accordance with Sec.230.162(a) of this chapter.

    (c) Adequate publication. Depending on the facts and circumstances 
involved, adequate publication of a tender offer pursuant to this 
section may require publication in a newspaper with a national 
circulation or may only require publication in a newspaper with 
metropolitan or regional circulation or may require publication in a 
combination thereof: Provided, however, That publication in all editions 
of a daily newspaper with a national circulation shall be deemed to 
constitute adequate publication.
    (d) Publication of changes and extension of the offer. (1) If a 
tender offer has been published or sent or given to security holders by 
one or more of the methods enumerated in this section, a material change 
in the information published or sent or given to security holders shall 
be promptly disseminated to security holders in a manner reasonably 
designed to inform security holders of such change; Provided, however, 
That if the bidder has elected pursuant

[[Page 312]]

to rule 14d-5 (f)(1) of this section to require the subject company to 
disseminate amendments disclosing material changes to the tender offer 
materials pursuant to Rule 14d-5, the bidder shall disseminate material 
changes in the information published or sent or given to security 
holders at least pursuant to Rule 14d-5.
    (2) In a registered securities offer where the bidder disseminates 
the preliminary prospectus as permitted by paragraph (b) of this 
section, the offer must remain open from the date that material changes 
to the tender offer materials are disseminated to security holders, as 
follows:
    (i) Five business days for a prospectus supplement containing a 
material change other than price or share levels;
    (ii) Ten business days for a prospectus supplement containing a 
change in price, the amount of securities sought, the dealer's 
soliciting fee, or other similarly significant change;
    (iii) Ten business days for a prospectus supplement included as part 
of a post-effective amendment; and
    (iv) Twenty business days for a revised prospectus when the initial 
prospectus was materially deficient.

[44 FR 70341, Dec. 6, 1979, as amended at 64 FR 61460, Nov. 10, 1999; 76 
FR 71876, Nov. 21, 2011]



Sec.240.14d-5  Dissemination of certain tender offers by the use 
of stockholder lists and security position listings.

    (a) Obligations of the subject company. Upon receipt by a subject 
company at its principal executive offices of a bidder's written 
request, meeting the requirements of paragraph (e) of this section, the 
subject company shall comply with the following sub-paragraphs.
    (1) The subject company shall notify promptly transfer agents and 
any other person who will assist the subject company in complying with 
the requirements of this section of the receipt by the subject company 
of a request by a bidder pursuant to this section.
    (2) The subject company shall promptly ascertain whether the most 
recently prepared stockholder list, written or otherwise, within the 
access of the subject company was prepared as of a date earlier than ten 
business days before the date of the bidder's request and, if so, the 
subject company shall promptly prepare or cause to be prepared a 
stockholder list as of the most recent practicable date which shall not 
be more than ten business days before the date of the bidder's request.
    (3) The subject company shall make an election to comply and shall 
comply with all of the provisions of either paragraph (b) or paragraph 
(c) of this section. The subject company's election once made shall not 
be modified or revoked during the bidder's tender offer and extensions 
thereof.
    (4) No later than the second business day after the date of the 
bidder's request, the subject company shall orally notify the bidder, 
which notification shall be confirmed in writing, of the subject 
company's election made pursuant to paragraph (a)(3) of this section. 
Such notification shall indicate (i) the approximate number of security 
holders of the class of securities being sought by the bidder and, (ii) 
if the subject company elects to comply with paragraph (b) of this 
section, appropriate information concerning the location for delivery of 
the bidder's tender offer materials and the approximate direct costs 
incidental to the mailing to security holders of the bidder's tender 
offer materials computed in accordance with paragraph (g)(2) of this 
section.
    (b) Mailing of tender offer materials by the subject company. A 
subject company which elects pursuant to paragraph (a)(3) of this 
section to comply with the provisions of this paragraph shall perform 
the acts prescribed by the following paragraphs.
    (1) The subject company shall promptly contact each participant 
named on the most recent security position listing of any clearing 
agency within the access of the subject company and make inquiry of each 
such participant as to the approximate number of beneficial owners of 
the subject company securities being sought in the tender offer held by 
each such participant.
    (2) No later than the third business day after delivery of the 
bidder's tender offer materials pursuant to paragraph (g)(1) of this 
section, the subject

[[Page 313]]

company shall begin to mail or cause to be mailed by means of first 
class mail a copy of the bidder's tender offer materials to each person 
whose name appears as a record holder of the class of securities for 
which the offer is made on the most recent stockholder list referred to 
in paragraph (a)(2) of this section. The subject company shall use its 
best efforts to complete the mailing in a timely manner but in no event 
shall such mailing be completed in a substantially greater period of 
time than the subject company would complete a mailing to security 
holders of its own materials relating to the tender offer.
    (3) No later than the third business day after the delivery of the 
bidder's tender offer materials pursuant to paragraph (g)(1) of this 
section, the subject company shall begin to transmit or cause to be 
transmitted a sufficient number of sets of the bidder's tender offer 
materials to the participants named on the security position listings 
described in paragraph (b)(1) of this section. The subject company shall 
use its best efforts to complete the transmittal in a timely manner but 
in no event shall such transmittal be completed in a substantially 
greater period of time than the subject company would complete a 
transmittal to such participants pursuant to security position listings 
of clearing agencies of its own material relating to the tender offer.
    (4) The subject company shall promptly give oral notification to the 
bidder, which notification shall be confirmed in writing, of the 
commencement of the mailing pursuant to paragraph (b)(2) of this section 
and of the transmittal pursuant to paragraph (b)(3) of this section.
    (5) During the tender offer and any extension thereof the subject 
company shall use reasonable efforts to update the stockholder list and 
shall mail or cause to be mailed promptly following each update a copy 
of the bidder's tender offer materials (to the extent sufficient sets of 
such materials have been furnished by the bidder) to each person who has 
become a record holder since the later of (i) the date of preparation of 
the most recent stockholder list referred to in paragraph (a)(2) of this 
section or (ii) the last preceding update.
    (6) If the bidder has elected pursuant to paragraph (f)(1) of this 
section to require the subject company to disseminate amendments 
disclosing material changes to the tender offer materials pursuant to 
this section, the subject company, promptly following delivery of each 
such amendment, shall mail or cause to be mailed a copy of each such 
amendment to each record holder whose name appears on the shareholder 
list described in paragraphs (a)(2) and (b)(5) of this section and shall 
transmit or cause to be transmitted sufficient copies of such amendment 
to each participant named on security position listings who received 
sets of the bidder's tender offer materials pursuant to paragraph (b)(3) 
of this section.
    (7) The subject company shall not include any communication other 
than the bidder's tender offer materials or amendments thereto in the 
envelopes or other containers furnished by the bidder.
    (8) Promptly following the termination of the tender offer, the 
subject company shall reimburse the bidder the excess, if any, of the 
amounts advanced pursuant to paragraph (f)(3)(iii) over the direct costs 
incidental to compliance by the subject company and its agents in 
performing the acts required by this section computed in accordance with 
paragraph (g)(2) of this section.
    (c) Delivery of stockholder lists and security position listings. A 
subject company which elects pursuant to paragraph (a)(3) of this 
section to comply with the provisions of this paragraph shall perform 
the acts prescribed by the following paragraphs.
    (1) No later than the third business day after the date of the 
bidder's request, the subject company must furnish to the bidder at the 
subject company's principal executive office a copy of the names and 
addresses of the record holders on the most recent stockholder list 
referred to in paragraph (a)(2) of this section; the names and addresses 
of participants identified on the most recent security position listing 
of any clearing agency that is within the access of the subject company; 
and the most recent list of names, addresses and security positions of 
beneficial owners as specified in Sec.240.14a-13(b), in the possession 
of

[[Page 314]]

the subject company, or that subsequently comes into its possession. All 
security holder list information must be in the format requested by the 
bidder to the extent the format is available to the subject company 
without undue burden or expense.
    (2) If the bidder has elected pursuant to paragraph (f)(1) of this 
section to require the subject company to disseminate amendments 
disclosing material changes to the tender offer materials, the subject 
company shall update the stockholder list by furnishing the bidder with 
the name and address of each record holder named on the stockholder 
list, and not previously furnished to the bidder, promptly after such 
information becomes available to the subject company during the tender 
offer and any extensions thereof.
    (d) Liability of subject company and others. Neither the subject 
company nor any affiliate or agent of the subject company nor any 
clearing agency shall be:
    (1) Deemed to have made a solicitation or recommendation respecting 
the tender offer within the meaning of section 14(d)(4) based solely 
upon the compliance or noncompliance by the subject company or any 
affiliate or agent of the subject company with one or more requirements 
of this section;
    (2) Liable under any provision of the Federal securities laws to the 
bidder or to any security holder based solely upon the inaccuracy of the 
current names or addresses on the stockholder list or security position 
listing, unless such inaccuracy results from a lack of reasonable care 
on the part of the subject company or any affiliate or agent of the 
subject company;
    (3) Deemed to be an ``underwriter'' within the meaning of section 
(2)(11) of the Securities Act of 1933 for any purpose of that Act or any 
rule or regulation promulgated thereunder based solely upon the 
compliance or noncompliance by the subject company or any affiliate or 
agent of the subject company with one or more of the requirements of 
this section;
    (4) Liable under any provision of the Federal securities laws for 
the disclosure in the bidder's tender offer materials, including any 
amendment thereto, based solely upon the compliance or noncompliance by 
the subject company or any affiliate or agent of the subject company 
with one or more of the requirements of this section.
    (e) Content of the bidder's request. The bidder's written request 
referred to in paragraph (a) of this section shall include the 
following:
    (1) The identity of the bidder;
    (2) The title of the class of securities which is the subject of the 
bidder's tender offer;
    (3) A statement that the bidder is making a request to the subject 
company pursuant to paragraph (a) of this section for the use of the 
stockholder list and security position listings for the purpose of 
disseminating a tender offer to security holders;
    (4) A statement that the bidder is aware of and will comply with the 
provisions of paragraph (f) of this section;
    (5) A statement as to whether or not it has elected pursuant to 
paragraph (f)(1) of this section to disseminate amendments disclosing 
material changes to the tender offer materials pursuant to this section; 
and
    (6) The name, address and telephone number of the person whom the 
subject company shall contact pursuant to paragraph (a)(4) of this 
section.
    (f) Obligations of the bidder. Any bidder who requests that a 
subject company comply with the provisions of paragraph (a) of this 
section shall comply with the following paragraphs.
    (1) The bidder shall make an election whether or not to require the 
subject company to disseminate amendments disclosing material changes to 
the tender offer materials pursuant to this section, which election 
shall be included in the request referred to in paragraph (a) of this 
section and shall not be revocable by the bidder during the tender offer 
and extensions thereof.
    (2) With respect to a tender offer subject to section 14(d)(1) of 
the Act in which the consideration consists solely of cash and/or 
securities exempt from registration under section 3 of the Securities 
Act of 1933, the bidder shall comply with the requirements of Rule 14d-
4(a)(3).
    (3) If the subject company elects to comply with paragraph (b) of 
this section,

[[Page 315]]

    (i) The bidder shall promptly deliver the tender offer materials 
after receipt of the notification from the subject company as provided 
in paragraph (a)(4) of this section;
    (ii) The bidder shall promptly notify the subject company of any 
amendment to the bidder's tender offer materials requiring compliance by 
the subject company with paragraph (b)(6) of this section and shall 
promptly deliver such amendment to the subject company pursuant to 
paragraph (g)(1) of this section;
    (iii) The bidder shall advance to the subject company an amount 
equal to the approximate cost of conducting mailings to security holders 
computed in accordance with paragraph (g)(2) of this section;
    (iv) The bidder shall promptly reimburse the subject company for the 
direct costs incidental to compliance by the subject company and its 
agents in performing the acts required by this section computed in 
accordance with paragraph (g)(2) of this section which are in excess of 
the amount advanced pursuant to paragraph (f)(2)(iii) of this section; 
and
    (v) The bidder shall mail by means of first class mail or otherwise 
furnish with reasonable promptness the tender offer materials to any 
security holder who requests such materials.
    (4) If the subject company elects to comply with paragraph (c) of 
this section,
    (i) The bidder shall use the stockholder list and security position 
listings furnished to the bidder pursuant to paragraph (c) of this 
section exclusively in the dissemination of tender offer materials to 
security holders in connection with the bidder's tender offer and 
extensions thereof;
    (ii) The bidder shall return the stockholder lists and security 
position listings furnished to the bidder pursuant to paragraph (c) of 
this section promptly after the termination of the bidder's tender 
offer;
    (iii) The bidder shall accept, handle and return the stockholder 
lists and security position listings furnished to the bidder pursuant to 
paragraph (c) of this section to the subject company on a confidential 
basis;
    (iv) The bidder shall not retain any stockholder list or security 
position listing furnished by the subject company pursuant to paragraph 
(c) of this section, or any copy thereof, nor retain any information 
derived from any such list or listing or copy thereof after the 
termination of the bidder's tender offer;
    (v) The bidder shall mail by means of first class mail, at its own 
expense, a copy of its tender offer materials to each person whose 
identity appears on the stockholder list as furnished and updated by the 
subject company pursuant to paragraphs (c)(1) and (2) of this section;
    (vi) The bidder shall contact the participants named on the security 
position listing of any clearing agency, make inquiry of each 
participant as to the approximate number of sets of tender offer 
materials required by each such participant, and furnish, at its own 
expense, sufficient sets of tender offer materials and any amendment 
thereto to each such participant for subsequent transmission to the 
beneficial owners of the securities being sought by the bidder;
    (vii) The bidder shall mail by means of first class mail or 
otherwise furnish with reasonable promptness the tender offer materials 
to any security holder who requests such materials; and
    (viii) The bidder shall promptly reimburse the subject company for 
direct costs incidental to compliance by the subject company and its 
agents in performing the acts required by this section computed in 
accordance with paragraph (g)(2) of this section.
    (g) Delivery of materials, computation of direct costs. (1) Whenever 
the bidder is required to deliver tender offer materials or amendments 
to tender offer materials, the bidder shall deliver to the subject 
company at the location specified by the subject company in its notice 
given pursuant to paragraph (a)(4) of this section a number of sets of 
the materials or of the amendment, as the case may be, at least equal to 
the approximate number of security holders specified by the subject 
company in such notice, together with appropriate envelopes or other 
containers therefor: Provided, however, That such delivery shall be 
deemed not to have been made

[[Page 316]]

unless the bidder has complied with paragraph (f)(3)(iii) of this 
section at the time the materials or amendments, as the case may be, are 
delivered.
    (2) The approximate direct cost of mailing the bidder's tender offer 
materials shall be computed by adding (i) the direct cost incidental to 
the mailing of the subject company's last annual report to shareholders 
(excluding employee time), less the costs of preparation and printing of 
the report, and postage, plus (ii) the amount of first class postage 
required to mail the bidder's tender offer materials. The approximate 
direct costs incidental to the mailing of the amendments to the bidder's 
tender offer materials shall be computed by adding (iii) the estimated 
direct costs of preparing mailing labels, of updating shareholder lists 
and of third party handling charges plus (iv) the amount of first class 
postage required to mail the bidder's amendment. Direct costs incidental 
to the mailing of the bidder's tender offer materials and amendments 
thereto when finally computed may include all reasonable charges paid by 
the subject company to third parties for supplies or services, including 
costs attendant to preparing shareholder lists, mailing labels, handling 
the bidder's materials, contacting participants named on security 
position listings and for postage, but shall exclude indirect costs, 
such as employee time which is devoted to either contesting or 
supporting the tender offer on behalf of the subject company. The final 
billing for direct costs shall be accompanied by an appropriate 
accounting in reasonable detail.

    Note to Sec.240.14d-5. Reasonably prompt methods of distribution 
to security holders may be used instead of mailing. If alternative 
methods are chosen, the approximate direct costs of distribution shall 
be computed by adding the estimated direct costs of preparing the 
document for distribution through the chosen medium (including updating 
of shareholder lists) plus the estimated reasonable cost of distribution 
through that medium. Direct costs incidental to the distribution of 
tender offer materials and amendments thereto may include all reasonable 
charges paid by the subject company to third parties for supplies or 
services, including costs attendant to preparing shareholder lists, 
handling the bidder's materials, and contacting participants named on 
security position listings, but shall not include indirect costs, such 
as employee time which is devoted to either contesting or supporting the 
tender offer on behalf of the subject company.

[44 FR 70342, Dec. 6, 1979, as amended at 61 FR 24657, May 15, 1996; 64 
FR 61460, Nov. 10, 1999]



Sec.240.14d-6  Disclosure of tender offer information to security
holders.

    (a) Information required on date of commencement--(1) Long-form 
publication. If a tender offer is published, sent or given to security 
holders on the date of commencement by means of long-form publication 
under Sec.240.14d-4(a)(1), the long-form publication must include the 
information required by paragraph (d)(1) of this section.
    (2) Summary publication. If a tender offer is published, sent or 
given to security holders on the date of commencement by means of 
summary publication under Sec.240.14d-4(a)(2):
    (i) The summary advertisement must contain at least the information 
required by paragraph (d)(2) of this section; and
    (ii) The tender offer materials furnished by the bidder upon request 
of any security holder must include the information required by 
paragraph (d)(1) of this section.
    (3) Use of stockholder lists and security position listings. If a 
tender offer is published, sent or given to security holders on the date 
of commencement by the use of stockholder lists and security position 
listings under Sec.240.14d-4(a)(3):
    (i) The summary advertisement must contain at least the information 
required by paragraph (d)(2) of this section; and
    (ii) The tender offer materials transmitted to security holders 
pursuant to such lists and security position listings and furnished by 
the bidder upon the request of any security holder must include the 
information required by paragraph (d)(1) of this section.
    (4) Other tender offers. If a tender offer is published or sent or 
given to security holders other than pursuant to Sec.240.14d-4(a), the 
tender offer materials that are published or sent or given to security 
holders on the date of commencement of such offer must include the 
information required by paragraph (d)(1) of this section.

[[Page 317]]

    (b) Information required in other tender offer materials published 
after commencement. Except for tender offer materials described in 
paragraphs (a)(2)(ii) and (a)(3)(ii) of this section, additional tender 
offer materials published, sent or given to security holders after 
commencement must include:
    (1) The identities of the bidder and subject company;
    (2) The amount and class of securities being sought;
    (3) The type and amount of consideration being offered; and
    (4) The scheduled expiration date of the tender offer, whether the 
tender offer may be extended and, if so, the procedures for extension of 
the tender offer.

    Instruction to paragraph (b): If the additional tender offer 
materials are summary advertisements, they also must include the 
information required by paragraphs (d)(2)(v) of this section.

    (c) Material changes. A material change in the information published 
or sent or given to security holders must be promptly disclosed to 
security holders in additional tender offer materials.
    (d) Information to be included--(1) Tender offer materials other 
than summary publication. The following information is required by 
paragraphs (a)(1), (a)(2)(ii), (a)(3)(ii) and (a)(4) of this section:
    (i) The information required by Item 1 of Schedule TO (Sec.
240.14d-100) (Summary Term Sheet); and
    (ii) The information required by the remaining items of Schedule TO 
(Sec.240.14d-100) for third-party tender offers, except for Item 12 
(exhibits) of Schedule TO (Sec.240.14d-100), or a fair and adequate 
summary of the information.
    (2) Summary Publication. The following information is required in a 
summary advertisement under paragraphs (a)(2)(i) and (a)(3)(i) of this 
section:
    (i) The identity of the bidder and the subject company;
    (ii) The information required by Item 1004(a)(1) of Regulation M-A 
(Sec.229.1004(a)(1) of this chapter);
    (iii) If the tender offer is for less than all of the outstanding 
securities of a class of equity securities, a statement as to whether 
the purpose or one of the purposes of the tender offer is to acquire or 
influence control of the business of the subject company;
    (iv) A statement that the information required by paragraph (d)(1) 
of this section is incorporated by reference into the summary 
advertisement;
    (v) Appropriate instructions as to how security holders may obtain 
promptly, at the bidder's expense, the bidder's tender offer materials; 
and
    (vi) In a tender offer published or sent or given to security 
holders by use of stockholder lists and security position listings under 
Sec.240.14d-4(a)(3), a statement that a request is being made for such 
lists and listings. The summary publication also must state that tender 
offer materials will be mailed to record holders and will be furnished 
to brokers, banks and similar persons whose name appears or whose 
nominee appears on the list of security holders or, if applicable, who 
are listed as participants in a clearing agency's security position 
listing for subsequent transmittal to beneficial owners of such 
securities. If the list furnished to the bidder also included beneficial 
owners pursuant to Sec.240.14d-5(c)(1) and tender offer materials will 
be mailed directly to beneficial holders, include a statement to that 
effect.
    (3) No transmittal letter. Neither the initial summary advertisement 
nor any subsequent summary advertisement may include a transmittal 
letter (the letter furnished to security holders for transmission of 
securities sought in the tender offer) or any amendment to the 
transmittal letter.

[64 FR 61460, Nov. 10, 1999]



Sec.240.14d-7  Additional withdrawal rights.

    (a) Rights. (1) In addition to the provisions of section 14(d)(5) of 
the Act, any person who has deposited securities pursuant to a tender 
offer has the right to withdraw any such securities during the period 
such offer request or invitation remains open.
    (2) Exemption during subsequent offering period. Notwithstanding the 
provisions of section 14(d)(5) of the Act (15 U.S.C. 78n(d)(5)) and 
paragraph (a) of this section, the bidder need not offer

[[Page 318]]

withdrawal rights during a subsequent offering period.
    (b) Notice of withdrawal. Notice of withdrawal pursuant to this 
section shall be deemed to be timely upon the receipt by the bidder's 
depositary of a written notice of withdrawal specifying the name(s) of 
the tendering stockholder(s), the number or amount of the securities to 
be withdrawn and the name(s) in which the certificate(s) is (are) 
registered, if different from that of the tendering security holder(s). 
A bidder may impose other reasonable requirements, including certificate 
numbers and a signed request for withdrawal accompained by a signature 
guarantee, as conditions precedent to the physical release of withdrawn 
securities.

[44 FR 70345, Dec. 6, 1979, as amended at 51 FR 25882, July 17, 1986; 51 
FR 32630, Sept. 15, 1986; 64 FR 61461, Nov. 10, 1999; 76 FR 71876, Nov. 
21, 2011]



Sec.240.14d-8  Exemption from statutory pro rata requirements.

    Notwithstanding the pro rata provisions of section 14(d)(6) of the 
Act, if any person makes a tender offer or request or invitation for 
tenders, for less than all of the outstanding equity securities of a 
class, and if a greater number of securities are deposited pursuant 
thereto than such person is bound or willing to take up and pay for, the 
securities taken up and paid for shall be taken up and paid for as 
nearly as may be pro rata, disregarding fractions, according to the 
number of securities deposited by each depositor during the period such 
offer, request or invitation remains open.

(Sec.23, 48 Stat. 901; Sec.203(a), 49 Stat. 704; Sec.8, 49 Stat. 
1379; Sec.10, 78 Stat. 580; Sec.3, 82 Stat. 455; secs. 3-5, 84 Stat. 
1497; Sec.18, 89 Stat. 155; 15 U.S.C. 78n(e), 78w(a))

[47 FR 57680, Dec. 28, 1982]



Sec.240.14d-9  Recommendation or solicitation by the subject company
and others.

    (a) Pre-commencement communications. A communication by a person 
described in paragraph (e) of this section with respect to a tender 
offer will not be deemed to constitute a recommendation or solicitation 
under this section if:
    (1) The tender offer has not commenced under Sec.240.14d-2; and
    (2) The communication is filed under cover of Schedule 14D-9 (Sec.
240.14d-101) with the Commission no later than the date of the 
communication.

    Instructions to paragraph (a)(2): 1. The box on the front of 
Schedule 14D-9 (Sec.240.14d-101) indicating that the filing contains 
pre-commencement communications must be checked.
    2. Any communications made in connection with an exchange offer 
registered under the Securities Act of 1933 need only be filed under 
Sec.230.425 of this chapter and will be deemed filed under this 
section.
    3. Each pre-commencement written communication must include a 
prominent legend in clear, plain language advising security holders to 
read the company's solicitation/recommendation statement when it is 
available because it contains important information. The legend also 
must advise investors that they can get the recommendation and other 
filed documents for free at the Commission's web site and explain which 
documents are free from the filer.
    4. See Sec.Sec.230.135, 230.165 and 230.166 of this chapter for 
pre-commencement communications made in connection with registered 
exchange offers.

    (b) Post-commencement communications. After commencement by a bidder 
under Sec.240.14d-2, no solicitation or recommendation to security 
holders may be made by any person described in paragraph (e) of this 
section with respect to a tender offer for such securities unless as 
soon as practicable on the date such solicitation or recommendation is 
first published or sent or given to security holders such person 
complies with the following:
    (1) Such person shall file with the Commission a Tender Offer 
Solicitation/Recommendation Statement on Schedule 14D-9 (Sec.240.14d-
101), including all exhibits thereto; and
    (2) If such person is either the subject company or an affiliate of 
the subject company,
    (i) Such person shall hand deliver a copy of the Schedule 14D-9 to 
the bidder at its principal office or at the address of the person 
authorized to receive notices and communications (which is set forth on 
the cover sheet of the bidder's Schedule TO (Sec.240.14d-100) filed 
with the Commission; and

[[Page 319]]

    (ii) Such person shall give telephonic notice (which notice to the 
extent possible shall be given prior to the opening of the market) of 
the information required by Items 1003(d) and 1012(a) of Regulation M--A 
(Sec.229.1003(d) and Sec.229.1012(a)) and shall mail a copy of the 
Schedule to each national securities exchange where the class of 
securities is registered and listed for trading and, if the class is 
authorized for quotation in the NASDAQ interdealer quotation system, to 
the National Association of Securities Dealers, Inc. (``NASD'').
    (3) If such person is neither the subject company nor an affiliate 
of the subject company,
    (i) Such person shall mail a copy of the schedule to the bidder at 
its principal office or at the address of the person authorized to 
receive notices and communications (which is set forth on the cover 
sheet of the bidder's Schedule TO (Sec.240.14d-100) filed with the 
Commission); and
    (ii) Such person shall mail a copy of the Schedule to the subject 
company at its principal office.
    (c) Amendments. If any material change occurs in the information set 
forth in the Schedule 14D-9 (Sec.240.14d-101) required by this 
section, the person who filed such Schedule 14D-9 shall:
    (1) File with the Commission an amendment on Schedule 14D-9 (Sec.
240.14d-101) disclosing such change promptly, but not later than the 
date such material is first published, sent or given to security 
holders; and
    (2) Promptly deliver copies and give notice of the amendment in the 
same manner as that specified in paragraph (b)(2) or (3) of this 
section, whichever is applicable; and
    (3) Promptly disclose and disseminate such change in a manner 
reasonably designed to inform security holders of such change.
    (d) Information required in solicitation or recommendation. Any 
solicitation or recommendation to holders of a class of securities 
referred to in section 14(d)(1) of the Act with respect to a tender 
offer for such securities shall include the name of the person making 
such solicitation or recommendation and the information required by 
Items 1 through 8 of Schedule 14D-9 (Sec.240.14d-101) or a fair and 
adequate summary thereof: Provided, however, That such solicitation or 
recommendation may omit any of such information previously furnished to 
security holders of such class of securities by such person with respect 
to such tender offer.
    (e) Applicability. (1) Except as is provided in paragraphs (e)(2) 
and (f) of this section, this section shall only apply to the following 
persons:
    (i) The subject company, any director, officer, employee, affiliate 
or subsidiary of the subject company;
    (ii) Any record holder or beneficial owner of any security issued by 
the subject company, by the bidder, or by any affiliate of either the 
subject company or the bidder; and
    (iii) Any person who makes a solicitation or recommendation to 
security holders on behalf of any of the foregoing or on behalf of the 
bidder other than by means of a solicitation or recommendation to 
security holders which has been filed with the Commission pursuant to 
this section or Rule 14d-3 (Sec.240.14d-3).
    (2) Notwithstanding paragraph (e)(1) of this section, this section 
shall not apply to the following persons:
    (i) A bidder who has filed a Schedule TO (Sec.240.14d-100) 
pursuant to Rule 14d-3 (Sec.240.14d-3);
    (ii) Attorneys, banks, brokers, fiduciaries or investment advisers 
who are not participating in a tender offer in more than a ministerial 
capacity and who furnish information and/or advice regarding such tender 
offer to their customers or clients on the unsolicited request of such 
customers or clients or solely pursuant to a contract or a relationship 
providing for advice to the customer or client to whom the information 
and/or advice is given.
    (iii) Any person specified in paragraph (e)(1) of this section if:
    (A) The subject company is the subject of a tender offer conducted 
under Sec.240.14d-1(c);
    (B) Any person specified in paragraph (e)(1) of this section 
furnishes to the Commission on Form CB (Sec.249.480 of this chapter) 
the entire informational document it publishes or otherwise disseminates 
to holders of the class of securities in connection with the tender

[[Page 320]]

offer no later than the next business day after publication or 
dissemination;
    (C) Any person specified in paragraph (e)(1) of this section 
disseminates any informational document to U.S. holders, including any 
amendments thereto, in English, on a comparable basis to that provided 
to security holders in the issuer's home jurisdiction; and
    (D) Any person specified in paragraph (e)(1) of this section 
disseminates by publication in its home jurisdiction, such person must 
publish the information in the United States in a manner reasonably 
calculated to inform U.S. security holders of the offer.
    (f) Stop-look-and-listen communication. This section shall not apply 
to the subject company with respect to a communication by the subject 
company to its security holders which only:
    (1) Identifies the tender offer by the bidder;
    (2) States that such tender offer is under consideration by the 
subject company's board of directors and/or management;
    (3) States that on or before a specified date (which shall be no 
later than 10 business days from the date of commencement of such tender 
offer) the subject company will advise such security holders of (i) 
whether the subject company recommends acceptance or rejection of such 
tender offer; expresses no opinion and remains neutral toward such 
tender offer; or is unable to take a position with respect to such 
tender offer and (ii) the reason(s) for the position taken by the 
subject company with respect to the tender offer (including the 
inability to take a position); and
    (4) Requests such security holders to defer making a determination 
whether to accept or reject such tender offer until they have been 
advised of the subject company's position with respect thereto pursuant 
to paragraph (f)(3) of this section.
    (g) Statement of management's position. A statement by the subject 
company's of its position with respect to a tender offer which is 
required to be published or sent or given to security holders pursuant 
to Rule 14e-2 shall be deemed to constitute a solicitation or 
recommendation within the meaning of this section and section 14(d)(4) 
of the Act.

[44 FR 70345, Dec. 6, 1979, as amended at 64 FR 61406, 61461, Nov. 10, 
1999; 73 FR 17814, Apr. 1, 2008]



Sec.240.14d-10  Equal treatment of security holders.

    (a) No bidder shall make a tender offer unless:
    (1) The tender offer is open to all security holders of the class of 
securities subject to the tender offer; and
    (2) The consideration paid to any security holder for securities 
tendered in the tender offer is the highest consideration paid to any 
other security holder for securities tendered in the tender offer.
    (b) Paragraph (a)(1) of this section shall not:
    (1) Affect dissemination under Rule 14d-4 (Sec.240.14d-4); or
    (2) Prohibit a bidder from making a tender offer excluding all 
security holders in a state where the bidder is prohibited from making 
the tender offer by administrative or judicial action pursuant to a 
state statute after a good faith effort by the bidder to comply with 
such statute.
    (c) Paragraph (a)(2) of this section shall not prohibit the offer of 
more than one type of consideration in a tender offer, Provided, That:
    (1) Security holders are afforded equal right to elect among each of 
the types of consideration offered; and
    (2) The highest consideration of each type paid to any security 
holder is paid to any other security holder receiving that type of 
consideration.
    (d)(1) Paragraph (a)(2) of this section shall not prohibit the 
negotiation, execution or amendment of an employment compensation, 
severance or other employee benefit arrangement, or payments made or to 
be made or benefits granted or to be granted according to such an 
arrangement, with respect to any security holder of the subject company, 
where the amount payable under the arrangement:
    (i) Is being paid or granted as compensation for past services 
performed, future services to be performed, or future services to be 
refrained from performing, by the security holder (and matters 
incidental thereto); and

[[Page 321]]

    (ii) Is not calculated based on the number of securities tendered or 
to be tendered in the tender offer by the security holder.
    (2) The provisions of paragraph (d)(1) of this section shall be 
satisfied and, therefore, pursuant to this non-exclusive safe harbor, 
the negotiation, execution or amendment of an arrangement and any 
payments made or to be made or benefits granted or to be granted 
according to that arrangement shall not be prohibited by paragraph 
(a)(2) of this section, if the arrangement is approved as an employment 
compensation, severance or other employee benefit arrangement solely by 
independent directors as follows:
    (i) The compensation committee or a committee of the board of 
directors that performs functions similar to a compensation committee of 
the subject company approves the arrangement, regardless of whether the 
subject company is a party to the arrangement, or, if the bidder is a 
party to the arrangement, the compensation committee or a committee of 
the board of directors that performs functions similar to a compensation 
committee of the bidder approves the arrangement; or
    (ii) If the subject company's or bidder's board of directors, as 
applicable, does not have a compensation committee or a committee of the 
board of directors that performs functions similar to a compensation 
committee or if none of the members of the subject company's or bidder's 
compensation committee or committee that performs functions similar to a 
compensation committee is independent, a special committee of the board 
of directors formed to consider and approve the arrangement approves the 
arrangement; or
    (iii) If the subject company or bidder, as applicable, is a foreign 
private issuer, any or all members of the board of directors or any 
committee of the board of directors authorized to approve employment 
compensation, severance or other employee benefit arrangements under the 
laws or regulations of the home country approves the arrangement.

    Instructions to paragraph (d)(2): For purposes of determining 
whether the members of the committee approving an arrangement in 
accordance with the provisions of paragraph (d)(2) of this section are 
independent, the following provisions shall apply:
    1. If the bidder or subject company, as applicable, is a listed 
issuer (as defined in Sec.240.10A-3 of this chapter) whose securities 
are listed either on a national securities exchange registered pursuant 
to section 6(a) of the Exchange Act (15 U.S.C. 78f(a)) or in an inter-
dealer quotation system of a national securities association registered 
pursuant to section 15A(a) of the Exchange Act (15 U.S.C. 78o-3(a)) that 
has independence requirements for compensation committee members that 
have been approved by the Commission (as those requirements may be 
modified or supplemented), apply the bidder's or subject company's 
definition of independence that it uses for determining that the members 
of the compensation committee are independent in compliance with the 
listing standards applicable to compensation committee members of the 
listed issuer.
    2. If the bidder or subject company, as applicable, is not a listed 
issuer (as defined in Sec.240.10A-3 of this chapter), apply the 
independence requirements for compensation committee members of a 
national securities exchange registered pursuant to section 6(a) of the 
Exchange Act (15 U.S.C. 78f(a)) or an inter-dealer quotation system of a 
national securities association registered pursuant to section 15A(a) of 
the Exchange Act (15 U.S.C. 78o-3(a)) that have been approved by the 
Commission (as those requirements may be modified or supplemented). 
Whatever definition the bidder or subject company, as applicable, 
chooses, it must apply that definition consistently to all members of 
the committee approving the arrangement.
    3. Notwithstanding Instructions 1 and 2 to paragraph (d)(2), if the 
bidder or subject company, as applicable, is a closed-end investment 
company registered under the Investment Company Act of 1940, a director 
is considered to be independent if the director is not, other than in 
his or her capacity as a member of the board of directors or any board 
committee, an ``interested person'' of the investment company, as 
defined in section 2(a)(19) of the Investment Company Act of 1940 (15 
U.S.C. 80a-2(a)(19)).
    4. If the bidder or the subject company, as applicable, is a foreign 
private issuer, apply either the independence standards set forth in 
Instructions 1 and 2 to paragraph (d)(2) or the independence 
requirements of the laws, regulations, codes or standards of the home 
country of the bidder or subject company, as applicable, for members of 
the board of directors or the committee of the board of directors 
approving the arrangement.

[[Page 322]]

    5. A determination by the bidder's or the subject company's board of 
directors, as applicable, that the members of the board of directors or 
the committee of the board of directors, as applicable, approving an 
arrangement in accordance with the provisions of paragraph (d)(2) are 
independent in accordance with the provisions of this instruction to 
paragraph (d)(2) shall satisfy the independence requirements of 
paragraph (d)(2).

    Instruction to paragraph (d): The fact that the provisions of 
paragraph (d) of this section extend only to employment compensation, 
severance and other employee benefit arrangements and not to other 
arrangements, such as commercial arrangements, does not raise any 
inference that a payment under any such other arrangement constitutes 
consideration paid for securities in a tender offer.

    (e) If the offer and sale of securities constituting consideration 
offered in a tender offer is prohibited by the appropriate authority of 
a state after a good faith effort by the bidder to register or qualify 
the offer and sale of such securities in such state:
    (1) The bidder may offer security holders in such state an 
alternative form of consideration; and
    (2) Paragraph (c) of this section shall not operate to require the 
bidder to offer or pay the alternative form of consideration to security 
holders in any other state.
    (f) This section shall not apply to any tender offer with respect to 
which the Commission, upon written request or upon its own motion, 
either unconditionally or on specified terms and conditions, determines 
that compliance with this section is not necessary or appropriate in the 
public interest or for the protection of investors.

[51 FR 25882, July 17, 1986, as amended at 71 FR 65408, Nov. 8, 2006]



Sec.240.14d-11  Subsequent offering period.

    A bidder may elect to provide a subsequent offering period of at 
least three business days during which tenders will be accepted if:
    (a) The initial offering period of at least 20 business days has 
expired;
    (b) The offer is for all outstanding securities of the class that is 
the subject of the tender offer, and if the bidder is offering security 
holders a choice of different forms of consideration, there is no 
ceiling on any form of consideration offered;
    (c) The bidder immediately accepts and promptly pays for all 
securities tendered during the initial offering period;
    (d) The bidder announces the results of the tender offer, including 
the approximate number and percentage of securities deposited to date, 
no later than 9:00 a.m. Eastern time on the next business day after the 
expiration date of the initial offering period and immediately begins 
the subsequent offering period;
    (e) The bidder immediately accepts and promptly pays for all 
securities as they are tendered during the subsequent offering period; 
and
    (f) The bidder offers the same form and amount of consideration to 
security holders in both the initial and the subsequent offering period.

    Note to Sec.240.14d-11: No withdrawal rights apply during the 
subsequent offering period in accordance with Sec.240.14d-7(a)(2).

[64 FR 61462, Nov. 10, 1999, as amended at 73 FR 60092, Oct. 9, 2008]



Sec.240.14d-100  Schedule TO. Tender offer statement under section 14
(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934.

Securities and Exchange Commission,
Washington, D.C. 20549

Schedule TO

Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the 
Securities Exchange Act of 1934

(Amendment No. ___)*

________________________________________________________________________
(Name of Subject Company (issuer))

________________________________________________________________________
(Names of Filing Persons (identifying status as offeror, issuer or other 
person))

________________________________________________________________________
(Title of Class of Securities)

________________________________________________________________________
(CUSIP Number of Class of Securities)

(Name, address, and telephone numbers of person authorized to receive 
notices and communications on behalf of filing persons)

                        Calculation of Filing Fee
------------------------------------------------------------------------
          Transaction valuation*                Amount of filing fee
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 *Set forth the amount on which the filing fee is calculated and state
  how it was determined.


[[Page 323]]

    [ ] Check the box if any part of the fee is offset as provided by 
Rule 0-11(a)(2) and identify the filing with which the offsetting fee 
was previously paid. Identify the previous filing by registration 
statement number, or the Form or Schedule and the date of its filing.

Amount Previously Paid:_________________________________________________
Form or Registration No.:_______________________________________________
Filing Party:___________________________________________________________
Date Filed:_____________________________________________________________
    [ ] Check the box if the filing relates solely to preliminary 
communications made before the commencement of a tender offer.
    Check the appropriate boxes below to designate any transactions to 
which the statement relates:
    [ ] third-party tender offer subject to Rule 14d-1.
    [ ] issuer tender offer subject to Rule 13e-4.
    [ ] going-private transaction subject to Rule 13e-3.
    [ ] amendment to Schedule 13D under Rule 13d-2.
    Check the following box if the filing is a final amendment reporting 
the results of the tender offer: [ ]
    If applicable, check the appropriate box(es) below to designate the 
appropriate rule provision(s) relied upon:
    [ ] Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
    [ ] Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
    General Instructions:
    A. File eight copies of the statement, including all exhibits, with 
the Commission if paper filing is permitted.
    B. This filing must be accompanied by a fee payable to the 
Commission as required by Sec.240.0-11.
    C. If the statement is filed by a general or limited partnership, 
syndicate or other group, the information called for by Items 3 and 5-8 
for a third-party tender offer and Items 5-8 for an issuer tender offer 
must be given with respect to: (i) Each partner of the general 
partnership; (ii) each partner who is, or functions as, a general 
partner of the limited partnership; (iii) each member of the syndicate 
or group; and (iv) each person controlling the partner or member. If the 
statement is filed by a corporation or if a person referred to in (i), 
(ii), (iii) or (iv) of this Instruction is a corporation, the 
information called for by the items specified above must be given with 
respect to: (a) Each executive officer and director of the corporation; 
(b) each person controlling the corporation; and (c) each executive 
officer and director of any corporation or other person ultimately in 
control of the corporation.
    D. If the filing contains only preliminary communications made 
before the commencement of a tender offer, no signature or filing fee is 
required. The filer need not respond to the items in the schedule. Any 
pre-commencement communications that are filed under cover of this 
schedule need not be incorporated by reference into the schedule.
    E. If an item is inapplicable or the answer is in the negative, so 
state. The statement published, sent or given to security holders may 
omit negative and not applicable responses. If the schedule includes any 
information that is not published, sent or given to security holders, 
provide that information or specifically incorporate it by reference 
under the appropriate item number and heading in the schedule. Do not 
recite the text of disclosure requirements in the schedule or any 
document published, sent or given to security holders. Indicate clearly 
the coverage of the requirements without referring to the text of the 
items.
    F. Information contained in exhibits to the statement may be 
incorporated by reference in answer or partial answer to any item unless 
it would render the answer misleading, incomplete, unclear or confusing. 
A copy of any information that is incorporated by reference or a copy of 
the pertinent pages of a document containing the information must be 
submitted with this statement as an exhibit, unless it was previously 
filed with the Commission electronically on EDGAR. If an exhibit 
contains information responding to more than one item in the schedule, 
all information in that exhibit may be incorporated by reference once in 
response to the several items in the schedule for which it provides an 
answer. Information incorporated by reference is deemed filed with the 
Commission for all purposes of the Act.
    G. A filing person may amend its previously filed Schedule 13D 
(Sec.240.13d-101) on Schedule TO (Sec.240.14d-100) if the 
appropriate box on the cover page is checked to indicate a combined 
filing and the information called for by the fourteen disclosure items 
on the cover page of Schedule 13D (Sec.240.13d-101) is provided on the 
cover page of the combined filing with respect to each filing person.
    H. The final amendment required by Sec.240.14d-3(b)(2) and Sec.
240.13e-4(c)(4) will satisfy the reporting requirements of section 13(d) 
of the Act with respect to all securities acquired by the offeror in the 
tender offer.
    I. Amendments disclosing a material change in the information set 
forth in this statement may omit any information previously disclosed in 
this statement.
    J. If the tender offer disclosed on this statement involves a going-
private transaction, a combined Schedule TO (Sec.240.14d-100) and 
Schedule 13E-3 (Sec.240.13e-100) may be filed with the Commission 
under cover of Schedule TO. The Rule 13e-3 box on the cover page of the 
Schedule TO must be checked to indicate a combined filing. All 
information called for by both schedules must be provided except that 
Items 1-3, 5, 8 and 9 of Schedule TO may be omitted to the extent

[[Page 324]]

those items call for information that duplicates the item requirements 
in Schedule 13E-3.
    K. For purposes of this statement, the following definitions apply:
    (1) The term offeror means any person who makes a tender offer or on 
whose behalf a tender offer is made;
    (2) The term issuer tender offer has the same meaning as in Rule 
13e-4(a)(2); and
    (3) The term third-party tender offer means a tender offer that is 
not an issuer tender offer.

           Special Instructions for Complying With Schedule TO

    Under Sections 13(e), 14(d) and 23 of the Act and the rules and 
regulations of the Act, the Commission is authorized to solicit the 
information required to be supplied by this schedule.
    Disclosure of the information specified in this schedule is 
mandatory. The information will be used for the primary purpose of 
disclosing tender offer and going-private transactions. This statement 
will be made a matter of public record. Therefore, any information given 
will be available for inspection by any member of the public.
    Because of the public nature of the information, the Commission can 
use it for a variety of purposes, including referral to other 
governmental authorities or securities self-regulatory organizations for 
investigatory purposes or in connection with litigation involving the 
federal securities laws or other civil, criminal or regulatory statutes 
or provisions.
    Failure to disclose the information required by this schedule may 
result in civil or criminal action against the persons involved for 
violation of the federal securities laws and rules.

                       Item 1. Summary Term Sheet

    Furnish the information required by Item 1001 of Regulation M-A 
(Sec.229.1001 of this chapter) unless information is disclosed to 
security holders in a prospectus that meets the requirements of Sec.
230.421(d) of this chapter.

                   Item 2. Subject Company Information

    Furnish the information required by Item 1002(a) through (c) of 
Regulation M-A (Sec.229.1002 of this chapter).

            Item 3. Identity and Background of Filing Person

    Furnish the information required by Item 1003(a) through (c) of 
Regulation M-A (Sec.229.1003 of this chapter) for a third-party tender 
offer and the information required by Item 1003(a) of Regulation M-A 
(Sec.229.1003 of this chapter) for an issuer tender offer.

                    Item 4. Terms of the Transaction

    Furnish the information required by Item 1004(a) of Regulation M-A 
(Sec.229.1004 of this chapter) for a third-party tender offer and the 
information required by Item 1004(a) through (b) of Regulation M-A 
(Sec.229.1004 of this chapter) for an issuer tender offer.

    Item 5. Past Contacts, Transactions, Negotiations and Agreements

    Furnish the information required by Item 1005(a) and (b) of 
Regulation M-A (Sec.229.1005 of this chapter) for a third-party tender 
offer and the information required by Item 1005(e) of Regulation M-A 
(Sec.229.1005) for an issuer tender offer.

       Item 6. Purposes of the Transaction and Plans or Proposals

    Furnish the information required by Item 1006(a) and (c)(1) through 
(7) of Regulation M-A (Sec.229.1006 of this chapter) for a third-party 
tender offer and the information required by Item 1006(a) through (c) of 
Regulation M-A (Sec.229.1006 of this chapter) for an issuer tender 
offer.

        Item 7. Source and Amount of Funds or Other Consideration

    Furnish the information required by Item 1007(a), (b) and (d) of 
Regulation M-A (Sec.229.1007 of this chapter).

          Item 8. Interest in Securities of the Subject Company

    Furnish the information required by Item 1008 of Regulation M-A 
(Sec.229.1008 of this chapter).

     Item 9. Persons/Assets, Retained, Employed, Compensated or Used

    Furnish the information required by Item 1009(a) of Regulation M-A 
(Sec.229.1009 of this chapter).

                      Item 10. Financial Statements

    If material, furnish the information required by Item 1010(a) and 
(b) of Regulation M-A (Sec.229.1010 of this chapter) for the issuer in 
an issuer tender offer and for the offeror in a third-party tender 
offer.
    Instructions to Item 10: 1. Financial statements must be provided 
when the offeror's financial condition is material to security holder's 
decision whether to sell, tender or hold the securities sought. The 
facts and circumstances of a tender offer, particularly the terms of the 
tender offer, may influence a determination as to whether financial 
statements are material, and thus required to be disclosed.
    2. Financial statements are not considered material when: (a) The 
consideration offered consists solely of cash; (b) the offer is not

[[Page 325]]

subject to any financing condition; and either: (c) the offeror is a 
public reporting company under Section 13(a) or 15(d) of the Act that 
files reports electronically on EDGAR, or (d) the offer is for all 
outstanding securities of the subject class. Financial information may 
be required, however, in a two-tier transaction. See Instruction 5 
below.
    3. The filing person may incorporate by reference financial 
statements contained in any document filed with the Commission, solely 
for the purposes of this schedule, if: (a) The financial statements 
substantially meet the requirements of this item; (b) an express 
statement is made that the financial statements are incorporated by 
reference; (c) the information incorporated by reference is clearly 
identified by page, paragraph, caption or otherwise; and (d) if the 
information incorporated by reference is not filed with this schedule, 
an indication is made where the information may be inspected and copies 
obtained. Financial statements that are required to be presented in 
comparative form for two or more fiscal years or periods may not be 
incorporated by reference unless the material incorporated by reference 
includes the entire period for which the comparative data is required to 
be given. See General Instruction F to this schedule.
    4. If the offeror in a third-party tender offer is a natural person, 
and such person's financial information is material, disclose the net 
worth of the offeror. If the offeror's net worth is derived from 
material amounts of assets that are not readily marketable or there are 
material guarantees and contingencies, disclose the nature and 
approximate amount of the individual's net worth that consists of 
illiquid assets and the magnitude of any guarantees or contingencies 
that may negatively affect the natural person's net worth.
    5. Pro forma financial information is required in a negotiated 
third-party cash tender offer when securities are intended to be offered 
in a subsequent merger or other transaction in which remaining target 
securities are acquired and the acquisition of the subject company is 
significant to the offeror under Sec.210.11-01(b)(1) of this chapter. 
The offeror must disclose the financial information specified in Item 
3(f) and Item 5 of Form S-4 (Sec.239.25 of this chapter) in the 
schedule filed with the Commission, but may furnish only the summary 
financial information specified in Item 3(d), (e) and (f) of Form S-4 in 
the disclosure document sent to security holders. If pro forma financial 
information is required by this instruction, the historical financial 
statements specified in Item 1010 of Regulation M-A (Sec.229.1010 of 
this chapter) are required for the bidder.
    6. The disclosure materials disseminated to security holders may 
contain the summarized financial information specified by Item 1010(c) 
of Regulation M-A (Sec.229.1010 of this chapter) instead of the 
financial information required by Item 1010(a) and (b). In that case, 
the financial information required by Item 1010(a) and (b) of Regulation 
M-A must be disclosed in the statement. If summarized financial 
information is disseminated to security holders, include appropriate 
instructions on how more complete financial information can be obtained. 
If the summarized financial information is prepared on the basis of a 
comprehensive body of accounting principles other than U.S. GAAP, the 
summarized financial information must be accompanied by a reconciliation 
as described in Instruction 8 of this Item.
    7. If the offeror is not subject to the periodic reporting 
requirements of the Act, the financial statements required by this Item 
need not be audited if audited financial statements are not available or 
obtainable without unreasonable cost or expense. Make a statement to 
that effect and the reasons for their unavailability.
    8. If the financial statements required by this Item are prepared on 
the basis of a comprehensive body of accounting principles other than 
U.S. GAAP, provide a reconciliation to U.S. GAAP in accordance with Item 
17 of Form 20-F (Sec.249.220f of this chapter), unless a 
reconciliation is unavailable or not obtainable without unreasonable 
cost or expense. At a minimum, however, when financial statements are 
prepared on a basis other than U.S. GAAP, a narrative description of all 
material variations in accounting principles, practices and methods used 
in preparing the non-U.S. GAAP financial statements from those accepted 
in the U.S. must be presented.

                    Item 11. Additional Information.

    Furnish the information required by Item 1011(a) and (c) of 
Regulation M-A (Sec.229.1011 of this chapter).

                            Item 12. Exhibits

    File as an exhibit to the Schedule all documents specified by Item 
1016 (a), (b), (d), (g) and (h) of Regulation M-A (Sec.229.1016 of 
this chapter).

             Item 13. Information Required by Schedule 13E-3

    If the Schedule TO is combined with Schedule 13E-3 (Sec.240.13e-
100), set forth the information required by Schedule 13E-3 that is not 
included or covered by the items in Schedule TO.

Signature. After due inquiry and to the best of my knowledge and belief, 
I certify that the information set forth in this statement is true, 
complete and correct.

________________________________________________________________________
(Signature)

________________________________________________________________________

[[Page 326]]

(Name and title)

________________________________________________________________________
(Date)

    Instruction to Signature: The statement must be signed by the filing 
person or that person's authorized representative. If the statement is 
signed on behalf of a person by an authorized representative (other than 
an executive officer of a corporation or general partner of a 
partnership), evidence of the representative's authority to sign on 
behalf of the person must be filed with the statement. The name and any 
title of each person who signs the statement must be typed or printed 
beneath the signature. See Sec.Sec.240.12b-11 and 240.14d-1(h) with 
respect to signature requirements.

[64 FR 61462, Nov. 10, 1999, as amended at 72 FR 45112, Aug. 10, 2007; 
73 FR 17814, Apr. 1, 2008; 73 FR 60093, Oct. 9, 2008; 76 FR 6046, Feb. 
2, 2011]



Sec.240.14d-101  Schedule 14D-9.

Securities and Exchange Commission,
Washington, D.C. 20549

Schedule 14D-9

Solicitation/Recommendation Statement under Section 14(d)(4) of the 
Securities Exchange Act of 1934

(Amendment No. ___)

________________________________________________________________________
(Name of Subject Company)

________________________________________________________________________
(Names of Persons Filing Statement)

________________________________________________________________________
(Title of Class of Securities)

________________________________________________________________________
(CUSIP Number of Class of Securities)

________________________________________________________________________
(Name, address, and telephone numbers of person authorized to receive 
notices and communications on behalf of the persons filing statement)

    [ ] Check the box if the filing relates solely to preliminary 
communications made before the commencement of a tender offer.
    General Instructions:
    A. File eight copies of the statement, including all exhibits, with 
the Commission if paper filing is permitted.
    B. If the filing contains only preliminary communications made 
before the commencement of a tender offer, no signature is required. The 
filer need not respond to the items in the schedule. Any pre-
commencement communications that are filed under cover of this schedule 
need not be incorporated by reference into the schedule.
    C. If an item is inapplicable or the answer is in the negative, so 
state. The statement published, sent or given to security holders may 
omit negative and not applicable responses. If the schedule includes any 
information that is not published, sent or given to security holders, 
provide that information or specifically incorporate it by reference 
under the appropriate item number and heading in the schedule. Do not 
recite the text of disclosure requirements in the schedule or any 
document published, sent or given to security holders. Indicate clearly 
the coverage of the requirements without referring to the text of the 
items.
    D. Information contained in exhibits to the statement may be 
incorporated by reference in answer or partial answer to any item unless 
it would render the answer misleading, incomplete, unclear or confusing. 
A copy of any information that is incorporated by reference or a copy of 
the pertinent pages of a document containing the information must be 
submitted with this statement as an exhibit, unless it was previously 
filed with the Commission electronically on EDGAR. If an exhibit 
contains information responding to more than one item in the schedule, 
all information in that exhibit may be incorporated by reference once in 
response to the several items in the schedule for which it provides an 
answer. Information incorporated by reference is deemed filed with the 
Commission for all purposes of the Act.
    E. Amendments disclosing a material change in the information set 
forth in this statement may omit any information previously disclosed in 
this statement.

                   Item 1. Subject Company Information

    Furnish the information required by Item 1002(a) and (b) of 
Regulation M-A (Sec.229.1002 of this chapter).

            Item 2. Identity and Background of Filing Person

    Furnish the information required by Item 1003(a) and (d) of 
Regulation M-A (Sec.229.1003 of this chapter).

    Item 3. Past Contacts, Transactions, Negotiations and Agreements

    Furnish the information required by Item 1005(d) of Regulation M-A 
(Sec.229.1005 of this chapter).

               Item 4. The Solicitation or Recommendation

    Furnish the information required by Item 1012(a) through (c) of 
Regulation M-A (Sec.229.1012 of this chapter).

     Item 5. Person/Assets, Retained, Employed, Compensated or Used

    Furnish the information required by Item 1009(a) of Regulation M-A 
(Sec.229.1009 of this chapter).

[[Page 327]]

          Item 6. Interest in Securities of the Subject Company

    Furnish the information required by Item 1008(b) of Regulation M-A 
(Sec.229.1008 of this chapter).

       Item 7. Purposes of the Transaction and Plans or Proposals

    Furnish the information required by Item 1006(d) of Regulation M-A 
(Sec.229.1006 of this chapter).

                     Item 8. Additional Information

    Furnish the information required by Item 1011(b) and (c) of 
Regulation M-A (Sec.229.1011 of this chapter).

                            Item 9. Exhibits

    File as an exhibit to the Schedule all documents specified by Item 
1016(a), (e) and (g) of Regulation M-A (Sec.229.1016 of this chapter).
    Signature. After due inquiry and to the best of my knowledge and 
belief, I certify that the information set forth in this statement is 
true, complete and correct.

________________________________________________________________________
(Signature)

________________________________________________________________________
(Name and title)

________________________________________________________________________
(Date)

    Instruction to Signature: The statement must be signed by the filing 
person or that person's authorized representative. If the statement is 
signed on behalf of a person by an authorized representative (other than 
an executive officer of a corporation or general partner of a 
partnership), evidence of the representative's authority to sign on 
behalf of the person must be filed with the statement. The name and any 
title of each person who signs the statement must be typed or printed 
beneath the signature. See Sec.240.14d-1(h) with respect to signature 
requirements.

[64 FR 61464, Nov. 10, 1999, as amended at 73 FR 17814, Apr. 1, 2008; 76 
FR 6046, Feb. 2, 2011]



Sec.240.14d-102  Schedule 14D-1F. Tender offer statement pursuant
to rule 14d-1(b) under the Securities Exchange Act of 1934.

                   Securities and Exchange Commission

                             Washington, DC

                             Schedule 14D-1F

 Tender Offer Statement Pursuant to Rule 14d-1(b) Under the Securities 
                          Exchange Act of 1934

                          [Amendment No. ____]

________________________________________________________________________
(Name of Subject Company [Issuer])
________________________________________________________________________
(Translation of Subject Company's [Issuer's] name into English (if 
applicable))
________________________________________________________________________
(Jurisdiction of Subject Company's [Issuer's] Incorporation or 
Organization)
________________________________________________________________________
(Bidder)
________________________________________________________________________
(Title of Class of Securities)
________________________________________________________________________
(CUSIP Number of Class of Securities (if applicable))
________________________________________________________________________
(Name, address (including zip code) and telephone number (including area 
code) of person(s) authorized to receive notices and communications on 
behalf of bidder)
________________________________________________________________________
(Date tender offer first published, sent or given to securityholders)

Calculation of Filing Fee*
    Transaction Valuation
    Amount of Filing Fee

    * Set forth the amount on which the filing fee is calculated and 
state how it was determined. See General Instruction II. C. for rules 
governing the calculation of the filing fee.

[ ] Check box if any part of the fee is offset as provided by Rule 0-
          11(a) (2) and identify the filing with which the offsetting 
          fee was previously paid. Identify the previous filing by 
          registration statement number, or the Form or Schedule and the 
          date of its filing.

Amount Previously Paid:_________________________________________________

Registration No.:_______________________________________________________
Filing Party:___________________________________________________________

Form:___________________________________________________________________

Date Filed:_____________________________________________________________

                          General Instructions

         I. Eligibility Requirements for Use of Schedule 14D-1F

    A. Schedule 14D-1F may be used by any person making a cash tender or 
exchange offer (the ``bidder'') for securities of any issuer 
incorporated or organized under the laws of Canada or any Canadian 
province or territory that is a foreign private issuer, where less than 
40 percent of the outstanding class of such issuer's securities that is 
the subject of the offer is held by U.S. holders. The calculation of 
U.S. holders shall be made as of the end of the subject issuer's last 
quarter or, if such quarter terminated within 60 days of the filing 
date, as of the end of such issuer's preceding quarter.

                              Instructions

    1. For purposes of this Schedule, ``foreign private issuer'' shall 
be construed in accordance with Rule 405 under the Securities Act.

[[Page 328]]

    2. For purposes of this Schedule, the term ``U. S. holder'' shall 
mean any person whose address appears on the records of the issuer, any 
voting trustee, any depositary, any share transfer agent or any person 
acting in a similar capacity on behalf of the issuer as being located in 
the United States.
    3. With respect to any tender offer, including any exchange offer, 
otherwise eligible to proceed in accordance with Rule 14d-1(b) under the 
Securities Exchange Act of 1934 (the ``Exchange Act''), the issuer of 
the subject securities will be presumed to be a foreign private issuer 
and U. S. holders will be presumed to hold less than 40 percent of such 
outstanding securities, unless (a) the aggregate trading volume of that 
class on national securities exchanges in the United States and on 
NASDAQ exceeded its aggregate trading volume on securities exchanges in 
Canada and on the Canadian Dealing Network, Inc. (``CDN'') over the 12 
calendar month period prior to commencement of this offer, or if 
commenced in response to a prior offer, over the 12 calendar month 
period prior to commencement of the initial offer (based on volume 
figures published by such exchanges and NASDAQ and CDN) ; (b) the most 
recent annual report or annual information form filed or submitted by 
the issuer with securities regulators of Ontario, Quebec, British 
Columbia or Alberta (or, if the issuer of the subject securities is not 
a reporting issuer in any of such provinces, with any other Canadian 
securities regulator) or with the Commission indicates that U. S. 
holders hold 40 percent or more of the subject class of securities; or 
(c) the offeror has actual knowledge that the level of U. S. ownership 
equals or exceeds 40 percent of such securities.
    4. If this Schedule is filed during the pendency of one or more 
ongoing cash tender or exchange offers for securities of the class 
subject to this offer that was commenced or was eligible to be commenced 
on Schedule 13E-4F, Schedule 14D-1F and/or Form F-8 or Form F-80, the 
date for calculation of U. S. ownership for purposes of this Schedule 
shall be the same as that date used by the initial bidder or issuer.
    5. For purposes of this Schedule, the class of subject securities 
shall not include any securities that may be converted into or are 
exchangeable for the subject securities.
    B. Any bidder using this Schedule must extend the cash tender or 
exchange offer to U. S. holders of securities of the subject company 
upon terms and conditions not less favorable than those extended to any 
other holder of such securities, and must comply with the requirements 
of any Canadian federal, provincial and/or territorial law, regulation 
or policy relating to the terms and conditions of the offer.
    C. This Schedule shall not be used if the subject company is an 
investment company registered or required to be registered under the 
Investment Company Act of 1940.
    D. This Schedule shall not be used to comply with the reporting 
requirements of section 13(d) of the Exchange Act. Persons using this 
Schedule are reminded of their obligation to file or update a Schedule 
13D where required by section 13(d)(1) of the Exchange Act and the 
Commission's rules and regulations thereunder.

                     II. Filing Instructions and Fee

    A.(1) The bidder must file this Schedule and any amendment to the 
Schedule (see Part I, Item 1.(b)), including all exhibits and other 
documents filed as part of the Schedule or amendment, in electronic 
format via the Commission's Electronic Data Gathering, Analysis, and 
Retrieval (EDGAR) system in accordance with the EDGAR rules set forth in 
Regulation S-T (17 CFR Part 232). For assistance with technical 
questions about EDGAR or to request an access code, call the EDGAR Filer 
Support Office at (202) 551-8900. For assistance with the EDGAR rules, 
call the Office of EDGAR and Information Analysis at (202) 551-3610.
    (2) If filing the Schedule in paper under a hardship exemption in 17 
CFR 232.201 or 232.202 of Regulation S-T, or as otherwise permitted, the 
bidder must file with the Commission at its principal office five copies 
of the complete Schedule and any amendment, including exhibits and all 
other documents filed as a part of the Schedule or amendment. The bidder 
must bind, staple or otherwise compile each copy in one or more parts 
without stiff covers. The bidder must further bind the Schedule or 
amendment on the side or stitching margin in a manner that leaves the 
reading matter legible. The bidder must provide three additional copies 
of the Schedule or amendment without exhibits to the Commission.
    B. An electronic filer must provide the signatures required for the 
Schedule or amendment in accordance with 17 CFR 232.302 of Regulation S-
T. A bidder filing in paper must have the original and at least one copy 
of the Schedule and any amendment signed in accordance with Exchange Act 
Rule 12b-11(d) (17 CFR 12b-11(d)) by the persons whose signatures are 
required for this Schedule or amendment. The bidder must also conform 
the unsigned copies.
    C. At the time of filing this Schedule with the Commission, the 
bidder shall pay to the Commission in accordance with Rule 0-11 of the 
Exchange Act, a fee in U. S. dollars in the amount prescribed by section 
14(g)(3) of the Exchange Act. See also Rule 0-9 under the Exchange Act.
    (1) Where the bidder is offering securities or other non-cash 
consideration for some or all of the securities to be acquired, whether 
or not in combination with a cash payment

[[Page 329]]

for the same securities, the value of the consideration shall be based 
on the market value of the securities to be received by the bidder as 
established by paragraph 3 of this section.
    (2) If there is no market for the securities to be acquired by the 
bidder, the book value of such securities computed as of the latest 
practicable date prior to the date of filing the Schedule shall be used, 
unless the issuer of such securities is in bankruptcy or receivership or 
has an accumulated capital deficit, in which case one-third of the 
principal amount, par value or stated value of such securities shall be 
used.
    (3) When the fee is based upon the market value of the securities, 
such market value shall be calculated upon the basis of either the 
average of the high and low prices reported in the consolidated 
reporting system (for exchange traded securities and last sale reported 
for over-the-counter securities) or the average of the bid and asked 
price (for other over-the-counter securities) as of a specified date 
within five business days prior to the date of filing the Schedule.
    D. If at any time after the initial payment of the fee the aggregate 
consideration offered is increased, an additional filing fee based upon 
such increase shall be paid with the required amended filing.
    E. The bidder must file the Schedule or amendment in electronic 
format in the English language in accordance with 17 CFR 232.306 of 
Regulation S-T. The bidder may file part of the Schedule or amendment, 
or exhibit or other attachment to the Schedule or amendment, in both 
French and English if the bidder included the French text to comply with 
the requirements of the Canadian securities administrator or other 
Canadian authority and, for an electronic filing, if the filing is an 
HTML document, as defined in 17 CFR 232.11 of Regulation S-T. For both 
an electronic filing and a paper filing, the bidder may provide an 
English translation or English summary of a foreign language document as 
an exhibit or other attachment to the Schedule or amendment as permitted 
by the rules of the applicable Canadian securities administrator.
    F. A paper filer must number sequentially the signed original of the 
Schedule or amendment (in addition to any internal numbering that 
otherwise may be present) by handwritten, typed, printed or other 
legible form of notation from the first page through the last page of 
the Schedule or amendment, including any exhibits or attachments. A 
paper filer must disclose the total number of pages on the first page of 
the sequentially numbered Schedule or amendment.

                  III. Compliance With the Exchange Act

    A. Pursuant to Rule 14d-1(b) under the Exchange Act, the bidder 
shall be deemed to comply with the requirements of sections 14(d)(1) 
through 14(d)(7) of the Exchange Act, Regulation 14D under the Exchange 
Act and Schedule TO thereunder, and Rule 14e-1 under Regulation 14E of 
the Exchange Act, in connection with a cash tender or exchange offer for 
securities that may be made pursuant to this Schedule; provided that, if 
an exemption has been granted from requirements of Canadian federal, 
provincial, and/or territorial laws, regulations or policies, and the 
tender offer does not comply with requirements that otherwise would be 
prescribed by Regulation 14D or 14E, the bidder (absent an order from 
the Commission) shall comply with the provisions of sections 14(d)(1) 
through 14(d)(7) of the Exchange Act, Regulation 14D and Schedule TO 
thereunder, and Rule 14e-1 under Regulation 14E.
    B. Any cash tender or exchange offer made pursuant to this Schedule 
is not exempt from the antifraud provisions of section 10(b) of the 
Exchange Act and Rule 10b-5 thereunder, and section 14(e) of the 
Exchange Act and Rule 14e-3 thereunder, and this Schedule shall be 
deemed ``filed'' for purposes of section 18 of the Exchange Act.
    C. The bidder's attention is directed to Regulation M (Sec.Sec.
242.100 through 242.105 of this chapter) in the case of an exchange 
offer, and to Rule 14e-5 under the Exchange Act (Sec.240.14e-5) for 
any exchange or cash tender offer. [See Exchange Act Release No. 29355 
(June 21, 1991) containing an exemption from Rule 10b-13, the 
predecessor to Rule 14e-5.]

         PART I--INFORMATION REQUIRED TO BE SENT TO SHAREHOLDERS

                   Item 1. Home Jurisdiction Documents

    (a) This Schedule shall be accompanied by the entire disclosure 
document or documents required to be delivered to holders of securities 
to be acquired in the proposed transaction by the bidder pursuant to the 
laws, regulations or policies of Canada and/or any of its provinces or 
territories governing the conduct of the tender offer. It shall not 
include any documents incorporated by reference into such disclosure 
document(s) and not distributed to offerees pursuant to any such law, 
regulation or policy.
    (b) Any amendment made by the bidder to a home jurisdiction document 
or documents shall be filed with the Commission under cover of this 
Schedule, which must indicate on the cover page the number of the 
amendment.
    (c) In an exchange offer where securities of the bidder have been or 
are to be offered or cancelled in the transaction, such securities shall 
be registered on forms promulgated by the Commission under the 
Securities Act of

[[Page 330]]

1933 including, where available, the Commission's Form F-8 or F-80 
providing for inclusion in that registration statement of the home 
jurisdiction prospectus.

                      Item 2. Informational Legends

    The following legends, to the extent applicable, shall appear on the 
outside front cover page of the home-jurisdiction document(s) in bold-
face roman type at least as high as ten-point modern type and at least 
two points leaded:
    ``This tender offer is made for the securities of a foreign issuer 
and while the offer is subject to disclosure requirements of the country 
in which the subject company is incorporated or organized, investors 
should be aware that these requirements are different from those of the 
United States. Financial statements included herein, if any, have been 
prepared in accordance with foreign generally accepted accounting 
principles and thus may not be comparable to financial statements of 
United States companies.
    ``The enforcement by investors of civil liabilities under the 
federal securities laws may be affected adversely by the fact that the 
subject company is located in a foreign country, and that some or all of 
its officers and directors are residents of a foreign country.
    ``Investors should be aware that the bidder or its affiliates, 
directly or indirectly, may bid for or make purchases of the issuer's 
securities subject to the offer, or of the issuer's related securities, 
during the period of the tender offer, as permitted by applicable 
Canadian laws or provincial laws or regulations. ''
    In the case of an exchange offer:
    ``Investors should be aware that the bidder or its affiliates, 
directly or indirectly, may bid for or make purchases of the issuer's 
securities subject to the offer or of the issuer's related securities, 
or of the bidder's securities to be distributed or of the bidder's 
related securities, during the period of the tender offer, as permitted 
by applicable Canadian laws or provincial laws or regulations. ''

    Note to Item 2. If the home-jurisdiction document(s) are delivered 
through an electronic medium, the issuer may satisfy the legibility 
requirements for the required legends relating to type size and font by 
presenting the legend in any manner reasonably calculated to draw 
security holder attention to it.

      PART II--INFORMATION NOT REQUIRED TO BE SENT TO SHAREHOLDERS

    The exhibits specified below shall be filed as part of the Schedule, 
but are not required to be sent to shareholders unless so required 
pursuant to the laws, regulations or policies of Canada and/or any of 
its provinces or territories. Exhibits shall be appropriately lettered 
or numbered for convenient reference.
    (1) File any reports or information that, in accordance with the 
requirements of the home jurisdiction(s), must be made publicly 
available by the bidder in connection with the transaction but need not 
be disseminated to shareholders.
    (2) File copies of any documents incorporated by reference into the 
home jurisdiction document(s).
    (3) If any name is signed to this Schedule pursuant to power of 
attorney, manually signed copies of any such power of attorney shall be 
filed. If the name of any officer signing on behalf of the bidder is 
signed pursuant to a power of attorney, certified copies of the bidder's 
board of directors authorizing such signature also shall be filed.

        PART III--UNDERTAKINGS AND CONSENT TO SERVICE OF PROCESS

    1. Undertakings
    The Schedule shall set forth the following undertakings of the 
bidder:
    a. The bidder undertakes to make available, in person or by 
telephone, representatives to respond to inquiries made by the 
Commission staff, and to furnish promptly, when requested to do so by 
the Commission staff, information relating to this Schedule or to 
transactions in said securities.
    b. The bidder undertakes to disclose in the United States, on the 
same basis as it is required to make such disclosure pursuant to 
applicable Canadian federal and/or provincial or territorial laws, 
regulations or policies, or otherwise discloses, information regarding 
purchases of the issuer's securities in connection with the cash tender 
or exchange offer covered by this Schedule. Such information shall be 
set forth in amendments to this Schedule.
    c. In the case of an exchange offer:
    The bidder undertakes to disclose in the United States, on the same 
basis as it is required to make such disclosure pursuant to any 
applicable Canadian federal and/or provincial or territorial law, 
regulation or policy, or otherwise discloses, information regarding 
purchases of the issuer's or bidder's securities in connection with the 
offer.
    2. Consent to Service of Process
    (a) At the time of filing this Schedule, the bidder (if a non-U. S. 
person) shall file with the Commission a written irrevocable consent and 
power of attorney on Form F-X.
    (b) Any change to the name or address of a registrant's agent for 
service shall be communicated promptly to the Commission by amendment to 
Form F-X referencing the file number of the registrant.

                           PART IV--SIGNATURES

    A. The Schedule shall be signed by each person on whose behalf the 
Schedule is filed

[[Page 331]]

or its authorized representative. If the Schedule is signed on behalf of 
a person by his authorized representative (other than an executive 
officer or general partner of the bidder), evidence of the 
representative's authority shall be filed with the Schedule.
    B. The name and any title of each person who signs the Schedule 
shall be typed or printed beneath his signature.
    C. By signing this Schedule, the bidder consents without power of 
revocation that any administrative subpoena may be served, or any 
administrative proceeding, civil suit or civil action where the cause of 
action arises out of or relates to or concerns any offering made or 
purported to be made in connection with the filing on Schedule 14D-1F or 
any purchases or sales of any security in connection therewith, may be 
commenced against it in any administrative tribunal or in any 
appropriate court in any place subject to the jurisdiction of any state 
or of the United States by service of said subpoena or process upon the 
registrant's designated agent.
    After due inquiry and to the best of my knowledge and belief, I 
certify that the information set forth in this statement is true, 
complete and correct.
________________________________________________________________________
    (Signature)
________________________________________________________________________
    (Name and Title)
________________________________________________________________________
    (Date)

[56 FR 30071, July 1, 1991; 57 FR 10615, Mar. 27, 1992, as amended at 61 
FR 24657, May 15, 1996; 62 FR 544, Jan. 3, 1997; 67 FR 36705, May 24, 
2002; 73 FR 17814, Apr. 1, 2008]



Sec.240.14d-103  Schedule 14D-9F. Solicitation/recommendation 
statement pursuant to section 14(d)(4) of the Securities Exchange 
Act of 1934 and rules 14d-1(b) and 14e-2(c) thereunder.
          

Securities and Exchange Commission Washington, DC 20549
Schedule 14D-9F
Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of 
the Securities Exchange Act of 1934 and Rules 14d-1(b) and 14e-2(c) 
Thereunder
[Amendment No. __]
________________________________________________________________________
    (Name of Subject Company [Issuer])
________________________________________________________________________
    (Translation of Subject Company's [Issuer's] Name into English (if 
applicable))
________________________________________________________________________
    (Jurisdiction of Subject Company's [Issuer's] Incorporation or 
Organization)
________________________________________________________________________
    (Name(s) of Person(s) Filing Statement)
________________________________________________________________________
    (Title of Class of Securities)
________________________________________________________________________
    (CUSIP Number of Class of Securities (if applicable))
________________________________________________________________________
    (Name, address (including zip code) and telephone number (including 
area code) of person(s) authorized to receive notices and communications 
on behalf of the person(s) filing statement)

                          General Instructions

         I. Eligibility Requirements for Use of Schedule 14D-9F

    A. Schedule 14D-9F is used by any issuer incorporated or organized 
under the laws of Canada or any Canadian province or territory that is a 
foreign private issuer (the ``subject company'') , or by any director or 
officer of such issuer, where the issuer is the subject of a cash tender 
or exchange offer for a class of its securities filed on Schedule 14D-
1F.
    For purposes of this Schedule, ``foreign private issuer'' shall be 
construed in accordance with Rule 405 under the Securities Act.
    B. Any person(s) using this Schedule must comply with the 
requirements of any Canadian federal, provincial and/or territorial law, 
regulation or policy relating to a recommendation by the subject 
issuer's board of directors, or any director or officer thereof, with 
respect to the offer.

                         II. Filing Instructions

    A.(1) The subject issuer must file this Schedule and any amendment 
to the Schedule (see Part I, Item 1.(b)), including all exhibits and 
other documents filed as part of the Schedule or amendment, in 
electronic format via the Commission's Electronic Data Gathering, 
Analysis, and Retrieval (EDGAR) system in accordance with the EDGAR 
rules set forth in Regulation S-T (17 CFR Part 232). For assistance with 
technical questions about EDGAR or to request an access code, call the 
EDGAR Filer Support Office at (202) 551-8900. For assistance with the 
EDGAR rules, call the Office of EDGAR and Information Analysis at (202) 
551-3610.
    (2) If filing the Schedule in paper under a hardship exemption in 17 
CFR 232.201 or 232.202 of Regulation S-T, or as otherwise permitted, the 
subject issuer must file with the Commission at its principal office 
five copies of the complete Schedule and any amendment, including 
exhibits and all other documents filed as a part of the Schedule or 
amendment. The subject issuer must bind, staple or otherwise compile 
each copy in one or more parts without stiff covers. The subject issuer 
must further bind the Schedule or amendment on the side or stitching 
margin in a manner that leaves the reading matter legible. The subject 
issuer must provide three additional copies of the Schedule or

[[Page 332]]

amendment without exhibits to the Commission.
    B. An electronic filer must provide the signatures required for the 
Schedule or amendment in accordance with 17 CFR 232.302 of Regulation S-
T. A subject issuer filing in paper must have the original and at least 
one copy of the Schedule and any amendment signed in accordance with 
Exchange Act Rule 12b-11(d) (17 CFR 12b-11(d)) by the persons whose 
signatures are required for this Schedule or amendment. The subject 
issuer must also conform the unsigned copies.
    C. The subject issuer must file the Schedule or amendment in 
electronic format in the English language in accordance with 17 CFR 
232.306 of Regulation S-T. The subject issuer may file part of the 
Schedule or amendment, or exhibit or other attachment to the Schedule or 
amendment, in both French and English if the bidder included the French 
text to comply with the requirements of the Canadian securities 
administrator or other Canadian authority and, for an electronic filing, 
if the filing is an HTML document, as defined in 17 CFR 232.11 of 
Regulation S-T. For both an electronic filing and a paper filing, the 
subject issuer may provide an English translation or English summary of 
a foreign language document as an exhibit or other attachment to the 
Schedule or amendment as permitted by the rules of the applicable 
Canadian securities administrator.
    D. A paper filer must number sequentially the signed original of the 
Schedule or amendment (in addition to any internal numbering that 
otherwise may be present) by handwritten, typed, printed or other 
legible form of notation from the first page through the last page of 
the Schedule or amendment, including any exhibits or attachments. A 
paper filer must disclose the total number of pages on the first page of 
the sequentially numbered Schedule or amendment.

                  III. Compliance with the Exchange Act

    A. Pursuant to Rule 14e-2(c) under the Securities Exchange Act of 
1934 (the ``Exchange Act''), this Schedule shall be filed by an issuer, 
a class of the securities of which is the subject of a cash tender or 
exchange offer filed on Schedule 14D-1F, and may be filed by any 
director or officer of such issuer.
    B. Any recommendation with respect to a cash tender or exchange 
offer for a class of securities of the subject company made pursuant to 
this Schedule is not exempt from the antifraud provisions of section 
10(b) of the Exchange Act and Rule 10b-5 thereunder and section 14(e) of 
the Exchange Act and Rule 14e-3 thereunder, and this Schedule shall be 
deemed ``filed'' with the Commission for purposes of section 18 of the 
Exchange Act.

         Part I--Information Required To Be Sent to Shareholders

                   Item 1. Home Jurisdiction Documents

    (a) This Schedule shall be accompanied by the entire disclosure 
document or documents required to be delivered to holders of securities 
to be acquired in the proposed transaction pursuant to the laws, 
regulations or policies of Canada and/or any of its provinces or 
territories governing the conduct of the offer. It shall not include any 
documents incorporated by reference into such disclosure document(s) and 
not distributed to offerees pursuant to any such law, regulation or 
policy.
    (b) Any amendment made to a home jurisdiction document or documents 
shall be filed with the Commission under cover of this Schedule, which 
must indicate on the cover page the number of the amendment.

                      Item 2. Informational Legends

    The following legends, to the extent applicable, shall appear on the 
outside front cover page of the home jurisdiction document(s) in bold-
face roman type at least as high as ten-point modern type and at least 
two points leaded:
    ``This tender offer is made for the securities of a foreign issuer 
and while the offer is subject to disclosure requirements of the country 
in which the subject issuer is incorporated or organized, investors 
should be aware that these requirements are different from those of the 
United States. Financial statements included herein, if any, have been 
prepared in accordance with foreign generally accepted accounting 
principles and thus may not be comparable to financial statements of 
United States companies.
    ``The enforcement by investors of civil liabilities under the 
federal securities laws may be affected adversely by the fact that the 
issuer is located in a foreign country, and that some or all of its 
officers and directors are residents of a foreign country.''

    Note to Item 2. If the home jurisdiction document(s) are delivered 
through an electronic medium, the issuer may satisfy the legibility 
requirements for the required legends relating to type size and font by 
presenting the legend in any manner reasonably calculated to draw 
security holder attention to it.

      Part II--Information Not Required To Be Sent to Shareholders

    The exhibits specified below shall be filed as part of the Schedule, 
but are not required to be sent to shareholders unless so required 
pursuant to the laws, or regulations or policies of Canada and/or any of 
its provinces or territories. Exhibits shall be appropriately lettered 
or numbered for convenient reference.

[[Page 333]]

    (1) File any reports or information that, in accordance with the 
requirements of the home jurisdiction(s), must be made publicly 
available by the person(s) filing this Schedule in connection with the 
transaction, but need not be disseminated to shareholders.
    (2) File copies of any documents incorporated by reference into the 
home jurisdiction document(s) .
    (3) If any name is signed to the Schedule pursuant to power of 
attorney, manually signed copies of any such power of attorney shall be 
filed. If the name of any officer signing on behalf of the issuer is 
signed pursuant to a power of attorney, certified copies of a resolution 
of the issuer's board of directors authorizing such signature also shall 
be filed.

         Part III--Undertaking and Consent to Service of Process

    1. Undertaking
    The Schedule shall set forth the following undertaking of the person 
filing it:
    The person(s) filing this Schedule undertakes to make available, in 
person or by telephone, representatives to respond to inquiries made by 
the Commission staff, and to furnish promptly, when requested to do so 
by the Commission staff, information relating to this Schedule or to 
transactions in said securities.
    2. Consent to Service of Process.
    (a) At the time of filing this Schedule, the person(s) (if a non-U. 
S. person) so filing shall file with the Commission a written 
irrevocable consent and power of attorney on Form F-X.
    (b) Any change to the name or address of a registrant's agent for 
service shall be communicated promptly to the Commission by amendment to 
Form F-X referencing the file number of the registrant.

                           Part IV--Signatures

    A. The Schedule shall be signed by each person on whose behalf the 
Schedule is filed or its authorized representative. If the Schedule is 
signed on behalf of a person by his authorized representative (other 
than an executive officer or general partner of the subject company), 
evidence of the representative's authority shall be filed with the 
Schedule.
    B. The name and any title of each person who signs the Schedule 
shall be typed or printed beneath his signature.
    C. By signing this Schedule, the persons signing consent without 
power of revocation that any administrative subpoena may be served, or 
any administrative proceeding, civil suit or civil action where the 
cause of action arises out of or relates to or concerns any offering 
made or purported to be made in connection with filing on this Schedule 
14D-9F or any purchases or sales of any security in connection 
therewith, may be commenced against them in any administrative tribunal 
or in any appropriate court in any place subject to the jurisdiction of 
any state or of the United States by service of said subpoena or process 
upon the registrant's designated agent.
    After due inquiry and to the best of my knowledge and belief, I 
certify that the information set forth in this statement is true, 
complete and correct.
________________________________________________________________________
    (Signature)
________________________________________________________________________
    (Name and Title)
________________________________________________________________________
    (Date)

[56 FR 30073, July 1, 1991, as amended at 61 FR 24657, May 15, 1996; 67 
FR 36706, May 24, 2002; 73 FR 17814, Apr. 1, 2008]

                             Regulation 14E

    Note: For the scope of and definitions applicable to Regulation 14E, 
refer to Sec.240.14d-1.



Sec.240.14e-1  Unlawful tender offer practices.

    As a means reasonably designed to prevent fraudulent, deceptive or 
manipulative acts or practices within the meaning of section 14(e) of 
the Act, no person who makes a tender offer shall:
    (a) Hold such tender offer open for less than twenty business days 
from the date such tender offer is first published or sent to security 
holders; provided, however, that if the tender offer involves a roll-up 
transaction as defined in Item 901(c) of Regulation S-K (17 CFR 
229.901(c)) and the securities being offered are registered (or 
authorized to be registered) on Form S-4 (17 CFR 229.25) or Form F-4 (17 
CFR 229.34), the offer shall not be open for less than sixty calendar 
days from the date the tender offer is first published or sent to 
security holders;
    (b) Increase or decrease the percentage of the class of securities 
being sought or the consideration offered or the dealer's soliciting fee 
to be given in a tender offer unless such tender offer remains open for 
at least ten business days from the date that notice of such increase or 
decrease is first published or sent or given to security holders.

Provided, however, That, for purposes of this paragraph, the acceptance 
for payment of an additional amount of securities not to exceed two 
percent of the

[[Page 334]]

class of securities that is the subject of the tender offer shall not be 
deemed to be an increase. For purposes of this paragraph, the percentage 
of a class of securities shall be calculated in accordance with section 
14(d)(3) of the Act.
    (c) Fail to pay the consideration offered or return the securities 
deposited by or on behalf of security holders promptly after the 
termination or withdrawal of a tender offer. This paragraph does not 
prohibit a bidder electing to offer a subsequent offering period under 
Sec.240.14d-11 from paying for securities during the subsequent 
offering period in accordance with that section.
    (d) Extend the length of a tender offer without issuing a notice of 
such extension by press release or other public announcement, which 
notice shall include disclosure of the approximate number of securities 
deposited to date and shall be issued no later than the earlier of: (i) 
9:00 a.m. Eastern time, on the next business day after the scheduled 
expiration date of the offer or (ii), if the class of securities which 
is the subject of the tender offer is registered on one or more national 
securities exchanges, the first opening of any one of such exchanges on 
the next business day after the scheduled expiration date of the offer.
    (e) The periods of time required by paragraphs (a) and (b) of this 
section shall be tolled for any period during which the bidder has 
failed to file in electronic format, absent a hardship exemption 
(Sec.Sec.232.201 and 232.202 of this chapter), the Schedule TO Tender 
Offer Statement (Sec.240.14d-100), any tender offer material required 
to be filed by Item 12 of that Schedule pursuant to paragraph (a) of 
Item 1016 of Regulation M-A (Sec.229.1016(a) of this chapter), and any 
amendments thereto. If such documents were filed in paper pursuant to a 
hardship exemption (see Sec.232.201 and Sec.232.202(d)), the minimum 
offering periods shall be tolled for any period during which a required 
confirming electronic copy of such Schedule and tender offer material is 
delinquent.

[44 FR 70348, Dec. 6, 1979, as amended at 51 FR 3035, Jan. 23, 1986; 51 
FR 25883, July 17, 1986; 51 FR 32630, Sept. 15, 1986; 56 FR 57255, Nov. 
8, 1991; 58 FR 14682, 14685, Mar. 18, 1993; 59 FR 67765, Dec. 30, 1994; 
62 FR 36459, July 8, 1997; 64 FR 61465, Nov. 10, 1999; 73 FR 17814, Apr. 
1, 2008]



Sec.240.14e-2  Position of subject company with respect to a tender
offer.

    (a) Position of subject company. As a means reasonably designed to 
prevent fraudulent, deceptive or manipulative acts or practices withing 
the meaning of section 14(e) of the Act, the subject company, no later 
than 10 business days from the date the tender offer is first published 
or sent or given, shall publish, send or give to security holders a 
statement disclosing that the subject company:
    (1) Recommends acceptance or rejection of the bidder's tender offer;
    (2) Expresses no opinion and is remaining neutral toward the 
bidder's tender offer; or
    (3) Is unable to take a position with respect to the bidder's tender 
offer. Such statement shall also include the reason(s) for the position 
(including the inability to take a position) disclosed therein.
    (b) Material change. If any material change occurs in the disclosure 
required by paragraph (a) of this section, the subject company shall 
promptly publish or send or give a statement disclosing such material 
change to security holders.
    (c) Any issuer, a class of the securities of which is the subject of 
a tender offer filed with the Commission on Schedule 14D-1F and 
conducted in reliance upon and in conformity with Rule 14d-1(b) under 
the Act, and any director or officer of such issuer where so required by 
the laws, regulations and policies of Canada and/or any of its provinces 
or territories, in lieu of the statements called for by paragraph (a) of 
this section and Rule 14d-9 under the Act, shall file with the 
Commission on Schedule 14D-9F the entire disclosure document(s) required 
to be furnished to holders of securities of the subject issuer by the 
laws, regulations and policies of Canada and/or any of its

[[Page 335]]

provinces or territories governing the conduct of the tender offer, and 
shall disseminate such document(s) in the United States in accordance 
with such laws, regulations and policies.
    (d) Exemption for cross-border tender offers. The subject company 
shall be exempt from this section with respect to a tender offer 
conducted under Sec.240.14d-1(c).

[44 FR 70348, Dec. 6, 1979, as amended at 56 FR 30075, July 1, 1991; 64 
FR 61406, Nov. 10, 1999]



Sec.240.14e-3  Transactions in securities on the basis of material,
nonpublic information in the context of tender offers.

    (a) If any person has taken a substantial step or steps to commence, 
or has commenced, a tender offer (the ``offering person''), it shall 
constitute a fraudulent, deceptive or manipulative act or practice 
within the meaning of section 14(e) of the Act for any other person who 
is in possession of material information relating to such tender offer 
which information he knows or has reason to know is nonpublic and which 
he knows or has reason to know has been acquired directly or indirectly 
from:
    (1) The offering person,
    (2) The issuer of the securities sought or to be sought by such 
tender offer, or
    (3) Any officer, director, partner or employee or any other person 
acting on behalf of the offering person or such issuer, to purchase or 
sell or cause to be purchased or sold any of such securities or any 
securities convertible into or exchangeable for any such securities or 
any option or right to obtain or to dispose of any of the foregoing 
securities, unless within a reasonable time prior to any purchase or 
sale such information and its source are publicly disclosed by press 
release or otherwise.
    (b) A person other than a natural person shall not violate paragraph 
(a) of this section if such person shows that:
    (1) The individual(s) making the investment decision on behalf of 
such person to purchase or sell any security described in paragraph (a) 
of this section or to cause any such security to be purchased or sold by 
or on behalf of others did not know the material, nonpublic information; 
and
    (2) Such person had implemented one or a combination of policies and 
procedures, reasonable under the circumstances, taking into 
consideration the nature of the person's business, to ensure that 
individual(s) making investment decision(s) would not violate paragraph 
(a) of this section, which policies and procedures may include, but are 
not limited to, (i) those which restrict any purchase, sale and causing 
any purchase and sale of any such security or (ii) those which prevent 
such individual(s) from knowing such information.
    (c) Notwithstanding anything in paragraph (a) of this section to 
contrary, the following transactions shall not be violations of 
paragraph (a) of this section:
    (1) Purchase(s) of any security described in paragraph (a) of this 
section by a broker or by another agent on behalf of an offering person; 
or
    (2) Sale(s) by any person of any security described in paragraph (a) 
of this section to the offering person.
    (d)(1) As a means reasonably designed to prevent fraudulent, 
deceptive or manipulative acts or practices within the meaning of 
section 14(e) of the Act, it shall be unlawful for any person described 
in paragraph (d)(2) of this section to communicate material, nonpublic 
information relating to a tender offer to any other person under 
circumstances in which it is reasonably foreseeable that such 
communication is likely to result in a violation of this section except 
that this paragraph shall not apply to a communication made in good 
faith,
    (i) To the officers, directors, partners or employees of the 
offering person, to its advisors or to other persons, involved in the 
planning, financing, preparation or execution of such tender offer;
    (ii) To the issuer whose securities are sought or to be sought by 
such tender offer, to its officers, directors, partners, employees or 
advisors or to other persons, involved in the planning, financing, 
preparation or execution of the activities of the issuer with respect to 
such tender offer; or
    (iii) To any person pursuant to a requirement of any statute or rule 
or regulation promulgated thereunder.

[[Page 336]]

    (2) The persons referred to in paragraph (d)(1) of this section are:
    (i) The offering person or its officers, directors, partners, 
employees or advisors;
    (ii) The issuer of the securities sought or to be sought by such 
tender offer or its officers, directors, partners, employees or 
advisors;
    (iii) Anyone acting on behalf of the persons in paragraph (d)(2)(i) 
of this section or the issuer or persons in paragraph (d)(2)(ii) of this 
section; and
    (iv) Any person in possession of material information relating to a 
tender offer which information he knows or has reason to know is 
nonpublic and which he knows or has reason to know has been acquired 
directly or indirectly from any of the above.

[45 FR 60418, Sept. 12, 1980]



Sec.240.14e-4  Prohibited transactions in connection with partial
tender offers.

    (a) Definitions. For purposes of this section:
    (1) The amount of a person's ``net long position'' in a subject 
security shall equal the excess, if any, of such person's ``long 
position'' over such person's ``short position.'' For the purposes of 
determining the net long position as of the end of the proration period 
and for tendering concurrently to two or more partial tender offers, 
securities that have been tendered in accordance with the rule and not 
withdrawn are deemed to be part of the person's long position.
    (i) Such person's long position is the amount of subject securities 
that such person:
    (A) Or his agent has title to or would have title to but for having 
lent such securities; or
    (B) Has purchased, or has entered into an unconditional contract, 
binding on both parties thereto, to purchase but has not yet received; 
or
    (C) Has exercised a standardized call option for; or
    (D) Has converted, exchanged, or exercised an equivalent security 
for; or
    (E) Is entitled to receive upon conversion, exchange, or exercise of 
an equivalent security.
    (ii) Such person's short position, is the amount of subject 
securities or subject securities underlying equivalent securities that 
such person:
    (A) Has sold, or has entered into an unconditional contract, binding 
on both parties thereto, to sell; or
    (B) Has borrowed; or
    (C) Has written a non-standardized call option, or granted any other 
right pursuant to which his shares may be tendered by another person; or
    (D) Is obligated to deliver upon exercise of a standardized call 
option sold on or after the date that a tender offer is first publicly 
announced or otherwise made known by the bidder to holders of the 
security to be acquired, if the exercise price of such option is lower 
than the highest tender offer price or stated amount of the 
consideration offered for the subject security. For the purpose of this 
paragraph, if one or more tender offers for the same security are 
ongoing on such date, the announcement date shall be that of the first 
announced offer.
    (2) The term equivalent security means:
    (i) Any security (including any option, warrant, or other right to 
purchase the subject security), issued by the person whose securities 
are the subject of the offer, that is immediately convertible into, or 
exchangeable or exercisable for, a subject security, or
    (ii) Any other right or option (other than a standardized call 
option) that entitles the holder thereof to acquire a subject security, 
but only if the holder thereof reasonably believes that the maker or 
writer of the right or option has title to and possession of the subject 
security and upon exercise will promptly deliver the subject security.
    (3) The term subject security means a security that is the subject 
of any tender offer or request or invitation for tenders.
    (4) For purposes of this rule, a person shall be deemed to 
``tender'' a security if he:
    (i) Delivers a subject security pursuant to an offer,
    (ii) Causes such delivery to be made,
    (iii) Guarantees delivery of a subject security pursuant to a tender 
offer,
    (iv) Causes a guarantee of such delivery to be given by another 
person, or

[[Page 337]]

    (v) Uses any other method by which acceptance of a tender offer may 
be made.
    (5) The term partial tender offer means a tender offer or request or 
invitation for tenders for less than all of the outstanding securities 
subject to the offer in which tenders are accepted either by lot or on a 
pro rata basis for a specified period, or a tender offer for all of the 
outstanding shares that offers a choice of consideration in which 
tenders for different forms of consideration may be accepted either by 
lot or on a pro rata basis for a specified period.
    (6) The term standardized call option means any call option that is 
traded on an exchange, or for which quotation information is 
disseminated in an electronic interdealer quotation system of a 
registered national securities association.
    (b) It shall be unlawful for any person acting alone or in concert 
with others, directly or indirectly, to tender any subject security in a 
partial tender offer:
    (1) For his own account unless at the time of tender, and at the end 
of the proration period or period during which securities are accepted 
by lot (including any extensions thereof), he has a net long position 
equal to or greater than the amount tendered in:
    (i) The subject security and will deliver or cause to be delivered 
such security for the purpose of tender to the person making the offer 
within the period specified in the offer; or
    (ii) An equivalent security and, upon the acceptance of his tender 
will acquire the subject security by conversion, exchange, or exercise 
of such equivalent security to the extent required by the terms of the 
offer, and will deliver or cause to be delivered the subject security so 
acquired for the purpose of tender to the person making the offer within 
the period specified in the offer; or
    (2) For the account of another person unless the person making the 
tender:
    (i) Possesses the subject security or an equivalent security, or
    (ii) Has a reasonable belief that, upon information furnished by the 
person on whose behalf the tender is made, such person owns the subject 
security or an equivalent security and will promptly deliver the subject 
security or such equivalent security for the purpose of tender to the 
person making the tender.
    (c) This rule shall not prohibit any transaction or transactions 
which the Commission, upon written request or upon its own motion, 
exempts, either unconditionally or on specified terms and conditions.

[49 FR 13870, Apr. 9, 1984, as amended at 50 FR 8102, Feb. 28, 1985. 
Redesignated and amended at 55 FR 50320, Dec. 6, 1990]



Sec.240.14e-5  Prohibiting purchases outside of a tender offer.

    (a) Unlawful activity. As a means reasonably designed to prevent 
fraudulent, deceptive or manipulative acts or practices in connection 
with a tender offer for equity securities, no covered person may 
directly or indirectly purchase or arrange to purchase any subject 
securities or any related securities except as part of the tender offer. 
This prohibition applies from the time of public announcement of the 
tender offer until the tender offer expires. This prohibition does not 
apply to any purchases or arrangements to purchase made during the time 
of any subsequent offering period as provided for in Sec.240.14d-11 if 
the consideration paid or to be paid for the purchases or arrangements 
to purchase is the same in form and amount as the consideration offered 
in the tender offer.
    (b) Excepted activity. The following transactions in subject 
securities or related securities are not prohibited by paragraph (a) of 
this section:
    (1) Exercises of securities. Transactions by covered persons to 
convert, exchange, or exercise related securities into subject 
securities, if the covered person owned the related securities before 
public announcement;
    (2) Purchases for plans. Purchases or arrangements to purchase by or 
for a plan that are made by an agent independent of the issuer;
    (3) Purchases during odd-lot offers. Purchases or arrangements to 
purchase if the tender offer is excepted under Sec.240.13e-4(h)(5);
    (4) Purchases as intermediary. Purchases by or through a dealer-
manager

[[Page 338]]

or its affiliates that are made in the ordinary course of business and 
made either:
    (i) On an agency basis not for a covered person; or
    (ii) As principal for its own account if the dealer-manager or its 
affiliate is not a market maker, and the purchase is made to offset a 
contemporaneous sale after having received an unsolicited order to buy 
from a customer who is not a covered person;
    (5) Basket transactions. Purchases or arrangements to purchase a 
basket of securities containing a subject security or a related security 
if the following conditions are satisfied:
    (i) The purchase or arrangement to purchase is made in the ordinary 
course of business and not to facilitate the tender offer;
    (ii) The basket contains 20 or more securities; and
    (iii) Covered securities and related securities do not comprise more 
than 5% of the value of the basket;
    (6) Covering transactions. Purchases or arrangements to purchase 
that are made to satisfy an obligation to deliver a subject security or 
a related security arising from a short sale or from the exercise of an 
option by a non-covered person if:
    (i) The short sale or option transaction was made in the ordinary 
course of business and not to facilitate the offer;
    (ii) In the case of a short sale, the short sale was entered into 
before public announcement of the tender offer; and
    (iii) In the case of an exercise of an option, the covered person 
wrote the option before public announcement of the tender offer;
    (7) Purchases pursuant to contractual obligations. Purchases or 
arrangements to purchase pursuant to a contract if the following 
conditions are satisfied:
    (i) The contract was entered into before public announcement of the 
tender offer;
    (ii) The contract is unconditional and binding on both parties; and
    (iii) The existence of the contract and all material terms including 
quantity, price and parties are disclosed in the offering materials;
    (8) Purchases or arrangements to purchase by an affiliate of the 
dealer-manager. Purchases or arrangements to purchase by an affiliate of 
a dealer-manager if the following conditions are satisfied:
    (i) The dealer-manager maintains and enforces written policies and 
procedures reasonably designed to prevent the flow of information to or 
from the affiliate that might result in a violation of the federal 
securities laws and regulations;
    (ii) The dealer-manager is registered as a broker or dealer under 
Section 15(a) of the Act;
    (iii) The affiliate has no officers (or persons performing similar 
functions) or employees (other than clerical, ministerial, or support 
personnel) in common with the dealer-manager that direct, effect, or 
recommend transactions in securities; and
    (iv) The purchases or arrangements to purchase are not made to 
facilitate the tender offer;
    (9) Purchases by connected exempt market makers or connected exempt 
principal traders. Purchases or arrangements to purchase if the 
following conditions are satisfied:
    (i) The issuer of the subject security is a foreign private issuer, 
as defined in Sec.240.3b-4(c);
    (ii) The tender offer is subject to the United Kingdom's City Code 
on Takeovers and Mergers;
    (iii) The purchase or arrangement to purchase is effected by a 
connected exempt market maker or a connected exempt principal trader, as 
those terms are used in the United Kingdom's City Code on Takeovers and 
Mergers;
    (iv) The connected exempt market maker or the connected exempt 
principal trader complies with the applicable provisions of the United 
Kingdom's City Code on Takeovers and Mergers; and
    (v) The tender offer documents disclose the identity of the 
connected exempt market maker or the connected exempt principal trader 
and disclose, or describe how U.S. security holders can obtain, 
information regarding market making or principal purchases by such 
market maker or principal trader to the extent that this information is

[[Page 339]]

required to be made public in the United Kingdom;
    (10) Purchases during cross-border tender offers. Purchases or 
arrangements to purchase if the following conditions are satisfied:
    (i) The tender offer is excepted under Sec.240.13e-4(h)(8) or 
Sec.240.14d-1(c);
    (ii) The offering documents furnished to U.S. holders prominently 
disclose the possibility of any purchases, or arrangements to purchase, 
or the intent to make such purchases;
    (iii) The offering documents disclose the manner in which any 
information about any such purchases or arrangements to purchase will be 
disclosed;
    (iv) The offeror discloses information in the United States about 
any such purchases or arrangements to purchase in a manner comparable to 
the disclosure made in the home jurisdiction, as defined in Sec.
240.13e-4(i)(3); and
    (v) The purchases comply with the applicable tender offer laws and 
regulations of the home jurisdiction; and
    (11) Purchases or arrangements to purchase pursuant to a foreign 
tender offer(s). Purchases or arrangements to purchase pursuant to a 
foreign offer(s) where the offeror seeks to acquire subject securities 
through a U.S. tender offer and a concurrent or substantially concurrent 
foreign offer(s), if the following conditions are satisfied:
    (i) The U.S. and foreign tender offer(s) meet the conditions for 
reliance on the Tier II cross-border exemptions set forth in Sec.
240.14d-1(d);
    (ii) The economic terms and consideration in the U.S. tender offer 
and foreign tender offer(s) are the same, provided that any cash 
consideration to be paid to U.S. security holders may be converted from 
the currency to be paid in the foreign tender offer(s) to U.S. dollars 
at an exchange rate disclosed in the U.S. offering documents;
    (iii) The procedural terms of the U.S. tender offer are at least as 
favorable as the terms of the foreign tender offer(s);
    (iv) The intention of the offeror to make purchases pursuant to the 
foreign tender offer(s) is disclosed in the U.S. offering documents; and
    (v) Purchases by the offeror in the foreign tender offer(s) are made 
solely pursuant to the foreign tender offer(s) and not pursuant to an 
open market transaction(s), a private transaction(s), or other 
transaction(s); and
    (12) Purchases or arrangements to purchase by an affiliate of the 
financial advisor and an offeror and its affiliates. (i) Purchases or 
arrangements to purchase by an affiliate of a financial advisor and an 
offeror and its affiliates that are permissible under and will be 
conducted in accordance with the applicable laws of the subject 
company's home jurisdiction, if the following conditions are satisfied:
    (A) The subject company is a foreign private issuer as defined in 
Sec.240.3b-4(c);
    (B) The covered person reasonably expects that the tender offer 
meets the conditions for reliance on the Tier II cross-border exemptions 
set forth in Sec.240.14d-1(d);
    (C) No purchases or arrangements to purchase otherwise than pursuant 
to the tender offer are made in the United States;
    (D) The United States offering materials disclose prominently the 
possibility of, or the intention to make, purchases or arrangements to 
purchase subject securities or related securities outside of the tender 
offer, and if there will be public disclosure of purchases of subject or 
related securities, the manner in which information regarding such 
purchases will be disseminated;
    (E) There is public disclosure in the United States, to the extent 
that such information is made public in the subject company's home 
jurisdiction, of information regarding all purchases of subject 
securities and related securities otherwise than pursuant to the tender 
offer from the time of public announcement of the tender offer until the 
tender offer expires;
    (F) Purchases or arrangements to purchase by an offeror and its 
affiliates must satisfy the following additional condition: the tender 
offer price will be increased to match any consideration paid outside of 
the tender offer that is greater than the tender offer price; and
    (G) Purchases or arrangements to purchase by an affiliate of a 
financial advisor must satisfy the following additional conditions:
    (1) The financial advisor and the affiliate maintain and enforce 
written

[[Page 340]]

policies and procedures reasonably designed to prevent the transfer of 
information among the financial advisor and affiliate that might result 
in a violation of U.S. federal securities laws and regulations through 
the establishment of information barriers;
    (2) The financial advisor has an affiliate that is registered as a 
broker or dealer under section 15(a) of the Act (15 U.S.C. 78o(a));
    (3) The affiliate has no officers (or persons performing similar 
functions) or employees (other than clerical, ministerial, or support 
personnel) in common with the financial advisor that direct, effect, or 
recommend transactions in the subject securities or related securities 
who also will be involved in providing the offeror or subject company 
with financial advisory services or dealer-manager services; and
    (4) The purchases or arrangements to purchase are not made to 
facilitate the tender offer.
    (ii) [Reserved]
    (c) Definitions. For purposes of this section, the term:
    (1) Affiliate has the same meaning as in Sec.240.12b-2;
    (2) Agent independent of the issuer has the same meaning as in Sec.
242.100(b) of this chapter;
    (3) Covered person means:
    (i) The offeror and its affiliates;
    (ii) The offeror's dealer-manager and its affiliates;
    (iii) Any advisor to any of the persons specified in paragraph 
(c)(3)(i) and (ii) of this section, whose compensation is dependent on 
the completion of the offer; and
    (iv) Any person acting, directly or indirectly, in concert with any 
of the persons specified in this paragraph (c)(3) in connection with any 
purchase or arrangement to purchase any subject securities or any 
related securities;
    (4) Plan has the same meaning as in Sec.242.100(b) of this 
chapter;
    (5) Public announcement is any oral or written communication by the 
offeror or any person authorized to act on the offeror's behalf that is 
reasonably designed to, or has the effect of, informing the public or 
security holders in general about the tender offer;
    (6) Related securities means securities that are immediately 
convertible into, exchangeable for, or exercisable for subject 
securities;
    (7) Subject securities has the same meaning as in Sec.229.1000 of 
this chapter; and
    (8) Subject company has the same meaning as in Sec.229.1000 of 
this chapter; and
    (9) Home jurisdiction has the same meaning as in the Instructions to 
paragraphs (c) and (d) of Sec.240.14d-1.
    (d) Exemptive authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms or 
conditions, to any transaction or class of transactions or any security 
or class of security, or any person or class of persons.

[64 FR 61465, Nov. 10, 1999, as amended at 73 FR 60093, Oct. 9, 2008]



Sec.240.14e-6  Repurchase offers by certain closed-end registered
investment companies.

    Sections 240.14e-1 and 240.14e-2 shall not apply to any offer by a 
closed-end management investment company to repurchase equity securities 
of which it is the issuer pursuant to Sec.270.23c-3 of this chapter.

[58 FR 19343, Apr. 14, 1993]



Sec.240.14e-7  Unlawful tender offer practices in connection with
roll-ups.

    In order to implement section 14(h) of the Act (15 U.S.C. 78n(h)):
    (a)(1) It shall be unlawful for any person to receive compensation 
for soliciting tenders directly from security holders in connection with 
a roll-up transaction as provided in paragraph (a)(2) of this section, 
if the compensation is:
    (i) Based on whether the solicited person participates in the tender 
offer; or
    (ii) Contingent on the success of the tender offer.
    (2) Paragraph (a)(1) of this section is applicable to a roll-up 
transaction as defined in Item 901(c) of Regulation S-K (Sec.
229.901(c) of this chapter), structured as a tender offer, except for a 
transaction involving only:

[[Page 341]]

    (i) Finite-life entities that are not limited partnerships;
    (ii) Partnerships whose investors will receive new securities or 
securities in another entity that are not reported under a transaction 
reporting plan declared effective before December 17, 1993 by the 
Commission under section 11A of the Act (15 U.S.C. 78k-1); or
    (iii) Partnerships whose investors' securities are reported under a 
transaction reporting plan declared effective before December 17, 1993 
by the Commission under section 11A of the Act (15 U.S.C. 78k-1).
    (b)(1) It shall be unlawful for any finite-life entity that is the 
subject of a roll-up transaction as provided in paragraph (b)(2) of this 
section to fail to provide a security holder list or mail communications 
related to a tender offer that is in furtherance of the roll-up 
transaction, at the option of a requesting security holder, pursuant to 
the procedures set forth in Sec.240.14a-7.
    (2) Paragraph (b)(1) of this section is applicable to a roll-up 
transaction as defined in Item 901(c) of Regulation S-K (Sec.
229.901(c) of this chapter), structured as a tender offer, that 
involves:
    (i) An entity with securities registered pursuant to section 12 of 
the Act (15 U.S.C. 78l); or
    (ii) A limited partnership, unless the transaction involves only:
    (A) Partnerships whose investors will receive new securities or 
securities in another entity that are not reported under a transaction 
reporting plan declared effective before December 17, 1993 by the 
Commission under section 11A of the Act (15 U.S.C. 78k-1); or
    (B) Partnerships whose investors' securities are reported under a 
transaction reporting plan declared effective before December 17, 1993 
by the Commission under section 11A of the Act (15 U.S.C. 78k-1).

[59 FR 63685, Dec. 8, 1994]



Sec.240.14e-8  Prohibited conduct in connection with pre-commencement
communications.

    It is a fraudulent, deceptive or manipulative act or practice within 
the meaning of section 14(e) of the Act (15 U.S.C. 78n) for any person 
to publicly announce that the person (or a party on whose behalf the 
person is acting) plans to make a tender offer that has not yet been 
commenced, if the person:
    (a) Is making the announcement of a potential tender offer without 
the intention to commence the offer within a reasonable time and 
complete the offer;
    (b) Intends, directly or indirectly, for the announcement to 
manipulate the market price of the stock of the bidder or subject 
company; or
    (c) Does not have the reasonable belief that the person will have 
the means to purchase securities to complete the offer.

[64 FR 61466, Nov. 10, 1999]



Sec.240.14f-1  Change in majority of directors.

    If, pursuant to any arrangement or understanding with the person or 
persons acquiring securities in a transaction subject to section 13(d) 
or 14(d) of the Act, any persons are to be elected or designated as 
directors of the issuer, otherwise than at a meeting of security 
holders, and the persons so elected or designated will constitute a 
majority of the directors of the issuer, then, not less than 10 days 
prior to the date any such person take office as a director, or such 
shorter period prior to that date as the Commission may authorize upon a 
showing of good cause therefor, the issuer shall file with the 
Commission and transmit to all holders of record of securities of the 
issuer who would be entitled to vote at a meeting for election of 
directors, information substantially equivalent to the information which 
would be required by Items 6 (a), (d) and (e), 7 and 8 of Schedule 14A 
of Regulation 14A (Sec.240.14a-101 of this chapter) to be transmitted 
if such person or persons were nominees for election as directors at a 
meeting of such security holders. Eight copies of such information shall 
be filed with the Commission.

[33 FR 11017, Aug. 2, 1968, as amended at 34 FR 6101, Apr. 4, 1969; 51 
FR 42072, Nov. 20, 1986]

   Regulation 14N: Filings Required by Certain Nominating Shareholders



Sec.240.14n-1  Filing of Schedule 14N.

    (a) A shareholder or group of shareholders that submits a nominee or

[[Page 342]]

nominees in accordance with Sec.240.14a-11 or a procedure set forth 
under applicable state or foreign law, or a registrant's governing 
documents providing for the inclusion of shareholder director nominees 
in the registrant's proxy materials shall file with the Commission a 
statement containing the information required by Schedule 14N (Sec.
240.14n-101) and simultaneously provide the notice on Schedule 14N to 
the registrant.
    (b)(1) Whenever two or more persons are required to file a statement 
containing the information required by Schedule 14N (Sec.240.14n-101), 
only one statement need be filed. The statement must identify all such 
persons, contain the required information with regard to each such 
person, indicate that the statement is filed on behalf of all such 
persons, and include, as an appendix, their agreement in writing that 
the statement is filed on behalf of each of them. Each person on whose 
behalf the statement is filed is responsible for the timely filing of 
that statement and any amendments thereto, and for the completeness and 
accuracy of the information concerning such person contained therein; 
such person is not responsible for the completeness or accuracy of the 
information concerning the other persons making the filing.
    (2) If the group's members elect to make their own filings, each 
filing should identify all members of the group but the information 
provided concerning the other persons making the filing need only 
reflect information which the filing person knows or has reason to know.

[75 FR 56788, Sept. 16, 2010]



Sec.240.14n-2  Filing of amendments to Schedule 14N.

    (a) If any material change occurs with respect to the nomination, or 
in the disclosure or certifications set forth in the Schedule 14N (Sec.
240.14n-101) required by Sec.240.14n-1(a), the person or persons who 
were required to file the statement shall promptly file or cause to be 
filed with the Commission an amendment disclosing that change.
    (b) An amendment shall be filed within 10 calendar days of the final 
results of the election being announced by the registrant stating the 
nominating shareholder's or the nominating shareholder group's intention 
with regard to continued ownership of their shares.

[75 FR 56788, Sept. 16, 2010]



Sec.240.14n-3  Dissemination.

    One copy of Schedule 14N (Sec.240.14n-101) filed pursuant to 
Sec.Sec.240.14n-1 and 240.14n-2 shall be mailed by registered or 
certified mail or electronically transmitted to the registrant at its 
principal executive office. Three copies of the material must at the 
same time be filed with, or mailed for filing to, each national 
securities exchange upon which any class of securities of the registrant 
is listed and registered.

[75 FR 56788, Sept. 16, 2010]



Sec.240.14n-101  Schedule 14N--Information to be included in 
statements filed pursuant to Sec.240.14n-1 and amendments thereto
filed pursuant to Sec.240.14n-2
          .

Securities and Exchange Commission, Washington, DC 20549
Schedule 14N
Under the Securities Exchange Act of 1934
(Amendment No. _)*


(Name of Issuer)
________________________________________________________________________


(Title of Class of Securities)
________________________________________________________________________


(CUSIP Number)
________________________________________________________________________

[ ] Solicitation pursuant to Sec.240.14a-2(b)(7)
[ ] Solicitation pursuant to Sec.240.14a-2(b)(8)
[ ] Notice of Submission of a Nominee or Nominees in Accordance with 
    Sec.240.14a-11
[ ] Notice of Submission of a Nominee or Nominees in Accordance with 
    Procedures Set Forth Under Applicable State or Foreign Law, or the 
    Registrant's Governing Documents

    * The remainder of this cover page shall be filled out for a 
reporting person's initial filing on this form, and for any subsequent 
amendment containing information which would alter the disclosures 
provided in a prior cover page.
    The information required in the remainder of this cover page shall 
not be deemed to be ``filed'' for the purpose of

[[Page 343]]

Section 18 of the Securities Exchange Act of 1934 (``Act'') or otherwise 
subject to the liabilities of that section of the Act but shall be 
subject to all other provisions of the Act.
    (1) Names of reporting persons: ____________
    (2) Mailing address and phone number of each reporting person (or, 
where applicable, the authorized representative): ____________
    (3) Amount of securities held that are entitled to be voted on the 
election of directors held by each reporting person (and, where 
applicable, amount of securities held in the aggregate by the nominating 
shareholder group), but including loaned securities and net of 
securities sold short or borrowed for purposes other than a short sale: 
____________
    (4) Number of votes attributable to the securities entitled to be 
voted on the election of directors represented by amount in Row (3) 
(and, where applicable, aggregate number of votes attributable to the 
securities entitled to be voted on the election of directors held by 
group): ____________
    Instructions for Cover Page:
    (1) Names of Reporting Persons--Furnish the full legal name of each 
person for whom the report is filed--i.e., each person required to sign 
the schedule itself--including each member of a group. Do not include 
the name of a person required to be identified in the report but who is 
not a reporting person.
    (3) and (4) Amount Held by Each Reporting Person--Rows (3) and (4) 
are to be completed in accordance with the provisions of Item 3 of 
Schedule 14N.

    Notes: Attach as many copies of parts one through three of the cover 
page as are needed, one reporting person per copy.

    Filing persons may, in order to avoid unnecessary duplication, 
answer items on Schedule 14N by appropriate cross references to an item 
or items on the cover page(s). This approach may only be used where the 
cover page item or items provide all the disclosure required by the 
schedule item. Moreover, such a use of a cover page item will result in 
the item becoming a part of the schedule and accordingly being 
considered as ``filed'' for purposes of Section 18 of the Act or 
otherwise subject to the liabilities of that section of the Act.

          Special Instructions for Complying With Schedule 14N

    Under Sections 14 and 23 of the Securities Exchange Act of 1934 and 
the rules and regulations thereunder, the Commission is authorized to 
solicit the information required to be supplied by this Schedule. The 
information will be used for the primary purpose of determining and 
disclosing the holdings and interests of a nominating shareholder or 
nominating shareholder group. This statement will be made a matter of 
public record. Therefore, any information given will be available for 
inspection by any member of the public.
    Because of the public nature of the information, the Commission can 
use it for a variety of purposes, including referral to other 
governmental authorities or securities self-regulatory organizations for 
investigatory purposes or in connection with litigation involving the 
Federal securities laws or other civil, criminal or regulatory statutes 
or provisions. Failure to disclose the information requested by this 
schedule may result in civil or criminal action against the persons 
involved for violation of the Federal securities laws and rules 
promulgated thereunder, or in some cases, exclusion of the nominee from 
the registrant's proxy materials.

                General Instructions to Item Requirements

    The item numbers and captions of the items shall be included but the 
text of the items is to be omitted. The answers to the items shall be 
prepared so as to indicate clearly the coverage of the items without 
referring to the text of the items. Answer every item. If an item is 
inapplicable or the answer is in the negative, so state.

[[Page 344]]

                      Item 1(a). Name of Registrant

     Item 1(b). Address of Registrant's Principal Executive Offices

                    Item 2(a). Name of Person Filing

 Item 2(b). Address or Principal Business Office or, if None, Residence

                 Item 2(c). Title of Class of Securities

                          Item 2(d). CUSIP No.

                            Item 3. Ownership

    Provide the following information, in accordance with Instruction 3 
to Sec.240.14a-11(b)(1):
    (a) Amount of securities held and entitled to be voted on the 
election of directors (and, where applicable, amount of securities held 
in the aggregate by the nominating shareholder group): ______.
    (b) The number of votes attributable to the securities referred to 
in paragraph (a) of this Item: ______.
    (c) The number of votes attributable to securities that have been 
loaned but which the reporting person:
    (i) has the right to recall; and
    (ii) will recall upon being notified that any of the nominees will 
be included in the registrant's proxy statement and proxy card: ______.
    (d) The number of votes attributable to securities that have been 
sold in a short sale that is not closed out, or that have been borrowed 
for purposes other than a short sale: ______.
    (e) The sum of paragraphs (b) and (c), minus paragraph (d) of this 
Item, divided by the aggregate number of votes derived from all classes 
of securities of the registrant that are entitled to vote on the 
election of directors, and expressed as a percentage: ______.

  Item 4. Statement of Ownership From a Nominating Shareholder or Each 
Member of a Nominating Shareholder Group Submitting this Notice Pursuant 
                           to Sec.240.14a-11

    (a) If the nominating shareholder, or each member of the nominating 
shareholder group, is the registered holder of the shares, please so 
state. Otherwise, attach to the Schedule 14N one or more written 
statements from the persons (usually brokers or banks) through which the 
nominating shareholder's securities are held, verifying that, within 
seven calendar days prior to filing the shareholder notice on Schedule 
14N with the Commission and transmitting the notice to the registrant, 
the nominating shareholder continuously held the amount of securities 
being used to satisfy the ownership threshold for a period of at least 
three years. In the alternative, if the nominating shareholder has filed 
a Schedule 13D (Sec.240.13d-101), Schedule 13G (Sec.240.13d-102), 
Form 3 (Sec.249.103 of this chapter), Form 4 (Sec.249.104 of this 
chapter), and/or Form 5 (Sec.249.105 of this chapter), or amendments 
to those documents, reflecting ownership of the securities as of or 
before the date on which the three-year eligibility period begins, so 
state and incorporate that filing or amendment by reference.
    (b) Provide a written statement that the nominating shareholder, or 
each member of the nominating shareholder group, intends to continue to 
hold the amount of securities that are used for purposes of satisfying 
the minimum ownership requirement of Sec.240.14a-11(b)(1) through the 
date of the meeting of shareholders, as required by Sec.240.14a-
11(b)(4). Additionally, provide a written statement from the nominating 
shareholder or each member of the nominating shareholder group regarding 
the nominating shareholder's or nominating shareholder group member's 
intent with respect to continued ownership after the election of 
directors, as required by Sec.240.14a-11(b)(5).
    Instruction to Item 4. If the nominating shareholder or any member 
of the nominating shareholder group is not the registered holder of the 
securities and is not proving ownership for purposes of Sec.240.14a-
11(b)(3) by providing previously filed Schedules 13D or 13G or Forms 3, 
4, or 5, and the securities are held in an account with a broker or bank 
that is a participant in the Depository Trust Company (``DTC'') or other 
clearing agency acting as a securities depository, a written statement 
or statements from that participant or participants in the following 
form will satisfy Sec.240.14a-11(b)(3):

[[Page 345]]

    As of [date of this statement], [name of nominating shareholder or 
member of the nominating shareholder group] held at least [number of 
securities owned continuously for at least three years] of the 
[registrant's] [class of securities], and has held at least this amount 
of such securities continuously for [at least three years]. [Name of 
clearing agency participant] is a participant in [name of clearing 
agency] whose nominee name is [nominee name].

     [name of clearing agency participant]
     By: [name and title of representative]
     Date:


If the securities are held through a broker or bank (e.g. in an omnibus 
account) that is not a participant in a clearing agency acting as a 
securities depository, the nominating shareholder or member of the 
nominating shareholder group must (a) obtain and submit a written 
statement or statements (the ``initial broker statement'') from the 
broker or bank with which the nominating shareholder or member of the 
nominating shareholder group maintains an account that provides the 
information about securities ownership set forth above and (b) obtain 
and submit a separate written statement from the clearing agency 
participant through which the securities of the nominating shareholder 
or member of the nominating shareholder group are held, that (i) 
identifies the broker or bank for whom the clearing agency participant 
holds the securities, and (ii) states that the account of such broker or 
bank has held, as of the date of the separate written statement, at 
least the number of securities specified in the initial broker 
statement, and (iii) states that this account has held at least that 
amount of securities continuously for at least three years.
    If the securities have been held for less than three years at the 
relevant entity, provide written statements covering a continuous period 
of three years and modify the language set forth above as appropriate.
    For purposes of complying with Sec.240.14a-11(b)(3), loaned 
securities may be included in the amount of securities set forth in the 
written statements.

   Item 5. Disclosure Required for Shareholder Nominations Submitted 
                      Pursuant to Sec.240.14a-11

    If a nominating shareholder or nominating shareholder group is 
submitting this notice in connection with the inclusion of a shareholder 
nominee or nominees for director in the registrant's proxy materials 
pursuant to Sec.240.14a-11, provide the following information:
    (a) A statement that the nominee consents to be named in the 
registrant's proxy statement and form of proxy and, if elected, to serve 
on the registrant's board of directors;
    (b) Disclosure about the nominee as would be provided in response to 
the disclosure requirements of Items 4(b), 5(b), 7(a), (b) and (c) and, 
for investment companies, Item 22(b) of Schedule 14A (Sec.240.14a-
101), as applicable;
    (c) Disclosure about the nominating shareholder or each member of a 
nominating shareholder group as would be required of a participant in 
response to the disclosure requirements of Items 4(b) and 5(b) of 
Schedule 14A (Sec.240.14a-101), as applicable;
    (d) Disclosure about whether the nominating shareholder or any 
member of a nominating shareholder group has been involved in any legal 
proceeding during the past ten years, as specified in Item 401(f) of 
Regulation S-K (Sec.229.10 of this chapter). Disclosure pursuant to 
this paragraph need not be provided if provided in response to Item 5(c) 
of this section;
    Instruction 1 to Item 5(c) and (d). Where the nominating shareholder 
is a general or limited partnership, syndicate or other group, the 
information called for in paragraphs (c) and (d) of this Item must be 
given with respect to:
    a. Each partner of the general partnership;
    b. Each partner who is, or functions as, a general partner of the 
limited partnership;
    c. Each member of the syndicate or group; and
    d. Each person controlling the partner or member.
    Instruction 2 to Item 5(c) and (d). If the nominating shareholder is 
a corporation or if a person referred to in a., b., c. or d. of 
Instruction 1 to paragraphs

[[Page 346]]

(c) and (d) of this Item is a corporation, the information called for in 
paragraphs (c) and (d) of this Item must be given with respect to:
    a. Each executive officer and director of the corporation;
    b. Each person controlling the corporation; and
    c. Each executive officer and director of any corporation or other 
person ultimately in control of the corporation.
    (e) Disclosure about whether, to the best of the nominating 
shareholder's or group's knowledge, the nominee meets the director 
qualifications, if any, set forth in the registrant's governing 
documents;
    (f) A statement that, to the best of the nominating shareholder's or 
group's knowledge, in the case of a registrant other than an investment 
company, the nominee meets the objective criteria for ``independence'' 
of the national securities exchange or national securities association 
rules applicable to the registrant, if any, or, in the case of a 
registrant that is an investment company, the nominee is not an 
``interested person'' of the registrant as defined in section 2(a)(19) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)).
    Instruction to Item 5(f). For this purpose, the nominee would be 
required to meet the definition of ``independence'' that is generally 
applicable to directors of the registrant and not any particular 
definition of independence applicable to members of the audit committee 
of the registrant's board of directors. To the extent a national 
securities exchange or national securities association rule imposes a 
standard regarding independence that requires a subjective determination 
by the board or a group or committee of the board (for example, 
requiring that the board of directors or any group or committee of the 
board of directors make a determination regarding the existence of 
factors material to a determination of a nominee's independence), the 
nominee would not be required to meet the subjective determination of 
independence as part of the shareholder nomination process.
    (g) The following information regarding the nature and extent of the 
relationships between the nominating shareholder or nominating 
shareholder group, the nominee, and/or the registrant or any affiliate 
of the registrant:
    (1) Any direct or indirect material interest in any contract or 
agreement between the nominating shareholder or any member of the 
nominating shareholder group, the nominee, and/or the registrant or any 
affiliate of the registrant (including any employment agreement, 
collective bargaining agreement, or consulting agreement);
    (2) Any material pending or threatened legal proceeding in which the 
nominating shareholder or any member of the nominating shareholder group 
and/or the nominee is a party or a material participant, and that 
involves the registrant, any of its executive officers or directors, or 
any affiliate of the registrant; and
    (3) Any other material relationship between the nominating 
shareholder or any member of the nominating shareholder group, the 
nominee, and/or the registrant or any affiliate of the registrant not 
otherwise disclosed;

    Note to Item 5(g)(3): Any other material relationship of the 
nominating shareholder or any member of the nominating shareholder group 
or nominee with the registrant or any affiliate of the registrant may 
include, but is not limited to, whether the nominating shareholder or 
any member of the nominating shareholder group currently has, or has had 
in the past, an employment relationship with the registrant or any 
affiliate of the registrant (including consulting arrangements).

    (h) The Web site address on which the nominating shareholder or 
nominating shareholder group may publish soliciting materials, if any; 
and
    (i) Any statement in support of the shareholder nominee or nominees, 
which may not exceed 500 words for each nominee, if the nominating 
shareholder or nominating shareholder group elects to have such 
statement included in the registrant's proxy materials.

             Item 6. Disclosure Required by Sec.240.14a-18

    If a nominating shareholder or nominating shareholder group is 
submitting this notice in connection with the inclusion of a shareholder 
nominee or

[[Page 347]]

nominees for director in the registrant's proxy materials pursuant to a 
procedure set forth under applicable state or foreign law, or the 
registrant's governing documents provide the following disclosure:
    (a) A statement that the nominee consents to be named in the 
registrant's proxy statement and form of proxy and, if elected, to serve 
on the registrant's board of directors;
    (b) Disclosure about the nominee as would be provided in response to 
the disclosure requirements of Items 4(b), 5(b), 7(a), (b) and (c) and, 
for investment companies, Item 22(b) of Schedule 14A (Sec.240.14a-
101), as applicable;
    (c) Disclosure about the nominating shareholder or each member of a 
nominating shareholder group as would be required in response to the 
disclosure requirements of Items 4(b) and 5(b) of Schedule 14A (Sec.
240.14a-101), as applicable;
    (d) Disclosure about whether the nominating shareholder or any 
member of a nominating shareholder group has been involved in any legal 
proceeding during the past ten years, as specified in Item 401(f) of 
Regulation S-K (Sec.229.10 of this chapter). Disclosure pursuant to 
this paragraph need not be provided if provided in response to Item 6(c) 
of this section;
    Instruction 1 to Item 6(c) and (d). Where the nominating shareholder 
is a general or limited partnership, syndicate or other group, the 
information called for in paragraphs (c) and (d) of this Item must be 
given with respect to:
    a. Each partner of the general partnership;
    b. Each partner who is, or functions as, a general partner of the 
limited partnership;
    c. Each member of the syndicate or group; and
    d. Each person controlling the partner or member.
    Instruction 2 to Item 6(c) and (d). If the nominating shareholder is 
a corporation or if a person referred to in a., b., c. or d. of 
Instruction 1 to paragraphs (c) and (d) of this Item is a corporation, 
the information called for in paragraphs (c) and (d) of this Item must 
be given with respect to:
    a. Each executive officer and director of the corporation;
    b. Each person controlling the corporation; and
    c. Each executive officer and director of any corporation or other 
person ultimately in control of the corporation.
    (e) The following information regarding the nature and extent of the 
relationships between the nominating shareholder or nominating 
shareholder group, the nominee, and/or the registrant or any affiliate 
of the registrant:
    (1) Any direct or indirect material interest in any contract or 
agreement between the nominating shareholder or any member of the 
nominating shareholder group, the nominee, and/or the registrant or any 
affiliate of the registrant (including any employment agreement, 
collective bargaining agreement, or consulting agreement);
    (2) Any material pending or threatened legal proceeding in which the 
nominating shareholder or any member of the nominating shareholder group 
and/or nominee is a party or a material participant, involving the 
registrant, any of its executive officers or directors, or any affiliate 
of the registrant; and
    (3) Any other material relationship between the nominating 
shareholder or any member of the nominating shareholder group, the 
nominee, and/or the registrant or any affiliate of the registrant not 
otherwise disclosed; and
    Instruction to Item 6(e)(3). Any other material relationship of the 
nominating shareholder or any member of the nominating shareholder group 
with the registrant or any affiliate of the registrant may include, but 
is not limited to, whether the nominating shareholder or any member of 
the nominating shareholder group currently has, or has had in the past, 
an employment relationship with the registrant or any affiliate of the 
registrant (including consulting arrangements).
    (f) The Web site address on which the nominating shareholder or 
nominating shareholder group may publish soliciting materials, if any.

[[Page 348]]

  Item 7. Notice of Dissolution of Group or Termination of Shareholder 
                               Nomination

    Notice of dissolution of a nominating shareholder group or the 
termination of a shareholder nomination shall state the date of the 
dissolution or termination.

                           Item 8. Signatures

    (a) The following certifications shall be provided by the filing 
person submitting this notice pursuant to Sec.240.14a-11, or in the 
case of a group, each filing person whose securities are being 
aggregated for purposes of meeting the ownership threshold set out in 
Sec.240.14a-11(b)(1) exactly as set forth below:
    I, [identify the certifying individual], after reasonable inquiry 
and to the best of my knowledge and belief, certify that:
    (1) I [or if signed by an authorized representative, the name of the 
nominating shareholder or each member of the nominating shareholder 
group, as appropriate] am [is] not holding any of the registrant's 
securities with the purpose, or with the effect, of changing control of 
the registrant or to gain a number of seats on the board of directors 
that exceeds the maximum number of nominees that the registrant could be 
required to include under Sec.240.14a-11(d);
    (2) I [or if signed by an authorized representative, the name of the 
nominating shareholder or each member of the nominating shareholder 
group, as appropriate] otherwise satisfy [satisfies] the requirements of 
Sec.240.14a-11(b), as applicable;
    (3) The nominee or nominees satisfies the requirements of Sec.
240.14a-11(b), as applicable; and
    (4) The information set forth in this notice on Schedule 14N is 
true, complete and correct.
    (b) The following certification shall be provided by the filing 
person or persons submitting this notice in connection with the 
submission of a nominee or nominees in accordance with procedures set 
forth under applicable state or foreign law or the registrant's 
governing documents:
    I, [identify the certifying individual], after reasonable inquiry 
and to the best of my knowledge and belief, certify that the information 
set forth in this notice on Schedule 14N is true, complete and correct.

 Dated:_________________________________________________________________
 Signature:_____________________________________________________________
 Name/Title:____________________________________________________________

    The original statement shall be signed by each person on whose 
behalf the statement is filed or his authorized representative. If the 
statement is signed on behalf of a person by his authorized 
representative other than an executive officer or general partner of the 
filing person, evidence of the representative's authority to sign on 
behalf of such person shall be filed with the statement, provided, 
however, that a power of attorney for this purpose which is already on 
file with the Commission may be incorporated by reference. The name and 
any title of each person who signs the statement shall be typed or 
printed beneath his signature.
    Attention: Intentional misstatements or omissions of fact constitute 
Federal criminal violations (see 18 U.S.C. 1001).

[75 FR 56788, Sept. 16, 2010]

              Exemption of Certain OTC Derivatives Dealers



Sec.240.15a-1  Securities activities of OTC derivatives dealers.

    Preliminary Note: OTC derivatives dealers are a special class of 
broker-dealers that are exempt from certain broker-dealer requirements, 
including membership in a self-regulatory organization (Sec.240.15b9-
2), regular broker-dealer margin rules (Sec.240.36a1-1), and 
application of the Securities Investor Protection Act of 1970 (Sec.
240.36a1-2). OTC derivative dealers are subject to special requirements, 
including limitations on the scope of their securities activities (Sec.
240.15a-1), specified internal risk management control systems (Sec.
240.15c3-4), recordkeeping obligations (Sec.240.17a-3(a)(10)), and 
reporting responsibilities (Sec.240.17a-12). They are also subject to 
alternative net capital treatment (Sec.240.15c3-1(a)(5)). This rule 
15a-1 uses a number of defined terms in setting forth the securities 
activities in which an OTC derivatives dealer may engage: ``OTC 
derivatives dealer,'' ``eligible OTC derivative instrument,'' ``cash 
management securities activities,'' and ``ancillary portfolio management 
securities activities.'' These terms are defined under

[[Page 349]]

Rules 3b-12 through 3b-15 (Sec.240.3b-12 through Sec.240.3b-15).

    (a) The securities activities of an OTC derivatives dealer shall:
    (1) Be limited to:
    (i) Engaging in dealer activities in eligible OTC derivative 
instruments that are securities;
    (ii) Issuing and reacquiring securities that are issued by the 
dealer, including warrants on securities, hybrid securities, and 
structured notes;
    (iii) Engaging in cash management securities activities;
    (iv) Engaging in ancillary portfolio management securities 
activities; and
    (v) Engaging in such other securities activities that the Commission 
designates by order pursuant to paragraph (b)(1) of this section; and
    (2) Consist primarily of the activities described in paragraphs 
(a)(1)(i), (a)(1)(ii), and (a)(1)(iii) of this section; and
    (3) Not consist of any other securities activities, including 
engaging in any transaction in any security that is not an eligible OTC 
derivative instrument, except as permitted under paragraphs (a)(1)(iii), 
(a)(1)(iv), and (a)(1)(v) of this section.
    (b) The Commission, by order, entered upon its own initiative or 
after considering an application for exemptive relief, may clarify or 
expand the scope of eligible OTC derivative instruments and the scope of 
permissible securities activities of an OTC derivatives dealer. Such 
orders may:
    (1) Identify other permissible securities activities;
    (2) Determine that a class of fungible instruments that are 
standardized as to their material economic terms is within the scope of 
eligible OTC derivative instrument;
    (3) Clarify whether certain contracts, agreements, or transactions 
are within the scope of eligible OTC derivative instrument; or
    (4) Clarify whether certain securities activities are within the 
scope of ancillary portfolio management securities activities.
    (c) To the extent an OTC derivatives dealer engages in any 
securities transaction pursuant to paragraphs (a)(1)(i) through 
(a)(1)(v) of this section, such transaction shall be effected through a 
registered broker or dealer (other than an OTC derivatives dealer) that, 
in the case of any securities transaction pursuant to paragraphs 
(a)(1)(i), or (a)(1)(iii) through (a)(1)(v) of this section, is an 
affiliate of the OTC derivatives dealer, except that this paragraph (c) 
shall not apply if:
    (1) The counterparty to the transaction with the OTC derivatives 
dealer is acting as principal and is:
    (i) A registered broker or dealer;
    (ii) A bank acting in a dealer capacity, as permitted by U.S. law;
    (iii) A foreign broker or dealer; or
    (iv) An affiliate of the OTC derivatives dealer; or
    (2) The OTC derivatives dealer is engaging in an ancillary portfolio 
management securities activity, and the transaction is in a foreign 
security, and a registered broker or dealer, a bank, or a foreign broker 
or dealer is acting as agent for the OTC derivatives dealer.
    (d) To the extent an OTC derivatives dealer induces or attempts to 
induce any counterparty to enter into any securities transaction 
pursuant to paragraphs (a)(1)(i) through (a)(1)(v) of this section, any 
communication or contact with the counterparty concerning the 
transaction (other than clerical and ministerial activities conducted by 
an associated person of the OTC derivatives dealer) shall be conducted 
by one or more registered persons that, in the case of any securities 
transaction pursuant to paragraphs (a)(1)(i), or (a)(1)(iii) through 
(a)(1)(v) of this section, is associated with an affiliate of the OTC 
derivatives dealer, except that this paragraph (d) shall not apply if 
the counterparty to the transaction with the OTC derivatives dealer is:
    (1) A registered broker or dealer;
    (2) A bank acting in a dealer capacity, as permitted by U.S. law;
    (3) A foreign broker or dealer; or
    (4) An affiliate of the OTC derivatives dealer.
    (e) For purposes of this section, the term hybrid security means a 
security that incorporates payment features economically similar to 
options, forwards, futures, swap agreements, or collars involving 
currencies, interest or other rates, commodities, securities, indices, 
quantitative measures, or

[[Page 350]]

other financial or economic interests or property of any kind, or any 
payment or delivery that is dependent on the occurrence or nonoccurrence 
of any event associated with a potential financial, economic, or 
commercial consequence (or any combination, permutation, or derivative 
of such contract or underlying interest).
    (f) For purposes of this section, the term affiliate means any 
organization (whether incorporated or unincorporated) that directly or 
indirectly controls, is controlled by, or is under common control with, 
the OTC derivatives dealer.
    (g) For purposes of this section, the term foreign broker or dealer 
means any person not resident in the United States (including any U.S. 
person engaged in business as a broker or dealer entirely outside the 
United States, except as otherwise permitted by Sec.240.15a-6) that is 
not an office or branch of, or a natural person associated with, a 
registered broker or dealer, whose securities activities, if conducted 
in the United States, would be described by the definition of ``broker'' 
in section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) or ``dealer'' in 
section 3(a)(5) of the Act (15 U.S.C. 78c(a)(5)).
    (h) For purposes of this section, the term foreign security means 
any security (including a depositary share issued by a United States 
bank, provided that the depositary share is initially offered and sold 
outside the United States in accordance with Regulation S (17 CFR 
230.901 through 230.904)) issued by a person not organized or 
incorporated under the laws of the United States, provided the 
transaction that involves such security is not effected on a national 
securities exchange or on a market operated by a registered national 
securities association; or a debt security (including a convertible debt 
security) issued by an issuer organized or incorporated under the laws 
of the United States that is initially offered and sold outside the 
United States in accordance with Regulation S (17 CFR 230.901 through 
230.904).
    (i) For purposes of this section, the term registered person is:
    (A) A natural person who is associated with a registered broker or 
dealer and is registered or approved under the rules of a self-
regulatory organization of which such broker or dealer is a member; or
    (B) If the counterparty to the transaction with the OTC derivatives 
dealer is a resident of a jurisdiction other than the United States, a 
natural person who is not resident in the United States and is 
associated with a broker or dealer that is registered or licensed by a 
foreign financial regulatory authority in the jurisdiction in which such 
counterparty is resident or in which such natural person is located, in 
accordance with applicable legal requirements, if any.

[63 FR 59396, Nov. 3, 1998]

           Exemption of Certain Securities From Section 15(a)



Sec.240.15a-2  Exemption of certain securities of cooperative 
apartment houses from section 15(a).

    Shares of a corporation which represent ownership, or entitle the 
holders thereof to possession and occupancy, of specific apartment units 
in property owned by such corporations and organized and operated on a 
cooperative basis are hereby exempted from the operation of section 
15(a) of the Securities Exchange Act of 1934, when such shares are sold 
by or through a real estate broker licensed under the laws of the 
political subdivision in which the property is located.

(Secs. 3, 48 Stat. 882, as amended, 895, as amended; 15 U.S.C. 78c, 78o)

[13 FR 8204, Dec. 22, 1948]



Sec.240.15a-3  [Reserved]



Sec.240.15a-4  Forty-five day exemption from registration for certain
members of national securities exchanges.

    (a) A natural person who is a member of a national securities 
exchange shall, upon termination of his association with a registered 
broker-dealer, be exempt, for a period of forty-five days after such 
termination, from the registration requirement of section 15(a) of the 
Act solely for the purpose of continuing to effect transactions on the 
floor of such exchange if (1) such person has filed with the Commission 
an

[[Page 351]]

application for registration as a broker-dealer and such person complies 
in all material respects with rules of the Commission applicable to 
registered brokers and dealers and (2) such exchange has filed with the 
Commission a statement that it has reviewed such application and that 
there do not appear to be grounds for its denial.
    (b) The exemption from registration provided by this rule shall not 
be available to any person while there is pending before the Commission 
any proceeding involving any such person pursuant to section 15(b)(1)(B) 
of the Act.

[41 FR 18290, May 3, 1976]



Sec.240.15a-5  Exemption of certain nonbank lenders.

    A lender approved under the rules and regulations of the Small 
Business Administration shall be exempt from the registration 
requirement of section 15(a) (1) of the Act if it does not engage in the 
business of effecting transactions in securities or of buying and 
selling securities for its own account except in respect of receiving 
notes evidencing loans to small business concerns and selling the 
portion of such notes guaranteed by the Small Business Administration 
through or to a registered broker or dealer or to a bank, a savings 
institution, an insurance company, or an account over which an 
investment adviser registered pursuant to the Investment Advisers Act of 
1940 exercises investment discretion.

[41 FR 50645, Nov. 17, 1976]

                   Registration of Brokers and Dealers



Sec.240.15a-6  Exemption of certain foreign brokers or dealers.

    (a) A foreign broker or dealer shall be exempt from the registration 
requirements of sections 15(a)(1) or 15B(a)(1) of the Act to the extent 
that the foreign broker or dealer:
    (1) Effects transactions in securities with or for persons that have 
not been solicited by the foreign broker or dealer; or
    (2) Furnishes research reports to major U.S. institutional 
investors, and effects transactions in the securities discussed in the 
research reports with or for those major U.S. institutional investors, 
provided that:
    (i) The research reports do not recommend the use of the foreign 
broker or dealer to effect trades in any security;
    (ii) The foreign broker or dealer does not initiate contact with 
those major U.S. institutional investors to follow up on the research 
reports, and does not otherwise induce or attempt to induce the purchase 
or sale of any security by those major U.S. institutional investors;
    (iii) If the foreign broker or dealer has a relationship with a 
registered broker or dealer that satisfies the requirements of paragraph 
(a)(3) of this section, any transactions with the foreign broker or 
dealer in securities discussed in the research reports are effected only 
through that registered broker or dealer, pursuant to the provisions of 
paragraph (a)(3) of this section; and
    (iv) The foreign broker or dealer does not provide research to U.S. 
persons pursuant to any express or implied understanding that those U.S. 
persons will direct commission income to the foreign broker or dealer; 
or
    (3) Induces or attempts to induce the purchase or sale of any 
security by a U.S. institutional investor or a major U.S. institutional 
investor, provided that:
    (i) The foreign broker or dealer:
    (A) Effects any resulting transactions with or for the U.S. 
institutional investor or the major U.S. institutional investor through 
a registered broker or dealer in the manner described by paragraph 
(a)(3)(iii) of this section; and
    (B) Provides the Commission (upon request or pursuant to agreements 
reached between any foreign securities authority, including any foreign 
government, as specified in section 3(a)(50) of the Act, and the 
Commission or the U.S. Government) with any information or documents 
within the possession, custody, or control of the foreign broker or 
dealer, any testimony of foreign associated persons, and any assistance 
in taking the evidence of other persons, wherever located, that the 
Commission requests and that relates to transactions under paragraph 
(a)(3)

[[Page 352]]

of this section, except that if, after the foreign broker or dealer has 
exercised its best efforts to provide the information, documents, 
testimony, or assistance, including requesting the appropriate 
governmental body and, if legally necessary, its customers (with respect 
to customer information) to permit the foreign broker or dealer to 
provide the information, documents, testimony, or assistance to the 
Commission, the foreign broker or dealer is prohibited from providing 
this information, documents, testimony, or assistance by applicable 
foreign law or regulations, then this paragraph (a)(3)(i)(B) shall not 
apply and the foreign broker or dealer will be subject to paragraph (c) 
of this section;
    (ii) The foreign associated person of the foreign broker or dealer 
effecting transactions with the U.S. institutional investor or the major 
U.S. institutional investor:
    (A) Conducts all securities activities from outside the U.S., except 
that the foreign associated persons may conduct visits to U.S. 
institutional investors and major U.S. institutional investors within 
the United States, provided that:
    (1) The foreign associated person is accompanied on these visits by 
an associated person of a registered broker or dealer that accepts 
responsibility for the foreign associated person's communications with 
the U.S. institutional investor or the major U.S institutional investor; 
and
    (2) Transactions in any securities discussed during the visit by the 
foreign associated person are effected only through the registered 
broker or dealer, pursuant to paragraph (a)(3) of this section; and
    (B) Is determined by the registered broker or dealer to:
    (1) Not be subject to a statutory disqualification specified in 
section 3(a)(39) of the Act, or any substantially equivalent foreign
    (i) Expulsion or suspension from membership,
    (ii) Bar or suspension from association,
    (iii) Denial of trading privileges,
    (iv) Order denying, suspending, or revoking registration or barring 
or suspending association, or
    (v) Finding with respect to causing any such effective foreign 
suspension, expulsion, or order;
    (2) Not to have been convicted of any foreign offense, enjoined from 
any foreign act, conduct, or practice, or found to have committed any 
foreign act substantially equivalent to any of those listed in sections 
15(b)(4) (B), (C), (D), or (E) of the Act; and
    (3) Not to have been found to have made or caused to be made any 
false foreign statement or omission substantially equivalent to any of 
those listed in section 3(a)(39)(E) of the Act; and
    (iii) The registered broker or dealer through which the transaction 
with the U.S. institutional investor or the major U.S. institutional 
investor is effected:
    (A) Is responsible for:
    (1) Effecting the transactions conducted under paragraph (a)(3) of 
this section, other than negotiating their terms;
    (2) Issuing all required confirmations and statements to the U.S. 
institutional investor or the major U.S. institutional investor;
    (3) As between the foreign broker or dealer and the registered 
broker or dealer, extending or arranging for the extension of any credit 
to the U.S. institutional investor or the major U.S. institutional 
investor in connection with the transactions;
    (4) Maintaining required books and records relating to the 
transactions, including those required by Rules 17a-3 and 17a-4 under 
the Act (17 CFR 2410.17a-3 and l7a-4);
    (5) Complying with Rule 15c3-1 under the Act (17 CFR 240.15c3-1) 
with respect to the transactions; and
    (6) Receiving, delivering, and safeguarding funds and securities in 
connection with the transactions on behalf of the U.S. institutional 
investor or the major U.S. institutional investor in compliance with 
Rule 15c3-3 under the Act (17 CFR 240.15c3-3);
    (B) Participates through an associated person in all oral 
communications between the foreign associated person and the U.S. 
institutional investor, other than a major U.S. institutional investor;
    (C) Has obtained from the foreign broker or dealer, with respect to 
each

[[Page 353]]

foreign associated person, the types of information specified in Rule 
l7a-3(a)(12) under the Act (17 CFR 240.17a-3(a)(12)), provided that the 
information required by paragraph (a)(12)(d) of that Rule shall include 
sanctions imposed by foreign securities authorities, exchanges, or 
associations, including without limitation those described in paragraph 
(a)(3)(ii)(B) of this section;
    (D) Has obtained from the foreign broker or dealer and each foreign 
associated person written consent to service of process for any civil 
action brought by or proceeding before the Commission or a self-
regulatory organization (as defined in section 3(a)(26) of the Act), 
providing that process may be served on them by service on the 
registered broker or dealer in the manner set forth on the registered 
broker's or dealer's current Form BD; and
    (E) Maintains a written record of the information and consents 
required by paragraphs (a)(3)(iii) (C) and (D) of this section, and all 
records in connection with trading activities of the U.S. institutional 
investor or the major U.S. institutional investor involving the foreign 
broker or dealer conducted under paragraph (a)(3) of this section, in an 
office of the registered broker or dealer located in the United States 
(with respect to nonresident registered brokers or dealers, pursuant to 
Rule 17a-7(a) under the Act (17 CFR 240.17a-7(a))), and makes these 
records available to the Commission upon request; or
    (4) Effects transactions in securities with or for, or induces or 
attempts to induce the purchase or sale of any security by:
    (i) A registered broker or dealer, whether the registered broker or 
dealer is acting as principal for its own account or as agent for 
others, or a bank acting pursuant to an exception or exemption from the 
definition of ``broker'' or ``dealer'' in sections 3(a)(4)(B), 
3(a)(4)(E), or 3(a)(5)(C) of the Act (15 U.S.C. 78c(a)(4)(B), 15 U.S.C. 
78c(a)(4)(E), or 15 U.S.C. 78c(a)(5)(C)) or the rules thereunder;
    (ii) The African Development Bank, the Asian Development Bank, the 
Inter-American Development Bank, the International Bank for 
Reconstruction and Development, the International Monetary Fund, the 
United Nations, and their agencies, affiliates, and pension funds;
    (iii) A foreign person temporarily present in the United States, 
with whom the foreign broker or dealer had a bona fide, pre-existing 
relationship before the foreign person entered the United States;
    (iv) Any agency or branch of a U.S. person permanently located 
outside the United States, provided that the transactions occur outside 
the United States; or
    (v) U.S. citizens resident outside the United States, provided that 
the transactions occur outside the United States, and that the foreign 
broker or dealer does not direct its selling efforts toward identifiable 
groups of U.S. citizens resident abroad.
    (b) When used in this rule,
    (1) The term family of investment companies shall mean:
    (i) Except for insurance company separate accounts, any two or more 
separately registered investment companies under the Investment Company 
Act of 1940 that share the same investment adviser or principal 
underwriter and hold themselves out to investors as related companies 
for purposes of investment and investor services; and
    (ii) With respect to insurance company separate accounts, any two or 
more separately registered separate accounts under the Investment 
Company Act of 1940 that share the same investment adviser or principal 
underwriter and function under operational or accounting or control 
systems that are substantially similar.
    (2) The term foreign associated person shall mean any natural person 
domiciled outside the United States who is an associated person, as 
defined in section 3(a)(18) of the Act, of the foreign broker or dealer, 
and who participates in the solicitation of a U.S. institutional 
investor or a major U.S. institutional investor under paragraph (a)(3) 
of this section.
    (3) The term foreign broker or dealer shall mean any non-U.S. 
resident person (including any U.S. person engaged in business as a 
broker or dealer entirely outside the United States, except as otherwise 
permitted by this rule) that is not an office or branch of, or a

[[Page 354]]

natural person associated with, a registered broker or dealer, whose 
securities activities, if conducted in the United States, would be 
described by the definition of ``broker'' or ``dealer'' in sections 
3(a)(4) or 3(a)(5) of the Act.
    (4) The term major U.S. institutional investor shall mean a person 
that is:
    (i) A U.S. institutional investor that has, or has under management, 
total assets in excess of $100 million; provided, however, that for 
purposes of determining the total assets of an investment company under 
this rule, the investment company may include the assets of any family 
of investment companies of which it is a part; or
    (ii) An investment adviser registered with the Commission under 
section 203 of the Investment Advisers Act of 1940 that has total assets 
under management in excess of $100 million.
    (5) The term registered broker or dealer shall mean a person that is 
registered with the Commission under sections 15(b), 15B(a)(2), or 
15C(a)(2) of the Act.
    (6) The term United States shall mean the United States of America, 
including the States and any territories and other areas subject to its 
jurisdiction.
    (7) The term U.S. institutional investor shall mean a person that 
is:
    (i) An investment company registered with the Commission under 
section 8 of the Investment Company Act of 1940; or
    (ii) A bank, savings and loan association, insurance company, 
business development company, small business investment company, or 
employee benefit plan defined in Rule 501(a)(1) of Regulation D under 
the Securities Act of 1933 (17 CFR 230.501(a)(1)); a private business 
development company defined in Rule 501(a)(2) (17 CFR 230.501(a)(2)); an 
organization described in section 501(c)(3) of the Internal Revenue 
Code, as defined in Rule 501(a)(3) (17 CFR 230.501(a)(3)); or a trust 
defined in Rule 501(a)(7) (17 CFR 230.501(a)(7)).
    (c) The Commission, by order after notice and opportunity for 
hearing, may withdraw the exemption provided in paragraph (a)(3) of this 
section with respect to the subsequent activities of a foreign broker or 
dealer or class of foreign brokers or dealers conducted from a foreign 
country, if the Commission finds that the laws or regulations of that 
foreign country have prohibited the foreign broker or dealer, or one of 
a class of foreign brokers or dealers, from providing, in response to a 
request from the Commission, information or documents within its 
possession, custody, or control, testimony of foreign associated 
persons, or assistance in taking the evidence of other persons, wherever 
located, related to activities exempted by paragraph (a)(3) of this 
section.

[54 FR 30031, July 18, 1989, as amended at 72 FR 56568, Oct. 3, 2007]



Sec.Sec.240.15a-7--240.15a-9  [Reserved]



Sec.240.15a-10  Exemption of certain brokers or dealers with respect 
to security futures products.

    (a) A broker or dealer that is registered by notice with the 
Commission pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) and that is not a member of either a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a)) or a national securities association registered pursuant to 
section 15A(a) of the Act (15 U.S.C. 78o-3(a)) will be exempt from the 
registration requirement of section 15(a)(1) of the Act (15 U.S.C. 
78o(a)(1)) solely to act as a broker or a dealer in security futures 
products.
    (b) A broker or dealer that is registered by notice with the 
Commission pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) and that is a member of either a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a)) or a national securities association registered pursuant to 
section 15A(a) of the Act (15 U.S.C. 78o-3(a)) will be exempt from the 
registration requirement of section 15(a)(1) of the Act (15 U.S.C. 
78o(a)(1)) solely to act as a broker or a dealer in security futures 
products, if:
    (1) The rules of any such exchange or association of which the 
broker or dealer is a member provides specifically for a broker or 
dealer that is registered by notice with the Commission pursuant to 
section 15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) to become a 
member of such exchange or association; and

[[Page 355]]

    (2) The broker or dealer complies with section 11(a)-(c) of the Act 
(15 U.S.C. 78k(a)-(c)) with respect to any transactions in security 
futures products on a national securities exchange registered pursuant 
to section 6(a) of the Act (15 U.S.C. 78f(a)) of which it is a member, 
notwithstanding section 15(b)(11)(B)(ii) of the Act (15 U.S.C. 
78o(b)(11)(B)(ii)).

[66 FR 45146, Aug. 27, 2001]



Sec.240.15a-11  [Reserved]



Sec.240.15b1-1  Application for registration of brokers or dealers.

    (a) An application for registration of a broker or dealer that is 
filed pursuant to section 15(b) of the Act (15 U.S.C. 78o(b)) shall be 
filed on Form BD (Sec.249.501 of this chapter) in accordance with the 
instructions to the form. A broker or dealer that is an OTC derivatives 
dealer shall indicate where appropriate on Form BD that the type of 
business in which it is engaged is that of acting as an OTC derivatives 
dealer.
    (b) Every application for registration of a broker or dealer that is 
filed on or after January 25, 1993, shall be filed with the Central 
Registration Depository operated by the Financial Industry Regulatory 
Authority, Inc.
    (c) An application for registration that is filed with the Central 
Registration Depository pursuant to this section shall be considered a 
``report'' filed with the Commission for purposes of Sections 15(b), 
17(a), 18(a), 32(a) (15 U.S.C. 78o(b), 78q(a), 78r(a), 78ff(a)) and 
other applicable provisions of the Act.

[19 FR 1041, Feb. 24, 1954. Redesignated at 30 FR 11851, Sept. 16, 1965, 
and amended at 58 FR 14, Jan. 4, 1993; 63 FR 59397, Nov. 3, 1998; 64 FR 
25147, May 10, 1999; 73 FR 4692, Jan. 28, 2008]



Sec.240.15b1-2  [Reserved]



Sec.240.15b1-3  Registration of successor to registered broker
or dealer.

    (a) In the event that a broker or dealer succeeds to and continues 
the business of a broker or dealer registered pursuant to section 15(b) 
of the Act, the registration of the predecessor shall be deemed to 
remain effective as the registration of the successor if the successor, 
within 30 days after such succession, files an application for 
registration on Form BD, and the predecessor files a notice of 
withdrawal from registration on Form BDW; Provided, however, That the 
registration of the predecessor broker or dealer will cease to be 
effective as the registration of the successor broker or dealer 45 days 
after the application for registration on Form BD is filed by such 
successor.
    (b) Notwithstanding paragraph (a) of this section, if a broker or 
dealer succeeds to and continues the business of a registered 
predecessor broker or dealer, and the succession is based solely on a 
change in the predecessor's date or state of incorporation, form of 
organization, or composition of a partnership, the successor may, within 
30 days after the succession, amend the registration of the predecessor 
broker or dealer on Form BD to reflect these changes. This amendment 
shall be deemed an application for registration filed by the predecessor 
and adopted by the successor.

[58 FR 10, Jan. 4, 1993]



Sec.240.15b1-4  Registration of fiduciaries.

    The registration of a broker or dealer shall be deemed to be the 
registration of any executor, administrator, guardian, conservator, 
assignee for the benefit of creditors, receiver, trustee in insolvency 
or bankruptcy, or other fiduciary, appointed or qualified by order, 
judgment, or decree of a court of competent jurisdiction to continue the 
business of such registered broker or dealer; Provided, That such 
fiduciary files with the Commission, within 30 days after entering upon 
the performance of his duties, a statement setting forth as to such 
fiduciary substantially the information required by Form BD.

(Secs. 15, 17, 48 Stat. 895, as amended, 897 as amended; 15 U.S.C. 78o, 
78q)

[19 FR 1041, Feb. 24, 1954. Redesignated at 30 FR 11851, Sept. 16, 1965]



Sec.240.15b1-5  Consent to service of process to be furnished by 
nonresident brokers or dealers and by nonresident general partners
or managing agents of brokers or dealers.
          

    (a) Each nonresident broker or dealer registered or applying for 
registration

[[Page 356]]

pursuant to section 15(b) of the Securities Exchange Act of 1934, each 
nonresident general partner of a broker or dealer partnership which is 
registered or applying for registration, and each nonresident managing 
agent of any other unincorporated broker or dealer which is registered 
or applying for registration, shall furnish to the Commission, in a form 
prescribed by or acceptable to it, a written irrevocable consent and 
power of attorney which (1) designates the Securities and Exchange 
Commission as an agent upon whom may be served any process, pleadings, 
or other papers in any civil suit or action brought in any appropriate 
court in any place subject to the jurisdiction of the United States, 
with respect to any cause of action (i) which accrues during the period 
beginning when such broker or dealer becomes registered pursuant to 
section 15 of the Securities Exchange Act of 1934 and the rules and 
regulations thereunder and ending either when such registration is 
cancelled or revoked, or when the Commission receives from such broker 
or dealer a notice to withdraw from such registration, whichever is 
earlier, (ii) which arises out of any activity, in any place subject to 
the jurisdiction of the United States, occurring in connection with the 
conduct of business of a broker or dealer, and (iii) which is founded 
directly or indirectly, upon the provisions of the Securities Act of 
1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 
1939, the Investment Company Act of 1940, the Investment Advisers Act of 
1940, or any rule or regulation under any of said Acts; and (2) 
stipulates and agrees that any such civil suit or action may be 
commended by the service of process upon the Commission and the 
forwarding of a copy thereof as provided in paragraph (c) of this 
section, and that the service as aforesaid of any such process, 
pleadings, or other papers upon the Commission shall be taken and held 
in all courts to be as valid and binding as if due personal service 
thereof had been made.
    (b) The required consent and power of attorney shall be furnished to 
the Commission within the following period of time:
    (1) Each nonresident broker or dealer registered at the time this 
section becomes effective, and each nonresident general partner or 
managing agent of an unincorporated broker or dealer registered at the 
time this section becomes effective, shall furnish such consent and 
power of attorney within 60 days after such date;
    (2) Each broker or dealer applying for registration after the 
effective date of this section shall furnish, at the time of filing such 
application, all the consents and powers of attorney required to be 
furnished by such broker or dealer and by each general partner or 
managing agent thereof; Provided, however, That where an application for 
registration of a broker or dealer is pending at the time this section 
becomes effective such consents and powers of attorney shall be 
furnished within 30 days after this section becomes effective.
    (3) Each broker or dealer registered or applying for registration 
who or which becomes a nonresident broker or dealer after the effective 
date of this section, and each general partner or managing agent, of an 
unincorporated broker or dealer registered or applying for registration, 
who becomes a nonresident after the effective date of this section, 
shall furnish such consent and power of attorney within 30 days 
thereafter.
    (c) Service of any process, pleadings or other papers on the 
Commission under this part shall be made by delivering the requisite 
number of copies thereof to the Secretary of the Commission or to such 
other person as the Commission may authorize to act in its behalf. 
Whenever any process, pleadings or other papers as aforesaid are served 
upon the Commission, it shall promptly forward a copy thereof by 
registered or certified mail to the appropriate defendants at their last 
address of record filed with the Commission. The Commission shall be 
furnished a sufficient number of copies for such purpose, and one copy 
for its file.
    (d) For purposes of this section the following definitions shall 
apply:
    (1) The term broker shall have the meaning set out in section 
3(a)(4) of the Securities Exchange Act of 1934.

[[Page 357]]

    (2) The term dealer shall have the meaning set out in section 
3(a)(5) of the Securities Exchange Act of 1934.
    (3) The term managing agent shall mean any person, including a 
trustee, who directs or manages or who participated in the directing or 
managing of the affairs of any unincoprorated organization or 
association which is not a partnership.
    (4) The term nonresident broker or dealer shall mean (i) in the case 
of an individual, one who resides in or has his principal place of 
business in any place not subject to the jurisdiction of the United 
States; (ii) in the case of a corporation, one incorporated in or having 
its principal place of business in any place not subject to the 
jurisdiction of the United States; (iii) in the case of a partnership or 
other unincoporated organization or association, one having its 
principal place of business in any place not subject to the jurisdiction 
of the United States.
    (5) A general partner or managing agent of a broker or dealer shall 
be deemed to be a nonresident if he resides in any place not subject to 
the jurisdiction of the United States.

(Sec.319, 53 Stat. 1173, secs. 38, 211, 54 Stat. 641, 855; 15 U.S.C. 
77sss, 80a-37, 80b-11)

[18 FR 2578, May 2, 1953, as amended at 23 FR 9691, Dec. 16, 1958; 29 FR 
16982, Dec. 11, 1964. Redesignated at 30 FR 11851, Sept. 16, 1965]



Sec.240.15b1-6  Notice to brokers and dealers of requirements regarding
lost securityholders and unresponsive payees.

    Brokers and dealers are hereby notified of Rule 17Ad-17 (Sec.
240.17Ad-17), which addresses certain requirements with respect to lost 
securityholders and unresponsive payees that may be applicable to them.

[78 FR 4783, Jan. 23, 2013]



Sec.240.15b2-2  Inspection of newly registered brokers and dealers.

    (a) Definition. For the purpose of this section the term applicable 
financial responsibility rules shall include:
    (1) Any rule adopted by the Commission pursuant to sections 8, 
15(c)(3), 17(a), or 17(e)(1)(A) of the Act;
    (2) Any rule adopted by the Commission relating to hypothecation or 
lending of customer securities;
    (3) Any other rule adopted by the Commission relating to the 
protection of funds or securities; and
    (4) Any rule adopted by the Secretary of the Treasury pursuant to 
section 15C(b)(1) of the Act.
    (b) Each self-regulatory organization that has responsibility for 
examining a broker or dealer member (including members that are 
government securities brokers or government securities dealers 
registered pursuant to section 15C(a)(1)(A) of the Act) for compliance 
with applicable financial responsibility rules is authorized and 
directed to conduct an inspection of the member, within six months of 
the member's registration with the Commission, to determine whether the 
member is operating in conformity with applicable financial 
responsibility rules.
    (c) The examining self-regulatory organization is further authorized 
and directed to conduct an inspection of the member no later than twelve 
months from the member's registration with the Commission, to determine 
whether the member is operating in conformity with all other applicable 
provisions of the Act and rules thereunder.
    (d) In each case where the examining self-regulatory organization 
determines that a broker or dealer member has not commenced actual 
operations within six months of the member's registration with the 
Commission, it shall delay the inspection pursuant to this section until 
the second six month period from the member's registration with the 
Commission.
    (e) No inspection need be conducted as provided for in paragraphs 
(b) and (c) of this section if:
    (1) The member was registered with the Commission prior to April 26, 
1982;
    (2) An inspection of the member has already been conducted by 
another self-regulatory organization pursuant to this section;
    (3) An inspection of the member has already been conducted by the 
Commission pursuant to section 15(b)(2)(C) of the Act.; or
    (4) The member is registered with the Commission pursuant to section

[[Page 358]]

15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)).

[47 FR 11269, Mar. 16, 1982, as amended at 52 FR 16838, May 6, 1987; 53 
FR 4121, Feb. 12, 1988; 66 FR 45147, Aug. 27, 2001]



Sec.240.15b3-1  Amendments to application.

    (a) If the information contained in any application for registration 
as a broker or dealer, or in any amendment thereto, is or becomes 
inaccurate for any reason, the broker or dealer shall promptly file with 
the Central Registration Depository (operated by the Financial Industry 
Regulatory Authority, Inc.) an amendment on Form BD correcting such 
information.
    (b) Every amendment filed with the Central Registration Depository 
pursuant to this section shall constitute a ``report'' filed with the 
Commission within the meaning of Sections 15(b), 17(a), 18(a), 32(a) (15 
U.S.C. 78o(b), 78q(a), 78r(a), 78ff(a)) and other applicable provisions 
of the Act.

[58 FR 14, Jan. 4, 1993, as amended at 64 FR 25147, May 10, 1999; 64 FR 
37593, July 12, 1999; 64 FR 42595, Aug. 5, 1999; 73 FR 4692, Jan. 28, 
2008]



Sec.240.15b5-1  Extension of registration for purposes of the 
Securities Investor Protection Act of 1970 after cancellation
or revocation.

    Commission revocation or cancellation of the registration of a 
broker or dealer pursuant to section 15(b) of the Act: (i) shall be 
effective for all purposes, except as hereinafter provided, on the date 
of the order of revocation or cancellation or, if such order is stayed, 
on the date the stay is terminated; and (ii) shall be effective six 
months after the date of the order of revocation or cancellation (or, if 
such order is stayed, the date the stay is terminated) with respect to a 
broker's or dealer's registration status as a member within the meaning 
of Section 3(a)(2) of the Securities Investor Protection Act of 1970 for 
purposes of the application of sections 5, 6, and 7 thereof to customer 
claims arising prior to the date of the order of revocation or 
cancellation (or, if such order is stayed, the date the stay is 
terminated).

[39 FR 37485, Oct. 22, 1974]



Sec.240.15b6-1  Withdrawal from registration.

    (a) Notice of withdrawal from registration as a broker or dealer 
pursuant to Section 15(b) of the Act shall be filed on Form BDW (17 CFR 
249.501a) in accordance with the instructions contained therein. Every 
notice of withdrawal from registration as a broker or dealer shall be 
filed with the Central Registration Depository (operated by the 
Financial Industry Regulatory Authority, Inc.) in accordance with 
applicable filing requirements. Prior to filing a notice of withdrawal 
from registration on Form BDW (17 CFR 249.501a), a broker or dealer 
shall amend Form BD (17 CFR 249.501) in accordance with Sec.240.15b3-
1(a) to update any inaccurate information.
    (b) A notice of withdrawal from registration filed by a broker or 
dealer pursuant to Section 15(b) of the Act (15 U.S.C. 78o(b)) shall 
become effective for all matters (except as provided in this paragraph 
(b) and in paragraph (c) of this section) on the 60th day after the 
filing thereof with the Commission, within such longer period of time as 
to which such broker or dealer consents or which the Commission by order 
may determine as necessary or appropriate in the public interest or for 
the protection of investors, or within such shorter period of time as 
the Commission may determine. If a notice of withdrawal from 
registration is filed with the Commission at any time subsequent to the 
date of the issuance of a Commission order instituting proceedings 
pursuant to Section 15(b) of the Act (15 U.S.C. 78o(b)) to censure, 
place limitations on the activities, functions or operations of, or 
suspend or revoke the registration of, such broker or dealer, or if 
prior to the effective date of the notice of withdrawal pursuant to this 
paragraph (b), the Commission institutes such a proceeding or a 
proceeding to impose terms or conditions upon such withdrawal, the 
notice of withdrawal shall not become effective pursuant to this 
paragraph (b) except at such time and upon such terms and conditions as 
the Commission deems necessary or appropriate in the public interest or 
for the protection of investors.

[[Page 359]]

    (c) With respect to a broker's or dealer's registration status as a 
member within the meaning of Section 3(a)(2) of the Securities Investor 
Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)) for purposes of the 
application of Sections 5, 6, and 7 (15 U.S.C. 78eee, 78fff, and 78fff-
1) thereof to customer claims arising prior to the effective date of 
withdrawal pursuant to paragraph (b) of this section, the effective date 
of a broker's or dealer's withdrawal from registration pursuant to this 
paragraph (c) shall be six months after the effective date of withdrawal 
pursuant to paragraph (b) of this section or such shorter period of time 
as the Commission may determine.
    (d) Every notice of withdrawal filed with the Central Registration 
Depository pursuant to this section shall constitute a ``report'' filed 
with the Commission within the meaning of Sections 15(b), 17(a), 18(a), 
32(a) (15 U.S.C. 78o(b), 78q(a), 78r(a), 78ff(a)) and other applicable 
provisions of the Act.
    (e) The Commission, by order, may exempt any broker or dealer from 
the filing requirements provided in Form BDW (17 CFR 249.501a) under 
conditions that differ from the filing instructions contained in Form 
BDW.

[64 FR 25147, May 10, 1999, as amended at 64 FR 42595, Aug. 5, 1999; 73 
FR 4692, Jan. 28, 2008]



Sec.240.15b7-1  Compliance with qualification requirements of
self-regulatory organizations.

    No registered broker or dealer shall effect any transaction in, or 
induce the purchase or sale of, any security unless any natural person 
associated with such broker or dealer who effects or is involved in 
effecting such transaction is registered or approved in accordance with 
the standards of training, experience, competence, and other 
qualification standards (including but not limited to submitting and 
maintaining all required forms, paying all required fees, and passing 
any required examinations) established by the rules of any national 
securities exchange or national securities association of which such 
broker or dealer is a member or under the rules of the Municipal 
Securities Rulemaking Board (if it is subject to the rules of that 
organization).

[58 FR 27658, May 11, 1993]



Sec.240.15b7-3T  Operational capability in a Year 2000 environment.

    (a) This section applies to every broker or dealer registered 
pursuant to Section 15 of the Act, (15 U.S.C. 78o) that uses computers 
in the conduct of its business as a broker or dealer. If you have a 
material Year 2000 problem, then you do not have operational capability 
within the meaning of Section 15(b)(7) of the Act (15 U.S.C. 78o(b)(7)).
    (b)(1) You have a material Year 2000 problem under paragraph (a) of 
this section if, at any time on or after August 31, 1999:
    (i) Any of your mission critical computer systems incorrectly 
identifies any date in the Year 1999 or the Year 2000; and
    (ii) The error impairs or, if uncorrected, is likely to impair, any 
of your mission critical systems.
    (2) You will be presumed to have a material Year 2000 problem if, at 
any time on or after August 31, 1999, you:
    (i) Do not have written procedures reasonably designed to identify, 
assess, and remediate any Year 2000 problems in mission critical systems 
under your control;
    (ii) Have not verified your Year 2000 remediation efforts through 
reasonable internal testing of mission critical systems under your 
control;
    (iii) Have not verified your Year 2000 remediation efforts by 
satisfying Year 2000 testing requirements imposed by self-regulatory 
organizations to which you are subject; or
    (iv) Have not remediated all exceptions related to your mission 
critical systems contained in any independent public accountant's report 
prepared on your behalf pursuant to Sec.240.17a-5(e)(5)(vi).
    (c) If you have or are presumed to have a material Year 2000 
problem, you must immediately notify the Commission and your designated 
examining authority of the problem. You must send this notice to the 
Commission by overnight delivery to the Division of Market Regulation, 
U.S. Securities and Exchange Commission, 100 F Street,

[[Page 360]]

NE., Washington, DC 20549-6628 Attention: Y2K Compliance.
    (d)(1) If you are a broker or dealer that is not operationally 
capable because you have or are presumed to have a material Year 2000 
problem, you may not, on or after August 31, 1999:
    (i) Effect any transaction in, or induce the purchase or sale of, 
any security; or
    (ii) Receive or hold customer funds or securities, or carry customer 
accounts.
    (2) Notwithstanding paragraph (d)(1) of this section, you may 
continue to effect transactions in, or induce the purchase or sale of, a 
security, receive or hold customer funds or securities, or carry 
customer accounts:
    (i) Until December 1, 1999, if you have submitted a certificate to 
the Commission in compliance with paragraph (e) of this section; or
    (ii) Solely to the extent necessary to effect an orderly cessation 
or transfer of these functions.
    (e)(1)(i) If you are a broker or dealer that is not operationally 
capable because you have or are presumed to have a material Year 2000 
problem, you may, in addition to providing the Commission the notice 
required by paragraph (c) of this section, provide the Commission and 
your designated examining authority a certificate signed by your chief 
executive officer (or an individual with similar authority) stating:
    (A) You are in the process of remediating your material Year 2000 
problem;
    (B) You have scheduled testing of your affected mission critical 
systems to verify that the material Year 2000 problem has been 
remediated, and specify the testing dates;
    (C) The date by which you anticipate completing remediation of the 
material Year 2000 problem in your mission critical systems, and will 
therefore be operationally capable; and
    (D) Based on inquiries and to the best of the chief executive 
officer's knowledge, you do not anticipate that the existence of the 
material Year 2000 problem in your mission critical systems will impair 
your ability, depending on the nature of your business, to ensure prompt 
and accurate processing of securities transactions, including order 
entry, execution, comparison, allocation, clearance and settlement of 
securities transactions, the maintenance of customer accounts, or the 
delivery of funds and securities; and you anticipate that the steps 
referred to in paragraphs (e)(1)(i)(A) through (C) of this section will 
result in remedying the material Year 2000 problem on or before November 
15, 1999.
    (ii) If the information contained in any certificate provided to the 
Commission pursuant to paragraph (e) of this section is or becomes 
misleading or inaccurate for any reason, you must promptly file an 
updated certificate correcting such information. In addition to the 
information contained in the certificate, you may provide the Commission 
with any other information necessary to establish that your mission 
critical systems will not have material Year 2000 problems on or after 
November 15, 1999.
    (2) If you have submitted a certificate pursuant to paragraph (e)(1) 
of this section, you must submit a certificate to the Commission and 
your designated examining authority signed by your chief executive 
officer (or an individual with similar authority) on or before November 
15, 1999, stating that, based on inquiries and to the best of the chief 
executive officer's knowledge, you have remediated your Year 2000 
problem or that you will cease operations. This certificate must be sent 
to the Commission by overnight delivery to the Division of Market 
Regulation, U.S. Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-6628 Attention: Y2K Compliance.
    (f) Notwithstanding paragraph (d)(2) of this section, you must 
comply with the requirements of paragraph (d)(1) of this section if you 
have been so ordered by the Commission or by a court.
    (g) For the purposes of this section:
    (1) The term mission critical system means any system that is 
necessary, depending on the nature of your business, to ensure prompt 
and accurate processing of securities transactions, including order 
entry, execution, comparison, allocation, clearance and settlement of 
securities transactions, the maintenance of customer accounts, and the 
delivery of funds and securities; and
    (2) The term customer includes a broker or dealer.

[[Page 361]]

    (h) This temporary section will expire on July 1, 2001.

[64 FR 42028, Aug. 3, 1999, as amended at 73 FR 32227, June 5, 2008]



Sec.240.15b9-1  Exemption for certain exchange members.

    (a) Any broker or dealer required by section 15(b)(8) of the Act to 
become a member of a registered national securities association shall be 
exempt from such requirement if it: (1) Is a member of a national 
securities exchange, (2) carries no customer accounts, and (3) has 
annual gross income derived from purchases and sales of securities 
otherwise than on a national securities exchange of which it is a member 
in an amount no greater than $1,000.
    (b) The gross income limitation contained in paragraph (a) of this 
section, shall not apply to income derived from transactions (1) for the 
dealer's own account with or through another registered broker or dealer 
or (2) through the Intermarket Trading System.
    (c) For purposes of this section, the term Intermarket Trading 
System shall mean the intermarket communications linkage operated 
jointly by certain self-regulatory organizations pursuant to a plan 
filed with, and approved by, the Commission pursuant to Sec.242.608 of 
this chapter.

[48 FR 53691, Nov. 29, 1983, as amended at 70 FR 37618, June 29, 2005]



Sec.240.15b9-2  Exemption from SRO membership for OTC derivatives dealers.

    An OTC derivatives dealer, as defined in Sec.240.3b-12, shall be 
exempt from any requirement under section 15(b)(8) of the Act (15 U.S.C. 
78o(b)(8)) to become a member of a registered national securities 
association.

[63 FR 59397, Nov. 3, 1998]



Sec.240.15b11-1  Registration by notice of security futures product
broker-dealers.

    (a) A broker or dealer may register by notice pursuant to section 
15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) if it:
    (1) Is registered with the Commodity Futures Trading Commission as a 
futures commission merchant or an introducing broker, as those terms are 
defined in the Commodity Exchange Act (7 U.S.C. 1, et seq.), 
respectively;
    (2) Is a member of the National Futures Association or another 
national securities association registered under section 15A(k) of the 
Act (15 U.S.C. 78o-3(k)); and
    (3) Is not required to register as a broker or dealer in connection 
with transactions in securities other than security futures products.
    (b) A broker or dealer registering by notice pursuant to section 
15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) must file Form BD-N 
(17 CFR 249.501b) in accordance with the instructions to the form. A 
broker or dealer registering by notice pursuant to this section must 
indicate where appropriate on Form BD-N that it satisfies all of the 
conditions in paragraph (a) of this section.
    (c) If the information contained in any notice of registration filed 
on Form BD-N (17 CFR 249.501b) pursuant to this section is or becomes 
inaccurate for any reason, the broker or dealer shall promptly file an 
amendment on Form BD-N correcting such information.
    (d) An application for registration by notice, and any amendments 
thereto, that are filed on Form BD-N (17 CFR 249.501b) pursuant to this 
section will be considered a ``report'' filed with the Commission for 
purposes of sections 15(b), 17(a), 18(a), 32(a) (15 U.S.C. 78o(b), 
78q(a), 78r(a), 78ff(a)) and other applicable provisions of the Act.

[66 FR 45146, Aug. 27, 2001]

               Rules Relating to Over-the-Counter Markets



Sec.240.15c1-1  Definitions.

    As used in any rule adopted pursuant to section 15(c)(1) of the Act:
    (a) The term customer shall not include a broker or dealer or a 
municipal securities dealer; provided, however, that the term 
``customer'' shall include a municipal securities dealer (other than a 
broker or dealer) with respect to transactions in securities other than 
municipal securities.
    (b) The term the completion of the transaction means:
    (1) In the case of a customer who purchases a security through or 
from a

[[Page 362]]

broker, dealer or municipal securities dealer, except as provided in 
paragraph (b)(2) of this section, the time when such customer pays the 
broker, dealer or municipal securities dealer any part of the purchase 
price, or, if payment is effected by a bookkeeping entry, the time when 
such bookkeeping entry is made by the broker, dealer or municipal 
securities dealer for any part of the purchase price;
    (2) In the case of a customer who purchases a security through or 
from a broker, dealer or municipal securities dealer and who makes 
payment therefor prior to the time when payment is requested or 
notification is given that payment is due, the time when such broker, 
dealer or municipal securities dealer delivers the security to or into 
the account of such customer;
    (3) In the case of a customer who sells a security through or to a 
broker, dealer or municipal securities dealer except as provided in 
paragraph (b)(4) of this section, if the security is not in the custody 
of the broker, dealer or municipal securities dealer at the time of 
sale, the time when the security is delivered to the broker, dealer or 
municipal securities dealer, and if the security is in the custody of 
the broker, dealer or municipal securities dealer at the time of sale, 
the time when the broker, dealer or municipal securities dealer 
transfers the security from the account of such customer;
    (4) In the case of a customer who sells a security through or to a 
broker, dealer or municipal securities dealer and who delivers such 
security to such broker, dealer or municipal securities dealer prior to 
the time when delivery is requested or notification is given that 
delivery is due, the time when such broker, dealer or municipal 
securities dealer makes payment to or into the account of such customer.

[41 FR 22825, June 7, 1976]



Sec.240.15c1-2  Fraud and misrepresentation.

    (a) The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act (section 2, 52 Stat. 
1075; 15 U.S.C. 78o(c)(1), is hereby defined to include any act, 
practice, or course of business which operates or would operate as a 
fraud or deceit upon any person.
    (b) The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any untrue statement of a material fact and any omission to 
state a material fact necessary in order to make the statements made, in 
the light of the circumstances under which they are made, not 
misleading, which statement or omission is made with knowledge or 
reasonable grounds to believe that it is untrue or misleading.
    (c) The scope of this section shall not be limited by any specific 
definitions of the term ``manipulative, deceptive, or other fraudulent 
device or contrivance'' contained in other rules adopted pursuant to 
section 15(c)(1) of the act.

(Sec.2, 52 Stat. 1075; 15 U.S.C. 78o)

    Cross Reference: For regulation prohibiting employment of 
manipulative and deceptive devices as such term is used in section 15 of 
the Act, by any broker or dealer, see Sec.240.10b-3.

[13 FR 8205, Dec. 22, 1948]



Sec.240.15c1-3  Misrepresentation by brokers, dealers and municipal 
securities dealers as to registration.

    The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any representation by a broker, dealer or municipal 
securities dealer that the registration of a broker or dealer, pursuant 
to section 15(b) of the Act, or the registration of a municipal 
securities dealer pursuant to section 15B(a) of the Act, or the failure 
of the Commission to deny or revoke such registration, indicates in any 
way that the Commission has passed upon or approved the financial 
standing, business, or conduct of such registered broker, dealer or 
municipal securities dealer or the merits of any security or any 
transaction or transactions therein.

[41 FR 22825, June 7, 1976]



Sec.240.15c1-4  [Reserved]



Sec.240.15c1-5  Disclosure of control.

    The term manipulative, deceptive, or other fraudulent device or 
contrivance, as

[[Page 363]]

used in section 15(c)(1) of the Act, is hereby defined to include any 
act of any broker, dealer or municipal securities dealer controlled by, 
controlling, or under common control with, the issuer of any security, 
designed to effect with or for the account of a customer any transaction 
in, or to induce the purchase or sale by such customer of, such security 
unless such broker, dealer or municipal securities dealer, before 
entering into any contract with or for such customer for the purchase or 
sale of such security, discloses to such customer the existence of such 
control, and unless such disclosure, if not made in writing, is 
supplemented by the giving or sending of written disclosure at or before 
the completion of the transaction.

[41 FR 22825, June 7, 1976]



Sec.240.15c1-6  Disclosure of interest in distribution.

    The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any act of any broker who is acting for a customer or for 
both such customer and some other person, or of any dealer or municipal 
securities dealer who receives or has promise of receiving a fee from a 
customer for advising such customer with respect to securities, designed 
to effect with or for the account of such customer any transaction in, 
or to induce the purchase or sale by such customer of, any security in 
the primary or secondary distribution of which such broker, dealer or 
municipal securities dealer is participating or is otherwise financially 
interested unless such broker, dealer or municipal securities dealer, at 
or before the completion of each such transaction gives or sends to such 
customer written notification of the existence of such participation or 
interest.

[41 FR 22826, June 7, 1976]



Sec.240.15c1-7  Discretionary accounts.

    (a) The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c) of the Act, is hereby defined to 
include any act of any broker, dealer or municipal securities dealer 
designed to effect with or for any customer's account in respect to 
which such broker, dealer or municipal securities dealer or his agent or 
employee is vested with any discretionary power any transactions or 
purchase or sale which are excessive in size or frequency in view of the 
financial resources and character of such account.
    (b) The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any act of any broker, dealer or municipal securities dealer 
designed to effect with or for any customer's account in respect to 
which such broker, dealer or municipal securities dealer or his agent or 
employee is vested with any discretionary power any transaction of 
purchase or sale unless immediately after effecting such transaction 
such broker, dealer or municipal securities dealer makes a record of 
such transaction which record includes the name of such customer, the 
name, amount and price of the security, and the date and time when such 
transaction took place.

[41 FR 22826, June 7, 1976]



Sec.240.15c1-8  Sales at the market.

    The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any representation made to a customer by a broker, dealer or 
municipal securities dealer who is participating or otherwise 
financially interested in the primary or secondary distribution of any 
security which is not admitted to trading on a national securities 
exchange that such security is being offered to such customer ``at the 
market'' or at a price related to the market price unless such broker, 
dealer or municipal securities dealer knows or has reasonable grounds to 
believe that a market for such security exists other than that made, 
created, or controlled by him, or by any person for whom he is acting or 
with whom he is associated in such distribution, or by any person 
controlled by, controlling or under common control with him.

[41 FR 22826, June 7, 1976]

[[Page 364]]



Sec.240.15c1-9  Use of pro forma balance sheets.

    The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include the use of financial statements purporting to give effect to 
the receipt and application of any part of the proceeds from the sale or 
exchange of securities, unless the assumptions upon which each such 
financial statement is based are clearly set forth as part of the 
caption to each such statement in type at least as large as that used 
generally in the body of the statement.

(Sec.2, 52 Stat. 1075; 15 U.S.C. 78o)

[13 FR 8205, Dec. 22, 1948]



Sec.240.15c2-1  Hypothecation of customers' securities.

    (a) General provisions. The term fraudulent, deceptive, or 
manipulative act or practice, as used in section 15(c) (2) of the Act, 
is hereby defined to include the direct or indirect hypothecation by a 
broker or dealer, or his arranging for or permitting, directly or 
indirectly, the continued hypothecation of any securities carried for 
the account of any customer under circumstances:
    (1) That will permit the commingling of securities carried for the 
account of any such customer with securities carried for the account of 
any other customer, without first obtaining the written consent of each 
such customer to such hypothecation;
    (2) That will permit such securities to be commingled with 
securities carried for the account of any person other than a bona fide 
customer of such broker or dealer under a lien for a loan made to such 
broker or dealer; or
    (3) That will permit securities carried for the account of customers 
to be hypothecated, or subjected to any lien or liens or claims or 
claims of the pledgee or pledgees, for a sum which exceeds the aggregate 
indebtedness of all customers in respect of securities carried for their 
accounts; except that this clause shall not be deemed to be violated by 
reason of an excess arising on any day through the reduction of the 
aggregate indebtedness of customers on such day, provided that funds or 
securities in an amount sufficient to eliminate such excess are paid or 
placed in transfer to pledgees for the purpose of reducing the sum of 
the liens or claims to which securities carried for the account of 
customers are subject as promptly as practicable after such reduction 
occurs, but before the lapse of one half hour after the commencement of 
banking hours on the next banking day at the place where the largest 
principal amount of loans of such broker or dealer are payable and, in 
any event, before such broker or dealer on such day has obtained or 
increased any bank loan collateralized by securities carried for the 
account of customers.
    (b) Definitions. For the purposes of this section:
    (1) The term customer shall not include any general or special 
partner or any director or officer of such broker or dealer, or any 
participant, as such, in any joint, group or syndicate account with such 
broker or dealer or with any partner, officer or director thereof. The 
term also shall not include a counterparty who has delivered collateral 
to an OTC derivatives dealer pursuant to a transaction in an eligible 
OTC derivative instrument, or pursuant to the OTC derivatives dealer's 
cash management securities activities or ancillary portfolio management 
securities activities, and who has received a prominent written notice 
from the OTC derivatives dealer that:
    (i) Except as otherwise agreed in writing by the OTC derivatives 
dealer and the counterparty, the dealer may repledge or otherwise use 
the collateral in its business;
    (ii) In the event of the OTC derivatives dealer's failure, the 
counterparty will likely be considered an unsecured creditor of the 
dealer as to that collateral;
    (iii) The Securities Investor Protection Act of 1970 (15 U.S.C 78aaa 
through 78lll) does not protect the counterparty; and
    (iv) The collateral will not be subject to the requirements of Sec.
240.8c-1, Sec.240.15c2-1, Sec.240.15c3-2, or Sec.240.15c3-3;
    (2) The term securities carried for the account of any customer 
shall be deemed to mean:

[[Page 365]]

    (i) Securities received by or on behalf of such broker or dealer for 
the account of any customer;
    (ii) Securities sold and appropriated by such broker or dealer to a 
customer, except that if such securities were subject to a lien when 
appropriated to a customer they shall not be deemed to be ``securities 
carried for the account of any customer'' pending their release from 
such lien as promptly as practicable;
    (iii) Securities sold, but not appropriated, by such broker or 
dealer to a customer who has made any payment therefor, to the extent 
that such broker or dealer owns and has received delivery of securities 
of like kind, except that if such securities were subject to a lien when 
such payment was made they shall not be deemed to be ``securities 
carried for the account of any customer'' pending their release from 
such lien as promptly as practicable;
    (3) Aggregate indebtedness shall not be deemed to be reduced by 
reason of uncollected items. In computing aggregate indebtedness, 
related guaranteed and guarantor accounts shall be treated as a single 
account and considered on a consolidated basis, and balances in accounts 
carrying both long and short positions shall be adjusted by treating the 
market value of the securities required to cover such short positions as 
though such market value were a debit; and
    (4) In computing the sum of the liens or claims to which securities 
carried for the account of customers of a broker or dealer are subject, 
any rehypothecation of such securities by another broker or dealer who 
is subject to this section or to Sec.240.8c-1 shall be disregarded.
    (c) Exemption for cash accounts. The provisions of paragraph (a)(1) 
of this section shall not apply to any hypothecation of securities 
carried for the account of a customer in a special cash account within 
the meaning of 12 CFR 220.4(c): Provided, That at or before the 
completion of the transaction of purchase of such securities for, or of 
sale of such securities to, such customer, written notice is given or 
sent to such customer disclosing that such securities are or may be 
hypothecated under circumstances which will permit the commingling 
thereof with securities carried for the account of other customers. The 
term the completion of the transaction shall have the meaning given to 
such term by Sec.240.15c1-1(b).
    (d) Exemption for clearing house liens. The provisions of paragraphs 
(a)(2), (a)(3), and (f) of this section shall not apply to any lien or 
claim of the clearing corporation, or similar department or association, 
of a national securities exchange or a registered national securities 
association, for a loan made and to be repaid on the same calendar day, 
which is incidental to the clearing of transactions in securities or 
loans through such corporation, department, or association: Provided, 
however, That for the purpose of paragraph (a)(3) of this section, 
``aggregate indebtedness of all customers in respect of securities 
carried for their accounts'' shall not include indebtedness in respect 
of any securities subject to any lien or claim exempted by this 
paragraph.
    (e) Exemption for certain liens on securities of noncustomers. The 
provisions of paragraph (a)(2) of this section shall not be deemed to 
prevent such broker or dealer from permitting securities not carried for 
the account of a customer to be subjected (1) to a lien for a loan made 
against securities carried for the account of customers, or (2) to a 
lien for a loan made and to be repaid on the same calendar day. For the 
purpose of this exemption, a loan shall be deemed to be ``made against 
securities carried for the account of customers'' if only securities 
carried for the account of customers are used to obtain or to increase 
such loan or as substitutes for other securities carried for the account 
of customers.
    (f) Notice and certification requirements. No person subject to this 
section shall hypothecate any security carried for the account of a 
customer unless, at or prior to the time of each such hypothecation, he 
gives written notice to the pledgee that the security pledged is carried 
for the account of a customer and that such hypothecation does not 
contravene any provision of this section, except that in the case of an 
omnibus account the broker or dealer for whom such account is carried 
may furnish a signed statement to the

[[Page 366]]

person carrying such account that all securities carried therein by such 
broker or dealer will be securities carried for the account of his 
customers and that the hypothecation thereof by such broker or dealer 
will not contravene any provision of this section. The provisions of 
this paragraph shall not apply to any hypothecation of securities under 
any lien or claim of a pledgee securing a loan made and to be repaid on 
the same calendar day.
    (g) The fact that securities carried for the accounts of customers 
and securities carried for the accounts of others are represented by one 
or more certificates in the custody of a clearing corporation or other 
subsidiary organization of either a national securities exchange or of a 
registered national securities association, or of a custodian bank, in 
accordance with a system for the central handling of securities 
established by a national securities exchange or a registered national 
securities association, pursuant to which system the hypothecation of 
such securities is effected by bookkeeping entries without physical 
delivery of such securities, shall not, in and of itself, result in a 
commingling of securities prohibited by paragraph (a)(1) or (a)(2) of 
this section, whenever a participating member, broker or dealer 
hypothecates securities in accordance with such system: Provided, 
however, That (1) any such custodian of any securities held by or for 
such system shall agree that it will not for any reason, including the 
assertion of any claim, right or lien of any kind, refuse or refrain 
from promptly delivering any such securities (other than securities then 
hypothecated in accordance with such system) to such clearing 
corporation or other subsidiary organization or as directed by it, 
except that nothing in such agreement shall be deemed to require the 
custodian to deliver any securities in contravention of any notice of 
levy, seizure or similar notice, or order or judgment, issued or 
directed by a governmental agency or court, or officer thereof, having 
jurisdiction over such custodian, which on its face affects such 
securities; (2) such systems shall have safeguards in the handling, 
transfer and delivery of securities and provisions for fidelity bond 
coverage of the employees and agents of the clearing corporation or 
other subsidiary organization and for periodic examinations by 
independent public accountants; and (3) the provisions of this paragraph 
(g) shall not be effective with respect to any particular system unless 
the agreement required by paragraph (g)(1) of this section and the 
safeguards and provisions required by paragraph (g)(2) of this section 
shall have been deemed adequate by the Commission for the protection of 
investors, and unless any subsequent amendments to such agreement, 
safeguards or provisions shall have been deemed adequate by the 
Commission for the protection of investors.

(Secs. 8, 15, 48 Stat. 888, 895, Sec.2, 52 Stat. 1075; 15 U.S.C. 78b. 
78o)

    Cross Reference: For interpretative releases applicable to Sec.
240.15c2-1, see Nos. 2690 and 2822 in tabulation, part 241 of this 
chapter.

[13 FR 8205, Dec. 22, 1948, as amended at 31 FR 7741, June 1, 1966; 37 
FR 73, Jan. 5, 1972; 63 FR 59397, Nov. 3, 1998]



Sec.240.15c2-3  [Reserved]



Sec.240.15c2-4  Transmission or maintenance of payments received in 
connection with underwritings.

    It shall constitute a ``fraudulent, deceptive, or manipulative act 
or practice'' as used in section 15(c)(2) of the Act, for any broker, 
dealer or municipal securities dealer participating in any distribution 
of securities, other than a firm-commitment underwriting, to accept any 
part of the sale price of any security being distributed unless:
    (a) The money or other consideration received is promptly 
transmitted to the persons entitled thereto; or
    (b) If the distribution is being made on an ``all-or-none'' basis, 
or on any other basis which contemplates that payment is not to be made 
to the person on whose behalf the distribution is being made until some 
further event or contingency occurs, (1) the money or other 
consideration received is promptly deposited in a separate bank account, 
as agent or trustee for the persons who have the beneficial interests 
therein, until the appropriate event or contingency has occurred, and 
then the

[[Page 367]]

funds are promptly transmitted or returned to the persons entitled 
thereto, or (2) all such funds are promptly transmitted to a bank which 
has agreed in writing to hold all such funds in escrow for the persons 
who have the beneficial interests therein and to transmit or return such 
funds directly to the persons entitled thereto when the appropriate 
event or contingency has occurred.

[41 FR 22826, June 7, 1976]



Sec.240.15c2-5  Disclosure and other requirements when extending or
arranging credit in certain transactions.

    (a) It shall constitute a ``fraudulent, deceptive, or manipulative 
act or practice'' as used in section 15(c)(2) of the Act for any broker 
or dealer to offer or sell any security to, or to attempt to induce the 
purchase of any security by, any person, in connection with which such 
broker or dealer directly or indirectly offers to extend any credit to 
or to arrange any loan for such person, or extends to or participates in 
arranging any loan for such person, unless such broker or dealer, before 
any purchase, loan or other related element of the transaction is 
entered into:
    (1) Delivers to such person a written statement setting forth the 
exact nature and extent of (i) such person's obligations under the 
particular loan arrangement, including among other things, the specific 
charges which such person will incur under such loan in each period 
during which the loan may continue or be extended, (ii) the risks and 
disadvantages which such person will incur in the entire transaction, 
including the loan arrangement, (iii) all commissions, discounts, and 
other remuneration received and to be received in connection with the 
entire transaction including the loan arrangment, by the broker or 
dealer, by any person controlling, controlled by, or under common 
control with the broker or dealer, and by any other person participating 
in the transaction; Provided, however, That the broker or dealer shall 
be deemed to be in compliance with this paragraph if the customer, 
before any purchase, loan, or other related element of the transaction 
is entered into in a manner legally binding upon the customer, receives 
a statement from the lender, or receives a prospectus or offering 
circular from the broker or dealer, which statement, prospectus or 
offering circular contains the information required by this paragraph; 
and
    (2) Obtains from such person information concerning his financial 
situation and needs, reasonably determines that the entire transaction, 
including the loan arrangement, is suitable for such person, and retains 
in his files a written statement setting forth the basis upon which the 
broker or dealer made such determination; Provided, however, That the 
written statement referred to in this paragraph must be made available 
to the customer on request.
    (b) This section shall not apply to any credit extended or any loan 
arranged by any broker or dealer subject to the provisions of Regulation 
T (12 CFR part 220) if such credit is extended or such loan is arranged, 
in compliance with the requirements of such regulation, only for the 
purpose of purchasing or carrying the security offered or sold: 
Provided, however, That notwithstanding this paragraph, the provisions 
of paragraph (a) shall apply in full force with respect to any 
transaction involving the extension of or arrangement for credit by a 
broker or dealer (i) in a special insurance premium funding account 
within the meaning of section 4(k) of Regulation T (12 CFR 220.4(k)) or 
(ii) in compliance with the terms of Sec.240.3a12-5 of this chapter.
    (c) This section shall not apply to any offer to extend credit or 
arrange any loan, or to any credit extended or loan arranged, in 
connection with any offer or sale, or attempt to induce the purchase, of 
any municipal security.
    (d) This section shall not apply to a transaction involving the 
extension of credit by an OTC derivatives dealer, as defined in Sec.
240.3b-12, if the transaction

[[Page 368]]

is exempt from the provisions of Section 7(c) of the Act (15 U.S.C. 
78g(c)) pursuant to Sec.240.36a1-1.

(Sec.3(a)(12), 48 Stat. 882, as amended, 84 Stat. 718, 1435, 1499 (15 
U.S.C. 78c(12)); Sec.7(c), 48 Stat. 886, as amended, 82 Stat. 452 (15 
U.S.C. 78g(c)); Sec.11(d)(1), 48 Stat. 891 as amended, 68 Stat. 686 (15 
U.S.C. 78k(d)(1)); Sec.15(c), 48 Stat. 895, as amended, 52 Stat. 1075, 
84 Stat. 1653 (15 U.S.C. 78o(c)); Sec.23(a), 48 Stat. 901, as amended, 
49 Stat. 704, 1379 (15 U.S.C. 78w(a))

[40 FR 6646, Feb. 13, 1975, as amended at 41 FR 22826, June 7, 1976; 63 
FR 59397, Nov. 3, 1998]



Sec.240.15c2-6  [Reserved]



Sec.240.15c2-7  Identification of quotations.

    (a) It shall constitute an attempt to induce the purchase or sale of 
a security by making a ``fictitious quotation'' within the meaning of 
section 15(c)(2) of the Act, for any broker or dealer to furnish or 
submit, directly or indirectly, any quotation for a security (other than 
a municipal security) to an inter-dealer quotation system unless:
    (1) The inter-dealer-quotation-system is informed, if such is the 
case, that the quotation is furnished or submitted;
    (i) By a correspondent broker or dealer for the account or in behalf 
of another broker or dealer, and if so, the identity of such other 
broker or dealer; and/or
    (ii) In furtherance of one or more other arrangements (including a 
joint account, guarantee of profit, guarantee against loss, commission, 
markup, markdown, indication of interest and accommodation arrangement) 
between or among brokers or dealers, and if so, the identity of each 
broker or dealer participating in any such arrangement or arrangements: 
Provided, however, That the provisions of this subparagraph shall not 
apply if only one of the brokers or dealers participating in any such 
arrangment or arrangements furnishes or submits a quotation with respect 
to the security to an inter-dealer-quotation-system.
    (2) The inter-dealer-quotation-system to which the quotation is 
furnished or submitted makes it a general practice to disclose with each 
published quotation, by appropriate symbol or otherwise, the category or 
categories (paragraph (a)(1)(i) and/or (ii) of this section) in 
furtherance of which the quotation is submitted, and the identities of 
all other brokers and dealers referred to in paragraph (a)(1) of this 
section where such information is supplied to the inter-dealer-
quotation-system under the provisions of paragraph (a)(1) of this 
section.
    (b) It shall constitute an attempt to induce the purchase or sale of 
a security by making a ``fictitious quotation,'' within the meaning of 
section 15(c)(2) of the Act, for a broker or dealer to enter into any 
correspondent or other arrangement (including a joint account, guarantee 
of profit, guarantee against loss, commission, markup, markdown, 
indication of interest and accommodation arrangement) in furtherance of 
which two or more brokers or dealers furnish or submit quotations with 
respect to a particular security unless such broker or dealer informs 
all brokers or dealers furnishing or submitting such quotations of the 
existence of such correspondent and other arrangments, and the identity 
of the parties thereto.
    (c) For purposes of this section:
    (1) The term inter-dealer-quotation-system shall mean any system of 
general circulation to brokers and dealers which regularly disseminates 
quotations of identified brokers or dealers but shall not include a 
quotation sheet prepared and distributed by a broker or dealer in the 
regular course of his business and containing only quotations of such 
broker or dealer.
    (2) The term quotation shall mean any bid or offer, or any 
indication of interest (such as OW or BW) in any bid or offer.
    (3) The term correspondent shall mean a broker or dealer who has a 
direct line of communication to another broker or dealer located in a 
different city or geographic area.

(Sec.15, 48 Stat. 895, as amended; 15 U.S.C. 78o)

[29 FR 11530, Aug. 12, 1964, as amended at 41 FR 22826, June 7, 1976]

[[Page 369]]



Sec.240.15c2-8  Delivery of prospectus.

    (a) It shall constitute a deceptive act or practice, as those terms 
are used in section 15(c)(2) of the Act, for a broker or dealer to 
participate in a distribution of securities with respect to which a 
registration statement has been filed under the Securities Act of 1933 
unless he complies with the requirements set forth in paragraphs (b) 
through (h) of this section. For the purposes of this section, a broker 
or dealer participating in the distribution shall mean any underwriter 
and any member or proposed member of the selling group.
    (b) In connection with an issue of securities, the issuer of which 
has not previously been required to file reports pursuant to sections 
13(a) or 15(d) of the Securities Exchange Act of 1934, unless such 
issuer has been exempted from the requirement to file reports thereunder 
pursuant to section 12(h) of the Act, such broker or dealer shall 
deliver a copy of the preliminary prospectus to any person who is 
expected to receive a confirmation of sale at least 48 hours prior to 
the sending of such confirmation. This paragraph (b) does not apply with 
respect to asset-backed securities (as defined in Sec.229.1101 of this 
chapter) that meet the requirements of General Instruction I.B.5 of Form 
S-3 (Sec.239.13 of this chapter). Provided, however, this paragraph 
(b) shall apply to all issuances of asset-backed securities (as defined 
in Sec.229.1101(c) of this chapter) regardless of whether the issuer 
has previously been required to file reports pursuant to sections 13(a) 
or 15(d) of the Securities Exchange Act of 1934, or exempted from the 
requirement to file reports thereunder pursuant to section 12(h) of the 
Act (15 U.S.C. 78l).
    (c) Such broker or dealer shall take reasonable steps to furnish to 
any person who makes written request for a preliminary prospectus 
between the filing date and a reasonable time prior to the effective 
date of the registration statement to which such prospectus relates, a 
copy of the latest preliminary prospectus on file with the Commission. 
Reasonable steps shall include receiving an undertaking by the managing 
underwriter or underwriters to send such copy to the address given in 
the requests.
    (d) Such broker or dealer shall take reasonable steps to comply 
promptly with the written request of any person for a copy of the final 
prospectus relating to such securities during the period between the 
effective date of the registration statement and the later of either the 
termination of such distribution, or the expiration of the applicable 
40- or 90-day period under section 4(3) of the Securities Act of 1933. 
Reasonable steps shall include receiving an undertaking by the managing 
underwriter or underwriters to send such copy to the address given in 
the requests. (The 40-day and 90-day periods referred to above shall be 
deemed to apply for purposes of this rule irrespective of the provisions 
of paragraphs (b) and (d) of Sec.230.174 of this chapter).
    (e) Such broker or dealer shall take reasonable steps (1) to make 
available a copy of the preliminary prospectus relating to such 
securities to each of his associated persons who is expected, prior to 
the effective date, to solicit customers' order for such securities 
before the making of any such solicitation by such associated persons 
and (2) to make available to each such associated person a copy of any 
amended preliminary prospectus promptly after the filing thereof.
    (f) Such broker or dealer shall take reasonable steps to make 
available a copy of the final prospectus relating to such securities to 
each of his associated persons who is expected, after the effective 
date, to solicit customers orders for such securities prior to the 
making of any such solicitation by such associated persons, unless a 
preliminary prospectus which is substantially the same as the final 
prospectus except for matters relating to the price of the stocks, has 
been so made available.
    (g) If the broker or dealer is a managing underwriter of such 
distribution, he shall take reasonable steps to see to it that all other 
brokers or dealers participating in such distribution are promptly 
furnished with sufficient copies, as requested by them, of each 
preliminary prospectus, each amended preliminary prospectus and the 
final prospectus to enable them to comply with paragraphs (b), (c), (d), 
and (e) of this section.

[[Page 370]]

    (h) If the broker or dealer is a managing underwriter of such 
distribution, he shall take reasonable steps to see that any broker or 
dealer participating in the distribution or trading in the registered 
security is furnished reasonable quantities of the final prospectus 
relating to such securities, as requested by him, in order to enable him 
to comply with the prospectus delivery requirements of section 5(b) (1) 
and (2) of the Securities Act of 1933.
    (i) This section shall not require the furnishing of prospectuses in 
any state where such furnishing would be unlawful under the laws of such 
state: Provided, however, That this provision is not to be construed to 
relieve a broker or dealer from complying with the requirements of 
section 5(b)(1) and (2) of the Securities Act of 1933.

[35 FR 18457, Dec. 4, 1970, as amended at 47 FR 11470, Mar. 16, 1982; 53 
FR 11845, Apr. 11, 1988; 60 FR 26622, May 17, 1995; 70 FR 1622, Jan. 7, 
2005; 79 FR 57344, Sept. 24, 2014]



Sec.240.15c2-11  Initiation or resumption of quotations without 
specific information.

    Preliminary Note: Brokers and dealers may wish to refer to 
Securities Exchange Act Release No. 29094 (April 17, 1991), for a 
discussion of procedures for gathering and reviewing the information 
required by this rule and the requirement that a broker or dealer have a 
reasonable basis for believing that the information is accurate and 
obtained from reliable sources.

    (a) As a means reasonably designed to prevent fraudulent, deceptive, 
or manipulative acts or practices, it shall be unlawful for a broker or 
dealer to publish any quotation for a security or, directly or 
indirectly, to submit any such quotation for publication, in any 
quotation medium (as defined in this section) unless such broker or 
dealer has in its records the documents and information required by this 
paragraph (for purposes of this section, ``paragraph (a) information''), 
and, based upon a review of the paragraph (a) information together with 
any other documents and information required by paragraph (b) of this 
section, has a reasonable basis under the circumstances for believing 
that the paragraph (a) information is accurate in all material respects, 
and that the sources of the paragraph (a) information are reliable. The 
information required pursuant to this paragraph is:
    (1) A copy of the prospectus specified by section 10(a) of the 
Securities Act of 1933 for an issuer that has filed a registration 
statement under the Securities Act of 1933, other than a registration 
statement on Form F-6, which became effective less than 90 calendar days 
prior to the day on which such broker or dealer publishes or submits the 
quotation to the quotation medium, Provided That such registration 
statement has not thereafter been the subject of a stop order which is 
still in effect when the quotation is published or submitted; or
    (2) A copy of the offering circular provided for under Regulation A 
under the Securities Act of 1933 for an issuer that has filed a 
notification under Regulation A and was authorized to commence the 
offering less than 40 calendar days prior to the day on which such 
broker or dealer publishes or submits the quotation to the quotation 
medium, Provided That the offering circular provided for under 
Regulation A has not thereafter become the subject of a suspension order 
which is still in effect when the quotation is published or submitted; 
or
    (3) A copy of the issuer's most recent annual report filed pursuant 
to section 13 or 15(d) of the Act or pursuant to Regulation A 
((Sec.Sec.230.251 through 230.263 of this chapter), or a copy of the 
annual statement referred to in section 12(g)(2)(G)(i) of the Act in the 
case of an issuer required to file reports pursuant to section 13 or 
15(d) of the Act or an issuer of a security covered by section 
12(g)(2)(B) or (G) of the Act, together with any semiannual, quarterly 
and current reports that have been filed under the provisions of the Act 
or Regulation A by the issuer after such annual report or annual 
statement; provided, however, that until such issuer has filed its first 
annual report pursuant to section 13 or 15(d) of the Act or pursuant to 
Regulation A, or annual statement referred to in section 12(g)(2)(G)(i) 
of the Act, the broker or dealer has in its records a copy of the 
prospectus specified by section 10(a) of the Securities Act of 1933 
included in a registration statement filed by the issuer under the 
Securities Act of 1933,

[[Page 371]]

other than a registration statement on Form F-6, or a copy of the 
offering circular specified by Regulation A included in an offering 
statement filed by the issuer under Regulation A, that became effective 
or was qualified within the prior 16 months, or a copy of any 
registration statement filed by the issuer under section 12 of the Act 
that became effective within the prior 16 months, together with any 
semiannual, quarterly and current reports filed thereafter under section 
13 or 15(d) of the Act or Regulation A; and provided further, that the 
broker or dealer has a reasonable basis under the circumstances for 
believing that the issuer is current in filing annual, semiannual, 
quarterly, and current reports filed pursuant to section 13 or 15(d) of 
the Act or Regulation A, or, in the case of an insurance company 
exempted from section 12(g) of the Act by reason of section 12(g)(2)(G) 
thereof, the annual statement referred to in section 12(g)(2)(G)(i) of 
the Act; or
    (4) The information that, since the beginning of its last fiscal 
year, the issuer has published pursuant to Sec.240.12g3-2(b), and 
which the broker or dealer shall make reasonably available upon the 
request of a person expressing an interest in a proposed transaction in 
the issuer's security with the broker or dealer, such as by providing 
the requesting person with appropriate instructions regarding how to 
obtain the information electronically; or
    (5) The following information, which shall be reasonably current in 
relation to the day the quotation is submitted and which the broker or 
dealer shall make reasonably available upon request to any person 
expressing an interest in a proposed transaction in the security with 
such broker or dealer:
    (i) The exact name of the issuer and its predecessor (if any);
    (ii) The address of its principal executive offices;
    (iii) The state of incorporation, if it is a corporation;
    (iv) The exact title and class of the security;
    (v) The par or stated value of the security;
    (vi) The number of shares or total amount of the securities 
outstanding as of the end of the issuer's most recent fiscal year;
    (vii) The name and address of the transfer agent;
    (viii) The nature of the issuer's business;
    (ix) The nature of products or services offered;
    (x) The nature and extent of the issuer's facilities;
    (xi) The name of the chief executive officer and members of the 
board of directors;
    (xii) The issuer's most recent balance sheet and profit and loss and 
retained earnings statements;
    (xiii) Similar financial information for such part of the 2 
preceding fiscal years as the issuer or its predecessor has been in 
existence;
    (xiv) Whether the broker or dealer or any associated person is 
affiliated, directly or indirectly with the issuer;
    (xv) Whether the quotation is being published or submitted on behalf 
of any other broker or dealer, and, if so, the name of such broker or 
dealer; and
    (xvi) Whether the quotation is being submitted or published directly 
or indirectly on behalf of the issuer, or any director, officer or any 
person, directly or indirectly the beneficial owner of more than 10 
percent of the outstanding units or shares of any equity security of the 
issuer, and, if so, the name of such person, and the basis for any 
exemption under the federal securities laws for any sales of such 
securities on behalf of such person.

If such information is made available to others upon request pursuant to 
this paragraph, such delivery, unless otherwise represented, shall not 
constitute a representation by such broker or dealer that such 
information is accurate, but shall constitute a representation by such 
broker or dealer that the information is reasonably current in relation 
to the day the quotation is submitted, that the broker or dealer has a 
reasonable basis under the circumstances for believing the information 
is accurate in all material respects, and that the information was 
obtained from sources which the broker or dealer has a reasonable basis 
for believing are reliable. This paragraph (a)(5) shall not apply to any 
security of an issuer included in paragraph (a)(3) of this section 
unless a

[[Page 372]]

report or statement of such issuer described in paragraph (a)(3) of this 
section is not reasonably available to the broker or dealer. A report or 
statement of an issuer described in paragraph (a)(3) of this section 
shall be ``reasonably available'' when such report or statement is filed 
with the Commission.
    (b) With respect to any security the quotation of which is within 
the provisions of this section, the broker or dealer submitting or 
publishing such quotation shall have in its records the following 
documents and information:
    (1) A record of the circumstances involved in the submission of 
publication of such quotation, including the identity of the person or 
persons for whom the quotation is being submitted or published and any 
information regarding the transactions provided to the broker or dealer 
by such person or persons;
    (2) A copy of any trading suspension order issued by the Commission 
pursuant to section 12(k) of the Act respecting any securities of the 
issuer or its predecessor (if any) during the 12 months preceding the 
date of the publication or submission of the quotation, or a copy of the 
public release issued by the Commission announcing such trading 
suspension order; and
    (3) A copy or a written record of any other material information 
(including adverse information) regarding the issuer which comes to the 
broker's or dealer's knowledge or possession before the publication or 
submission of the quotation.
    (c) The broker or dealer shall preserve the documents and 
information required under paragraphs (a) and (b) of this section for a 
period of not less than three years, the first two years in an easily 
accessible place.
    (d)(1) For any security of an issuer included in paragraph (a)(5) of 
this section, the broker or dealer submitting the quotation shall 
furnish to the interdealer quotation system (as defined in paragraph 
(e)(2) of this section), in such form as such system shall prescribe, at 
least 3 business days before the quotation is published or submitted, 
the information regarding the security and the issuer which such broker 
or dealer is required to maintain pursuant to said paragraph (a)(5) of 
this section.
    (2) For any security of an issuer included in paragraph (a)(3) of 
this section,
    (i) A broker-dealer shall be in compliance with the requirement to 
obtain current reports filed by the issuer if the broker-dealer obtains 
all current reports filed with the Commission by the issuer as of a date 
up to five business days in advance of the earlier of the date of 
submission of the quotation to the quotation medium and the date of 
submission of the information in paragraph (a) of this section pursuant 
to the applicable rule of the Financial Industry Regulatory Authority, 
Inc. or its successor organization; and
    (ii) A broker-dealer shall be in compliance with the requirement to 
obtain the annual, quarterly, and current reports filed by the issuer, 
if the broker-dealer has made arrangements to receive all such reports 
when filed by the issuer and it has regularly received reports from the 
issuer on a timely basis, unless the broker-dealer has a reasonable 
basis under the circumstances for believing that the issuer has failed 
to file a required report or has filed a report but has not sent it to 
the broker-dealer.
    (e) For purposes of this section:
    (1) Quotation medium shall mean any ``interdealer quotation system'' 
or any publication or electronic communications network or other device 
which is used by brokers or dealers to make known to others their 
interest in transactions in any security, including offers to buy or 
sell at a stated price or otherwise, or invitations of offers to buy or 
sell.
    (2) Interdealer quotation system shall mean any system of general 
circulation to brokers or dealers which regularly disseminates 
quotations of identified brokers or dealers.
    (3) Except as otherwise specified in this rule, quotation shall mean 
any bid or offer at a specified price with respect to a security, or any 
indication of interest by a broker or dealer in receiving bids or offers 
from others for a security, or any indication by a broker or dealer that 
he wishes to advertise his general interest in buying or selling a 
particular security.

[[Page 373]]

    (4) Issuer, in the case of quotations for American Depositary 
Receipts, shall mean the issuer of the deposited shares represented by 
such American Depositary Receipts.
    (f) The provisions of this section shall not apply to:
    (1) The publication or submission of a quotation respecting a 
security admitted to trading on a national securities exchange and which 
is traded on such an exchange on the same day as, or on the business day 
next preceding, the day the quotation is published or submitted.
    (2) The publication or submission by a broker or dealer, solely on 
behalf of a customer (other than a person acting as or for a dealer), of 
a quotation that represents the customer's indication of interest and 
does not involve the solicitation of the customer's interest; Provided, 
however, That this paragraph (f)(2) shall not apply to a quotation 
consisting of both a bid and an offer, each of which is at a specified 
price, unless the quotation medium specifically identifies the quotation 
as representing such an unsolicited customer interest.
    (3)(i) The publication or submission, in an interdealer quotation 
system that specifically identifies as such unsolicited customer 
indications of interest of the kind described in paragraph (f)(2) of 
this section, of a quotation respecting a security which has been the 
subject of quotations (exclusive of any identified customer interests) 
in such a system on each of at least 12 days within the previous 30 
calendar days, with no more than 4 business days in succession without a 
quotation; or
    (ii) The publication or submission, in an interdealer quotation 
system that does not so identify any such unsolicited customer 
indications of interest, of a quotation respecting a security which has 
been the subject of both bid and ask quotations in an interdealer 
quotation system at specified prices on each of at least 12 days within 
the previous 30 calendar days, with no more than 4 business days in 
succession without such a two-way quotation;
    (iii) A dealer acting in the capacity of market maker, as defined in 
section 3(a)(38) of the Act, that has published or submitted a quotation 
respecting a security in an interdealer quotation system and such 
quotation has qualified for an exception provided in this paragraph 
(f)(3), may continue to publish or submit quotations for such security 
in the interdealer quotation system without compliance with this section 
unless and until such dealer ceases to submit or publish a quotation or 
ceases to act in the capacity of market maker respecting such security.
    (4) The publication or submission of a quotation respecting a 
municipal security.
    (5) The publication or submission of a quotation respecting a Nasdaq 
security (as defined in Sec.242.600 of this chapter), and such 
security's listing is not suspended, terminated, or prohibited.
    (g) The requirement in paragraph (a)(5) of this section that the 
information with respect to the issuer be ``reasonably current'' will be 
presumed to be satisfied, unless the broker or dealer has information to 
the contrary, if:
    (1) The balance sheet is as of a date less than 16 months before the 
publication or submission of the quotation, the statements of profit and 
loss and retained earnings are for the 12 months preceding the date of 
such balance sheet, and if such balance sheet is not as of a date less 
than 6 months before the publication or submission of the quotation, it 
shall be accompanied by additional statements of profit and loss and 
retained earnings for the period from the date of such balance sheet to 
a date less than 6 months before the publication or submission of the 
quotation.
    (2) Other information regarding the issuer specified in paragraph 
(a)(5) of this section is as of a date within 12 months prior to the 
publication or submission of the quotation.
    (h) This section shall not prohibit any publication or submission of 
any quotation if the Commission, upon written request or upon its own 
motion, exempts such quotation either unconditionally or on specified 
terms and conditions, as not constituting a fraudulent, manipulative or 
deceptive

[[Page 374]]

practice comprehended within the purpose of this section.

[36 FR 18641, Sept. 18, 1971, as amended at 41 FR 22826, June 7, 1976; 
49 FR 45123, Nov. 15, 1984; 56 FR 19156, Apr. 25, 1991; 70 FR 37618, 
June 29, 2005; 73 FR 52768, Sept. 10, 2008; 80 FR 21923, Apr. 20, 2015]



Sec.240.15c2-12  Municipal securities disclosure.

    Preliminary Note: For a discussion of disclosure obligations 
relating to municipal securities, issuers, brokers, dealers, and 
municipal securities dealers should refer to Securities Act Release No. 
7049, Securities Exchange Act Release No. 33741, FR-42 (March 9, 1994). 
For a discussion of the obligations of underwriters to have a reasonable 
basis for recommending municipal securities, brokers, dealers, and 
municipal securities dealers should refer to Securities Exchange Act 
Release No. 26100 (Sept. 22, 1988) and Securities Exchange Act Release 
No. 26985 (June 28, 1989).

    (a) General. As a means reasonably designed to prevent fraudulent, 
deceptive, or manipulative acts or practices, it shall be unlawful for 
any broker, dealer, or municipal securities dealer (a ``Participating 
Underwriter'' when used in connection with an Offering) to act as an 
underwriter in a primary offering of municipal securities with an 
aggregate principal amount of $1,000,000 or more (an ``Offering'') 
unless the Participating Underwriter complies with the requirements of 
this section or is exempted from the provisions of this section.
    (b) Requirements. (1) Prior to the time the Participating 
Underwriter bids for, purchases, offers, or sells municipal securities 
in an Offering, the Participating Underwriter shall obtain and review an 
official statement that an issuer of such securities deems final as of 
its date, except for the omission of no more than the following 
information: The offering price(s), interest rate(s), selling 
compensation, aggregate principal amount, principal amount per maturity, 
delivery dates, any other terms or provisions required by an issuer of 
such securities to be specified in a competitive bid, ratings, other 
terms of the securities depending on such matters, and the identity of 
the underwriter(s).
    (2) Except in competitively bid offerings, from the time the 
Participating Underwriter has reached an understanding with an issuer of 
municipal securities that it will become a Participating Underwriter in 
an Offering until a final official statement is available, the 
Participating Underwriter shall send no later than the next business 
day, by first-class mail or other equally prompt means, to any potential 
customer, on request, a single copy of the most recent preliminary 
official statement, if any.
    (3) The Participating Underwriter shall contract with an issuer of 
municipal securities or its designated agent to receive, within seven 
business days after any final agreement to purchase, offer, or sell the 
municipal securities in an Offering and in sufficient time to accompany 
any confirmation that requests payment from any customer, copies of a 
final official statement in sufficient quantity to comply with paragraph 
(b)(4) of this rule and the rules of the Municipal Securities Rulemaking 
Board.
    (4) From the time the final official statement becomes available 
until the earlier of--
    (i) Ninety days from the end of the underwriting period or
    (ii) The time when the official statement is available to any person 
from the Municipal Securities Rulemaking Board, but in no case less than 
twenty-five days following the end of the underwriting period, the 
Participating Underwriter in an Offering shall send no later than the 
next business day, by first-class mail or other equally prompt means, to 
any potential customer, on request, a single copy of the final official 
statement.
    (5)(i) A Participating Underwriter shall not purchase or sell 
municipal securities in connection with an Offering unless the 
Participating Underwriter has reasonably determined that an issuer of 
municipal securities, or an obligated person for whom financial or 
operating data is presented in the final official statement has 
undertaken, either individually or in combination with other issuers of 
such municipal securities or obligated persons, in a written agreement 
or contract for the benefit of holders of such securities, to provide 
the following to the Municipal Securities Rulemaking Board in an

[[Page 375]]

electronic format as prescribed by the Municipal Securities Rulemaking 
Board, either directly or indirectly through an indenture trustee or a 
designated agent:
    (A) Annual financial information for each obligated person for whom 
financial information or operating data is presented in the final 
official statement, or, for each obligated person meeting the objective 
criteria specified in the undertaking and used to select the obligated 
persons for whom financial information or operating data is presented in 
the final official statement, except that, in the case of pooled 
obligations, the undertaking shall specify such objective criteria;
    (B) If not submitted as part of the annual financial information, 
then when and if available, audited financial statements for each 
obligated person covered by paragraph (b)(5)(i)(A) of this section;
    (C) In a timely manner not in excess of ten business days after the 
occurrence of the event, notice of any of the following events with 
respect to the securities being offered in the Offering:
    (1) Principal and interest payment delinquencies;
    (2) Non-payment related defaults, if material;
    (3) Unscheduled draws on debt service reserves reflecting financial 
difficulties;
    (4) Unscheduled draws on credit enhancements reflecting financial 
difficulties;
    (5) Substitution of credit or liquidity providers, or their failure 
to perform;
    (6) Adverse tax opinions, the issuance by the Internal Revenue 
Service of proposed or final determinations of taxability, Notices of 
Proposed Issue (IRS Form 5701-TEB) or other material notices or 
determinations with respect to the tax status of the security, or other 
material events affecting the tax status of the security;
    (7) Modifications to rights of security holders, if material;
    (8) Bond calls, if material, and tender offers;
    (9) Defeasances;
    (10) Release, substitution, or sale of property securing repayment 
of the securities, if material;
    (11) Rating changes;
    (12) Bankruptcy, insolvency, receivership or similar event of the 
obligated person;

    Note to paragraph (b)(5)(i)(C)(12): For the purposes of the event 
identified in paragraph (b)(5)(i)(C)(12) of this section, the event is 
considered to occur when any of the following occur: The appointment of 
a receiver, fiscal agent or similar officer for an obligated person in a 
proceeding under the U.S. Bankruptcy Code or in any other proceeding 
under state or federal law in which a court or governmental authority 
has assumed jurisdiction over substantially all of the assets or 
business of the obligated person, or if such jurisdiction has been 
assumed by leaving the existing governing body and officials or officers 
in possession but subject to the supervision and orders of a court or 
governmental authority, or the entry of an order confirming a plan of 
reorganization, arrangement or liquidation by a court or governmental 
authority having supervision or jurisdiction over substantially all of 
the assets or business of the obligated person.

    (13) The consummation of a merger, consolidation, or acquisition 
involving an obligated person or the sale of all or substantially all of 
the assets of the obligated person, other than in the ordinary course of 
business, the entry into a definitive agreement to undertake such an 
action or the termination of a definitive agreement relating to any such 
actions, other than pursuant to its terms, if material;
    (14) Appointment of a successor or additional trustee or the change 
of name of a trustee, if material;
    (15) Incurrence of a financial obligation of the obligated person, 
if material, or agreement to covenants, events of default, remedies, 
priority rights, or other similar terms of a financial obligation of the 
obligated person, any of which affect security holders, if material; and
    (16) Default, event of acceleration, termination event, modification 
of terms, or other similar events under the terms of a financial 
obligation of the obligated person, any of which reflect financial 
difficulties; and
    (D) In a timely manner, notice of a failure of any person specified 
in paragraph (b)(5)(i)(A) of this section to provide required annual 
financial information, on or before the date specified in the written 
agreement or contract.
    (ii) The written agreement or contract for the benefit of holders of 
such

[[Page 376]]

securities also shall identify each person for whom annual financial 
information and notices of material events will be provided, either by 
name or by the objective criteria used to select such persons, and, for 
each such person shall:
    (A) Specify, in reasonable detail, the type of financial information 
and operating data to be provided as part of annual financial 
information;
    (B) Specify, in reasonable detail, the accounting principles 
pursuant to which financial statements will be prepared, and whether the 
financial statements will be audited; and
    (C) Specify the date on which the annual financial information for 
the preceding fiscal year will be provided.
    (iii) Such written agreement or contract for the benefit of holders 
of such securities also may provide that the continuing obligation to 
provide annual financial information and notices of events may be 
terminated with respect to any obligated person, if and when such 
obligated person no longer remains an obligated person with respect to 
such municipal securities.
    (iv) Such written agreement or contract for the benefit of holders 
of such securities also shall provide that all documents provided to the 
Municipal Securities Rulemaking Board shall be accompanied by 
identifying information as prescribed by the Municipal Securities 
Rulemaking Board.
    (c) Recommendations. As a means reasonably designed to prevent 
fraudulent, deceptive, or manipulative acts or practices, it shall be 
unlawful for any broker, dealer, or municipal securities dealer to 
recommend the purchase or sale of a municipal security unless such 
broker, dealer, or municipal securities dealer has procedures in place 
that provide reasonable assurance that it will receive prompt notice of 
any event disclosed pursuant to paragraph (b)(5)(i)(C), paragraph 
(b)(5)(i)(D), and paragraph (d)(2)(ii)(B) of this section with respect 
to that security.
    (d) Exemptions. (1) This section shall not apply to a primary 
offering of municipal securities in authorized denominations of $100,000 
or more, if such securities:
    (i) Are sold to no more than thirty-five persons each of whom the 
Participating Underwriter reasonably believes:
    (A) Has such knowledge and experience in financial and business 
matters that it is capable of evaluating the merits and risks of the 
prospective investment; and
    (B) Is not purchasing for more than one account or with a view to 
distributing the securities; or
    (ii) Have a maturity of nine months or less.
    (2) Paragraph (b)(5) of this section shall not apply to an Offering 
of municipal securities if, at such time as an issuer of such municipal 
securities delivers the securities to the Participating Underwriters:
    (i) No obligated person will be an obligated person with respect to 
more than $10,000,000 in aggregate amount of outstanding municipal 
securities, including the offered securities and excluding municipal 
securities that were offered in a transaction exempt from this section 
pursuant to paragraph (d)(1) of this section;
    (ii) An issuer of municipal securities or obligated person has 
undertaken, either individually or in combination with other issuers of 
municipal securities or obligated persons, in a written agreement or 
contract for the benefit of holders of such municipal securities, to 
provide the following to the Municipal Securities Rulemaking Board in an 
electronic format as prescribed by the Municipal Securities Rulemaking 
Board:
    (A) At least annually, financial information or operating data 
regarding each obligated person for which financial information or 
operating data is presented in the final official statement, as 
specified in the undertaking, which financial information and operating 
data shall include, at a minimum, that financial information and 
operating data which is customarily prepared by such obligated person 
and is publicly available; and
    (B) In a timely manner not in excess of ten business days after the 
occurrence of the event, notice of events specified in paragraph 
(b)(5)(i)(C) of this section with respect to the securities that are the 
subject of the Offering; and

[[Page 377]]

    (C) Such written agreement or contract for the benefit of holders of 
such securities also shall provide that all documents provided to the 
Municipal Securities Rulemaking Board shall be accompanied by 
identifying information as prescribed by the Municipal Securities 
Rulemaking Board; and
    (iii) The final official statement identifies by name, address, and 
telephone number the persons from which the foregoing information, data, 
and notices can be obtained.
    (3) The provisions of paragraph (b)(5) of this section, other than 
paragraph (b)(5)(i)(C) of this section, shall not apply to an Offering 
of municipal securities, if such municipal securities have a stated 
maturity of 18 months or less.
    (4) The provisions of paragraph (c) of this section shall not apply 
to municipal securities:
    (i) Sold in an Offering to which paragraph (b)(5) of this section 
did not apply, other than Offerings exempt under paragraph (d)(2)(ii) of 
this section; or
    (ii) Sold in an Offering exempt from this section under paragraph 
(d)(1) of this section.
    (5) With the exception of paragraphs (b)(1) through (b)(4), this 
section shall apply to a primary offering of municipal securities in 
authorized denominations of $100,000 or more if such securities may, at 
the option of the holder thereof, be tendered to an issuer of such 
securities or its designated agent for redemption or purchase at par 
value or more at least as frequently as every nine months until 
maturity, earlier redemption, or purchase by an issuer or its designated 
agent; provided, however, that paragraphs (b)(5) and (c) of this section 
shall not apply to such securities outstanding on November 30, 2010, for 
so long as they continuously remain in authorized denominations of 
$100,000 or more and may, at the option of the holder thereof, be 
tendered to an issuer of such securities or its designated agent for 
redemption or purchase at par value or more at least as frequently as 
every nine months until maturity, earlier redemption, or purchase by an 
issuer or its designated agent.
    (e) Exemptive authority. The Commission, upon written request, or 
upon its own motion, may exempt any broker, dealer, or municipal 
securities dealer, whether acting in the capacity of a Participating 
Underwriter or otherwise, that is a participant in a transaction or 
class of transactions from any requirement of this section, either 
unconditionally or on specified terms and conditions, if the Commission 
determines that such an exemption is consistent with the public interest 
and the protection of investors.
    (f) Definitions. For the purposes of this rule--
    (1) The term authorized denominations of $100,000 or more means 
municipal securities with a principal amount of $100,000 or more and 
with restrictions that prevent the sale or transfer of such securities 
in principal amounts of less than $100,000 other than through a primary 
offering; except that, for municipal securities with an original issue 
discount of 10 percent or more, the term means municipal securities with 
a minimum purchase price of $100,000 or more and with restrictions that 
prevent the sale or transfer of such securities, in principal amounts 
that are less than the original principal amount at the time of the 
primary offering, other than through a primary offering.
    (2) The term end of the underwriting period means the later of such 
time as
    (i) The issuer of municipal securities delivers the securities to 
the Participating Underwriters or
    (ii) The Participating Underwriter does not retain, directly or as a 
member or an underwriting syndicate, an unsold balance of the securities 
for sale to the public.
    (3) The term final official statement means a document or set of 
documents prepared by an issuer of municipal securities or its 
representatives that is complete as of the date delivered to the 
Participating Underwriter(s) and that sets forth information concerning 
the terms of the proposed issue of securities; information, including 
financial information or operating data, concerning such issuers of 
municipal securities and those other entities, enterprises, funds, 
accounts, and other persons material to an evaluation of the Offering; 
and a description of the undertakings to be provided pursuant to 
paragraph (b)(5)(i), paragraph (d)(2)(ii),

[[Page 378]]

and paragraph (d)(2)(iii) of this section, if applicable, and of any 
instances in the previous five years in which each person specified 
pursuant to paragraph (b)(5)(ii) of this section failed to comply, in 
all material respects, with any previous undertakings in a written 
contract or agreement specified in paragraph (b)(5)(i) of this section. 
Financial information or operating data may be set forth in the document 
or set of documents, or may be included by specific reference to 
documents available to the public on the Municipal Securities Rulemaking 
Board's Internet Web site or filed with the Commission.
    (4) The term issuer of municipal securities means the governmental 
issuer specified in section 3(a)(29) of the Act and the issuer of any 
separate security, including a sepatate security as defined in rule 3b-
5(a) under the Act.
    (5) The term potential customer means (i) Any person contacted by 
the Participating Underwriter concerning the purchase of municipal 
securities that are intended to be offered or have been sold in an 
offering, (ii) Any person who has expressed an interest to the 
Participating Underwriter in possibly purchasing such municipal 
securities, and (iii) Any person who has a customer account with the 
Participating Underwriter.
    (6) The term preliminary official statement means an official 
statement prepared by or for an issuer of municipal securities for 
dissemination to potential customers prior to the availability of the 
final official statement.
    (7) The term primary offering means an offering of municipal 
securities directly or indirectly by or on behalf of an issuer of such 
securities, including any remarketing of municipal securities.
    (i) That is accompanied by a change in the authorized denomination 
of such securities from $100,000 or more to less than $100,000, or
    (ii) That is accompanied by a change in the period during which such 
securities may be tendered to an issuer of such securities or its 
designated agent for redemption or purchase from a period of nine months 
or less to a period of more than nine months.
    (8) The term underwriter means any person who has purchased from an 
issuer of municipal securities with a view to, or offers or sells for an 
issuer of municipal securities in connection with, the offering of any 
municipal security, or participates or has a direct or indirect 
participation in any such undertaking, or participates or has a 
participation in the direct or indirect underwriting of any such 
undertaking; except, that such term shall not include a person whose 
interest is limited to a commission, concession, or allowance from an 
underwriter, broker, dealer, or municipal securities dealer not in 
excess of the usual and customary distributors' or sellers' commission, 
concession, or allowance.
    (9) The term annual financial information means financial 
information or operating data, provided at least annually, of the type 
included in the final official statement with respect to an obligated 
person, or in the case where no financial information or operating data 
was provided in the final official statement with respect to such 
obligated person, of the type included in the final official statement 
with respect to those obligated persons that meet the objective criteria 
applied to select the persons for which financial information or 
operating data will be provided on an annual basis. Financial 
information or operating data may be set forth in the document or set of 
documents, or may be included by specific reference to documents 
available to the public on the Municipal Securities Rulemaking Board's 
Internet Web site or filed with the Commission.
    (10) The term obligated person means any person, including an issuer 
of municipal securities, who is either generally or through an 
enterprise, fund, or account of such person committed by contract or 
other arrangement to support payment of all, or part of the obligations 
on the municipal securities to be sold in the Offering (other than 
providers of municipal bond insurance, letters of credit, or other 
liquidity facilities).
    (11)(i) The term financial obligation means a:
    (A) Debt obligation;
    (B) Derivative instrument entered into in connection with, or 
pledged as

[[Page 379]]

security or a source of payment for, an existing or planned debt 
obligation; or
    (C) Guarantee of paragraph (f)(11)(i)(A) or (B).
    (ii) The term financial obligation shall not include municipal 
securities as to which a final official statement has been provided to 
the Municipal Securities Rulemaking Board consistent with this rule.
    (g) Transitional provision. If on July 28, 1989, a Participating 
Underwriter was contractually committed to act as underwriter in an 
Offering of municipal securities originally issued before July 29, 1989, 
the requirements of paragraphs (b)(3) and (b)(4) shall not apply to the 
Participating Underwriter in connection with such an Offering. Paragraph 
(b)(5) of this section shall not apply to a Participating Underwriter 
that has contractually committed to act as an underwriter in an Offering 
of municipal securities before July 3, 1995; except that paragraph 
(b)(5)(i)(A) and paragraph (b)(5)(i)(B) shall not apply with respect to 
fiscal years ending prior to January 1, 1996. Paragraph (c) shall become 
effective on January 1, 1996. Paragraph (d)(2)(ii) and paragraph 
(d)(2)(iii) of this section shall not apply to an Offering of municipal 
securities commencing prior to January 1, 1996.

[54 FR 28813, July 10, 1989, as amended at 59 FR 59609, Nov. 17, 1994; 
73 FR 76132, Dec. 15, 2008; 75 FR 33155, June 10, 2010; 83 FR 44742, 
Aug. 31, 2018]



Sec.240.15c3-1  Net capital requirements for brokers or dealers.

    (a) Every broker or dealer must at all times have and maintain net 
capital no less than the greater of the highest minimum requirement 
applicable to its ratio requirement under paragraph (a)(1) of this 
section, or to any of its activities under paragraph (a)(2) of this 
section, and must otherwise not be ``insolvent'' as that term is defined 
in paragraph (c)(16) of this section. In lieu of applying paragraphs 
(a)(1) and (a)(2) of this section, an OTC derivatives dealer shall 
maintain net capital pursuant to paragraph (a)(5) of this section. Each 
broker or dealer also shall comply with the supplemental requirements of 
paragraphs (a)(4) and (a)(9) of this section, to the extent either 
paragraph is applicable to its activities. In addition, a broker or 
dealer shall maintain net capital of not less than its own net capital 
requirement plus the sum of each broker's or dealer's subsidiary or 
affiliate minimum net capital requirements, which is consolidated 
pursuant to appendix C, Sec.240.15c3-1c.

                           Ratio Requirements

                     Aggregate Indebtedness Standard

    (1)(i) No broker or dealer, other than one that elects the 
provisions of paragraph (a)(1)(ii) of this section, shall permit its 
aggregate indebtedness to all other persons to exceed 1500 percent of 
its net capital (or 800 percent of its net capital for 12 months after 
commencing business as a broker or dealer).

                          Alternative Standard

    (ii) A broker or dealer may elect not to be subject to the Aggregate 
Indebtedness Standard of paragraph (a)(1)(i) of this section. That 
broker or dealer shall not permit its net capital to be less than the 
greater of $250,000 or 2 percent of aggregate debit items computed in 
accordance with the Formula for Determination of Reserve Requirements 
for Brokers and Dealers (Exhibit A to Rule 15c3-3, Sec.240.15c3-3a). 
Such broker or dealer shall notify its Examining Authority, in writing, 
of its election to operate under this paragraph (a)(1)(ii). Once a 
broker or dealer has notified its Examining Authority, it shall continue 
to operate under this paragraph unless a change is approved upon 
application to the Commission. A broker or dealer that elects this 
standard and is not exempt from Rule 15c3-3 shall:
    (A) Make the computation required by Sec.240.15c3-3(e) and set 
forth in Exhibit A, Sec.240.15c3-3a, on a weekly basis and, in lieu of 
the 1 percent reduction of certain debit items required by Note E (3) in 
the computation of its Exhibit A requirement, reduce aggregate debit 
items in such computation by 3 percent;
    (B) Include in Items 7 and 8 of Exhibit A, Sec.240.15c3-3a, the 
market value of items specified therein more than 7 business days old;
    (C) Exclude credit balances in accounts representing amounts payable 
for securities not yet received from the

[[Page 380]]

issuer or its agent which securities are specified in paragraphs 
(c)(2)(vi) (A) and (E) of this section and any related debit items from 
the Exhibit A requirement for 3 business days; and
    (D) Deduct from net worth in computing net capital 1 percent of the 
contract value of all failed to deliver contracts or securities borrowed 
that were allocated to failed to receive contracts of the same issue and 
which thereby were excluded from Items 11 or 12 of Exhibit A, Sec.
240.15c3-3a.

                      Futures Commission Merchants

    (iii) No broker or dealer registered as a futures commission 
merchant shall permit its net capital to be less than the greater of its 
requirement under paragraph (a)(1) (i) or (ii) of this section, or 4 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers on or subject to the 
rules of a contract market, each such deduction not to exceed the amount 
of funds in the customer's account).

                          Minimum Requirements

    See Appendix E (Sec.240.15c3-1E) for temporary minimum 
requirements.

             Brokers or Dealers That Carry Customer Accounts

    (2)(i) A broker or dealer (other than one described in paragraphs 
(a)(2)(ii) or (a)(8) of this section) shall maintain net capital of not 
less than $250,000 if it carries customer or broker or dealer accounts 
and receives or holds funds or securities for those persons. A broker or 
dealer shall be deemed to receive funds, or to carry customer or broker 
or dealer accounts and to receive funds from those persons if, in 
connection with its activities as a broker or dealer, it receives 
checks, drafts, or other evidences of indebtedness made payable to 
itself or persons other than the requisite registered broker or dealer 
carrying the account of a customer, escrow agent, issuer, underwriter, 
sponsor, or other distributor of securities. A broker or dealer shall be 
deemed to hold securities for, or to carry customer or broker or dealer 
accounts, and hold securities of, those persons if it does not promptly 
forward or promptly deliver all of the securities of customers or of 
other brokers or dealers received by the firm in connection with its 
activities as a broker or dealer. A broker or dealer, without complying 
with this paragraph (a)(2)(i), may receive securities only if its 
activities conform with the provisions of paragraphs (a)(2) (iv) or (v) 
of this section, and may receive funds only in connection with the 
activities described in paragraph (a)(2)(v) of this section.
    (ii) A broker or dealer that is exempt from the provisions of Sec.
240.15c3-3 pursuant to paragraph (k)(2)(i) thereof shall maintain net 
capital of not less than $100,000.

                                 Dealers

    (iii) A dealer shall maintain net capital of not less than $100,000. 
For the purposes of this section, the term ``dealer'' includes:
    (A) Any broker or dealer that endorses or writes options otherwise 
than on a registered national securities exchange or a facility of a 
registered national securities association; and
    (B) Any broker or dealer that effects more than ten transactions in 
any one calendar year for its own investment account. This section shall 
not apply to those persons engaging in activities described in 
paragraphs (a)(2)(v), (a)(2)(vi) or (a)(8) of this section, or to those 
persons whose underwriting activities are limited solely to acting as 
underwriters in best efforts or all or none underwritings in conformity 
with paragraph (b)(2) of Sec.240.15c2-4, so long as those persons 
engage in no other dealer activities.

    Brokers or Dealers That Introduce Customer Accounts And Receive 
                               Securities

    (iv) A broker or dealer shall maintain net capital of not less than 
$50,000 if it introduces transactions and accounts of customers or other 
brokers or dealers to another registered broker or dealer that carries 
such accounts on a fully disclosed basis, and if the broker or dealer 
receives but does not hold customer or other broker or dealer 
securities. A broker or dealer operating under this paragraph (a)(2)(iv) 
of this

[[Page 381]]

section may participate in a firm commitment underwriting without being 
subject to the provisions of paragraph (a)(2)(iii) of this section, but 
may not enter into a commitment for the purchase of shares related to 
that underwriting.

     Brokers or Dealers Engaged in the Sale of Redeemable Shares of 
    Registered Investment Companies and Certain Other Share Accounts

    (v) A broker or dealer shall maintain net capital of not less than 
$25,000 if it acts as a broker or dealer with respect to the purchase, 
sale and redemption of redeemable shares of registered investment 
companies or of interests or participations in an insurance company 
separate account directly from or to the issuer on other than a 
subscription way basis. A broker or dealer operating under this section 
may sell securities for the account of a customer to obtain funds for 
the immediate reinvestment in redeemable securities of registered 
investment companies. A broker or dealer operating under this paragraph 
(a)(2)(v) must promptly transmit all funds and promptly deliver all 
securities received in connection with its activities as a broker or 
dealer, and may not otherwise hold funds or securities for, or owe money 
or securities to, customers.

                        Other Brokers or Dealers

    (vi) A broker or dealer that does not receive, directly or 
indirectly, or hold funds or securities for, or owe funds or securities 
to, customers and does not carry accounts of, or for, customers and does 
not engage in any of the activities described in paragraphs (a)(2) (i) 
through (v) of this section shall maintain net capital of not less than 
$5,000. A broker or dealer operating under this paragraph may engage in 
the following dealer activities without being subject to the 
requirements of paragraph (a)(2)(iii) of this section:
    (A) In the case of a buy order, prior to executing such customer's 
order, it purchases as principal the same number of shares or purchases 
shares to accumulate the number of shares necessary to complete the 
order, which shall be cleared through another registered broker or 
dealer or
    (B) In the case of a sell order, prior to executing such customer's 
order, it sells as principal the same number of shares or a portion 
thereof, which shall be cleared through another registered broker or 
dealer.
    (3) [Reserved]

                 Capital Requirements for Market Makers

    (4) A broker or dealer engaged in activities as a market maker as 
defined in paragraph (c)(8) of this section shall maintain net capital 
in an amount not less than $2,500 for each security in which it makes a 
market (unless a security in which it makes a market has a market value 
of $5 or less, in which event the amount of net capital shall be not 
less than $1,000 for each such security) based on the average number of 
such markets made by such broker or dealer during the 30 days 
immediately preceding the computation date. Under no circumstances shall 
it have net capital less than that required by the provisions of 
paragraph (a) of this section, or be required to maintain net capital of 
more than $1,000,000 unless required by paragraph (a) of this section.
    (5)(i) In accordance with appendix F to this section (Sec.
240.15c3-1f), the Commission may grant an application by an OTC 
derivatives dealer when calculating net capital to use the market risk 
standards of appendix F as to some or all of its positions in lieu of 
the provisions of paragraph (c)(2)(vi) of this section and the credit 
risk standards of appendix F to its receivables (including counterparty 
net exposure) arising from transactions in eligible OTC derivative 
instruments in lieu of the requirements of paragraph (c)(2)(iv) of this 
section. An OTC derivatives dealer shall at all times maintain tentative 
net capital of not less than $100 million and net capital of not less 
than $20 million.
    (ii) An OTC derivatives dealer that is also registered as a 
security-based swap dealer under section 15F of the Act (15 U.S.C. 78o-
10) is subject to the capital requirements in Sec.Sec.240.18a-1, 
240.18a-1a, 240.18a-1b, 240.18a-1c and 240.18a-1d instead of the capital 
requirements of this section and its appendices.

[[Page 382]]

          Market Makers, Specialists and Certain Other Dealers

    (6)(i) A dealer who meets the conditions of paragraph (a)(6)(ii) of 
this section may elect to operate under this paragraph (a)(6) and 
thereby not apply, except to the extent required by this paragraph 
(a)(6), the provisions of paragraphs (c)(2)(vi) or appendix A (Sec.
240.15c3-1a) of this section to market maker and specialist transactions 
and, in lieu thereof, apply thereto the provisions of paragraph 
(a)(6)(iii) of this section.
    (ii) This paragraph (a)(6) shall be available to a dealer who does 
not effect transactions with other than brokers or dealers, who does not 
carry customer accounts, who does not effect transactions in options not 
listed on a registered national securities exchange or facility of a 
registered national securities association, and whose market maker or 
specialist transactions are effected through and carried in a market 
maker or specialist account cleared by another broker or dealer as 
provided in paragraph (a)(6)(iv) of this section.
    (iii) A dealer who elects to operate pursuant to this paragraph 
(a)(6) shall at all times maintain a liquidating equity in respect of 
securities positions in his market maker or specialist account at least 
equal to:
    (A) An amount equal to 25 percent (5 percent in the case of exempted 
securities) of the market value of the long positions and 30 percent of 
the market value of the short positions; provided, however, in the case 
of long or short positions in options and long or short positions in 
securities other than options which relate to a bona fide hedged 
position as defined in paragraph (c)(2)(x)(C) of this section, such 
amount shall equal the deductions in respect of such positions specified 
by appendix A (Sec.240.15c3-1a).
    (B) Such lesser requirement as may be approved by the Commission 
under specified terms and conditions upon written application of the 
dealer and the carrying broker or dealer.
    (C) For purposes of this paragraph (a)(6)(iii), equity in such 
specialist or market maker account shall be computed by (1) marking all 
securities positions long or short in the account to their respective 
current market values, (2) adding (deducting in the case of a debit 
balance) the credit balance carried in such specialist or market maker 
account, and (3) adding (deducting in the case of short positions) the 
market value of positions long in such account.
    (iv) The dealer shall obtain from the broker or dealer carrying the 
market maker or specialist account a written undertaking which shall be 
designated ``Notice Pursuant to Sec.240.15c3-1(a)(6) of Intention to 
Carry Specialist or Market Maker Account.'' Said undertaking shall 
contain the representations required by paragraph (a)(6) of this section 
and shall be filed with the Commission's Washington, DC, Office, the 
regional office of the Commission for the region in which the broker or 
dealer has its principal place of business and the Designated Examining 
Authorities of both firms prior to effecting any transactions in said 
account. The broker or dealer carrying such account:
    (A) Shall mark the account to the market not less than daily and 
shall issue appropriate calls for additional equity which shall be met 
by noon of the following business day;
    (B) Shall notify by telegraph the Commission and the Designated 
Examining Authorities pursuant to 17 CFR 240.17a-11, if the market maker 
or specialist fails to deposit any required equity within the time 
prescribed in paragraph (a)(6)(iv)(A) of this section; said telegraphic 
notice shall be received by the Commission and the Designated Examining 
Authorities not later than the close of business on the day said call is 
not met;
    (C) Shall not extend further credit in the account if the equity in 
the account falls below that prescribed in paragraph (a)(6)(iii) of this 
section, and
    (D) Shall take steps to liquidate promptly existing positions in the 
account in the event of a failure to meet a call for equity.
    (v) No such carrying broker or dealer shall permit the sum of (A) 
the deductions required by paragraph (c)(2)(x)(A) of this section in 
respect of all transactions in market maker accounts guaranteed, 
indorsed or carried by such broker or dealer pursuant to paragraph 
(c)(2)(x) of this section and (B) the equity required by paragraph (iii) 
of this

[[Page 383]]

paragraph (a)(6) in respect of all transactions in the accounts of 
specialists of market makers in options carried by such broker or dealer 
pursuant to this paragraph (a)(6) to exceed 1,000 percent of such 
broker's or dealer's net capital as defined in paragraph (c)(2) of this 
section for any period exceeding five business days; Provided, That 
solely for purposes of this paragraph (a)(6)(v), deductions or equity 
required in a specialist or market maker account in respect of positions 
in fully paid securities (other than options), which do not underlie 
options listed on the national securities exchange or facility of a 
national securities association of which the specialist or market marker 
is a member, need not be recognized. Provided further, That if at any 
time such sum exceeds 1,000 percent of such broker's or dealer's net 
capital, then the broker or dealer shall immediately transmit 
telegraphic notice of such event to the principal office of the 
Commission in Washington, DC, the regional office of the Commission for 
the region in which the broker or dealer maintains its principal place 
of business, and such broker's or dealer's Designated Examining 
Authority. Provided further, That if at any time such sum exceeds 1,000 
percent of such broker's or dealer's net capital, then such broker or 
dealer shall be subject to the prohibitions against withdrawal of equity 
capital set forth in paragraph (e) of this section, and to the 
prohibitions against reduction, prepayment and repayment of 
subordination agreements set forth in paragraph (b)(11) of Sec.
240.15c3-1d, as if such broker or dealer's net capital were below the 
minimum standards specified by each of the aforementioned paragraphs.

Alternative Net Capital Computation for Broker-Dealers Authorized to Use 
                                 Models

    (7) In accordance with appendix E to this section (Sec.240.15c3-
1e), the Commission may approve, in whole or in part, an application or 
an amendment to an application by a broker or dealer to calculate net 
capital using the market risk standards of appendix E to compute a 
deduction for market risk on some or all of its positions, instead of 
the provisions of paragraphs (c)(2)(vi) and (c)(2)(vii) of this section, 
and using the credit risk standards of appendix E to compute a deduction 
for credit risk on certain credit exposures arising from transactions in 
derivatives instruments, instead of the provisions of paragraph 
(c)(2)(iv) of this section, subject to any conditions or limitations on 
the broker or dealer the Commission may require as necessary or 
appropriate in the public interest or for the protection of investors. A 
broker or dealer that has been approved to calculate its net capital 
under appendix E must:
    (i)(A) At all times maintain tentative net capital of not less than 
$5 billion and net capital of not less than the greater of $1 billion or 
the sum of the ratio requirement under paragraph (a)(1) of this section 
and:
    (1) Two percent of the risk margin amount; or
    (2) Four percent or less of the risk margin amount if the Commission 
issues an order raising the requirement to four percent or less on or 
after the third anniversary of this section's compliance date; or
    (3) Eight percent or less of the risk margin amount if the 
Commission issues an order raising the requirement to eight percent or 
less on or after the fifth anniversary of this section's compliance date 
and the Commission had previously issued an order raising the 
requirement under paragraph (a)(7)(i)(B) of this section;
    (B) If, after considering the capital and leverage levels of brokers 
or dealers subject to paragraph (a)(7) of this section, as well as the 
risks of their security-based swap positions, the Commission determines 
that it may be appropriate to change the percentage pursuant to 
paragraph (a)(7)(i)(A)(2) or (3) of this section, the Commission will 
publish a notice of the potential change and subsequently will issue an 
order regarding any such change.
    (ii) Provide notice that same day in accordance with Sec.240.17a-
11(g) if the broker's or dealer's tentative net capital is less than $6 
billion. The Commission may, upon written application, lower the 
threshold at which notification is necessary under this paragraph 
(a)(7)(ii), either unconditionally or on specified terms and conditions, 
if a

[[Page 384]]

broker or dealer satisfies the Commission that notification at the $6 
billion threshold is unnecessary because of, among other factors, the 
special nature of its business, its financial position, its internal 
risk management system, or its compliance history; and
    (iii) Comply with Sec.240.15c3-4 as though it were an OTC 
derivatives dealer with respect to all of its business activities, 
except that paragraphs (c)(5)(xiii), (c)(5)(xiv), (d)(8), and (d)(9) of 
Sec.240.15c3-4 shall not apply.
    (8) Municipal securities brokers' brokers. (i) A municipal 
securities brokers' brokers, as defined in subsection (ii) of this 
paragraph (a)(8), may elect not to be subject to the limitations of 
paragraph (c)(2)(ix) of this section provided that such brokers' broker 
complies with the requirements set out in paragraphs (a)(8) (iii), (iv) 
and (v) of this section.
    (ii) The term municipal securities brokers' broker shall mean a 
municipal securities broker or dealer who acts exclusively as an 
undisclosed agent in the purchase or sale of municipal securities for a 
registered broker or dealer or registered municipal securities dealer, 
who has no ``customers'' as defined in this rule and who does not have 
or maintain any municipal securities in its proprietary or other 
accounts.
    (iii) In order to qualify to operate under this paragraph (a)(8), a 
brokers' broker shall at all times have and maintain net capital of not 
less than $150,000.
    (iv) For purposes of this paragraph (a)(8), a brokers' broker shall 
deduct from net worth 1% of the contract value of each municipal failed 
to deliver contract which is outstanding 21 business days or longer. 
Such deduction shall be increased by any excess of the contract price of 
the fail to deliver over the market value of the underlying security.
    (v) For purposes of this paragraph (a)(8), a brokers' broker may 
exclude from its aggregate indebtedness computation indebtedness 
adequately collateralized by municipal securities outstanding for not 
more than one business day and offset by municipal securities failed to 
deliver of the same issue and quantity. In no event may a brokers' 
broker exclude any overnight bank loan attributable to the same 
municipal securities failed to deliver contract for more than one 
business day. A brokers' broker need not deduct from net worth the 
amount by which the market value of securities failed to receive 
outstanding longer than thirty (30) calendar days exceeds the contract 
value of those failed to receive as required by Rule 15c3-
1(c)(2)(iv)(E).

Certain Additional Capital Requirements for Brokers or Dealers Engaging 
                    in Reverse Repurchase Agreements

    (9) A broker or dealer shall maintain net capital in addition to the 
amounts required under paragraph (a) of this section in an amount equal 
to 10 percent of:
    (i) The excess of the market value of United States Treasury Bills, 
Bonds and Notes subject to reverse repurchase agreements with any one 
party over 105 percent of the contract prices (including accrued 
interest) for reverse repurchase agreements with that party;
    (ii) The excess of the market value of securities issued or 
guaranteed as to principal or interest by an agency of the United States 
or mortgage related securities as defined in section 3(a)(41) of the Act 
subject to reverse repurchase agreements with any one party over 110 
percent of the contract prices (including accrued interest) for reverse 
repurchase agreements with that party; and
    (iii) The excess of the market value of other securities subject to 
reverse repurchase agreements with any one party over 120 percent of the 
contract prices (including accrued interest) for reverse repurchase 
agreements with that party.

        Broker-Dealers Registered as Security-Based Swap Dealers

    (10) A broker or dealer registered with the Commission as a 
security-based swap dealer, other than a broker or dealer subject to the 
provisions of paragraph (a)(7) of this section, must:
    (i)(A) At all times maintain net capital of not less than the 
greater of $20 million or the sum of the ratio requirement under 
paragraph (a)(1) of this section and:

[[Page 385]]

    (1) Two percent of the risk margin amount; or
    (2) Four percent or less of the risk margin amount if the Commission 
issues an order raising the requirement to four percent or less on or 
after the third anniversary of this section's compliance date; or
    (3) Eight percent or less of the risk margin amount if the 
Commission issues an order raising the requirement to eight percent or 
less on or after the fifth anniversary of this section's compliance date 
and the Commission had previously issued an order raising the 
requirement under paragraph (a)(10)(i)(B) of this section;
    (B) If, after considering the capital and leverage levels of brokers 
or dealers subject to paragraph (a)(10) of this section, as well as the 
risks of their security-based swap positions, the Commission determines 
that it may be appropriate to change the percentage pursuant to 
paragraph (a)(10)(i)(A)(2) or (3) of this section, the Commission will 
publish a notice of the potential change and subsequently will issue an 
order regarding any such change; and
    (ii) Comply with Sec.240.15c3-4 as though it were an OTC 
derivatives dealer with respect to all of its business activities, 
except that paragraphs (c)(5)(xiii) and (xiv), and (d)(8) and (9) of 
Sec.240.15c3-4 shall not apply.
    (b) Exemptions:
    (1) The provisions of this section shall not apply to any 
specialist:
    (i) Whose securities business, except for an occasional non-
specialist related securities transaction for its own account, is 
limited to that of acting as an options market maker on a national 
securities exchange;
    (ii) That is a member in good standing and subject to the capital 
requirements of a national securities exchange;
    (iii) That does not transact a business in securities with other 
than a broker or dealer registered with the Commission under section 15 
or section 15C of the Act or a member of a national securities exchange; 
and
    (iv) That is not a clearing member of The Options Clearing 
Corporation and whose securities transactions are effected through and 
carried in an account cleared by another broker or dealer registered 
with the Commission under section 15 of the Act.
    (2) A member in good standing of a national securities exchange who 
acts as a floor broker (and whose activities do not require compliance 
with other provisions of this rule), may elect to comply, in lieu of the 
other provisions of this section, with the following financial 
responsibility standard: The value of the exchange membership of the 
member (based on the lesser of the most recent sale price or current bid 
price for an exchange membership) is not less than $15,000, or an amount 
equal to the excess of $15,000 over the value of the exchange membership 
is held by an independent agent in escrow: Provided, That the rules of 
such exchange require that the proceeds from the sale of the exchange 
membership of the member and the amount held in escrow pursuant to this 
paragraph shall be subject to the prior claims of the exchange and its 
clearing corporation and those arising directly from the closing out of 
contracts entered into on the floor of such exchanges.
    (3) The Commission may, upon written application, exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any broker or dealer who satisfies the Commission that, 
because of the special nature of its business, its financial position, 
and the safeguards it has established for the protection of customers' 
funds and securities, it is not necessary in the public interest or for 
the protection of investors to subject the particular broker or dealer 
to the provisions of this section.
    (c) Definitions. For the purpose of this section:

                         Aggregate Indebtedness

    (1) The term aggregate indebtedness shall be deemed to mean the 
total money liabilities of a broker or dealer arising in connection with 
any transaction whatsoever and includes, among other things, money 
borrowed, money payable against securities loaned and securities 
``failed to receive,'' the market value of securities borrowed to the 
extent to which no equivalent value is paid or credited (other than the 
market value of margin securities borrowed

[[Page 386]]

from customers in accordance with the provisions of 17 CFR 240.15c3-3 
and margin securities borrowed from non-customers), customers' and non-
customers' free credit balances, credit balances in customers' and non-
customers' accounts having short positions in securities, equities in 
customers' and non-customers' future commodities accounts and credit 
balances in customers' and non-customers' commodities accounts, but 
excluding:

                 Exclusions From Aggregate Indebtedness

    (i) Indebtedness adequately collateralized by securities which are 
carried long by the broker or dealer and which have not been sold or by 
securities which collateralize a secured demand note pursuant to 
appendix D to this section 17 CFR 240.15c3-1d; indebtedness adequately 
collateralized by spot commodities which are carried long by the broker 
or dealer and which have not been sold; or, until October 1, 1976, 
indebtedness adequately collateralized by municipal securities 
outstanding for not more than one business day and offset by municipal 
securities failed to deliver of the same issue and quantity, where such 
indebtedness is incurred by a broker or dealer effecting transactions 
solely in municipal securities who is either registered with the 
Commission or temporarily exempt from such registration pursuant to 17 
CFR 240.15a-1(T) or 17 CFR 240.15Ba2-3(T);
    (ii) Amounts payable against securities loaned, which securities are 
carried long by the broker or dealer and which have not been sold or 
which securities collateralize a secured demand note pursuant to 
Appendix (D) (17 CFR 240.15c)
    (iii) Amounts payable against securities failed to receive which 
securities are carried long by the broker or dealer and which have not 
been sold or which securities collateralize a secured demand note 
pursuant to Appendix (D) (17 CFR 240.15c3-1d) or amounts payable against 
securities failed to receive for which the broker or dealer also has a 
receivable related to securities of the same issue and quantity thereof 
which are either fails to deliver or securities borrowed by the broker 
or dealer;
    (iv) Credit balances in accounts representing amounts payable for 
securities or money market instruments not yet received from the issuer 
or its agent which securities are specified in paragraph (c)(2)(vi)(E) 
and which amounts are outstanding in such accounts not more than three 
(3) business days;
    (v) Equities in customers' and non-customers' accounts segregated in 
accordance with the provisions of the Commodity Exchange Act and the 
rules and regulations thereunder;
    (vi) Liability reserves established and maintained for refunds of 
charges required by section 27(d) of the Investment Company Act of 1940, 
but only to the extent of amounts on deposit in a segregated trust 
account in accordance with 17 CFR 270.27d-1 under the Investment Company 
Act of 1940;
    (vii) Amounts payable to the extent funds and qualified securities 
are required to be on deposit and are deposited in a ``Special Reserve 
Bank Account for the Exclusive Benefit of Customers'' pursuant to 17 CFR 
240.15c3-3 under the Securities Exchange Act of 1934;
    (viii) Fixed liabilities adequately secured by assets acquired for 
use in the ordinary course of the trade or business of a broker or 
dealer but no other fixed liabilities secured by assets of the broker or 
dealer shall be so excluded unless the sole recourse of the creditor for 
nonpayment of such liability is to such asset;
    (ix) Liabilities on open contractual commitments;
    (x) Indebtedness subordinated to the claims of creditors pursuant to 
a satisfactory subordination agreement, as defined in Appendix (D) (17 
CFR 240.15c3-1d);
    (xi) Liabilities which are effectively subordinated to the claims of 
creditors (but which are not subject to a satisfactory subordination 
agreement as defined in Appendix (D) (17 CFR 240.15c3-1d)) by non-
customers of the broker or dealer prior to such subordination, except 
such subordinations by customers as may be approved by the Examining 
Authority for such broker or dealer;

[[Page 387]]

    (xii) Credit balances in accounts of general partners;
    (xiii) Deferred tax liabilities;
    (xiv) Eighty-five percent of amounts payable to a registered 
investment company related to fail to deliver receivables of the same 
quantity arising out of purchases of shares of those registered 
investment companies; and
    (xv) Eighty-five percent of amounts payable against securities 
loaned for which the broker or dealer has receivables related to 
securities of the same class and issue and quantity that are securities 
borrowed by the broker or dealer.

                               Net Capital

    (2) The term net capital shall be deemed to mean the net worth of a 
broker or dealer, adjusted by:
    (i) Adjustments to net worth related to unrealized profit or loss, 
deferred tax provisions, and certain liabilities. (A) Adding unrealized 
profits (or deducting unrealized losses) in the accounts of the broker 
or dealer;
    (B)(1) In determining net worth, all long and all short positions in 
listed options shall be marked to their market value and all long and 
all short securities and commodities positions shall be marked to their 
market value.
    (2) In determining net worth, the value attributed to any unlisted 
option shall be the difference between the option's exercise value and 
the market value of the underlying security. In the case of an unlisted 
call, if the market value of the underlying security is less than the 
exercise value of such call it shall be given no value and in the case 
of an unlisted put if the market value of the underlying security is 
more than the exercise value of the unlisted put it shall be given no 
value.
    (C) Adding to net worth the lesser of any deferred income tax 
liability related to the items in (1), (2), and (3) below, or the sum of 
(1), (2) and (3) below;
    (1) The aggregate amount resulting from applying to the amount of 
the deductions computed in accordance with paragraph (c)(2)(vi) of this 
section and Appendices A and B, Sec.240.15c3-1a and 240.15c3-1b, the 
appropriate Federal and State tax rate(s) applicable to any unrealized 
gain on the asset on which the deduction was computed;
    (2) Any deferred tax liability related to income accrued which is 
directly related to an asset otherwise deducted pursuant to this 
section;
    (3) Any deferred tax liability related to unrealized appreciation in 
value of any asset(s) which has been otherwise deducted from net worth 
in accordance with the provisions of this section; and,
    (D) Adding, in the case of future income tax benefits arising as a 
result of unrealized losses, the amount of such benefits not to exceed 
the amount of income tax liabilities accrued on the books and records of 
the broker or dealer, but only to the extent such benefits could have 
been applied to reduce accrued tax liabilities on the date of the 
capital computation, had the related unrealized losses been realized on 
that date.
    (E) Adding to net worth any actual tax liability related to income 
accrued which is directly related to an asset otherwise deducted 
pursuant to this section.
    (F) Subtracting from net worth any liability or expense relating to 
the business of the broker or dealer for which a third party has assumed 
the responsibility, unless the broker or dealer can demonstrate that the 
third party has adequate resources independent of the broker or dealer 
to pay the liability or expense.
    (G) Subtracting from net worth any contribution of capital to the 
broker or dealer:
    (1) Under an agreement that provides the investor with the option to 
withdraw the capital; or
    (2) That is intended to be withdrawn within a period of one year of 
contribution. Any withdrawal of capital made within one year of its 
contribution is deemed to have been intended to be withdrawn within a 
period of one year, unless the withdrawal has been approved in writing 
by the Examining Authority for the broker or dealer.
    (ii) Subordinated liabilities. Excluding liabilities of the broker 
or dealer which are subordinated to the claims of creditors pursuant to 
a satisfactory subordination agreement, as defined in appendix (D) (17 
CFR 240.15c3-1d).

[[Page 388]]

    (iii) Sole proprietors. Deducting, in the case of a broker or dealer 
who is a sole proprietor, the excess of liabilities which have not been 
incurred in the course of business as a broker or dealer over assets not 
used in the business.
    (iv) Assets not readily convertible into cash. Deducting fixed 
assets and assets which cannot be readily converted into cash (less any 
indebtedness excluded in accordance with subdivision (c)(1)(viii) of 
this section) including, among other things:
    (A) Fixed assets and prepaid items. Real estate; furniture and 
fixtures; exchange memberships; prepaid rent, insurance and other 
expenses; goodwill, organization expenses;

            Certain Unsecured and Partly Secured Receivables

    (B) All unsecured advances and loans; deficits in customers' and 
non-customers' unsecured and partly secured notes; deficits in omnibus 
credit accounts maintained in compliance with the requirements of 12 CFR 
220.7(f) of Regulation T under the Act, or similar accounts carried on 
behalf of another broker or dealer, after application of calls for 
margin, marks to the market or other required deposits that are 
outstanding 5 business days or less; deficits in customers' and non-
customers' unsecured and partly secured accounts after application of 
calls for margin, marks to market or other required deposits that are 
outstanding 5 business days or less, except deficits in cash accounts as 
defined in 12 CFR 220.8 of Regulation T under the Act for which not more 
than one extension respecting a specified securities transaction has 
been requested and granted, and deducting for securities carried in any 
of such accounts the percentages specified in paragraph (c)(2)(vi) of 
this section or appendix A, Sec.240.15c3-1a; the market value of stock 
loaned in excess of the value of any collateral received therefor; 
receivables arising out of free shipments of securities (other than 
mutual fund redemptions) in excess of $5,000 per shipment and all free 
shipments (other than mutual fund redemptions) outstanding more than 7 
business days, and mutual fund redemptions outstanding more than 16 
business days; and any collateral deficiencies in secured demand notes 
as defined in appendix D, Sec.240.15c3-1d; a broker or dealer that 
participates in a loan of securities by one party to another party will 
be deemed a principal for the purpose of the deductions required under 
this section, unless the broker or dealer has fully disclosed the 
identity of each party to the other and each party has expressly agreed 
in writing that the obligations of the broker or dealer do not include a 
guarantee of performance by the other party and that such party's 
remedies in the event of a default by the other party do not include a 
right of setoff against obligations, if any, of the broker or dealer.
    (C) Interest receivable, floor brokerage receivable, commissions 
receivable from other brokers or dealers (other than syndicate profits 
which shall be treated as required in paragraph (c)(2)(iv)(E) of this 
section), mutual fund concessions receivable and management fees 
receivable from registered investment companies, all of which 
receivables are outstanding longer than thirty (30) days from the date 
they arise; dividends receivable outstanding longer than thirty (30) 
days from the payable date; good faith deposits arising in connection 
with a non-municipal securities underwriting, outstanding longer than 
eleven (11) business days from the settlement of the underwriting with 
the issuer; receivables due from participation in municipal securities 
underwriting syndicates and municipal securities joint underwriting 
accounts which are outstanding longer than sixty (60) days from 
settlement of the underwriting with the issuer and good faith deposits 
arising in connection with an underwriting of municipal securities, 
outstanding longer than sixty (60) days from settlement of the 
underwriting with the issuer; and receivables due from participation in 
municipal securities secondary trading joint accounts, which are 
outstanding longer than sixty (60) days from the date all securities 
have been delivered by the account manager to the account members;
    (D) Insurance claims. Insurance claims which, after seven (7) 
business days from the date the loss giving rise to the claim is 
discovered, are not covered

[[Page 389]]

by an opinion of outside counsel that the claim is valid and is covered 
by insurance policies presently in effect; insurance claims which after 
twenty (20) business days from the date the loss giving rise to the 
claim is discovered and which are accompanied by an opinion of outside 
counsel described above, have not been acknowledged in writing by the 
insurance carrier as due and payable; and insurance claims acknowledged 
in writing by the carrier as due and payable outstanding longer than 
twenty (20) business days from the date they are so acknowledged by the 
carrier; and,
    (E) Other deductions. All other unsecured receivables; all assets 
doubtful of collection less any reserves established therefor; the 
amount by which the market value of securities failed to receive 
outstanding longer than thirty (30) calendar days exceeds the contract 
value of such fails to receive; and the funds on deposit in a 
``segregated trust account'' in accordance with 17 CFR 270.27d-1 under 
the Investment Company Act of 1940, but only to the extent that the 
amount on deposit in such segregated trust account exceeds the amount of 
liability reserves established and maintained for refunds of charges 
required by sections 27(d) and 27(f) of the Investment Company Act of 
1940; Provided, That the following need not be deducted:
    (1) Any amounts deposited in a Customer Reserve Bank Account or PAB 
Reserve Bank Account pursuant to Sec.240.15c3-3(e) or in the ``special 
reserve account for the exclusive benefit of security-based swap 
customers'' established pursuant to Sec.240.15c3-3(p)(3),
    (2) Cash and securities held in a securities account at a carrying 
broker or dealer (except where the account has been subordinated to the 
claims of creditors of the carrying broker or dealer), and
    (3) Clearing deposits.
    (F)(1) For purposes of this paragraph:
    (i) The term reverse repurchase agreement deficit shall mean the 
difference between the contract price for resale of the securities under 
a reverse repurchase agreement and the market value of those securities 
(if less than the contract price).
    (ii) The term repurchase agreement deficit shall mean the difference 
between the market value of securities subject to the repurchase 
agreement and the contract price for repurchase of the securities (if 
less than the market value of the securities).
    (iii) As used in paragraph (c)(2)(iv)(F)(1) of this section, the 
term contract price shall include accrued interest.
    (iv) Reverse repurchase agreement deficits and the repurchase 
agreement deficits where the counterparty is the Federal Reserve Bank of 
New York shall be disregarded.
    (2)(i) In the case of a reverse repurchase agreement, the deduction 
shall be equal to the reverse repurchase agreement deficit.
    (ii) In determining the required deductions under paragraph 
(c)(2)(iv)(F)(2)(i) of this section, the broker or dealer may reduce the 
reverse repurchase agreement deficit by:
    (A) Any margin or other deposits held by the broker or dealer on 
account of the reverse repurchase agreement;
    (B) Any excess market value of the securities over the contract 
price for resale of those securities under any other reverse repurchase 
agreement with the same party;
    (C) The difference between the contract price for resale and the 
market value of securities subject to repurchase agreements with the 
same party (if the market value of those securities is less than the 
contract price); and
    (D) Calls for margin, marks to the market, or other required 
deposits which are outstanding one business day or less.
    (3) (i) In the case of repurchase agreements, the deduction shall 
be:
    (A) The excess of the repurchase agreement deficit over 5 percent of 
the contract price for resale of United States Treasury Bills, Notes and 
Bonds, 10 percent of the contract price for the resale of securities 
issued or guaranteed as to principal or interest by an agency of the 
United States or mortgage related securities as defined in section 
3(a)(41) of the Act and 20 percent of the contract price for the resale 
of other securities and;
    (B) The excess of the aggregate repurchase agreement deficits with 
any

[[Page 390]]

one party over 25 percent of the broker or dealer's net capital before 
the application of paragraph (c)(2)(vi) of this section (less any 
deduction taken with respect to repurchase agreements with that party 
under paragraph (c)(2)(iv)(F)(3)(i)(A) of this section) or, if greater;
    (C) The excess of the aggregate repurchase agreement deficits over 
300 percent of the broker's or dealer's net capital before the 
application of paragraph (c)(2)(vi) of this section.
    (ii) In determining the required deduction under paragraph 
(c)(2)(iv)(F)(3)(i) of this section, the broker or dealer may reduce a 
repurchase agreement deficit by:
    (A) Any margin or other deposits held by the broker or dealer on 
account of a reverse repurchase agreement with the same party to the 
extent not otherwise used to reduce a reverse repurchase deficit;
    (B) The difference between the contract price and the market value 
of securities subject to other repurchase agreements with the same party 
(if the market value of those securities is less than the contract 
price) not otherwise used to reduce a reverse repurchase agreement 
deficit; and
    (C) Calls for margin, marks to the market, or other required 
deposits which are outstanding one business day or less to the extent 
not otherwise used to reduce a reverse repurchase agreement deficit.
    (G) Securities borrowed. 1 percent of the market value of securities 
borrowed collateralized by an irrevocable letter of credit.
    (H) Any receivable from an affiliate of the broker or dealer (not 
otherwise deducted from net worth) and the market value of any 
collateral given to an affiliate (not otherwise deducted from net worth) 
to secure a liability over the amount of the liability of the broker or 
dealer unless the books and records of the affiliate are made available 
for examination when requested by the representatives of the Commission 
or the Examining Authority for the broker or dealer in order to 
demonstrate the validity of the receivable or payable. The provisions of 
this subsection shall not apply where the affiliate is a registered 
broker or dealer, registered government securities broker or dealer or 
bank as defined in section 3(a)(6) of the Act or insurance company as 
defined in section 3(a)(19) of the Act or investment company registered 
under the Investment Company Act of 1940 or federally insured savings 
and loan association or futures commission merchant registered pursuant 
to the Commodity Exchange Act.
    (v)(A) Deducting the market value of all short securities 
differences (which shall include securities positions reflected on the 
securities record which are not susceptible to either count or 
confirmation) unresolved after discovery in accordance with the 
following schedule:

------------------------------------------------------------------------
                                                              Numbers of
                                                               business
                       Differences \1\                        days after
                                                               discovery
------------------------------------------------------------------------
25 percent..................................................           7
50 percent..................................................          14
75 percent..................................................          21
100 percent.................................................          28
------------------------------------------------------------------------
\1\ Percentage of market value of short securities differences.

    (B) Deducting the market value of any long securities differences, 
where such securities have been sold by the broker or dealer before they 
are adequately resolved, less any reserves established therefor;
    (C) The designated examining authority for a broker or dealer may 
extend the periods in (v)(A) of this section for up to 10 business days 
if it finds that exceptional circumstances warrant an extension.

                           Securities Haircuts

    (vi) Deducting the percentages specified in paragraphs (c)(2)(vi) 
(A) through (M) of this section (or the deductions prescribed for 
securities positions set forth in Appendix A (Sec.240.15c3-1a) of the 
market value of all securities, money market instruments or options in 
the proprietary or other accounts of the broker or dealer.
    (A)(1) In the case of a security issued or guaranteed as to 
principal or interest by the United States or any agency thereof, the 
applicable percentages of the market value of the net long or short 
position in each of the categories specified below are:

[[Page 391]]

                               Category 1

    (i) Less than 3 months to maturity--0 percent.
    (ii) 3 months but less than 6 months to maturity--\1/2\ of 1 
percent.
    (iii) 6 months but less than 9 months to maturity--\3/4\ of 1 
percent.
    (iv) 9 months but less than 12 months to maturity--1 percent.

                               Category 2

    (i) 1 year but less than 2 years to maturity--1\1/2\ percent.
    (ii) 2 years but less than 3 years to maturity--2 percent.

                               Category 3

    (i) 3 years but less than 5 years to maturity--3%.
    (ii) 5 years but less than 10 years to maturity--4%.

                               Category 4

    (i) 10 years but less than 15 years to maturity--4\1/2\%.
    (ii) 15 years but less than 20 years to maturity--5%.
    (iii) 20 years but less than 25 years to maturity--5\1/2\%.
    (iv) 25 years or more to maturity--6%.


Brokers or dealers shall compute a deduction for each category above as 
follows: Compute the deductions for the net long or short positions in 
each subcategory above. The deduction for the category shall be the net 
of the aggregate deductions on the long positions and the aggregate 
deductions on the short positions in each category plus 50% of the 
lesser of the aggregate deductions on the long or short positions.
    (2) A broker or dealer may elect to deduct, in lieu of the 
computation required under paragraph (c)(2)(vi)(A)(1) of this section, 
the applicable percentages of the market value of the net long or short 
positions in each of the subcategories specified in paragraph 
(c)(2)(vi)(A)(1) of this section.
    (3) In computing deductions under paragraph (c)(2)(vi)(A)(1) of this 
section, a broker or dealer may elect to exclude the market value of a 
long or short security from one category and a security from another 
category, Provided, That:
    (i) Such securities have maturity dates:
    (A) Between 9 months and 15 months and within 3 months of one 
another.
    (B) Between 2 years and 4 years and within 1 year of one another; or
    (C) Between 8 years and 12 years and within 2 years of one another.
    (ii) The net market value of the two excluded securities shall 
remain in the category of the security with the higher market value.
    (4) In computing deductions under paragraph (c)(2)(vi)(A)(1) of this 
section, a broker or dealer may include in the categories specified in 
paragraph (c)(2)(vi)(A)(1) of this section, long or short positions in 
securities issued by the United States or any agency thereof that are 
deliverable against long or short positions in futures contracts 
relating to Government securities, traded on a recognized contract 
market approved by the Commodity Futures Trading Commission, which are 
held in the proprietary or other accounts of the broker or dealer. The 
value of the long or short positions included in the categories shall be 
determined by the contract value of the futures contract held in the 
account. The provisions of Appendix B to Rule 15c3-1 (17 CFR 240.15c3-
1b) will in any event apply to the positions in futures contracts.
    (5) In the case of a Government securities dealer that reports to 
the Federal Reserve System, that transacts business directly with the 
Federal Reserve System, and that maintains at all times a minimum net 
capital of at least $50,000,000, before application of the deductions 
provided for in paragraph (c)(2)(vi) of this section, the deduction for 
a security issued or guaranteed as to principal or interest by the 
United States or any agency thereof shall be 75 percent of the deduction 
otherwise computed under paragraph (c)(2)(vi)(A) of this section.
    (B)(1) In the case of any municipal security which has a scheduled 
maturity at date of issue of 731 days or less and which is issued at par 
value and pays interest at maturity, or which is issued at a discount, 
and which is not traded flat or in default as to principal or interest, 
the applicable percentages of the market value on the greater of the 
long or short position in each of the categories specified below are:
    (i) Less than 30 days to maturity--0%.

[[Page 392]]

    (ii) 30 days but less than 91 days to maturity--\1/8\ of 1%.
    (iii) 91 days but less than 181 days to maturity--\1/4\ of 1%.
    (iv) 181 days but less than 271 days to maturity--\3/8\ of 1%.
    (v) 271 days but less than 366 days to maturity--\1/2\ of 1%.
    (vi) 366 days but less than 456 days to maturity--\3/4\ of 1%.
    (vii) 456 days but less than 732 days to maturity--1%.
    (2) In the case of any municipal security, other than those 
specified in paragraph (c)(2)(vi)(B)(1), which is not traded flat or in 
default as to principal or interest, the applicable percentages of the 
market value of the greater of the long or short position in each of the 
categories specified below are:
    (i) Less than 1 year to maturity--1%.
    (ii) 1 year but less than 2 years to maturity--2%.
    (iii) 2 years but less than 3\1/2\ years to maturity--3%.
    (iv) 3\1/2\ years but less than 5 years to maturity--4%.
    (v) 5 years but less than 7 years to maturity--5%.
    (vi) 7 years but less than 10 years to maturity--5\1/2\%.
    (vii) 10 years but less than 15 years to maturity--6%.
    (viii) 15 years but less than 20 years to maturity--6\1/2\%.
    (ix) 20 years or more to maturity--7%.
    (C) Canadian Debt Obligations. In the case of any security issued or 
unconditionally guaranteed as to principal and interest by the 
Government of Canada, the percentages of market value to be deducted 
shall be the same as in paragraph (A) of this section.
    (D)(1) In the case of redeemable securities of an investment company 
registered under the Investment Company Act of 1940, which assets 
consist of cash or money market instruments and which is described in 
Sec.270.2a-7 of this chapter, the deduction will be 2% of the market 
value of the greater of the long or short position.
    (2) In the case of redeemable securities of an investment company 
registered under the Investment Company Act of 1940, which assets are in 
the form of cash or securities or money market instruments of any 
maturity which are described in paragraph (c)(2)(vi) (A) through (C) or 
(E) of this section, the deduction shall be 7% of the market value of 
the greater of the long or short positions.
    (3) In the case of redeemable securities of an investment company 
registered under the Investment Company Act of 1940, which assets are in 
the form of cash or securities or money market instruments which are 
described in paragraphs (c)(2)(vi) (A) through (C) or (E) and (F) of 
this section, the deduction shall be 9% of the market value of the long 
or short position.
    (E) Commercial paper, bankers' acceptances and certificates of 
deposit. In the case of any short term promissory note or evidence of 
indebtedness which has a fixed rate of interest or is sold at a 
discount, which has a maturity date at date of issuance not exceeding 
nine months exclusive of days of grace, or any renewal thereof, the 
maturity of which is likewise limited and has only a minimal amount of 
credit risk, or in the case of any negotiable certificates of deposit or 
bankers' acceptance or similar type of instrument issued or guaranteed 
by any bank as defined in section 3(a)(6) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(6)), the applicable percentage of the market 
value of the greater of the long or short position in each of the 
categories specified below are:
    (1) Less than 30 days to maturity--0 percent.
    (2) 30 days but less than 91 days to maturity \1/8\ of 1 percent.
    (3) 91 days but less than 181 days to maturity \1/4\ of 1 percent.
    (4) 181 days but less than 271 days to maturity \3/8\ of 1 percent.
    (5) 271 days but less than 1 year to maturity \1/2\ of 1 percent; 
and
    (6) With respect to any negotiable certificate of deposit or bankers 
acceptance or similar type of instrument issued or guaranteed by any 
bank, as defined above, having 1 year or more to maturity, the deduction 
shall be on the greater of the long or short position and shall be the 
same percentage as that prescribed in paragraph (c)(2)(vi)(A) of this 
section.

[[Page 393]]

    (F)(1) Nonconvertible debt securities. In the case of nonconvertible 
debt securities having a fixed interest rate and a fixed maturity date, 
which are not traded flat or in default as to principal or interest and 
which have only a minimal amount of credit risk, the applicable 
percentages of the market value of the greater of the long or short 
position in each of the categories specified below are:
    (i) Less than 1 year to maturity--2%
    (ii) 1 year but less than 2 years to maturity--3%
    (iii) 2 years but less than 3 years to maturity--5%
    (iv) 3 years but less than 5 years to maturity--6%
    (v) 5 years but less than 10 years to maturity--7%
    (vi) 10 years but less than 15 years to maturity--7\1/2\%
    (vii) 15 years but less than 20 years to maturity--8%
    (viii) 20 years but less than 25 years to maturity--8\1/2\%
    (ix) 25 years or more to maturity--9%
    (2) A broker or dealer may elect to exclude from the above 
categories long or short positions that are hedged with short or long 
positions in securities issued by the United States or any agency 
thereof or nonconvertible debt securities having a fixed interest rate 
and a fixed maturity date and which are not traded flat or in default as 
to principal or interest, and which have only a minimal amount of credit 
risk if such securities have maturity dates:
    (i) Less than five years and within 6 months of each other;
    (ii) Between 5 years and 10 years and within 9 months of each other;
    (iii) Between 10 years and 15 years and within 2 years of each 
other; or
    (iv) 15 years or more and within 10 years of each other.


The broker-dealer shall deduct the amounts specified in paragraphs 
(c)(2)(vi)(F) (3) and (4) of this section.
    (3) With respect to those positions described in paragraph 
(c)(2)(vi)(F)(2) of this section that include a long or short position 
in securities issued by the United States or any agency thereof, the 
broker or dealer shall exclude the hedging short or long United States 
or agency securities position from the applicable haircut category under 
paragraph (c)(2)(vi)(A) of this section. The broker or dealer shall 
deduct the percentage of the market value of the hedged long or short 
position in nonconvertible debt securities as specified in each of the 
categories below:
    (i) Less than 5 years to maturity--1\1/2\%
    (ii) 5 years but less than 10 years to maturity--2\1/2\%
    (iii) 10 years but less than 15 years to maturity--2\3/4\%
    (iv) 15 years or more to maturity--3%
    (4) With respect to those positions described in paragraph 
(c)(2)(vi)(F)(2) of this section that include offsetting long and short 
positions in nonconvertible debt securities, the broker or dealer shall 
deduct a percentage of the market value of the hedged long or short 
position in nonconvertible debt securities as specified in each of the 
categories below:
    (i) Less than 5 years to maturity--1\3/4\%
    (ii) 5 years but less than 10 years to maturity--3%
    (iii) 10 years but less than 15 years to maturity--3\1/4\%
    (iv) 15 years or more to maturity--3\1/2\%
    (5) In computing deductions under paragraph (c)(2)(vi)(F)(3) of this 
section, a broker or dealer may include in the categories specified in 
paragraph (c)(2)(vi)(F)(3) of this section, long or short positions in 
securities issued by the United States or any agency thereof that are 
deliverable against long or short positions in futures contracts 
relating to Government securities, traded on a recognized contract 
market approved by the Commodity Futures Trading Commission, which are 
held in the proprietary or other accounts of the broker or dealer. The 
value of the long or short positions included in the categories shall be 
determined by the contract value of the futures contract held in the 
account.
    (6) The provisions of Appendix B to Rule 15c3-1 (17 CFR 240.15c3-1b) 
will in any event apply to the positions in futures contracts.
    (G) Convertible debt securities. In the case of a debt security not 
in default which has a fixed rate of interest and a

[[Page 394]]

fixed maturity date and which is convertible into an equity security, 
the deductions shall be as follows: If the market value is 100 percent 
or more of the principal amount, the deduction shall be determined as 
specified in paragraph (c)(2)(vi)(J) of this section; if the market 
value is less than the principal amount, the deduction shall be 
determined as specified in paragraph (F) of this section; if such 
securities are rated as required of paragraph (F) of this section;
    (H) In the case of cumulative, non-convertible preferred stock 
ranking prior to all other classes of stock of the same issuer, which 
has only a minimal amount of credit risk and which are not in arrears as 
to dividends, the deduction shall be 10% of the market value of the 
greater of the long or short position.
    (I) In order to apply a deduction under paragraphs (c)(2)(vi)(E), 
(c)(2)(vi)(F)(1), (c)(2)(vi)(F)(2), or (c)(2)(vi)(H) of this section, 
the broker or dealer must assess the creditworthiness of the security or 
money market instrument pursuant to policies and procedures for 
assessing and monitoring creditworthiness that the broker or dealer 
establishes, documents, maintains, and enforces. The policies and 
procedures must be reasonably designed for the purpose of determining 
whether a security or money market instrument has only a minimal amount 
of credit risk. Policies and procedures that are reasonably designed for 
this purpose should result in assessments of creditworthiness that 
typically are consistent with market data. A broker-dealer that opts not 
to make an assessment of creditworthiness under this paragraph may not 
apply the deductions under paragraphs (c)(2)(vi)(E), (c)(2)(vi)(F)(1), 
(c)(2)(vi)(F)(2), or (c)(2)(vi)(H) of this section.
    Note to paragraph (c)(2)(vi)(I): For a discussion of the ``minimal 
amount of credit risk'' standard, see Removal of Certain References to 
Credit Ratings Under the Securities Exchange Act of 1934, Exchange Act 
Release No. 34-71194 (Dec. 27, 2013), at http://www.sec.gov/rules/
final.shtml.

                          All Other Securities

    (J) In the case of all securities or evidences of indebtedness, 
except those described in appendix A, Sec.240.15c3-1a, which are not 
included in any of the percentage categories enumerated in paragraphs 
(c)(2)(vi) (A) through (H) of this section or paragraph 
(c)(2)(vi)(K)(ii) of this section, the deduction shall be 15 percent of 
the market value of the greater of the long or short positions and to 
the extent the market value of the lesser of the long or short positions 
exceeds 25 percent of the market value of the greater of the long or 
short positions, the percentage deduction on such excess shall be 15 
percent of the market value of such excess. No deduction need be made in 
the case of:
    (1) A security that is convertible into or exchangeable for another 
security within a period of 90 days, subject to no conditions other than 
the payment of money, and the other securities into which such security 
is convertible or for which it is exchangeable, are short in the 
accounts of such broker or dealer; or
    (2) A security that has been called for redemption and that is 
redeemable within 90 days.
    (K) Securities with a limited market. In the case of securities 
(other than exempted securities, nonconvertible debt securities, and 
cumulative nonconvertible preferred stock) which are not: (1) Traded on 
a national securities exchange; (2) designated as ``OTC Margin Stock'' 
pursuant to Regulation T under the Securities Exchange Act of 1934; (3) 
quoted on ``NASDAQ''; or (4) redeemable shares of investment companies 
registered under the Investment Company Act of 1940, the deduction shall 
be as follows:
    (i) In the case where there are regular quotations in an inter-
dealer quotations system for the securities by three or more independent 
market-makers (exclusive of the computing broker or dealer) and where 
each such quotation represents a bona fide offer to brokers or dealers 
to both buy and sell in reasonable quantities at stated prices, or where 
a ready market as defined in paragraph (c)(11) (ii) is deemed to exist, 
the deduction shall be determined in accordance with paragraph 
(c)(2)(vi)(J) of this section;
    (ii) In the case where there are regular quotations in an inter-
dealer

[[Page 395]]

quotations system for the securities by only one or two independent 
market-makers (exclusive of the computing broker or dealer) and where 
each such quotation represents a bona fide offer to brokers or dealers 
both to buy and sell in reasonable quantities, at stated prices, the 
deduction on both the long and short position shall be 40 percent.
    (L) Where a broker or dealer demonstrates that there is sufficient 
liquidity for any securities long or short in the proprietary or other 
accounts of the broker or dealer which are subject to a deduction 
required by paragraph (c)(2)(vi)(K) of this section, such deduction, 
upon a proper showing to the Examining Authority for the broker or 
dealer, may be appropriately decreased, but in no case shall such 
deduction be less than that prescribed in paragraph (c)(2)(vi)(J) of 
this section.

                           Undue Concentration

    (M)(1) In the case of money market instruments, or securities of a 
single class or series of an issuer, including any option written, 
endorsed or held to purchase or sell securities of such a single class 
or series of an issuer (other than ``exempted securities'' and 
redeemable securities of an investment company registered pursuant to 
the Investment Company Act of 1940), and securities underwritten (in 
which case the deduction provided for herein shall be applied after 11 
business days), which are long or short in the proprietary or other 
accounts of a broker or dealer, including securities that are collateral 
to secured demand notes defined in appendix D, Sec.240.15c3-1d, and 
that have a market value of more than 10 percent of the ``net capital'' 
of a broker or dealer before the application of paragraph (c)(2)(vi) of 
this section or appendix A, Sec.240.15c3-1a, there shall be an 
additional deduction from net worth and/or the Collateral Value for 
securities collateralizing a secured demand note defined in appendix D, 
Sec.240.15c3-1d, equal to 50 percent of the percentage deduction 
otherwise provided by this paragraph (c)(2)(vi) of this section or 
appendix A, Sec.240.15c3-1a, on that portion of the securities 
position in excess of 10 percent of the ``net capital'' of the broker or 
dealer before the application of paragraph (c)(2)(vi) of this section 
and appendix A, Sec.240.15c3-1a. In the case of securities described 
in paragraph (c)(2)(vi)(J), the additional deduction required by this 
paragraph (c)(2)(vi)(M) shall be 15 percent.
    (2) This paragraph (c)(2)(vi)(M) shall apply notwithstanding any 
long or short position exemption provided for in paragraph (c)(2)(vi)(J) 
of this section (except for long or short position exemptions arising 
out of the first proviso to paragraph (c)(2)(vi)(J)) and the deduction 
on any such exempted position shall be 15 percent of that portion of the 
securities position in excess of 10 percent of the broker or dealer's 
net capital before the application of paragraph (c)(2)(vi) of this 
section and appendix A, Sec.240.15c3-1a.
    (3) This paragraph (c)(2)(vi)(M) shall be applied to an issue of 
equity securities only on the market value of such securities in excess 
of $10,000 or the market value of 500 shares, whichever is greater, or 
$25,000 in the case of a debt security.
    (4) This paragraph (c)(2)(vi)(M) will be applied to an issue of 
municipal securities having the same security provisions, date of issue, 
interest rate, day, month and year of maturity only if such securities 
have a market value in excess of $500,000 in bonds ($5,000,000 in notes) 
or 10 percent of tentative net capital, whichever is greater, and are 
held in position longer than 20 business days from the date the 
securities are received by the syndicate manager from the issuer.
    (5) Any specialist that is subject to a deduction required by this 
paragraph (c)(2)(vi)(M), respecting its specialty stock, that can 
demonstrate to the satisfaction of the Examining Authority for such 
broker or dealer that there is sufficient liquidity for such 
specialist's specialty stock and that such deduction need not be applied 
in the public interest for the protection of investors, may upon a 
proper showing to such Examining Authority have such undue concentration 
deduction appropriately decreased, but in no case shall the deduction 
prescribed in paragraph (c)(2)(vi)(J) of this section above be reduced. 
Each such Examining Authority shall make and preserve for a period of 
not less than 3 years a record of each application granted pursuant to 
this

[[Page 396]]

paragraph (c)(2)(vi)(M)(5), which shall contain a summary of the 
justification for the granting of the application.
    (N) Any specialist that limits its securities business to that of a 
specialist (except for an occasional non-specialist related securities 
transaction for its own account), that does not transact a business in 
securities with other than a broker or dealer registered with the 
Commission under section 15 or 15C of the Act or a member of a national 
securities exchange, and that is not a clearing member of The Options 
Clearing Corporation need not deduct from net worth in computing net 
capital those deductions, as to its specialty securities, set forth in 
paragraph (c)(2)(vi) of this section or appendix A to this section, 
except for paragraph (e) of this section limiting withdrawals of equity 
capital and appendix D to this section relating to satisfactory 
subordination agreements. As to a specialist that is solely an options 
specialist, in paragraph (e) the term ``net capital'' shall be deemed to 
mean ``net capital before the application of paragraph (c)(2)(vi) of 
this section or appendix A to this section'' and ``excess net capital'' 
shall be deemed to be the amount of net capital before the application 
of paragraph (c)(2)(vi) of this section or appendix A to this section in 
excess of the amount of net capital required under paragraph (a) of this 
section. In reports filed pursuant to Sec.240.17a-5 and in making the 
record required by Sec.240.17a-3(a)(11) each specialists shall include 
the deductions that would otherwise have been required by paragraph 
(c)(2)(vi) of this section or appendix A to this section in the absence 
of this paragraph (c)(2)(vi)(N).
    (O) Cleared security-based swaps. In the case of a cleared security-
based swap held in a proprietary account of the broker or dealer, 
deducting the amount of the applicable margin requirement of the 
clearing agency or, if the security-based swap references an equity 
security, the broker or dealer may take a deduction using the method 
specified in Sec.240.15c3-1a.
    (P) Non-cleared security-based swaps--(1) Credit default swaps--(i) 
Short positions (selling protection). In the case of a non-cleared 
security-based swap that is a short credit default swap, deducting the 
percentage of the notional amount based upon the current basis point 
spread of the credit default swap and the maturity of the credit default 
swap in accordance with table 1 to Sec.240.15c3-1(c)(2)(vi)(P)(1)(i):

                                Table 1 to Sec.240.15c3-1(c)(2)(vi)(P)(1)(i )
----------------------------------------------------------------------------------------------------------------
                                                                 Basis point spread
   Length of time to maturity of   -----------------------------------------------------------------------------
   credit default swap contract     100 or less                                                      700 or more
                                          %       101-300  %   301-400  %   401-500  %   501-699  %        %
----------------------------------------------------------------------------------------------------------------
Less than 12 months...............         1.00         2.00         5.00         7.50        10.00        15.00
12 months but less than 24 months.         1.50         3.50         7.50        10.00        12.50        17.50
24 months but less than 36 months.         2.00         5.00        10.00        12.50        15.00        20.00
36 months but less than 48 months.         3.00         6.00        12.50        15.00        17.50        22.50
48 months but less than 60 months.         4.00         7.00        15.00        17.50        20.00        25.00
60 months but less than 72 months.         5.50         8.50        17.50        20.00        22.50        27.50
72 months but less than 84 months.         7.00        10.00        20.00        22.50        25.00        30.00
84 months but less than 120 months         8.50        15.00        22.50        25.00        27.50        40.00
120 months and longer.............        10.00        20.00        25.00        27.50        30.00        50.00
----------------------------------------------------------------------------------------------------------------

    (ii) Long positions (purchasing protection). In the case of a non-
cleared security-based swap that is a long credit default swap, 
deducting 50 percent of the deduction that would be required by 
paragraph (c)(2)(vi)(P)(1)(i) of this section if the non-cleared 
security-based swap was a short credit default swap, each such deduction 
not to exceed the current market value of the long position.
    (iii) Long and short credit default swaps. In the case of non-
cleared security-based swaps that are long and short credit default 
swaps referencing the same entity (in the case of non-cleared credit 
default swap security-based swaps referencing a corporate entity) or 
obligation (in the case of non-cleared credit default swap security-
based swaps referencing an asset-backed security), that have the same

[[Page 397]]

credit events which would trigger payment by the seller of protection, 
that have the same basket of obligations which would determine the 
amount of payment by the seller of protection upon the occurrence of a 
credit event, that are in the same or adjacent spread category, and that 
are in the same or adjacent maturity category and have a maturity date 
within three months of the other maturity category, deducting the 
percentage of the notional amount specified in the higher maturity 
category under paragraph (c)(2)(vi)(P)(1)(i) or (ii) on the excess of 
the long or short position. In the case of non-cleared security-based 
swaps that are long and short credit default swaps referencing corporate 
entities in the same industry sector and the same spread and maturity 
categories prescribed in paragraph (c)(2)(vi)(P)(1)(i) of this section, 
deducting 50 percent of the amount required by paragraph 
(c)(2)(vi)(P)(1)(i) of this section on the short position plus the 
deduction required by paragraph (c)(2)(vi)(P)(1)(ii) of this section on 
the excess long position, if any. For the purposes of this section, the 
broker or dealer must use an industry sector classification system that 
is reasonable in terms of grouping types of companies with similar 
business activities and risk characteristics and the broker or dealer 
must document the industry sector classification system used pursuant to 
this section.
    (iv) Long security and long credit default swap. In the case of a 
non-cleared security-based swap that is a long credit default swap 
referencing a debt security and the broker or dealer is long the same 
debt security, deducting 50 percent of the amount specified in paragraph 
(c)(2)(vi) or (vii) of this section for the debt security, provided that 
the broker or dealer can deliver the debt security to satisfy the 
obligation of the broker or dealer on the credit default swap.
    (v) Short security and short credit default swap. In the case of a 
non-cleared security-based swap that is a short credit default swap 
referencing a debt security or a corporate entity, and the broker or 
dealer is short the debt security or a debt security issued by the 
corporate entity, deducting the amount specified in paragraph (c)(2)(vi) 
or (vii) of this section for the debt security. In the case of a non-
cleared security-based swap that is a short credit default swap 
referencing an asset-backed security and the broker or dealer is short 
the asset-backed security, deducting the amount specified in paragraph 
(c)(2)(vi) or (vii) of this section for the asset-backed security.
    (2) Non-cleared security-based swaps that are not credit default 
swaps. In the case of a non-cleared security-based swap that is not a 
credit default swap, deducting the amount calculated by multiplying the 
notional amount of the security-based swap and the percentage specified 
in paragraph (c)(2)(vi) of this section applicable to the reference 
security. A broker or dealer may reduce the deduction under this 
paragraph (c)(2)(vi)(P)(2) by an amount equal to any reduction 
recognized for a comparable long or short position in the reference 
security under paragraph (c)(2)(vi) of this section and, in the case of 
a security-based swap referencing an equity security, the method 
specified in Sec.240.15c3-1a.
    (vii) Non-marketable securities. Deducting 100 percent of the 
carrying value in the case of securities or evidence of indebtedness in 
the proprietary or other accounts of the broker or dealer, for which 
there is no ready market, as defined in paragraph (c)(11) of this 
section, and securities, in the proprietary or other accounts of the 
broker or dealer, which cannot be publicly offered or sold because of 
statutory, regulatory or contractual arrangements or other restrictions.

                      Open Contractual Commitments

    (viii) Deducting, in the case of a broker or dealer that has open 
contractual commitments (other than those option positions subject to 
appendix A, Sec.240.15c3-1a), the respective deductions as specified 
in paragraph (c)(2)(vi) of this section or appendix B, Sec.240.15c3-
1b, from the value (which shall be the market value whenever there is a 
market) of each net long and each net short position contemplated by any 
open contractual commitment in the proprietary or other accounts of the 
broker or dealer.
    (A) The deduction for contractual commitments in those securities 
that

[[Page 398]]

are treated in paragraph (c)(2)(vi)(J) of this section shall be 30 
percent unless the class and issue of the securities subject to the open 
contractual commitment deduction are listed for trading on a national 
securities exchange or are designated as NASDAQ National Market System 
Securities.
    (B) A broker or dealer that maintains in excess of $250,000 of net 
capital may add back to net worth up to $150,000 of any deduction 
computed under this paragraph (c)(2)(viii)(B).
    (C) The deduction with respect to any single commitment shall be 
reduced by the unrealized profit in such commitment, in an amount not 
greater than the deduction provided for by this paragraph (or increased 
by the unrealized loss), in such commitment, and in no event shall an 
unrealized profit on any closed transactions operate to increase net 
capital.
    (ix) Deducting from the contract value of each failed to deliver 
contract that is outstanding five business days or longer (21 business 
days or longer in the case of municipal securities) the percentages of 
the market value of the underlying security that would be required by 
application of the deduction required by paragraph (c)(2)(vi) of this 
section. Such deduction, however, shall be increased by any excess of 
the contract price of the failed to deliver contract over the market 
value of the underlying security or reduced by any excess of the market 
value of the underlying security over the contract value of the failed 
to deliver contract, but not to exceed the amount of such deduction. The 
designated examining authority for the broker or dealer may, upon 
application of the broker or dealer, extend for a period up to 5 
business days, any period herein specified when it is satisfied that the 
extension is warranted. The designated examining authority upon 
expiration of the extension may extend for one additional period of up 
to 5 business days, any period herein specified when it is satisfied 
that the extension is warranted.

   Brokers or Dealers Carrying Accounts of Listed Options Specialists

    (x)(A) With respect to any transaction of a specialist in listed 
options, who is either not otherwise subject to the provisions of this 
section or is described in paragraph (c)(2)(vi)(N) of this section, for 
whose specialist account a broker or dealer acts as a guarantor, 
endorser, or carrying broker or dealer, such broker or dealer shall 
adjust its net worth by deducting as of noon of each business day the 
amounts computed as of the prior business day pursuant to Sec.
240.15c3-1a. The required deductions may be reduced by any liquidating 
equity that exists in such specialist's market-maker account as of that 
time and shall be increased to the extent of any liquidating deficit in 
such account. Noon shall be determined according to the local time where 
the broker or dealer is headquartered. In no event shall excess equity 
in the specialist's market-maker account result in an increase of the 
net capital of any such guarantor, endorser, or carrying broker or 
dealer.
    (B) Definitions. (1) The term listed option shall mean any option 
traded on a registered national securities exchange or automated 
facility of a registered national securities association.
    (2) For purposes of this section, the equity in an individual 
specialist's market-maker account shall be computed by:
    (i) Marking all securities positions long or short in the account to 
their respective current market values;
    (ii) Adding (deducting in the case of a debit balance) the credit 
balance carried in such specialist's market-maker account; and
    (iii) Adding (deducting in the case of short positions) the market 
value of positions long in such account.
    (C) No guarantor, endorser, or carrying broker or dealer shall 
permit the sum of the deductions required pursuant to Sec.240.15c3-1a 
in respect of all transactions in specialists' market-maker accounts 
guaranteed, endorsed, or carried by such broker or dealer to exceed 
1,000 percent of such broker's or dealer's net capital as defined in 
Sec.240.15c3-1(c)(2) for any period exceeding three business days. If 
at any time such sum exceeds 1,000 percent of such broker's or dealer's 
net capital, then the broker or dealer shall:
    (1) Immediately transmit telegraphic or facsimile notice of such 
event to the Division of Market Regulation in the

[[Page 399]]

headquarters office of the Commission in Washington, DC, to the regional 
office of the Commission for the region in which the broker or dealer 
maintains its principal place of business, and to its examining 
authority designated pursuant to section 17(d) of the Act (15 U.S.C. 
78q(d)) (``Designated Examining Authority''); and
    (2) Be subject to the prohibitions against withdrawal of equity 
capital set forth in Sec.240.15c3-1(e) and to the prohibitions against 
reduction, prepayment, and repayment of subordination agreements set 
forth in paragraph (b)(11) of Sec.240.15c3-1d, as if such broker or 
dealer's net capital were below the minimum standards specified by each 
of those paragraphs.
    (D) If at any time there is a liquidating deficit in a specialist's 
market-maker account, then the broker or dealer guaranteeing, endorsing, 
or carrying listed options transactions in such specialist's market-
maker account may not extend any further credit in that account, and 
shall take steps to liquidate promptly existing positions in the 
account. This paragraph shall not prevent the broker or dealer from, 
upon approval by the broker's or dealer's Designated Examining 
Authority, entering into hedging positions in the specialist's market-
maker account. The broker or dealer also shall transmit telegraphic or 
facsimile notice of the deficit and its amount by the close of business 
of the following business day to its Designated Examining Authority and 
the Designated Examining Authority of the specialist, if different from 
its own.
    (E) Upon written application to the Commission by the specialist and 
the broker or dealer guaranteeing, endorsing, or carrying options 
transactions in such specialist's market-maker account, the Commission 
may approve upon specified terms and conditions lesser adjustments to 
net worth than those specified in Sec.240.15c3-1a.
    (xi) Brokers or dealers carrying specialists or market makers 
accounts. With respect to a broker or dealer who carries a market maker 
or specialist account, or with respect to any transaction in options 
listed on a registered national securities exchange for which a broker 
or dealer acts as a guarantor or endorser of options written by a 
specialist in a specialist account, the broker or dealer shall deduct, 
for each account carried or for each class or series of options 
guaranteed or endorsed, any deficiency in collateral required by 
paragraph (a)(6) of this section.
    (xii)(A) Deduction from net worth for certain undermargined 
accounts. Deducting the amount of cash required in each customer's or 
non-customer's account to meet the maintenance margin requirements of 
the Examining Authority for the broker or dealer, after application of 
calls for margin, marks to the market or other required deposits which 
are outstanding 5 business days or less.
    (B) Deducting the amount of cash required in the account of each 
security-based swap and swap customer to meet the margin requirements of 
a clearing agency, Examining Authority, the Commission, derivatives 
clearing organization, or the Commodity Futures Trading Commission, as 
applicable, after application of calls for margin, marks to the market, 
or other required deposits which are outstanding within the required 
time frame to collect the margin, mark to the market, or other required 
deposits.
    (xiii) Deduction from net worth for indebtedness collateralized by 
exempted securities. Deducting, at the option of the broker or dealer, 
in lieu of including such amounts in aggregate indebtedness, 4 percent 
of the amount of any indebtedness secured by exempted securities or 
municipal securities if such indebtedness would otherwise be includable 
in aggregate indebtedness.
    (xiv) Deduction from net worth for excess deductible amounts related 
to fidelity bond coverage. Deducting the amount specified by rule of the 
Examining Authority for the broker or dealer with respect to a 
requirement to maintain fidelity bond coverage.
    (xv) Deduction from net worth in lieu of collecting collateral for 
non-cleared security-based swap and swap transactions--(A) Security-
based swaps. Deducting the initial margin amount calculated pursuant to 
Sec.240.18a-3(c)(1)(i)(B) for the account of a counterparty at the 
broker or dealer that is subject to a margin exception set forth in 
Sec.240.18a-

[[Page 400]]

3(c)(1)(iii), less the margin value of collateral held in the account.
    (B) Swaps. Deducting the initial margin amount calculated pursuant 
to the margin rules of the Commodity Futures Trading Commission in the 
account of a counterparty at the broker or dealer that is subject to a 
margin exception in those rules, less the margin value of collateral 
held in the account.
    (C) Treatment of collateral held at a third-party custodian. For the 
purposes of the deductions required pursuant to paragraphs (c)(2)(xv)(A) 
and (B) of this section, collateral held by an independent third-party 
custodian as initial margin may be treated as collateral held in the 
account of the counterparty at the broker or dealer if:
    (1) The independent third-party custodian is a bank as defined in 
section 3(a)(6) of the Act or a registered U.S. clearing organization or 
depository that is not affiliated with the counterparty or, if the 
collateral consists of foreign securities or currencies, a supervised 
foreign bank, clearing organization, or depository that is not 
affiliated with the counterparty and that customarily maintains custody 
of such foreign securities or currencies;
    (2) The broker or dealer, the independent third-party custodian, and 
the counterparty that delivered the collateral to the custodian have 
executed an account control agreement governing the terms under which 
the custodian holds and releases collateral pledged by the counterparty 
as initial margin that is a legal, valid, binding, and enforceable 
agreement under the laws of all relevant jurisdictions, including in the 
event of bankruptcy, insolvency, or a similar proceeding of any of the 
parties to the agreement, and that provides the broker or dealer with 
the right to access the collateral to satisfy the counterparty's 
obligations to the broker or dealer arising from transactions in the 
account of the counterparty; and
    (3) The broker or dealer maintains written documentation of its 
analysis that in the event of a legal challenge the relevant court or 
administrative authorities would find the account control agreement to 
be legal, valid, binding, and enforceable under the applicable law, 
including in the event of the receivership, conservatorship, insolvency, 
liquidation, or a similar proceeding of any of the parties to the 
agreement.

                           Exempted Securities

    (3) The term exempted securities shall mean those securities deemed 
exempted securities by section 3(a)(12) of the Securities Exchange Act 
of 1934 and rules thereunder.

                         Contractual Commitments

    (4) The term contractual commitments shall include underwriting, 
when issued, when distributed and delayed delivery contracts, the 
writing or endorsement of puts and calls and combinations thereof, 
commitments in foreign currencies, and spot (cash) commodities 
contracts, but shall not include uncleared regular way purchases and 
sales of securities and contracts in commodities futures. A series of 
contracts of purchase or sale of the same security conditioned, if at 
all, only upon issuance may be treated as an individual commitment.

                           Adequately Secured

    (5) Indebtedness shall be deemed to be adequately secured within the 
meaning of this section when the excess of the market value of the 
collateral over the amount of the indebtedness is sufficient to make the 
loan acceptable as a fully secured loan to banks regularly making 
secured loans to brokers or dealers.

                                Customer

    (6) The term customer shall mean any person from whom, or on whose 
behalf, a broker or dealer has received, acquired or holds funds or 
securities for the account of such person, but shall not include a 
broker or dealer or a registered municipal securities dealer, or a 
general, special or limited partner or director or officer of the broker 
or dealer, or any person to the extent that such person has a claim for 
property or funds which by contract, agreement, or understanding, or by 
operation of law, is part of the capital of the broker or dealer. 
Provided, however, That the term ``customer'' shall also include a

[[Page 401]]

broker or dealer, but only insofar as such broker or dealer maintains a 
special omnibus account carried with another broker or dealer in 
compliance with 12 CFR 220.4(b) of Regulation T under the Securities 
Exchange Act of 1934.

                              Non-Customer

    (7) The term non-customer means a broker or dealer, registered 
municipal securities dealer, general partner, limited partner, officer, 
director and persons to the extent their claims are subordinated to the 
claims of creditors of the broker or dealer.

                              Market Maker

    (8) The term market maker shall mean a dealer who, with respect to a 
particular security, (i) regularly publishes bona fide, competitive bid 
and offer quotations in a recognized interdealer quotation system; or 
(ii) furnishes bona fide competitive bid and offer quotations on 
request; and, (iii) is ready, willing and able to effect transactions in 
reasonable quantities at his quoted prices with other brokers or 
dealers.

                      Promptly Transmit and Deliver

    (9) A broker or dealer is deemed to ``promptly transmit'' all funds 
and to ``promptly deliver'' all securities within the meaning of 
paragraphs (a)(2)(i) and (a)(2)(v) of this section where such 
transmission or delivery is made no later than noon of the next business 
day after the receipt of such funds or securities; provided, however, 
that such prompt transmission or delivery shall not be required to be 
effected prior to the settlement date for such transaction.

                            Promptly Forward

    (10) A broker or dealer is deemed to ``promptly forward'' funds or 
securities within the meaning of paragraph (a)(2)(i) of this section 
only when such forwarding occurs no later than noon of the next business 
day following receipt of such funds or securities.

                              Ready Market

    (11)(i) The term ready market shall include a recognized established 
securities market in which there exists independent bona fide offers to 
buy and sell so that a price reasonably related to the last sales price 
or current bona fide competitive bid and offer quotations can be 
determined for a particular security almost instantaneously and where 
payment will be received in settlement of a sale at such price within a 
relatively short time conforming to trade custom.
    (ii) A ready market shall also be deemed to exist where securities 
have been accepted as collateral for a loan by a bank as defined in 
section 3(a)(6) of the Securities Exchange Act of 1934 and where the 
broker or dealer demonstrates to its Examining Authority that such 
securities adequately secure such loans as that term is defined in 
paragraph (c)(5) of this section.

                           Examining Authority

    (12) The term Examining Authority of a broker or dealer shall mean 
for the purposes of 17 CFR 240.15c3-1 and 240.15c3-1a-d the national 
securities exchange or national securities association of which the 
broker or dealer is a member or, if the broker or dealer is a member of 
more than one such self-regulatory organization, the organization 
designated by the Commission as the Examining Authority for such broker 
or dealer, or if the broker or dealer is not a member of any such self-
regulatory organization, the Regional Office of the Commission where 
such broker or dealer has its principal place of business.

                Entities That Have a Principal Regulator

    (13)(i) For purposes of Sec.240.15c3-1e and Sec.240.15c3-1g, the 
term entity that has a principal regulator shall mean a person (other 
than a natural person) that is not a registered broker or dealer (other 
than a broker or dealer registered under section 15(b)(11) of the Act 
(15 U.S.C. 78o(b)(11)), provided that the person is:
    (A) An insured depository institution as defined in section 3(c)(2) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2));
    (B) Registered as a futures commission merchant or an introducing

[[Page 402]]

broker with the Commodity Futures Trading Commission;
    (C) Registered with or licensed by a State insurance regulator and 
issues any insurance, endowment, or annuity policy or contract;
    (D) A foreign bank as defined in section 1(b)(7) of the 
International Banking Act of 1978 (12 U.S.C. 3101(7)) that has its 
headquarters in a jurisdiction for which any foreign bank has been 
approved by the Board of Governors of the Federal Reserve System to 
conduct business pursuant to the standards set forth in 12 CFR 
211.24(c), provided such foreign bank represents to the Commission that 
it is subject to the same supervisory regime as the foreign bank 
previously approved by the Board of Governors of the Federal Reserve 
System;
    (E) Not primarily in the securities business, and the person is:
    (1) A corporation organized under section 25A of the Federal Reserve 
Act (12 U.S.C. 611 through 633); or
    (2) A corporation having an agreement or undertaking with the Board 
of Governors of the Federal Reserve System under section 25 of the 
Federal Reserve Act (12 U.S.C. 601 through 604a); or
    (F) A person that the Commission finds is another entity that is 
subject to comprehensive supervision, has in place appropriate 
arrangements so that information that the person provides to the 
Commission is sufficiently reliable for the purposes of determining 
compliance with Sec.240.15c3-1e and Sec.240.15c3-1g, and it is 
appropriate to consider the person to be an entity that has a principal 
regulator considering all relevant circumstances, including the person's 
mix of business.
    (ii) For purposes of Sec.Sec.240.15c3-1e, 240.15c3-1g, 240.17h-
1T, and 240.17h2T, the term ultimate holding company that has a 
principal regulator shall mean a person (other than a natural person) 
that:
    (A) Is a financial holding company or a company that is treated as a 
financial holding company under the Bank Holding Company Act of 1956 (12 
U.S.C. 1840 et seq.), or
    (B) The Commission determines to be an ultimate holding company that 
has a principal regulator, if that person is subject to consolidated, 
comprehensive supervision; there are in place appropriate arrangements 
so that information that the person provides to the Commission is 
sufficiently reliable for the purposes of determining compliance with 
Sec.240.15c3-1e and Sec.240.15c3-1g; and it is appropriate to 
consider the person to be an ultimate holding company that has a 
principal regulator in view of all relevant circumstances, including the 
person's mix of business.
    (14) The term municipal securities shall mean those securities 
included within the definition of ``municipal securities'' in section 
3(a)(29) of the Securities Exchange Act of 1934.
    (15) The term tentative net capital shall mean the net capital of a 
broker or dealer before deducting the securities haircuts computed 
pursuant to paragraph (c)(2)(vi) of this section and the charges on 
inventory computed pursuant to appendix B to this section (Sec.
240.15c3-1b). However, for purposes of paragraph (a)(5) of this section, 
the term tentative net capital means the net capital of an OTC 
derivatives dealer before deducting the charges for market and credit 
risk as computed pursuant to appendix F to this section (Sec.240.15c3-
1f) or paragraph (c)(2)(vi) of this section, if applicable, and 
increased by the balance sheet value (including counterparty net 
exposure) resulting from transactions in eligible OTC derivative 
instruments which would otherwise be deducted by virtue of paragraph 
(c)(2)(iv) of this section. For purposes of paragraph (a)(7) of this 
section, the term tentative net capital means the net capital of the 
broker or dealer before deductions for market and credit risk computed 
pursuant to Sec.240.15c3-1e or paragraph (c)(2)(vi) of this section, 
if applicable, and increased by the balance sheet value (including 
counterparty net exposure) resulting from transactions in derivative 
instruments which would otherwise be deducted by virtue of paragraph 
(c)(2)(iv) of this section. Tentative net capital shall include 
securities for which there is no ready market, as defined in paragraph 
(c)(11) of this section, if the use of mathematical models has been 
approved for purposes of calculating deductions from net capital

[[Page 403]]

for those securities pursuant to Sec.240.15c3-1e.

                                Insolvent

    (16) For the purposes of this section, a broker or dealer is 
insolvent if the broker or dealer:
    (i) Is the subject of any bankruptcy, equity receivership proceeding 
or any other proceeding to reorganize, conserve, or liquidate such 
broker or dealer or its property or is applying for the appointment or 
election of a receiver, trustee, or liquidator or similar official for 
such broker or dealer or its property;
    (ii) Has made a general assignment for the benefit of creditors;
    (iii) Is insolvent within the meaning of section 101 of title 11 of 
the United States Code, or is unable to meet its obligations as they 
mature, and has made an admission to such effect in writing or in any 
court or before any agency of the United States or any State; or
    (iv) Is unable to make such computations as may be necessary to 
establish compliance with this section or with Sec.240.15c3-3.
    (17) The term risk margin amount means the sum of:
    (i) The total initial margin required to be maintained by the broker 
or dealer at each clearing agency with respect to security-based swap 
transactions cleared for security-based swap customers; and
    (ii) The total initial margin amount calculated by the broker or 
dealer with respect to non-cleared security-based swaps pursuant to 
Sec.240.18a-3(c)(1)(i)(B).
    (d) Debt-equity requirements. No broker or dealer shall permit the 
total of outstanding principal amounts of its satisfactory subordination 
agreements (other than such agreements which qualify under this 
paragraph (d) as equity capital) to exceed 70 percent of its debt-equity 
total, as hereinafter defined, for a period in excess of 90 days or for 
such longer period which the Commission may, upon application of the 
broker or dealer, grant in the public interest or for the protection of 
investors. In the case of a corporation, the debt-equity total shall be 
the sum of its outstanding principal amounts of satisfactory 
subordination agreements, par or stated value of capital stock, paid in 
capital in excess of par, retained earnings, unrealized profit and loss 
or other capital accounts. In the case of a partnership, the debt-equity 
total shall be the sum of its outstanding principal amounts of 
satisfactory subordination agreements, capital accounts of partners 
(exclusive of such partners' securities accounts) subject to the 
provisions of paragraph (e) of this section, and unrealized profit and 
loss. In the case of a sole proprietorship, the debt-equity total shall 
include the sum of its outstanding principal amounts of satisfactory 
subordination agreements, capital accounts of the sole proprietorship 
and unrealized profit and loss. Provided, however, That a satisfactory 
subordination agreement entered into by a partner or stockholder which 
has an initial term of at least three years and has a remaining term of 
not less than 12 months shall be considered equity for the purposes of 
this paragraph (d) if:
    (1) It does not have any of the provisions for accelerated maturity 
provided for by paragraphs (b)(9)(i), (10)(i) or (10)(ii) of Appendix 
(D) (17 CFR 240.15c3-1d) and is maintained as capital subject to the 
provisions restricting the withdrawal thereof required by paragraph (e) 
of this section or
    (2) The partnership agreement provides that capital contributed 
pursuant to a satisfactory subordination agreement as defined in 
Appendix (D) (17 CFR 240.15c3-1d) shall in all respects be partnership 
capital subject to the provisions restricting the withdrawal thereof 
required by paragraph (e) of this section.
    (e)(1) Notice provisions relating to limitations on the withdrawal 
of equity capital. No equity capital of the broker or dealer or a 
subsidiary or affiliate consolidated pursuant to appendix C (17 CFR 
240.15c3-1c) may be withdrawn by action of a stockholder or a partner or 
by redemption or repurchase of shares of stock by any of the 
consolidated entities or through the payment of dividends or any similar 
distribution, nor may any unsecured advance or loan be made to a 
stockholder, partner, sole proprietor, employee or affiliate without 
written notice given in accordance

[[Page 404]]

with paragraph (e)(1)(iv) of this section:
    (i) Two business days prior to any withdrawals, advances or loans if 
those withdrawals, advances or loans on a net basis exceed in the 
aggregate in any 30 calendar day period, 30 percent of the broker or 
dealer's excess net capital. A broker or dealer, in an emergency 
situation, may make withdrawals, advances or loans that on a net basis 
exceed 30 percent of the broker or dealer's excess net capital in any 30 
calendar day period without giving the advance notice required by this 
paragraph, with the prior approval of its Examining Authority. Where a 
broker or dealer makes a withdrawal with the consent of its Examining 
Authority, it shall in any event comply with paragraph (e)(1)(ii) of 
this section; or
    (ii) Two business days after any withdrawals, advances or loans if 
those withdrawals, advances or loans on a net basis exceed in the 
aggregate in any 30 calendar day period, 20 percent of the broker or 
dealer's excess net capital.
    (iii) This paragraph (e)(1) does not apply to:
    (A) Securities or commodities transactions in the ordinary course of 
business between a broker or dealer and an affiliate where the broker or 
dealer makes payment to or on behalf of such affiliate for such 
transaction and then receives payment from such affiliate for the 
securities or commodities transaction within two business days from the 
date of the transaction; or
    (B) Withdrawals, advances or loans which in the aggregate in any 
thirty calendar day period, on a net basis, equal $500,000 or less.
    (iv) Each required notice shall be effective when received by the 
Commission in Washington, DC, the regional office of the Commission for 
the region in which the broker or dealer has its principal place of 
business, the broker or dealer's Examining Authority and the Commodity 
Futures Trading Commission if such broker or dealer is registered with 
that Commission.
    (2) Limitations on Withdrawal of equity capital. No equity capital 
of the broker or dealer or a subsidiary or affiliate consolidated 
pursuant to appendix C (17 CFR 240.15c3-1c) may be withdrawn by action 
of a stockholder or a partner or by redemption or repurchase of shares 
of stock by any of the consolidated entities or through the payment of 
dividends or any similar distribution, nor may any unsecured advance or 
loan be made to a stockholder, partner, sole proprietor, employee or 
affiliate, if after giving effect thereto and to any other such 
withdrawals, advances or loans and any Payments of Payment Obligations 
(as defined in appendix D (17 CFR 240.15c3-1d)) under satisfactory 
subordination agreements which are scheduled to occur within 180 days 
following such withdrawal, advance or loan if:
    (i) The broker or dealer's net capital would be less than 120 
percent of the minimum dollar amount required by paragraph (a) of this 
section;
    (ii) The broker-dealer is registered as a futures commission 
merchant, its net capital would be less than 7 percent of the funds 
required to be segregated pursuant to the Commodity Exchange Act and the 
regulations thereunder (less the market value of commodity options 
purchased by option customers on or subject to the rules of a contract 
market, each such deduction not to exceed the amount of funds in the 
option customer's account);
    (iii) The broker-dealer's net capital would be less than 25 percent 
of deductions from net worth in computing net capital required by 
paragraphs (c)(2)(vi), (f) and appendix A, of this section, unless the 
broker or dealer has the prior approval of the Commission to make such 
withdrawal;
    (iv) The total outstanding principal amounts of satisfactory 
subordination agreements of the broker or dealer and any subsidiaries or 
affiliates consolidated pursuant to appendix C (17 CFR 240.15c3-1c) 
(other than such agreements which qualify as equity under paragraph (d) 
of this section) would exceed 70% of the debt-equity total as defined in 
paragraph (d) of this section;
    (v) The broker or dealer is subject to the aggregate indebtedness 
limitations of paragraph (a) of this section, the aggregate indebtedness 
of any of the consolidated entities exceeds 1000 percent of its net 
capital; or

[[Page 405]]

    (vi) The broker or dealer is subject to the alternative net capital 
requirement of paragraph (f) of this section, its net capital would be 
less than 5 percent of aggregate debit items computed in accordance with 
17 CFR 240.15c3-3a.
    (3)(i) Temporary restrictions on withdrawal of net capital. The 
Commission may by order restrict, for a period of up to twenty business 
days, any withdrawal by the broker or dealer of equity capital or 
unsecured loan or advance to a stockholder, partner, sole proprietor, 
member, employee or affiliate under such terms and conditions as the 
Commission deems necessary or appropriate in the public interest or 
consistent with the protection of investors if the Commission, based on 
the information available, concludes that such withdrawal, advance or 
loan may be detrimental to the financial integrity of the broker or 
dealer, or may unduly jeopardize the broker or dealer's ability to repay 
its customer claims or other liabilities which may cause a significant 
impact on the markets or expose the customers or creditors of the broker 
or dealer to loss without taking into account the application of the 
Securities Investor Protection Act of 1970.
    (ii) An order temporarily prohibiting the withdrawal of capital 
shall be rescinded if the Commission determines that the restriction on 
capital withdrawal should not remain in effect. A hearing on an order 
temporarily prohibiting the withdrawal of capital will be held within 
two business days from the date of the request in writing by the broker 
or dealer.
    (4)(i) Miscellaneous provisions. Excess net capital is that amount 
in excess of the amount required under paragraph (a) of this section. 
For the purposes of paragraphs (e)(1) and (e)(2) of this section, a 
broker or dealer may use the amount of excess net capital and deductions 
required under paragraphs (c)(2)(vi), (f) and appendix A of this section 
reported in its most recently required filed Form X-17A-5 for the 
purposes of calculating the effect of a projected withdrawal, advance or 
loan relative to excess net capital or deductions. The broker or dealer 
must assure itself that the excess net capital or the deductions 
reported on the most recently required filed Form X-17A-5 have not 
materially changed since the time such report was filed.
    (ii) The term equity capital includes capital contributions by 
partners, par or stated value of capital stock, paid-in capital in 
excess of par, retained earnings or other capital accounts. The term 
equity capital does not include securities in the securities accounts of 
partners and balances in limited partners' capital accounts in excess of 
their stated capital contributions.
    (iii) Paragraphs (e)(1) and (e)(2) of this section shall not 
preclude a broker or dealer from making required tax payments or 
preclude the payment to partners of reasonable compensation, and such 
payments shall not be included in the calculation of withdrawals, 
advances, or loans for purposes of paragraphs (e)(1) and (e)(2) of this 
section.
    (iv) For the purpose of this paragraph (e) of this section, any 
transaction between a broker or dealer and a stockholder, partner, sole 
proprietor, employee or affiliate that results in a diminution of the 
broker or dealer's net capital shall be deemed to be an advance or loan 
of net capital.

[40 FR 29799, July 16, 1975]

    Editorial Note: For Federal Register citations affecting Sec.
240.15c3-1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.240.15c3-1a  Options (Appendix A to 17 CFR 240.15c3-1).

    (a) Definitions. (1) The term unlisted option shall mean any option 
not included in the definition of listed option provided in paragraph 
(c)(2)(x) of Sec.240.15c3-1.
    (2) The term option series refers to listed option contracts of the 
same type (either a call or a put) and exercise style, covering the same 
underlying security with the same exercise price, expiration date, and 
number of underlying units.
    (3) The term related instrument within an option class or product 
group refers to futures contracts, options on futures contracts, 
security-based swaps on a narrow-based security index, and swaps 
covering the same underlying instrument. In relation to options on 
foreign

[[Page 406]]

currencies, a related instrument within an option class also shall 
include forward contracts on the same underlying currency.
    (4) The term underlying instrument refers to long and short 
positions, as appropriate, covering the same foreign currency, the same 
security, security future, or security-based swap other than a security-
based swap on a narrow-based security index, or a security which is 
exchangeable for or convertible into the underlying security within a 
period of 90 days. If the exchange or conversion requires the payment of 
money or results in a loss upon conversion at the time when the security 
is deemed an underlying instrument for purposes of this section, the 
broker or dealer will deduct from net worth the full amount of the 
conversion loss. The term underlying instrument shall not be deemed to 
include securities options, futures contracts, options on futures 
contracts, security-based swaps on a narrow-based security index, 
qualified stock baskets, unlisted instruments, or swaps.
    (5) The term options class refers to all options contracts covering 
the same underlying instrument.
    (6) The term product group refers to two or more option classes, 
related instruments, underlying instruments, and qualified stock baskets 
in the same portfolio type (see paragraph (b)(1)(ii) of this section) 
for which it has been determined that a percentage of offsetting profits 
may be applied to losses at the same valuation point.
    (b) The deduction under this Appendix A to Sec.240.15c3-1 shall 
equal the sum of the deductions specified in paragraphs (b)(1)(v)(C) or 
(b)(2) of this section.

                       Theoretical Pricing Charges

    (1)(i) Definitions. (A) The terms theoretical gains and losses shall 
mean the gain and loss in the value of individual option series, the 
value of underlying instruments, related instruments, and qualified 
stock baskets within that option's class, at 10 equidistant intervals 
(valuation points) ranging from an assumed movement (both up and down) 
in the current market value of the underlying instrument equal to the 
percentage corresponding to the deductions otherwise required under 
Sec.240.15c3-1 for the underlying instrument (See paragraph 
(a)(1)(iii) of this section). Theoretical gains and losses shall be 
calculated using a theoretical options pricing model that satisfies the 
criteria set forth in paragraph (a)(1)(i)(B) of this section.
    (B) The term theoretical options pricing model shall mean any 
mathematical model, other than a broker-dealer proprietary model, 
approved by a Designated Examining Authority. Such Designated Examining 
Authority shall submit the model to the Commission, together with a 
description of its methods for approving models. Any such model shall 
calculate theoretical gains and losses as described in paragraph 
(a)(1)(i)(A) of this section for all series and issues of equity, index 
and foreign currency options and related instruments, and shall be made 
available equally and on the same terms to all registered brokers or 
dealers. Its procedures shall include the arrangement of the vendor to 
supply accurate and timely data to each broker-dealer with respect to 
its services, and the fees for distribution of the services. The data 
provided to brokers or dealers shall also contain the minimum 
requirements set forth in paragraphs (b)(1)(v)(C) of this section and 
the product group offsets set forth in paragraphs (b)(1)(v)(B) of this 
section. At a minimum, the model shall consider the following factors in 
pricing the option:
    (1) The current spot price of the underlying asset;
    (2) The exercise price of the option;
    (3) The remaining time until the option's expiration;
    (4) The volatility of the underlying asset;
    (5) Any cash flows associated with ownership of the underlying asset 
that can reasonably be expected to occur during the remaining life of 
the option; and
    (6) The current term structure of interest rates.
    (C) The term major market foreign currency shall mean the currency 
of a sovereign nation for which there is a substantial inter-bank 
forward currency market.

[[Page 407]]

    (D) The term qualified stock basket shall mean a set or basket of 
stock positions which represents no less than 50% of the capitalization 
for a high-capitalization or non-high-capitalization diversified market 
index, or, in the case of a narrow-based index, no less than 95% of the 
capitalization for such narrow-based index.
    (ii) With respect to positions involving listed options in a single 
specialist's market-maker account, and, separately, with respect to 
positions involving listed option positions in its proprietary or other 
account, the broker or dealer shall group long and short positions into 
the following portfolio types:
    (A) Equity options on the same underlying instrument and positions 
in that underlying instrument;
    (B) Options on the same major market foreign currency, positions in 
that major market foreign currency, and related instruments within those 
options' classes;
    (C) High-capitalization diversified market index options, related 
instruments within the option's class, and qualified stock baskets in 
the same index;
    (D) Non-high-capitalization diversified index options, related 
instruments within the index option's class, and qualified stock baskets 
in the same index; and
    (E) Narrow-based index options, related instruments within the index 
option's class, and qualified stock baskets in the same index.
    (iii) Before making the computation, each broker or dealer shall 
obtain the theoretical gains and losses for each options series and for 
the related and underlying instruments within those options' class in 
each specialist's market-maker account guaranteed, endorsed, or carried 
by a broker or dealer, or in the proprietary or other accounts of that 
broker or dealer. For each option series, the theoretical options 
pricing model shall calculate theoretical prices at 10 equidistant 
valuation points within a range consisting of an increase or a decrease 
of the following percentages of the daily market price of the underlying 
instrument:
    (A) + (-)15% for equity securities with a ready market, narrow-based 
indexes, and non-high-capitalization diversified indexes;
    (B) + (-)6% for major market foreign currencies;
    (C) + (-) 20% for all other currencies; and
    (D) + (-)10% for high-capitalization diversified indexes.
    (iv) As to non-clearing option specialists and market-makers, the 
percentages of the daily market price of the underlying instrument shall 
be:
    (A) + (-) 4\1/2\% for major market foreign currencies; and
    (B) + 6(-)8% for high-capitalization diversified indexes.
    (C) + (-) 10% for a non-clearing market-maker, or specialist in non-
high capitalization diversified index product group.
    (v)(A) The broker or dealer shall multiply the corresponding 
theoretical gains and losses at each of the 10 equidistant valuation 
points by the number of positions held in a particular options series, 
the related instruments and qualified stock baskets within the option's 
class, and the positions in the same underlying instrument.
    (B) In determining the aggregate profit or loss for each portfolio 
type, the broker or dealer will be allowed the following offsets in the 
following order, provided, that in the case of qualified stock baskets, 
the broker or dealer may elect to net individual stocks between 
qualified stock baskets and take the appropriate deduction on the 
remaining, if any, securities:
    (1) First, a broker or dealer is allowed the following offsets 
within an option's class:
    (i) Between options on the same underlying instrument, positions 
covering the same underlying instrument, and related instruments within 
the option's class, 100% of a position's gain shall offset another 
position's loss at the same valuation point;
    (ii) Between index options, related instruments within the option's 
class, and qualified stock baskets on the same index, 95%, or such other 
amount as designated by the Commission, of gains shall offset losses at 
the same valuation point;
    (2) Second, a broker-dealer is allowed the following offsets within 
an index product group:

[[Page 408]]

    (i) Among positions involving different high-capitalization 
diversified index option classes within the same product group, 90% of 
the gain in a high-capitalization diversified market index option, 
related instruments, and qualified stock baskets within that index 
option's class shall offset the loss at the same valuation point in a 
different high-capitalization diversified market index option, related 
instruments, and qualified stock baskets within that index option's 
class;
    (ii) Among positions involving different non-high-capitalization 
diversified index option classes within the same product group, 75% of 
the gain in a non-high-capitalization diversified market index option, 
related instruments, and qualified stock baskets within that index 
option's class shall offset the loss at the same valuation point in 
another non-high-capitalization diversified market index option, related 
instruments, and qualified stock baskets within that index option's 
class or product group;
    (iii) Among positions involving different narrow-based index option 
classes within the same product group, 90% of the gain in a narrow-based 
market index option, related instruments, and qualified stock baskets 
within that index option's class shall offset the loss at the same 
valuation point in another narrow-based market index option, related 
instruments, and qualified stock baskets within that index option's 
class or product group;
    (iv) No qualified stock basket should offset another qualified stock 
basket; and
    (3) Third, a broker-dealer is allowed the following offsets between 
product groups: Among positions involving different diversified index 
product groups within the same market group, 50% of the gain in a 
diversified market index option, a related instrument, or a qualified 
stock basket within that index option's product group shall offset the 
loss at the same valuation point in another product group;
    (C) For each portfolio type, the total deduction shall be the larger 
of:
    (1) The amount for any of the 10 equidistant valuation points 
representing the largest theoretical loss after applying the offsets 
provided in paragraph (b)(1)(v)(B) if this section; or
    (2) A minimum charge equal to 25% times the multiplier for each 
equity and index option contract and each related instrument within the 
option's class or product group, or $25 for each option on a major 
market foreign currency with the minimum charge for futures contracts 
and options on futures contracts adjusted for contract size 
differentials, not to exceed market value in the case of long positions 
in options and options on futures contracts; plus
    (3) In the case of portfolio types involving index options and 
related instruments offset by a qualified stock basket, there will be a 
minimum charge of 5 percent of the market value of the qualified stock 
basket for high-capitalization diversified and narrow-based indexes;
    (4) In the case of portfolio types involving index options and 
related instruments offset by a qualified stock basket, there will be a 
minimum charge of 7 \1/2\ percent of the market value of the qualified 
stock basket for non-high-capitalization diversified indexes; and
    (5) In the case of portfolio types involving security futures and 
equity options on the same underlying instrument and positions in that 
underlying instrument, there will be a minimum charge of 25 percent 
times the multiplier for each security future and equity option.

                    Alternative Strategy Based Method

    (2) A broker or dealer may elect to apply the alternative strategy 
based method in accordance with the provisions of this paragraph (b)(2).
    (i) Definitions. (A) The term intrinsic value or in-the-money amount 
shall mean the amount by which the exercise value, in the case of a 
call, is less than the current market value of the underlying 
instrument, and, in the case of a put, is greater than the current 
market value of the underlying instrument.
    (B) The term out-of-the-money amount shall mean the amount by which 
the exercise value, in the case of a call, is greater than the current 
market value of the underlying instrument, and, in

[[Page 409]]

the case of a put, is less than the current market value of the 
underlying instrument.
    (C) The term time value shall mean the current market value of an 
option contract that is in excess of its intrinsic value.
    (ii) Every broker or dealer electing to calculate adjustments to net 
worth in accordance with the provisions of this paragraph (b)(2) must 
make the following adjustments to net worth:
    (A) Add the time value of a short position in a listed option; and
    (B) Deduct the time value of a long position in a listed option, 
which relates to a position in the same underlying instrument or in a 
related instrument within the option class or product group as 
recognized in the strategies enumerated in paragraph (b)(2)(iii)(D) of 
this section; and
    (C) Add the net short market value or deduct the long market value 
of listed options as recognized in the strategies enumerated in 
paragraphs (b)(2)(iii)(E)(1) and (2) of this section.
    (iii) In computing net capital after the adjustments provided for in 
paragraph (b)(2)(ii) of this section, every broker or dealer shall 
deduct the percentages specified in this paragraph (b)(2)(iii) for all 
listed option positions, positions covering the same underlying 
instrument and related instruments within the options' class or product 
group.

                             Uncovered Calls

    (A) Where a broker or dealer is short a call, deducting the 
percentage required by paragraphs (c)(2)(vi) (A) through (K) of Sec.
240.15c3-1 of the current market value of the underlying instrument for 
such option reduced by its out-of-the-money amount, to the extent that 
such reduction does not operate to increase net capital. In no event 
shall this deduction be less than the greater of $250 for each short 
call option contract for 100 shares or 50% of the aforementioned 
percentage.

                             Uncovered Puts

    (B) Where a broker or dealer is short a put, deducting the 
percentage required by paragraphs (c)(2)(vi) (A) through (K) of Sec.
240.15c3-1 of the current market value of the underlying instrument for 
such option reduced by its out-of-the-money amount, to the extent that 
such reduction does not operate to increase net capital. In no event 
shall the deduction provided by this paragraph be less than the greater 
of $250 for each short put option contract for 100 shares or 50% of the 
aforementioned percentage.

                             Long Positions

    (C) Where a broker or dealer is long puts or calls, deducting 50 
percent of the market value of the net long put and call positions in 
the same options series.

           Certain Security Positions With Offsetting Options

    (D)(1) Where a broker or dealer is long a put for which it has an 
offsetting long position in the same number of units of the same 
underlying instrument, deducting the percentage required by paragraphs 
(c)(2)(vi) (A) through (K) of Sec.240.15c3-1 of the current market 
value of the underlying instrument for the long offsetting position, not 
to exceed the out-of-the-money amount of the option. In no event shall 
the deduction provided by this paragraph be less than $25 for each 
option contract for 100 shares, provided that the minimum charge need 
not exceed the intrinsic value of the option.
    (2) Where a broker or dealer is long a call for which it has an 
offsetting short position in the same number of units of the same 
underlying instrument, deducting the percentage required by paragraphs 
(c)(2)(vi) (A) through (K) of Sec.240.15c3-1 of the current market 
value of the underlying instrument for the short offsetting position, 
not to exceed the out-of-the-money amount of the option. In no event 
shall the deduction provided by this paragraph be less than $25 for each 
option contract for 100 shares, provided that the minimum charge need 
not exceed the intrinsic value of the option.
    (3) Where a broker or dealer is short a call for which it has an 
offsetting long position in the same number of units of the same 
underlying instrument, deducting the percentage required by paragraphs 
(c)(2)(vi) (A)

[[Page 410]]

through (K) of Sec.240.15c3-1 of the current market value of the 
underlying instrument for the offsetting long position reduced by the 
short call's intrinsic value. In no event shall the deduction provided 
by this paragraph be less than $25 for each option contract for 100 
shares.

                        Certain Spread Positions

    (E)(1) Where a broker or dealer is short a listed call and is also 
long a listed call in the same class of options contracts and the long 
option expires on the same date as or subsequent to the short option, 
the deduction, after adjustments required in paragraph (b) of this 
section, shall be the amount by which the exercise value of the long 
call exceeds the exercise value of the short call. If the exercise value 
of the long call is less than or equal to the exercise value of the 
short call, no deduction is required.
    (2) Where a broker or dealer is short a listed put and is also long 
a listed put in the same class of options contracts and the long option 
expires on the same date as or subsequent to the short option, the 
deduction, after the adjustments required in paragraph (b) of this 
section, shall be the amount by which the exercise value of the short 
put exceeds the exercise value of the long put. If the exercise value of 
the long put is equal to or greater than the exercise value of the short 
put, no deduction is required.
    (c) With respect to transactions involving unlisted options, every 
broker or dealer shall determine the value of unlisted option positions 
in accordance with the provision of paragraph (c)(2)(i) of Sec.
240.15c3-1, and shall deduct the percentages of all securities positions 
or unlisted options in the proprietary or other accounts of the broker 
or dealer specified in this paragraph (c). However, where computing the 
deduction required for a security position as if the security position 
had no related unlisted option position and positions in unlisted 
options as if uncovered would result in a lesser deduction from net 
worth, the broker or dealer may compute such deductions separately.

                             Uncovered Calls

    (1) Where a broker or dealer is short a call, deducting 15 percent 
(or such other percentage required by paragraphs (c)(2)(vi) (A) through 
(K) of Sec.240.15c3-1) of the current market value of the security 
underlying such option reduced by any excess of the exercise value of 
the call over the current market value of the underlying security. In no 
event shall the deduction provided by this paragraph be less than $250 
for each option contract for 100 shares.

                             Uncovered Puts

    (2) Where a broker or dealer is short a put, deducting 15 percent 
(or such other percentage required by paragraphs (c)(2)(vi) (A) through 
(K) of Sec.240.15c3-1) of the current market value of the security 
underlying the option reduced by any excess of the market value of the 
underlying security over the exercise value of the put. In no event 
shall the deduction provided by this paragraph be less than $250 for 
each option contract for 100 shares.

                              Covered Calls

    (3) Where a broker or dealer is short a call and long equivalent 
units of the underlying security, deducting 15 percent (or such other 
percentage required by paragraphs (c)(2)(vi) (A) through (K) of Sec.
240.15c3-1) of the current market value of the underlying security 
reduced by any excess of the current market value of the underlying 
security over the exercise value of the call. No reduction under this 
paragraph shall have the effect of increasing net capital.

                              Covered Puts

    (4) Where a broker or dealer is short a put and short equivalent 
units of the underlying security, deducting 15 percent (or such other 
percentage required by paragraphs (c)(2)(vi) (A) through (K) of Sec.
240.15c3-1) of the current market value of the underlying security 
reduced by any excess of the exercise value of the put over the market 
value of the underlying security. No such reduction shall have the 
effect of increasing net capital.

[[Page 411]]

                           Conversion Accounts

    (5) Where a broker or dealer is long equivalent units of the 
underlying security, long a put written or endorsed by a broker or 
dealer and short a call in its proprietary or other accounts, deducting 
5 percent (or 50 percent of such other percentage required by paragraphs 
(c)(2)(vi) (A) through (K) of Sec.240.15c3-1) of the current market 
value of the underlying security.
    (6) Where a broker or dealer is short equivalent units of the 
underlying security, long a call written or endorsed by a broker or 
dealer and short a put in his proprietary or other accounts, deducting 5 
percent (or 50 percent of such other percentage required by paragraphs 
(c)(2)(vi) (A) through (K) of Sec.240.15c3-1) of the market value of 
the underlying security.

                              Long Options

    (7) Where a broker or dealer is long a put or call endorsed or 
written by a broker or dealer, deducting 15 percent (or such other 
percentage required by paragraphs (c)(2)(vi) (A) through (K) of Sec.
240.15c3-1) of the market value of the underlying security, not to 
exceed any value attributed to such option in paragraph (c)(2)(i) of 
Sec.240.15c3-1.

[62 FR 6481, Feb. 12, 1997, as amended at 78 FR 51901, Aug. 21, 2013; 79 
FR 1549, Jan. 8, 2014; 84 FR 44044, Aug. 22, 2019]



Sec.240.15c3-1b  Adjustments to net worth and aggregate indebtedness
for certain commodities transactions (appendix B to 17 CFR 240.15c3-1).

    (a) Every broker or dealer in computing net capital pursuant to 17 
CFR 240.15c3-1 shall comply with the following:
    (1) Where a broker or dealer has an asset or liability which is 
treated or defined in paragraph (c) of 17 CFR 240.15c3-1, the inclusion 
or exclusion of all or part of such asset or liability for the 
computation of aggregate indebtedness and net capital shall be in 
accordance with paragraph (c) of 17 CFR 240.15c3-1, except as 
specifically provided otherwise in this appendix B. Where a commodity 
related asset or liability is specifically treated or defined in 17 CFR 
1.17 and is not generally or specifically treated or defined in 17 CFR 
240.15c3-1 or this appendix B, the inclusion or exclusion of all or part 
of such asset or liability for the computation of aggregate indebtedness 
and net capital shall be in accordance with 17 CFR 1.17.

                         Aggregate Indebtedness

    (2) The term aggregate indebtedness as defined in paragraph (c)(1) 
of this section shall exclude with respect to commodity-related 
transactions:
    (i) Indebtedness arising in connection with an advance to a non-
proprietary account when such indebtedness is adequately collateralized 
by spot commodities eligible for delivery on a contract market and when 
such spot commodities are covered.
    (ii) Advances received by the broker or dealer against bills of 
lading issued in connection with the shipment of commodities sold by the 
broker or dealer; and
    (iii) Equity balances in the accounts of general partners.

                               Net Capital

    (3) In computing net capital as defined in paragraph (c)(2) of this 
section, the net worth of a broker or dealer shall be adjusted as 
follows with respect to commodity-related transactions:
    (i) Unrealized profit or loss for certain commodities transactions. 
(A) Unrealized profits shall be added and unrealized losses shall be 
deducted in the commodities accounts of the broker or dealer, including 
unrealized profits and losses on fixed price commitments and forward 
contracts; and
    (B) The value attributed to any commodity option which is not traded 
on a contract market shall be the difference between the option's strike 
price and the market value for the physical or futures contract which is 
the subject of the option. In the case of a long call commodity option, 
if the market value for the physical or futures contract which is the 
subject of the option is less than the strike price of the option, it 
shall be given no value. In the case of a long put commodity option, if 
the market value for the physical commodity or futures contract which is 
the subject of the option is more than the

[[Page 412]]

striking price of the option, it shall be given no value.
    (ii) Deduct any unsecured commodity futures or option account 
containing a ledger balance and open trades, the combination of which 
liquidates to a deficit or containing a debit ledger balance only: 
Provided, however, Deficits or debit ledger balances in unsecured 
customers', non-customers' and proprietary accounts, which are the 
subject of calls for margin or other required deposits need not be 
deducted until the close of business on the business day following the 
date on which such deficit or debit ledger balance originated;
    (iii) Deduct all unsecured receivables, advances and loans except 
for:
    (A) Management fees receivable from commodity pools outstanding no 
longer than thirty (30) days from the date they are due;
    (B) Receivables from foreign clearing organizations;
    (C) Receivables from registered futures commission merchants or 
brokers, resulting from cleared swap transactions or, commodity futures 
or option transactions, except those specifically excluded under 
paragraph (3)(ii) of this appendix B. In the case of an introducing 
broker or an applicant for registration as an introducing broker, 
include 50 percent of the value of a guarantee or security deposit with 
a futures commission merchant which carries or intends to carry accounts 
for the customers of the introducing broker.
    (iv) Deduct all inventories (including work in process, finished 
goods, raw materials and inventories held for resale) except for readily 
marketable spot commodities; or spot commodities which adequately 
collateralize indebtedness under paragraph (c)(7) of 17 CFR 1.17;
    (v) Guarantee deposits with commodities clearing organizations are 
not required to be deducted from net worth;
    (vi) Stock in commodities clearing organizations to the extent of 
its margin value is not required to be deducted from net worth;
    (vii) Deduct from net worth the amount by which any advances paid by 
the broker or dealer on cash commodity contracts and used in computing 
net capital exceeds 95 percent of the market value of the commodities 
covered by such contracts.
    (viii) Do not include equity in the commodity accounts of partners 
in net worth.
    (ix) In the case of all inventory, fixed price commitments and 
forward contracts, except for inventory and forward contracts in the 
inter-bank market in those foreign currencies which are purchased or 
sold for further delivery on or subject to the rules of a contract 
market and covered by an open futures contract for which there will be 
no charge, deduct the applicable percentage of the net position 
specified below:
    (A) Inventory which is currently registered as deliverable on a 
contract market and covered by an open futures contract or by a 
commodity option on a physical--No charge.
    (B) Inventory which is covered by an open futures contract or 
commodity option--5% of the market value.
    (C) Inventory which is not covered--20% of the market value.
    (D) Fixed price commitments (open purchases and sales) and forward 
contracts which are covered by an open futures contract or commodity 
option--10% of the market value.
    (E) Fixed price commitments (open purchases and sales) and forward 
contracts which are not covered by an open futures contract or commodity 
option--20% of the market value.
    (x) Deduct 4% of the market value of commodity options granted 
(sold) by option customers on or subject to the rules of a contract 
market.
    (xi) [Reserved]
    (xii) Deduct for undermargined customer commodity futures accounts 
the amount of funds required in each such account to meet maintenance 
margin requirements of the applicable board of trade or, if there are no 
such maintenance margin requirements, clearing organization margin 
requirements applicable to such positions, after application of calls 
for margin, or other required deposits which are outstanding three 
business days or less. If there are no such maintenance margin 
requirements or clearing organization margin requirements on such 
accounts, then deduct the amount of funds required to provide margin 
equal to the amount

[[Page 413]]

necessary after application of calls for margin, or other required 
deposits outstanding three days or less to restore original margin when 
the original margin has been depleted by 50 percent or more. Provided, 
To the extent a deficit is deducted from net worth in accordance with 
paragraph (a)(3)(ii) of this appendix B, such amount shall not also be 
deducted under this paragraph (a)(3)(xii). In the event that an owner of 
a customer account has deposited an asset other than cash to margin, 
guarantee or secure his account, the value attributable to such asset 
for purposes of this paragraph shall be the lesser of (A) the value 
attributable to such asset pursuant to the margin rules of the 
applicable board of trade, or (B) the market value of such asset after 
application of the percentage deductions specified in paragraph 
(a)(3)(ix) of this appendix B or, where appropriate, specified in 
paragraph (c)(2)(vi) or (c)(2)(vii) of Sec.240.15c3-1 this chapter;
    (xiii) Deduct for undermargined non-customer and omnibus commodity 
futures accounts the amount of funds required in each such account to 
meet maintenance margin requirements of the applicable board of trade 
or, if there are no such maintenance margin requirements, clearing 
organization margin requirements applicable to such positions, after 
application of calls for margin, or other required deposits which are 
outstanding two business days or less. If there are no such maintenance 
margin requirements or clearing organization margin requirements, then 
deduct the amount of funds required to provide margin equal to the 
amount necessary after application of calls for margin, or other 
required deposits outstanding two days or less to restore original 
margin when the original margin has been depleted by 50 percent or more. 
Provided, To the extent a deficit is deducted from net worth in 
accordance with paragraph (a)(3)(ii) of this appendix B such amount 
shall not also be deducted under this paragraph (a)(3)(xiii). In the 
event that an owner of a non-customer or omnibus account has deposited 
an asset other than cash to margin, guarantee or secure his account, the 
value attributable to such asset for purposes of this paragraph shall be 
the lesser of (A) the value attributable to such asset pursuant to the 
margin rules of the applicable board of trade, or (B) the market value 
of such asset after application of the percentage deductions specified 
in paragraph (a)(3)(ix) of this appendix B or, where appropriate, 
specified in paragraph (c)(2)(vi) or (c)(2)(vii) of Sec.240.15c3-1 of 
this chapter;
    (xiv) In the case of open futures contracts and granted (sold) 
commodity options held in proprietary accounts carried by the broker or 
dealer which are not covered by a position held by the broker or dealer 
or which are not the result of a ``changer trade made in accordance with 
the rules of a contract market, deduct:
    (A) For a broker or dealer which is a clearing member of a contract 
market for the positions on such contract market cleared by such member, 
the applicable margin requirement of the applicable clearing 
organization;
    (B) For a broker or dealer which is a member of a self-regulatory 
organization 150% of the applicable maintenance margin requirement of 
the applicable board of trade or clearing organization, whichever is 
greater; or
    (C) For all other brokers or dealers, 200% of the applicable 
maintenance margin requirement of the applicable board of trade or 
clearing organization, whichever is greater; or
    (D) For open contracts or granted (sold) commodity options for which 
there are no applicable maintenance margin requirements, 200% of the 
applicable initial margin requirement;
    Provided, the equity in any such proprietary account shall reduce 
the deduction required by this paragraph (a)(3)(xiv) if such equity is 
not otherwise includable in net capital.
    (xv) In the case of a broker or dealer which is a purchaser of a 
commodity option which is traded on a contract market the deduction 
shall be the same safety factor as if the broker or dealer were the 
grantor of such option in accordance with paragraph (a)(3)(xiv), but in 
no event shall the safety factor be greater than the market value 
attributed to such option.
    (xvi) In the case of a broker or dealer which is a purchaser of a 
commodity option not traded on a contract market which has value and 
such value is used

[[Page 414]]

to increase net capital, the deduction is ten percent of the market 
value of the physical or futures contract which is the subject of such 
option but in no event more than the value attributed to such option.
    (xvii) Deduction 5% of all unsecured receivables includable under 
paragraph (a)(3)(iii)(C) of this appendix B used by the broker or dealer 
in computing ``net capital'' and which are not receivable from (A) a 
futures commission merchant registered as such with the Commodity 
Futures Trading Commission, or (B) a broker or dealer which is 
registered as such with the Securities and Exchange Commission.
    (xviii) A loan or advance or any other form of receivable shall not 
be considered ``secured'' for the purposes of paragraph (a)(3) of this 
appendix B unless the following conditions exist:
    (A) The receivable is secured by readily marketable collateral which 
is otherwise unencumbered and which can be readily converted into cash: 
Provided, however, That the receivable will be considered secured only 
to the extent of the market value of such collateral after application 
of the percentage deductions specified in paragraph (a)(3)(ix) of this 
appendix B; and
    (B)(1) The readily marketable collateral is in the possession or 
control of the broker or dealer; or
    (2) The broker or dealer has a legally enforceable, written security 
agreement, signed by the debtor, and has a perfected security interest 
in the readily marketable collateral within the meaning of the laws of 
the State in which the readily marketable collateral is located.
    (xix) The term cover for purposes of this appendix B shall mean 
cover as defined in 17 CFR 1.17(j).
    (xx) The term customer for purposes of this Appendix B shall mean 
customer as defined in 17 CFR 1.17(b)(2). The term ``non-customer'' for 
purposes of this appendix B shall mean non-customer as defined in 17 CFR 
1.17(b)(4).
    (b) Every broker or dealer in computing net capital pursuant to 
Sec.240.15c3-1 must comply with the following:
    (1) Cleared swaps. In the case of a cleared swap held in a 
proprietary account of the broker or dealer, deducting the amount of the 
applicable margin requirement of the derivatives clearing organization 
or, if the swap references an equity security index, the broker or 
dealer may take a deduction using the method specified in Sec.
240.15c3-1a.
    (2) Non-cleared swaps--(i) Credit default swaps referencing broad-
based security indices. In the case of a non-cleared credit default swap 
for which the deductions in Sec.240.15c3-1e do not apply:
    (A) Short positions (selling protection). In the case of a non-
cleared swap that is a short credit default swap referencing a broad-
based security index, deducting the percentage of the notional amount 
based upon the current basis point spread of the credit default swap and 
the maturity of the credit default swap in accordance table 1 to Sec.
240.15c3-1a(b)(2)(i)(A):

                                    Table 1 to Sec.240.15c3-1a(b)(2)(i)(A)
----------------------------------------------------------------------------------------------------------------
                                                                 Basis point spread
   Length of time to maturity of   -----------------------------------------------------------------------------
   credit default swap contract     100 or less    101-300      301-400      401-500      501-699    700 or more
                                         (%)         (%)          (%)          (%)          (%)           (%)
----------------------------------------------------------------------------------------------------------------
Less than 12 months...............         0.67         1.33         3.33         5.00         6.67        10.00
12 months but less than 24 months.         1.00         2.33         5.00         6.67         8.33        11.67
24 months but less than 36 months.         1.33         3.33         6.67         8.33        10.00        13.33
36 months but less than 48 months.         2.00         4.00         8.33        10.00        11.67        15.00
48 months but less than 60 months.         2.67         4.67        10.00        11.67        13.33        16.67
60 months but less than 72 months.         3.67         5.67        11.67        13.33        15.00        18.33
72 months but less than 84 months.         4.67         6.67        13.33        15.00        16.67        20.00
84 months but less than 120 months         5.67        10.00        15.00        16.67        18.33        26.67
120 months and longer.............         6.67        13.33        16.67        18.33        20.00        33.33
----------------------------------------------------------------------------------------------------------------

    (B) Long positions (purchasing protection). In the case of a non-
cleared swap that is a long credit default swap referencing a broad-
based security index, deducting 50 percent of the deduction that would 
be required by paragraph

[[Page 415]]

(b)(2)(i)(A) of this section if the non-cleared swap was a short credit 
default swap, each such deduction not to exceed the current market value 
of the long position.
    (C) Long and short credit default swaps. In the case of non-cleared 
swaps that are long and short credit default swaps referencing the same 
broad-based security index, have the same credit events which would 
trigger payment by the seller of protection, have the same basket of 
obligations which would determine the amount of payment by the seller of 
protection upon the occurrence of a credit event, that are in the same 
or adjacent spread category, and that are in the same or adjacent 
maturity category and have a maturity date within three months of the 
other maturity category, deducting the percentage of the notional amount 
specified in the higher maturity category under paragraph (b)(2)(i)(A) 
or (B) of this section on the excess of the long or short position.
    (D) Long basket of obligors and long credit default swap. In the 
case of a non-cleared swap that is a long credit default swap 
referencing a broad-based security index and the broker or dealer is 
long a basket of debt securities comprising all of the components of the 
security index, deducting 50 percent of the amount specified in Sec.
240.15c3-1(c)(2)(vi) for the component securities, provided the broker 
or dealer can deliver the component securities to satisfy the obligation 
of the broker or dealer on the credit default swap.
    (E) Short basket of obligors and short credit default swap. In the 
case of a non-cleared swap that is a short credit default swap 
referencing a broad-based security index and the broker or dealer is 
short a basket of debt securities comprising all of the components of 
the security index, deducting the amount specified in Sec.240.15c3-
1(c)(2)(vi) for the component securities.
    (ii) All other swaps. (A) In the case of a non-cleared swap that is 
not a credit default swap for which the deductions in Sec.240.15c3-1e 
do not apply, deducting the amount calculated by multiplying the 
notional value of the swap by the percentage specified in:
    (1) Section 240.15c3-1 applicable to the reference asset if Sec.
240.15c3-1 specifies a percentage deduction for the type of asset;
    (2) 17 CFR 1.17 applicable to the reference asset if 17 CFR 1.17 
specifies a percentage deduction for the type of asset and Sec.
240.15c3-1 does not specify a percentage deduction for the type of 
asset; or
    (3) In the case of non-cleared interest rate swap, Sec.240.15c3-
1(c)(2)(vi)(A) based on the maturity of the swap, provided that the 
percentage deduction must be no less than one eighth of 1 percent of the 
amount of a long position that is netted against a short position in the 
case of a non-cleared swap with a maturity of three months or more.
    (B) A broker or dealer may reduce the deduction under paragraph 
(b)(2)(ii)(A) by an amount equal to any reduction recognized for a 
comparable long or short position in the reference asset or interest 
rate under Sec.240.15c3-1 or 17 CFR 1.17.

(Secs. 15(c)(3), 17(a) and 23(a), 15 U.S.C. 78o(c)(3), 78q(a), and 
78w(a))

[44 FR 34886, June 15, 1979, as amended at 46 FR 37041, July 17, 1981; 
49 FR 31848, Aug. 9, 1984; 84 FR 44044, Aug. 22, 2019]



Sec.240.15c3-1c  Consolidated computations of net capital and 
aggregate indebtedness for certain subsidiaries and affiliates
(appendix C to 17 CFR 240.15c3-1).
          

    (a) Flow through capital benefits. Every broker or dealer in 
computing its net capital and aggregate indebtedness pursuant to 17 CFR 
240.15c3-1 shall, subject to the provisions of paragraphs (b) and (d) of 
this appendix, consolidate in a single computation assets and 
liabilities of any subsidiary or affiliate for which it guarantees, 
endorses or assumes directly or indirectly the obligations or 
liabilities. The assets and liabilities of a subsidiary or affiliate 
whose liabilities and obligations have not been guaranteed, endorsed, or 
assumed directly or indirectly by the broker or dealer may also be so 
consolidated if an opinion of counsel is obtained as provided for in 
paragraph (b) of this section.
    (b) Required counsel opinions. (1) If the consolidation, provided 
for in paragraph (a) of this section, of any such subsidiary or 
affiliate results in the increase of the broker's or dealers's net

[[Page 416]]

capital and/or the decrease of the broker's or dealer's minimum net 
capital requirement under paragraph (a) of Sec.240.15c3-1 and an 
opinion of counsel described in paragraph (b)(2) of this section has not 
been obtained, such benefits shall not be recognized in the broker's or 
dealer's computation required by this section.
    (2) Except as provided for in paragraph (b)(1) of this section, 
consolidation shall be permitted with respect to any subsidiaries or 
affiliates which are majority owned and controlled by the broker or 
dealer for which the broker or dealer can demonstrate to the 
satisfaction of the Commission, through the Examining Authority, by an 
opinion of counsel that the net asset values, or the portion thereof 
related to the parent's ownership interest in the subsidiary or 
affiliate may be caused by the broker or dealer or a trustee appointed 
pursuant to the Securities Investor Protection Act of 1970 or otherwise, 
to be distributed to the broker or dealer within 30 calendar days. Such 
opinion shall also set forth the actions necessary to cause such a 
distribution to be made, identify the parties having the authority to 
take such actions, identify and describe the rights of other parties or 
classes of parties, including but not limited to customers, general 
creditors, subordinated lenders, minority shareholders, employees, 
litigants and governmental or regulatory authorities, who may delay or 
prevent such a distribution and such other assurances as the Commission 
or the Examining Authority by rule or interpretation may require. Such 
opinion shall be current and periodically renewed in connection with the 
broker's or dealer's annual audit pursuant to 17 CFR 240.17a-5 under the 
Securities Exchange Act of 1934 or upon any material change in 
circumstances.
    (c) Principles of consolidation. In preparing a consolidated 
computation of net capital and/or aggregate indebtedness pursuant to 
this section, the following minimum and non-exclusive requirements shall 
be observed:
    (1) Consolidated net worth shall be reduced by the estimated amount 
of any tax reasonably anticipated to be incurred upon distribution of 
the assets of the subsidiary or affiliate.
    (2) Liabilities of a consolidated subsidiary or affiliate which are 
subordinated to the claims of present and future creditors pursuant to a 
satisfactory subordination agreement shall not be added to consolidated 
net worth unless such subordination extends also to the claims of 
present or future creditors of the parent broker or dealer and all 
consolidated subsidiaries.
    (3) Subordinated liabilities of a consolidated subsidiary or 
affiliate which are consolidated in accordance with paragraph (c)(2) of 
this section may not be prepaid, repaid or accelerated if any of the 
entities included in such consolidation would otherwise be unable to 
comply with the provisions of Appendix (D), 17 CFR 240.15c3-1d.
    (4) Each broker or dealer included within the consolidation shall at 
all times be in compliance with the net capital requirement to which it 
is subject.
    (d) Certain precluded acts. No broker or dealer shall guarantee, 
endorse or assume directly or indirectly any obligation or liability of 
a subsidiary or affiliate unless the obligation or liability is 
reflected in the computation of net capital and/or aggregate 
indebtedness pursuant to 17 CFR 240.15c3-1 or this appendix (C), except 
as provided in paragraph (b)(1) of this section.

[40 FR 29808, July 16, 1975, as amended at 57 FR 56988, Dec. 2, 1992]



Sec.240.15c3-1d  Satisfactory Subordination Agreements 
(Appendix D to 17 CFR 240.15c3-1).

    (a) Introduction. (1) This appendix sets forth minimum and non-
exclusive requirements for satisfactory subordination agreements 
(hereinafter ``subordination agreement''). The Examining Authority may 
require or the broker or dealer may include such other provisions as 
deemed necessary or appropriate to the extent such provisions do not 
cause the subordination agreement to fail to meet the minimum 
requirements of this Appendix (D).
    (2) Certain definitions. For purposes of 17 CFR 240.15c3-1 and this 
Appendix (D):

[[Page 417]]

    (i) A subordination agreement may be either a subordinated loan 
agreement or a secured demand note agreement.
    (ii) The term subordinated loan agreement shall mean the agreement 
or agreements evidencing or governing a subordinated borrowing of cash.
    (iii) The term collateral value of any securities pledged to secure 
a secured demand note shall mean the market value of such securities 
after giving effect to the percentage deductions set forth in paragraph 
(c)(2)(vi) of Sec.240.15c3-1 except for paragraph (c)(2)(vi)(J). In 
lieu of the deduction under (c)(2)(vi)(J), the broker or dealer shall 
reduce the market value of the securities pledged to secure the secured 
demand note by 30 percent.
    (iv) The term payment obligation shall mean the obligation of a 
broker or dealer in respect to any subordination agreement (A) to repay 
cash loaned to the broker or dealer pursuant to a subordinated loan 
agreement or (B) to return a secured demand note contributed to the 
broker or dealer or reduce the unpaid principal amount thereof and to 
return cash or securities pledged as collateral to secure the secured 
demand note and (C) ``Payment'' shall mean the performance by a broker 
or dealer of a Payment Obligation.
    (v)(A) The term secured demand note agreement shall mean an 
agreement (including the related secured demand note) evidencing or 
governing the contribution of a secured demand note to a broker or 
dealer and the pledge of securities and/or cash with the broker or 
dealer as collateral to secure payment of such secured demand note. The 
secured demand note agreement may provide that neither the lender, his 
heirs, executors, administrators or assigns shall be personally liable 
on such note and that in the event of default the broker or dealer shall 
look for payment of such note solely to the collateral then pledged to 
secure the same.
    (B) The secured demand note shall be a promissory note executed by 
the lender and shall be payable on the demand of the broker or dealer to 
which it is contributed; provided, however, that the making of such 
demand may be conditioned upon the occurrence of any of certain events 
which are acceptable to the Commission and to the Examining Authority 
for such broker or dealer.
    (C) If such note is not paid upon presentment and demand as provided 
for therein, the broker or dealer shall have the right to liquidate all 
or any part of the securities then pledged as collateral to secure 
payment of the same and to apply the net proceeds of such liquidation, 
together with any cash then included in the collateral, in payment of 
such note. Subject to the prior rights of the broker or dealer as 
pledgee, the lender, as defined herein, may retain ownership of the 
collateral and have the benefit of any increases and bear the risks of 
any decreases in the value of the collateral and may retain the right to 
vote securities contained within the collateral and any right to income 
therefrom or distributions thereon, except the broker or dealer shall 
have the right to receive and hold as pledgee all dividends payable in 
securities and all partial and complete liquidating dividends.
    (D) Subject to the prior rights of the broker or dealer as pledgee, 
the lender may have the right to direct the sale of any securities 
included in the collateral, to direct the purchases of securities with 
any cash included therein, to withdraw excess collateral or to 
substitute cash or other securities as collateral, provided that the net 
proceeds of any such sale and the cash so substituted and the securities 
so purchased or substituted are held by the broker or dealer, as 
pledgee, and are included within the collateral to secure payment of the 
secured demand note, and provided further that no such transaction shall 
be permitted if, after giving effect thereto, the sum of the amount of 
any cash, plus the Collateral Value of the securities, then pledged as 
collateral to secure the secured demand note would be less than the 
unpaid principal amount of the secured demand note.
    (E) Upon payment by the lender, as distinguished from a reduction by 
the lender which is provided for in (b)(6)(iii) or reduction by the 
broker or dealer as provided for in subparagraph (b)(7) of this appendix 
(D), of all or any part of the unpaid principal amount of the secured 
demand note, a broker or

[[Page 418]]

dealer shall issue to the lender a subordinated loan agreement in the 
amount of such payment (or in the case of a broker or dealer that is a 
partnership credit a capital account of the lender) or issue preferred 
or common stock of the broker or dealer in the amount of such payment, 
or any combination of the foregoing, as provided for in the secured 
demand note agreement.
    (F) The term lender shall mean the person who lends cash to a broker 
or dealer pursuant to a subordinated loan agreement and the person who 
contributes a secured demand note to a broker or dealer pursuant to a 
secured demand note agreement.
    (b) Minimum requirements for subordination agreements. (1) Subject 
to paragraph (a) of this section, a subordination agreement shall mean a 
written agreement between the broker or dealer and the lender, which (i) 
has a minimum term of one year, except for temporary subordination 
agreements provided for in paragraph (c)(5) of this appendix (D), and 
(ii) is a valid and binding obligation enforceable in accordance with 
its terms (subject as to enforcement to applicable bankruptcy, 
insolvency, reorganization, moratorium and other similar laws) against 
the broker or dealer and the lender and their respective heirs, 
executors, administrators, successors and assigns.
    (2) Specific amount. All subordination agreements shall be for a 
specific dollar amount which shall not be reduced for the duration of 
the agreement except by installments as specifically provided for 
therein and except as otherwise provided in this appendix (D).
    (3) Effective subordination. The subordination agreement shall 
effectively subordinate any right of the lender to receive any Payment 
with respect thereto, together with accrued interest or compensation, to 
the prior payment or provision for payment in full of all claims of all 
present and future creditors of the broker or dealer arising out of any 
matter occurring prior to the date on which the related Payment 
Obligation matures consistent with the provisions of 17 CFR 240.15c3-1 
and 240.15c3-1d, except for claims which are the subject of 
subordination agreements which rank on the same priority as or junior to 
the claim of the lender under such subordination agreements.
    (4) Proceeds of subordinated loan agreements. The subordinated loan 
agreement shall provide that the cash proceeds thereof shall be used and 
dealt with by the broker or dealer as part of its capital and shall be 
subject to the risks of the business.
    (5) Certain rights of the broker or dealer. The subordination 
agreement shall provide that the broker or dealer shall have the right 
to:
    (i) Deposit any cash proceeds of a subordinated loan agreement and 
any cash pledged as collateral to secure a secured demand note in an 
account or accounts in its own name in any bank or trust company;
    (ii) Pledge, repledge, hypothecate and rehypothecate, any or all of 
the securities pledged as collateral to secure a secured demand note, 
without notice, separately or in common with other securities or 
property for the purpose of securing any indebtedness of the broker or 
dealer; and
    (iii) Lend to itself or others any or all of the securities and cash 
pledged as collateral to secure a secured demand note.
    (6) Collateral for secured demand notes. Only cash and securities 
which are fully paid for and which may be publicly offered or sold 
without registration under the Securities Act of 1933, and the offer, 
sale and transfer of which are not otherwise restricted, may be pledged 
as collateral to secure a secured demand note. The secured demand note 
agreement shall provide that if at any time the sum of the amount of any 
cash, plus the Collateral Value of any securities, then pledged as 
collateral to secure the secured demand note is less than the unpaid 
principal amount of the secured demand note, the broker or dealer must 
immediately transmit written notice to that effect to the lender and the 
Examining Authority for such broker or dealer. The secured demand note 
agreement shall also require that following such transmittal:
    (i) The lender, prior to noon of the business day next succeeding 
the transmittal of such notice, may pledge as collateral additional cash 
or securities sufficient, after giving effect to such

[[Page 419]]

pledge, to bring the sum of the amount of any cash plus the Collateral 
Value of any securities, then pledged as collateral to secure the 
secured demand note, up to an amount not less than the unpaid principal 
amount of the secured demand note; and
    (ii) Unless additional cash or securities are pledged by the lender 
as provided in paragraph (b)(6)(i) of this section, the broker or dealer 
at noon on the business day next succeeding the transmittal of notice to 
the lender must commence sale, for the account of the lender, of such of 
the securities then pledged as collateral to secure the secured demand 
note and apply so much of the net proceeds thereof, together with such 
of the cash then pledged as collateral to secure the secured demand note 
as may be necessary to eliminate the unpaid principal amount of the 
secured demand note; Provided, however, That the unpaid principal amount 
of the secured demand note need not be reduced below the sum of the 
amount of any remaining cash, plus the Collateral Value of the remaining 
securities, then pledged as collateral to secure the secured demand 
note. The broker or dealer may not purchase for its own account any 
securities subject to such a sale.
    (iii) The secured demand note agreement also may provide that, in 
lieu of the procedures specified in the provisions required by paragraph 
(b)(6)(ii) of this section, the lender with the prior written consent of 
the broker or dealer and the Examining Authority for the broker or 
dealer may reduce the unpaid principal amount of the secured demand 
note. After giving effect to such reduction, the aggregate indebtedness 
of the broker or dealer may not exceed 1000 percent of its net capital 
or, in the case of a broker or dealer operating pursuant to paragraph 
(a)(1)(ii) of Sec.240.15c3-1, net capital may not be less than 5 
percent of aggregate debit items computed in accordance with Sec.
240.15c3-3a, or, if registered as a futures commission merchant, 7 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers subject to the rules of 
a contract market, each such deduction not to exceed the amount of funds 
in the option customer's account), if greater. No single secured demand 
note shall be permitted to be reduced by more than 15 percent of its 
original principal amount and after such reduction no excess collateral 
may be withdrawn. No Examining Authority shall consent to a reduction of 
the principal amount of a secured demand note if, after giving effect to 
such reduction, net capital would be less than 120 percent of the 
minimum dollar amount required by Sec.240.15c3-1.

                         Permissive Prepayments

    (7) A broker or dealer at its option but not at the option of the 
lender may, if the subordination agreement so provides, make a Payment 
of all or any portion of the Payment Obligation thereunder prior to the 
scheduled maturity date of such Payment Obligation (hereinafter referred 
to as a ``Prepayment''), but in no event may any Prepayment be made 
before the expiration of one year from the date such subordination 
agreement became effective. This restriction shall not apply to 
temporary subordination agreements that comply with the provisions of 
paragraph (c)(5) of this section. No Prepayment shall be made, if, after 
giving effect thereto (and to all Payments of Payment Obligations under 
any other subordinated agreements then outstanding the maturity or 
accelerated maturities of which are scheduled to fall due within six 
months after the date such Prepayment is to occur pursuant to this 
provision or on or prior to the date on which the Payment Obligation in 
respect of such Prepayment is scheduled to mature disregarding this 
provision, whichever date is earlier) without reference to any projected 
profit or loss of the broker or dealer, either aggregate indebtedness of 
the broker or dealer would exceed 1000 percent of its net capital or its 
net capital would be less than 120 percent of the minimum dollar amount 
required by Sec.240.15c3-1 or, in the case of a broker or dealer 
operating pursuant to Sec.240.15c3-1(a)(1)(ii), its net capital would 
be less than 5 percent of its aggregate debit items computed in 
accordance with

[[Page 420]]

Sec.240.15c3-3a, or if registered as a futures commission merchant, 7 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers subject to the rules of 
a contract market, each such deduction not to exceed the amount of funds 
in the option customer's account), if greater, or its net capital would 
be less than 120 percent of the minimum dollar amount required by Sec.
240.15c3-1(a)(1)(ii), or if, in the case of a broker or dealer operating 
pursuant to Sec.240.15c3-1(a)(10), its net capital would be less than 
120 percent of its minimum requirement.

                           Suspended Repayment

    (8)(i) The Payment Obligation of the broker or dealer in respect of 
any subordination agreement shall be suspended and shall not mature if, 
after giving effect to Payment of such Payment Obligation (and to all 
Payments of Payment Obligations of such broker or dealer under any other 
subordination agreement(s) then outstanding that are scheduled to mature 
on or before such Payment Obligation) either:
    (A) The aggregate indebtedness of the broker or dealer would exceed 
1200 percent of its net capital, or in the case of a broker or dealer 
operating pursuant to Sec.240.15c3-1(a)(1)(ii), its net capital would 
be less than 5 percent of aggregate debit items computed in accordance 
with Sec.240.15c3-3a or, if registered as a futures commission 
merchant, 6 percent of the funds required to be segregated pursuant to 
the Commodity Exchange Act and the regulations thereunder (less the 
market value of commodity options purchased by option customers on or 
subject to the rules of a contract market, each such deduction not to 
exceed the amount of funds in the option customer's account), if 
greater, or, in the case of a broker or dealer operating pursuant to 
Sec.240.15c3-1(a)(10), its net capital would be less than 120 percent 
of its minimum requirement; or
    (B) Its net capital would be less than 120 percent of the minimum 
dollar amount required by Sec.240.15c3-1 including paragraph 
(a)(1)(ii), if applicable. The subordination agreement may provide that 
if the Payment Obligation of the broker or dealer thereunder does not 
mature and is suspended as a result of the requirement of this paragraph 
(b)(8) for a period of not less than six months, the broker or dealer 
shall thereupon commence the rapid and orderly liquidation of its 
business, but the right of the lender to receive Payment, together with 
accrued interest or compensation, shall remain subordinate as required 
by the provisions of Sec.Sec.240.15c3-1 and 240.15c3-1d.
    (ii) [Reserved]
    (9) Accelerated maturity-obligation to repay to remain subordinate. 
(i) Subject to the provisions of paragraph (b)(8) of this appendix, a 
subordination agreement may provide that the lender may, upon prior 
written notice to the broker or dealer and the Examining Authority given 
not earlier than six months after the effective date of such 
subordination agreement, accelerate the date on which the Payment 
Obligation of the broker or dealer, together with accrued interest or 
compensation, is scheduled to mature to a date not earlier than six 
months after the giving of such notice, but the right of the lender to 
receive Payment, together with accrued interest or compensation, shall 
remain subordinate as required by the provisions of 17 CFR 240.15c3-1 
and 240.15c3-1d.
    (ii) Notwithstanding the provisions of paragraph (b)(8) of this 
appendix, the Payment Obligation of the broker or dealer with respect to 
a subordination agreement, together with accrued interest and 
compensation, shall mature in the event of any receivership, insolvency, 
liquidation pursuant to the Securities Investor Protection Act of 1970 
or otherwise, bankruptcy, assignment for the benefit of creditors, 
reorganization whether or not pursuant to the bankruptcy laws, or any 
other marshalling of the assets and liabilities of the broker or dealer 
but the right of the lender to receive Payment, together with accrued 
interest or compensation, shall remain subordinate as required by the 
provisions of 17 CFR 240.15c3-1 and 240.15c3-1d.
    (10)(i) Accelerated maturity of subordination agreements on event of 
default and event of acceleration--obligation to repay to remain 
subordinate. A subordination agreement may provide that the lender

[[Page 421]]

may, upon prior written notice to the broker or dealer and the Examining 
Authority of the broker or dealer of the occurrence of any Event of 
Acceleration (as hereinafter defined) given no sooner than six months 
after the effective date of such subordination agreement, accelerate the 
date on which the Payment Obligation of the broker or dealer, together 
with accrued interest or compensation, is scheduled to mature, to the 
last business day of a calendar month which is not less than six months 
after notice of acceleration is received by the broker or dealer and the 
Examining Authority for the broker or dealer. Any subordination 
agreement containing such Events of Acceleration may also provide, that 
if upon such accelerated maturity date the Payment Obligation of the 
broker or dealer is suspended as required by paragraph (b)(8) of this 
appendix (D) and liquidation of the broker or dealer has not commenced 
on or prior to such accelerated maturity date, then notwithstanding 
paragraph (b)(8) of this appendix the Payment Obligation of the broker 
or dealer with respect to such subordination agreement shall mature on 
the day immediately following such accelerated maturity date and in any 
such event the Payment Obligations of the broker or dealer with respect 
to all other subordination agreements then outstanding shall also mature 
at the same time but the rights of the respective lenders to receive 
Payment, together with accrued interest or compensation, shall remain 
subordinate as required by the provisions of this Appendix (D). Events 
of Acceleration which may be included in a subordination agreement 
complying with this paragraph (b)(10) shall be limited to:
    (A) Failure to pay interest or any installment of principal on a 
subordination agreement as scheduled;
    (B) Failure to pay when due other money obligations of a specified 
material amount;
    (C) Discovery that any material, specified representation or 
warranty of the broker or dealer which is included in the subordination 
agreement and on which the subordination agreement was based or 
continued was inaccurate in a material respect at the time made;
    (D) Any specified and clearly measurable event which is included in 
the subordination agreement and which the lender and the broker or 
dealer agree (1) is a significant indication that the financial position 
of the broker or dealer has changed materially and adversely from agreed 
upon specified norms or (2) could materially and adversely affect the 
ability of the broker or dealer to conduct its business as conducted on 
the date the subordination agreement was made; or (3) is a significant 
change in the senior management of the broker or dealer or in the 
general business conducted by the broker or dealer from that which 
obtained on the date the subordination agreement became effective;
    (E) Any continued failure to perform agreed covenants included in 
the subordination agreement relating to the conduct of the business of 
the broker or dealer or relating to the maintenance and reporting of its 
financial position; and
    (ii) Notwithstanding the provisions of paragraph (b)(8) of this 
appendix, a subordination agreement may provide that, if liquidation of 
the business of the broker or dealer has not already commenced, the 
Payment Obligation of the broker or dealer shall mature, together with 
accrued interest or compensation, upon the occurrence of an Event of 
Default (as hereinafter defined). Such agreement may also provide that, 
if liquidation of the business of the broker or dealer has not already 
commenced, the rapid and orderly liquidation of the business of the 
broker or dealer shall then commence upon the happening of an Event of 
Default. Any subordination agreement which so provides for maturity of 
the Payment Obligation upon the occurrence of an Event of Default shall 
also provide that the date on which such Event of Default occurs shall, 
if liquidation of the broker or dealer has not already commenced, be the 
date on which the Payment Obligations of the broker or dealer with 
respect to all other subordination agreements then outstanding shall 
mature but the rights of the respective lenders to receive Payment, 
together with accrued interest or compensation, shall remain subordinate 
as required by the provisions of this Appendix (D).

[[Page 422]]

Events of Default which may be included in a subordination agreement 
shall be limited to:
    (A) The making of an application by the Securities Investor 
Protection Corporation for a decree adjudicating that customers of the 
broker or dealer are in need of protection under the Securities Investor 
Protection Act of 1970 and the failure of the broker or dealer to obtain 
the dismissal of such application within 30 days;
    (B) The aggregate indebtedness of the broker or dealer exceeding 
1500 percent of its net capital or, in the case of a broker or dealer 
that has elected to operate under Sec.240.15c3-1(a)(1)(ii), its net 
capital computed in accordance therewith is less than two percent of its 
aggregate debit items computed in accordance with Sec.240.15c3-3a or, 
if registered as a futures commission merchant, four percent of the 
funds required to be segregated pursuant to the Commodity Exchange Act 
and the regulations thereunder (less the market value of commodity 
options purchased by option customers on or subject to the rules of a 
contract market, each such deduction not to exceed the amount of funds 
in the option customer's account), if greater, or, in the case of a 
broker or dealer operating pursuant to Sec.240.15c3-1(a)(10), its net 
capital is less than its minimum requirement, throughout a period of 15 
consecutive business days, commencing on the day the broker or dealer 
first determines and notifies the Examining Authority for the broker or 
dealer, or the Examining Authority or the Commission first determines 
and notifies the broker or dealer of such fact;
    (C) The Commission shall revoke the registration of the broker or 
dealer;
    (D) The Examining Authority shall suspend (and not reinstate within 
10 days) or revoke the broker's or dealer's status as a member thereof;
    (E) Any receivership, insolvency, liquidation pursuant to the 
Securities Investor Protection Act of 1970 or otherwise, bankruptcy, 
assignment for the benefit of creditors, reorganization whether or not 
pursuant to bankruptcy laws, or any other marshalling of the assets and 
liabilities of the broker or dealer.

A subordination agreement which contains any of the provisions permitted 
by this paragraph (b)(10) shall not contain the provision otherwise 
permitted by clause (i) of paragraph (b)(9).

  Brokers and Dealers Carrying the Accounts of Specialists and Market 
                        Makers in Listed Options

    (11) A subordination agreement which becomes effective on or after 
August 1, 1977 in favor of a broker or dealer who guarantees, endorses, 
carries or clears specialist or market maker transactions in options 
listed on a national securities exchange or facility of a national 
securities association shall provide that reduction, prepayment or 
repayment of the unpaid principal amount thereof, pursuant to those 
terms of the agreement required or permitted by paragraphs (b)(6)(iii), 
(b)(7), or (b)(8)(i) of this section, shall not occur in contravention 
of paragraphs (a)(6)(v), (a)(7)(iv), or (c)(2)(x)(B)(1) of Sec.
240.15c3-1 insofar as they apply to such broker or dealer.
    (c) Miscellaneous Provisions--(1) Prohibited Cancellation. The 
subordination agreement shall not be subject to cancellation by either 
party; no Payment shall be made with respect thereto and the agreement 
shall not be terminated, rescinded or modified by mutual consent or 
otherwise if the effect thereof would be inconsistent with the 
requirements of 17 CFR 240.15c3-1 and 240.15c3-1d.
    (2) Every broker or dealer shall immediately notify the Examining 
Authority for such broker or dealer if, after giving effect to all 
Payments of Payment Obligations under subordination agreements then 
outstanding that are then due or mature within the following six months 
without reference to any projected profit or loss of the broker or 
dealer either the aggregate indebtedness of the broker or dealer would 
exceed 1200 percent of its net capital or its net capital would be less 
than 120 percent of the minimum dollar amount required by Sec.
240.15c3-1, or, in the case of a broker or dealer operating pursuant to 
Sec.240.15c3-1(a)(1)(ii), its net capital would be less than 5 percent 
of

[[Page 423]]

aggregate debit items computed in accordance with Sec.240.15c3-3a, or, 
if registered as a futures commission merchant, 6 percent of the funds 
required to be segregated pursuant to the Commodity Exchange Act and the 
regulations thereunder (less the market value of commodity options 
purchased by option customers on or subject to the rules of a contract 
market, each such deduction not to exceed the amount of funds in the 
option customer's account), if greater, or less than 120 percent of the 
minimum dollar amount required by Sec.240.15c3-1(a)(1)(ii), or, in the 
case of a broker or dealer operating pursuant to Sec.240.15c3-
1(a)(10), its net capital would be less than 120 percent of its minimum 
requirement.
    (3) Certain legends. If all the provisions of a satisfactory 
subordination agreement do not appear in a single instrument, then the 
debenture or other evidence of indebtedness shall bear on its face an 
appropriate legend stating that it is issued subject to the provisions 
of a satisfactory subordination agreement which shall be adequately 
referred to and incorporated by reference.
    (4) Legal title to securities. All securities pledged as collateral 
to secure a secured demand note must be in bearer form, or registered in 
the name of the broker or dealer or the name of its nominee or 
custodian.

            Temporary and Revolving Subordination Agreements

    (5)(i) For the purpose of enabling a broker or dealer to participate 
as an underwriter of securities or other extraordinary activities in 
compliance with the net capital requirements of Sec.240.15c3-1, a 
broker or dealer shall be permitted, on no more than three occasions in 
any 12 month period, to enter into a subordination agreement on a 
temporary basis that has a stated term of no more than 45 days from the 
date such subordination agreement became effective. This temporary 
relief shall not apply to a broker or dealer if, within the preceding 
thirty calendar days, it has given notice pursuant to Sec.240.17a-11, 
or if immediately prior to entering into such subordination agreement, 
either:
    (A) The aggregate indebtedness of the broker or dealer exceeds 1000 
percent of its net capital or its net capital is less than 120 percent 
of the minimum dollar amount required by Sec.240.15c3-1, or
    (B) In the case of a broker or dealer operating pursuant to Sec.
240.15c3-1(a)(1)(ii), its net capital is less than 5 percent of 
aggregate debits computed in accordance with Sec.240.15c3-1, or, if 
registered as a futures commission merchant, less than 7 percent of the 
funds required to be segregated pursuant to the Commodity Exchange Act 
and the regulations thereunder (less the market value of commodity 
options purchased by option customers on or subject to the rules of a 
contract market, each such deduction not to exceed the amount of funds 
in the option customer's account), if greater, or less than 120 percent 
of the minimum dollar amount required by paragraph (a)(1)(ii) of this 
section, or, in the case of a broker or dealer operating pursuant to 
Sec.240.15c3-1(a)(10), its net capital would be less than 120 percent 
of its minimum requirement, or
    (C) The amount of its then outstanding subordination agreements 
exceeds the limits specified in paragraph (d) of Sec.240.15c3-1. Such 
temporary subordination agreement shall be subject to all other 
provisions of this appendix D.
    (ii) A broker or dealer shall be permitted to enter into a revolving 
subordinated loan agreement which provides for prepayment within less 
than one year of all or any portion of the Payment Obligation thereunder 
at the option of the broker or dealer upon the prior written approval of 
the Examining Authority for the broker or dealer. The Examining 
Authority, however, shall not approve any prepayment if:
    (A) After giving effect thereto (and to all Payments of Payment 
Obligations under any other subordinated agreements then outstanding, 
the maturity or accelerated maturities of which are scheduled to fall 
due within six months after the date such prepayment is to occur 
pursuant to this provision or on or prior to the date on which the 
Payment Obligation in respect of such prepayment is scheduled to mature 
disregarding this provision, whichever date is earlier) without 
reference to

[[Page 424]]

any projected profit or loss of the broker or dealer, either aggregate 
indebtedness of the broker or dealer would exceed 900 percent of its net 
capital or its net capital would be less than 200 percent of the minimum 
dollar amount required by Sec.240.15c3-1 or, in the case of a broker 
or dealer operating pursuant to paragraph (a)(1)(ii) of Sec.240.15c3-
1, its net capital would be less than 6 percent of aggregate debit items 
computed in accordance with Sec.240.15c3-3a, or, if registered as a 
futures commission merchant, 10 percent of the funds required to be 
segregated pursuant to the Commodity Exchange Act and the regulations 
thereunder (less the market value of commodity options purchased by 
option customers on or subject to the rules of a contract market, each 
such deduction not to exceed the amount of funds in the option 
customer's account), if greater, or its net capital would be less than 
200 percent of the minimum dollar amount required by paragraph 
(a)(1)(ii) of this section or
    (B) Pre-tax losses during the latest three-month period equalled 
more than 15% of current excess net capital.

Any subordination agreement entered into pursuant to this paragraph 
(c)(5)(ii) shall be subject to all the other provisions of this Appendix 
D. Any such subordination agreement shall not be considered equity for 
purposes of subsection (d) of section 15c3-1, despite the length of the 
initial term of the loan.
    (6)(i) Filing. Two copies of any proposed subordination agreement 
(including nonconforming subordination agreements) shall be filed at 
least 10 days prior to the proposed execution date of the agreement with 
the Commission's Regional Office for the region in which the broker or 
dealer maintains its principal place of business or at such other time 
as the Regional Office for good cause shall accept such filing. Copies 
of the proposed agreement shall also be filed with the Examining 
Authority in such quantities and at such time as the Examining Authority 
may require. The broker or dealer shall also file with said parties a 
statement setting forth the name and address of the lender, the business 
relationship of the lender to the broker or dealer, and whether the 
broker or dealer carried funds or securities for the lender at or about 
the time the proposed agreement was so filed. All agreements shall be 
examined by the Commission's Regional Office or the Examining Authority 
with whom such agreement is required to be filed prior to their becoming 
effective. No proposed agreement shall be a satisfactory subordination 
agreement for the purposes of this section unless and until the 
Examining Authority has found the agreement acceptable and such 
agreement has become effective in the form found acceptable.
    (ii) The broker or dealer need not file with the Regional Office for 
the region in which the broker or dealer maintains its principal place 
of business (if a Regional Office is not its Examining Authority) copies 
of any proposed subordination agreement or the statement described above 
if the Examining Authority for that broker or dealer has consented to 
file with the Commission periodic reports (not less than monthly) 
summarizing for the period, on a firm-by-firm basis, the subordination 
agreements it has approved for that period. Such reports should include 
at the minimum, the amount of the loan and its duration, the name of the 
lender and the business relationship of the lender to the broker or 
dealer.
    (7) Subordination agreements in effect prior to adoption. Any 
subordination agreement which has been entered into prior to December 
20, 1978 and which has been deemed to be satisfactorily subordinated 
pursuant to 17 CFR 240.15c3-1 as in effect prior to December 20, 1978, 
shall continue to be deemed a satisfactory subordination agreement until 
the maturity of such agreement. Provided, That no renewal of an 
agreement which provides for automatic or optional renewal by the broker 
or dealer or lender shall be deemed to be a satisfactory subordination 
agreement unless such renewed agreement meets the requirements of this 
appendix within 6 months from December 20, 1978.

[[Page 425]]

Provided, further, That all subordination agreements must meet the 
requirements of this appendix within 5 years of December 20, 1978.

[40 FR 29808, July 16, 1975, as amended at 42 FR 31778, June 23, 1977; 
44 FR 34887, June 15, 1979; 46 FR 35635, July 10, 1981; 47 FR 21775, May 
20, 1982; 49 FR 31848, Aug. 9, 1984; 57 FR 56988, Dec. 2, 1992; 58 FR 
37657, July 13, 1993; 59 FR 5945, Feb. 9, 1994; 73 FR 32228, June 5, 
2008; 84 FR 44045, Aug. 22, 2019]



Sec.240.15c3-1e  Deductions for market and credit risk for certain 
brokers or dealers (Appendix E to 17 CFR 240.15c3-1).

    Sections 240.15c3-1e and 240.15c3-1g set forth a program that allows 
a broker or dealer to use an alternative approach to computing net 
capital deductions, subject to the conditions described in Sec.Sec.
240.15c3-1e and 240.15c3-1g, including supervision of the broker's or 
dealer's ultimate holding company under the program. The program is 
designed to reduce the likelihood that financial and operational 
weakness in the holding company will destabilize the broker or dealer, 
or the broader financial system. The focus of this supervision of the 
ultimate holding company is its financial and operational condition and 
its risk management controls and methodologies.

                               Application

    (a) A broker or dealer may apply to the Commission for authorization 
to compute deductions for market risk pursuant to this section in lieu 
of computing deductions pursuant to Sec.Sec.240.15c3-1(c)(2)(vi) and 
(vii) and 240.15c3-1b, and to compute deductions for credit risk 
pursuant to this section on credit exposures arising from transactions 
in derivatives instruments (if this section is used to calculate 
deductions for market risk on these instruments) in lieu of computing 
deductions pursuant to Sec.240.15c3-1(c)(2)(iv) and (c)(2)(xv)(A) and 
(B):
    (1) A broker-dealer shall submit the following information to the 
Commission with its application:
    (i) An executive summary of the information provided to the 
Commission with its application and an identification of the ultimate 
holding company of the broker or dealer;
    (ii) A comprehensive description of the internal risk management 
control system of the broker or dealer and how that system satisfies the 
requirements set forth in Sec.240.15c3-4;
    (iii) A list of the categories of positions that the broker or 
dealer holds in its proprietary accounts and a brief description of the 
methods that the broker or dealer will use to calculate deductions for 
market and credit risk on those categories of positions;
    (iv) A description of the mathematical models to be used to price 
positions and to compute deductions for market risk, including those 
portions of the deductions attributable to specific risk, if applicable, 
and deductions for credit risk; a description of the creation, use, and 
maintenance of the mathematical models; a description of the broker's or 
dealer's internal risk management controls over those models, including 
a description of each category of persons who may input data into the 
models; if a mathematical model incorporates empirical correlations 
across risk categories, a description of the process for measuring 
correlations; a description of the backtesting procedures the broker or 
dealer will use to backtest the mathematical model used to calculate 
maximum potential exposure; a description of how each mathematical model 
satisfies the applicable qualitative and quantitative requirements set 
forth in paragraph (d) of this appendix E; and a statement describing 
the extent to which each mathematical model used to compute deductions 
for market and credit risk will be used as part of the risk analyses and 
reports presented to senior management;
    (v) If the broker or dealer is applying to the Commission for 
approval to use scenario analysis to calculate deductions for market 
risk for certain positions, a list of those types of positions, a 
description of how those deductions will be calculated using scenario 
analysis, and an explanation of why each scenario analysis is 
appropriate to calculate deductions for market risk on those types of 
positions;
    (vi) A description of how the broker or dealer will calculate 
current exposure;

[[Page 426]]

    (vii) A description of how the broker or dealer will determine 
internal credit ratings of counterparties and internal credit risk 
weights of counterparties, if applicable;
    (viii) A written undertaking by the ultimate holding company of the 
broker or dealer, if it is not an ultimate holding company that has a 
principal regulator, in a form acceptable to the Commission, signed by a 
duly authorized person at the ultimate holding company, to the effect 
that, as a condition of Commission approval of the application of the 
broker or dealer to compute deductions for market and credit risk 
pursuant to this appendix E, the ultimate holding company agrees to:
    (A) Comply with all applicable provisions of this appendix E;
    (B) Comply with all applicable provisions of Sec.240.15c3-1g;
    (C) Comply with the provisions of Sec.240.15c3-4 with respect to 
an internal risk management control system for the affiliate group as 
though it were an OTC derivatives dealer with respect to all of its 
business activities, except that paragraphs (c)(5)(xiii), (c)(5)(xiv), 
(d)(8), and (d)(9) of Sec.240.15c3-4 shall not apply;
    (D) As part of the internal risk management control system for the 
affiliate group, establish, document, and maintain procedures for the 
detection and prevention of money laundering and terrorist financing;
    (E) Permit the Commission to examine the books and records of the 
ultimate holding company and any of its affiliates, if the affiliate is 
not an entity that has a principal regulator;
    (F) If the disclosure to the Commission of any information required 
as a condition for the broker or dealer to compute deductions for market 
and credit risk pursuant to this appendix E could be prohibited by law 
or otherwise, cooperate with the Commission, to the extent permissible, 
including by describing any secrecy laws or other impediments that could 
restrict the ability of material affiliates to provide information on 
their operations or activities and by discussing the manner in which the 
ultimate holding company and the broker or dealer propose to provide the 
Commission with adequate information or assurances of access to 
information;
    (G) Make available to the Commission information about the ultimate 
holding company or any of its material affiliates that the Commission 
finds is necessary to evaluate the financial and operational risk within 
the ultimate holding company and its material affiliates and to evaluate 
compliance with the conditions of eligibility of the broker or dealer to 
compute deductions to net capital under the alternative method of this 
appendix E;
    (H) Make available examination reports of principal regulators for 
those affiliates of the ultimate holding company that are not subject to 
Commission examination; and
    (I) Acknowledge that, if the ultimate holding company fails to 
comply in a material manner with any provision of its undertaking, the 
Commission may, in addition to any other conditions necessary or 
appropriate in the public interest or for the protection of investors, 
increase the multiplication factors the ultimate holding company uses to 
calculate allowances for market and credit risk, as defined in Sec.
240.15c3-1g(a)(2) and (a)(3) or impose any condition with respect to the 
broker or dealer listed in paragraph (e) of this appendix E; and
    (ix) A written undertaking by the ultimate holding company of the 
broker or dealer, if the ultimate holding company has a principal 
regulator, in a form acceptable to the Commission, signed by a duly 
authorized person at the ultimate holding company, to the effect that, 
as a condition of Commission approval of the application of the broker 
or dealer to compute deductions for market and credit risk pursuant to 
this appendix E, the ultimate holding company agrees to:
    (A) Comply with all applicable provisions of this appendix E;
    (B) Comply with all applicable provisions of Sec.240.15c3-1g;
    (C) Make available to the Commission information about the ultimate 
holding company that the Commission finds is necessary to evaluate the 
financial and operational risk within the ultimate holding company and 
to evaluate compliance with the conditions of eligibility of the broker 
or

[[Page 427]]

dealer to compute net capital under the alternative method of this 
appendix E; and
    (D) Acknowledge that if the ultimate holding company fails to comply 
in a material manner with any provision of its undertaking, the 
Commission may, in addition to any other conditions necessary or 
appropriate in the public interest or for the protection of investors, 
impose any condition with respect to the broker or dealer listed in 
paragraph (e) of this appendix E;
    (2) As a condition of Commission approval, the ultimate holding 
company of the broker or dealer, if it is not an ultimate holding 
company that has a principal regulator, shall include the following 
information with the application:
    (i) A narrative description of the business and organization of the 
ultimate holding company;
    (ii) An alphabetical list of the affiliates of the ultimate holding 
company (referred to as the ``affiliate group,'' which shall include the 
ultimate holding company), with an identification of the financial 
regulator, if any, that regulates the affiliate, and a designation of 
the members of the affiliate group that are material to the ultimate 
holding company (``material affiliates'');
    (iii) An organizational chart that identifies the ultimate holding 
company, the broker or dealer, and the material affiliates;
    (iv) Consolidated and consolidating financial statements of the 
ultimate holding company as of the end of the quarter preceding the 
filing of the application;
    (v) Sample computations for the ultimate holding company of 
allowable capital and allowances for market risk, credit risk, and 
operational risk, determined pursuant to Sec.240.15c3-1g(a)(1)-(a)(4);
    (vi) A list of the categories of positions that the affiliate group 
holds in its proprietary accounts and a brief description of the method 
that the ultimate holding company proposes to use to calculate 
allowances for market and credit risk, pursuant to Sec.240.15c3-
1g(a)(2) and (a)(3), on those categories of positions;
    (vii) A description of the mathematical models to be used to price 
positions and to compute the allowance for market risk, including those 
portions of the allowance attributable to specific risk, if applicable, 
and the allowance for credit risk; a description of the creation, use, 
and maintenance of the mathematical models; a description of the 
ultimate holding company's internal risk management controls over those 
models, including a description of each category of persons who may 
input data into the models; if a mathematical model incorporates 
empirical correlations across risk categories, a description of the 
process for measuring correlations; a description of the backtesting 
procedures the ultimate holding company will use to backtest the 
mathematical model used to calculate maximum potential exposure; a 
description of how each mathematical model satisfies the applicable 
qualitative and quantitative requirements set forth in paragraph (d) of 
this appendix E; a statement describing the extent to which each 
mathematical model used to compute allowances for market and credit risk 
is used as part of the risk analyses and reports presented to senior 
management; and a description of any positions for which the ultimate 
holding company proposes to use a method other than VaR to compute an 
allowance for market risk and a description of how that allowance would 
be determined;
    (viii) A description of how the ultimate holding company will 
calculate current exposure;
    (ix) A description of how the ultimate holding company will 
determine the credit risk weights of counterparties and internal credit 
ratings of counterparties, if applicable;
    (x) A description of how the ultimate holding company will calculate 
an allowance for operational risk under Sec.240.15c3-1g(a)(4);
    (xi) For each instance in which a mathematical model used by the 
broker or dealer to calculate a deduction for market risk or to 
calculate maximum potential exposure for a particular product or 
counterparty differs from the mathematical model used by the ultimate 
holding company to calculate an allowance for market risk or

[[Page 428]]

to calculate maximum potential exposure for that same product or 
counterparty, a description of the difference(s) between the 
mathematical models;
    (xii) A comprehensive description of the risk management control 
system for the affiliate group that the ultimate holding company has 
established to manage affiliate group-wide risk, including market, 
credit, liquidity and funding, legal and compliance, and operational 
risks, and how that system satisfies the requirements of Sec.240.15c3-
4; and
    (xiii) Sample risk reports that are provided to the persons at the 
ultimate holding company who are responsible for managing group-wide 
risk and that will be provided to the Commission pursuant to Sec.
240.15c3-1g(b)(1)(i)(H);
    (3) As a condition of Commission approval, the ultimate holding 
company of the broker or dealer, if the ultimate holding company has a 
principal regulator, shall include the following information with the 
broker's or dealer's application:
    (i) A narrative description of the business and organization of the 
ultimate holding company;
    (ii) An alphabetical list of the affiliates of the ultimate holding 
company (referred to as the ``affiliate group,'' which shall include the 
ultimate holding company), with an identification of the financial 
regulator, if any, that regulates the affiliate, and a designation of 
those affiliates that are material to the ultimate holding company 
(``material affiliates'');
    (iii) An organizational chart that identifies the ultimate holding 
company, the broker or dealer, and the material affiliates;
    (iv) Consolidated and consolidating financial statements of the 
ultimate holding company as of the end of the quarter preceding the 
filing of the application;
    (v) The most recent capital measurements of the ultimate holding 
company, as reported to its principal regulator, calculated in 
accordance with the standards published by the Basel Committee on 
Banking Supervision, as amended from time to time;
    (vi) For each instance in which a mathematical model to be used by 
the broker or dealer to calculate a deduction for market risk or to 
calculate maximum potential exposure for a particular product or 
counterparty differs from the mathematical model used by the ultimate 
holding company to calculate an allowance for market risk or to 
calculate maximum potential exposure for that same product or 
counterparty, a description of the difference(s) between the 
mathematical models; and
    (vii) Sample risk reports that are provided to the persons at the 
ultimate holding company who are responsible for managing group-wide 
risk and that will be provided to the Commission under Sec.240.15c3-
1g(b)(1)(i)(H);
    (4) The application of the broker or dealer shall be supplemented by 
other information relating to the internal risk management control 
system, mathematical models, and financial position of the broker or 
dealer or the ultimate holding company of the broker or dealer that the 
Commission may request to complete its review of the application;
    (5) The application shall be considered filed when received at the 
Commission's principal office in Washington, DC. A person who files an 
application pursuant to this section for which it seeks confidential 
treatment may clearly mark each page or segregable portion of each page 
with the words ``Confidential Treatment Requested.'' All information 
submitted in connection with the application will be accorded 
confidential treatment, to the extent permitted by law;
    (6) If any of the information filed with the Commission as part of 
the application of the broker or dealer is found to be or becomes 
inaccurate before the Commission approves the application, the broker or 
dealer must notify the Commission promptly and provide the Commission 
with a description of the circumstances in which the information was 
found to be or has become inaccurate along with updated, accurate 
information;
    (7)(i) The Commission may approve the application or an amendment to 
the application, in whole or in part, subject to any conditions or 
limitations the Commission may require, if the Commission finds the 
approval to

[[Page 429]]

be necessary or appropriate in the public interest or for the protection 
of investors, after determining, among other things, whether the broker 
or dealer has met the requirements of this appendix E and is in 
compliance with other applicable rules promulgated under the Act and by 
self-regulatory organizations, and whether the ultimate holding company 
of the broker or dealer is in compliance with the terms of its 
undertakings, as provided to the Commission;
    (ii) The Commission may approve the temporary use of a provisional 
model in whole or in part, subject to any conditions or limitations the 
Commission may require, if:
    (A) The broker or dealer has a complete application pending under 
this section;
    (B) The use of the provisional model has been approved by:
    (1) A prudential regulator;
    (2) The Commodity Futures Trading Commission or a futures 
association registered with the Commodity Futures Trading Commission 
under section 17 of the Commodity Exchange Act;
    (3) A foreign financial regulatory authority that administers a 
foreign financial regulatory system with capital requirements that the 
Commission has found are eligible for substituted compliance under Sec.
240.3a71-6 if the provisional model is used for the purposes of 
calculating net capital;
    (4) A foreign financial regulatory authority that administers a 
foreign financial regulatory system with margin requirements that the 
Commission has found are eligible for substituted compliance under Sec.
240.3a71-6 if the provisional model is used for the purposes of 
calculating initial margin pursuant to Sec.240.18a-3; or
    (5) Any other foreign supervisory authority that the Commission 
finds has approved and monitored the use of the provisional model 
through a process comparable to the process set forth in this section.
    (8) A broker or dealer shall amend its application to calculate 
certain deductions for market and credit risk under this appendix E and 
submit the amendment to the Commission for approval before it may change 
materially a mathematical model used to calculate market or credit risk 
or before it may change materially its internal risk management control 
system;
    (9) As a condition to the broker's or dealer's calculation of 
deductions for market and credit risk under this appendix E, an ultimate 
holding company that does not have a principal regulator shall submit to 
the Commission, as an amendment to the broker's or dealer's application, 
any material changes to a mathematical model or other methods used to 
calculate allowances for market, credit, and operational risk, and any 
material changes to the internal risk management control system for the 
affiliate group. The ultimate holding company must submit these material 
changes to the Commission before making them;
    (10) As a condition for the broker or dealer to compute deductions 
for market and credit risk under this appendix E, the broker or dealer 
agrees that:
    (i) It will notify the Commission 45 days before it ceases to 
compute deductions for market and credit risk under this appendix E; and
    (ii) The Commission may determine by order that the notice will 
become effective after a shorter or longer period of time if the broker 
or dealer consents or if the Commission determines that a shorter or 
longer period of time is necessary or appropriate in the public interest 
or for the protection of investors; and
    (11) Notwithstanding paragraph (a)(10) of this section, the 
Commission, by order, may revoke a broker's or dealer's exemption that 
allows it to use the market risk standards of this appendix E to 
calculate deductions for market risk, instead of the provisions of Sec.
240.15c3-1(c)(2)(vi) and (c)(2)(vii), and the exemption to use the 
credit risk standards of this appendix E to calculate deductions for 
credit risk on certain credit exposures arising from transactions in 
derivatives instruments, instead of the provisions of Sec.240.15c3-
1(c)(2)(iv), if the Commission finds that such exemption is no longer 
necessary or appropriate in the public interest or for the protection of 
investors. In making its finding, the Commission will consider the 
compliance history of the broker or dealer related

[[Page 430]]

to its use of models, the financial and operational strength of the 
broker or dealer and its ultimate holding company, the broker's or 
dealer's compliance with its internal risk management controls, and the 
ultimate holding company's compliance with its undertakings.

                               Market Risk

    (b) A broker or dealer whose application, including amendments, has 
been approved under paragraph (a) of this appendix E shall compute a 
deduction for market risk in an amount equal to the sum of the 
following:
    (1) For positions for which the Commission has approved the broker's 
or dealer's use of value-at risk (``VaR'') models, the VaR of the 
positions multiplied by the appropriate multiplication factor determined 
according to paragraph (d)(1)(iii) of this appendix E, except that the 
initial multiplication factor shall be three, unless the Commission 
determines, based on a review of the broker's or dealer's application or 
an amendment to the application under paragraph (a) of this appendix E, 
including a review of its internal risk management control system and 
practices and VaR models, that another multiplication factor is 
appropriate;
    (2) For positions for which the VaR model does not incorporate 
specific risk, a deduction for specific risk to be determined by the 
Commission based on a review of the broker's or dealer's application or 
an amendment to the application under paragraph (a) of this appendix E 
and the positions involved;
    (3) For positions for which the Commission has approved the broker's 
or dealer's application to use scenario analysis, the greatest loss 
resulting from a range of adverse movements in relevant risk factors, 
prices, or spreads designed to represent a negative movement greater 
than, or equal to, the worst ten-day movement over the four years 
preceding calculation of the greatest loss, or some multiple of the 
greatest loss based on the liquidity of the positions subject to 
scenario analysis. If historical data is insufficient, the deduction 
shall be the largest loss within a three standard deviation movement in 
those risk factors, prices, or spreads over a ten-day period, multiplied 
by an appropriate liquidity adjustment factor. Irrespective of the 
deduction otherwise indicated under scenario analysis, the resulting 
deduction for market risk must be at least $25 per 100 share equivalent 
contract for equity positions, or one-half of one percent of the face 
value of the contract for all other types of contracts, even if the 
scenario analysis indicates a lower amount. A qualifying scenario must 
include the following:
    (i) A set of pricing equations for the positions based on, for 
example, arbitrage relations, statistical analysis, historic 
relationships, merger evaluation, or fundamental valuation of an 
offering of securities;
    (ii) Auxiliary relationships mapping risk factors to prices; and
    (iii) Data demonstrating the effectiveness of the scenario in 
capturing market risk, including specific risk; and
    (4) For all remaining positions, the deductions specified in 
Sec.Sec.240.15c3-1(c)(2)(vi), (c)(2)(vii), and applicable appendices 
to Sec.240.15c3-1.

                               Credit Risk

    (c) A broker or dealer whose application, including amendments, has 
been approved under paragraph (a) of this appendix E shall compute a 
deduction for credit risk on transactions in derivative instruments (if 
this appendix E is used to calculate a deduction for market risk on 
those instruments) in an amount equal to the sum of the following:
    (1) A counterparty exposure charge in an amount equal to the sum of 
the following:
    (i) The net replacement value in the account of each counterparty 
that is insolvent, or in bankruptcy, or that has senior unsecured long-
term debt in default; and
    (ii) For a counterparty not otherwise described in paragraph 
(c)(1)(i) of this appendix E, the credit equivalent amount of the 
broker's or dealer's exposure to the counterparty, as defined in 
paragraph (c)(4)(i) of this appendix E, multiplied by the credit risk 
weight of the counterparty, as defined in paragraph (c)(4)(vi) of this 
appendix E, multiplied by 8%;

[[Page 431]]

    (2) A concentration charge by counterparty in an amount equal to the 
sum of the following:
    (i) For each counterparty with a credit risk weight of 20% or less, 
5% of the amount of the current exposure to the counterparty in excess 
of 5% of the tentative net capital of the broker or dealer;
    (ii) For each counterparty with a credit risk weight of greater than 
20% but less than 50%, 20% of the amount of the current exposure to the 
counterparty in excess of 5% of the tentative net capital of the broker 
or dealer; and
    (iii) For each counterparty with a credit risk weight of greater 
than 50%, 50% of the amount of the current exposure to the counterparty 
in excess of 5% of the tentative net capital of the broker or dealer; 
and
    (3) A portfolio concentration charge of 100 percent of the amount of 
the broker's or dealer's aggregate current exposure for all 
counterparties in excess of 10 percent of the tentative net capital of 
the broker or dealer;
    (4) Terms. (i) The credit equivalent amount of the broker's or 
dealer's exposure to a counterparty is the sum of the broker's or 
dealer's maximum potential exposure to the counterparty, as defined in 
paragraph (c)(4)(ii) of this appendix E, multiplied by the appropriate 
multiplication factor, and the broker's or dealer's current exposure to 
the counterparty, as defined in paragraph (c)(4)(iii) of this appendix 
E. The broker or dealer must use the multiplication factor determined 
according to paragraph (d)(1)(v) of this appendix E, except that the 
initial multiplication factor shall be one, unless the Commission 
determines, based on a review of the broker's or dealer's application or 
an amendment to the application approved under paragraph (a) of this 
appendix E, including a review of its internal risk management control 
system and practices and VaR models, that another multiplication factor 
is appropriate;
    (ii) The maximum potential exposure is the VaR of the counterparty's 
positions with the broker or dealer, after applying netting agreements 
with the counterparty meeting the requirements of paragraph (c)(4)(iv) 
of this appendix E, taking into account the value of collateral from the 
counterparty held by the broker or dealer in accordance with paragraph 
(c)(4)(v) of this appendix E, and taking into account the current 
replacement value of the counterparty's positions with the broker or 
dealer;
    (iii) The current exposure of the broker or dealer to a counterparty 
is the current replacement value of the counterparty's positions with 
the broker or dealer, after applying netting agreements with the 
counterparty meeting the requirements of paragraph (c)(4)(iv) of this 
appendix E and taking into account the value of collateral from the 
counterparty held by the broker or dealer in accordance with paragraph 
(c)(4)(v) of this appendix E;
    (iv) Netting agreements. A broker or dealer may include the effect 
of a netting agreement that allows the broker or dealer to net gross 
receivables from and gross payables to a counterparty upon default of 
the counterparty if:
    (A) The netting agreement is legally enforceable in each relevant 
jurisdiction, including in insolvency proceedings;
    (B) The gross receivables and gross payables that are subject to the 
netting agreement with a counterparty can be determined at any time; and
    (C) For internal risk management purposes, the broker-dealer 
monitors and controls its exposure to the counterparty on a net basis;
    (v) Collateral. When calculating maximum potential exposure and 
current exposure to a counterparty, the fair market value of collateral 
pledged and held may be taken into account provided:
    (A) The collateral is marked to market each day and is subject to a 
daily margin maintenance requirement;
    (B) The collateral is subject to the broker's or dealer's physical 
possession or control;
    (1) The collateral is subject to the broker's or dealer's physical 
possession or control and may be liquidated promptly by the firm without 
intervention by any other party; or
    (2) The collateral is held by an independent third-party custodian 
that is a bank as defined in section 3(a)(6) of the

[[Page 432]]

Act or a registered U.S. clearing organization or depository that is not 
affiliated with the counterparty or, if the collateral consists of 
foreign securities or currencies, a supervised foreign bank, clearing 
organization, or depository that is not affiliated with the counterparty 
and that customarily maintains custody of such foreign securities or 
currencies;
    (C) The collateral is liquid and transferable;
    (D) The collateral agreement is legally enforceable by the broker or 
dealer against the counterparty and any other parties to the agreement;
    (E) The collateral does not consist of securities issued by the 
counterparty or a party related to the broker or dealer or to the 
counterparty;
    (F) The Commission has approved the broker's or dealer's use of a 
VaR model to calculate deductions for market risk for the type of 
collateral in accordance with this appendix E; and
    (G) The collateral is not used in determining the credit rating of 
the counterparty;
    (vi) Credit risk weights of counterparties. A broker or dealer that 
computes its deductions for credit risk pursuant to this Appendix E 
shall apply a credit risk weight for transactions with a counterparty of 
either 20%, 50%, or 150% based on an internal credit rating the broker 
or dealer determines for the counterparty.
    (A) As part of its initial application or in an amendment, the 
broker or dealer may request Commission approval to apply a credit risk 
weight of either 20%, 50%, or 150% based on internal calculations of 
credit ratings, including internal estimates of the maturity adjustment. 
Based on the strength of the broker's or dealer's internal credit risk 
management system, the Commission may approve the application. The 
broker or dealer must make and keep current a record of the basis for 
the credit rating of each counterparty;
    (B) For the portion of a current exposure covered by a written 
guarantee where that guarantee is an unconditional and irrevocable 
guarantee of the due and punctual payment and performance of the 
obligation and the broker or dealer can demand immediate payment from 
the guarantor after any payment is missed without having to make 
collection efforts, the broker or dealer may substitute the credit risk 
weight of the guarantor for the credit risk weight of the counterparty; 
and
    (C) As part of its initial application or in an amendment, the 
broker or dealer may request Commission approval to reduce deductions 
for credit risk through the use of credit derivatives.

                               VaR Models

    (d) To be approved, each VaR model must meet the following minimum 
qualitative and quantitative requirements:
    (1) Qualitative requirements. (i) The VaR model used to calculate 
market or credit risk for a position must be integrated into the daily 
internal risk management system of the broker or dealer;
    (ii) The VaR model must be reviewed both periodically and annually. 
The periodic review may be conducted by the broker's or dealer's 
internal audit staff, but the annual review must be conducted by a 
registered public accounting firm, as that term is defined in section 
2(a)(12) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.); and
    (iii) For purposes of computing market risk, the broker or dealer 
must determine the appropriate multiplication factor as follows:
    (A) Beginning three months after the broker or dealer begins using 
the VaR model to calculate market risk, the broker or dealer must 
conduct backtesting of the model by comparing its actual daily net 
trading profit or loss with the corresponding VaR measure generated by 
the VaR model, using a 99 percent, one-tailed confidence level with 
price changes equivalent to a one business-day movement in rates and 
prices, for each of the past 250 business days, or other period as may 
be appropriate for the first year of its use;
    (B) On the last business day of each quarter, the broker or dealer 
must identify the number of backtesting exceptions of the VaR model, 
that is, the number of business days in the past 250 business days, or 
other period as may

[[Page 433]]

be appropriate for the first year of its use, for which the actual net 
trading loss, if any, exceeds the corresponding VaR measure; and
    (C) The broker or dealer must use the multiplication factor 
indicated in Table 1 of this appendix E in determining its market risk 
until it obtains the next quarter's backtesting results;

    Table 1--Multiplication factor based on the number of backtesting
                       exceptions of the VaR model
------------------------------------------------------------------------
                                                          Multiplication
                  Number of exceptions                        factor
------------------------------------------------------------------------
4 or fewer..............................................            3.00
5.......................................................            3.40
6.......................................................            3.50
7.......................................................            3.65
8.......................................................            3.75
9.......................................................            3.85
10 or more..............................................            4.00
------------------------------------------------------------------------

    (iv) For purposes of incorporating specific risk into a VaR model, a 
broker or dealer must demonstrate that it has methodologies in place to 
capture liquidity, event, and default risk adequately for each position. 
Furthermore, the models used to calculate deductions for specific risk 
must:
    (A) Explain the historical price variation in the portfolio;
    (B) Capture concentration (magnitude and changes in composition);
    (C) Be robust to an adverse environment; and
    (D) Be validated through backtesting; and
    (v) For purposes of computing the credit equivalent amount of the 
broker's or dealer's exposures to a counterparty, the broker or dealer 
must determine the appropriate multiplication factor as follows:
    (A) Beginning three months after it begins using the VaR model to 
calculate maximum potential exposure, the broker or dealer must conduct 
backtesting of the model by comparing, for at least 80 counterparties 
with widely varying types and sizes of positions with the firm, the ten-
business day change in its current exposure to the counterparty based on 
its positions held at the beginning of the ten-business day period with 
the corresponding ten-business day maximum potential exposure for the 
counterparty generated by the VaR model;
    (B) As of the last business day of each quarter, the broker or 
dealer must identify the number of backtesting exceptions of the VaR 
model, that is, the number of ten-business day periods in the past 250 
business days, or other period as may be appropriate for the first year 
of its use, for which the change in current exposure to a counterparty 
exceeds the corresponding maximum potential exposure; and
    (C) The broker or dealer will propose, as part of its application, a 
schedule of multiplication factors, which must be approved by the 
Commission based on the number of backtesting exceptions of the VaR 
model. The broker or dealer must use the multiplication factor indicated 
in the approved schedule in determining the credit equivalent amount of 
its exposures to a counterparty until it obtains the next quarter's 
backtesting results, unless the Commission determines, based on, among 
other relevant factors, a review of the broker's or dealer's internal 
risk management control system, including a review of the VaR model, 
that a different adjustment or other action is appropriate;
    (2) Quantitative requirements. (i) For purposes of determining 
market risk, the VaR model must use a 99 percent, one-tailed confidence 
level with price changes equivalent to a ten business-day movement in 
rates and prices;
    (ii) For purposes of determining maximum potential exposure, the VaR 
model must use a 99 percent, one-tailed confidence level with price 
changes equivalent to a one-year movement in rates and prices; or based 
on a review of the broker's or dealer's procedures for managing 
collateral and if the collateral is marked to market daily and the 
broker or dealer has the ability to call for additional collateral 
daily, the Commission may approve a time horizon of not less than ten 
business days;
    (iii) The VaR model must use an effective historical observation 
period of at least one year. The broker or dealer must consider the 
effects of market stress in its construction of the model. Historical 
data sets must be updated at least monthly and reassessed whenever

[[Page 434]]

market prices or volatilities change significantly; and
    (iv) The VaR model must take into account and incorporate all 
significant, identifiable market risk factors applicable to positions in 
the accounts of the broker or dealer, including:
    (A) Risks arising from the non-linear price characteristics of 
derivatives and the sensitivity of the market value of those positions 
to changes in the volatility of the derivatives' underlying rates and 
prices;
    (B) Empirical correlations with and across risk factors or, 
alternatively, risk factors sufficient to cover all the market risk 
inherent in the positions in the proprietary or other trading accounts 
of the broker or dealer, including interest rate risk, equity price 
risk, foreign exchange risk, and commodity price risk;
    (C) Spread risk, where applicable, and segments of the yield curve 
sufficient to capture differences in volatility and imperfect 
correlation of rates along the yield curve for securities and 
derivatives that are sensitive to different interest rates; and
    (D) Specific risk for individual positions.

                          Additional Conditions

    (e) As a condition for the broker or dealer to use this appendix E 
to calculate certain of its capital charges, the Commission may impose 
additional conditions on the broker or dealer, which may include, but 
are not limited to restricting the broker's or dealer's business on a 
product-specific, category-specific, or general basis; submitting to the 
Commission a plan to increase the broker's or dealer's net capital or 
tentative net capital; filing more frequent reports with the Commission; 
modifying the broker's or dealer's internal risk management control 
procedures; or computing the broker's or dealer's deductions for market 
and credit risk in accordance with Sec.240.15c3-1(c)(2)(iv), (vi), and 
(vii), (c)(2)(xv)(A) and (B), as appropriate, and Sec.240.15c-1b, as 
appropriate. If it is not an ultimate holding company that has a 
principal regulator, the Commission also may require, as a condition of 
continuation of the exemption, the ultimate holding company of the 
broker or dealer to file more frequent reports or to modify its group-
wide internal risk management control procedures. If the Commission 
finds it is necessary or appropriate in the public interest or for the 
protection of investors, the Commission may impose additional conditions 
on either the broker-dealer, or the ultimate holding company, if it is 
an ultimate holding company that does not have a principal regulator, 
if:
    (1) The broker or dealer is required by Sec.240.15c3-1(a)(7)(ii) 
to provide notice to the Commission that the broker's or dealer's 
tentative net capital is less than $6 billion;
    (2) The broker or dealer or the ultimate holding company of the 
broker or dealer fails to meet the reporting requirements set forth in 
Sec.240.17a-5 or 240.15c3-1g(b), as applicable;
    (3) Any event specified in Sec.240.17a-11 occurs;
    (4) There is a material deficiency in the internal risk management 
control system or in the mathematical models used to price securities or 
to calculate deductions for market and credit risk or allowances for 
market and credit risk, as applicable, of the broker or dealer or the 
ultimate holding company of the broker or dealer;
    (5) The ultimate holding company of the broker or dealer fails to 
comply with its undertakings that the broker or dealer has filed with 
its application pursuant to paragraph (a)(1)(viii) or (a)(1)(ix) of this 
appendix E;
    (6) The broker or dealer fails to comply with this appendix E; or
    (7) The Commission finds that imposition of other conditions is 
necessary or appropriate in the public interest or for the protection of 
investors.

[69 FR 34462, June 21, 2004, as amended at 79 FR 1549, Jan. 8, 2014; 79 
FR 38451, July 8, 2014; 84 FR 44046, Aug. 22, 2019]



Sec.240.15c3-1f  Optional market and credit risk requirements for 
OTC derivatives dealers (Appendix F to 17 CFR 240.15c3-1).

                        Application Requirements

    (a) An OTC derivatives dealer may apply to the Commission for 
authorization to compute capital charges for market and credit risk 
pursuant to this

[[Page 435]]

Appendix F in lieu of computing securities haircuts pursuant to Sec.
240.15c3-1(c)(2)(vi).
    (1) An OTC derivatives dealer's application shall contain the 
following information:
    (i) Executive summary. An OTC derivatives dealer shall include in 
its application an Executive Summary of information provided to the 
Commission.
    (ii) Description of methods for computing market risk charges. An 
OTC derivatives dealer shall provide a description of all statistical 
models used for pricing OTC derivative instruments and for computing 
value-at-risk (``VAR''), a description of the applicant's controls over 
those models, and a statement regarding whether the firm has developed 
its own internal VAR models. If the OTC derivatives dealer's VAR model 
incorporates empirical correlations across risk categories, the dealer 
shall describe its process for measuring correlations and describe the 
qualitative and quantitative aspects of the model which at a minimum 
must adhere to the criteria set forth in paragraph (e) of this appendix 
F. The application shall further state whether the OTC derivatives 
dealer intends to use an alternative method for computing its market 
risk charge for equity instruments and, if applicable, a description of 
how its own theoretical pricing model contains the minimum pricing 
factors set forth in appendix A (Sec.240.15c3-1a). The application 
shall also describe any category of securities having no ready market or 
any category of debt securities which are below investment grade for 
which the OTC derivatives dealer wishes to use its VAR model to 
calculate its market risk charge or for which it wishes to use an 
alternative method for computing this charge and a description of how 
those charges would be determined.
    (iii) Internal risk management control systems. An OTC derivatives 
dealer shall provide a comprehensive description of its internal risk 
management control systems and how those systems adhere to the 
requirements set forth in Sec.240.15c3-4(a) through (d).
    (2) The Commission may approve the application after reviewing the 
application to determine whether the OTC derivatives dealer:
    (i) Has adopted internal risk management control systems that meet 
the requirements set forth in Sec.240.15c3-4; and
    (ii) Has adopted a VAR model that meets the requirements set forth 
in paragraphs (e)(1) and (e)(2) of this appendix F.
    (3) If the OTC derivatives dealer materially amends its VAR model or 
internal risk management control systems as described in its 
application, including any material change in the categories of non-
marketable securities that it wishes to include in its VAR model, the 
dealer shall file an application describing the changes which must be 
approved by the Commission before the changes may be implemented. After 
reviewing the application for changes to the dealer's VAR model or 
internal risk management control systems to determine whether, with the 
changes, the OTC derivatives dealer's VAR model and internal risk 
management control systems would meet the requirements set forth in this 
appendix F and Sec.240.15c3-4, the Commission may approve the 
application.
    (4) The applications provided for in this paragraph (a) shall be 
considered filed when received at the Commission's principal office in 
Washington, DC. All applications filed pursuant to this paragraph (a) 
shall be deemed to be confidential.

                    Compliance With Sec.240.15c3-4

    (b) An OTC derivatives dealer must be in compliance in all material 
respects with Sec.240.15c3-4 regarding its internal risk management 
control systems in order to be in compliance with Sec.240.15c3-1.

                               Market Risk

    (c) An OTC derivatives dealer electing to apply this appendix F 
shall compute a capital charge for market risk which shall be the 
aggregate of the charges computed below:
    (1) Value-at-Risk. An OTC derivatives dealer shall deduct from net 
worth an amount for market risk for eligible OTC derivative instruments 
and other positions in its proprietary or other accounts equal to the 
VAR of these positions obtained from its proprietary

[[Page 436]]

VAR model, multiplied by the appropriate multiplication factor in 
paragraph (e)(1)(iv)(C) of this appendix F. The OTC derivatives dealer 
may not elect to calculate its capital charges under this paragraph 
(c)(1) until its application to use the VAR model has been approved by 
the Commission.
    (2) Alternative method for equities. An OTC derivatives dealer may 
elect to use this alternative method to calculate its market risk for 
equity instruments, including OTC options, upon approval by the 
Commission on application by the dealer. Under this alternative method, 
the deduction for market risk must be the amount computed pursuant to 
appendix A to Rule 15c3-1

(Sec.240.15c3-1a). In this computation, the OTC derivatives dealer may 
use its own theoretical pricing model provided that it contains the 
minimum pricing factors set forth in appendix A.
    (3) Non-marketable securities. An OTC derivatives dealer may not use 
a VAR model to determine a capital charge for any category of securities 
having no ready market or any category of debt securities which are 
below investment grade or any derivative instrument based on the value 
of these categories of securities, unless the Commission has granted, 
pursuant to paragraph (a)(1) of this appendix F, its application to use 
its VAR model for any such category of securities. The dealer in any 
event may apply, pursuant to paragraph (a)(1) of this appendix F, for an 
alternative treatment for any such category of securities, rather than 
calculate the market risk capital charge for such category of securities 
under Sec.240.15c3-1(c)(2)(vi) and (vii).
    (4) Residual positions. To the extent that a position has not been 
included in the calculation of the market risk charge in paragraphs 
(c)(1) through (c)(3) of this section, the market risk charge for the 
position shall be computed under Sec.240.15c3-1(c)(2)(vi).

                               Credit Risk

    (d) The capital charge for credit risk arising from an OTC 
derivatives dealer's transactions in eligible OTC derivative instruments 
shall be:
    (1) The net replacement value in the account of a counterparty 
(including the effect of legally enforceable netting agreements and the 
application of liquid collateral) that is insolvent, or in bankruptcy, 
or that has senior unsecured long-term debt in default;
    (2) As to a counterparty not otherwise described in paragraph (d)(1) 
of this section, the net replacement value in the account of the 
counterparty (including the effect of legally enforceable netting 
agreements and the application of liquid collateral) multiplied by 8%, 
and further multiplied by a counterparty factor of 20%, 50%, or 100% 
based on an internal credit rating the OTC derivatives dealer determines 
for the counterparty; and
    (3) A concentration charge where the net replacement value in the 
account of any one counterparty (other than a counterparty described in 
paragraph (d)(1) of this section) exceeds 25% of the OTC derivatives 
dealer's tentative net capital, calculated as follows:
    (i) For counterparties for which an OTC derivatives dealer assigns 
an internal rating for senior unsecured long-term debt or commercial 
paper that would apply a 20% counterparty factor under paragraph (d)(2) 
of this section, 5% of the amount of the net replacement value in excess 
of 25% of the OTC derivatives dealer's tentative net capital;
    (ii) For counterparties for which an OTC derivatives dealer assigns 
an internal rating for senior unsecured long-term debt that would apply 
a 50% counterparty factor under paragraph (d)(2) of this section, 20% of 
the amount of the net replacement value in excess of 25% of the OTC 
derivatives dealer's tentative net capital;
    (iii) For counterparties for which an OTC derivatives dealer assigns 
an internal rating for senior unsecured long-term debt that would apply 
a 100% counterparty factor under paragraph (d)(2) of this section, 50% 
of the amount of the net replacement value in excess of 25% of the OTC 
derivatives dealer's tentative net capital.
    (4) Counterparties may be rated by the OTC derivatives dealer, or by 
an affiliated bank or affiliated broker-dealer of the OTC derivatives 
dealer, upon approval by the Commission on application by the OTC 
derivatives dealer.

[[Page 437]]

Based on the strength of the OTC derivatives dealer's internal credit 
risk management system, the Commission may approve the application. The 
OTC derivatives dealer must make and keep current a record of the basis 
for the credit rating for each counterparty.

                               VAR Models

    (e) An OTC derivatives dealer's VAR model must meet the following 
qualitative and quantitative requirements:
    (1) Qualitative requirements. An OTC derivatives dealerapplying this 
appendix F must have a VAR model that meets the following minimum 
qualitative requirements:
    (i) The OTC derivatives dealer's VAR model must be integrated into 
the firm's daily risk management process;
    (ii) The OTC derivatives dealer must conduct appropriate stress 
tests of the VAR model, and develop appropriate procedures to follow in 
response to the results of such tests;
    (iii) The OTC derivatives dealer must conduct periodic reviews 
(which may be performed by internal audit staff) of its VAR model. The 
OTC derivatives dealer's VAR model also must be subject to annual 
reviews conducted by independent public accountants; and
    (iv) The OTC derivatives dealer must conduct backtesting of the VAR 
model pursuant to the following procedures:
    (A) Beginning one year after the OTC derivatives dealer begins using 
its VAR model to calculate its net capital, the OTC derivatives dealer 
must conduct backtesting by comparing each of its most recent 250 
business days' actual net trading profit or loss with the corresponding 
daily VAR measures generated for determining market risk capital charges 
and calibrated to a one-day holding period and a 99 percent, one-tailed 
confidence level;
    (B) Once each quarter, the OTC derivatives dealer must identify the 
number of exceptions, that is, the number of business days for which the 
actual daily net trading loss, if any, exceeded the corresponding daily 
VAR measure; and
    (C) An OTC derivatives dealer must use the multiplication factor 
indicated in Table 1 of this appendix F in determining its capital 
charge for market risk until it obtains the next quarter's backtesting 
results, unless the Commission determines that a different adjustment or 
other action is appropriate.

     Table 5--Multiplication Factor Based on Results of Backtesting
------------------------------------------------------------------------
                                                          Multiplication
                  Number of exceptions                        factor
------------------------------------------------------------------------
 4 or fewer.............................................         3.00
 5......................................................         3.40
 6......................................................         3.50
 7......................................................         3.65
 8......................................................         3.75
 9......................................................         3.85
10 or more..............................................         4.00
------------------------------------------------------------------------

    (2) Quantitative requirements. An OTC derivatives dealer applying 
this appendix F must have a VAR model that meets the following minimum 
quantitative requirements:
    (i) The VAR measures must be calculated on a daily basis using a 99 
percent, one-tailed confidence level with a price change equivalent to a 
ten-business day movement in rates and prices;
    (ii) The effective historical observation period for VAR measures 
must be at least one year, and the weighted average time lag of the 
individual observations cannot be less than six months. Historical data 
sets must be updated at least every three months and reassessed whenever 
market prices or volatilities are subject to large changes;
    (iii) The VAR measures must include the risks arising from the non-
linear price characteristics of options positions and the sensitivity of 
the market value of the positions to changes in the volatility of the 
underlying rates or prices. An OTC derivatives dealer must measure the 
volatility of options positions by different maturities;
    (iv) The VAR measures may incorporate empirical correlations within 
and across risk categories, provided that the OTC derivatives dealer has 
described its process for measuring correlations in its application to 
apply this appendix F and the Commission has approved its application. 
In the event that the VAR measures do not incorporate empirical 
correlations across risk categories, the OTC derivatives dealer must add 
the separate VAR measures for the four major risk

[[Page 438]]

categories in paragraph (e)(2)(v) of this appendix F to determine its 
aggregate VAR measure; and
    (v) The OTC derivatives dealer's VAR model must use risk factors 
sufficient to measure the market risk inherent in all covered positions. 
The risk factors must address, at a minimum, the following major risk 
categories: interest rate risk, equity price risk, foreign exchange rate 
risk, and commodity price risk. For material exposures in the major 
currencies and markets, modeling techniques must capture, at a minimum, 
spread risk and must incorporate enough segments of the yield curve to 
capture differences in volatility and less-than-perfect correlation of 
rates along the yield curve. An OTC derivatives dealer must provide the 
Commission with evidence that the OTC derivatives dealer's VAR model 
takes account of specific risk in positions, including specific equity 
risk, if the OTC derivatives dealer intends to utilize its VAR model to 
compute capital charges for equity price risk.

[63 FR 59398, Nov. 3, 1998, as amended at 79 FR 1549, Jan. 8, 2014]



Sec.240.15c3-1g  Conditions for ultimate holding companies of certain
brokers or dealers (Appendix G to 17 CFR 240.15c3-1).

    As a condition for a broker or dealer to compute certain of its 
deductions to capital in accordance with Sec.240.15c3-1e, pursuant to 
its undertaking, the ultimate holding company of the broker or dealer 
shall:

     Conditions Regarding Computation of Allowable Capital and Risk 
                               Allowances

    (a) If it is not an ultimate holding company that has a principal 
regulator, as that term is defined in Sec.240.15c3-1(c)(13), calculate 
allowable capital and allowances for market, credit, and operational 
risk on a consolidated basis as follows:
    (1) Allowable capital. The ultimate holding company must compute 
allowable capital as the sum of:
    (i) Common shareholders' equity on the consolidated balance sheet of 
the holding company less:
    (A) Goodwill;
    (B) Deferred tax assets, except those permitted for inclusion in 
Tier 1 capital by the Board of Governors of the Federal Reserve System 
(``Federal Reserve'') (12 CFR 225, appendix A);
    (C) Other intangible assets; and
    (D) Other deductions from common stockholders' equity as required by 
the Federal Reserve in calculating Tier 1 capital (as defined in 12 CFR 
225, appendix A);
    (ii) Cumulative and non-cumulative preferred stock, except that the 
amount of cumulative preferred stock may not exceed 33% of the items 
included in allowable capital pursuant to paragraph (a)(1)(i) of this 
appendix G, excluding cumulative preferred stock, provided that:
    (A) The stock does not have a maturity date;
    (B) The stock cannot be redeemed at the option of the holder of the 
instrument;
    (C) The stock has no other provisions that will require future 
redemption of the issue; and
    (D) The issuer of the stock can defer or eliminate dividends;
    (iii) The sum of the following items on the consolidated balance 
sheet, to the extent that the sum does not exceed the sum of the items 
included in allowable capital pursuant to paragraphs (a)(1)(i) and (ii) 
of this Appendix G:
    (A) Cumulative preferred stock in excess of the 33% limit specified 
in paragraph (a)(1)(ii) of this appendix G and subject to the conditions 
of paragraphs (a)(1)(ii)(A) through (D) of this appendix G;
    (B) Subordinated debt if the original weighted average maturity of 
the subordinated debt is at least five years; each subordinated debt 
instrument states clearly on its face that repayment of the debt is not 
protected by any Federal agency or the Securities Investor Protection 
Corporation; the subordinated debt is unsecured and subordinated in 
right of payment to all senior indebtedness of the ultimate holding 
company; and the subordinated debt instrument permits acceleration only 
in the event of bankruptcy or reorganization of the ultimate holding 
company under Chapters 7 (liquidation)

[[Page 439]]

and 11 (reorganization) of the U.S. Bankruptcy Code; and
    (C) As part of the broker's or dealer's application to calculate 
deductions for market and credit risk under Sec.240.15c3-1e, an 
ultimate holding company may request to include, for a period of three 
years after adoption of this appendix G, long-term debt that has an 
original weighted average maturity of at least five years and that 
cannot be accelerated, except upon the occurrence of certain events as 
the Commission may approve. As part of a subsequent amendment to the 
broker's or dealer's application, the broker or dealer may request 
permission for the ultimate holding company to include long-term debt 
that meets these criteria in allowable capital for up to an additional 
two years; and
    (iv) Hybrid capital instruments that are permitted for inclusion in 
Tier 2 capital by the Federal Reserve (as defined in 12 CFR 225, 
appendix A);
    (2) Allowance for market risk. The ultimate holding company shall 
compute an allowance for market risk for all proprietary positions, 
including debt instruments, equity instruments, commodity instruments, 
foreign exchange contracts, and derivative contracts, as the aggregate 
of the following:
    (i) Value at risk. The VaR of its positions, multiplied by the 
appropriate multiplication factor as set forth in Sec.240.15c3-1e(d). 
The VaR of the positions must be obtained using approved VaR models 
meeting the applicable qualitative and quantitative requirements of 
Sec.240.15c3-1e(d); and
    (ii) Alternative method. For positions for which there does not 
exist adequate historical data to support a VaR model, the ultimate 
holding company must propose a model that produces a suitable allowance 
for market risk for those positions;
    (3) Allowance for credit risk. The ultimate holding company shall 
compute an allowance for credit risk for certain assets on the 
consolidated balance sheet and certain off-balance sheet items, 
including loans and loan commitments, exposures due to derivatives 
contracts, structured financial products, and other extensions of 
credit, and credit substitutes as follows:
    (i) By multiplying the credit equivalent amount of the ultimate 
holding company's exposure to the counterparty, as defined in paragraphs 
(a)(3)(i)(A), (B) and (C) of this appendix G, by the appropriate credit 
risk weight, as defined in paragraph (a)(3)(i)(F) of this appendix G, of 
the asset, off-balance sheet item, or counterparty, then multiplying 
that product by 8%, in accordance with the following:
    (A) For certain loans and loan commitments, the credit equivalent 
amount is determined by multiplying the nominal amount of the contract 
by the following credit conversion factors:
    (1) 0% credit conversion factor for loan commitments that:
    (i) May be unconditionally cancelled by the lender; or
    (ii) May be cancelled by the lender due to credit deterioration of 
the borrower;
    (2) 20% credit conversion factor for:
    (i) Loan commitments of less than one year; or
    (ii) Short-term self-liquidating trade related contingencies, 
including letters of credit;
    (3) 50% credit conversion factor for loan commitments with an 
original maturity of greater than one year that contain transaction 
contingencies, including performance bonds, revolving underwriting 
facilities, note issuance facilities and bid bonds; and
    (4) 100% credit conversion factor for bankers' acceptances, stand-by 
letters of credit, and forward purchases of assets, and similar direct 
credit substitutes;
    (B) For derivatives contracts and for repurchase agreements, reverse 
repurchase agreements, stock lending and borrowing, and similar 
collateralized transactions, the credit equivalent amount is the sum of 
the ultimate holding company's maximum potential exposure to the 
counterparty, as defined in paragraph (a)(3)(i)(E) of this appendix G, 
multiplied by the appropriate multiplication factor, and the ultimate 
holding company's current exposure to the counterparty, as defined in 
paragraph (a)(3)(i)(D) of this appendix G. The ultimate holding company 
must use the multiplication factor determined according to Sec.
240.15c3-

[[Page 440]]

1e(d)(1)(v), except that the initial multiplication factor shall be one, 
unless the Commission determines, based on a review of the group-wide 
internal risk management control system and practices, including a 
review of the VaR models, that another multiplication factor is 
appropriate;
    (C) The credit equivalent amount for other assets shall be the 
asset's book value on the ultimate holding company's consolidated 
balance sheet or other amount as determined according to the standards 
published by the Basel Committee on Banking Supervision, as amended from 
time to time;
    (D) The current exposure is the current replacement value of a 
counterparty's positions, after applying netting agreements with that 
counterparty meeting the requirements of Sec.240.15c3-1e(c)(4)(iv) and 
taking into account the value of collateral from the counterparty in 
accordance with Sec.240.15c3-1e(c)(4)(v);
    (E) The maximum potential exposure is the VaR of the counterparty's 
positions with the member of the affiliate group, after applying netting 
agreements with the counterparty meeting the requirements of paragraph 
(c)(4)(iv) of Sec.240.15c3-1e, taking into account the value of 
collateral from the counterparty held by the member of the affiliate in 
accordance with paragraph (c)(4)(v) of Sec.240.15c3-1e, and taking 
into account the current replacement value of the counterparty's 
positions with the member of the affiliate group, except that for 
repurchase agreements, reverse repurchase agreements, stock lending and 
borrowing, and similar collateralized transactions, maximum potential 
exposure must be calculated using a time horizon of not less than five 
days;
    (F) Credit ratings and credit risk weights shall be determined 
according to the provisions of paragraphs (c)(4)(vi)(A) and 
(c)(4)(vi)(B) of Sec.240.15c3-1e, respectively;
    (G) As part of the broker's or dealer's initial application or in an 
amendment, the ultimate holding company may request Commission approval 
to reduce allowances for credit risk through the use of credit 
derivatives;
    (H) For the portion of a current exposure covered by a written 
guarantee, where that guarantee is an unconditional and irrevocable 
guarantee of the due and punctual payment and performance of the 
obligation and the ultimate holding company or member of the affiliate 
group can demand payment after any payment is missed without having to 
make collection efforts, the ultimate holding company or member of the 
affiliate group may substitute the credit risk weight of the guarantor 
for the credit risk weight of the counterparty; or
    (ii) As part of the broker's or dealer's initial application or in 
an amendment to the application, the ultimate holding company may 
request Commission approval to use a method of calculating credit risk 
that is consistent with standards published by the Basel Committee on 
Banking Supervision in International Convergence of Capital Measurement 
and Capital Standards (July 1988), as amended from time to time; and
    (4) Allowance for operational risk. The ultimate holding company 
shall compute an allowance for operational risk in accordance with the 
standards published by the Basel Committee on Banking Supervision, as 
amended from time to time.

               Conditions Regarding Reporting Requirements

    (b) File reports with the Commission in accordance with the 
following:
    (1) If it is not an ultimate holding company that has a principal 
regulator, as that term is defined in Sec.240.15c3-1(c)(13), the 
ultimate holding company shall file with the Commission:
    (i) A report as of the end of each month, filed not later than 30 
calendar days after the end of the month. A monthly report need not be 
filed for a month-end that coincides with a fiscal quarter-end. The 
monthly report shall include:
    (A) A consolidated balance sheet and income statement (including 
notes to the financial statements) for the ultimate holding company and 
statements of allowable capital and allowances for market, credit, and 
operational risk computed pursuant to paragraph (a) of this appendix G, 
except that the consolidated balance sheet and income

[[Page 441]]

statement for the first month of the fiscal year may be filed at a later 
time to which the Commission agrees (when reviewing the affiliated 
broker's or dealer's application under Sec.240.15c3-1e(a)). A 
statement of comprehensive income (as defined in Sec.210.1-02 of 
Regulation S-X of this chapter) shall be included in place of an income 
statement, if required by the applicable generally accepted accounting 
principles.
    (B) A graph reflecting, for each business line, the daily intra-
month VaR;
    (C) Consolidated credit risk information, including aggregate 
current exposure and current exposures (including commitments) listed by 
counterparty for the 15 largest exposures;
    (D) The 10 largest commitments listed by counterparty;
    (E) Maximum potential exposure listed by counterparty for the 15 
largest exposures;
    (F) The aggregate maximum potential exposure;
    (G) A summary report reflecting the geographic distribution of the 
ultimate holding company's exposures on a consolidated basis for each of 
the top ten countries to which it is exposed (by residence of the main 
operating group of the counterparty); and
    (H) Certain regular risk reports provided to the persons responsible 
for managing group-wide risk as the Commission may request from time to 
time;
    (ii) A quarterly report as of the end of each fiscal quarter, filed 
not later than 35 calendar days after the end of the quarter. The 
quarterly report shall include, in addition to the information contained 
in the monthly report as required by paragraph (b)(1)(i) of this 
appendix G, the following:
    (A) Consolidating balance sheets and income statements for the 
ultimate holding company. The consolidating balance sheet must provide 
information regarding each material affiliate of the ultimate holding 
company in a separate column, but may aggregate information regarding 
members of the affiliate group that are not material affiliates into one 
column. Statements of comprehensive income (as defined in Sec.210.1-02 
of Regulation S-X) shall be included in place of an income statement, if 
required by the applicable generally accepted accounting principles;
    (B) The results of backtesting of all internal models used to 
compute allowable capital and allowances for market and credit risk 
indicating, for each model, the number of backtesting exceptions;
    (C) A description of all material pending legal or arbitration 
proceedings, involving either the ultimate holding company or any of its 
affiliates, that are required to be disclosed by the ultimate holding 
company under generally accepted accounting principles;
    (D) The aggregate amount of unsecured borrowings and lines of 
credit, segregated into categories, scheduled to mature within twelve 
months from the most recent fiscal quarter as to each material 
affiliate; and
    (E) For a quarter-end that coincides with the ultimate holding 
company's fiscal year-end, the ultimate holding company need not include 
consolidated and consolidating balance sheets and income statements (or 
statements of comprehensive income, as applicable) in its quarterly 
reports. The consolidating balance sheet and income statement (or 
statement of comprehensive income, as applicable) for the quarter-end 
that coincides with the fiscal year-end may be filed at a later time to 
which the Commission agrees (when reviewing the affiliated broker's or 
dealer's application under Sec.240.15c3-1e(a));
    (iii) An annual audited report as of the end of the ultimate holding 
company's fiscal year, filed not later than 65 calendar days after the 
end of the fiscal year. The annual report shall include:
    (A) Consolidated financial statements for the ultimate holding 
company audited by a registered public accounting firm, as that term is 
defined in section 2(a)(12) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7201 et seq.). The audit shall be made in accordance with the rules 
promulgated by the Public Company Accounting Oversight Board. The 
audited financial statements must include a supporting schedule 
containing statements of allowable capital and allowances for market, 
credit, and operational risk

[[Page 442]]

computed pursuant to paragraph (a) of this appendix G; and
    (B) A supplemental report entitled ``Accountant's Report on Internal 
Risk Management Control System'' prepared by a registered public 
accounting firm, as that term is defined in section 2(a)(12) of the 
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), indicating the 
results of the registered public accounting firm's review of the 
ultimate holding company's compliance with Sec.240.15c3-4. The 
procedures are to be performed and the report is to be prepared in 
accordance with procedures agreed upon by the ultimate holding company 
and the registered public accounting firm conducting the review. The 
agreed-upon procedures are to be performed and the report is to be 
prepared in accordance with rules promulgated by the Public Company 
Accounting Oversight Board. The ultimate holding company must file, 
before commencement of the initial review, the procedures agreed upon by 
the ultimate holding company and the registered public accounting firm 
with the Division of Market Regulation, Office of Financial 
Responsibility, at Commission's principal office in Washington, DC. 
Before commencement of each subsequent review, the ultimate holding 
company must notify the Commission of any changes in the procedures;
    (iv) An organizational chart, as of the ultimate holding company's 
fiscal year-end, concurrently with its quarterly report for the quarter-
end that coincides with its fiscal year-end. The ultimate holding 
company must provide quarterly updates of the organizational chart if a 
material change in the information provided to the Commission has 
occurred;
    (2) If the ultimate holding company is an entity that has a 
principal regulator, as that term is defined in Sec.240.15c3-1(c)(13), 
the ultimate holding company must file with the Commission:
    (i) A quarterly report as of the end of each fiscal quarter, filed 
not later than 35 calendar days after the end of the quarter, or a later 
time to which the Commission may agree upon application. The quarterly 
report shall include:
    (A) Consolidated (including notes to the financial statements) and 
consolidating balance sheets and income statements for the ultimate 
holding company. Statements of comprehensive income (as defined in Sec.
210.1-02 of Regulation S-X) shall be included in place of income 
statements, if required by the applicable generally accepted accounting 
principles;
    (B) Its most recent capital measurements computed in accordance with 
the standards published by the Basel Committee on Banking Supervision, 
as amended from time to time, as reported to its principal regulator;
    (C) Certain regular risk reports provided to the persons responsible 
for managing group-wide risk as the Commission may request from time to 
time; and
    (D) For a quarter-end that coincides with the ultimate holding 
company's fiscal year-end, the ultimate holding company need not include 
consolidated and consolidating balance sheets and income statements (or 
statements of comprehensive income, as applicable) in its quarterly 
reports. The consolidating balance sheet and income statement (or 
statement of comprehensive income, as applicable) for the quarter-end 
that coincides with the fiscal year-end may be filed at a later time to 
which the Commission agrees (when reviewing the affiliated broker's or 
dealer's application under Sec.240.15c3-1e(a)).
    (ii) An annual audited report as of the end of the ultimate holding 
company's fiscal year, filed with the Commission when required to be 
filed by any regulator;
    (3) The reports that the ultimate holding company must file in 
accordance with paragraph (b) of this appendix G will be considered 
filed when two copies are received at the Commission's principal office 
in Washington, DC. A person who files reports pursuant to this section 
for which he or she seeks confidential treatment may clearly mark each 
page or segregable portion of each page with the words ``Confidential 
Treatment Requested.'' The copies shall be addressed to the Division of 
Market Regulation, Risk Assessment Group; and
    (4) The reports that the ultimate holding company must file with the

[[Page 443]]

Commission in accordance with paragraph (b) of this Appendix G will be 
accorded confidential treatment to the extent permitted by law.

                 Conditions Regarding Records To Be Made

    (c) If it is not an ultimate holding company that has a principal 
regulator, make and keep current the following records:
    (1) A record of the results of funding and liquidity stress tests 
that the ultimate holding company has conducted in response to the 
following events at least once each quarter and a record of the 
contingency plan to respond to each of these events:
    (i) A credit rating downgrade of the ultimate holding company;
    (ii) An inability of the ultimate holding company to access capital 
markets for unsecured short-term funding;
    (iii) An inability of the ultimate holding company to access liquid 
assets in regulated entities across international borders when the 
events described in paragraphs (c)(1)(i) or (ii) of this appendix G 
occur; and
    (iv) An inability of the ultimate holding company to access credit 
or assets held at a particular institution when the events described in 
paragraphs (c)(1)(i) or (ii) of this appendix G occur;
    (2) A record of the basis for the determination of credit risk 
weights for each counterparty;
    (3) A record of the basis for the determination of internal credit 
ratings for each counterparty; and
    (4) A record of the calculations of allowable capital and allowances 
for market, credit and operational risk computed currently at least once 
per month on a consolidated basis.

              Conditions Regarding Preservation of Records

    (d)(1) Must preserve the following information, documents, and 
reports for a period of not less than three years in an easily 
accessible place using any media acceptable under Sec.240.17a-4(f):
    (i) The documents created in accordance with paragraph (c) of this 
Appendix G;
    (ii) Any application or documents filed with the Commission pursuant 
to Sec.240.15c3-1e and this appendix G and any written responses 
received from the Commission;
    (iii) All reports and notices filed with the Commission pursuant to 
Sec.240.15c3-1e and this appendix G; and
    (iv) If the ultimate holding company does not have a principal 
regulator, all written policies and procedures concerning the group-wide 
internal risk management control system established pursuant to Sec.
240.15c3-1e(a)(1)(viii)(C); and
    (2) The ultimate holding company may maintain the records referred 
to in paragraph (d)(1) of this appendix G either at the ultimate holding 
company, at an affiliate, or at a records storage facility, provided 
that the records are located within the United States. If the records 
are maintained by an entity other than the ultimate holding company, the 
ultimate holding company shall obtain and file with the Commission a 
written undertaking by the entity maintaining the records, in a form 
acceptable to the Commission, signed by a duly authorized person at the 
entity maintaining the records, to the effect that the records will be 
treated as if the ultimate holding company were maintaining the records 
pursuant to this section and that the entity maintaining the records 
will permit examination of such records at any time or from time to time 
during business hours by representatives or designees of the Commission 
and will promptly furnish the Commission or its designee a true, 
legible, complete, and current paper copy of any or all or any part of 
such records. The election to operate pursuant to the provisions of this 
paragraph shall not relieve the ultimate holding company that is 
required to maintain and preserve such records from any of its reporting 
or recordkeeping responsibilities under this section.

                    Conditions Regarding Notification

    (e) The ultimate holding company of a broker or dealer that computes 
certain of its capital charges in accordance with Sec.240.15c3-1e 
shall:
    (1) Send notice promptly (but within 24 hours) after the occurrence 
of the following events:

[[Page 444]]

    (i) The early warning indications of low capital as the Commission 
may agree;
    (ii) The ultimate holding company files a Form 8-K (17 CFR 249.308) 
with the Commission; and
    (iii) A material affiliate declares bankruptcy or otherwise becomes 
insolvent; and
    (2) If it is not an ultimate holding company that has a principal 
regulator, as defined in Sec.240.15c3-1(c)(13), send notice promptly 
(but within 24 hours) after the occurrence of the following events:
    (i) The ultimate holding company becomes aware that an NRSRO has 
determined to reduce materially its assessment of the creditworthiness 
of a material affiliate or the credit rating(s) assigned to one or more 
outstanding short or long-term obligations of a material affiliate;
    (ii) The ultimate holding company becomes aware that any financial 
regulatory agency or self-regulatory organization has taken significant 
enforcement or regulatory action against a material affiliate; and
    (iii) The occurrence of any backtesting exception under Sec.
240.15c3-1e(d)(1)(iii) or (iv) that would require that the ultimate 
holding company use a higher multiplication factor in the calculation of 
its allowances for market or credit risk;
    (3) Every notice given or transmitted by paragraph (e) of this 
appendix G will be given or transmitted to the Division of Market 
Regulation, Office of Financial Responsibility, at the principal office 
of the Commission in Washington, DC. A person who files notification 
pursuant to this section for which he or she seeks confidential 
treatment may clearly mark each page or segregable portion of each page 
with the words ``Confidential Treatment Request.'' For the purposes of 
this appendix G, ``notice'' shall be given or transmitted by telegraphic 
notice or facsimile transmission. The notice described by paragraph 
(e)(2) of this appendix G may be transmitted by overnight delivery. 
Notices filed pursuant to this paragraph will be accorded confidential 
treatment to the extent permitted by law; and
    (4) Upon the written request of the ultimate holding company, or 
upon its own motion, the Commission may grant an extension of time or an 
exemption from any of the requirements of this paragraph (e) either 
unconditionally or on specified terms and conditions as are necessary or 
appropriate in the public interest or for the protection of investors.

[69 FR 34467, June 21, 2004, as amended at 79 FR 1550, Jan. 8, 2014; 83 
FR 50222, Oct. 4, 2018]



Sec.240.15c3-2  [Reserved]



Sec.240.15c3-3  Customer protection--reserves and custody of securities.

    Except where otherwise noted, Sec.240.15c3-3 applies to a broker 
or dealer registered under section 15(b) of the Act (15 U.S.C. 78o(b)), 
including a broker or dealer also registered as a security-based swap 
dealer or major security-based swap participant under section 15F(b) of 
the Act (15 U.S.C. 78o-10(b)). A security-based swap dealer or major 
security-based swap participant registered under section 15F(b) of the 
Act that is not also registered as a broker or dealer under section 
15(b) of the Act is subject to the requirements under Sec.240.18a-4.
    (a) Definitions. For the purpose of this section:
    (1) The term customer shall mean any person from whom or on whose 
behalf a broker or dealer has received or acquired or holds funds or 
securities for the account of that person. The term shall not include a 
broker or dealer, a municipal securities dealer, or a government 
securities broker or government securities dealer. The term shall, 
however, include another broker or dealer to the extent that broker or 
dealer maintains an omnibus account for the account of customers with 
the broker or dealer in compliance with Regulation T (12 CFR 220.1 
through 220.12). The term shall not include a general partner or 
director or principal officer of the broker or dealer or any other 
person to the extent that person has a claim for property or funds which 
by contract, agreement or understanding, or by operation of law, is part 
of the capital of the broker or dealer or is subordinated to the claims 
of creditors of the broker or dealer. In

[[Page 445]]

addition, the term shall not include a person to the extent that the 
person has a claim for security futures products held in a futures 
account, or any security futures product and any futures product held in 
a ``proprietary account'' as defined by the Commodity Futures Trading 
Commission in Sec.1.3(y) of this chapter. The term also shall not 
include a counterparty who has delivered collateral to an OTC 
derivatives dealer pursuant to a transaction in an eligible OTC 
derivative instrument, or pursuant to the OTC derivatives dealer's cash 
management securities activities or ancillary portfolio management 
securities activities, and who has received a prominent written notice 
from the OTC derivatives dealer that:
    (i) Except as otherwise agreed in writing by the OTC derivatives 
dealer and the counterparty, the dealer may repledge or otherwise use 
the collateral in its business;
    (ii) In the event of the OTC derivatives dealer's failure, the 
counterparty will likely be considered an unsecured creditor of the 
dealer as to that collateral;
    (iii) The Securities Investor Protection Act of 1970 (SIPA) does not 
protect the counterparty; and
    (iv) The collateral will not be subject to the requirements of Sec.
240.8c-1, Sec.240.15c2-1, Sec.240.15c3-2, or Sec.240.15c3-3.
    (2) The term securities carried for the account of a customer 
(hereinafter also ``customer securities'') shall mean:
    (i) Securities received by or on behalf of a broker or dealer for 
the account of any customer and securities carried long by a broker or 
dealer for the account of any customer; and
    (ii) Securities sold to, or bought for, a customer by a broker or 
dealer.
    (3) The term fully paid securities means all securities carried for 
the account of a customer in a cash account as defined in Regulation T 
(12 CFR 220.1 et seq.), as well as securities carried for the account of 
a customer in a margin account or any special account under Regulation T 
that have no loan value for margin purposes, and all margin equity 
securities in such accounts if they are fully paid: Provided, however, 
that the term fully paid securities does not apply to any securities 
purchased in transactions for which the customer has not made full 
payment.
    (4) The term margin securities means those securities carried for 
the account of a customer in a margin account as defined in section 4 of 
Regulation T (12 CFR 220.4), as well as securities carried in any other 
account (such accounts hereinafter referred to as ``margin accounts'') 
other than the securities referred to in paragraph (a)(3) of this 
section.
    (5) The term excess margin securities shall mean those securities 
referred to in paragraph (a)(4) of this section carried for the account 
of a customer having a market value in excess of 140 percent of the 
total of the debit balances in the customer's account or accounts 
encompassed by paragraph (a)(4) of this section which the broker or 
dealer identifies as not constituting margin securities.
    (6) The term qualified security shall mean a security issued by the 
United States or a security in respect of which the principal and 
interest are guaranteed by the United States.
    (7) The term bank means a bank as defined in section 3(a)(6) of the 
Act and will also mean any building and loan, savings and loan or 
similar banking institution subject to supervision by a Federal banking 
authority. With respect to a broker or dealer that maintains its 
principal place of business in Canada, the term ``bank'' also means a 
Canadian bank subject to supervision by a Canadian authority.
    (8) The term free credit balances means liabilities of a broker or 
dealer to customers which are subject to immediate cash payment to 
customers on demand, whether resulting from sales of securities, 
dividends, interest, deposits or otherwise, excluding, however, funds in 
commodity accounts which are segregated in accordance with the Commodity 
Exchange Act or in a similar manner, or which are funds carried in a 
proprietary account as that term is defined in regulations under the 
Commodity Exchange Act. The term ``free credit balances'' also includes, 
if subject to immediate cash payment to customers on demand, funds 
carried in a securities account pursuant to a self-

[[Page 446]]

regulatory organization portfolio margining rule approved by the 
Commission under section 19(b) of the Act (15 U.S.C. 78s(b)) (``SRO 
portfolio margining rule''), including variation margin or initial 
margin, marks to market, and proceeds resulting from margin paid or 
released in connection with closing out, settling or exercising futures 
contracts and options thereon.
    (9) The term other credit balances means cash liabilities of a 
broker or dealer to customers other than free credit balances and funds 
in commodity accounts which are segregated in accordance with the 
Commodity Exchange Act or in a similar manner, or funds carried in a 
proprietary account as that term is defined in regulations under the 
Commodity Exchange Act. The term ``other credit balances'' also includes 
funds that are cash liabilities of a broker or dealer to customers other 
than free credit balances and are carried in a securities account 
pursuant to an SRO portfolio margining rule, including variation margin 
or initial margin, marks to market, and proceeds resulting from margin 
paid or released in connection with closing out, settling or exercising 
futures contracts and options thereon.
    (10) The term funds carried for the account of any customer 
(hereinafter also ``customer funds'') shall mean all free credit and 
other credit balances carried for the account of the customer.
    (11) The term principal officer shall mean the president, executive 
vice president, treasurer, secretary or any other person performing a 
similar function with the broker or dealer.
    (12) The term household members and other persons related to 
principals includes husbands or wives, children, sons-in-law or 
daughters-in-law and any household relative to whose support a principal 
contributes directly or indirectly. For purposes of this paragraph 
(a)(12), a principal shall be deemed to be a director, general partner, 
or principal officer of the broker or dealer.
    (13) The term affiliated person includes any person who directly or 
indirectly controls a broker or dealer or any person who is directly or 
indirectly controlled by or under common control with the broker or 
dealer. Ownership of 10% or more of the common stock of the relevant 
entity will be deemed prima facie control of that entity for purposes of 
this paragraph.
    (14) The term securities account shall mean an account that is 
maintained in accordance with the requirements of section 15(c)(3) of 
the Act (15 U.S.C. 78o(c)(3)) and Sec.240.15c3-3.
    (15) The term futures account (also referred to as ``commodity 
account'') shall mean an account that is maintained in accordance with 
the segregation requirements of section 4d of the Commodity Exchange Act 
(7 U.S.C. 6d) and the rules thereunder.
    (16) The term PAB account means a proprietary securities account of 
a broker or dealer (which includes a foreign broker or dealer, or a 
foreign bank acting as a broker or dealer) other than a delivery-versus-
payment account or a receipt-versus-payment account. The term does not 
include an account that has been subordinated to the claims of creditors 
of the carrying broker or dealer.
    (17) The term Sweep Program means a service provided by a broker or 
dealer where it offers to its customer the option to automatically 
transfer free credit balances in the securities account of the customer 
to either a money market mutual fund product as described in Sec.
270.2a-7 of this chapter or an account at a bank whose deposits are 
insured by the Federal Deposit Insurance Corporation.
    (b) Physical possession or control of securities. (1) A broker or 
dealer shall promptly obtain and shall thereafter maintain the physical 
possession or control of all fully-paid securities and excess margin 
securities carried by a broker or dealer for the account of customers.
    (2) A broker or dealer shall not be deemed to be in violation of the 
provisions of paragraph (b)(1) of this section regarding physical 
possession or control of customers' securities if, solely as the result 
of normal business operations, temporary lags occur between the time 
when a security is required to be in the possession or control of the 
broker or dealer and the time that it is placed in the broker's or 
dealer's physical possession or under its control, provided that the 
broker or dealer

[[Page 447]]

takes timely steps in good faith to establish prompt physical possession 
or control. The burden of proof shall be on the broker or dealer to 
establish that the failure to obtain physical possession or control of 
securities carried for the account of customers as required by paragraph 
(b)(1) of this section is merely temporary and solely the result of 
normal business operations including same day receipt and redelivery 
(turnaround), and to establish that it has taken timely steps in good 
faith to place them in its physical possession or control.
    (3) A broker or dealer shall not be deemed to be in violation of the 
provisions of paragraph (b)(1) of this section regarding physical 
possession or control of fully-paid or excess margin securities borrowed 
from any person, provided that the broker or dealer and the lender, at 
or before the time of the loan, enter into a written agreement that, at 
a minimum;
    (i) Sets forth in a separate schedule or schedules the basis of 
compensation for any loan and generally the rights and liabilities of 
the parties as to the borrowed securities;
    (ii) Provides that the lender will be given a schedule of the 
securities actually borrowed at the time of the borrowing of the 
securities;
    (iii) Specifies that the broker or dealer:
    (A) Must provide to the lender, upon the execution of the agreement 
or by the close of the business day of the loan if the loan occurs 
subsequent to the execution of the agreement, collateral, which fully 
secures the loan of securities, consisting exclusively of cash or United 
States Treasury bills and Treasury notes or an irrevocable letter of 
credit issued by a bank as defined in section 3(a)(6)(A)-(C) of the Act 
(15 U.S.C. 78c(a)(6)(A)-(C)) or such other collateral as the Commission 
designates as permissible by order as necessary or appropriate in the 
public interest and consistent with the protection of investors after 
giving consideration to the collateral's liquidity, volatility, market 
depth and location, and the issuer's creditworthiness; and
    (B) Must mark the loan to the market not less than daily and, in the 
event that the market value of all the outstanding securities loaned at 
the close of trading at the end of the business day exceeds 100 percent 
of the collateral then held by the lender, the borrowing broker or 
dealer must provide additional collateral of the type described in 
paragraph (b)(3)(iii)(A) of this section to the lender by the close of 
the next business day as necessary to equal, together with the 
collateral then held by the lender, not less than 100 percent of the 
market value of the securities loaned; and
    (iv) Contains a prominent notice that the provisions of the SIPA may 
not protect the lender with respect to the securities loan transaction 
and that, therefore, the collateral delivered to the lender may 
constitute the only source of satisfaction of the broker's or dealer's 
obligation in the event the broker or dealer fails to return the 
securities.
    (4)(i) Notwithstanding paragraph (k)(2)(i) of this section, a broker 
or dealer that retains custody of securities that are the subject of a 
repurchase agreement between the broker or dealer and a counterparty 
shall:
    (A) Obtain the repurchase agreement in writing;
    (B) Confirm in writing the specific securities that are the subject 
of a repurchase transaction pursuant to such agreement at the end of the 
trading day on which the transaction is intitiated and at the end of any 
other day during which other securities are substituted if the 
substitution results in a change to issuer, maturity date, par amount or 
coupon rate as specified in the previous confirmation;
    (C) Advise the counterparty in the repurchase agreement that the 
Securities Investor Protection Corporation has taken the position that 
the provisions of the SIPA do not protect the counterparty with respect 
to the repurchase agreement; and
    (D) Maintain possession or control of securities that are the 
subject of the agreement.
    (ii) For purpose of this paragraph (b)(4), securities are in the 
broker's or dealer's control only if they are in the control of the 
broker or dealer within the meaning of Sec.240.15c3-3 (c)(1), (c)(3), 
(c)(5) or (c)(6) of this title.

[[Page 448]]

    (iii) A broker or dealer shall not be in violation of the 
requirement to maintain possession or control pursuant to paragraph 
(b)(4)(i)(D) during the trading day if:
    (A) In the written repurchase agreement, the counterparty grants the 
broker or dealer the right to substitute other securities for those 
subject to the agreement; and
    (B) The provision in the written repurchase agreement governing the 
right, if any, to substitute is immediately preceded by the following 
disclosure statement, which must be prominently displayed:

                           Required Disclosure

    The [seller] is not permitted to substitute other securities for 
those subject to this agreement and therefore must keep the [buyer's] 
securities segregated at all times, unless in this agreement the [buyer] 
grants the [seller] the right to substitute other securities. If the 
[buyer] grants the right to substitute, this means that the [buyer's] 
securities will likely be commingled with the [seller's] own securities 
during the trading day. The [buyer] is advised that, during any trading 
day that the [buyer's] securities are commingled with the [seller's] 
securities, they will be subject to liens granted by the [seller] to its 
clearing bank and may be used by the [seller] for deliveries on other 
securities transactions. Whenever the securities are commingled, the 
[seller's] ability to resegregate substitute securities for the [buyer] 
will be subject to the [seller's] ability to satisfy the clearing lien 
or to obtain substitute securities.

    (iv) A confirmation issued in accordance with paragraph (b)(4)(i)(B) 
of this section shall specify the issuer, maturity date, coupon rate, 
par amount and market value of the security and shall further identify a 
CUSIP or mortgage-backed security pool number, as appropriate, except 
that a CUSIP or a pool number is not required on the confirmation if it 
is identified in internal records of the broker or dealer that designate 
the specific security of the counterparty. For purposes of this 
paragraph (b)(4)(iv), the market value of any security that is the 
subject of the repurchase transaction shall be the most recently 
available bid price plus accrued interest, obtained by any reasonable 
and consistent methodology.
    (v) This paragraph (b)(4) shall not apply to a repurchase agreement 
between the broker or dealer and another broker or dealer (including a 
government securities broker or dealer), a registered municipal 
securities dealer, or a general partner or director or principal officer 
of the broker or dealer or any person to the extent that the person's 
claim is explicitly subordinated to the claims of creditors of the 
broker or dealer.
    (5) A broker or dealer is required to obtain and thereafter maintain 
the physical possession or control of securities carried for a PAB 
account, unless the broker or dealer has provided written notice to the 
account holder that the securities may be used in the ordinary course of 
its securities business, and has provided an opportunity for the account 
holder to object.
    (c) Control of securities. Securities under the control of a broker 
or dealer shall be deemed to be securities which:
    (1) Are represented by one or more certificates in the custody or 
control of a clearing corporation or other subsidiary organization of 
either national securities exchanges or of a registered national 
securities association, or of a custodian bank in accordance with a 
system for the central handling of securities complying with the 
provisions of Sec.Sec.240.8c-1(g) and 240.15c2-1(g) the delivery of 
which certificates to the broker or dealer does not require the payment 
of money or value, and if the books or records of the broker or dealer 
identify the customers entitled to receive specified quantities or units 
of the securities so held for such customers collectively; or
    (2) Are carried for the account of any customer by a broker or 
dealer and are carried in an omnibus credit account in the name of such 
broker or dealer with another broker or dealer in compliance with the 
requirements of section 7(f) of Regulation T (12 CFR 220.7(f)), such 
securities being deemed to be under the control of such broker or dealer 
to the extent that it has instructed such carrying broker or dealer to 
maintain physical possession or control of them free of any charge, 
lien, or claim of any kind in favor of such carrying broker or dealer or 
any persons claiming through such carrying broker or dealer; or

[[Page 449]]

    (3) Are the subject of bona fide items of transfer; provided that 
securities shall be deemed not to be the subject of bona fide items of 
transfer if, within 40 calendar days after they have been transmitted 
for transfer by the broker or dealer to the issuer or its transfer 
agent, new certificates conforming to the instructions of the broker or 
dealer have not been received by the broker or deal, the broker or 
dealer has not received a written statement by the issuer or its 
transfer agent acknowledging the transfer instructions and the 
possession of the securities or the broker or dealer has not obtained a 
revalidation of a window ticket from a transfer agent with respect to 
the certificate delivered for transfer; or
    (4) Are in the custody of a foreign depository, foreign clearing 
agency or foreign custodian bank which the Commission upon application 
from a broker or dealer, a registered national securities exchange or a 
registered national securities association, or upon its own motion shall 
designate as a satisfactory control location for securities; or
    (5) Are in the custody or control of a bank as defined in section 
3(a)(6) of the Act, the delivery of which securities to the broker or 
dealer does not require the payment of money or value and the bank 
having acknowledged in writing that the securities in its custody or 
control are not subject to any right, charge, security interest, lien or 
claim of any kind in favor of a bank or any person claiming through the 
bank; or
    (6)(i) Are held in or are in transit between offices of the broker 
or dealer; or (ii) are held by a corporate subsidiary if the broker or 
dealer owns and exercises a majority of the voting rights of all of the 
voting securities of such subsidiary, assumes or guarantees all of the 
subsidiary's obligations and liabilities, operates the subsidiary as a 
branch office of the broker or dealer, and assumes full responsibility 
for compliance by the subsidiary and all of its associated persons with 
the provisions of the Federal securities laws as well as for all of the 
other acts of the subsidiary and such associated persons; or
    (7) Are held in such other locations as the Commission shall upon 
application from a broker or dealer find and designate to be adequate 
for the protection of customer securities.
    (d) Requirement to reduce securities to possession or control. Not 
later than the next business day, a broker or dealer, as of the close of 
the preceding business day, shall determine from its books or records 
the quantity of fully paid securities and excess margin securities in 
its possession or control and the quantity of fully paid securities and 
excess margin securities not in its possession or control. In making 
this daily determination inactive margin accounts (accounts having no 
activity by reason of purchase or sale of securities, receipt or 
delivery of cash or securities or similar type events) may be computed 
not less than once weekly. If such books or records indicate, as of such 
close of the business day, that such broker or dealer has not obtained 
physical possession or control of all fully paid and excess margin 
securities as required by this section and there are securities of the 
same issue and class in any of the following noncontrol locations:
    (1) Securities subject to a lien securing moneys borrowed by the 
broker or dealer or securities loaned to another broker or dealer or a 
clearing corporation, then the broker or dealer shall, not later than 
the business day following the day on which such determination is made, 
issue instructions for the release of such securities from the lien or 
return of such loaned securities and shall obtain physical possession or 
control of such securities within two business days following the date 
of issuance of the instructions in the case of securities subject to 
lien securing borrowed moneys and within five business days following 
the date of issuance of instructions in the case of securities loaned; 
or
    (2) Securities included on the broker's or dealer's books or records 
as failed to receive more than 30 calendar days, then the broker or 
dealer shall, not later than the business day following the day on which 
such determination is made, take prompt steps to obtain physical 
possession or control of securities so failed to receive through a buy-
in procedure or otherwise; or
    (3) Securities receivable by the broker or dealer as a security 
dividend

[[Page 450]]

receivable, stock split or similar distribution for more than 45 
calendar days, then the broker or dealer shall, not later than the 
business day following the day on which such determination is made, take 
prompt steps to obtain physical possession or control of securities so 
receivable through a buy-in procedure or otherwise; or
    (4) Securities included on the broker's or dealer's books or records 
that allocate to a short position of the broker or dealer or a short 
position for another person, excluding positions covered by paragraph 
(m) of this section, for more than 30 calendar days, then the broker or 
dealer must, not later than the business day following the day on which 
the determination is made, take prompt steps to obtain physical 
possession or control of such securities. For the purposes of this 
paragraph (d)(4), the 30 day time period will not begin to run with 
respect to a syndicate short position established in connection with an 
offering of securities until the completion of the underwriter's 
participation in the distribution as determined pursuant to Sec.
242.100(b) of Regulation M of this chapter (17 CFR 242.100 through 
242.105); or
    (5) A broker or dealer which is subject to the requirements of Sec.
240.15c3-3 with respect to physical possession or control of fully paid 
and excess margin securities shall prepare and maintain a current and 
detailed description of the procedures which it utilizes to comply with 
the possession or control requirements set forth in this section. The 
records required herein shall be made available upon request to the 
Commission and to the designated examining authority for such broker or 
dealer.
    (e) Special reserve bank accounts for the exclusive benefit of 
customers and PAB accounts. (1) Every broker or dealer must maintain 
with a bank or banks at all times when deposits are required or 
hereinafter specified a ``Special Reserve Bank Account for the Exclusive 
Benefit of Customers'' (hereinafter referred to as the Customer Reserve 
Bank Account) and a ``Special Reserve Bank Account for Brokers and 
Dealers'' (hereinafter referred to as the PAB Reserve Bank Account), 
each of which will be separate from the other and from any other bank 
account of the broker or dealer. Such broker or dealer must at all times 
maintain in the Customer Reserve Bank Account and the PAB Reserve Bank 
Account, through deposits made therein, cash and/or qualified securities 
in amounts computed in accordance with the formula attached as Exhibit A 
(17 CFR 240.15c3-3a), as applied to customer and PAB accounts 
respectively.
    (2) With respect to each computation required pursuant to paragraph 
(e)(1) of this section, a broker or dealer must not accept or use any of 
the amounts under items comprising Total Credits under the formula 
referred to in paragraph (e)(1) of this section except for the specified 
purposes indicated under items comprising Total Debits under the 
formula, and, to the extent Total Credits exceed Total Debits, at least 
the net amount thereof must be maintained in the Customer Reserve Bank 
Account and PAB Reserve Bank Account pursuant to paragraph (e)(1) of 
this section.
    (3) Reserve Bank Account computations. (i) Computations necessary to 
determine the amount required to be deposited in the Customer Reserve 
Bank Account and PAB Reserve Bank Account as specified in paragraph 
(e)(1) of this section must be made weekly, as of the close of the last 
business day of the week, and the deposit so computed must be made no 
later than one hour after the opening of banking business on the second 
following business day; provided, however, a broker or dealer which has 
aggregate indebtedness not exceeding 800 percent of net capital (as 
defined in Sec.240.15c3-1) and which carries aggregate customer funds 
(as defined in paragraph (a)(10) of this section), as computed at the 
last required computation pursuant to this section, not exceeding 
$1,000,000, may in the alternative make the Customer Reserve Bank 
Account computation monthly, as of the close of the last business day of 
the month, and, in such event, must deposit not less than 105 percent of 
the amount so computed no later than one hour after the opening of 
banking business on the second following business day.
    (ii) If a broker or dealer, computing on a monthly basis, has, at 
the time of

[[Page 451]]

any required computation, aggregate indebtedness in excess of 800 
percent of net capital, such broker or dealer must thereafter compute 
weekly as aforesaid until four successive weekly Customer Reserve Bank 
Account computations are made, none of which were made at a time when 
its aggregate indebtedness exceeded 800 percent of its net capital.
    (iii) A broker or dealer that does not carry the accounts of a 
``customer'' as defined by this section or conduct a proprietary trading 
business may make the computation to be performed with respect to PAB 
accounts under paragraph (e)(1) of this section monthly rather than 
weekly. If a broker or dealer performing the computation with respect to 
PAB accounts under paragraph (e)(1) of this section on a monthly basis 
is, at the time of any required computation, required to deposit 
additional cash or qualified securities in the PAB Reserve Bank Account, 
the broker or dealer must thereafter perform the computation required 
with respect to PAB accounts under paragraph (e)(1) of this section 
weekly until four successive weekly computations are made, none of which 
is made at a time when the broker or dealer was required to deposit 
additional cash or qualified securities in the PAB Reserve Bank Account.
    (iv) Computations in addition to the computations required in this 
paragraph (e)(3), may be made as of the close of any business day, and 
the deposits so computed must be made no later than one hour after the 
opening of banking business on the second following business day.
    (v) The broker or dealer must make and maintain a record of each 
such computation made pursuant to this paragraph (e)(3) or otherwise and 
preserve each such record in accordance with Sec.240.17a-4.
    (4) If the computation performed under paragraph (e)(3) of this 
section with respect to PAB accounts results in a deposit requirement, 
the requirement may be satisfied to the extent of any excess debit in 
the computation performed under paragraph (e)(3) of this section with 
respect to customer accounts of the same date. However, a deposit 
requirement resulting from the computation performed under paragraph 
(e)(3) of this section with respect to customer accounts cannot be 
satisfied with excess debits from the computation performed under 
paragraph (e)(3) of this section with respect to PAB accounts.
    (5) In determining whether a broker or dealer maintains the minimum 
deposits required under this section, the broker or dealer must exclude 
the total amount of any cash deposited with an affiliated bank. The 
broker or dealer also must exclude cash deposited with a non-affiliated 
bank to the extent that the amount of the deposit exceeds 15% of the 
bank's equity capital as reported by the bank in its most recent Call 
Report or any successor form the bank is required to file by its 
appropriate Federal banking agency (as defined by section 3 of the 
Federal Deposit Insurance Act (12 U.S.C. 1813)).
    (f) Notification of banks. A broker or dealer required to maintain a 
Customer Reserve Bank Account and PAB Reserve Bank Account prescribed by 
paragraph (e)(1) of this section or who maintains a Special Account 
referred to in paragraph (k) of this section must obtain and preserve in 
accordance with Sec.240.17a-4 a written notification from each bank 
with which it maintains a Customer Reserve Bank Account, a PAB Reserve 
Bank Account, or a Special Account that the bank was informed that all 
cash and/or qualified securities deposited therein are being held by the 
bank for the exclusive benefit of the customers and account holders of 
the broker or dealer in accordance with the regulations of the 
Commission, and are being kept separate from any other accounts 
maintained by the broker or dealer with the bank, and the broker or 
dealer must have a written contract with the bank which provides that 
the cash and/or qualified securities will at no time be used directly or 
indirectly as security for a loan to the broker or dealer by the bank 
and will not be subject to any right, charge, security interest, lien, 
or claim of any kind in favor of the bank or any person claiming through 
the bank.
    (g) Withdrawals from the reserve bank account. A broker or dealer 
may make withdrawals from a Customer Reserve Bank Account and a PAB 
Reserve Bank Account if and to the extent that

[[Page 452]]

at the time of the withdrawal the amount remaining in the Customer 
Reserve Bank Account and PAB Reserve Bank Account is not less than the 
amount then required by paragraph (e) of this section. A bank may 
presume that any request for withdrawal from a reserve bank account is 
in conformity and compliance with this paragraph (g). On any business 
day on which a withdrawal is made, the broker or dealer shall make a 
record of the computation on the basis of which he makes such 
withdrawal, and he shall preserve such computation in accordance with 
Sec.240.17a-4.
    (h) Buy-in of short security differences. A broker or dealer shall 
within 45 calendar days after the date of the examination, count, 
verification and comparison of securities pursuant to Sec.240.17a-13 
or otherwise or to the annual report of financial condition in 
accordance with Sec.240.17a-5 or 240.17a-12, buy-in all short security 
differences which are not resolved during the 45-day period.
    (i) Notification in the event of failure to make a required deposit. 
If a broker or dealer shall fail to make in its Customer Reserve Bank 
Account, PAB Reserve Bank Account or special account a deposit, as 
required by this section, the broker or dealer shall by telegram 
immediately notify the Commission and the regulatory authority for the 
broker or dealer, which examines such broker or dealer as to financial 
responsibility and shall promptly thereafter confirm such notification 
in writing.
    (j) Treatment of free credit balances. (1) A broker or dealer must 
not accept or use any free credit balance carried for the account of any 
customer of the broker or dealer unless such broker or dealer has 
established adequate procedures pursuant to which each customer for whom 
a free credit balance is carried will be given or sent, together with or 
as part of the customer's statement of account, whenever sent but not 
less frequently than once every three months, a written statement 
informing the customer of the amount due to the customer by the broker 
or dealer on the date of the statement, and that the funds are payable 
on demand of the customer.
    (2) A broker or dealer must not convert, invest, or transfer to 
another account or institution, credit balances held in a customer's 
account except as provided in paragraphs (j)(2)(i) and (ii) of this 
section.
    (i) A broker or dealer is permitted to invest or transfer to another 
account or institution, free credit balances in a customer's account 
only upon a specific order, authorization, or draft from the customer, 
and only in the manner, and under the terms and conditions, specified in 
the order, authorization, or draft.
    (ii) A broker or dealer is permitted to transfer free credit 
balances held in a customer's securities account to a product in its 
Sweep Program or to transfer a customer's interest in one product in a 
Sweep Program to another product in a Sweep Program, provided:
    (A) For an account opened on or after the effective date of this 
paragraph (j)(2)(ii), the customer gives prior written affirmative 
consent to having free credit balances in the customer's securities 
account included in the Sweep Program after being notified:
    (1) Of the general terms and conditions of the products available 
through the Sweep Program; and
    (2) That the broker or dealer may change the products available 
under the Sweep Program.
    (B) For any account:
    (1) The broker or dealer provides the customer with the disclosures 
and notices regarding the Sweep Program required by each self-regulatory 
organization of which the broker or dealer is a member;
    (2) The broker or dealer provides notice to the customer, as part of 
the customer's quarterly statement of account, that the balance in the 
bank deposit account or shares of the money market mutual fund in which 
the customer has a beneficial interest can be liquidated on the 
customer's order and the proceeds returned to the securities account or 
remitted to the customer; and
    (3)(i) The broker or dealer provides the customer with written 
notice at least 30 calendar days before:
    (A) Making changes to the terms and conditions of the Sweep Program;

[[Page 453]]

    (B) Making changes to the terms and conditions of a product 
currently available through the Sweep Program;
    (C) Changing, adding or deleting products available through the 
Sweep Program; or
    (D) Changing the customer's investment through the Sweep Program 
from one product to another.
    (ii) The notice must describe the new terms and conditions of the 
Sweep Program or product or the new product, and the options available 
to the customer if the customer does not accept the new terms and 
conditions or product.
    (k) Exemptions. (1) The provisions of this section shall not be 
applicable to a broker or dealer meeting all of the following 
conditions:
    (i) The broker's or dealer's transactions as dealer (as principal 
for its own account) are limited to the purchase, sale, and redemption 
of redeemable securities of registered investment companies or of 
interests or participations in an insurance company separate account, 
whether or not registered as an investment company; except that a broker 
or dealer transacting business as a sole proprietor may also effect 
occasional transactions in other securities for its own account with or 
through another registered broker or dealer;
    (ii) The broker's or dealer's transactions as broker (agent) are 
limited to:
    (a) The sale and redemption of redeemable securities of registered 
investment companies or of interests or participations in an insurance 
company separate account, whether or not registered as an investment 
company;
    (b) the solicitation of share accounts for savings and loan 
associations insured by an instrumentality of the United States; and
    (c) the sale of securities for the account of a customer to obtain 
funds for immediate reinvestment in redeemable securities of registered 
investment companies; and
    (iii) The broker or dealer promptly transmits all funds and delivers 
all securities received in connection with its activities as a broker or 
dealer, and does not otherwise hold funds or securities for, or owe 
money or securities to, customers.
    (iv) Notwithstanding the foregoing, this section shall not apply to 
any insurance company which is a registered broker-dealer, and which 
otherwise meets all of the conditions in paragraphs (k)(1) (i), (ii), 
and (iii) of this section, solely by reason of its participation in 
transactions that are a part of the business of insurance, including the 
purchasing, selling, or holding of securities for or on behalf of such 
company's general and separate accounts.
    (2) The provisions of this section shall not be applicable to a 
broker or dealer:
    (i) Who carries no margin accounts, promptly transmits all customer 
funds and delivers all securities received in connection with its 
activities as a broker or dealer, does not otherwise hold funds or 
securities for, or owe money or securities to, customers and effectuates 
all financial transactions between the broker or dealer and its 
customers through one or more bank accounts, each to be designated as 
``Special Account for the Exclusive Benefit of Customers of (name of the 
broker or dealer)''; or
    (ii) Who, as an introducing broker or dealer, clears all 
transactions with and for customers on a fully disclosed basis with a 
clearing broker or dealer, and who promptly transmits all customer funds 
and securities to the clearing broker or dealer which carries all of the 
accounts of such customers and maintains and preserves such books and 
records pertaining thereto pursuant to the requirements of Sec.Sec.
240.17a-3 and 240.17a-4 of this chapter, as are customarily made and 
kept by a clearing broker or dealer.
    (3) Upon written application by a broker or dealer, the Commission 
may exempt such broker or dealer from the provisions of this section, 
either unconditionally or on specified terms and conditions, if the 
Commission finds that the broker or dealer has established safeguards 
for the protection of funds and securities of customers comparable with 
those provided for by this section and that it is not necessary in

[[Page 454]]

the public interest or for the protection of investors to subject the 
particular broker or dealer to the provisions of this section.
    (l) Delivery of securities. Nothing stated in this section shall be 
construed as affecting the absolute right of a customer of a broker or 
dealer to receive in the course of normal business operations following 
demand made on the broker or dealer, the physical delivery of 
certificates for:
    (1) Fully-paid securities to which he is entitled, and,
    (2) Margin securities upon full payment by such customer to the 
broker or dealer of the customer's indebtedness to the broker or dealer; 
and, subject to the right of the broker or dealer under Regulation T (12 
CFR 220) to retain collateral for its own protection beyond the 
requirements of Regulation T, excess margin securities not reasonably 
required to collateralize such customer's indebtedness to the broker or 
dealer.
    (m) Completion of sell orders on behalf of customers. If a broker or 
dealer executes a sell order of a customer (other than an order to 
execute a sale of securities which the seller does not own) and if for 
any reason whatever the broker or dealer has not obtained possession of 
the securities from the customer within 10 business days after the 
settlement date, the broker or dealer shall immediately thereafter close 
the transaction with the customer by purchasing securities of like kind 
and quantity: Provided, however, The term customer for the purpose of 
this paragraph (m) shall not include a broker or dealer who maintains an 
omnibus credit account with another broker or dealer in compliance with 
secttion 7(f) of Regulation T (12 CFR 220.7(f)).

    Note to paragraph (m): See 38 FR 12103, May 9, 1973 for an order 
suspending indefinitely the operation of paragraph (m) as to sell orders 
for exempted securities (e.g., U.S. Government and municipal 
obligations).

    (n) Extensions of time. If a registered national securities exchange 
or a registered national securities association is satisfied that a 
broker or dealer is acting in good faith in making the application and 
that exceptional circumstances warrant such action, such exchange or 
association, on application of the broker or dealer, may extend any 
period specified in paragraphs (d) (2) through (4), (h) and (m) of this 
section, relating to the requirement that such broker or dealer take 
action within a designated period of time to buy-in a security, for one 
or more limited periods commensurate with the circumstances. Each such 
exchange or association shall make and preserve for a period of not less 
than 3 years a record of each extension granted pursuant to paragraph 
(n) of this section which shall contain a summary of the justification 
for the granting of the extension.
    (o) Security futures products--(1) Where security futures products 
shall be held. A broker or dealer registered with the Commission 
pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) that is 
also a futures commission merchant registered with the Commodity Futures 
Trading Commission pursuant to section 4f(a)(1) of the Commodity 
Exchange Act (7 U.S.C. 6f(a)(1)):
    (i) Shall hold a customer's security futures products in either a 
securities account or a futures account; and
    (ii) Shall establish written policies or procedures for determining 
whether customer security futures products will be placed in a 
securities account or a futures account and, if applicable, the process 
by which a customer may elect the type or types of account in which 
security futures products will be held (including the procedure to be 
followed if a customer fails to make an election of account type).
    (2) Disclosure and record requirements. (i) Except as provided in 
paragraph (o)(2)(ii), before a broker or dealer registered with the 
Commission pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) 
accepts the first order for a security futures product from or on behalf 
of a customer, the broker or dealer shall furnish the customer with a 
disclosure document containing the following information:
    (A) A description of the protections provided by the requirements 
set forth under this section and SIPA applicable to a securities 
account;
    (B) A description of the protections provided by the requirements 
set forth

[[Page 455]]

under section 4d of the Commodity Exchange Act (7 U.S.C. 6d) applicable 
to a futures account;
    (C) A statement indicating whether the customer's security futures 
products will be held in a securities account or a futures account, or 
whether the firm permits customers to make or change an election of 
account type; and
    (D) A statement that, with respect to holding the customer's 
security futures products in a securities account or a futures account, 
the alternative regulatory scheme is not available to the customer with 
relation to that account.
    (ii) Where a customer account containing an open security futures 
product position is transferred to a broker or dealer registered with 
the Commission pursuant to section 15(b)(1) of the Act (15 U.S.C. 
78o(b)(1)), that broker or dealer may instead provide the statements 
described in paragraphs (o)(2)(i)(C) and (o)(2)(i)(D) of this section no 
later than ten business days after the date the account is received.
    (3) Changes in account type. A broker or dealer registered with the 
Commission pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) 
that is also a futures commission merchant registered pursuant to 
section 4f(a)(1) of the Commodity Exchange Act (7 U.S.C. 6f(a)(1)) may 
change the type of account in which a customer's security futures 
products will be held; provided that:
    (i) The broker or dealer creates a record of each change in account 
type, including the name of the customer, the account number, the date 
the broker or dealer received the customer's request to change the 
account type, if applicable, and the date the change in account type 
became effective; and
    (ii) The broker or dealer, at least ten days before the customer's 
account type is changed:
    (A) Notifies the customer in writing of the date that the change 
will become effective; and
    (B) Provides the customer with the disclosures described in 
paragraph (o)(2)(i) of this section.
    (p) Segregation requirements for security-based swaps. The following 
requirements apply to the security-based swap activities of a broker or 
dealer.
    (1) Definitions. For the purposes of this paragraph:
    (i) The term cleared security-based swap means a security-based swap 
that is, directly or indirectly, submitted to and cleared by a clearing 
agency registered with the Commission pursuant to section 17A of the Act 
(15 U.S.C. 78q-1);
    (ii) The term excess securities collateral means securities and 
money market instruments carried for the account of a security-based 
swap customer that have a market value in excess of the current exposure 
of the broker or dealer (after reducing the current exposure by the 
amount of cash in the account) to the security-based swap customer, 
excluding:
    (A) Securities and money market instruments held in a qualified 
clearing agency account but only to the extent the securities and money 
market instruments are being used to meet a margin requirement of the 
clearing agency resulting from a security-based swap transaction of the 
security-based swap customer; and
    (B) Securities and money market instruments held in a qualified 
registered security-based swap dealer account or in a third-party 
custodial account but only to the extent the securities and money market 
instruments are being used to meet a regulatory margin requirement of a 
security-based swap dealer resulting from the broker or dealer entering 
into a non-cleared security-based swap transaction with the security-
based swap dealer to offset the risk of a non-cleared security-based 
swap transaction between the broker or dealer and the security-based 
swap customer;
    (iii) The term qualified clearing agency account means an account of 
a broker or dealer at a clearing agency registered with the Commission 
pursuant to section 17A of the Act (15 U.S.C. 78q-1) that holds funds 
and other property in order to margin, guarantee, or secure cleared 
security-based swap transactions for the security-based swap customers 
of the broker or dealer that meets the following conditions:
    (A) The account is designated ``Special Clearing Account for the 
Exclusive

[[Page 456]]

Benefit of the Cleared Security-Based Swap Customers of [name of broker 
or dealer]'';
    (B) The clearing agency has acknowledged in a written notice 
provided to and retained by the broker or dealer that the funds and 
other property in the account are being held by the clearing agency for 
the exclusive benefit of the security-based swap customers of the broker 
or dealer in accordance with the regulations of the Commission and are 
being kept separate from any other accounts maintained by the broker or 
dealer with the clearing agency; and
    (C) The account is subject to a written contract between the broker 
or dealer and the clearing agency which provides that the funds and 
other property in the account shall be subject to no right, charge, 
security interest, lien, or claim of any kind in favor of the clearing 
agency or any person claiming through the clearing agency, except a 
right, charge, security interest, lien, or claim resulting from a 
cleared security-based swap transaction effected in the account.
    (iv) The term qualified registered security-based swap dealer 
account means an account at a security-based swap dealer that is 
registered with the Commission pursuant to section 15F of the Act that 
meets the following conditions:
    (A) The account is designated ``Special Reserve Account for the 
Exclusive Benefit of the Security-Based Swap Customers of [name of 
broker or dealer]'';
    (B) The security-based swap dealer has acknowledged in a written 
notice provided to and retained by the broker or dealer that the funds 
and other property held in the account are being held by the security-
based swap dealer for the exclusive benefit of the security-based swap 
customers of the broker or dealer in accordance with the regulations of 
the Commission and are being kept separate from any other accounts 
maintained by the broker or dealer with the security-based swap dealer;
    (C) The account is subject to a written contract between the broker 
or dealer and the security-based swap dealer which provides that the 
funds and other property in the account shall be subject to no right, 
charge, security interest, lien, or claim of any kind in favor of the 
security-based swap dealer or any person claiming through the security-
based swap dealer, except a right, charge, security interest, lien, or 
claim resulting from a non-cleared security-based swap transaction 
effected in the account; and
    (D) The account and the assets in the account are not subject to any 
type of subordination agreement between the broker or dealer and the 
security-based swap dealer.
    (v) The term qualified security means:
    (A) Obligations of the United States;
    (B) Obligations fully guaranteed as to principal and interest by the 
United States; and
    (C) General obligations of any State or a political subdivision of a 
State that:
    (1) Are not traded flat and are not in default;
    (2) Were part of an initial offering of $500 million or greater; and
    (3) Were issued by an issuer that has published audited financial 
statements within 120 days of its most recent fiscal year end.
    (vi) The term security-based swap customer means any person from 
whom or on whose behalf the broker or dealer has received or acquired or 
holds funds or other property for the account of the person with respect 
to a cleared or non-cleared security-based swap transaction. The term 
does not include a person to the extent that person has a claim for 
funds or other property which by contract, agreement or understanding, 
or by operation of law, is part of the capital of the broker or dealer 
or, in the case of an affiliate of the broker or dealer, is subordinated 
to all claims of customers (including PAB customers) and security-based 
swap customers of the broker or dealer.
    (vii) The term special reserve account for the exclusive benefit of 
security-based swap customers means an account at a bank that meets the 
following conditions:
    (A) The account is designated ``Special Reserve Account for the 
Exclusive Benefit of the Security-Based Swap Customers of [name of 
broker or dealer]'';

[[Page 457]]

    (B) The account is subject to a written acknowledgement by the bank 
provided to and retained by the broker or dealer that the funds and 
other property held in the account are being held by the bank for the 
exclusive benefit of the security-based swap customers of the broker or 
dealer in accordance with the regulations of the Commission and are 
being kept separate from any other accounts maintained by the broker or 
dealer with the bank; and
    (C) The account is subject to a written contract between the broker 
or dealer and the bank which provides that the funds and other property 
in the account shall at no time be used directly or indirectly as 
security for a loan or other extension of credit to the broker or dealer 
by the bank and, shall be subject to no right, charge, security 
interest, lien, or claim of any kind in favor of the bank or any person 
claiming through the bank.
    (viii) The term third-party custodial account means an account 
carried by an independent third-party custodian that meets the following 
conditions:
    (A) The account is established for the purposes of meeting 
regulatory margin requirements of another security-based swap dealer;
    (B) The account is carried by a bank as defined in section 3(a)(6) 
of the Act or a registered U.S. clearing organization or depository or, 
if the collateral to be held in the account consists of foreign 
securities or currencies, a supervised foreign bank, clearing 
organization, or depository that customarily maintains custody of such 
foreign securities or currencies;
    (C) The account is designated for and on behalf of the broker or 
dealer for the benefit of its security-based swap customers and the 
account is subject to a written acknowledgement by the bank, clearing 
organization, or depository provided to and retained by the broker or 
dealer that the funds and other property held in the account are being 
held by the bank, clearing organization, or depository for the exclusive 
benefit of the security-based swap customers of the broker or dealer and 
are being kept separate from any other accounts maintained by the broker 
or dealer with the bank, clearing organization, or depository; and
    (D) The account is subject to a written contract between the broker 
or dealer and the bank, clearing organization, or depository which 
provides that the funds and other property in the account shall at no 
time be used directly or indirectly as security for a loan or other 
extension of credit to the security-based swap dealer by the bank, 
clearing organization, or depository and, shall be subject to no right, 
charge, security interest, lien, or claim of any kind in favor of the 
bank, clearing organization, or depository or any person claiming 
through the bank, clearing organization, or depository.
    (2) Physical possession or control of excess securities collateral. 
(i) A broker or dealer must promptly obtain and thereafter maintain 
physical possession or control of all excess securities collateral 
carried for the security-based swap accounts of security-based swap 
customers.
    (ii) A broker or dealer has control of excess securities collateral 
only if the securities and money market instruments:
    (A) Are represented by one or more certificates in the custody or 
control of a clearing corporation or other subsidiary organization of 
either national securities exchanges, or of a custodian bank in 
accordance with a system for the central handling of securities 
complying with the provisions of Sec.Sec.240.8c-1(g) and 240.15c2-
1(g) the delivery of which certificates to the broker or dealer does not 
require the payment of money or value, and if the books or records of 
the broker or dealer identify the security-based swap customers entitled 
to receive specified quantities or units of the securities so held for 
such security-based swap customers collectively;
    (B) Are the subject of bona fide items of transfer; provided that 
securities and money market instruments shall be deemed not to be the 
subject of bona fide items of transfer if, within 40 calendar days after 
they have been transmitted for transfer by the broker or dealer to the 
issuer or its transfer agent, new certificates conforming to the 
instructions of the broker or dealer have not been received by the 
broker or dealer, the broker or dealer has not received a written 
statement by the

[[Page 458]]

issuer or its transfer agent acknowledging the transfer instructions and 
the possession of the securities or money market instruments, or the 
broker or dealer has not obtained a revalidation of a window ticket from 
a transfer agent with respect to the certificate delivered for transfer;
    (C) Are in the custody or control of a bank as defined in section 
3(a)(6) of the Act, the delivery of which securities or money market 
instruments to the broker or dealer does not require the payment of 
money or value and the bank having acknowledged in writing that the 
securities and money market instruments in its custody or control are 
not subject to any right, charge, security interest, lien or claim of 
any kind in favor of a bank or any person claiming through the bank;
    (D)(1) Are held in or are in transit between offices of the broker 
or dealer; or
    (2) Are held by a corporate subsidiary if the broker or dealer owns 
and exercises a majority of the voting rights of all of the voting 
securities of such subsidiary, assumes or guarantees all of the 
subsidiary's obligations and liabilities, operates the subsidiary as a 
branch office of the broker or dealer, and assumes full responsibility 
for compliance by the subsidiary and all of its associated persons with 
the provisions of the Federal securities laws as well as for all of the 
other acts of the subsidiary and such associated persons; or
    (E) Are held in such other locations as the Commission shall upon 
application from a broker or dealer find and designate to be adequate 
for the protection of security-based swap customer securities.
    (iii) Each business day the broker or dealer must determine from its 
books and records the quantity of excess securities collateral in its 
possession or control as of the close of the previous business day and 
the quantity of excess securities collateral not in its possession or 
control as of the previous business day. If the broker or dealer did not 
obtain possession or control of all excess securities collateral on the 
previous business day as required by this section and there are 
securities or money market instruments of the same issue and class in 
any of the following non-control locations:
    (A) Securities or money market instruments subject to a lien 
securing an obligation of the broker or dealer, then the broker or 
dealer, not later than the next business day on which the determination 
is made, must issue instructions for the release of the securities or 
money market instruments from the lien and must obtain physical 
possession or control of the securities or money market instruments 
within two business days following the date of the instructions;
    (B) Securities or money market instruments held in a qualified 
clearing agency account, then the broker or dealer, not later than the 
next business day on which the determination is made, must issue 
instructions for the release of the securities or money market 
instruments by the clearing agency and must obtain physical possession 
or control of the securities or money market instruments within two 
business days following the date of the instructions;
    (C) Securities or money market instruments held in a qualified 
registered security-based swap dealer account maintained by another 
security-based swap dealer or in a third-party custodial account, then 
the broker or dealer, not later than the next business day on which the 
determination is made, must issue instructions for the release of the 
securities or money market instruments by the security-based swap dealer 
or the third-party custodian and must obtain physical possession or 
control of the securities or money market instruments within two 
business days following the date of the instructions;
    (D) Securities or money market instruments loaned by the broker or 
dealer, then the broker or dealer, not later than the next business day 
on which the determination is made, must issue instructions for the 
return of the loaned securities or money market instruments and must 
obtain physical possession or control of the securities or money market 
instruments within five business days following the date of the 
instructions;
    (E) Securities or money market instruments failed to receive more 
than 30 calendar days, then the broker or

[[Page 459]]

dealer, not later than the next business day on which the determination 
is made, must take prompt steps to obtain physical possession or control 
of the securities or money market instruments through a buy-in procedure 
or otherwise;
    (F) Securities or money market instruments receivable by the broker 
or dealer as a security dividend, stock split or similar distribution 
for more than 45 calendar days, then the broker or dealer, not later 
than the next business day on which the determination is made, must take 
prompt steps to obtain physical possession or control of the securities 
or money market instruments through a buy-in procedure or otherwise; or
    (G) Securities or money market instruments included on the broker's 
or dealer's books or records that allocate to a short position of the 
broker or dealer or a short position for another person, for more than 
30 calendar days, then the broker or dealer must, not later than the 
business day following the day on which the determination is made, take 
prompt steps to obtain physical possession or control of such securities 
or money market instruments.
    (3) Deposit requirement for special reserve account for the 
exclusive benefit of security-based swap customers. (i) A broker or 
dealer must maintain a special reserve account for the exclusive benefit 
of security-based swap customers that is separate from any other bank 
account of the broker or dealer. The broker or dealer must at all times 
maintain in the special reserve account for the exclusive benefit of 
security-based swap customers, through deposits into the account, cash 
and/or qualified securities in amounts computed in accordance with the 
formula set forth in Sec.240.15c3-3b. In determining the amount 
maintained in a special reserve account for the exclusive benefit of 
security-based swap customers, the broker or dealer must deduct:
    (A) The percentage of the value of a general obligation of a State 
or a political subdivision of a State specified in Sec.240.15c3-
1(c)(2)(vi);
    (B) The aggregate value of general obligations of a State or a 
political subdivision of a State to the extent the amount of the 
obligations of a single issuer (after applying the deduction in 
paragraph (p)(3)(i)(A) of this section) exceeds two percent of the 
amount required to be maintained in the special reserve account for the 
exclusive benefit of security-based swap customers;
    (C) The aggregate value of all general obligations of States or 
political subdivisions of States to the extent the amount of the 
obligations (after applying the deduction in paragraph (p)(3)(i)(A) of 
this section) exceeds 10 percent of the amount required to be maintained 
in the special reserve account for the exclusive benefit of security-
based swap customers;
    (D) The amount of cash deposited with a single non-affiliated bank 
to the extent the amount exceeds 15 percent of the equity capital of the 
bank as reported by the bank in its most recent Call Report or any 
successor form the bank is required to file by its appropriate federal 
banking agency (as defined by section 3 of the Federal Deposit Insurance 
Act (12 U.S.C. 1813)); and
    (E) The total amount of cash deposited with an affiliated bank.
    (ii) A broker or dealer must not accept or use credits identified in 
the items of the formula set forth in Sec.240.15c3-3b except for the 
specified purposes indicated under items comprising Total Debits under 
the formula, and, to the extent Total Credits exceed Total Debits, at 
least the net amount thereof must be maintained in the Special Reserve 
Account pursuant to paragraph (p)(3)(i) of this section.
    (iii)(A) The computations necessary to determine the amount required 
to be maintained in the special reserve account for the exclusive 
benefit of security-based swap customers must be made weekly as of the 
close of the last business day of the week and any deposit required to 
be made into the account must be made no later than one hour after the 
opening of banking business on the second following business day. The 
broker or dealer may make a withdrawal from the special reserve account 
for the exclusive benefit of security-based swap customers only if the 
amount remaining in the account after the withdrawal is equal to or 
exceeds the amount required to be maintained

[[Page 460]]

in the account pursuant to paragraph (p)(3) of this section.
    (ii) (B) Computations in addition to the computations required 
pursuant to paragraph (p)(3)(iii)(A) of this section may be made as of 
the close of any business day, and deposits so computed must be made no 
later than one hour after the open of banking business on the second 
following business day.
    (iv) A broker or dealer must promptly deposit into a special reserve 
account for the exclusive benefit of security-based swap customers cash 
and/or qualified securities of the broker or dealer if the amount of 
cash and/or qualified securities in one or more special reserve accounts 
for the exclusive benefit of security-based swap customers falls below 
the amount required to be maintained pursuant to this section.
    (4) Requirements for non-cleared security-based swaps--(i) Notice. A 
broker or dealer registered under section 15F(b) of the Act (15 U.S.C. 
78o-10(b)) as a security-based swap dealer or major security-based swap 
participant must provide the notice required pursuant to section 
3E(f)(1)(A) of the Act (15 U.S.C. 78c-5(f)) in writing to a duly 
authorized individual prior to the execution of the first non-cleared 
security-based swap transaction with the counterparty occurring after 
the compliance date of this section.
    (ii) Subordination--(A) Counterparty that elects to have individual 
segregation at an independent third-party custodian. A broker or dealer 
must obtain an agreement from a counterparty whose funds or other 
property to meet a margin requirement of the broker or dealer are held 
at a third-party custodian in which the counterparty agrees to 
subordinate its claims against the broker or dealer for the funds or 
other property held at the third-party custodian to the claims of 
customers (including PAB customers) and security-based swap customers of 
the broker or dealer but only to the extent that funds or other property 
provided by the counterparty to the independent third-party custodian 
are not treated as customer property as that term is defined in 11 
U.S.C. 741 or customer property as defined in 15 U.S.C. 78lll(4) in a 
liquidation of the broker or dealer.
    (B) Counterparty that elects to have no segregation. A broker or 
dealer registered under section 15F(b) of the Act as a security-based 
swap dealer must obtain an agreement from a counterparty that is an 
affiliate of the broker or dealer that affirmatively chooses not to 
require segregation of funds or other property pursuant to section 3E(f) 
of the Act (15 U.S.C. 78c-5(f)) in which the counterparty agrees to 
subordinate all of its claims against the broker or dealer to the claims 
of customers (including PAB customers) and security-based swap customers 
of the broker or dealer.

[37 FR 25226, Nov. 29, 1972; 38 FR 6277, Mar. 8, 1973, as amended at 42 
FR 23790, May 10, 1977; 44 FR 1975, Jan. 9, 1979; 45 FR 37688, June 4, 
1980; 47 FR 21775, May 20, 1982; 47 FR 23920, June 2, 1982; 50 FR 41340, 
Oct. 10, 1985; 52 FR 30333, Aug. 14, 1987; 63 FR 59400, Nov. 3, 1998; 67 
FR 58299, Sept. 13, 2002; 68 FR 12783, Mar. 17, 2003; 78 FR 51902, Aug. 
21, 2013; 84 FR 44047, Aug. 22, 2019]



Sec.240.15c3-3a  Exhibit A--Formula for determination of customer and 
PAB account reserve requirements of brokers and dealers under 
Sec.240.15c3-3.

----------------------------------------------------------------------------------------------------------------
                                                                                    Credits           Debits
----------------------------------------------------------------------------------------------------------------
1. Free credit balances and other credit balances in customers' security                   XXX
 accounts. (See Note A).......................................................
2. Monies borrowed collateralized by securities carried for the accounts of                XXX
 customers (See Note B).......................................................
3. Monies payable against customers' securities loaned (See Note C)...........             XXX
4. Customers' securities failed to receive (See Note D).......................             XXX
5. Credit balances in firm accounts which are attributable to principal sales              XXX
 to customers.................................................................
6. Market value of stock dividends, stock splits and similar distributions                 XXX
 receivable outstanding over 30 calendar days.................................
7. Market value of short security count differences over 30 calendar days old.             XXX
8. Market value of short securities and credits (not to be offset by longs or              XXX
 by debits) in all suspense accounts over 30 calendar days....................
9. Market value of securities which are in transfer in excess of 40 calendar               XXX
 days and have not been confirmed to be in transfer by the transfer agent or
 the issuer during the 40 days................................................

[[Page 461]]

 
10. Debit balances in customers' cash and margin accounts excluding unsecured   ...............             XXX
 accounts and accounts doubtful of collection. (See Note E)...................
11. Securities borrowed to effectuate short sales by customers and securities   ...............             XXX
 borrowed to make delivery on customers' securities failed to deliver.........
12. Failed to deliver of customers' securities not older than 30 calendar days  ...............             XXX
13. Margin required and on deposit with the Options Clearing Corporation for    ...............             XXX
 all option contracts written or purchased in customer accounts. (See Note F).
14. Margin required and on deposit with a clearing agency registered with the   ...............             XXX
 Commission under section 17A of the Act (15 U.S.C. 78q-1) or a derivatives
 clearing organization registered with the Commodity Futures Trading
 Commission under section 5b of the Commodity Exchange Act (7 U.S.C. 7a-1)
 related to the following types of positions written, purchased or sold in
 customer accounts: (1) security futures products and (2) futures contracts
 (and options thereon) carried in a securities account pursuant to an SRO
 portfolio margining rule (See Note G)........................................
    Total credits.............................................................  ...............
    Total debits..............................................................  ...............
15. Excess of total credits (sum of items 1-9) over total debits (sum of items  ...............             XXX
 10-14) required to be on deposit in the ``Reserve Bank Account'' (Sec.
 240.15c3-3(e)). If the computation is made monthly as permitted by this
 section, the deposit must be not less than 105% of the excess of total
 credits over total debits....................................................
----------------------------------------------------------------------------------------------------------------

      Notes Regarding the Customer Reserve Bank Account Computation

    Note A. Item 1 must include all outstanding drafts payable to 
customers which have been applied against free credit balances or other 
credit balances and must also include checks drawn in excess of bank 
balances per the records of the broker or dealer.
    Note B. Item 2 must include the amount of options-related or 
security futures product-related Letters of Credit obtained by a member 
of a registered clearing agency or a derivatives clearing organization 
which are collateralized by customers' securities, to the extent of the 
member's margin requirement at the registered clearing agency or 
derivatives clearing organization. Item 2 must also include the amount 
of Letters of Credit which are collateralized by customers' securities 
and related to other futures contracts (and options thereon) carried in 
a securities account pursuant to an SRO portfolio margining rule.
    Note C. Item 3 must include in addition to monies payable against 
customers' securities loaned the amount by which the market value of 
securities loaned exceeds the collateral value received from the lending 
of such securities.
    Note D. Item 4 must include in addition to customers' securities 
failed to receive the amount by which the market value of securities 
failed to receive and outstanding more than thirty (30) calendar days 
exceeds their contract value.
    Note E. (1) Debit balances in margin accounts must be reduced by the 
amount by which a specific security (other than an exempted security) 
which is collateral for margin accounts exceeds in aggregate value 15 
percent of the aggregate value of all securities which collateralize all 
margin accounts receivable; provided, however, the required reduction 
must not be in excess of the amounts of the debit balance required to be 
excluded because of this concentration rule. A specified security is 
deemed to be collateral for a margin account only to the extent it 
represents in value not more than 140 percent of the customer debit 
balance in a margin account.
    (2) Debit balances in special omnibus accounts, maintained in 
compliance with the requirements of Section 7(f) of Regulation T (12 CFR 
220.7(f)) or similar accounts carried on behalf of another broker or 
dealer, must be reduced by any deficits in such accounts (or if a 
credit, such credit must be increased) less any calls for margin, mark 
to the market, or other required deposits which are outstanding 5 
business days or less.
    (3) Debit balances in customers' cash and margin accounts included 
in the formula under Item 10 must be reduced by an amount equal to 1 
percent of their aggregate value.
    (4) Debit balances in cash and margin accounts of household members 
and

[[Page 462]]

other persons related to principals of a broker or dealer and debit 
balances in cash and margin accounts of affiliated persons of a broker 
or dealer must be excluded from the Reserve Formula, unless the broker 
or dealer can demonstrate that such debit balances are directly related 
to credit items in the formula.
    (5) Debit balances in margin accounts (other than omnibus accounts) 
must be reduced by the amount by which any single customer's debit 
balance exceeds 25% (to the extent such amount is greater than $50,000) 
of the broker-dealer's tentative net capital (i.e., net capital prior to 
securities haircuts) unless the broker or dealer can demonstrate that 
the debit balance is directly related to credit items in the Reserve 
Formula. Related accounts (e.g., the separate accounts of an individual, 
accounts under common control or subject to cross guarantees) will be 
deemed to be a single customer's accounts for purposes of this 
provision.
    If the registered national securities exchange or the registered 
national securities association having responsibility for examining the 
broker or dealer (``designated examining authority'') is satisfied, 
after taking into account the circumstances of the concentrated account 
including the quality, diversity, and marketability of the collateral 
securing the debit balances or margin accounts subject to this 
provision, that the concentration of debit balances is appropriate, then 
such designated examining authority may grant a partial or plenary 
exception from this provision. The debit balance may be included in the 
reserve formula computation for five business days from the day the 
request is made.
    (6) Debit balances in joint accounts, custodian accounts, 
participation in hedge funds or limited partnerships or similar type 
accounts or arrangements that include both assets of a person or persons 
who would be excluded from the definition of customer (``noncustomer'') 
and assets of a person or persons who would be included in the 
definition of customer must be included in the Reserve Formula in the 
following manner: If the percentage ownership of the non-customer is 
less than 5 percent then the entire debit balance shall be included in 
the formula; if such percentage ownership is between 5 percent and 50 
percent then the portion of the debit balance attributable to the non-
customer must be excluded from the formula unless the broker or dealer 
can demonstrate that the debit balance is directly related to credit 
items in the formula; or if such percentage ownership is greater than 50 
percent, then the entire debit balance must be excluded from the formula 
unless the broker or dealer can demonstrate that the debit balance is 
directly related to credit items in the formula.
    Note F. Item 13 must include the amount of margin required and on 
deposit with the Options Clearing Corporation to the extent such margin 
is represented by cash, proprietary qualified securities and letters of 
credit collateralized by customers' securities.
    Note G. (a) Item 14 must include the amount of margin required and 
on deposit with a clearing agency registered with the Commission under 
section 17A of the Act (15 U.S.C. 78q-1) or a derivatives clearing 
organization registered with the Commodity Futures Trading Commission 
under section 5b of the Commodity Exchange Act (7 U.S.C. 7a-1) for 
customer accounts to the extent that the margin is represented by cash, 
proprietary qualified securities, and letters of credit collateralized 
by customers' securities.
    (b) Item 14 will apply only if the broker or dealer has the margin 
related to security futures products, or futures (and options thereon) 
carried in a securities account pursuant to an approved SRO portfolio 
margining program on deposit with:
    (1) A registered clearing agency or derivatives clearing 
organization that:
    (i) Maintains security deposits from clearing members in connection 
with regulated options or futures transactions and assessment power over 
member firms that equal a combined total of at least $2 billion, at 
least $500 million of which must be in the form of security deposits. 
For the purposes of this Note G, the term ``security deposits'' refers 
to a general fund, other than margin deposits or their equivalent, that 
consists of cash or securities held by a registered clearing agency or 
derivative clearing organization; or

[[Page 463]]

    (ii) Maintains at least $3 billion in margin deposits; or
    (iii) Does not meet the requirements of paragraphs (b)(1)(i) through 
(b)(1)(iii) of this Note G, if the Commission has determined, upon a 
written request for exemption by or for the benefit of the broker or 
dealer, that the broker or dealer may utilize such a registered clearing 
agency or derivatives clearing organization. The Commission may, in its 
sole discretion, grant such an exemption subject to such conditions as 
are appropriate under the circumstances, if the Commission determines 
that such conditional or unconditional exemption is necessary or 
appropriate in the public interest, and is consistent with the 
protection of investors; and
    (2) A registered clearing agency or derivatives clearing 
organization that, if it holds funds or securities deposited as margin 
for security futures products or futures in a portfolio margin account 
in a bank, as defined in section 3(a)(6) of the Act (15 U.S.C. 
78c(a)(6)), obtains and preserves written notification from the bank at 
which it holds such funds and securities or at which such funds and 
securities are held on its behalf. The written notification will state 
that all funds and/or securities deposited with the bank as margin 
(including customer security futures products and futures in a portfolio 
margin account), or held by the bank and pledged to such registered 
clearing agency or derivatives clearing agency as margin, are being held 
by the bank for the exclusive benefit of clearing members of the 
registered clearing agency or derivatives clearing organization (subject 
to the interest of such registered clearing agency or derivatives 
clearing organization therein), and are being kept separate from any 
other accounts maintained by the registered clearing agency or 
derivatives clearing organization with the bank. The written 
notification also will provide that such funds and/or securities will at 
no time be used directly or indirectly as security for a loan to the 
registered clearing agency or derivatives clearing organization by the 
bank, and will be subject to no right, charge, security interest, lien, 
or claim of any kind in favor of the bank or any person claiming through 
the bank. This provision, however, will not prohibit a registered 
clearing agency or derivatives clearing organization from pledging 
customer funds or securities as collateral to a bank for any purpose 
that the rules of the Commission or the registered clearing agency or 
derivatives clearing organization otherwise permit; and
    (3) A registered clearing agency or derivatives clearing 
organization establishes, documents, and maintains:
    (i) Safeguards in the handling, transfer, and delivery of cash and 
securities;
    (ii) Fidelity bond coverage for its employees and agents who handle 
customer funds or securities. In the case of agents of a registered 
clearing agency or derivatives clearing organization, the agent may 
provide the fidelity bond coverage; and
    (iii) Provisions for periodic examination by independent public 
accountants; and
    (iv) A derivatives clearing organization that, if it is not 
otherwise registered with the Commission, has provided the Commission 
with a written undertaking, in a form acceptable to the Commission, 
executed by a duly authorized person at the derivatives clearing 
organization, to the effect that, with respect to the clearance and 
settlement of the customer security futures products and futures in a 
portfolio margin account of the broker or dealer, the derivatives 
clearing organization will permit the Commission to examine the books 
and records of the derivatives clearing organization for compliance with 
the requirements set forth in Sec.240.15c3-3a, Note G (b)(1) through 
(3).
    (c) Item 14 will apply only if a broker or dealer determines, at 
least annually, that the registered clearing agency or derivatives 
clearing organization with which the broker or dealer has on deposit 
margin related to securities future products or futures in a portfolio 
margin account meets the conditions of this Note G.

        Notes Regarding the PAB Reserve Bank Account Computation

    Note 1. Broker-dealers should use the formula in Exhibit A for the 
purposes

[[Page 464]]

of computing the PAB reserve requirement, except that references to 
``accounts,'' ``customer accounts, or ``customers'' will be treated as 
references to PAB accounts.
    Note 2. Any credit (including a credit applied to reduce a debit) 
that is included in the computation required by Sec.240.15c3-3 with 
respect to customer accounts (the ``customer reserve computation'') may 
not be included as a credit in the computation required by Sec.
240.15c3-3 with respect to PAB accounts (the ``PAB reserve 
computation'').
    Note 3. Note E(1) to Sec.240.15c3-3a does not apply to the PAB 
reserve computation.
    Note 4. Note E(3) to Sec.240.15c3-3a which reduces debit balances 
by 1% does not apply to the PAB reserve computation.
    Note 5. Interest receivable, floor brokerage, and commissions 
receivable of another broker or dealer from the broker or dealer 
(excluding clearing deposits) that are otherwise allowable assets under 
Sec.240.15c3-1 need not be included in the PAB reserve computation, 
provided the amounts have been clearly identified as payables on the 
books of the broker or dealer. Commissions receivable and other 
receivables of another broker or dealer from the broker or dealer that 
are otherwise non-allowable assets under Sec.240.15c3-1 and clearing 
deposits of another broker or dealer may be included as ``credit 
balances'' for purposes of the PAB reserve computation, provided the 
commissions receivable and other receivables are subject to immediate 
cash payment to the other broker or dealer and the clearing deposit is 
subject to payment within 30 days.
    Note 6. Credits included in the PAB reserve computation that result 
from the use of securities held for a PAB account (``PAB securities'') 
that are pledged to meet intra-day margin calls in a cross-margin 
account established between the Options Clearing Corporation and any 
regulated derivatives clearing organization may be reduced to the extent 
that the excess margin held by the other clearing corporation in the 
cross-margin relationship is used the following business day to replace 
the PAB securities that were previously pledged. In addition, balances 
resulting from a portfolio margin account that are segregated pursuant 
to Commodity Futures Trading Commission regulations need not be included 
in the PAB Reserve Bank Account computation.
    Note 7. Deposits received prior to a transaction pending settlement 
which are $5 million or greater for any single transaction or $10 
million in aggregate may be excluded as credits from the PAB reserve 
computation if such balances are placed and maintained in a separate PAB 
Reserve Bank Account by 12 p.m. Eastern Time on the following business 
day. Thereafter, the money representing any such deposits may be 
withdrawn to complete the related transactions without performing a new 
PAB reserve computation.
    Note 8. A credit balance resulting from a PAB reserve computation 
may be reduced by the amount that items representing such credits are 
swept into money market funds or mutual funds of an investment company 
registered under the Investment Company Act of 1940 on or prior to 10 
a.m. Eastern Time on the deposit date provided that the credits swept 
into any such fund are not subject to any right, charge, security 
interest, lien, or claim of any kind in favor of the investment company 
or the broker or dealer. Any credits that have been swept into money 
market funds or mutual funds must be maintained in the name of a 
particular broker or for the benefit of another broker.
    Note 9. Clearing deposits required to be maintained at registered 
clearing agencies may be included as debits in the PAB reserve 
computation to the extent the percentage of the deposit, which is based 
upon the clearing agency's aggregate deposit requirements (e.g., dollar 
trading volume), that relates to the proprietary business of other 
brokers and dealers can be identified.
    Note 10. A broker or dealer that clears PAB accounts through an 
affiliate or third party clearing broker must include these PAB account 
balances and the omnibus PAB account

[[Page 465]]

balance in its PAB reserve computation.

[78 FR 51904, Aug. 21, 2013, as amended at 79 FR 1550, Jan. 8, 2014]



Sec.240.15c3-3b  Exhibit B--Formula for determination of security-
based swap customer reserve requirements of brokers and dealers
under Sec.240.15c3-3.

------------------------------------------------------------------------
                                              Credits         Debits
------------------------------------------------------------------------
1. Free credit balances and other credit            $___
 balances in the accounts carried for
 security-based swap customers (See Note
 A).....................................
2. Monies borrowed collateralized by                $___
 securities in accounts carried for
 security-based swap customers (See Note
 B).....................................
3. Monies payable against security-based            $___
 swap customers' securities loaned (See
 Note C)................................
4. Security-based swap customers'                   $___
 securities failed to receive (See Note
 D).....................................
5. Credit balances in firm accounts                 $___
 which are attributable to principal
 sales to security-based swap customers.
6. Market value of stock dividends,                 $___
 stock splits and similar distributions
 receivable outstanding over 30 calendar
 days...................................
7. Market value of short security count             $___
 differences over 30 calendar days old..
8. Market value of short securities and             $___
 credits (not to be offset by longs or
 by debits) in all suspense accounts
 over 30 calendar days..................
9. Market value of securities which are             $___
 in transfer in excess of 40 calendar
 days and have not been confirmed to be
 in transfer by the transfer agent or
 the issuer during the 40 days..........
10. Debit balances in accounts carried    ..............            $___
 for security-based swap customers,
 excluding unsecured accounts and
 accounts doubtful of collection (See
 Note E)................................
11. Securities borrowed to effectuate     ..............            $___
 short sales by security-based swap
 customers and securities borrowed to
 make delivery on security-based swap
 customers' securities failed to deliver
12. Failed to deliver of security-based   ..............            $___
 swap customers' securities not older
 than 30 calendar days..................
13. Margin required and on deposit with   ..............            $___
 the Options Clearing Corporation for
 all option contracts written or
 purchased in accounts carried for
 security-based swap customers (See Note
 F).....................................
14. Margin related to security futures    ..............            $___
 products written, purchased or sold in
 accounts carried for security-based
 swap customers required and on deposit
 in a qualified clearing agency account
 at a clearing agency registered with
 the Commission under section 17A of the
 Act (15 U.S.C. 78q-1) or a derivatives
 clearing organization registered with
 the Commodity Futures Trading
 Commission under section 5b of the
 Commodity Exchange Act (7 U.S.C. 7a-1)
 (See Note G)...........................
15. Margin related to cleared security-   ..............            $___
 based swap transactions in accounts
 carried for security-based swap
 customers required and on deposit in a
 qualified clearing agency account at a
 clearing agency registered with the
 Commission pursuant to section 17A of
 the Act (15 U.S.C. 78q-1)..............
16. Margin related to non-cleared         ..............            $___
 security-based swap transactions in
 accounts carried for security-based
 swap customers required and held in a
 qualified registered security-based
 swap dealer account at a security-based
 swap dealer or at a third-party
 custodial account......................
                                         -------------------------------
    Total Credits.......................            $___
    1Total Debits.......................  ..............            $___
    Excess of Credits over Debits.......            $___
------------------------------------------------------------------------
Note A. Item 1 must include all outstanding drafts payable to security-
  based swap customers which have been applied against free credit
  balances or other credit balances and must also include checks drawn
  in excess of bank balances per the records of the broker or dealer.
Note B. Item 2 must include the amount of options-related or security
  futures product-related Letters of Credit obtained by a member of a
  registered clearing agency or a derivatives clearing organization
  which are collateralized by security-based swap customers' securities,
  to the extent of the member's margin requirement at the registered
  clearing agency or derivatives clearing organization.
Note C. Item 3 must include in addition to monies payable against
  security-based swap customers' securities loaned the amount by which
  the market value of securities loaned exceeds the collateral value
  received from the lending of such securities.
Note D. Item 4 must include in addition to security-based swap
  customers' securities failed to receive the amount by which the market
  value of securities failed to receive and outstanding more than thirty
  (30) calendar days exceeds their contract value.
Note E. (1) Debit balances in accounts carried for security-based swap
  customers must be reduced by the amount by which a specific security
  (other than an exempted security) which is collateral for margin
  requirements exceeds in aggregate value 15 percent of the aggregate
  value of all securities which collateralize all accounts receivable;
  provided, however, the required reduction must not be in excess of the
  amount of the debit balance required to be excluded because of this
  concentration rule. A specified security is deemed to be collateral
  for an account only to the extent it is not an excess margin security.
(2) Debit balances in special omnibus accounts, maintained in compliance
  with the requirements of section 4(b) of Regulation T under the Act
  (12 CFR 220.4(b)) or similar accounts carried on behalf of a security-
  based swap dealer, must be reduced by any deficits in such accounts
  (or if a credit, such credit must be increased) less any calls for
  margin, marks to the market, or other required deposits which are
  outstanding 5 business days or less.
(3) Debit balances in security-based swap customers' accounts included
  in the formula under item 10 must be reduced by an amount equal to 1
  percent of their aggregate value.
(4) Debit balances in accounts of household members and other persons
  related to principals of a broker or dealer and debit balances in
  accounts of affiliated persons of a broker or dealer must be excluded
  from the reserve formula, unless the broker or dealer can demonstrate
  that such debit balances are directly related to credit items in the
  formula.

[[Page 466]]

 
(5) Debit balances in accounts (other than omnibus accounts) must be
  reduced by the amount by which any single security-based swap
  customer's debit balance exceeds 25 percent (to the extent such amount
  is greater than $50,000) of the broker's or dealer's tentative net
  capital (i.e., net capital prior to securities haircuts) unless the
  broker or dealer can demonstrate that the debit balance is directly
  related to credit items in the Reserve Formula. Related accounts
  (e.g., the separate accounts of an individual, accounts
  under common control or subject to cross guarantees) will be deemed to
  be a single security-based swap customer's account for purposes of
  this provision.
If the registered national securities exchange or the registered
  national securities association having responsibility for examining
  the broker or dealer (``designated examining authority'') is
  satisfied, after taking into account the circumstances of the
  concentrated account including the quality, diversity, and
  marketability of the collateral securing the debit balances in
  accounts subject to this provision, that the concentration of debit
  balances is appropriate, then such designated examining authority may,
  by order, grant a partial or plenary exception from this provision.
  The debit balance may be included in the reserve formula computation
  for five business days from the day the request is made.
(6) Debit balances of joint accounts, custodian accounts, participations
  in hedge funds or limited partnerships or similar type accounts or
  arrangements that include both assets of a person who would be
  excluded from the definition of security-based swap customer (``non-
  security-based swap customer'') and assets of a person or persons
  includible in the definition of security-based swap customer must be
  included in the Reserve Formula in the following manner: if the
  percentage ownership of the non-security-based swap customer is less
  than 5 percent then the entire debit balance shall be included in the
  formula; if such percentage ownership is between 5 percent and 50
  percent then the portion of the debit balance attributable to the non-
  security-based swap customer must be excluded from the formula unless
  the broker or dealer can demonstrate that the debit balance is
  directly related to credit items in the formula; if such percentage
  ownership is greater than 50 percent, then the entire debit balance
  must be excluded from the formula unless the broker or dealer can
  demonstrate that the debit balance is directly related to credit items
  in the formula.
Note F. Item 13 must include the amount of margin required and on
  deposit with Options Clearing Corporation to the extent such margin is
  represented by cash, proprietary qualified securities, and letters of
  credit collateralized by security-based swap customers' securities.
Note G. (a) Item 14 must include the amount of margin required and on
  deposit with a clearing agency registered with the Commission under
  section 17A of the Act (15 U.S.C. 78q-1) or a derivatives clearing
  organization registered with the Commodity Futures Trading Commission
  under section 5b of the Commodity Exchange Act (7 U.S.C. 7a-1) for
  security-based swap customer accounts to the extent that the margin is
  represented by cash, proprietary qualified securities, and letters of
  credit collateralized by security-based swap customers' securities.
(b) Item 14 will apply only if the broker or dealer has the margin
  related to security futures products on deposit with:
(1) A registered clearing agency or derivatives clearing organization
  that:
(i) Maintains security deposits from clearing members in connection with
  regulated options or futures transactions and assessment power over
  member firms that equal a combined total of at least $2 billion, at
  least $500 million of which must be in the form of security deposits.
  For purposes of this Note G, the term ``security deposits'' refers to
  a general fund, other than margin deposits or their equivalent, that
  consists of cash or securities held by a registered clearing agency or
  derivative clearing organization;
(ii) Maintains at least $3 billion in margin deposits; or
(iii) Does not meet the requirements of paragraphs (b)(1)(i) through
  (b)(1)(ii) of this Note G, if the Commission has determined, upon a
  written request for exemption by or for the benefit of the broker or
  dealer, that the broker or dealer may utilize such a registered
  clearing agency or derivatives clearing organization. The Commission
  may, in its sole discretion, grant such an exemption subject to such
  conditions as are appropriate under the circumstances, if the
  Commission determines that such conditional or unconditional exemption
  is necessary or appropriate in the public interest, and is consistent
  with the protection of investors; and
(2) A registered clearing agency or derivatives clearing organization
  that, if it holds funds or securities deposited as margin for security
  futures products in a bank, as defined in section 3(a)(6) of the Act
  (15 U.S.C. 78c(a)(6)), obtains and preserves written notification from
  the bank at which it holds such funds and securities or at which such
  funds and securities are held on its behalf. The written notification
  will state that all funds and/or securities deposited with the bank as
  margin (including security-based swap customer security futures
  products margin), or held by the bank and pledged to such registered
  clearing agency or derivatives clearing agency as margin, are being
  held by the bank for the exclusive benefit of clearing members of the
  registered clearing agency or derivatives clearing organization
  (subject to the interest of such registered clearing agency or
  derivatives clearing organization therein), and are being kept
  separate from any other accounts maintained by the registered clearing
  agency or derivatives clearing organization with the bank. The written
  notification also will provide that such funds and/or securities will
  at no time be used directly or indirectly as security for a loan to
  the registered clearing agency or derivatives clearing organization by
  the bank, and will be subject to no right, charge, security interest,
  lien, or claim of any kind in favor of the bank or any person claiming
  through the bank. This provision, however, will not prohibit a
  registered clearing agency or derivatives clearing organization from
  pledging security-based swap customer funds or securities as
  collateral to a bank for any purpose that the rules of the Commission
  or the registered clearing agency or derivatives clearing organization
  otherwise permit; and
(3) A registered clearing agency or derivatives clearing organization
  that establishes, documents, and maintains:
(i) Safeguards in the handling, transfer, and delivery of cash and
  securities;
(ii) Fidelity bond coverage for its employees and agents who handle
  security-based swap customer funds or securities. In the case of
  agents of a registered clearing agency or derivatives clearing
  organization, the agent may provide the fidelity bond coverage; and
(iii) Provisions for periodic examination by independent public
  accountants; and
(4) A derivatives clearing organization that, if it is not otherwise
  registered with the Commission, has provided the Commission with a
  written undertaking, in a form acceptable to the Commission, executed
  by a duly authorized person at the derivatives clearing organization,
  to the effect that, with respect to the clearance and settlement of
  the security-based swap customer security futures products of the
  broker or dealer, the derivatives clearing organization will permit
  the Commission to examine the books and records of the derivatives
  clearing organization for compliance with the requirements set forth
  in Sec.240.15c3-3a, Note G. (b)(1) through (3).
(c) Item 14 will apply only if a broker or dealer determines, at least
  annually, that the registered clearing agency or derivatives clearing
  organization with which the broker or dealer has on deposit margin
  related to security futures products meets the conditions of this Note
  G.


[84 FR 44050, Aug. 22, 2019]



Sec.240.15c3-4  Internal risk management control systems for OTC
derivatives dealers.

    (a) An OTC derivatives dealer shall establish, document, and 
maintain a system of internal risk management controls to assist it in 
managing the risks associated with its business activities, including 
market, credit, leverage, liquidity, legal, and operational risks.
    (b) An OTC derivatives dealer shall consider the following when 
adopting

[[Page 467]]

its internal control system guidelines, policies, and procedures:
    (1) The ownership and governance structure of the OTC derivatives 
dealer;
    (2) The composition of the governing body of the OTC derivatives 
dealer;
    (3) The management philosophy of the OTC derivatives dealer;
    (4) The scope and nature of established risk management guidelines;
    (5) The scope and nature of the permissible OTC derivatives 
activities;
    (6) The sophistication and experience of relevant trading, risk 
management, and internal audit personnel;
    (7) The sophistication and functionality of information and 
reporting systems; and
    (8) The scope and frequency of monitoring, reporting, and auditing 
activities.
    (c) An OTC derivatives dealer's internal risk management control 
system shall include the following elements:
    (1) A risk control unit that reports directly to senior management 
and is independent from business trading units;
    (2) Separation of duties between personnel responsible for entering 
into a transaction and those responsible for recording the transaction 
in the books and records of the OTC derivatives dealer;
    (3) Periodic reviews (which may be performed by internal audit 
staff) and annual reviews (which must be conducted by independent 
certified public accountants) of the OTC derivatives dealer's risk 
management systems;
    (4) Definitions of risk, risk monitoring, and risk management; and
    (5) Written guidelines, approved by the OTC derivatives dealer's 
governing body, that include and discuss the following:
    (i) The OTC derivatives dealer's consideration of the elements in 
paragraph (b) of this section;
    (ii) The scope, and the procedures for determining the scope, of 
authorized activities or any nonquantitative limitation on the scope of 
authorized activities;
    (iii) Quantitative guidelines for managing the OTC derivatives 
dealer's overall risk exposure;
    (iv) The type, scope, and frequency of reporting by management on 
risk exposures;
    (v) The procedures for and the timing of the governing body's 
periodic review of the risk monitoring and risk management written 
guidelines, systems, and processes;
    (vi) The process for monitoring risk independent of the business or 
trading units whose activities create the risks being monitored;
    (vii) The performance of the risk management function by persons 
independent from or senior to the business or trading units whose 
activities create the risks;
    (viii) The authority and resources of the groups or persons 
performing the risk monitoring and risk management functions;
    (ix) The appropriate response by management when internal risk 
management guidelines have been exceeded;
    (x) The procedures to monitor and address the risk that an OTC 
derivatives transaction contract will be unenforceable;
    (xi) The procedures requiring the documentation of the principal 
terms of OTC derivatives transactions and other relevant information 
regarding such transactions;
    (xii) The procedures authorizing specified employees to commit the 
OTC derivatives dealer to particular types of transactions;
    (xiii) The procedures to prevent the OTC derivatives dealer from 
engaging in any securities transaction that is not permitted under Sec.
240.15a-1; and
    (xiv) The procedures to prevent the OTC derivatives dealer from 
improperly relying on the exceptions to Sec.240.15a-1(c) and Sec.
240.15a-1(d), including the procedures to determine whether a 
counterparty is acting in the capacity of principal or agent.
    (d) Management must periodically review, in accordance with written 
procedures, the OTC derivatives dealer's business activities for 
consistency with risk management guidelines including that:
    (1) Risks arising from the OTC derivatives dealer's OTC derivatives 
activities are consistent with prescribed guidelines;

[[Page 468]]

    (2) Risk exposure guidelines for each business unit are appropriate 
for the business unit;
    (3) The data necessary to conduct the risk monitoring and risk 
management function as well as the valuation process over the OTC 
derivatives dealer's portfolio of products is accessible on a timely 
basis and information systems are available to capture, monitor, 
analyze, and report relevant data;
    (4) Procedures are in place to enable management to take action when 
internal risk management guidelines have been exceeded;
    (5) Procedures are in place to monitor and address the risk that an 
OTC derivatives transaction contract will be unenforceable;
    (6) Procedures are in place to identify and address any deficiencies 
in the operating systems and to contain the extent of losses arising 
from unidentified deficiencies;
    (7) Procedures are in place to authorize specified employees to 
commit the OTC derivatives dealer to particular types of transactions, 
to specify any quantitative limits on such authority, and to provide for 
the oversight of their exercise of such authority;
    (8) Procedures are in place to prevent the OTC derivatives dealer 
from engaging in any securities transaction that is not permitted under 
Sec.240.15a-1;
    (9) Procedures are in place to prevent the OTC derivatives dealer 
from improperly relying on the exceptions to Sec.240.15a-1(c) and 
Sec.240.15a-1(d), including procedures to determine whether a 
counterparty is acting in the capacity of principal or agent;
    (10) Procedures are in place to provide for adequate documentation 
of the principal terms of OTC derivatives transactions and other 
relevant information regarding such transactions;
    (11) Personnel resources with appropriate expertise are committed to 
implementing the risk monitoring and risk management systems and 
processes; and
    (12) Procedures are in place for the periodic internal and external 
review of the risk monitoring and risk management functions.

[63 FR 59400, Nov. 3, 1998]



Sec.240.15c3-5  Risk management controls for brokers or dealers 
with market access.

    (a) For the purpose of this section:
    (1) The term market access shall mean:
    (i) Access to trading in securities on an exchange or alternative 
trading system as a result of being a member or subscriber of the 
exchange or alternative trading system, respectively; or
    (ii) Access to trading in securities on an alternative trading 
system provided by a broker-dealer operator of an alternative trading 
system to a non-broker-dealer.
    (2) The term regulatory requirements shall mean all federal 
securities laws, rules and regulations, and rules of self-regulatory 
organizations, that are applicable in connection with market access.
    (b) A broker or dealer with market access, or that provides a 
customer or any other person with access to an exchange or alternative 
trading system through use of its market participant identifier or 
otherwise, shall establish, document, and maintain a system of risk 
management controls and supervisory procedures reasonably designed to 
manage the financial, regulatory, and other risks of this business 
activity. Such broker or dealer shall preserve a copy of its supervisory 
procedures and a written description of its risk management controls as 
part of its books and records in a manner consistent with Sec.240.17a-
4(e)(7). A broker-dealer that routes orders on behalf of an exchange or 
alternative trading system for the purpose of accessing other trading 
centers with protected quotations in compliance with Rule 611 of 
Regulation NMS (Sec.242.611) for NMS stocks, or in compliance with a 
national market system plan for listed options, shall not be required to 
comply with this rule with regard to such routing services, except with 
regard to paragraph (c)(1)(ii) of this section.
    (c) The risk management controls and supervisory procedures required 
by paragraph (b) of this section shall include the following elements:
    (1) Financial risk management controls and supervisory procedures. 
The risk management controls and supervisory

[[Page 469]]

procedures shall be reasonably designed to systematically limit the 
financial exposure of the broker or dealer that could arise as a result 
of market access, including being reasonably designed to:
    (i) Prevent the entry of orders that exceed appropriate pre-set 
credit or capital thresholds in the aggregate for each customer and the 
broker or dealer and, where appropriate, more finely-tuned by sector, 
security, or otherwise by rejecting orders if such orders would exceed 
the applicable credit or capital thresholds; and
    (ii) Prevent the entry of erroneous orders, by rejecting orders that 
exceed appropriate price or size parameters, on an order-by-order basis 
or over a short period of time, or that indicate duplicative orders.
    (2) Regulatory risk management controls and supervisory procedures. 
The risk management controls and supervisory procedures shall be 
reasonably designed to ensure compliance with all regulatory 
requirements, including being reasonably designed to:
    (i) Prevent the entry of orders unless there has been compliance 
with all regulatory requirements that must be satisfied on a pre-order 
entry basis;
    (ii) Prevent the entry of orders for securities for a broker or 
dealer, customer, or other person if such person is restricted from 
trading those securities;
    (iii) Restrict access to trading systems and technology that provide 
market access to persons and accounts pre-approved and authorized by the 
broker or dealer; and
    (iv) Assure that appropriate surveillance personnel receive 
immediate post-trade execution reports that result from market access.
    (d) The financial and regulatory risk management controls and 
supervisory procedures described in paragraph (c) of this section shall 
be under the direct and exclusive control of the broker or dealer that 
is subject to paragraph (b) of this section.
    (1) Notwithstanding the foregoing, a broker or dealer that is 
subject to paragraph (b) of this section may reasonably allocate, by 
written contract, after a thorough due diligence review, control over 
specific regulatory risk management controls and supervisory procedures 
described in paragraph (c)(2) of this section to a customer that is a 
registered broker or dealer, provided that such broker or dealer subject 
to paragraph (b) of this section has a reasonable basis for determining 
that such customer, based on its position in the transaction and 
relationship with an ultimate customer, has better access than the 
broker or dealer to that ultimate customer and its trading information 
such that it can more effectively implement the specified controls or 
procedures.
    (2) Any allocation of control pursuant to paragraph (d)(1) of this 
section shall not relieve a broker or dealer that is subject to 
paragraph (b) of this section from any obligation under this section, 
including the overall responsibility to establish, document, and 
maintain a system of risk management controls and supervisory procedures 
reasonably designed to manage the financial, regulatory, and other risks 
of market access.
    (e) A broker or dealer that is subject to paragraph (b) of this 
section shall establish, document, and maintain a system for regularly 
reviewing the effectiveness of the risk management controls and 
supervisory procedures required by paragraphs (b) and (c) of this 
section and for promptly addressing any issues.
    (1) Among other things, the broker or dealer shall review, no less 
frequently than annually, the business activity of the broker or dealer 
in connection with market access to assure the overall effectiveness of 
such risk management controls and supervisory procedures. Such review 
shall be conducted in accordance with written procedures and shall be 
documented. The broker or dealer shall preserve a copy of such written 
procedures, and documentation of each such review, as part of its books 
and records in a manner consistent with Sec.240.17a-4(e)(7) and Sec.
240.17a-4(b), respectively.
    (2) The Chief Executive Officer (or equivalent officer) of the 
broker or dealer shall, on an annual basis, certify that such risk 
management controls and supervisory procedures comply

[[Page 470]]

with paragraphs (b) and (c) of this section, and that the broker or 
dealer conducted such review, and such certifications shall be preserved 
by the broker or dealer as part of its books and records in a manner 
consistent with Sec.240.17a-4(b).
    (f) The Commission, by order, may exempt from the provisions of this 
section, either unconditionally or on specified terms and conditions, 
any broker or dealer, if the Commission determines that such exemption 
is necessary or appropriate in the public interest consistent with the 
protection of investors.

[75 FR 69825, Nov. 15, 2010]



Sec.240.15c6-1  Settlement cycle.

    (a) Except as provided in paragraphs (b), (c), and (d) of this 
section, a broker or dealer shall not effect or enter into a contract 
for the purchase or sale of a security (other than an exempted security, 
government security, municipal security, commercial paper, bankers' 
acceptances, or commercial bills) that provides for payment of funds and 
delivery of securities later than the second business day after the date 
of the contract unless otherwise expressly agreed to by the parties at 
the time of the transaction.
    (b) Paragraphs (a) and (c) of this section shall not apply to 
contracts:
    (1) For the purchase or sale of limited partnership interests that 
are not listed on an exchange or for which quotations are not 
disseminated through an automated quotation system of a registered 
securities association;
    (2) For the purchase or sale of securities that the Commission may 
from time to time, taking into account then existing market practices, 
exempt by order from the requirements of paragraph (a) of this section, 
either unconditionally or on specified terms and conditions, if the 
Commission determines that such exemption is consistent with the public 
interest and the protection of investors.
    (c) Paragraph (a) of this section shall not apply to contracts for 
the sale for cash of securities that are priced after 4:30 p.m. Eastern 
time on the date such securities are priced and that are sold by an 
issuer to an underwriter pursuant to a firm commitment underwritten 
offering registered under the Securities Act of 1933 or sold to an 
initial purchaser by a broker-dealer participating in such offering 
provided that a broker or dealer shall not effect or enter into a 
contract for the purchase or sale of such securities that provides for 
payment of funds and delivery of securities later than the fourth 
business day after the date of the contract unless otherwise expressly 
agreed to by the parties at the time of the transaction.
    (d) For purposes of paragraphs (a) and (c) of this section, the 
parties to a contract shall be deemed to have expressly agreed to an 
alternate date for payment of funds and delivery of securities at the 
time of the transaction for a contract for the sale for cash of 
securities pursuant to a firm commitment offering if the managing 
underwriter and the issuer have agreed to such date for all securities 
sold pursuant to such offering and the parties to the contract have not 
expressly agreed to another date for payment of funds and delivery of 
securities at the time of the transaction.

[58 FR 52903, Oct. 13, 1993, as amended at 60 FR 26622, May 17, 1995; 82 
FR 15601, Mar. 29, 2017]

 Regulation 15D: Reports of Registrants Under the Securities Act of 1933

                             Annual Reports



Sec.240.15d-1  Requirement of annual reports.

    Every registrant under the Securities Act of 1933 shall file an 
annual report, on the appropriate form authorized or prescribed 
therefor, for the fiscal year in which the registration statement under 
the Securities Act of 1933 became effective and for each fiscal year 
thereafter, unless the registrant is exempt from such filing by section 
15(d) of the Act or rules thereunder. Annual reports shall be filed 
within the period specified in the appropriate report form.

[47 FR 17052, Apr. 21, 1982, as amended at 61 FR 49960, Sept. 24, 1996]

[[Page 471]]



Sec.240.15d-2  Special financial report.

    (a) If the registration statement under the Securities Act of 1933 
did not contain certified financial statements for the registrant's last 
full fiscal year (or for the life of the registrant if less than a full 
fiscal year) preceding the fiscal year in which the registration 
statement became effective, the registrant shall, within 90 days after 
the effective date of the registration statement, file a special report 
furnishing certified financial statements for such last full fiscal year 
or other period, as the case may be, meeting the requirements of the 
form appropriate for annual reports of the registrant. If the registrant 
is a foreign private issuer as defined in Sec.230.405 of this chapter, 
then the special financial report shall be filed on the appropriate form 
for annual reports of the registrant and shall be filed by the later of 
90 days after the date on which the registration statement became 
effective, or four months following the end of the registrant's latest 
full fiscal year.
    (b) The report shall be filed under cover of the facing sheet of the 
form appropriate for annual reports of the registrant, shall indicate on 
the facing sheet that it contains only financial statements for the 
fiscal year in question, and shall be signed in accordance with the 
requirements of the annual report form.

[13 FR 9326, Dec. 31, 1948, as amended at 36 FR 1891, Feb. 3, 1971; 58 
FR 60306, Nov. 15, 1993; 73 FR 58324, Oct. 6, 2008; 83 FR 50222, Oct. 4, 
2018]



Sec.240.15d-3  Reports for depositary shares registered on Form F-6.

    Annual and other reports are not required with respect to Depositary 
Shares registered on Form F-6 (Sec.230.36 of this chapter). The 
exemption in this section does not apply to any deposited securities 
registered on any other form under the Securities Act of 1933.

[62 FR 39768, July 24, 1997]



Sec.240.15d-4  Reporting by Form 40-F registrants.

    A registrant that is eligible to use Forms 40-F and 6-K and files 
reports in accordance therewith shall be deemed to satisfy the 
requirements of Regulation 15D (Sec.Sec.240.15d-1 through 240.15d-21 
of this chapter).

[56 FR 30075, July 1, 1991]



Sec.240.15d-5  Reporting by successor issuers.

    (a) Where in connection with a succession by merger, consolidation, 
exchange of securities, acquisition of assets or otherwise, securities 
of any issuer that is not required to file reports pursuant to section 
15(d) (15 U.S.C. 78o(d)) of the Act are issued to the holders of any 
class of securities of another issuer that is required to file such 
reports, the duty to file reports pursuant to such section shall be 
deemed to have been assumed by the issuer of the class of securities so 
issued. The successor issuer shall, after the consummation of the 
succession, file reports in accordance with section 15(d) of the Act (15 
U.S.C. 78o(d)) and the rules and regulations thereunder, unless that 
issuer is exempt from filing such reports or the duty to file such 
reports is suspended under section 15(d) of the Act (15 U.S.C. 78o(d)).
    (b) An issuer that is deemed to be a successor issuer according to 
paragraph (a) of this section shall file reports on the same forms as 
the predecessor issuer except as follows:
    (1) An issuer that is not a foreign issuer shall not be eligible to 
file on Form 20-F (Sec.240.220f of this chapter).
    (2) A foreign private issuer shall be eligible to file on Form 20-F.
    (c) The provisions of paragraph (a) of this section shall not apply 
to an issuer of securities in connection with a succession that was 
registered on Form F-8 (Sec.239.38 of this chapter), Form F-10 (Sec.
239.40 of this chapter) or Form F-80 (Sec.239.41 of this chapter).

[36 FR 3805, Feb. 27, 1971, as amended at 48 FR 46740, Oct. 14, 1983; 56 
FR 30075, July 1, 1991; 62 FR 39768, July 24, 1997]



Sec.240.15d-6  Suspension of duty to file reports.

    If the duty of an issuer to file reports pursuant to section 15(d) 
of the Act as to any fiscal year is suspended as provided in section 
15(d) of the Act, such issuer shall, within 30 days after the beginning 
of the first fiscal year, file a notice on Form 15 informing the 
Commission of such suspension unless

[[Page 472]]

Form 15 has already been filed pursuant to Rule 12h-3. If the suspension 
resulted from the issuer's merger into, or consolidation with, another 
issuer or issuers, the notice shall be filed by the successor issuer.

(Secs. 12(g)(4), 12(h), 13(a), 15(d), 23(a), 48 Stat. 892, 894, 895, 
901; Sec.203(a), 49 Stat. 704; secs. 3, 8, 49 Stat. 1377, 1379; secs. 
3, 4, 6, 78 Stat. 565-568, 569, 570-574; Sec.18, 89 Stat. 155; Sec.
204, 91 Stat. 1500; 15 U.S.C. 78l(g)(4), 78l(h), 78m(a), 78o(d), 78w(a))

[49 FR 12690, Mar. 30, 1984]

                              Other Reports



Sec.240.15d-10  Transition reports.

    (a) Every issuer that changes its fiscal closing date shall file a 
report covering the resulting transition period between the closing date 
of its most recent fiscal year and the opening date of its new fiscal 
year; Provided, however, that an issuer shall file an annual report for 
any fiscal year that ended before the date on which the issuer 
determined to change its fiscal year end. In no event shall the 
transition report cover a period of 12 or more months.
    (b) The report pursuant to this section shall be filed for the 
transition period not more than the number of days specified in 
paragraph (j) of this section after either the close of the transition 
period or the date of the determination to change the fiscal closing 
date, whichever is later. The report shall be filed on the form 
appropriate for annual reports of the issuer, shall cover the period 
from the close of the last fiscal year end and shall indicate clearly 
the period covered. The financial statements for the transition period 
filed therewith shall be audited. Financial statements, which may be 
unaudited, shall be filed for the comparable period of the prior year, 
or a footnote, which may be unaudited, shall state for the comparable 
period of the prior year, revenues, gross profits, income taxes, income 
or loss from continuing operations and net income or loss. The effects 
of any discontinued operations as classified under the provisions of 
generally accepted accounting principles also shall be shown, if 
applicable. Per share data based upon such income or loss and net income 
or loss shall be presented in conformity with applicable accounting 
standards. Where called for by the time span to be covered, the 
comparable period financial statements or footnote shall be included in 
subsequent filings.
    (c) If the transition period covers a period of less than six 
months, in lieu of the report required by paragraph (b) of this section, 
a report may be filed for the transition period on Form 10-Q (Sec.
249.308 of this chapter) not more than the number of days specified in 
paragraph (j) of this section after either the close of the transition 
period or the date of the determination to change the fiscal closing 
date, whichever is later. The report on Form 10-Q shall cover the period 
from the close of the last fiscal year end and shall indicate clearly 
the period covered. The financial statements filed therewith need not be 
audited but, if they are not audited, the issuer shall file with the 
first annual report for the newly adopted fiscal year separate audited 
statements of income and cash flows covering the transition period. The 
notes to financial statements for the transition period included in such 
first annual report may be integrated with the notes to financial 
statements for the full fiscal period. A separate audited balance sheet 
as of the end of the transition period shall be filed in the annual 
report only if the audited balance sheet as of the end of the fiscal 
year before the transition period is not filed. Schedules need not be 
filed in transition reports on Form 10-Q.
    (d) Notwithstanding the foregoing in paragraphs (a), (b), and (c) of 
this section, if the transition period covers a period of one month or 
less, the issuer need not file a separate transition report if either:
    (1) The first report required to be filed by the issuer for the 
newly adopted fiscal year after the date of the determination to change 
the fiscal year end is an annual report, and that report covers the 
transition period as well as the fiscal year; or
    (2)(i) The issuer files with the first annual report for the newly 
adopted fiscal year separate audited statements of income and cash flows 
covering the transition period; and

[[Page 473]]

    (ii) The first report required to be filed by the issuer for the 
newly adopted fiscal year after the date of the determination to change 
the fiscal year end is a quarterly report on Form 10-Q; and
    (iii) Information on the transition period is included in the 
issuer's quarterly report on Form 10-Q for the first quarterly period 
(except the fourth quarter) of the newly adopted fiscal year that ends 
after the date of the determination to change the fiscal year. The 
information covering the transition period required by Part II and Item 
2 of Part I may be combined with the information regarding the quarter. 
However, the financial statements required by Part I, which may be 
unaudited, shall be furnished separately for the transition period.
    (e) Every issuer required to file quarterly reports on Form 10-Q 
pursuant to Sec.240.15d-13 that changes its fiscal year end shall:
    (1) File a quarterly report on Form 10-Q within the time period 
specified in General Instruction A.1. to that form for any quarterly 
period (except the fourth quarter) of the old fiscal year that ends 
before the date on which the issuer determined to change its fiscal year 
end, except that the issuer need not file such quarterly report if the 
date on which the quarterly period ends also is the date on which the 
transition period ends;
    (2) File a quarterly report on Form 10-Q within the time specified 
in General Instruction A.1 to that form for each quarterly period of the 
old fiscal year within the transition period. In lieu of a quarterly 
report for any quarter of the old fiscal year within the transition 
period, the issuer may file a quarterly report on Form 10-Q for any 
period of three months within the transition period that coincides with 
a quarter of the newly adopted fiscal year if the quarterly report is 
filed within the number of days specified in paragraph (j) of this 
section after the end of such three month period, provided the issuer 
thereafter continues filing quarterly reports on the basis of the 
quarters of the newly adopted fiscal year;
    (3) Commence filing quarterly reports for the quarters of the new 
fiscal year no later than the quarterly report for the first quarter of 
the new fiscal year that ends after the date on which the issuer 
determined to change the fiscal year end; and
    (4) Unless such information is or will be included in the transition 
report, or the first annual report on Form 10-K for the newly adopted 
fiscal year, include in the initial quarterly report on Form 10-Q for 
the newly adopted fiscal year information on any period beginning on the 
first day after the period covered by the issuer's final quarterly 
report on Form 10-Q or annual report on Form 10-K for the old fiscal 
year. The information covering such period required by Part II and Item 
2 of Part I may be combined with the information regarding the quarter. 
However, the financial statements required by Part I, which may be 
unaudited, shall be furnished separately for such period.

    Note to paragraphs (c) and (e): If it is not practicable or cannot 
be cost-justified to furnish in a transition report on Form 10-Q or a 
quarterly report for the newly adopted fiscal year financial statements 
for corresponding periods of the prior year where required, financial 
statements may be furnished for the quarters of the preceding fiscal 
year that most nearly are comparable if the issuer furnishes an adequate 
discussion of seasonal and other factors that could affect the 
comparability of information or trends reflected, an assessment of the 
comparability of the data, and a representation as to the reason 
recasting has not been undertaken.

    (f) Every successor issuer that has a different fiscal year from 
that of its predecessor(s) shall file a transition report pursuant to 
this section, containing the required information about each 
predecessor, for the transition period, if any, between the close of the 
fiscal year covered by the last annual report of each predecessor and 
the date of succession. The report shall be filed for the transition 
period on the form appropriate for annual reports of the issuer not more 
than the number of days specified in paragraph (j) of this section after 
the date of the succession, with financial statements in conformity with 
the requirements set forth in paragraph (b) of this section. If the 
transition period covers a period of less than six months, in lieu of a 
transition report on the form appropriate

[[Page 474]]

for the issuer's annual reports, the report may be filed for the 
transition period on Form 10-Q not more than the number of days 
specified in paragraph (j) of this section after the date of the 
succession, with financial statements in conformity with the 
requirements set forth in paragraph (c) of this section. Notwithstanding 
the foregoing, if the transition period covers a period of one month or 
less, the successor issuer need not file a separate transition report if 
the information is reported by the successor issuer in conformity with 
the requirements set forth in paragraph (d) of this section.
    (g)(1) Paragraphs (a) through (f) of this section shall not apply to 
foreign private issuers.
    (2) Every foreign private issuer that changes its fiscal closing 
date shall file a report covering the resulting transition period 
between the closing date of its most recent year and the opening date of 
its new fiscal year. In no event shall a transition report cover a 
period longer than 12 months.
    (3) The report for the transition period shall be filed on Form 20-F 
(Sec.249.220f of this chapter) responding to all items to which such 
issuer is required to respond when Form 20-F is used as an annual 
report. The financial statements for the transition period filed 
therewith shall be audited. The report shall be filed within four months 
after either the close of the transition period or the date on which the 
issuer made the determination to change the fiscal closing date, 
whichever is later.
    (4) If the transition period covers a period of six or fewer months, 
in lieu of the report required by paragraph (g)(3) of this section, a 
report for the transition period may be filed on Form 20-F responding to 
Items 5, 8.A.7., 13, 14, and 17 or 18 within three months after either 
the close of the transition period or the date on which the issuer made 
the determination to change the fiscal closing date, whichever is later. 
The financial statements required by either Item 17 or Item 18 shall be 
furnished for the transition period. Such financial statements may be 
unaudited and condensed as permitted in Article 10 of Regulation S-X 
(Sec.210.10-01 of this chapter), but if the financial statements are 
unaudited and condensed, the issuer shall file with the first annual 
report for the newly adopted fiscal year separate audited statements of 
income and cash flows covering the transition period.
    (5) Notwithstanding the foregoing in paragraphs (g)(2), (g)(3), and 
(g)(4) of this section, if the transition period covers a period of one 
month or less, a foreign private issuer need not file a separate 
transition report if the first annual report for the newly adopted 
fiscal year covers the transition period as well as the fiscal year.
    (h) The provisions of this rule shall not apply to investment 
companies required to file reports pursuant to Rule 30a-1 (Sec.
270.30a-1 of this chapter) under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.).
    (i) No filing fee shall be required for a transition report filed 
pursuant to this section.
    (j)(1) For transition reports to be filed on the form appropriate 
for annual reports of the issuer, the number of days shall be:
    (i) 60 days (75 days for fiscal years ending before December 15, 
2006) for large accelerated filers (as defined in Sec.240.12b-2);
    (ii) 75 days for accelerated filers (as defined in Sec.240.12b-2); 
and
    (iii) 90 days for all other issuers; and
    (2) For transition reports to be filed on Form 10-Q (Sec.249.308 
of this chapter), the number of days shall be:
    (i) 40 days for large accelerated filers and accelerated filers (as 
defined in Sec.240.12b-2); and
    (ii) 45 days for all other issuers.
    (k)(1) Paragraphs (a) through (g) of this section shall not apply to 
asset-backed issuers.
    (2) Every asset-backed issuer that changes its fiscal closing date 
shall file a report covering the resulting transition period between the 
closing date of its most recent fiscal year and the opening date of its 
new fiscal year. In no event shall a transition report cover a period 
longer than 12 months.
    (3) The report for the transition period shall be filed on Form 10-K 
(Sec.249.310 of this chapter) responding to all items to which such 
asset-backed issuer is required to respond pursuant to General 
Instruction J. of Form 10-K. Such report shall be filed within 90

[[Page 475]]

days after the later of either the close of the transition period or the 
date on which the issuer made the determination to change the fiscal 
closing date.
    (4) Notwithstanding the foregoing in paragraphs (k)(2) and (k)(3) of 
this section, if the transition period covers a period of one month or 
less, an asset-backed issuer need not file a separate transition report 
if the first annual report for the newly adopted fiscal year covers the 
transition period as well as the fiscal year.
    (5) Any obligation of the asset-backed issuer to file distribution 
reports pursuant to Sec.240.15d-17 will continue to apply regardless 
of a change in the asset-backed issuer's fiscal closing date.

    Note 1: In addition to the report or reports required to be filed 
pursuant to this section, every issuer, except a foreign private issuer 
or an investment company required to file reports pursuant to Sec.
270.30b1-1 of this chapter, that changes its fiscal closing date is 
required to file a Form 8-K (Sec.249.308 of this chapter) report that 
includes the information required by Item 5.03 of Form 8-K within the 
period specified in General Instruction B.1. to that form.
    Note 2: The report or reports to be filed pursuant to this section 
must include the certification required by Sec.240.15d-14.

[54 FR 10318, Mar. 13, 1989, as amended at 56 FR 30075, July 1, 1991; 64 
FR 53912, Oct. 5, 1999; 67 FR 57289, Sept. 9, 2002; 67 FR 58505, Sept. 
16, 2002; 69 FR 15618, Mar. 25, 2004; 69 FR 68236, Nov. 23, 2004; 70 FR 
1622, Jan. 7, 2005; 70 FR 76642, Dec. 27, 2005; 73 FR 978, Jan. 4, 2008; 
73 FR 58324, Oct. 6, 2008; 81 FR 82020, Nov. 18, 2016; 83 FR 50222, Oct. 
4, 2018]



Sec.240.15d-11  Current reports on Form 8-K 
(Sec.249.308 of this chapter).

    (a) Except as provided in paragraph (b) of this section, every 
registrant subject to Sec.240.15d-1 shall file a current report on 
Form 8-K within the period specified in that form unless substantially 
the same information as that required by Form 8-K has been previously 
reported by the registrant.
    (b) This section shall not apply to foreign governments, foreign 
private issuers required to make reports on Form 6-K (17 CFR 249.306) 
pursuant to Sec.240.15d-16, issuers of American Depositary Receipts 
for securities of any foreign issuer, or investment companies required 
to file reports pursuant to Sec.270.30a-1 of this chapter under the 
Investment Company Act of 1940, except where such an investment company 
is required to file:
    (1) Notice of a blackout period pursuant to Sec.245.104 of this 
chapter;
    (2) Disclosure pursuant to Instruction 2 to Sec.240.14a-11(b)(1) 
of information concerning outstanding shares and voting; or
    (3) Disclosure pursuant to Instruction 2 to Sec.240.14a-11(b)(10) 
of the date by which a nominating shareholder or nominating shareholder 
group must submit the notice required pursuant to Sec.240.14a-
11(b)(10).
    (c) No failure to file a report on Form 8-K that is required solely 
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e) or 
6.03 of Form 8-K shall be deemed to be a violation of 15 U.S.C. 78j(b) 
and Sec.240.10b--5.

[42 FR 4429, Jan. 25, 1977, as amended at 50 FR 27939, July 9, 1985; 68 
FR 4355, Jan. 28, 2002; 69 FR 15618, Mar. 25, 2004; 70 FR 1622, Jan. 7, 
2005; 71 FR 53263, Sept. 8, 2006; 75 FR 56792, Sept. 16, 2010; 81 FR 
82020, Nov. 18, 2016]



Sec.240.15d-13  Quarterly reports on Form 10-Q 
(Sec.249.308 of this chapter).

    (a) Except as provided in paragraphs (b) and (c) of this section, 
every issuer that has securities registered pursuant to the Securities 
Act and is required to file annual reports pursuant to section 15(d) of 
the Act on Form 10-K (Sec.249.310 of this chapter) shall file a 
quarterly report on Form 10-Q (Sec.249.308 of this chapter) within the 
period specified in General Instruction A.1 to that form for each of the 
first three quarters of each fiscal year of the issuer, commencing with 
the first fiscal quarter following the most recent fiscal year for which 
full financial statements were included in the registration statement, 
or, if the registration statement included financial statements for an 
interim period after the most recent fiscal year end meeting the 
requirements of Article 10 of Regulation S-X, or Rule 8-03 of Regulation 
S-X for smaller reporting companies, for the first fiscal quarter after 
the quarter reported upon in the registration statement. The first 
quarterly report of the issuer shall be filed either within 45 days 
after the effective date of the registration statement or on or before 
the

[[Page 476]]

date on which such report would have been required to be filed if the 
issuer had been required to file reports on Form 10-Q as of its last 
fiscal quarter, whichever is later.
    (b) The provisions of this rule shall not apply to the following 
issuers:
    (1) Investment companies required to file reports pursuant to Sec.
270.30a-1;
    (2) Foreign private issuers required to file reports pursuant to 
Sec.240.15d-16; and
    (3) Asset-backed issuers required to file reports pursuant to Sec.
240.15d-17.
    (c) Part I of the quarterly reports on Form 10-Q need not be filed 
by:
    (1) Mutual life insurance companies; or
    (2) Mining companies not in the production stage but engaged 
primarily in the exploration for the development of mineral deposits 
other than oil, gas or coal, if all of the following conditions are met:
    (i) The registrant has not been in production during the current 
fiscal year or the two years immediately prior thereto; except that 
being in production for an aggregate period of not more than eight 
months over the three-year period shall not be a violation of this 
condition.
    (ii) Receipts from the sale of mineral products or from the 
operations of mineral producing properties by the registrant and its 
subsidiaries combined have not exceeded $500,000 in any of the most 
recent six years and have not aggregated more than $1,500,000 in the 
most recent six fiscal years.
    (d) Notwithstanding the foregoing provisions of this section, the 
financial information required by Part I of Form 10-Q shall not be 
deemed to be ``filed'' for the purpose of section 18 of the Act or 
otherwise subject to the liabilities of that section of the Act, but 
shall be subject to all other provisions of the Act.
    (e) Notwithstanding the foregoing provisions of this section, the 
financial information required by Part I of Form 10-Q, or financial 
information submitted in lieu thereof pursuant to paragraph (d) of this 
section, shall not be deemed to be ``filed'' for the purpose of section 
18 of the Act or otherwise subject to the liabilities of that section of 
the Act, but shall be subject to all other provisions of the Act.

[42 FR 24065, May 12, 1977, as amended at 46 FR 63255, Dec. 31, 1981; 50 
FR 27939, July 9, 1985; 54 FR 10319, Mar. 13, 1989, 61 FR 30403, June 
14, 1996; 70 FR 1622, Jan. 7, 2005; 73 FR 978, Jan. 4, 2008; 81 FR 
82020, Nov. 18, 2016]



Sec.240.15d-14  Certification of disclosure in annual 
and quarterly reports.

    (a) Each report, including transition reports, filed on Form 10-Q, 
Form 10-K, Form 20-F or Form 40-F (Sec.249.308a, Sec.249.310, Sec.
249.220f or Sec.249.240f of this chapter) under section 15(d) of the 
Act (15 U.S.C. 78o(d)), other than a report filed by an Asset-Backed 
Issuer (as defined in Sec.229.1101 of this chapter) or a report on 
Form 20-F filed under Sec.240.15d-19, must include certifications in 
the form specified in the applicable exhibit filing requirements of such 
report, and such certifications must be filed as an exhibit to such 
report. Each principal executive and principal financial officer of the 
issuer, or persons performing similar functions, at the time of filing 
of the report must sign a certification. The principal executive and 
principal financial officers of an issuer may omit the portion of the 
introductory language in paragraph 4 as well as language in paragraph 
4(b) of the certification that refers to the certifying officers' 
responsibility for designing, establishing and maintaining internal 
control over financial reporting for the issuer until the issuer becomes 
subject to the internal control over financial reporting requirements in 
Sec.240.13a-15 or Sec.240.15d-15.
    (b) Each periodic report containing financial statements filed by an 
issuer pursuant to section 15(d) of the Act (15 U.S.C. 78o(d)) must be 
accompanied by the certifications required by Section 1350 of Chapter 63 
of Title 18 of the United States Code (18 U.S.C. 1350) and such 
certifications must be furnished as an exhibit to such report as 
specified in the applicable exhibit requirements for such report. Each 
principal executive and principal financial officer of the issuer (or 
equivalent thereof) must sign a certification. This requirement may be 
satisfied by a single certification signed by an issuer's principal 
executive and principal financial officers.

[[Page 477]]

    (c) A person required to provide a certification specified in 
paragraph (a), (b) or (d) of this section may not have the certification 
signed on his or her behalf pursuant to a power of attorney or other 
form of confirming authority.
    (d) Each annual report and transition report filed on Form 10-K 
(Sec.249.310 of this chapter) by an asset-backed issuer under section 
15(d) of the Act (15 U.S.C. 78o(d)) must include a certification in the 
form specified in the applicable exhibit filing requirements of such 
report and such certification must be filed as an exhibit to such 
report. Terms used in paragraphs (d) and (e) of this section have the 
same meaning as in Item 1101 of Regulation AB (Sec.229.1101 of this 
chapter).
    (e) With respect to asset-backed issuers, the certification required 
by paragraph (d) of this section must be signed by either:
    (1) The senior officer in charge of securitization of the depositor 
if the depositor is signing the report; or
    (2) The senior officer in charge of the servicing function of the 
servicer if the servicer is signing the report on behalf of the issuing 
entity. If multiple servicers are involved in servicing the pool assets, 
the senior officer in charge of the servicing function of the master 
servicer (or entity performing the equivalent function) must sign if a 
representative of the servicer is to sign the report on behalf of the 
issuing entity.
    (f) The certification requirements of this section do not apply to 
an Interactive Data File, as defined in Sec.232.11 of this chapter 
(Rule 11 of Regulation S-T).

[67 FR 57289, Sept. 9, 2002, as amended at 68 FR 36666, June 18, 2003; 
70 FR 1622, Jan. 7, 2005; 70 FR 6572, Feb. 8, 2005; 70 FR 42247, July 
21, 2005; 71 FR 76596, Dec. 21, 2006; 73 FR 979, Jan. 4, 2008; 74 FR 
6819, Feb. 10, 2009; 83 FR 40878, Aug. 16, 2018]



Sec.240.15d-15  Controls and procedures.

    (a) Every issuer that files reports under section 15(d) of the Act 
(15 U.S.C. 78o(d)), other than an Asset Backed Issuer (as defined in 
Sec.229.1101 of this chapter), a small business investment company 
registered on Form N-5 (Sec.Sec.239.24 and 274.5 of this chapter), or 
a unit investment trust as defined in section 4(2) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-4(2)), must maintain disclosure 
controls and procedures (as defined in paragraph (e) of this section) 
and, if the issuer either had been required to file an annual report 
pursuant to section 13(a) or 15(d) of the Act (15 U.S.C. 78m(a) or 
78o(d)) for the prior fiscal year or had filed an annual report with the 
Commission for the prior fiscal year, internal control over financial 
reporting (as defined in paragraph (f) of this section).
    (b) Each such issuer's management must evaluate, with the 
participation of the issuer's principal executive and principal 
financial officers, or persons performing similar functions, the 
effectiveness of the issuer's disclosure controls and procedures, as of 
the end of each fiscal quarter, except that management must perform this 
evaluation:
    (1) In the case of a foreign private issuer (as defined in Sec.
240.3b-4) as of the end of each fiscal year; and
    (2) In the case of an investment company registered under section 8 
of the Investment Company Act of 1940 (15 U.S.C. 80a-8), within the 90-
day period prior to the filing date of each report requiring 
certification under Sec.270.30a-2 of this chapter.
    (c) The management of each such issuer, that either had been 
required to file an annual report pursuant to section 13(a) or 15(d) of 
the Act (15 U.S.C. 78m(a) or 78o(d)) for the prior fiscal year or 
previously had filed an annual report with the Commission for the prior 
fiscal year, other than an investment company registered under section 8 
of the Investment Company Act of 1940, must evaluate, with the 
participation of the issuer's principal executive and principal 
financial officers, or persons performing similar functions, the 
effectiveness, as of the end of each fiscal year, of the issuer's 
internal control over financial reporting. The framework on which 
management's evaluation of the issuer's internal control over financial 
reporting is based must be a suitable, recognized control framework that 
is established by a body or group that has followed due-process 
procedures, including the broad distribution of the framework for public 
comment. Although there are many

[[Page 478]]

different ways to conduct an evaluation of the effectiveness of internal 
control over financial reporting to meet the requirements of this 
paragraph, an evaluation that is conducted in accordance with the 
interpretive guidance issued by the Commission in Release No. 34-55929 
will satisfy the evaluation required by this paragraph.
    (d) The management of each such issuer that previously either had 
been required to file an annual report pursuant to section 13(a) or 
15(d) of the Act (15 U.S.C. 78m(a) or 78o(d)) for the prior fiscal year 
or previously had filed an annual report with the Commission for the 
prior fiscal year, other than an investment company registered under 
section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8), must 
evaluate, with the participation of the issuer's principal executive and 
principal financial officers, or persons performing similar functions, 
any change in the issuer's internal control over financial reporting, 
that occurred during each of the issuer's fiscal quarters, or fiscal 
year in the case of a foreign private issuer, that has materially 
affected, or is reasonably likely to materially affect, the issuer's 
internal control over financial reporting.
    (e) For purposes of this section, the term disclosure controls and 
procedures means controls and other procedures of an issuer that are 
designed to ensure that information required to be disclosed by the 
issuer in the reports that it files or submits under the Act (15 U.S.C. 
78a et seq.) is recorded, processed, summarized and reported, within the 
time periods specified in the Commission's rules and forms. Disclosure 
controls and procedures include, without limitation, controls and 
procedures designed to ensure that information required to be disclosed 
by an issuer in the reports that it files or submits under the Act is 
accumulated and communicated to the issuer's management, including its 
principal executive and principal financial officers, or persons 
performing similar functions, as appropriate to allow timely decisions 
regarding required disclosure.
    (f) The term internal control over financial reporting is defined as 
a process designed by, or under the supervision of, the issuer's 
principal executive and principal financial officers, or persons 
performing similar functions, and effected by the issuer's board of 
directors, management and other personnel, to provide reasonable 
assurance regarding the reliability of financial reporting and the 
preparation of financial statements for external purposes in accordance 
with generally accepted accounting principles and includes those 
policies and procedures that:
    (1) Pertain to the maintenance of records that in reasonable detail 
accurately and fairly reflect the transactions and dispositions of the 
assets of the issuer;
    (2) Provide reasonable assurance that transactions are recorded as 
necessary to permit preparation of financial statements in accordance 
with generally accepted accounting principles, and that receipts and 
expenditures of the issuer are being made only in accordance with 
authorizations of management and directors of the issuer; and
    (3) Provide reasonable assurance regarding prevention or timely 
detection of unauthorized acquisition, use or disposition of the 
issuer's assets that could have a material effect on the financial 
statements.

[68 FR 36667, June 18, 2003, as amended at 70 FR 1622, Jan. 7, 2005; 71 
FR 76596, Dec. 21, 2006; 72 FR 35322, June 27, 2007]



Sec.240.15d-16  Reports of foreign private issuers on Form
6-K [17 CFR 249.306].

    (a) Every foreign private issuer which is subject to Rule 15d-1 [17 
CFR 240.15d-1] shall make reports on Form 6-K, except that this rule 
shall not apply to:
    (1) Investment companies required to file reports pursuant to Sec.
270.30a-1 of this chapter;
    (2) Issuers of American depositary receipts for securities of any 
foreign issuer; and
    (3) Asset-backed issuers, as defined in Sec.229.1101 of this 
chapter.
    (b) Such reports shall be transmitted promptly after the information 
required by Form 6-K is made public by the issuer, by the country of its 
domicile or under the laws of which it was incorporated or organized or 
by a foreign securities exchange with which the issuer has filed the 
information.

[[Page 479]]

    (c) Reports furnished pursuant to this rule shall not be deemed to 
be ``filed'' for the purpose of section 18 of the Act or otherwise 
subject to the liabilities of that section.

[32 FR 7849, May 30, 1967, as amended at 44 FR 70137, Dec. 6, 1979; 47 
FR 54781, Dec. 6, 1982; 50 FR 27939, July 9, 1985; 56 FR 30075, July 1, 
1991; 70 FR 1622, Jan. 7, 2005; 81 FR 82020, Nov. 18, 2016]



Sec.240.15d-17  Reports of asset-backed issuers on Form 10-D 
(Sec.249.312 of this chapter).

    Every asset-backed issuer subject to Sec.240.15d-1 shall make 
reports on Form 10-D (Sec.249.312 of this chapter). Such reports shall 
be filed within the period specified in Form 10-D.

[70 FR 1622, Jan. 7, 2005]



Sec.240.15d-18  Compliance with servicing criteria for asset-backed 
securities.

    (a) This section applies to every class of asset-backed securities 
subject to the reporting requirements of section 15(d) of the Act (15 
U.S.C. 78o(d)). Terms used in this section have the same meaning as in 
Item 1101 of Regulation AB (Sec.229.1101 of this chapter).
    (b) Reports on assessments of compliance with servicing criteria for 
asset-backed securities required. With regard to a class of asset-backed 
securities subject to the reporting requirements of section 15(d) of the 
Act, the annual report on Form 10-K (Sec.249.308 of this chapter) for 
such class must include from each party participating in the servicing 
function a report regarding its assessment of compliance with the 
servicing criteria specified in paragraph (d) of Item 1122 of Regulation 
AB (Sec.229.1122(d) of this chapter), as of and for the period ending 
the end of each fiscal year, with respect to asset-backed securities 
transactions taken as a whole involving the party participating in the 
servicing function and that are backed by the same asset type backing 
the class of asset-backed securities (including the asset-backed 
securities transaction that is to be the subject of the report on Form 
10-K for that fiscal year).
    (c) Attestation reports on assessments of compliance with servicing 
criteria for asset-backed securities required. With respect to each 
report included pursuant to paragraph (b) of this section, the annual 
report on Form 10-K must also include a report by a registered public 
accounting firm that attests to, and reports on, the assessment made by 
the asserting party. The attestation report on assessment of compliance 
with servicing criteria for asset-backed securities must be made in 
accordance with standards for attestation engagements issued or adopted 
by the Public Company Accounting Oversight Board.

    Note to Sec.240.15d-18: If multiple parties are participating in 
the servicing function, a separate assessment report and attestation 
report must be included for each party participating in the servicing 
function. A party participating in the servicing function means any 
entity (e.g., master servicer, primary servicers, trustees) that is 
performing activities that address the criteria in paragraph (d) of Item 
1122 of Regulation AB (Sec.229.1122(d) of this chapter), unless such 
entity's activities relate only to 5% or less of the pool assets.

[70 FR 1622, Jan. 7, 2005]



Sec.240.15d-19  Reports by shell companies on Form 20-F.

    Every foreign private issuer that was a shell company, other than a 
business combination related shell company, immediately before a 
transaction that causes it to cease to be a shell company shall, within 
four business days of completion of that transaction, file a report on 
Form 20-F (Sec.249.220f of this chapter) containing the information 
that would be required if the issuer were filing a form for registration 
of securities on Form 20-F to register under the Act all classes of the 
issuer's securities subject to the reporting requirements of section 13 
(15 U.S.C. 78m) or section 15(d) (15 U.S.C. 78o(d)) of the Act upon 
consummation of the transaction, with such information reflecting the 
registrant and its securities upon consummation of the transaction.

[70 FR 42247, July 21, 2005]



Sec.240.15d-20  Plain English presentation of specified information.

    (a) Any information included or incorporated by reference in a 
report filed under section 15(d) of the Act (15 U.S.C. 78o(d)) that is 
required to be disclosed pursuant to Item 402, 403, 404 or

[[Page 480]]

407 of Regulation S-K (Sec.229.402, Sec.229.403, Sec.229.404 or 
Sec.229.407 of this chapter) must be presented in a clear, concise and 
understandable manner. You must prepare the disclosure using the 
following standards:
    (1) Present information in clear, concise sections, paragraphs and 
sentences;
    (2) Use short sentences;
    (3) Use definite, concrete, everyday words;
    (4) Use the active voice;
    (5) Avoid multiple negatives;
    (6) Use descriptive headings and subheadings;
    (7) Use a tabular presentation or bullet lists for complex material, 
wherever possible;
    (8) Avoid legal jargon and highly technical business and other 
terminology;
    (9) Avoid frequent reliance on glossaries or defined terms as the 
primary means of explaining information. Define terms in a glossary or 
other section of the document only if the meaning is unclear from the 
context. Use a glossary only if it facilitates understanding of the 
disclosure; and
    (10) In designing the presentation of the information you may 
include pictures, logos, charts, graphs and other design elements so 
long as the design is not misleading and the required information is 
clear. You are encouraged to use tables, schedules, charts and graphic 
illustrations that present relevant data in an understandable manner, so 
long as such presentations are consistent with applicable disclosure 
requirements and consistent with other information in the document. You 
must draw graphs and charts to scale. Any information you provide must 
not be misleading.
    (b) [Reserved]

    Note to Sec.240.15d-20: In drafting the disclosure to comply with 
this section, you should avoid the following:
    1. Legalistic or overly complex presentations that make the 
substance of the disclosure difficult to understand;
    2. Vague ``boilerplate'' explanations that are imprecise and readily 
subject to different interpretations;
    3. Complex information copied directly from legal documents without 
any clear and concise explanation of the provision(s); and
    4. Disclosure repeated in different sections of the document that 
increases the size of the document but does not enhance the quality of 
the information.

[71 FR 53263, Sept. 8, 2006, as amended at 73 FR 979, Jan. 4, 2008]

       Exemption of Certain Issuers From Section 15(d) of the Act



Sec.240.15d-21  Reports for employee stock purchase, savings and 
similar plans.

    (a) Separate annual and other reports need not be filed pursuant to 
section 15(d) of the Act with respect to any employee stock purchase, 
savings or similar plan: Provided,
    (1) The issuer of the stock or other securities offered to employees 
through their participation in the plan files annual reports on Form 10-
K (Sec.249.310 of this chapter); and
    (2) Such issuer furnishes, as a part of its annual report on such 
form or as an amendment thereto, the financial statements required by 
Form 11-K (Sec.249.311 of this chapter) with respect to the plan.
    (b) If the procedure permitted by this Rule is followed, the 
financial statements required by Form 11-K with respect to the plan 
shall be filed within 120 days after the end of the fiscal year of the 
plan, either as a part of or as an amendment to the annual report of the 
issuer for its last fiscal year, provided that if the fiscal year of the 
plan ends within 62 days prior to the end of the fiscal year of the 
issuer, such information, financial statements and exhibits may be 
furnished as a part of the issuer's next annual report. If a plan 
subject to the Employee Retirement Income Security Act of 1974 uses the 
procedure permitted by this Rule, the financial statements required by 
Form 11-K shall be filed within 180 days after the plan's fiscal year 
end.

[27 FR 7871, Aug. 9, 1962, as amended at 55 FR 23929, June 13, 1990; 73 
FR 979, Jan. 4, 2008]



Sec.240.15d-22  Reporting regarding asset-backed securities under
section 15(d) of the Act.

    (a) With respect to an offering of asset-backed securities 
registered pursuant to Sec.230.415(a)(1)(vii) or Sec.
230.415(a)(1)(xii) of this chapter:

[[Page 481]]

    (1) Annual and other reports need not be filed pursuant to section 
15(d) of the Act (15 U.S.C. 78o(d)) regarding any class of securities to 
which such registration statement relates until the first bona fide sale 
in a takedown of securities under the registration statement; and
    (2) The starting and suspension dates for any reporting obligation 
under section 15(d) of the Act (15 U.S.C. 78o(d)) with respect to a 
takedown of any class of asset-backed securities are determined 
separately for each takedown of securities under the registration 
statement.
    (b) The duty to file annual and other reports pursuant to section 
15(d) of the Act (15 U.S.C. 78o(d)) regarding any class of asset-backed 
securities is suspended:
    (1) As to any semi-annual fiscal period, if, at the beginning of the 
semi-annual fiscal period, other than a period in the fiscal year within 
which the registration statement became effective, or, for offerings 
conducted pursuant to Sec.230.415(a)(1)(vii) or Sec.
230.415(a)(1)(xii), the takedown for the offering occurred, there are no 
asset-backed securities of such class that were sold in a registered 
transaction held by non-affiliates of the depositor and a certification 
on Form 15 (17 CFR 249.323) has been filed; or
    (2) When there are no asset-backed securities of such class that 
were sold in a registered transaction still outstanding, immediately 
upon filing with the Commission a certification on Form 15 (17 CFR 
249.323) if the issuer of such class has filed all reports required by 
Section 13(a), without regard to Rule 12b-25 (17 CFR 249.322), for the 
shorter of its most recent three fiscal years and the portion of the 
current year preceding the date of filing Form 15, or the period since 
the issuer became subject to such reporting obligation. If the 
certification on Form 15 is subsequently withdrawn or denied, the issuer 
shall, within 60 days, file with the Commission all reports which would 
have been required if such certification had not been filed.

    Note 1 to paragraph (b): Securities held of record by a broker, 
dealer, bank or nominee for any of them for the accounts of customers 
shall be considered as held by the separate accounts for which the 
securities are held.
    Note 2 to paragraph (b): An issuer may not suspend reporting if the 
issuer and its affiliates acquire and resell securities as part of a 
plan or scheme to evade the reporting obligations of Section 15(d).

    (c) This section does not affect any other reporting obligation 
applicable with respect to any classes of securities from additional 
takedowns under the same or different registration statements or any 
reporting obligation that may be applicable pursuant to section 12 of 
the Act (15 U.S.C. 78l).

[76 FR 52555, Aug. 23, 2011, as amended at 79 FR 57344, Sept. 24, 2014]



Sec.240.15d-23  Reporting regarding certain securities underlying
asset-backed securities under section 15(d) of the Act.

    (a) Regarding a class of asset-backed securities, if the asset pool 
for the asset-backed securities includes a pool asset representing an 
interest in or the right to the payments or cash flows of another asset 
pool, then no separate annual and other reports need be filed pursuant 
to section 15(d) of the Act (15 U.S.C. 78o(d)) because of the separate 
registration of the distribution of the pool asset under the Securities 
Act (15 U.S.C. 77a et seq.), if the following conditions are met:
    (1) Both the issuing entity for the asset-backed securities and the 
entity that issued the pool asset were established under the direction 
of the same sponsor and depositor;
    (2) The pool asset was created solely to satisfy legal requirements 
or otherwise facilitate the structuring of the asset-backed securities 
transaction;
    (3) The pool asset is not part of a scheme to avoid the registration 
or reporting requirements of the Act;
    (4) The pool asset is held by the issuing entity and is a part of 
the asset pool for the asset-backed securities; and
    (5) The offering of the asset-backed securities and the offering of 
the pool asset were both registered under the Securities Act (15 U.S.C. 
77a et seq.).
    (b) Paragraph (a) of this section does not affect any reporting 
obligation applicable with respect to the asset-

[[Page 482]]

backed securities or any other reporting obligation that may be 
applicable with respect to the pool asset or any other securities by the 
issuer of that pool asset pursuant to section 12 or 15(d) of the Act (15 
U.S.C. 78l or 78o(d)).
    (c) This section does not affect any obligation to provide 
information regarding the pool asset or the asset pool underlying the 
pool asset in a filing with respect to the asset-backed securities. See 
Item 1100(d) of Regulation AB (Sec.229.1100(d) of this chapter).
    (d) Terms used in this section have the same meaning as in Item 1101 
of Regulation AB (Sec.229.1101 of this chapter).

[70 FR 1623, Jan. 7, 2005]



Sec.240.15g-1  Exemptions for certain transactions.

    The following transactions shall be exempt from 17 CFR 240.15g-2, 17 
CFR 240.15g-3, 17 CFR 240.15g-4, 17 CFR 240.15g-5, and 17 CFR 240.15g-6:
    (a) Transactions by a broker or dealer:
    (1) Whose commissions, commission equivalents, mark-ups, and mark-
downs from transactions in penny stocks during each of the immediately 
preceding three months and during eleven or more of the preceding twelve 
months, or during the immediately preceding six months, did not exceed 
five percent of its total commissions, commission equivalents, mark-ups, 
and mark-downs from transactions in securities during those months; and
    (2) Who has not been a market maker in the penny stock that is the 
subject of the transaction in the immediately preceding twelve months.

    Note: Prior to April 28, 1993, commissions, commission equivalents, 
mark-ups, and mark-downs from transactions in designated securities, as 
defined in 17 CFR 240.15c2-6(d)(2) as of April 15, 1992, may be 
considered to be commissions, commission equivalents, mark-ups, and 
mark-downs from transactions in penny stocks for purposes of paragraph 
(a)(1) of this section.

    (b) Transactions in which the customer is an institutional 
accredited investor, as defined in 17 CFR 230.501(a) (1), (2), (3), (7), 
or (8).
    (c) Transactions that meet the requirements of Regulation D (17 CFR 
230.500 et seq), or transactions with an issuer not involving any public 
offering pursuant to section 4(2) of the Securities Act of 1933.
    (d) Transactions in which the customer is the issuer, or a director, 
officer, general partner, or direct or indirect beneficial owner of more 
than five percent of any class of equity security of the issuer, of the 
penny stock that is the subject of the transaction.
    (e) Transactions that are not recommended by the broker or dealer.
    (f) Any other transaction or class of transactions or persons or 
class of persons that, upon prior written request or upon its own 
motion, the Commission conditionally or unconditionally exempts by order 
as consistent with the public interest and the protection of investors.

[57 FR 18032, Apr. 28, 1992, as amended at 77 FR 18685, Mar. 28, 2012]



Sec.240.15g-2  Penny stock disclosure document relating to the penny
stock market.

    (a) It shall be unlawful for a broker or dealer to effect a 
transaction in any penny stock for or with the account of a customer 
unless, prior to effecting such transaction, the broker or dealer has 
furnished to the customer a document containing the information set 
forth in Schedule 15G, Sec.240.15g-100, and has obtained from the 
customer a signed and dated acknowledgment of receipt of the document.
    (b) Regardless of the form of acknowledgment used to satisfy the 
requirements of paragraph (a) of this section, it shall be unlawful for 
a broker or dealer to effect a transaction in any penny stock for or 
with the account of a customer less than two business days after the 
broker or dealer sends such document.
    (c) The broker or dealer shall preserve, as part of its records, a 
copy of the written acknowledgment required by paragraph (a) of this 
section for the period specified in 17 CFR 240.17a-4(b) of this chapter.
    (d) Upon request of the customer, the broker or dealer shall furnish 
the customer with a copy of the information set forth on the 
Commission's Web site

[[Page 483]]

at http://www.sec.gov/investor/pubs/microcapstock.htm.

[58 FR 37417, July 12, 1993, as amended at 70 FR 40632, July 13, 2005]



Sec.240.15g-3  Broker or dealer disclosure of quotations and other 
information relating to the penny stock market.

    (a) Requirement. It shall be unlawful for a broker or dealer to 
effect a transaction in any penny stock with or for the account of a 
customer unless such broker or dealer discloses to such customer, within 
the time periods and in the manner required by paragraph (b) of this 
section, the following information:
    (1) The inside bid quotation and the inside offer quotation for the 
penny stock.
    (2) If paragraph (a)(1) of this section does not apply because of 
the absence of an inside bid quotation and an inside offer quotation:
    (i) With respect to a transaction effected with or for a customer on 
a principal basis (other than as provided in paragraph (a)(2)(ii) of 
this section):
    (A) The dealer shall disclose its offer price for the security:
    (1) If during the previous five days the dealer has effected no 
fewer than three bona fide sales to other dealers consistently at its 
offer price for the security current at the time of those sales, and
    (2) If the dealer reasonably believes in good faith at the time of 
the transaction with the customer that its offer price accurately 
reflects the price at which it is willing to sell one or more round lots 
to another dealer. For purposes of paragraph (a)(2)(i)(A) of this 
section, ``consistently'' shall constitute, at a minimum, seventy-five 
percent of the dealer's bona fide interdealer sales during the previous 
five-day period, and, if the dealer has effected only three bona fide 
inter-dealer sales during such period, all three of such sales.
    (B) The dealer shall disclose its bid price for the security:
    (1) If during the previous five days the dealer has effected no 
fewer than three bona fide purchases from other dealers consistently at 
its bid price for the security current at the time of those purchases, 
and
    (2) If the dealer reasonably believes in good faith at the time of 
the transaction with the customer that its bid price accurately reflects 
the price at which it is willing to buy one or more round lots from 
another dealer. For purposes of paragraph (a)(2)(i)(B) of this section, 
``consistently'' shall constitute, at a minimum, seventy-five percent of 
the dealer's bona fide interdealer purchases during the previous five-
day period, and, if the dealer has effected only three bona fide inter-
dealer purchases during such period, all three of such purchases.
    (C) If the dealer's bid or offer prices to the customer do not 
satisfy the criteria of paragraphs (a)(2)(i)(A) or (a)(2)(i)(B) of this 
section, the dealer shall disclose to the customer:
    (1) That it has not effected inter-dealer purchases or sales of the 
penny stock consistently at its bid or offer price, and
    (2) The price at which it last purchased the penny stock from, or 
sold the penny stock to, respectively, another dealer in a bona fide 
transaction.
    (ii) With respect to transactions effected by a broker or dealer 
with or for the account of the customer:
    (A) On an agency basis or
    (B) On a basis other than as a market maker in the security, where, 
after having received an order from the customer to purchase a penny 
stock, the dealer effects the purchase from another person to offset a 
contemporaneous sale of the penny stock to such customer, or, after 
having received an order from the customer to sell the penny stock, the 
dealer effects the sale to another person to offset a contemporaneous 
purchase from such customer, the broker or dealer shall disclose the 
best independent interdealer bid and offer prices for the penny stock 
that the broker or dealer obtains through reasonable diligence. A 
broker-dealer shall be deemed to have exercised reasonable diligence if 
it obtains quotations from three market makers in the security (or all 
known market makers if there are fewer than three).
    (3) With respect to bid or offer prices and transaction prices 
disclosed pursuant to paragraph (a) of this section, the broker or 
dealer shall disclose the

[[Page 484]]

number of shares to which the bid and offer prices apply.
    (b) Timing. (1) The information described in paragraph (a) of this 
section:
    (i) Shall be provided to the customer orally or in writing prior to 
effecting any transaction with or for the customer for the purchase or 
sale of such penny stock; and
    (ii) Shall be given or sent to the customer in writing, at or prior 
to the time that any written confirmation of the transaction is given or 
sent to the customer pursuant to 17 CFR 240.10b-10 of this chapter.
    (2) A broker or dealer, at the time of making the disclosure 
pursuant to paragraph (b)(1)(i) of this section, shall make and preserve 
as part of its records, a record of such disclosure for the period 
specified in 17 CFR 240.17a-4(b).
    (c) Definitions. For purposes of this section:
    (1) The term bid price shall mean the price most recently 
communicated by the dealer to another broker or dealer at which the 
dealer is willing to purchase one or more round lots of the penny stock, 
and shall not include indications of interest.
    (2) The term offer price shall mean the price most recently 
communicated by the dealer to another broker or dealer at which the 
dealer is willing to sell one or more round lots of the penny stock, and 
shall not include indications of interest.
    (3) The term inside bid quotation for a security shall mean the 
highest bid quotation for the security displayed by a market maker in 
the security on a Qualifying Electronic Quotation System, at any time in 
which at least two market makers are contemporaneously displaying on 
such system bid and offer quotations for the security at specified 
prices.
    (4) The term inside offer quotation for a security shall mean the 
lowest offer quotation for the security displayed by a market maker in 
the security on a Qualifying Electronic Quotation System, at any time in 
which at least two market makers are contemporaneously displaying on 
such system bid and offer quotations for the security at specified 
prices.
    (5) The term Qualifying Electronic Quotation System shall mean an 
automated interdealer quotation system that has the characteristics set 
forth in section 17B(b)(2) of the Act, or such other automated 
interdealer quotation system designated by the Commission for purposes 
of this section.

[57 FR 18033, Apr. 28, 1992]



Sec.240.15g-4  Disclosure of compensation to brokers or dealers.

    Preliminary Note: Brokers and dealers may wish to refer to 
Securities Exchange Act Release No. 30608 (April 20, 1992) for a 
discussion of the procedures for computing compensation in active and 
competitive markets, inactive and competitive markets, and dominated and 
controlled markets.

    (a) Disclosure requirement. It shall be unlawful for any broker or 
dealer to effect a transaction in any penny stock for or with the 
account of a customer unless such broker or dealer discloses to such 
customer, within the time periods and in the manner required by 
paragraph (b) of this section, the aggregate amount of any compensation 
received by such broker or dealer in connection with such transaction.
    (b) Timing. (1) The information described in paragraph (a) of this 
section:
    (i) Shall be provided to the customer orally or in writing prior to 
effecting any transaction with or for the customer for the purchase or 
sale of such penny stock; and
    (ii) Shall be given or sent to the customer in writing, at or prior 
to the time that any written confirmation of the transaction is given or 
sent to the customer pursuant to 17 CFR 240.10b-10.
    (2) A broker or dealer, at the time of making the disclosure 
pursuant to paragraph (b)(1)(i) of this section, shall make and preserve 
as part of its records, a record of such disclosure for the period 
specified in 17 CFR 240.17a-4(b).
    (c) Definition of compensation. For purposes of this section, 
compensation means, with respect to a transaction in a penny stock:
    (1) If a broker is acting as agent for a customer, the amount of any 
remuneration received or to be received by it from such customer in 
connection with such transaction;

[[Page 485]]

    (2) If, after having received a buy order from a customer, a dealer 
other than a market maker purchased the penny stock as principal from 
another person to offset a contemporaneous sale to such customer or, 
after having received a sell order from a customer, sold the penny stock 
as principal to another person to offset a contemporaneous purchase from 
such customer, the difference between the price to the customer and such 
contemporaneous purchase or sale price; or
    (3) If the dealer otherwise is acting as principal for its own 
account, the difference between the price to the customer and the 
prevailing market price.
    (d) Active and competitive market. For purposes of this section 
only, a market may be deemed to be ``active and competitive'' in 
determining the prevailing market price with respect to a transaction by 
a market maker in a penny stock if the aggregate number of transactions 
effected by such market maker in the penny stock in the five business 
days preceding such transaction is less than twenty percent of the 
aggregate number of all transactions in the penny stock reported on a 
Qualifying Electronic Quotation System (as defined in 17 CFR 240.15g-
3(c)(5)) during such five-day period. No presumption shall arise that a 
market is not ``active and competitive'' solely by reason of a market 
maker not meeting the conditions specified in this paragraph.

[57 FR 18034, Apr. 28, 1992]



Sec.240.15g-5  Disclosure of compensation of associated persons
in connection with penny stock transactions.

    (a) General. It shall be unlawful for a broker or dealer to effect a 
transaction in any penny stock for or with the account of a customer 
unless the broker or dealer discloses to such customer, within the time 
periods and in the manner required by paragraph (b) of this section, the 
aggregate amount of cash compensation that any associated person of the 
broker or dealer who is a natural person and has communicated with the 
customer concerning the transaction at or prior to receipt of the 
customer's transaction order, other than any person whose function is 
solely clerical or ministerial, has received or will receive from any 
source in connection with the transaction and that is determined at or 
prior to the time of the transaction, including separate disclosure, if 
applicable, of the source and amount of such compensation that is not 
paid by the broker or dealer.
    (b) Timing. (1) The information described in paragraph (a) of this 
section:
    (i) Shall be provided to the customer orally or in writing prior to 
effecting any transaction with or for the customer for the purchase or 
sale of such penny stock; and
    (ii) Shall be given or sent to the customer in writing, at or prior 
to the time that any written confirmation of the transaction is given or 
sent to the customer pursuant to 17 CFR 240.10b-10.
    (2) A broker or dealer, at the time of making the disclosure 
pursuant to paragraph (b)(1)(i) of this section, shall make and preserve 
as part of its records, a record of such disclosure for the period 
specified in 17 CFR 240.17a-4(b).
    (c) Contingent compensation arrangements. Where a portion or all of 
the cash or other compensation that the associated person may receive in 
connection with the transaction may be determined and paid following the 
transaction based on aggregate sales volume levels or other 
contingencies, the written disclosure required by paragraph (b)(1)(ii) 
of this section shall state that fact and describe the basis upon which 
such compensation is determined.

[57 FR 18034, Apr. 28, 1992]



Sec.240.15g-6  Account statements for penny stock customers.

    (a) Requirement. It shall be unlawful for any broker or dealer that 
has effected the sale to any customer, other than in a transaction that 
is exempt pursuant to 17 CFR 240.15g-1, of any security that is a penny 
stock on the last trading day of any calendar month, or any successor of 
such broker or dealer, to fail to give or send to such customer a 
written statement containing the information described in paragraphs (c) 
and (d) of this section with respect to each such month in which such 
security is held for the customer's account with the broker or dealer, 
within ten days following the end of such month.

[[Page 486]]

    (b) Exemptions. A broker or dealer shall be exempted from the 
requirement of paragraph (a) of this section under either of the 
following circumstances:
    (1) If the broker or dealer does not effect any transactions in 
penny stocks for or with the account of the customer during a period of 
six consecutive calendar months, then the broker or dealer shall not be 
required to provide monthly statements for each quarterly period that is 
immediately subsequent to such six-month period and in which the broker 
or dealer does not effect any transaction in penny stocks for or with 
the account of the customer, provided that the broker or dealer gives or 
sends to the customer written statements containing the information 
described in paragraphs (d) and (e) of this section on a quarterly 
basis, within ten days following the end of each such quarterly period.
    (2) If, on all but five or fewer trading days of any quarterly 
period, a security has a price of five dollars or more, the broker or 
dealer shall not be required to provide a monthly statement covering the 
security for subsequent quarterly periods, until the end of any such 
subsequent quarterly period on the last trading day of which the price 
of the security is less than five dollars.
    (c) Price determinations. For purposes of paragraphs (a) and (b) of 
this section, the price of a security on any trading day shall be 
determined at the close of business in accordance with the provisions of 
17 CFR 240.3a51-1(d)(1).
    (d) Market and price information. The statement required by 
paragraph (a) of this section shall contain at least the following 
information with respect to each penny stock covered by paragraph (a) of 
this section, as of the last trading day of the period to which the 
statement relates:
    (1) The identity and number of shares or units of each such security 
held for the customer's account; and
    (2) The estimated market value of the security, to the extent that 
such estimated market value can be determined in accordance with the 
following provisions:
    (i) The highest inside bid quotation for the security on the last 
trading day of the period to which the statement relates, multiplied by 
the number of shares or units of the security held for the customer's 
account; or
    (ii) If paragraph (d)(2)(i) of this section is not applicable 
because of the absence of an inside bid quotation, and if the broker or 
dealer furnishing the statement has effected at least ten separate 
Qualifying Purchases in the security during the last five trading days 
of the period to which the statement relates, the weighted average price 
per share paid by the broker or dealer in all Qualifying Purchases 
effected during such five-day period, multiplied by the number of shares 
or units of the security held for the customer's account; or
    (iii) If neither of paragraphs (d)(2)(i) nor (d)(2)(ii) of this 
section is applicable, a statement that there is ``no estimated market 
value'' with respect to the security.
    (e) Legend. In addition to the information required by paragraph (d) 
of this section, the written statement required by paragraph (a) of this 
section shall include a conspicuous legend that is identified with the 
penny stocks described in the statement and that contains the following 
language:

    If this statement contains an estimated value, you should be aware 
that this value may be based on a limited number of trades or quotes. 
Therefore, you may not be able to sell these securities at a price equal 
or near to the value shown. However, the broker-dealer furnishing this 
statement may not refuse to accept your order to sell these securities. 
Also, the amount you receive from a sale generally will be reduced by 
the amount of any commissions or similar charges. If an estimated value 
is not shown for a security, a value could not be determined because of 
a lack of information.

    (f) Preservation of records. Any broker or dealer subject to this 
section shall preserve, as part of its records, copies of the written 
statements required by paragraph (a) of this section and keep such 
records for the periods specified in 17 CFR 240.17a-4(b).
    (g) Definitions. For purposes of this section:
    (1) The term Quarterly period shall mean any period of three 
consecutive full calendar months.
    (2) The inside bid quotation for a security shall mean the highest 
bid

[[Page 487]]

quotation for the security displayed by a market maker in the security 
on a Qualifying Electronic Quotation System, at any time in which at 
least two market makers are contemporaneously displaying on such system 
bid and offer quotations for the security at specified prices.
    (3) The term Qualifying Electronic Quotation System shall mean an 
automated interdealer quotation system that has the characteristics set 
forth in section 17B(b)(2) of the Act, or such other automated 
interdealer quotation system designated by the Commission for purposes 
of this section.
    (4) The term Qualifying Purchases shall mean bona fide purchases by 
a broker or dealer of a penny stock for its own account, each of which 
involves at least 100 shares, but excluding any block purchase involving 
more than one percent of the outstanding shares or units of the 
security.

[57 FR 18034, Apr. 28, 1992]



Sec.240.15g-8  Sales of escrowed securities of blank check companies.

    As a means reasonably designed to prevent fraudulent, deceptive, or 
manipulative acts or practices, it shall be unlawful for any person to 
sell or offer to sell any security that is deposited and held in an 
escrow or trust account pursuant to Rule 419 under the Securities Act of 
1933 (17 CFR 230.419), or any interest in or related to such security, 
other than pursuant to a qualified domestic relations order as defined 
by the Internal Revenue Code of 1986, as amended (26 U.S.C. 1 et seq.), 
or Title I of the Employee Retirement Income Security Act (29 U.S.C. 
1001 et seq.), or the rules thereunder.

[57 FR 18045, Apr. 28, 1992]



Sec.240.15g-9  Sales practice requirements for certain low-priced 
securities.

    (a) As a means reasonably designed to prevent fraudulent, deceptive, 
or manipulative acts or practices, it shall be unlawful for a broker or 
dealer to sell a penny stock to, or to effect the purchase of a penny 
stock by, any person unless:
    (1) The transaction is exempt under paragraph (c) of this section; 
or
    (2) Prior to the transaction:
    (i) The broker or dealer has approved the person's account for 
transactions in penny stocks in accordance with the procedures set forth 
in paragraph (b) of this section; and
    (ii)(A) The broker or dealer has received from the person an 
agreement to the transaction setting forth the identity and quantity of 
the penny stock to be purchased; and
    (B) Regardless of the form of agreement used to satisfy the 
requirements of paragraph (a)(2)(ii)(A) of this section, it shall be 
unlawful for such broker or dealer to sell a penny stock to, or to 
effect the purchase of a penny stock by, for or with the account of a 
customer less than two business days after the broker or dealer sends 
such agreement.
    (b) In order to approve a person's account for transactions in penny 
stocks, the broker or dealer must:
    (1) Obtain from the person information concerning the person's 
financial situation, investment experience, and investment objectives;
    (2) Reasonably determine, based on the information required by 
paragraph (b)(1) of this section and any other information known by the 
broker-dealer, that transactions in penny stocks are suitable for the 
person, and that the person (or the person's independent adviser in 
these transactions) has sufficient knowledge and experience in financial 
matters that the person (or the person's independent adviser in these 
transactions) reasonably may be expected to be capable of evaluating the 
risks of transactions in penny stocks;
    (3) Deliver to the person a written statement:
    (i) Setting forth the basis on which the broker or dealer made the 
determination required by paragraph (b)(2) of this section;
    (ii) Stating in a highlighted format that it is unlawful for the 
broker or dealer to effect a transaction in a penny stock subject to the 
provisions of paragraph (a)(2) of this section unless the broker or 
dealer has received, prior to the transaction, a written agreement to 
the transaction from the person; and

[[Page 488]]

    (iii) Stating in a highlighted format immediately preceding the 
customer signature line that:
    (A) The broker or dealer is required by this section to provide the 
person with the written statement; and
    (B) The person should not sign and return the written statement to 
the broker or dealer if it does not accurately reflect the person's 
financial situation, investment experience, and investment objectives; 
and
    (4)(i) Obtain from the person a signed and dated copy of the 
statement required by paragraph (b)(3) of this section; and
    (ii) Regardless of the form of statement used to satisfy the 
requirements of paragraph (b)(4)(i) of this section, it shall be 
unlawful for such broker or dealer to sell a penny stock to, or to 
effect the purchase of a penny stock by, for or with the account of a 
customer less than two business days after the broker or dealer sends 
such statement.
    (c) For purposes of this section, the following transactions shall 
be exempt:
    (1) Transactions that are exempt under 17 CFR 240.15g-1 (a), (b), 
(d), (e), and (f).
    (2) Transactions that meet the requirements of 17 CFR 230.506 
(including, where applicable, the requirements of 17 CFR 230.501 through 
230.503, and 17 CFR 230.507 through 230.508), or transactions with an 
issuer not involving any public offering pursuant to section 4(a)(2) of 
the Securities Act of 1933.
    (3) Transactions in which the purchaser is an established customer 
of the broker or dealer.
    (d) For purposes of this section:
    (1) The term penny stock shall have the same meaning as in 17 CFR 
240.3a51-1.
    (2) The term established customer shall mean any person for whom the 
broker or dealer, or a clearing broker on behalf of such broker or 
dealer, carries an account, and who in such account:
    (i) Has effected a securities transaction, or made a deposit of 
funds or securities, more than one year previously; or
    (ii) Has made three purchases of penny stocks that occurred on 
separate days and involved different issuers.

[54 FR 35481, Aug. 28, 1989. Redesignated and amended at 58 FR 37417, 
July 12, 1993; 70 FR 40632, July 13, 2005; 81 FR 83553, Nov. 21, 2016]



Sec.240.15g-100  Schedule 15G--Information to be included in the document 
distributed pursuant to 17 CFR 240.15g-2.

                   SECURITIES AND EXCHANGE COMMISSION

                          Washington, DC 20549

                              SCHEDULE 15G

                Under the Securities Exchange Act of 1934

                      Instructions to Schedule 15G

    A. Schedule 15G (Schedule) may be provided to customers in its 
entirety either on paper or electronically. It may also be provided to 
customers electronically through a link to the SEC's Web site.
    1. If the Schedule is sent in paper form, the format and typeface of 
the Schedule must be reproduced exactly as presented. For example, words 
that are capitalized must remain capitalized, and words that are 
underlined or bold must remain underlined or bold. The typeface must be 
clear and easy to read. The Schedule may be reproduced either by 
photocopy or by printing.
    2. If the Schedule is sent electronically, the e-mail containing the 
Schedule must have as a subject line ``Important Information on Penny 
Stocks.'' The Schedule reproduced in the text of the e-mail must be 
clear, easy-to-read type presented in a manner reasonably calculated to 
draw the customer's attention to the language in the document, 
especially words that are capitalized, underlined or in bold.
    3. If the Schedule is sent electronically using a hyperlink to the 
SEC Web site, the e-mail containing the hyperlink must have as a subject 
line: ``Important Information on Penny Stocks.'' Immediately before the 
hyperlink, the text of the e-mail must reproduce the following statement 
in clear, easy-to-

[[Page 489]]

read type presented in a manner reasonably calculated to draw the 
customer's attention to the words: ``We are required by the U.S. 
Securities and Exchange Commission to give you the following disclosure 
statement: http://www.sec.gov/investor/schedule15g.htm. It explains some 
of the risks of investing in penny stocks. Please read it carefully 
before you agree to purchase or sell a penny stock.''
    B. Regardless of how the Schedule is provided to the customer, the 
communication must also provide the name, address, telephone number and 
e-mail address of the broker. E-mail messages may also include any 
privacy or confidentiality information that the broker routinely 
includes in e-mail messages sent to customers. No other information may 
be included in these communications, other than instructions on how to 
provide a signed and dated acknowledgement of receipt of the Schedule.
    C. The document entitled ``Important Information on Penny Stocks'' 
must be distributed as Schedule 15G and must be no more than two pages 
in length if provided in paper form.
    D. The disclosures made through the Schedule are in addition to any 
other disclosures that are required under the Federal securities laws.
    E. Recipients of the document must not be charged any fee for the 
document.
    F. The content of the Schedule is as follows:
     [next page]

                  Important Information on Penny Stocks

    The U.S. Securities and Exchange Commission (SEC) requires your 
broker to give this statement to you, and to obtain your signature to 
show that you have received it, before your first trade in a penny 
stock. This statement contains important information--and you should 
read it carefully before you sign it, and before you decide to purchase 
or sell a penny stock.
    In addition to obtaining your signature, the SEC requires your 
broker to wait at least two business days after sending you this 
statement before executing your first trade to give you time to 
carefully consider your trade.

                     Penny Stocks Can Be Very Risky

    Penny stocks are low-priced shares of small companies. Penny stocks 
may trade infrequently--which means that it may be difficult to sell 
penny stock shares once you have them. Because it may also be difficult 
to find quotations for penny stocks, they may be impossible to 
accurately price. Investors in penny stock should be prepared for the 
possibility that they may lose their whole investment.
    While penny stocks generally trade over-the-counter, they may also 
trade on U.S. securities exchanges, facilities of U.S. exchanges, or 
foreign exchanges. You should learn about the market in which the penny 
stock trades to determine how much demand there is for this stock and 
how difficult it will be to sell. Be especially careful if your broker 
is offering to sell you newly issued penny stock that has no established 
trading market.
    The securities you are considering have not been approved or 
disapproved by the Sec.Moreover, the SEC has not passed upon the 
fairness or the merits of this transaction nor upon the accuracy or 
adequacy of the information contained in any prospectus or any other 
information provided by an issuer or a broker or dealer.

                       Information You Should Get

    In addition to this statement, your broker is required to give you a 
statement of your financial situation and investment goals explaining 
why his or her firm has determined that penny stocks are a suitable 
investment for you. In addition, your broker is required to obtain your 
agreement to the proposed penny stock transaction.
    Before you buy penny stock, Federal law requires your salesperson to 
tell you the ``offer'' and the ``bid'' on the stock, and the 
``compensation'' the salesperson and the firm receive for the trade. The 
firm also must send a confirmation of these prices to you after the 
trade. You will need this price information to determine what profit or 
loss, if any, you will have when you sell your stock.
    The offer price is the wholesale price at which the dealer is 
willing to sell stock to other dealers. The bid price is

[[Page 490]]

the wholesale price at which the dealer is willing to buy the stock from 
other dealers. In its trade with you, the dealer may add a retail charge 
to these wholesale prices as compensation (called a ``markup'' or 
``markdown'').
    The difference between the bid and the offer price is the dealer's 
``spread.'' A spread that is large compared with the purchase price can 
make a resale of a stock very costly. To be profitable when you sell, 
the bid price of your stock must rise above the amount of this spread 
and the compensation charged by both your selling and purchasing 
dealers. Remember that if the dealer has no bid price, you may not be 
able to sell the stock after you buy it, and may lose your whole 
investment.
    After you buy penny stock, your brokerage firm must send you a 
monthly account statement that gives an estimate of the value of each 
penny stock in your account, if there is enough information to make an 
estimate. If the firm has not bought or sold any penny stocks for your 
account for six months, it can provide these statements every three 
months.
    Additional information about low-priced securities--including penny 
stocks--is available on the SEC's Web site at http://www.sec.gov/
investor/pubs/microcapstock.htm. In addition, your broker will send you 
a copy of this information upon request. The SEC encourages you to learn 
all you can before making this investment.

           Brokers' Duties and Customers' Rights and Remedies

    Remember that your salesperson is not an impartial advisor--he or 
she is being paid to sell you stock. Do not rely only on the 
salesperson, but seek outside advice before you buy any stock. You can 
get the disciplinary history of a salesperson or firm from NASD at 1-
800-289-9999 or contact NASD via the Internet at http://www.nasd.com. 
You can also get additional information from your state securities 
official. The North American Securities Administrators Association, Inc. 
can give you contact information for your state. You can reach NASAA at 
(202) 737-0900 or via the Internet at http://www.nasaa.org.
    If you have problems with a salesperson, contact the firm's 
compliance officer. You can also contact the securities regulators 
listed above. Finally, if you are a victim of fraud, you may have rights 
and remedies under state and Federal law. In addition to the regulators 
listed above, you also may contact the SEC with complaints at (800) SEC-
0330 or via the Internet at [email protected].

[70 FR 40632, July 13, 2005]



Sec.240.15l-1  Regulation best interest.

    (a) Best interest obligation. (1) A broker, dealer, or a natural 
person who is an associated person of a broker or dealer, when making a 
recommendation of any securities transaction or investment strategy 
involving securities (including account recommendations) to a retail 
customer, shall act in the best interest of the retail customer at the 
time the recommendation is made, without placing the financial or other 
interest of the broker, dealer, or natural person who is an associated 
person of a broker or dealer making the recommendation ahead of the 
interest of the retail customer.
    (2) The best interest obligation in paragraph (a)(1) of this section 
shall be satisfied if:
    (i) Disclosure obligation. The broker, dealer, or natural person who 
is an associated person of a broker or dealer, prior to or at the time 
of the recommendation, provides the retail customer, in writing, full 
and fair disclosure of:
    (A) All material facts relating to the scope and terms of the 
relationship with the retail customer, including:
    (1) That the broker, dealer, or such natural person is acting as a 
broker, dealer, or an associated person of a broker or dealer with 
respect to the recommendation;
    (2) The material fees and costs that apply to the retail customer's 
transactions, holdings, and accounts; and
    (3) The type and scope of services provided to the retail customer, 
including any material limitations on the securities or investment 
strategies involving securities that may be recommended to the retail 
customer; and

[[Page 491]]

    (B) All material facts relating to conflicts of interest that are 
associated with the recommendation.
    (ii) Care obligation. The broker, dealer, or natural person who is 
an associated person of a broker or dealer, in making the 
recommendation, exercises reasonable diligence, care, and skill to:
    (A) Understand the potential risks, rewards, and costs associated 
with the recommendation, and have a reasonable basis to believe that the 
recommendation could be in the best interest of at least some retail 
customers;
    (B) Have a reasonable basis to believe that the recommendation is in 
the best interest of a particular retail customer based on that retail 
customer's investment profile and the potential risks, rewards, and 
costs associated with the recommendation and does not place the 
financial or other interest of the broker, dealer, or such natural 
person ahead of the interest of the retail customer;
    (C) Have a reasonable basis to believe that a series of recommended 
transactions, even if in the retail customer's best interest when viewed 
in isolation, is not excessive and is in the retail customer's best 
interest when taken together in light of the retail customer's 
investment profile and does not place the financial or other interest of 
the broker, dealer, or such natural person making the series of 
recommendations ahead of the interest of the retail customer.
    (iii) Conflict of interest obligation. The broker or dealer 
establishes, maintains, and enforces written policies and procedures 
reasonably designed to:
    (A) Identify and at a minimum disclose, in accordance with paragraph 
(a)(2)(i) of this section, or eliminate, all conflicts of interest 
associated with such recommendations;
    (B) Identify and mitigate any conflicts of interest associated with 
such recommendations that create an incentive for a natural person who 
is an associated person of a broker or dealer to place the interest of 
the broker, dealer, or such natural person ahead of the interest of the 
retail customer;
    (C)(1) Identify and disclose any material limitations placed on the 
securities or investment strategies involving securities that may be 
recommended to a retail customer and any conflicts of interest 
associated with such limitations, in accordance with subparagraph 
(a)(2)(i), and
    (2) Prevent such limitations and associated conflicts of interest 
from causing the broker, dealer, or a natural person who is an 
associated person of the broker or dealer to make recommendations that 
place the interest of the broker, dealer, or such natural person ahead 
of the interest of the retail customer; and
    (D) Identify and eliminate any sales contests, sales quotas, 
bonuses, and non-cash compensation that are based on the sales of 
specific securities or specific types of securities within a limited 
period of time.
    (iv) Compliance obligation. In addition to the policies and 
procedures required by paragraph (a)(2)(iii) of this section, the broker 
or dealer establishes, maintains, and enforces written policies and 
procedures reasonably designed to achieve compliance with Regulation 
Best Interest.
    (b) Definitions. Unless otherwise provided, all terms used in this 
rule shall have the same meaning as in the Securities Exchange Act of 
1934. In addition, the following definitions shall apply for purposes of 
this section:
    (1) Retail customer means a natural person, or the legal 
representative of such natural person, who:
    (i) Receives a recommendation of any securities transaction or 
investment strategy involving securities from a broker, dealer, or a 
natural person who is an associated person of a broker or dealer; and
    (ii) Uses the recommendation primarily for personal, family, or 
household purposes.
    (2) Retail customer investment profile includes, but is not limited 
to, the retail customer's age, other investments, financial situation 
and needs, tax status, investment objectives, investment experience, 
investment time horizon, liquidity needs, risk tolerance, and any other 
information the retail customer may disclose to the broker, dealer, or a 
natural person who is an associated person of a broker or dealer in 
connection with a recommendation.

[[Page 492]]

    (3) Conflict of interest means an interest that might incline a 
broker, dealer, or a natural person who is an associated person of a 
broker or dealer --consciously or unconsciously--to make a 
recommendation that is not disinterested.

[84 FR 33491, July 12, 2019]

             National and Affiliated Securities Associations



Sec.240.15Aa-1  Registration of a national or an affiliated 
securities association.

    Any application for registration of an association as a national, or 
as an affiliated, securities association shall be made in triplicate on 
Form X-15AA-1 accompanied by three copies of the exhibits prescribed by 
the Commission to be filed in connection therewith.

(Sec.15A, 52 Stat. 1070; 15 U.S.C. 78o-3)

[13 FR 8209, Dec. 22, 1948. Redesignated at 30 FR 11851, Sept. 16, 1965]



Sec.240.15Aj-1  Amendments and supplements to registration statements 
of securities associations.

    Every association applying for registration or registered as a 
national securities association or as an affiliated securities 
association shall keep its registration statement up-to-date in the 
manner prescribed below:
    (a) Amendments. Promptly after the discovery of any inaccuracy in 
the registration statement or in any amendment or supplement thereto the 
association shall file with the Commission an amendment correcting such 
inaccuracy.
    (b) Current supplements. Promptly after any change which renders no 
longer accurate any information contained or incorporated in the 
registration statement or in any amendment or supplement thereto the 
association shall file with the Commission a current supplement setting 
forth such change, except that:
    (1) Supplements setting forth changes in the information called for 
in Exhibit C need not be filed until 10 days after the calendar month in 
which the changes occur.
    (2) No current supplements need be filed with respect to changes in 
the information called for in Exhibit B.
    (3) If changes in the information called for in items (1) and (2) of 
Exhibit C are reported in any record which is published at least once a 
month by the association and promptly filed in triplicate with the 
Commission, no current supplement need be filed with respect thereto.
    (c) Annual supplements. (1) Promptly after March 1 of each year, the 
association shall file with the Commission an annual consolidated 
supplement as of such date on Form X-15AJ-2 (Sec.249.803) except that:
    (i) If the securities association publishes or cooperates in the 
publication of the information required in Items 6(a) and 6(b) of Form 
X-15AJ-2 on an annual or more frequent basis, in lieu of filing such an 
item the securities association may:
    (A) Identify the publication in which such information is available, 
the name, address, and telephone number of the person from whom such 
publication may be obtained, and the price thereof; and
    (B) Certify to the accuracy of such information as of its date.
    (ii) Promptly after March 1, 1995, and every three years thereafter 
each association shall file complete Exhibit A to Form X-15AJ-2. The 
information contained in this exhibit shall be up to date as of the 
latest practicable date within 3 months of the date on which these 
exhibits are filed. If the association publishes or cooperates in the 
publication of the information required in this exhibit on an annual or 
more frequent basis, in lieu of filing such exhibit the association may:
    (A) Identify the publication in which such information is available, 
the name, address, and telephone number of the person from whom such 
publication may be obtained, and the price thereof; and
    (B) Certify to the accuracy of such information as of its date. If a 
securities association keeps the information required in this exhibit up 
to date and makes it available to the Commission and the public upon 
request, in lieu of filing such an exhibit a securities association may 
certify that the information is kept up to date and is available to the 
Commission and the public upon request.

[[Page 493]]

    (2) Promptly after the close of each fiscal year of the association, 
it shall file with the Commission a supplement setting forth its balance 
sheet as of the close of such year and its income and expense statement 
for such year.
    (d) Filing, dating, etc. Each amendment or supplement shall be filed 
in triplicate, at least one of which must be signed and attested, in the 
same manner as required in the case of the original registration 
statement, and must conform to the requirements of Form X-15Aj-1, except 
that the annual consolidated supplement shall be filed on Form X-15Aj-2. 
All amendments and supplements shall be dated and numbered in order of 
filing. One amendment or supplement may include any number of changes. 
In addition to the formal filing of amendments and supplements above 
described, each association shall send to the Commission three copies of 
any notices, reports, circulars, loose-leaf insertions, riders, new 
additions, lists or other records of changes covered by amendments or 
supplements when, as and if such records are made available to members 
of the association.

(Sec.15A, 52 Stat. 1070; 15 U.S.C. 78o-3)

[13 FR 8209, Dec. 22, 1948, as amended at 18 FR 6259, Oct. 1, 1953. 
Redesignated at 30 FR 11851, Sept. 16, 1965; 59 FR 66700, Dec. 28, 1994]



Sec.240.15Al2-1  [Reserved]



Sec.240.15Ba1-1  Definitions.

    As used in the rules and regulations prescribed by the Commission 
pursuant to section 15B of the Act (15 U.S.C. 78o-4) in Sec.Sec.
240.15Ba1-1 through 240.15Ba1-8 and 240.15Bc4-1:
    (a) Guaranteed investment contract has the same meaning as in 
section 15B(e)(2) of the Act (15 U.S.C. 78o-4(e)(2)); provided, however, 
that the contract relates to investments of proceeds of municipal 
securities or municipal escrow investments.
    (b) Investment strategies has the same meaning as in section 
15B(e)(3) of the Act (15 U.S.C. 78o-4(e)(3)), and includes plans or 
programs for the investment of proceeds of municipal securities that are 
not municipal derivatives or guaranteed investment contracts, and the 
recommendation of and brokerage of municipal escrow investments.
    (c) Managing agent means any person, including a trustee, who 
directs or manages, or who participates in directing or managing, the 
affairs of any unincorporated organization or association other than a 
partnership.
    (d)(1) Municipal advisor.
    (i) In general. Except as otherwise provided in paragraphs (d)(2) 
and (d)(3) of this section, the term municipal advisor has the same 
meaning as in section 15B(e)(4) of the Act (15 U.S.C. 78o-4(e)(4)). 
Under section 15B(e)(4)(A) of the Act (15 U.S.C. 78o-4(e)(4)(A)), the 
term municipal advisor means a person (who is not a municipal entity or 
an employee of a municipal entity) that provides advice to or on behalf 
of a municipal entity or obligated person with respect to municipal 
financial products or the issuance of municipal securities, including 
advice with respect to the structure, timing, terms, and other similar 
matters concerning such financial products or issues; or undertakes a 
solicitation of a municipal entity or an obligated person. Under section 
15B(e)(4)(C) of the Act (15 U.S.C. 78o-4(e)(4)(C)) and paragraph (d)(2) 
of this section, a municipal advisor does not include a person that 
engages in specified excluded activities.
    (ii) Advice standard. For purposes of the municipal advisor 
definition under paragraph (d)(1)(i) of this section, advice excludes, 
among other things, the provision of general information that does not 
involve a recommendation regarding municipal financial products or the 
issuance of municipal securities (including with respect to the 
structure, timing, terms and other similar matters concerning such 
financial products or issues).
    (iii) Certain types of municipal advisors. Under section 
15B(e)(4)(B) of the Act (15 U.S.C. 78o-4(e)(4)(B)), municipal advisors 
include, without limitation, financial advisors, guaranteed investment 
contract brokers, third-party marketers, placement agents, solicitors, 
finders, and swap advisors, to the extent that such persons otherwise 
meet the requirements of the municipal advisor definition in this 
paragraph (d)(1).
    (2) Exclusions from municipal advisor definition. Pursuant to 
section 15B(e)(4)(C) of the Act (15 U.S.C. 78o-

[[Page 494]]

4(e)(4)(C)), the term municipal advisor excludes the following persons 
with respect to the specified excluded activities:
    (i) Serving as an underwriter. A broker, dealer, or municipal 
securities dealer serving as an underwriter of a particular issuance of 
municipal securities to the extent that the broker, dealer, or municipal 
securities dealer engages in activities that are within the scope of an 
underwriting of such issuance of municipal securities.
    (ii) Registered investment advisers--In general. Any investment 
adviser registered under the Investment Advisers Act of 1940 (15 U.S.C. 
80b-1 et seq.) or any person associated with such registered investment 
adviser to the extent that such registered investment adviser or such 
person is providing investment advice in such capacity. Solely for 
purposes of this paragraph (d)(2)(ii), investment advice does not 
include advice concerning whether and how to issue municipal securities, 
advice concerning the structure, timing, and terms of an issuance of 
municipal securities and other similar matters, advice concerning 
municipal derivatives, or a solicitation of a municipal entity or 
obligated person.
    (iii) Registered commodity trading advisors. Any commodity trading 
advisor registered under the Commodity Exchange Act (7 U.S.C. 1 et 
seq.), or person associated with a registered commodity trading advisor, 
to the extent that such registered commodity trading advisor or such 
person is providing advice that is related to swaps (as defined in 
Section 1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)) and 
section 3(a)(69) of the Act (15 U.S.C. 78c(a)(69)), and any rules and 
regulations thereunder).
    (iv) Attorneys. Any attorney to the extent that the attorney is 
offering legal advice or providing services that are of a traditional 
legal nature with respect to the issuance of municipal securities or 
municipal financial products to a client of such attorney that is a 
municipal entity, obligated person, or other participant in the 
transaction. To the extent an attorney represents himself or herself as 
a financial advisor or financial expert regarding the issuance of 
municipal securities or municipal financial products, however, the 
attorney is not excluded with respect to such financial activities under 
this paragraph (d)(2)(iv).
    (v) Engineers. Any engineer to the extent that the engineer is 
providing engineering advice.
    (3) Exemptions from municipal advisor definition. The Commission 
exempts the following persons from the definition of municipal advisor 
to the extent they are engaging in the specified activities:
    (i) Accountants. Any accountant to the extent that the accountant is 
providing audit or other attest services, preparing financial 
statements, or issuing letters for underwriters for, or on behalf of, a 
municipal entity or obligated person.
    (ii) Public officials and employees. (A) Any person serving as a 
member of a governing body, an advisory board, or a committee of, or 
acting in a similar official capacity with respect to, or as an official 
of, a municipal entity or obligated person to the extent that such 
person is acting within the scope of such person's official capacity.
    (B) Any employee of a municipal entity or obligated person to the 
extent that such person is acting within the scope of such person's 
employment.
    (iii) Banks. Any bank, as defined in section 3(a)(6) of the Act (15 
U.S.C. 78c(a)(6)), to the extent the bank provides advice with respect 
to the following:
    (A) Any investments that are held in a deposit account, savings 
account, certificate of deposit, or other deposit instrument issued by a 
bank;
    (B) Any extension of credit by a bank to a municipal entity or 
obligated person, including the issuance of a letter of credit, the 
making of a direct loan, or the purchase of a municipal security by the 
bank for its own account;
    (C) Any funds held in a sweep account that meets the requirements of 
section 3(a)(4)(B)(v) of the Act (15 U.S.C. 78c(a)(4)(B)(v)); or
    (D) Any investment made by a bank acting in the capacity of an 
indenture trustee or similar capacity.
    (iv) Responses to requests for proposals or qualifications. Any 
person providing a response in writing or orally to a request for 
proposals or qualifications from a municipal entity or obligated

[[Page 495]]

person for services in connection with a municipal financial product or 
the issuance of municipal securities; provided, however, that such 
person does not receive separate direct or indirect compensation for 
advice provided as part of such response.
    (v) Swap dealers. (A) A swap dealer (as defined in Section 1a(49) of 
the Commodity Exchange Act (7 U.S.C. 1a(49)) and the rules and 
regulations thereunder) registered under the Commodity Exchange Act or 
associated person of the swap dealer recommending a municipal derivative 
or a trading strategy that involves a municipal derivative, so long as 
the registered swap dealer or associated person is not acting as an 
advisor to the municipal entity or obligated person with respect to the 
municipal derivative or trading strategy pursuant to Section 4s(h)(4) of 
the Commodity Exchange Act and the rules and regulations thereunder.
    (B) For purposes of determining whether a swap dealer is acting as 
an advisor in this paragraph (d)(3)(v), the municipal entity or 
obligated person involved in the transaction will be treated as a 
special entity under Section 4s(h)(2) of the Commodity Exchange Act and 
the rules and regulations thereunder (even if such municipal entity or 
obligated person does not satisfy the definition of special entity under 
those provisions).
    (vi) Participation by an independent registered municipal advisor. 
Any person engaging in municipal advisory activities in a circumstance 
in which a municipal entity or obligated person is otherwise represented 
by an independent registered municipal advisor with respect to the same 
aspects of a municipal financial product or an issuance of municipal 
securities, provided that the following requirements are met:
    (A) Independent registered municipal advisor. An independent 
registered municipal advisor is providing advice with respect to the 
same aspects of the municipal financial product or issuance of municipal 
securities. For purposes of this paragraph (d)(3)(vi), the term 
independent registered municipal advisor means a municipal advisor 
registered pursuant to section 15B of the Act (15 U.S.C. 78o-4) and the 
rules and regulations thereunder and that is not, and within at least 
the past two years was not, associated (as defined in section 15B(e)(7) 
(15 U.S.C. 78o-4(e)(7)) of the Act) with the person seeking to rely on 
this paragraph (d)(3)(vi).
    (B) Required representation. A person seeking to rely on this 
paragraph (d)(3)(vi) receives from the municipal entity or obligated 
person a representation in writing that it is represented by, and will 
rely on the advice of, an independent registered municipal advisor, 
provided that the person receiving such representation has a reasonable 
basis for relying on the representation.
    (C) Required disclosures. (1) With respect to a municipal entity, 
such person discloses in writing to the municipal entity that, by 
obtaining such representation from the municipal entity, such person is 
not a municipal advisor and is not subject to the fiduciary duty set 
forth in section 15B(c)(1) of the Act (15 U.S.C. 78o-4(c)(1)) with 
respect to the municipal financial product or issuance of municipal 
securities, and provides a copy of such disclosure to the independent 
registered municipal advisor.
    (2) With respect to an obligated person, such person discloses in 
writing to the obligated person that, by obtaining such representation 
from the obligated person, such person is not a municipal advisor with 
respect to the municipal financial product or issuance of municipal 
securities, and provides a copy of such disclosure to the independent 
registered municipal advisor.
    (3) Each such disclosure must be made at a time and in a manner 
reasonably designed to allow the municipal entity or obligated person to 
assess the material incentives and conflicts of interest that such 
person may have in connection with the municipal advisory activities.
    (vii) Persons that provide advice on certain investment strategies. 
A person that provides advice with respect to investment strategies that 
are not plans or programs for the investment of the proceeds of 
municipal securities or the recommendation of and brokerage of municipal 
escrow investments.
    (viii) Certain solicitations. A person that undertakes a 
solicitation of a municipal entity or obligated person for

[[Page 496]]

the purpose of obtaining or retaining an engagement by a municipal 
entity or by an obligated person of a broker, dealer, municipal 
securities dealer, or municipal advisor for or in connection with 
municipal financial products that are investment strategies to the 
extent that those investment strategies are not plans or programs for 
the investment of the proceeds of municipal securities or the 
recommendation of and brokerage of municipal escrow investments.
    (4) Special rule for separately identifiable departments or 
divisions of banks for municipal advisory purposes. If a bank engages in 
municipal advisory activities through a separately identifiable 
department or division that meets the requirements of this paragraph 
(d)(4), the determination of whether those municipal advisory activities 
cause any person to be a municipal advisor may be made separately for 
such department or division. In such event, that department or division, 
rather than the bank itself, shall be deemed to be the municipal 
advisor.
    (i) Separately identifiable department or division. For purposes of 
this paragraph (d)(4), a separately identifiable department or division 
of a bank is that unit of the bank which conducts all of the municipal 
advisory activities of the bank, provided that the following 
requirements are met:
    (A) Supervision. Such unit is under the direct supervision of an 
officer or officers designated by the board of directors of the bank as 
responsible for the day-to-day conduct of the bank's municipal advisory 
activities, including the supervision of all bank employees engaged in 
the performance of such activities.
    (B) Separate records. All of the records relating to the bank's 
municipal advisory activities are separately maintained in, or 
extractable from, such unit's own facilities or the facilities of the 
bank, and such records are so maintained or otherwise accessible as to 
permit independent examination thereof and enforcement of applicable 
provisions of the Act, the rules and regulations thereunder, and the 
rules of the Municipal Securities Rulemaking Board relating to municipal 
advisors.
    (ii) [Reserved]
    (e) Municipal advisory activities means the following activities 
specified in section 15B(e)(4)(A) of the Act (15 U.S.C. 78o-4(e)(4)(A)) 
and paragraph (d)(1) of this section that, absent the availability of an 
exclusion under paragraph (d)(2) of this section or an exemption under 
paragraph (d)(3) of this section, would cause a person to be a municipal 
advisor:
    (1) Providing advice to or on behalf of a municipal entity or 
obligated person with respect to municipal financial products or the 
issuance of municipal securities, including advice with respect to the 
structure, timing, terms, and other similar matters concerning such 
financial products or issues; or
    (2) Solicitation of a municipal entity or an obligated person.
    (f) Municipal derivatives means any swap (as defined in Section 
1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)) and section 
3(a)(69) of the Act (15 U.S.C. 78c(a)(69)), including any rules and 
regulations thereunder) or security-based swap (as defined in section 
3(a)(68) of the Act (15 U.S.C. 78c(a)(68)), including any rules and 
regulations thereunder) to which:
    (1) A municipal entity is a counterparty; or
    (2) An obligated person, acting in such capacity, is a counterparty.
    (g) Municipal entity means any State, political subdivision of a 
State, or municipal corporate instrumentality of a State or of a 
political subdivision of a State, including:
    (1) Any agency, authority, or instrumentality of the State, 
political subdivision, or municipal corporate instrumentality;
    (2) Any plan, program, or pool of assets sponsored or established by 
the State, political subdivision, or municipal corporate instrumentality 
or any agency, authority, or instrumentality thereof; and
    (3) Any other issuer of municipal securities.
    (h) Municipal escrow investments. (1) In general. Except as 
otherwise provided in paragraph (h)(2) of this section, municipal escrow 
investments means proceeds of municipal securities and any other funds 
of a municipal entity that are deposited in an escrow account to

[[Page 497]]

pay the principal of, premium, if any, and interest on one or more 
issues of municipal securities.
    (2) Reasonable reliance on representations. In determining whether 
or not funds to be invested or reinvested constitute municipal escrow 
investments for purposes of this section, a person may rely on 
representations in writing made by a knowledgeable official of the 
municipal entity or obligated person whose funds are to be invested or 
reinvested regarding the nature of such investments, provided that the 
person seeking to rely on such representations has a reasonable basis 
for such reliance.
    (i) Municipal financial product has the same meaning as in section 
15B(e)(5) of the Act (15 U.S.C. 78o-4(e)(5)).
    (j) Non-resident means:
    (1) In the case of an individual, one who resides in or has his 
principal office and place of business in any place not subject to the 
jurisdiction of the United States;
    (2) In the case of a corporation, one incorporated in or having its 
principal office and place of business in any place not subject to the 
jurisdiction of the United States; or
    (3) In the case of a partnership or other unincorporated 
organization or association, one having its principal office and place 
of business in any place not subject to the jurisdiction of the United 
States.
    (k) Obligated person has the same meaning as in section 15B(e)(10) 
of the Act (15 U.S.C. 78o-4(e)(10)); provided, however, that the term 
obligated person shall not include:
    (1) A person who provides municipal bond insurance, letters of 
credit, or other liquidity facilities;
    (2) A person whose financial information or operating data is not 
material to a municipal securities offering, without reference to any 
municipal bond insurance, letter of credit, liquidity facility, or other 
credit enhancement; or
    (3) The federal government.
    (l) Principal office and place of business means the executive 
office of the municipal advisor from which the officers, partners, or 
managers of the municipal advisor direct, control, and coordinate the 
activities of the municipal advisor.
    (m)(1) Proceeds of municipal securities--In general. Except as 
otherwise provided in paragraphs (m)(2) and (m)(3) of this section, 
proceeds of municipal securities means monies derived by a municipal 
entity from the sale of municipal securities, investment income derived 
from the investment or reinvestment of such monies, and any monies of a 
municipal entity or obligated person held in funds under legal documents 
for the municipal securities that are reasonably expected to be used as 
security or a source of payment for the payment of the debt service on 
the municipal securities, including reserves, sinking funds, and pledged 
funds created for such purpose, and the investment income derived from 
the investment or reinvestment of monies in such funds. When such monies 
are spent to carry out the authorized purposes of municipal securities, 
they cease to be proceeds of municipal securities.
    (2) Exception for Section 529 college savings plans. Solely for 
purposes of this paragraph (m), monies derived from a municipal security 
issued by an education trust established by a State under Section 529(b) 
of the Internal Revenue Code (26 U.S.C. 529(b)) are not proceeds of 
municipal securities.
    (3) Reasonable reliance on representations. In determining whether 
or not funds to be invested constitute proceeds of municipal securities 
for purposes of this section, a person may rely on representations in 
writing made by a knowledgeable official of the municipal entity or 
obligated person whose funds are to be invested regarding the nature of 
such funds, provided that the person seeking to rely on such 
representations has a reasonable basis for such reliance.
    (n) Solicitation of a municipal entity or obligated person has the 
same meaning as in section 15B(e)(9) of the Act (15 U.S.C. 78o-4(e)(9)); 
provided, however, that a solicitation does not include:
    (1) Advertising by a broker, dealer, municipal securities dealer, 
municipal advisor, or investment adviser; or
    (2) Solicitation of an obligated person, if such obligated person is 
not acting in the capacity of an obligated person or the solicitation of 
the obligated person is not in connection with the

[[Page 498]]

issuance of municipal securities or with respect to municipal financial 
products.

[78 FR 67633, Nov. 12, 2013]



Sec.240.15Ba1-2  Registration of municipal advisors and information 
regarding certain natural persons.

    (a) Form MA. A person applying for registration with the Commission 
as a municipal advisor pursuant to section 15B of the Act (15 U.S.C. 
78o-4) must complete Form MA (17 CFR 249.1300) in accordance with the 
instructions in the Form and file the Form electronically with the 
Commission.
    (b) Form MA-I. (1) A person applying for registration or registered 
with the Commission as a municipal advisor pursuant to section 15B of 
the Act (15 U.S.C. 78o-4) must complete Form MA-I (17 CFR 249.1310) with 
respect to each natural person who is a person associated with the 
municipal advisor (as defined in section 15B(e)(7) of the Act (15 U.S.C. 
78o-4(e)(7))) and engaged in municipal advisory activities on its behalf 
in accordance with the instructions in the Form and file the Form 
electronically with the Commission.
    (2) A natural person applying for registration with the Commission 
as a municipal advisor pursuant to section 15B of the Act (15 U.S.C. 
78o-4), in addition to completing and filing Form MA pursuant to 
paragraph (a) of this section, must complete Form MA-I (17 CFR 249.1310) 
in accordance with the instructions in the Form and file the Form 
electronically with the Commission.
    (c) When filed. Each Form MA (17 CFR 249.1300) shall be considered 
filed with the Commission upon submission of a completed Form MA, 
together with all additional required documents, including all required 
filings of Form MA-I (17 CFR 249.1310), to the Commission's Electronic 
Data Gathering, Analysis, and Retrieval system.
    (d) Form MA and Form MA-I are reports. Each Form MA (17 CFR 
249.1300) and Form MA-I (17 CFR 249.1310) required to be filed under 
this section shall constitute a report within the meaning of sections 
15B(c), 17(a), 18(a), 32(a) of the Act (15 U.S.C. 78o-4(c), 78q(a), 
78r(a), 78ff(a)) and other applicable provisions of the Act.

[78 FR 67633, Nov. 12, 2013]



Sec.240.15Ba1-3  Exemption of certain natural persons from registration 
under section 15B(a)(1)(B) of the Act.

    A natural person municipal advisor shall be exempt from section 
15B(a)(1)(B) of the Act (15 U.S.C. 78o-4(a)(1)(B)) if he or she:
    (a) Is an associated person of an advisor that is registered with 
the Commission pursuant to section 15B(a)(2) of the Act (15 U.S.C. 78o-
4(a)(2)) and the rules and regulations thereunder; and
    (b) Engages in municipal advisory activities solely on behalf of a 
registered municipal advisor.

[78 FR 67633, Nov. 12, 2013]



Sec.240.15Ba1-4  Withdrawal from municipal advisor registration.

    (a) Form MA-W. Notice of withdrawal from registration as a municipal 
advisor shall be filed on Form MA-W (17 CFR 249.1320) in accordance with 
the instructions to the Form.
    (b) Electronic filing. Any notice of withdrawal on Form MA-W (17 CFR 
249.1320) must be filed electronically.
    (c) Effective date. A notice of withdrawal from registration shall 
become effective for all matters on the 60th day after the filing 
thereof, within such longer period of time as to which the municipal 
advisor consents or which the Commission by order may determine as 
necessary or appropriate in the public interest or for the protection of 
investors, or within such shorter period of time as the Commission may 
determine. If a notice of withdrawal from registration is filed at any 
time subsequent to the date of the issuance of a Commission order 
instituting proceedings pursuant to section 15B(c) of the Act (15 U.S.C. 
78o-4(c)) to censure, place limitations on the activities, functions or 
operations of, or suspend or revoke the registration of, the municipal 
advisor, or if prior to the effective date of the notice of withdrawal 
pursuant to this paragraph (c), the Commission institutes such a 
proceeding or a proceeding to impose terms or conditions upon such 
withdrawal, the notice of withdrawal shall

[[Page 499]]

not become effective pursuant to this paragraph (c) except at such time 
and upon such terms and conditions as the Commission deems necessary or 
appropriate in the public interest or for the protection of investors.
    (d) Form MA-W is a report. Each Form MA-W (17 CFR 249.1320) required 
to be filed under this section shall constitute a report within the 
meaning of sections 15B(c), 17(a), 18(a), 32(a) of the Act (15 U.S.C. 
78o-4(c), 78q(a), 78r(a), 78ff(a)) and other applicable provisions of 
the Act.

[78 FR 67633, Nov. 12, 2013]



Sec.240.15Ba1-5  Amendments to Form MA and Form MA-I.

    (a) When amendment is required--Form MA. A registered municipal 
advisor shall promptly amend the information contained in its Form MA 
(17 CFR 249.1300):
    (1) At least annually, within 90 days of the end of a municipal 
advisor's fiscal year, or of the end of the calendar year for a sole 
proprietor; and
    (2) More frequently, if required by the General Instructions (17 CFR 
249.1300), as applicable.
    (b) When amendment is required--Form MA-I. A registered municipal 
advisor shall promptly amend the information contained in Form MA-I (17 
CFR 249.1310) by filing an amended Form MA-I whenever the information 
contained in the Form MA-I becomes inaccurate for any reason.
    (c) Electronic filing of amendments. A registered municipal advisor 
shall file all amendments to Form MA (17 CFR 249.1300) and Form MA-I (17 
CFR 249.1310) electronically.
    (d) Amendments to Form MA and Form MA-I are reports. Each amendment 
required to be filed under this section shall constitute a report within 
the meaning of sections 15B(c), 17(a), 18(a), 32(a) of the Act (15 
U.S.C. 78o-4(c), 78q(a), 78r(a), 78ff(a)) and other applicable 
provisions of the Act.

[78 FR 67633, Nov. 12, 2013]



Sec.240.15Ba1-6  Consent to service of process to be filed by non-
resident municipal advisors; legal opinion to be provided by non-
resident municipal advisors.

          
    (a)(1) Each non-resident municipal advisor applying for registration 
pursuant to section 15B(a) of the Act (15 U.S.C. 78o-4(a)) shall, at the 
time of filing of the municipal advisor's application on Form MA (17 CFR 
249.1300), file with the Commission a written irrevocable consent and 
power of attorney on Form MA-NR (17 CFR 249.1330) to appoint an agent in 
the United States, other than a Commission member, official, or 
employee, upon whom may be served any process, pleadings, or other 
papers in any action brought against the non-resident municipal advisor 
to enforce this chapter.
    (2) Each municipal advisor applying for registration pursuant to or 
registered under section 15B of the Act (15 U.S.C. 78o-4) shall, at the 
time of filing the relevant Form MA (17 CFR 249.1300) or Form MA-I (17 
CFR 249.1310), file with the Commission a written irrevocable consent 
and power of attorney on Form MA-NR (17 CFR 249.1330) to appoint an 
agent in the United States, other than a Commission member, official, or 
employee, upon whom may be served any process, pleadings, or other 
papers in any action brought against the municipal advisor's non-
resident general partner or non-resident managing agent, or non-resident 
natural persons who are persons associated with the municipal advisor 
(as defined in section 15B(e)(7) of the Act (15 U.S.C. 78o-4(e)(7))) and 
engaged in municipal advisory activities on its behalf, to enforce this 
chapter.
    (b) The registered municipal advisor shall communicate promptly to 
the Commission by filing a new Form MA-NR (17 CFR 249.1330) any change 
to the name or address of the agent for service of process of each such 
non-resident municipal advisor, general partner, managing agent, or 
natural persons who are persons associated with the municipal advisor 
(as defined in section 15B(e)(7) of the Act (15 U.S.C. 78o-4(e)(7))) and 
engaged in municipal advisory activities on its behalf.

[[Page 500]]

    (c)(1) Each registered non-resident municipal advisor must promptly 
appoint a successor agent for service of process and file a new Form MA-
NR (17 CFR 249.1330) if the non-resident municipal advisor discharges 
its identified agent for service of process or if its agent for service 
of process is unwilling or unable to accept service on behalf of the 
non-resident municipal advisor.
    (2) Each registered municipal advisor must require each of its non-
resident general partners or non-resident managing agents, or non-
resident natural persons who are persons associated with the municipal 
advisor (as defined in section 15B(e)(7) of the Act (15 U.S.C. 78o-
4(e)(7))) and engaged in municipal advisory activities on its behalf, to 
promptly appoint a successor agent for service of process and the 
registered municipal advisor must file a new Form MA-NR (17 CFR 
249.1330) if such non-resident general partner, managing agent, or 
associated person discharges the identified agent for service of process 
or if the agent for service of process is unwilling or unable to accept 
service on behalf such person.
    (d) Each non-resident municipal advisor applying for registration 
pursuant to section 15B(a) of the Act (15 U.S.C. 78o-4(a)) shall provide 
an opinion of counsel on Form MA (17 CFR 249.1300) that the municipal 
advisor can, as a matter of law, provide the Commission with access to 
the books and records of the municipal advisor as required by law and 
that the municipal advisor can, as a matter of law, submit to inspection 
and examination by the Commission.
    (e) Form MA-NR (17 CFR 249.1330) must be filed electronically.

[78 FR 67633, Nov. 12, 2013]



Sec.240.15Ba1-7  Registration of successor to municipal advisor.

    (a) In the event that a municipal advisor succeeds to and continues 
the business of a municipal advisor registered pursuant to section 
15B(a) of the Act (15 U.S.C. 78o-4(a)), the registration of the 
predecessor shall be deemed to remain effective as the registration of 
the successor if the successor, within 30 days after the succession, 
files an application for registration on Form MA (17 CFR 249.1300), and 
the predecessor files a notice of withdrawal from registration on Form 
MA-W (17 CFR 249.1320); provided, however, that the registration of the 
predecessor municipal advisor will cease to be effective as the 
registration of the successor municipal advisor 45 days after the 
application for registration on Form MA is filed by the successor.
    (b) Notwithstanding paragraph (a) of this section, if a municipal 
advisor succeeds to and continues the business of a registered 
predecessor municipal advisor, and the succession is based solely on a 
change in the predecessor's date or state of incorporation, form of 
organization, or composition of a partnership, the successor may, within 
30 days after the succession, amend the registration of the predecessor 
municipal advisor on Form MA (17 CFR 249.1300) to reflect these changes. 
This amendment shall be deemed an application for registration filed by 
the predecessor and adopted by the successor.

[78 FR 67633, Nov. 12, 2013]



Sec.240.15Ba1-8  Books and records to be made and maintained by 
municipal advisors.

    (a) Every person registered or required to be registered under 
section 15B of the Act (15 U.S.C. 78o-4) and the rules and regulations 
thereunder shall make and keep true, accurate, and current the following 
books and records relating to its municipal advisory activities:
    (1) Originals or copies of all written communications received, and 
originals or copies of all written communications sent, by such 
municipal advisor (including inter-office memoranda and communications) 
relating to municipal advisory activities, regardless of the format of 
such communications;
    (2) All check books, bank statements, general ledgers, cancelled 
checks and cash reconciliations of the municipal advisor;
    (3) A copy of each version of the municipal advisor's policies and 
procedures, if any, that:
    (i) Are in effect; or
    (ii) At any time within the last five years were in effect, not 
including those in effect prior to July 1, 2014;

[[Page 501]]

    (4) A copy of any document created by the municipal advisor that was 
material to making a recommendation to a municipal entity or obligated 
person or that memorializes the basis for that recommendation;
    (5) All written agreements (or copies thereof) entered into by the 
municipal advisor with any municipal entity, employee of a municipal 
entity, or an obligated person or otherwise relating to the business of 
such municipal advisor as such;
    (6) A record of the names of persons who are currently, or within 
the past five years were, associated with the municipal advisor, not 
including persons associated with the municipal advisor prior to July 1, 
2014;
    (7) Books and records containing a list or other record of:
    (i) The names, titles, and business and residence addresses of all 
persons associated with the municipal advisor;
    (ii) All municipal entities or obligated persons with which the 
municipal advisor is engaging or has engaged in municipal advisory 
activities in the past five years, not including those prior to July 1, 
2014;
    (iii) The name and business address of each person to whom the 
municipal advisor provides or agrees to provide, directly or indirectly, 
payment to solicit a municipal entity, an employee of a municipal 
entity, or an obligated person on its behalf; and
    (iv) The name and business address of each person that provides or 
agrees to provide, directly or indirectly, payment to the municipal 
advisor to solicit a municipal entity, an employee of a municipal 
entity, or an obligated person on its behalf; and
    (8) Written consents to service of process from each natural person 
who is a person associated with the municipal advisor and engages in 
municipal advisory activities solely on behalf of such municipal 
advisor.
    (b)(1) All books and records required to be made under this section 
shall be maintained and preserved for a period of not less than five 
years, the first two years in an easily accessible place.
    (2) Partnership articles and any amendments thereto, articles of 
incorporation, charters, minute books, and stock certificate books of 
the municipal advisor and of any predecessor, excluding those that were 
only in effect prior to July 1, 2014, shall be maintained in the 
principal office of the municipal advisor and preserved until at least 
three years after termination of the business or withdrawal from 
registration as a municipal advisor.
    (c) A municipal advisor subject to paragraph (a) of this section, 
before ceasing to conduct or discontinuing business as a municipal 
advisor, shall arrange for and be responsible for the preservation of 
the books and records required to be maintained and preserved under this 
section for the remainder of the period specified in this section, and 
shall notify the Commission in writing, at its principal office in 
Washington, DC, of the exact address where such books and records will 
be maintained during such period.
    (d) Electronic storage permitted. (1) General. The records required 
to be maintained and preserved pursuant to this part may be maintained 
and preserved for the required time on:
    (i) Electronic storage media, including any digital storage medium 
or system that meets the terms of this section; or
    (ii) Paper documents.
    (2) General requirements. The municipal advisor must:
    (i) Arrange and index the records in a way that permits easy 
location, access, and retrieval of any particular record;
    (ii) Provide promptly any of the following that the Commission (by 
its staff or other representatives) may request:
    (A) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (B) A legible, true, and complete printout of the record; and
    (C) Means to access, view, and print the records; and
    (iii) Separately store, for the time required for preservation of 
the record, a duplicate copy of the record on any medium allowed by this 
section.
    (3) Special requirements for electronic storage media. In the case 
of records on electronic storage media, the municipal advisor must 
establish and maintain procedures:
    (i) To maintain and preserve the records, so as to reasonably 
safeguard

[[Page 502]]

them from loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized personnel 
and the Commission (including its staff and other representatives); and
    (iii) To reasonably ensure that any reproduction of a non-electronic 
record on electronic storage media is complete, true, and legible when 
retrieved.
    (e)(1) Any book or other record made, kept, maintained, and 
preserved in compliance with Sec.Sec.240.17a-3 and 240.17a-4, rules 
of the Municipal Securities Rulemaking Board, or Sec.275.204-2 under 
the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.), which is 
substantially the same as a book or other record required to be made, 
kept, maintained, and preserved under this section, shall satisfy the 
requirements of this section.
    (2) A record made and kept pursuant to any provision of paragraph 
(a) of this section that contains all the information required under any 
other provision of paragraph (a) of this section, need not be maintained 
in duplicate in order to meet the requirements of the other provisions 
of paragraph (a) of this section.
    (f)(1) Except as provided in paragraph (f)(3) of this section, each 
non-resident municipal advisor registered or applying for registration 
pursuant to section 15B of the Act (15 U.S.C. 78o-4) and the rules and 
regulations thereunder shall keep, maintain, and preserve, at a place 
within the United States designated in a notice from such municipal 
advisor as provided in paragraph (f)(2) of this section, true, correct, 
complete, and current copies of books and records that such municipal 
advisor is required to make, keep current, maintain or preserve pursuant 
to any provisions of any rule or regulation of the Commission adopted 
under the Act.
    (2) Except as provided in paragraph (f)(3) of this section, each 
non-resident municipal advisor subject to paragraph (f)(1) of this 
section shall furnish to the Commission a written notice specifying the 
address of the place within the United States where the copies of the 
books and records required to be kept, maintained, and preserved by such 
municipal advisor pursuant to paragraph (f)(1) of this section are 
located. Each non-resident municipal advisor registered or applying for 
registration when this paragraph becomes effective shall file such 
notice within 30 calendar days after this paragraph becomes effective. 
Each non-resident municipal advisor that files an application for 
registration after this paragraph becomes effective shall file such 
notice with such application for registration.
    (3) Notwithstanding the provisions of paragraphs (f)(1) and (2) of 
this section, a non-resident municipal advisor need not keep, maintain, 
or preserve within the United States copies of the books and records 
referred to in paragraphs (f)(1) and (2) of this section, if:
    (i) Such non-resident municipal advisor files with the Commission, 
at the time or within the period provided by paragraph (f)(2) of this 
section, a written undertaking, in a form acceptable to the Commission 
and signed by a duly authorized person, to furnish to the Commission, 
upon demand, at the Commission's principal office in Washington, DC, or 
at any Regional Office of the Commission designated in such demand, 
true, correct, complete, and current copies of any or all of the books 
and records which such municipal advisor is required to make, keep 
current, maintain, or preserve pursuant to any provision of any rule or 
regulation of the Commission adopted under the Act, or any part of such 
books and records that may be specified in such demand. Such undertaking 
shall be in substantially the following form:

    The undersigned hereby undertakes to furnish at its own expense to 
the Securities and Exchange Commission at the Commission's principal 
office in Washington, DC or at any Regional Office of the Commission 
specified in a demand for copies of books and records made by or on 
behalf of the Commission, true, correct, complete, and current copies of 
any or all, or any part, of the books and records that the undersigned 
is required to make, keep current, maintain, or preserve pursuant to any 
provision of any rule or regulation of the Securities and Exchange 
Commission under the Securities Exchange Act of 1934. This undertaking 
shall be suspended during any period when the undersigned is making, 
keeping current, maintaining, and preserving copies of all of said books 
and records at a place within the United States in compliance with 17 
CFR 240.15Ba1-7(f)(1) and (2). This undertaking shall be binding

[[Page 503]]

upon the undersigned and the heirs, successors and assigns of the 
undersigned, and the written irrevocable consents and powers of attorney 
of the undersigned, its general partners, and managing agents filed with 
the Securities and Exchange Commission shall extend to and cover any 
action to enforce the same.


and
    (ii) Such non-resident municipal advisor furnishes to the 
Commission, at such municipal advisor's own expense 14 calendar days 
after written demand therefor forwarded to such municipal advisor by 
registered mail at such municipal advisor's last address of record filed 
with the Commission and signed by the Secretary of the Commission or 
such person as the Commission may authorize to act in its behalf, true, 
correct, complete, and current copies of any or all books and records 
which such municipal advisor is required to make, keep current, 
maintain, or preserve pursuant to any provision of any rule or 
regulation of the Commission adopted under the Act, or any part of such 
books and records that may be specified in said written demand. Such 
copies shall be furnished to the Commission at the Commission's 
principal office in Washington, DC, or at any Regional Office of the 
Commission which may be specified in said written demand.

[78 FR 67633, Nov. 12, 2013, as amended at 79 FR 2779, Jan. 16, 2014]



Sec.240.15Ba2-1  Application for registration of municipal securities 
dealers which are banks or separately identifiable departments 
or divisions of banks.

    (a) An application for registration, pursuant to Section 15B(a) of 
the Act, of a municipal securities dealer which is a bank (as defined in 
section 3(a)(6) of the Act) or a separately identifiable department or 
division of a bank (as defined by the Municipal Securities Rulemaking 
Board), shall be filed with the Commission on Form MSD (Sec.249.950 of 
this chapter), in accordance with the instructions contained therein.
    (b) If the information contained in any application for registration 
pursuant to paragraph (a) of this section, or in any amendment to such 
application, is or becomes inaccurate for any reason, applicant shall 
promptly file an amendment on Form MSD (Sec.249.950 of this chapter) 
correcting such information.
    (c) Every amendment filed pursuant to this rule shall constitute a 
``report'' within the meaning of sections 17 and 32(a) of the Act (15 
U.S.C. 78q and 78ff (a)).

[40 FR 49776, Oct. 24, 1975]



Sec.240.15Ba2-2  Application for registration of non-bank municipal 
securities dealers whose business is exclusively intrastate.

    (a) An application for registration, pursuant to section 15B(a) of 
the Act, of a municipal securities dealer who is not subject to the 
requirements of Sec.240.15Ba2-1, that is filed on or after January 25, 
1993, shall be filed with the Central Registration Depository (operated 
by the Financial Industry Regulatory Authority, Inc.) on Form BD in 
accordance with the instructions contained therein.
    (b) Every applicant shall file with its application for registration 
a statement that such applicant is filing for registration as an 
intrastate dealer in accordance with the requirements of this section. 
Such statement shall be deemed a part of the application for 
registration.
    (c) If the information contained in any application for registration 
filed pursuant to paragraph (a) of this section, or in any amendment to 
such application, is or becomes inaccurate for any reason, the dealer 
shall promptly file with the Central Registration Depository an 
amendment on Form BD correcting such information.
    (d) Every application or amendment filed with the Central 
Registration Depository pursuant to this section shall constitute a 
``report'' filed with the Commission within the meaning of Sections 
15(b), 15B(c), 17(a), 18(a), 32(a) (15 U.S.C. 78o(b), 78o-4(c), 78q(a), 
78r(a), 78ff(a)) and other applicable provisions of the Act.

[58 FR 14, Jan. 4, 1993, as amended at 64 FR 25148, May 10, 1999; 64 FR 
37594, July 12, 1999; 64 FR 42596, Aug. 5, 1999; 73 FR 4692, Jan. 28, 
2008]

[[Page 504]]



Sec.240.15Ba2-4  Registration of successor to registered municipal 
securities dealer.

    (a) In the event that a municipal securities dealer succeeds to and 
continues the business of a registered municipal securities dealer, the 
registration of the predecessor shall be deemed to remain effective as 
the registration of the successor if the successor, within 30 days after 
such succession, files an application for registration on Form MSD, in 
the case of a municipal securities dealer that is a bank or a separately 
identifiable department or division of a bank, or Form BD, in the case 
of any other municipal securities dealer, and the predecessor files a 
notice of withdrawal from registration on Form MSDW or Form BDW, as the 
case may be; Provided, however, That the registration of the predecessor 
dealer will cease to be effective as the registration of the successor 
dealer 45 days after the application for registration on Form MSD or 
Form BD is filed by such successor.
    (b) Notwithstanding paragraph (a) of this section, if a municipal 
securities dealer succeeds to and continues the business of a registered 
predecessor municipal securities dealer, and the succession is based 
solely on a change in the predecessor's date or state of incorporation, 
form of organization, or composition of a partnership, the successor 
may, within 30 days after the succession, amend the registration of the 
predecessor dealer on Form MSD, in the case of a predecessor municipal 
securities dealer that is a bank or a separately identifiable department 
or division of a bank, or on Form BD, in the case of any other municipal 
securities dealer, to reflect these changes. This amendment shall be 
deemed an application for registration filed by the predecessor and 
adopted by the successor.

[58 FR 10, Jan. 4, 1993]



Sec.240.15Ba2-5  Registration of fiduciaries.

    The registration of a municipal securities dealer shall be deemed to 
be the registration of any executor, administrator, guardian, 
conservator, assignee for the benefit of creditors, receiver, trustee in 
insolvency or bankruptcy, or other fiduciary, appointed or qualified by 
order, judgment, or decree of a court of competent jurisdiction to 
continue the business of such registered municipal securities dealer, 
provided that such fiduciary files with the Commission, within 30 days 
after entering upon the performance of his duties, a statement setting 
forth as to such fiduciary substantially the information required by 
Form MSD, if the municipal securities dealer is a bank or a separately 
identifiable department of a bank, or Form BD, if the municipal 
securities dealer is other than a bank or a separately identifiable 
department or division of a bank.

[41 FR 28948, July 14, 1976]



Sec.240.15Ba2-6  [Reserved]



Sec.240.15Bc3-1  Withdrawal from registration of municipal securities 
dealers.

    (a) Notice of withdrawal from registration as a municipal securities 
dealer pursuant to Section 15B(c) (15 U.S.C. 78o-4(c)) shall be filed on 
Form MSDW (17 CFR 249.1110), in the case of a municipal securities 
dealer which is a bank or a separately identifiable department or 
division of a bank, or Form BDW (17 CFR 249.501a), in the case of any 
other municipal securities dealer, in accordance with the instructions 
contained therein. Prior to filing a notice of withdrawal from 
registration on Form MSDW (17 CFR 249.1110) or Form BDW (17 CFR 
249.501a), a municipal securities dealer shall amend Form MSD (17 CFR 
249.1100) in accordance with Sec.240.15Ba2-1(b) or amend Form BD (17 
CFR 249.501) in accordance with Sec.240.15Ba2-2(c) to update any 
inaccurate information.
    (b) Every notice of withdrawal from registration as a municipal 
securities dealer that is filed on Form BDW (17 CFR 249.501a) shall be 
filed with the Central Registration Depository (operated by the 
Financial Industry Regulatory Authority, Inc.) in accordance with 
applicable filing requirements. Every notice of withdrawal of Form MSDW 
(17 CFR 249.1110) shall be filed with the Commission.
    (c) A notice of withdrawal from registration filed by a municipal 
securities dealer pursuant to Section 15B(c)

[[Page 505]]

(15 U.S.C. 78o-4(c)) shall become effective for all matters on the 60th 
day after the filing thereof with the Commission, within such longer 
period of time as to which such municipal securities dealer consents or 
which the Commission by order may determine as necessary or appropriate 
in the public interest or for the protection of investors, or within 
such shorter period of time as the Commission may determine. If a notice 
of withdrawal from registration is filed with the Commission at any time 
subsequent to the date of the issuance of a Commission order instituting 
proceedings pursuant to Section 15B(c) (15 U.S.C. 78o-4(c)) to censure, 
place limitations on the activities, functions or operations of, or 
suspend or revoke the registration of, such municipal securities dealer, 
or if prior to the effective date of the notice of withdrawal pursuant 
to this paragraph (c), the Commission institutes such a proceeding or a 
proceeding to impose terms or conditions upon such withdrawal, the 
notice of withdrawal shall not become effective pursuant to this 
paragraph (c) except at such time and upon such terms and conditions as 
the Commission deems necessary or appropriate in the public interest or 
for the protection of investors.
    (d) Every notice of withdrawal filed with the Central Registration 
Depository pursuant to this section shall constitute a ``report'' filed 
with the Commission within the meaning of Sections 15B(c), 17(a), 18(a), 
32(a) (15 U.S.C. 78o-4(c), 78q(a), 78r(a), 78ff(a)) and other applicable 
provisions of the Act.
    (e) The Commission, by order, may exempt any broker or dealer from 
the filing requirements provided in Form BDW (17 CFR 249.501a) under 
conditions that differ from the filing instructions contained in Form 
BDW.

[64 FR 25148, May 10, 1999, as amended at 64 FR 42596, Aug. 5, 1999; 73 
FR 4692, Jan. 28, 2008]



Sec.240.15Bc4-1  Persons associated with municipal advisors.

    A person associated, seeking to become associated, or, at the time 
of the alleged misconduct, associated or seeking to become associated 
with a municipal advisor, shall be subject to a Commission order that 
censures or places limitations on the activities or functions of such 
person, or suspends for a period not exceeding twelve months or bars 
such person from being associated with a broker, dealer, investment 
adviser, municipal securities dealer, municipal advisor, transfer agent, 
or nationally recognized statistical rating organization, if the 
Commission finds, on the record after notice and opportunity for 
hearing, that such censure, placing of limitations, suspension, or bar 
is in the public interest and that such person has committed any act, or 
is subject to an order or finding, enumerated in subparagraph (A), (D), 
(E), (H), or (G) of paragraph (4) of section 15(b) of the Act (15 U.S.C. 
78o(b)(4)(A), 78o(b)(4)(D), 78o(b)(4)(E), 78o(b)(4)(H), 78o(b)(4)(G)), 
has been convicted of any offense specified in subparagraph (B) of such 
paragraph (4) (15 U.S.C. 78o(b)(4)(B)) within 10 years of the 
commencement of the proceedings under section 15B(c)(4) (15 U.S.C. 78o-
4(c)(4)), or is enjoined from any action, conduct, or practice specified 
in subparagraph (C) of such paragraph (4) (15 U.S.C. 78o(b)(4)(C)). It 
shall be unlawful for any person as to whom an order entered pursuant to 
section 15B(c)(4) of the Act (15 U.S.C. 78o-4(c)(4)) or section 
15B(c)(5) of the Act (15 U.S.C. 78o-4(c)(5)) suspending or barring him 
from being associated with a municipal advisor is in effect willfully to 
become, or to be, associated with a municipal advisor without the 
consent of the Commission, and it shall be unlawful for any municipal 
advisor to permit such a person to become, or remain, a person 
associated with it without the consent of the Commission, if such 
municipal advisor knew, or, in the exercise of reasonable care should 
have known, of such order.

[78 FR 67638, Nov. 12, 2013]



Sec.240.15Bc7-1  Availability of examination reports.

    (a) Upon written request, copies of any report of an examination of 
a municipal securities dealer made by the Commission or furnished to it 
by an appropriate regulatory agency pursuant to section 17(c)(3) of the 
Act or by a registered securities association pursuant to section 
15B(c)(7)(B) of the Act

[[Page 506]]

shall be made available to the Municipal Securities Rulemaking Board 
(the ``Board'') by the Commission subject to the following limitations:
    (1) The Board shall establish by rule and shall maintain adequate 
procedures for ensuring the confidentiality of any information made 
available to it by the Commission pursuant to section 15B(c)(7)(B) of 
the Act;
    (2) Information made available to the Board shall not identify any 
municipal securities broker, municipal securities dealer, or associated 
person that is the subject of a non-public examination report.
    (b) If information to be made available to the Board is furnished to 
the Commission on a separate form prepared by an appropriate regulatory 
agency other than the Commission or by a registered securities 
association, that form, rather than a copy of any report of an 
examination, will be made available to the Board, provided that the 
conditions set forth in this paragraph are satisfied. Within sixty days 
of every six month period ending May 31 and November 30, each 
appropriate regulatory agency or registered securities association 
making available information on a separate form shall furnish to the 
Commission two copies of a form containing the information set forth in 
paragraphs (b)(1) through (b)(8) of this section. The Commission shall 
make one copy of the form promptly available to the Board. Copies of any 
forms furnished pursuant to this paragraph shall not identify any 
municipal securities broker, municipal securities dealer, or associated 
person that is the subject of an examination from which information was 
derived for the form; however, the Commission may obtain for its own 
use, upon request, the identity of any such examinee or the full 
examination reports. Furnished forms shall include the following 
information:
    (1) The report period.
    (2)(i) With respect to a registered securities association, the 
number of examinations that formed the basis of the report and, of these 
examinations, the number that were routine, special, and financial/
operational.
    (ii) With respect to an appropriate regulatory agency that is a bank 
agency, the number of examinations that formed the basis of the report 
and, of these examinations, the number that were routine, special, and 
financial/operational. The number of examinations that formed the basis 
of the report of bank dealers and the number of examinations of 
separately identifiable departments or divisions of banks effecting 
municipal securities transactions.
    (3) Indications of the violations of each Board rule found in 
examinations that formed the basis for the report.
    (4) Copies of public notices issued during the report period of any 
formal actions and non-public information regarding any actions taken on 
violations of Board rules.
    (5) Any comments concerning any questionable practices relating to 
municipal securities activities, whether or not covered by provisions of 
the Act and the rules and regulations thereunder, including the rules of 
the Board.
    (6) Descriptions of any significant or recurring customer complaints 
relating to municipal securities activities received by the appropriate 
regulatory agency or registered securities association during the report 
period or by municipal securities dealers during the 12 month period 
preceding the examination.
    (7) Description of any novel issues or interpretations arising under 
the Board's rules.
    (8) Description of any changes to existing Board rules or additional 
rules that would improve the regulatory scheme for municipal securities 
professionals or assist in the enforcement of the Board's rules.
    (c) Copies of any report of an examination of a municipal securities 
broker or municipal securities dealer made by the Commission or 
furnished to it pursuant to section 15B(c)(7)(B) or 17(c)(3) of the Act, 
or separate forms made available to the Commission pursuant to paragraph 
(b) of this section, will be maintained in a non-public file.

[50 FR 48556, Nov. 26, 1985]

[[Page 507]]

Registration of Government Securities Brokers and Government Securities 
                                 Dealers

    Source: Sections 240.15.Ca1-1 through 240.15Cc1-1 appear at 52 FR 
16839, May 6, 1987, unless otherwise noted.



Sec.240.15Ca1-1  Notice of government securities broker-dealer activities.

    (a) Every government securities broker or government securities 
dealer that is a broker or dealer registered pursuant to section 15 or 
15B of the Act (other than a financial institution as defined in section 
3(a)(46) of the Act) shall file with the Commission written notice on 
Form BD (Sec.249.501 of this chapter) in accordance with the 
instructions contained therein that it is a government securities broker 
or government securities dealer. After July 25, 1987, every broker or 
dealer subject to this paragraph shall file notice that it is a 
government securities broker or government securities dealer prior to or 
on the date it begins acting as a government securities broker or 
government securities dealer.
    (b) Every government securities broker or government securities 
dealer required to file notice under paragraph (a) of this section shall 
file with the Commission written notice on Form BD in accordance with 
the instructions contained therein when it ceases to be a government 
securities broker or government securities dealer. Notice shall be filed 
within 30 days after the date the broker or dealer has ceased acting as 
a government securities broker or a government securities dealer.
    (c) Any notice required pursuant to this section shall be considered 
filed with the Commission if it is filed with the Central Registration 
Depository (operated by the Financial Industry Regulatory Authority, 
Inc.) in accordance with applicable filing requirements.

[52 FR 16839, May 6, 1987, as amended at 58 FR 14, Jan. 4, 1993; 64 FR 
25148, May 10, 1999; 73 FR 4693, Jan. 28, 2008]



Sec.240.15Ca2-1  Application for registration as a government 
securities broker or government securities dealer.

    (a) An application for registration pursuant to Section 15C(a)(1)(A) 
of the Act, of a government securities broker or government securities 
dealer that is filed on or after January 25, 1993, shall be filed with 
the Central Registration Depository (operated by the Financial Industry 
Regulatory Authority, Inc.) on Form BD in accordance with the 
instructions contained therein.
    (b) Every application or amendment filed pursuant to this section 
shall constitute a ``report'' filed with the Commission within the 
meaning of Sections 15, 15C, 17(a), 18, 32(a), and other applicable 
provisions of the Act.

[58 FR 15, Jan. 4, 1993, as amended at 64 FR 37594, July 12, 1999; 64 FR 
42596, Aug. 5, 1999; 73 FR 4693, Jan. 28, 2008]



Sec.240.15Ca2-2  [Reserved]



Sec.240.15Ca2-3  Registration of successor to registered government
securities broker or government securities dealer.

    (a) In the event that a government securities broker or government 
securities dealer succeeds to and continues the business of a government 
securities broker or government securities dealer registered pursuant to 
section 15C(a)(1)(A) of the Act, the registration of the predecessor 
shall be deemed to remain effective as the registration of the successor 
if the successor, within 30 days after such succession, files an 
application for registration on Form BD, and the predecessor files a 
notice of withdrawal from registration on Form BDW; Provided, however, 
That the registration of the predecessor government securities broker or 
government securities dealer will cease to be effective as the 
registration of the successor government securities broker or government 
securities dealer 45 days after the application for registration on Form 
BD is filed by such successor.
    (b) Notwithstanding paragraph (a) of this section, if a government 
securities broker or government securities dealer succeeds to and 
continues the business of a predecessor government securities broker or 
government securities dealer

[[Page 508]]

that is registered pursuant to section 15C(a)(1)(A) of the Act, and the 
succession is based solely on a change in the predecessor's date or 
state of incorporation, form of organization, or composition of a 
partnership, the successor may, within 30 days after the succession, 
amend the registration of the predecessor broker or dealer on Form BD to 
reflect these changes. This amendment shall be deemed an application for 
registration filed by the predecessor and adopted by the successor.

[58 FR 11, Jan. 4, 1993]



Sec.240.15Ca2-4  Registration of fiduciaries.

    The registration of a government securities broker or government 
securities dealer pursuant to section 15C of the Act shall be deemed to 
be the registration of any executor, administrator, guardian, 
conservator, assignee for the benefit of creditors, receiver, trustee in 
insolvency or bankruptcy, or other fiduciary, appointed or qualified by 
order, judgment, or decree of a court of competent jurisdiction to 
continue the business of such registered government securities broker or 
government securities dealer, provided that such fiduciary files with 
the Commission, no more than 30 days after entering upon the performance 
of its duties, a statement setting forth as to such fiduciary 
substantially the information required by Form BD.



Sec.240.15Ca2-5  Consent to service of process to be furnished by non-
resident government securities brokers or government securities 
dealers and by non-resident general partners or managing agents 
of government  securities brokers or government securities dealers.
          

    (a) Each non-resident government securities broker or government 
securities dealer applying for registration pursuant to section 
15C(a)(1)(A) of the Act, each non-resident general partner of a 
government securities broker or government securities dealer partnership 
that is applying for such registration, and each non-resident managing 
agent of any other unincorporated government securities broker or 
government securities dealer that is applying for registration, shall 
furnish to the Commission, in a form acceptable to the Commission, a 
written irrevocable consent and power of attorney that--
    (1) Designates the Securities and Exchange Commission as an agent of 
such government securities broker or government securities dealer upon 
whom may be served any process, pleadings, or other papers in any civil 
suit or action brought in any appropriate court in any place subject to 
the jurisdiction of the United States, with respect to any cause of 
action,
    (i) That accrues during the period beginning when such government 
securities broker or government securities dealer becomes registered 
pursuant to section 15C(a)(1)(A) of the Act and ending either when such 
registration is cancelled or revoked, or when a notice filed by such 
government securities broker or government securities dealer to withdraw 
from such registration becomes effective, whichever is earlier,
    (ii) That arises out of any activity, in any place subject to the 
jurisdiction of the United States, occurring in connection with the 
conduct of the business of such government securities broker or 
government securities dealer, and
    (iii) That is founded, directly or indirectly, upon the Securities 
Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture 
Act of 1939, the Investment Company Act of 1940, the Investment Advisers 
Act of 1940, or any rule or regulation under any of those Acts, and
    (2) Stipulates and agrees that any such civil suit or action may be 
commenced against such government securities broker or government 
securities dealer by the service of process upon the Commission and the 
forwarding of a copy thereof as provided in paragraph (c) of this 
section and that the service as aforesaid of any such process, 
pleadings, or other papers upon the Commission shall be taken and held 
in all courts to be as valid and binding as if due process service 
thereof had been made.
    (b) Each government securities broker or government securities 
dealer registered pursuant to section 15C(a)(1)(A) of the Act that 
becomes a non-resident government securities

[[Page 509]]

broker or government securities dealer, and each general partner or 
managing agent of an unincorporated government securities broker or 
government securities dealer registered or applying for registration 
pursuant to section 15C(a)(1)(A) of the Act who becomes a non-resident 
after such registration or filing of an application for such 
registration, shall furnish such consent and power of attorney no more 
than 30 days thereafter.
    (c) Service of any process, pleadings, or other papers on the 
Commission under this rule shall be made by delivering the requisite 
number of copies thereof to the Secretary of the Commission or to such 
other person as the Commission may authorize to act in its behalf. 
Whenever any process, pleadings, or other papers as aforesaid are served 
upon the Commission, it shall promptly forward a copy thereof by 
registered or certified mail to the appropriate defendants at their last 
address of record filed with the Commission; but any failure by the 
Commission to forward such a copy shall have no effect on the validity 
of the service made upon the Commission. The Commission shall be 
furnished a sufficient number of copies for such purpose, and one copy 
for its file.
    (d) For purposes of this rule the following definitions shall apply:
    (1) The term managing agent shall mean any person, including a 
trustee, who directs or manages or who participates in the directing or 
managing of the affairs of any unincorporated organization or 
association that is not a partnership.
    (2) The term non-resident government securities broker or government 
securities dealer shall mean (i) in the case of an individual, one who 
is domiciled in or has his principal place of business in any place not 
subject to the jurisdiction of the United States, (ii) in the case of a 
corporation, one incorporated in or having its principal place of 
business in any place not subject to the jurisdiction of the United 
States; (iii) in the case of a partnership or other unincorporated 
organization or association, one having its principal place of business 
in any place not subject to the jurisdiction of the United States.
    (3) A general partner or managing agent of a government securities 
broker or government securities dealer shall be deemed to be a non-
resident if he is domiciled in any place not subject to the jurisdiction 
of the United States.



Sec.240.15Cc1-1  Withdrawal from registration of government 
securities brokers or government securities dealers.

    (a) Notice of withdrawal from registration as a government 
securities broker or government securities dealer pursuant to Section 
15C(a)(1)(A) of the Act (15 U.S.C. 78o-5(a)(1)(A)) shall be filed on 
Form BDW (17 CFR 249.501a) in accordance with the instructions contained 
therein. Every notice of withdrawal from registration as a government 
securities broker or dealer shall be filed with the Central Registration 
Depository (operated by the Financial Industry Regulatory Authority, 
Inc.) in accordance with applicable filing requirements. Prior to filing 
a notice of withdrawal from registration on Form BDW (17 CFR 249.501a), 
a government securities broker or government securities dealer shall 
amend Form BD (17 CFR 249.501) in accordance with 17 CFR 400.5(a) to 
update any inaccurate information.
    (b) A notice of withdrawal from registration filed by a government 
securities broker or government securities dealer shall become effective 
for all matters on the 60th day after the filing thereof with the 
Commission, within such longer period of time as to which such 
government securities broker or government securities dealer consents or 
the Commission by order may determine as necessary or appropriate in the 
public interest or for the protection of investors, or within such 
shorter period of time as the Commission may determine. If a notice of 
withdrawal from registration is filed with the Commission at any time 
subsequent to the date of the issuance of a Commission order instituting 
proceedings pursuant to Section 15C(c) (15 U.S.C. 78o-5(c)) to censure, 
place limitations on the activities, functions or operations of, or 
suspend or revoke the registration of such government securities broker 
or government securities dealer, or if

[[Page 510]]

prior to the effective date of the notice of withdrawal pursuant to this 
paragraph (b), the Commission institutes such a proceeding or a 
proceeding to impose terms or conditions upon such withdrawal, the 
notice of withdrawal shall not become effective pursuant to this 
paragraph (b) except at such time and upon such terms and conditions as 
the Commission deems necessary or appropriate in the public interest or 
for the protection of investors.
    (c) Every notice of withdrawal filed with the Central Registration 
Depository pursuant to this section shall constitute a ``report'' filed 
with the Commission within the meaning of Sections 15(b), 15C(c), 17(a), 
18(a), 32(a) (15 U.S.C. 78o(b), 78o-5(c), 78q(a), 78r(a), 78ff(a)) and 
other applicable provisions of the Act.
    (d) The Commission, by order, may exempt any broker or dealer from 
the filing requirements provided in Form BDW (17 CFR 249.501a) under 
conditions that differ from the filing instructions contained in Form 
BDW.

[64 FR 25148, May 10, 1999, as amended at 64 FR 42596, Aug. 5, 1999; 73 
FR 4693, Jan. 28, 2008]

  Registration and Regulation of Security-based Swap Dealers and Major 
                    Security-based Swap Participants

    Source: Sections 240.15Fb1-1 through 240.15Fb6-2 appear at 80 FR 
49013, Aug. 14, 2015, unless otherwise noted.



Sec.240.15Fb1-1.  Signatures.

    (a) Required signatures to, or within, any electronic submission 
(including, without limitation, signatories within the forms and 
certifications required by Sec.Sec.240.15Fb2-1, 240.15Fb2-4, and 
240.15Fb6-2) must be in typed form rather than manual format. Signatures 
in an HTML, XML or XBRL document that are not required may, but are not 
required to, be presented in a graphic or image file within the 
electronic filing. When used in connection with an electronic filing, 
the term ``signature'' means an electronic entry in the form of a 
magnetic impulse or other form of computer data compilation of any 
letters or series of letters or characters comprising a name, executed, 
adopted or authorized as a signature.
    (b) Each signatory to an electronic filing (including, without 
limitation, each signatory to the forms and certifications required by 
Sec.Sec.240.15Fb2-1, 240.15Fb2-4, and 240.15Fb6-2) shall manually 
sign a signature page or other document authenticating, acknowledging or 
otherwise adopting his or her signature that appears in typed form 
within the electronic filing. Such document shall be executed before or 
at the time the electronic filing is made. Upon request, the security-
based swap dealer or major security-based swap participant shall furnish 
to the Commission or its staff a copy of any or all documents retained 
pursuant to this paragraph (b).
    (c) A person required to provide a signature on an electronic 
submission (including, without limitation, each signatory to the forms 
and certifications required by Sec.Sec.240.15Fb2-1, 240.15Fb2-4, and 
240.15Fb6-2) may not have the form or certification signed on his or her 
behalf pursuant to a power of attorney or other form of confirming 
authority.
    (d) Each manually signed signature page or other document 
authenticating, acknowledging or otherwise adopting his or her signature 
that appears in typed form within the electronic filing--
    (1) On Schedule F to Form SBSE (Sec.249.1600 of this chapter), 
SBSE-A (Sec.249.1600a of this chapter), or SBSE-BD (Sec.249.1600b of 
this chapter), as appropriate, shall be retained by the filer until at 
least three years after the form or certification has been replaced or 
is no longer effective;
    (2) On Form SBSE-C (Sec.249.1600c of this chapter) shall be 
retained by the filer until at least three years after the Form was 
filed with the Commission.



Sec.240.15Fb2-1  Registration of security-based swap dealers and 
major security-based swap participants.

    (a) Application. An application for registration of a security-based 
swap dealer or a major security-based swap participant that is filed 
pursuant to Section 15F(b) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-10(b)) shall be filed on Form SBSE (Sec.249.1600 of this 
chapter) or Form SBSE-A

[[Page 511]]

(Sec.249.1600a of this chapter) or Form SBSE-BD (Sec.249.1600b of 
this chapter), as appropriate, in accordance with paragraph (c) and the 
instructions to the forms. Applicants shall also file as part of their 
application the required certifications on Form SBSE-C (Sec.249.1600c 
of this chapter).
    (b) Senior Officer Certification. A senior officer shall certify on 
Form SBSE-C (Sec.249.1600c of this chapter) that;
    (1) After due inquiry, he or she has reasonably determined that the 
security-based swap dealer or major security-based swap participant has 
developed and implemented written policies and procedures reasonably 
designed to prevent violation of federal securities laws and the rules 
thereunder, and
    (2) He or she has documented the process by which he or she reached 
such determination.
    (c) Filing--(1) Electronic filing. Every application for 
registration of a security-based swap dealer or major security-based 
swap participant and any additional registration documents shall be 
filed electronically with the Commission through the Commission's EDGAR 
system.
    (2) Filing date. An application of a security-based swap dealer or a 
major security-based swap participant submitted pursuant to paragraph 
(a) of this section shall be considered filed when an applicant has 
submitted a complete Form SBSE-C (Sec.249.1600c of this chapter) and a 
complete Form SBSE (Sec.249.1600 of this chapter), Form SBSE-A (Sec.
249.1600a of this chapter), or Form SBSE-BD (Sec.249.1600b of this 
chapter), as appropriate, and all required additional documents 
electronically with the Commission.
    (d) Conditional registration. An applicant that has submitted a 
complete Form SBSE-C (Sec.249.1600c of this chapter) and a complete 
Form SBSE (Sec.249.1600 of this chapter) or Form SBSE-A (Sec.
249.1600a of this chapter) or Form SBSE-BD (Sec.249.1600b of this 
chapter), as applicable, in accordance with paragraph (b) within the 
time periods set forth in Sec.240.3a67-8 (if the person is a major 
security-based swap participant) or Sec.240.3a71-2(b) (if the person 
is a security-based swap dealer), and has not withdrawn its registration 
shall be conditionally registered.
    (e) Commission decision. The Commission may deny or grant ongoing 
registration to a security-based swap dealer or major security-based 
swap participant based on a security-based swap dealer's or major 
security-based swap participant's application, filed pursuant to 
paragraph (a) of this section. The Commission will grant ongoing 
registration if it finds that the requirements of Section 15F(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) are satisfied. The 
Commission may institute proceedings to determine whether ongoing 
registration should be denied if it does not or cannot make such finding 
or if the applicant is subject to a statutory disqualification (as 
described in Sections 3(a)(39)(A) through (F) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78c(a)(39)(A)-(F)), or the Commission is aware of 
inaccurate statements in the application. Such proceedings shall include 
notice of the grounds for denial under consideration and opportunity for 
hearing. At the conclusion of such proceedings, the Commission shall 
grant or deny such registration.

    Effective Date Note: At 85 FR 6352, Feb. 4, 2020, Sec.240.15Fb2-1 
was amended by revising paragraphs (d) and (e), effective Apr. 6, 2020. 
For the convenience of the user, the revised text is set forth as 
follows:



Sec.240.15Fb2-1  Registration of security-based swap dealers and major 
          security-based swap participants

                                * * * * *

    (d) Conditional registration. (1) An applicant that has submitted a 
complete Form SBSE-C (Sec.249.1600c of this chapter) and a complete 
Form SBSE (Sec.249.1600 of this chapter) or Form SBSE-A (Sec.
249.1600a of this chapter) or Form SBSE-BD (Sec.249.1600b of this 
chapter), as applicable, in accordance with paragraph (c) within the 
time periods set forth in Sec.240.3a67-8 (if the person is a major 
security-based swap participant) or Sec.240.3a71-2(b) (if the person 
is a security-based swap dealer), and has not withdrawn its registration 
shall be conditionally registered.
    (2) Notwithstanding paragraph (d)(1) of this section, an applicant 
that is a nonresident security-based swap dealer or nonresident major 
security-based swap participant (each as defined in Sec.240.15Fb2-
4(a)) that is unable to provide the certification and opinion of counsel 
required by Sec.240.15Fb2-4(c)(1) shall instead provide a conditional 
certification

[[Page 512]]

and opinion of counsel as discussed in paragraph (d)(3) of this section, 
and upon the provision of such conditional certification and opinion of 
counsel, shall be conditionally registered, if the nonresident applicant 
submits a Form SBSE-C (Sec.249.1600c of this chapter) and a Form SBSE 
(Sec.249.1600 of this chapter), SBSE-A (Sec.249.1600a of this 
chapter) or SBSE-BD (Sec.249.1600b of this chapter), as applicable, in 
accordance with paragraph (c) of this section within the time periods 
set forth in Sec.240.3a67-8 (if the person is a major security-based 
swap participant) or Sec.240.3a71-2(b) (if the person is a security-
based swap dealer), that is complete in all respects but for the failure 
to provide the certification and the opinion of counsel required by 
Sec.240.15Fb2-4(c)(1), and has not withdrawn from registration.
    (3) For purposes of this section, a conditional certification and 
opinion of counsel means a certification as required by Sec.240.15Fb2-
4(c)(1)(i) and an opinion of counsel as required by Sec.240.15Fb2-
4(c)(1)(ii) that identify, and are conditioned upon, the occurrence of a 
future action that would provide the Commission with adequate assurances 
of prompt access to the books and records of the nonresident security-
based swap dealer or nonresident major security-based swap participant, 
and the ability of the nonresident security-based swap dealer or 
nonresident major security-based swap participant to submit to onsite 
inspection and examination by the Commission. Such future action could 
include:
    (i) Entry by the Commission and the foreign financial regulatory 
authority of the jurisdiction(s) in which the nonresident security-based 
swap dealer or nonresident major security-based swap participant 
maintains the books and records that are addressed by the certification 
and opinion of counsel required by Sec.240.15Fb2-4(c)(1) into a 
memorandum of understanding, agreement, protocol, or other regulatory 
arrangement providing the Commission with adequate assurances of:
    (A) Prompt access to the books and records of the nonresident 
security-based swap dealer or nonresident major security-based swap 
participant; and
    (B) The ability of the nonresident security-based swap dealer or 
nonresident major security-based swap participant to submit to onsite 
inspection or examination by the Commission; or
    (ii) Issuance by the Commission of an order granting substituted 
compliance in accordance with Sec.240.3a71-6 to the jurisdiction(s) in 
which the nonresident security-based swap dealer or nonresident major 
security-based swap participant maintains the books and records that are 
addressed by the certification and opinion of counsel required by Sec.
240.15Fb2-4(c)(1); or
    (iii) Any other action that would provide the Commission with the 
assurances required by Sec.240.15Fb2-4(c)(1)(i) and by Sec.
240.15Fb2-4(c)(1)(ii).
    (e) Commission Decision. (1) The Commission may deny or grant 
ongoing registration to a security-based swap dealer or major security-
based swap participant based on a security-based swap dealer's or major 
security-based swap participant's application, filed pursuant to 
paragraph (a) of this section. The Commission will grant ongoing 
registration if it finds that the requirements of section 15F(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) are satisfied. The 
Commission may institute proceedings to determine whether ongoing 
registration should be denied if it does not or cannot make such finding 
or if the applicant is subject to a statutory disqualification (as 
described in sections 3(a)(39)(A) through (F) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78c(a)(39)(A)-(F)), or the Commission is aware of 
inaccurate statements in the application. Such proceedings shall include 
notice of the grounds for denial under consideration and opportunity for 
hearing. At the conclusion of such proceedings, the Commission shall 
grant or deny such registration.
    (2) If an applicant that is a nonresident security-based swap dealer 
or nonresident major security-based swap participant has become 
conditionally registered in reliance on paragraph (d)(2) of this 
section, the applicant will remain conditionally registered until the 
Commission acts to grant or deny ongoing registration in accordance with 
(e)(1) of this section. If none of the future actions in paragraph 
(d)(3) that are included in an applicant's conditional certification and 
opinion of counsel occurs within 24 months of the compliance date for 
Sec.240.15Fb2-1, and there is not otherwise a basis that would provide 
the Commission with the assurances required by Sec.240.15Fb2-
4(c)(1)(i) and by Sec.240.15Fb2-4(c)(1)(ii), the Commission may 
institute proceedings thereafter to determine whether ongoing 
registration should be denied, in accordance with paragraph (e)(1) of 
this section.



Sec.240.15Fb2-3  Amendments to Form SBSE, Form SBSE-A, 
and Form SBSE-BD.

    If a security-based swap dealer or a major security-based swap 
participant finds that the information contained in its Form SBSE (Sec.
249.1600 of this chapter), Form SBSE-A (Sec.249.1600a of this 
chapter), or Form SBSE-BD (Sec.249.1600b of this chapter), as 
appropriate, or in any amendment thereto, is or has become inaccurate 
for any reason, the security-based swap dealer or a major security-based 
swap participant shall

[[Page 513]]

promptly file an amendment electronically with the Commission through 
the Commission's EDGAR system on the appropriate Form to correct such 
information.



Sec.240.15Fb2-4  Nonresident security-based swap dealers and major 
security-based swap participants.

    (a) Definition. For purposes of this section, the terms nonresident 
security-based swap dealer and nonresident major security-based swap 
participant shall mean:
    (1) In the case of an individual, one who resides, or has his or her 
principal place of business, in any place not in the United States;
    (2) In the case of a corporation, one incorporated in or having its 
principal place of business in any place not in the United States; or
    (3) In the case of a partnership or other unincorporated 
organization or association, one having its principal place of business 
in any place not in the United States.
    (b) Power of attorney. (1) Each nonresident security-based swap 
dealer and nonresident major security-based swap participant registered 
or applying for registration pursuant to Section 15F(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) shall obtain a 
written irrevocable consent and power of attorney appointing an agent in 
the United States, other than the Commission or a Commission member, 
official or employee, upon whom may be served any process, pleadings, or 
other papers in any action brought against the nonresident security-
based swap dealer or nonresident major security-based swap participant 
to enforce the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). 
This consent and power of attorney must be signed by the nonresident 
security-based swap dealer or nonresident major security-based swap 
participant and the named agent(s) for service of process.
    (2) Each nonresident security-based swap dealer and nonresident 
major security-based swap participant registered or applying for 
registration pursuant to section 15F(b) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78o-10(b)) shall, at the time of filing its 
application on Form SBSE (Sec.249.1600 of this chapter), Form SBSE-A 
(Sec.249.1600a of this chapter), or Form SBSE-BD (Sec.249.1600b of 
this chapter), as appropriate, furnish to the Commission the name and 
address of its United States agent for service of process on Schedule F 
to the appropriate form.
    (3) Any change of a nonresident security-based swap dealer's and 
nonresident major security-based swap participant's agent for service of 
process and any change of name or address of a nonresident security-
based swap dealer's and nonresident major security-based swap 
participant's existing agent for service of process shall be 
communicated promptly to the Commission through amendment of the 
Schedule F of Form SBSE (Sec.249.1600 of this chapter), Form SBSE-A 
(Sec.249.1600a of this chapter), or Form SBSE-BD (Sec.249.1600b of 
this chapter), as appropriate.
    (4) Each nonresident security-based swap dealer and nonresident 
major security-based swap participant must promptly appoint a successor 
agent for service of process, consistent with the process described in 
paragraph (b)(1), if the nonresident security-based swap dealer and 
nonresident major security-based swap participant discharges its 
identified agent for service of process or if its agent for service of 
process is unwilling or unable to accept service on behalf of the 
nonresident security-based swap dealer or nonresident major security-
based swap participant.
    (5) Each nonresident security-based swap dealer and nonresident 
major security-based swap participant must maintain, as part of its 
books and records, the agreement identified in paragraphs (b)(1) and 
(b)(4) of this section for at least three years after the agreement is 
terminated.
    (c) Access to books and records--(1) Certification and opinion of 
counsel. Each nonresident security-based swap dealer and nonresident 
major security-based swap participant applying for registration pursuant 
to Section 15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
10(b) shall:
    (i) Certify on Schedule F of Form SBSE (Sec.249.1600 of this 
chapter), Form SBSE-A (Sec.249.1600a of this chapter), or Form SBSE-BD 
(Sec.249.1600b of this

[[Page 514]]

chapter), as appropriate, that the nonresident security-based swap 
dealer and nonresident major security-based swap participant can, as a 
matter of law, and will provide the Commission with prompt access to the 
books and records of such nonresident security-based swap dealer and 
nonresident major security-based swap participant, and can, as a matter 
of law, and will submit to onsite inspection and examination by the 
Commission; and
    (ii) Provide an opinion of counsel that the nonresident security-
based swap dealer and nonresident major security-based swap participant 
can, as a matter of law, provide the Commission with prompt access to 
the books and records of such nonresident security-based swap dealer and 
nonresident major security-based swap participant, and can, as a matter 
of law, submit to onsite inspection and examination by the Commission.
    (2) Amendments. Each nonresident security-based swap dealer and 
nonresident major security-based swap participant shall re-certify, on 
Schedule F to Form SBSE (Sec.249.1600 of this chapter), Form SBSE-A 
(Sec.249.1600a of this chapter), or Form SBSE-BD (Sec.249.1600b of 
this chapter), as applicable, within 90 days after any changes in the 
legal or regulatory framework that would impact the nonresident 
security-based swap dealer's or nonresident major security-based swap 
participant's ability to provide, or the manner in which it provides the 
Commission with prompt access to its books and records, or would impact 
the Commission's ability to inspect and examine the nonresident 
security-based swap dealer or nonresident major security-based swap 
participant. The re-certification shall be accompanied by a revised 
opinion of counsel describing how, as a matter of law, the nonresident 
security-based swap dealer or nonresident major security-based swap 
participant will continue to meet its obligations to provide the 
Commission with prompt access to its books and records and to be subject 
to Commission inspection and examination under the new regulatory 
regime.



Sec.240.15Fb2-5  Registration of successor to registered security
-based swap dealer or a major security-based swap participant.

    (a) In the event that a security-based swap dealer or major 
security-based swap participant succeeds to and continues the business 
of a security-based swap dealer or major security-based swap participant 
registered pursuant to Section 15F(b) of the Securities Exchange Act of 
1934 (15 U.S.C. 78o-10(b)), the registration of the predecessor shall be 
deemed to remain effective as the registration of the successor if the 
successor, within 30 days after such succession, files an application 
for registration in accordance with Sec.240.15Fb2-1, and the 
predecessor files a notice of withdrawal from registration on Form SBSE-
W (Sec.249.1601 of this chapter).
    (b) Notwithstanding paragraph (a) of this section, if a security-
based swap dealer or major security-based swap participant succeeds to 
and continues the business of a registered predecessor security-based 
swap dealer or major security-based swap participant, and the succession 
is based solely on a change in the predecessor's date or state of 
incorporation, form of organization, or composition of a partnership, 
the successor may, within 30 days after the succession, amend the 
registration of the predecessor security-based swap dealer or major 
security-based swap participant on Form SBSE (Sec.249.1600 of this 
chapter), Form SBSE-A (Sec.249.1600a of this chapter), or Form SBSE-BD 
(Sec.249.1600b of this chapter), as appropriate, to reflect these 
changes. This amendment shall be deemed an application for registration 
filed by the predecessor and adopted by the successor.



Sec.240.15Fb2-6  Registration of fiduciaries.

    The registration of a security-based swap dealer or a major 
security-based swap participant shall be deemed to be the registration 
of any executor, administrator, guardian, conservator, assignee for the 
benefit of creditors, receiver, trustee in insolvency or bankruptcy, or 
other fiduciary, appointed or qualified by order, judgment, or decree of 
a court of competent jurisdiction to

[[Page 515]]

continue the business of such registered security-based swap dealer or a 
major security-based swap participant; Provided, that such fiduciary 
files with the Commission, within 30 days after entering upon the 
performance of his or her duties, an amended Form SBSE (Sec.249.1600 
of this chapter), Form SBSE-A (Sec.249.1600a of this chapter), or Form 
SBSE-BD (Sec.249.1600b of this chapter), as appropriate, indicating 
the fiduciary's position with respect to management of the firm and, as 
an additional document, a copy of the order, judgment, decree, or other 
document appointing the fiduciary.



Sec.240.15Fb3-1  Duration of registration.

    (a) General. A person registered as a security-based swap dealer or 
major security-based swap participant in accordance with Sec.
240.15Fb2-1 will continue to be so registered until the effective date 
of any cancellation, revocation or withdrawal of such registration.
    (b) Conditional registration. Notwithstanding paragraph (a) of this 
section, conditional registration shall expire on the date the 
registrant withdraws from registration or the Commission grants or 
denies the person's ongoing registration in accordance with Sec.
240.15Fb2-1(e).



Sec.240.15Fb3-2  Withdrawal from registration.

    (a) Notice of withdrawal from registration as a security-based swap 
dealer or major security-based swap participant pursuant to Section 
15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) 
shall be filed on Form SBSE-W (Sec.249.1601 of this chapter) in 
accordance with the instructions contained therein. Every notice of 
withdrawal from registration as a security-based swap dealer or major 
security-based swap participant shall be filed electronically with the 
Commission through the Commission's EDGAR system. Prior to filing a 
notice of withdrawal from registration on Form SBSE-W, a security-based 
swap dealer or major security-based swap participant shall amend its 
Form SBSE (Sec.249.1600 of this chapter), Form SBSE-A (Sec.249.1600a 
of this chapter) or Form SBSE-BD (Sec.249.1600b of this chapter), as 
appropriate, in accordance with Sec.240.15Fb2-3(a) to update any 
inaccurate information.
    (b) A notice of withdrawal from registration filed by a security-
based swap dealer or major security-based swap participant pursuant to 
Section 15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
10(b)) shall become effective for all matters (except as provided in 
this paragraph (b)) on the 60th day after the filing thereof with the 
Commission or its designee, within such longer period of time as to 
which such security-based swap dealer or major security-based swap 
participant consents or which the Commission by order may determine as 
necessary or appropriate in the public interest or for the protection of 
investors, or within such shorter period of time as the Commission may 
determine. If a notice of withdrawal from registration is filed with the 
Commission at any time subsequent to the date of the issuance of a 
Commission order instituting proceedings to censure, place limitations 
on the activities, functions or operations of, or suspend or revoke the 
registration of, such security-based swap dealer or major security-based 
swap participant, or if prior to the effective date of the notice of 
withdrawal pursuant to this paragraph (b), the Commission institutes 
such a proceeding or a proceeding to impose terms or conditions upon 
such withdrawal, the notice of withdrawal shall not become effective 
pursuant to this paragraph (b) except at such time and upon such terms 
and conditions as the Commission deems necessary or appropriate in the 
public interest or for the protection of investors.



Sec.240.15Fb3-3  Cancellation and revocation of registration.

    (a) Cancellation. If the Commission finds that any person registered 
pursuant to Sec.240.15Fb2-1 is no longer in existence or has ceased to 
do business as a security-based swap dealer or major security-based swap 
participant, the Commission shall by order cancel the registration of 
such person.
    (b) Revocation. The Commission, by order, shall censure, place 
limitations on the activities, functions, or operations of, or revoke 
the registration of any security-based swap dealer or

[[Page 516]]

major security-based swap participant that has registered with the 
Commission if it makes a finding as specified in Section 15F(l)(2) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(l)(2)).



Sec.240.15Fb6-1  [Reserved]



Sec.240.15Fb6-2  Associated person certification.

    (a) Certification. No registered security-based swap dealer or major 
security-based swap participant shall act as a security-based swap 
dealer or major security-based swap participant unless it has certified 
electronically on Form SBSE-C (Section 249.1600c of this chapter) that 
it neither knows, nor in the exercise of reasonable care should have 
known, that any person associated with such security-based swap dealer 
or major security-based swap participant who effects or is involved in 
effecting security-based swaps on behalf of the security-based swap 
dealer or major security-based swap participant is subject to a 
statutory disqualification, as described in Sections 3(a)(39)(A) through 
(F) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(39)(A)-
(F)), unless otherwise specifically provided by rule, regulation or 
order of the Commission.
    (b) To support the certification required by paragraph (a) of this 
section, the security-based swap dealer's or major security-based swap 
participant's Chief Compliance Officer, or his or her designee, shall 
review and sign the questionnaire or application for employment, which 
the security-based swap dealer or major security-based swap participant 
is required to obtain pursuant to the relevant recordkeeping rule 
applicable to such security-based swap dealer or major security-based 
swap participant, executed by each associated person who is a natural 
person and who effects or is involved in effecting security based swaps 
on the security-based swap dealer's or major security-based swap 
participant's behalf. The questionnaire or application shall serve as a 
basis for a background check of the associated person to verify that the 
person is not subject to statutory disqualification.



Sec.240.15Fh-1  Scope and reliance on representations.

    (a) Scope. Sections 240.15Fh-1 through 240.15Fh-6, and 240.15Fk-1 
are not intended to limit, or restrict, the applicability of other 
provisions of the federal securities laws, including but not limited to 
section 17(a) of the Securities Act of 1933 and sections 9 and 10(b) of 
the Act, and rules and regulations thereunder, or other applicable laws 
and rules and regulations. Sections 240.15Fh-1 through 240.15Fh-6, and 
240.15Fk-1 apply, as relevant, in connection with entering into 
security-based swaps and continue to apply, as appropriate, over the 
term of executed security-based swaps. Sections 240.15Fh-3(a) through 
240.15Fh-3(f), 240.15Fh-4(b) and 240.15Fh-5 are not applicable to 
security-based swaps that security-based swap dealers or major security-
based swap participants enter into with their majority-owned affiliates. 
For these purposes the counterparties to a security-based swap are 
majority-owned affiliates if one counterparty directly or indirectly 
owns a majority interest in the other, or if a third party directly or 
indirectly owns a majority interest in both counterparties to the 
security-based swap, where ``majority interest'' is the right to vote or 
direct the vote of a majority of a class of voting securities of an 
entity, the power to sell or direct the sale of a majority of a class of 
voting securities of an entity, or the right to receive upon dissolution 
or the contribution of a majority of the capital of a partnership.
    (b) Reliance on representations. A security-based swap dealer or 
major security-based swap participant may rely on written 
representations from the counterparty or its representative to satisfy 
its due diligence requirements under Sec.240.15Fh, unless it has 
information that would cause a reasonable person to question the 
accuracy of the representation.

[81 FR 30144, May 13, 2016]



Sec.240.15Fh-2  Definitions.

    As used in Sec.Sec.240.15Fh-1 through 240.15Fh-6:
    (a) Act as an advisor to a special entity. A security-based swap 
dealer acts as an

[[Page 517]]

advisor to a special entity when it recommends a security-based swap or 
a trading strategy that involves the use of a security-based swap to the 
special entity, unless:
    (1) With respect to a special entity as defined in Sec.240.15Fh-
2(d)(3):
    (i) The special entity represents in writing that it has a fiduciary 
as defined in section 3 of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1002) that is responsible for representing the 
special entity in connection with the security-based swap;
    (ii) The fiduciary represents in writing that it acknowledges that 
the security-based swap dealer is not acting as an advisor; and
    (iii) The special entity represents in writing:
    (A) That it will comply in good faith with written policies and 
procedures reasonably designed to ensure that any recommendation the 
special entity receives from the security-based swap dealer involving a 
security-based swap transaction is evaluated by a fiduciary before the 
transaction is entered into; or
    (B) That any recommendation the special entity receives from the 
security-based swap dealer involving a security-based swap transaction 
will be evaluated by a fiduciary before the transaction is entered into.
    (2) With respect to any special entity:
    (i) The special entity represents in writing that:
    (A) It acknowledges that the security-based swap dealer is not 
acting as an advisor; and
    (B) The special entity will rely on advice from a qualified 
independent representative as defined in Sec.240.15Fh-5(a); and
    (ii) The security-based swap dealer discloses to the special entity 
that it is not undertaking to act in the best interest of the special 
entity, as otherwise required by section 15F(h)(4) of the Act.
    (b) Eligible contract participant means any person as defined in 
section 3(a)(65) of the Act and the rules and regulations thereunder and 
in section 1a of the Commodity Exchange Act (7 U.S.C. 1a) and the rules 
and regulations thereunder.
    (c) Security-based swap dealer or major security-based swap 
participant includes, where relevant, an associated person of the 
security-based swap dealer or major security-based swap participant.
    (d) Special entity means:
    (1) A Federal agency;
    (2) A State, State agency, city, county, municipality, other 
political subdivision of a State, or any instrumentality, department, or 
a corporation of or established by a State or political subdivision of a 
State;
    (3) Any employee benefit plan, subject to Title I of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1002);
    (4) Any employee benefit plan defined in section 3 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1002) and not 
otherwise defined as a special entity, unless such employee benefit plan 
elects not to be a special entity by notifying a security-based swap 
dealer or major security-based swap participant of its election prior to 
entering into a security-based swap with the particular security-based 
swap dealer or major security-based swap participant;
    (5) Any governmental plan, as defined in section 3(32) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(32)); or
    (6) Any endowment, including an endowment that is an organization 
described in section 501(c)(3) of the Internal Revenue Code of 1986.
    (e) A person is subject to a statutory disqualification for purposes 
of Sec.240.15Fh-5 if that person would be subject to a statutory 
disqualification, as described in section 3(a)(39)(A)-(F) of the Act.

[81 FR 30144, May 13, 2016]



Sec.240.15Fh-3  Business conduct requirements.

    (a) Counterparty status--(1) Eligible contract participant. A 
security-based swap dealer or a major security-based swap participant 
shall verify that a counterparty meets the eligibility standards for an 
eligible contract participant before entering into a security-based swap 
with that counterparty, provided that the requirements of this paragraph 
(a)(1)

[[Page 518]]

shall not apply to a transaction executed on a registered national 
securities exchange.
    (2) Special entity. A security-based swap dealer or a major 
security-based swap participant shall verify whether a counterparty is a 
special entity before entering into a security-based swap with that 
counterparty, unless the transaction is executed on a registered or 
exempt security-based swap execution facility or registered national 
securities exchange, and the security-based swap dealer or major 
security-based swap participant does not know the identity of the 
counterparty at a reasonably sufficient time prior to execution of the 
transaction to permit the security-based swap dealer or major security-
based swap participant to comply with the obligations of paragraph (a) 
of this section.
    (3) Special entity election. In verifying the special entity status 
of a counterparty pursuant to Sec.240.15Fh-3(a)(2), a security-based 
swap dealer or major security-based swap participant shall verify 
whether a counterparty is eligible to elect not to be a special entity 
under Sec.240.15Fh-2(d)(4) and, if so, notify such counterparty of its 
right to make such an election.
    (b) Disclosure. At a reasonably sufficient time prior to entering 
into a security-based swap, a security-based swap dealer or major 
security-based swap participant shall disclose to a counterparty, other 
than a security-based swap dealer, major security-based swap 
participant, swap dealer or major swap participant, material information 
concerning the security-based swap in a manner reasonably designed to 
allow the counterparty to assess the material risks and characteristics 
and material incentives or conflicts of interest, as described below, so 
long as the identity of the counterparty is known to the security-based 
swap dealer or major security-based swap participant at a reasonably 
sufficient time prior to execution of the transaction to permit the 
security-based swap dealer or major security-based swap participant to 
comply with the obligations of paragraph (b) of this section.
    (1) Material risks and characteristics means the material risks and 
characteristics of the particular security-based swap, which may 
include:
    (i) Market, credit, liquidity, foreign currency, legal, operational, 
and any other applicable risks; and
    (ii) The material economic terms of the security-based swap, the 
terms relating to the operation of the security-based swap, and the 
rights and obligations of the parties during the term of the security-
based swap.
    (2) Material incentives or conflicts of interest means any material 
incentives or conflicts of interest that the security-based swap dealer 
or major security-based swap participant may have in connection with the 
security-based swap, including any compensation or other incentives from 
any source other than the counterparty in connection with the security-
based swap to be entered into with the counterparty.
    (3) Record. The security-based swap dealer or major security-based 
swap participant shall make a written record of the non-written 
disclosures made pursuant to this paragraph (b), and provide a written 
version of these disclosures to its counterparties in a timely manner, 
but in any case no later than the delivery of the trade acknowledgement 
of the particular transaction pursuant to Sec.240.15Fi-1.
    (c) Daily mark. A security-based swap dealer or major security-based 
swap participant shall disclose the daily mark to the counterparty, 
other than a security-based swap dealer, major security-based swap 
participant, swap dealer or major swap participant, which shall be:
    (1) For a cleared security-based swap, upon request of the 
counterparty, the daily mark that the security-based swap dealer or 
major security-based swap participant receives from the appropriate 
clearing agency;
    (2) For an uncleared security-based swap, the midpoint between the 
bid and offer, or the calculated equivalent thereof, as of the close of 
business, unless the parties agree in writing otherwise to a different 
time, on each business day during the term of the security-based swap. 
The daily mark may be based on market quotations for comparable 
security-based swaps, mathematical models or a combination thereof. The 
security-based swap dealer

[[Page 519]]

or major security-based swap participant shall also disclose its data 
sources and a description of the methodology and assumptions used to 
prepare the daily mark, and promptly disclose any material changes to 
such data sources, methodology and assumptions during the term of the 
security-based swap; and
    (3) The security-based swap dealer or major security-based swap 
participant shall provide the daily mark without charge to the 
counterparty and without restrictions on the internal use of the daily 
mark by the counterparty.
    (d) Disclosure regarding clearing rights. A security-based swap 
dealer or major security-based swap participant shall disclose the 
following information to a counterparty, other than a security-based 
swap dealer, major security-based swap participant, swap dealer or major 
swap participant, so long as the identity of the counterparty is known 
to the security-based swap dealer or major security-based swap 
participant at a reasonably sufficient time prior to execution of the 
transaction to permit the security-based swap dealer or major security-
based swap participant to comply with the obligations of paragraph (d) 
of this section:
    (1) For security-based swaps subject to clearing requirement. Before 
entering into a security-based swap subject to the clearing requirement 
under section 3C(a) of the Act, a security-based swap dealer or major 
security-based swap participant shall:
    (i) Disclose to the counterparty the names of the clearing agencies 
that accept the security-based swap for clearing, and through which of 
those clearing agencies the security-based swap dealer or major 
security-based swap participant is authorized or permitted, directly or 
through a designated clearing member, to clear the security-based swap; 
and
    (ii) Notify the counterparty that it shall have the sole right to 
select which of the clearing agencies described in paragraph (d)(1)(i) 
of this section shall be used to clear the security-based swap subject 
to section 3C(g)(5) of the Act.
    (2) For security-based swaps not subject to clearing requirement. 
Before entering into a security-based swap not subject to the clearing 
requirement under section 3C(a) of the Act, a security-based swap dealer 
or major security-based swap participant shall:
    (i) Determine whether the security-based swap is accepted for 
clearing by one or more clearing agencies;
    (ii) Disclose to the counterparty the names of the clearing agencies 
that accept the security-based swap for clearing, and whether the 
security-based swap dealer or major security-based swap participant is 
authorized or permitted, directly or through a designated clearing 
member, to clear the security-based swap through such clearing agencies; 
and
    (iii) Notify the counterparty that it may elect to require clearing 
of the security-based swap and shall have the sole right to select the 
clearing agency at which the security-based swap will be cleared, 
provided it is a clearing agency at which the security-based swap dealer 
or major security-based swap participant is authorized or permitted, 
directly or through a designated clearing member, to clear the security-
based swap.
    (3) Record. The security-based swap dealer or major security-based 
swap participant shall make a written record of the non-written 
disclosures made pursuant to this paragraph (d), and provide a written 
version of these disclosures to its counterparties in a timely manner, 
but in any case no later than the delivery of the trade acknowledgement 
of the particular transaction pursuant to Sec.240.15Fi-1.
    (e) Know your counterparty. Each security-based swap dealer shall 
establish, maintain and enforce written policies and procedures 
reasonably designed to obtain and retain a record of the essential facts 
concerning each counterparty whose identity is known to the security-
based swap dealer that are necessary for conducting business with such 
counterparty. For purposes of paragraph (e) of this section, the 
essential facts concerning a counterparty are:
    (1) Facts required to comply with applicable laws, regulations and 
rules;
    (2) Facts required to implement the security-based swap dealer's 
credit and operational risk management policies

[[Page 520]]

in connection with transactions entered into with such counterparty; and
    (3) Information regarding the authority of any person acting for 
such counterparty.
    (f) Recommendations of security-based swaps or trading strategies. 
(1) A security-based swap dealer that recommends a security-based swap 
or trading strategy involving a security-based swap to a counterparty, 
other than a security-based swap dealer, major security-based swap 
participant, swap dealer, or major swap participant, must:
    (i) Undertake reasonable diligence to understand the potential risks 
and rewards associated with the recommended security-based swap or 
trading strategy involving a security-based swap; and
    (ii) Have a reasonable basis to believe that a recommended security-
based swap or trading strategy involving a security-based swap is 
suitable for the counterparty. To establish a reasonable basis for a 
recommendation, a security-based swap dealer must have or obtain 
relevant information regarding the counterparty, including the 
counterparty's investment profile, trading objectives, and its ability 
to absorb potential losses associated with the recommended security-
based swap or trading strategy involving a security-based swap.
    (2) A security-based swap dealer may also fulfill its obligations 
under paragraph (f)(1)(ii) of this section with respect to an 
institutional counterparty, if:
    (i) The security-based swap dealer reasonably determines that the 
counterparty, or an agent to which the counterparty has delegated 
decision-making authority, is capable of independently evaluating 
investment risks with regard to the relevant security-based swap or 
trading strategy involving a security-based swap;
    (ii) The counterparty or its agent affirmatively represents in 
writing that it is exercising independent judgment in evaluating the 
recommendations of the security-based swap dealer with regard to the 
relevant security-based swap or trading strategy involving a security-
based swap; and
    (iii) The security-based swap dealer discloses that it is acting in 
its capacity as a counterparty, and is not undertaking to assess the 
suitability of the security-based swap or trading strategy for the 
counterparty.
    (3) A security-based swap dealer will be deemed to have satisfied 
its obligations under paragraph (f)(2)(i) of this section if it receives 
written representations, as provided in Sec.240.15Fh-1(b), that:
    (i) In the case of a counterparty that is not a special entity, the 
counterparty has complied in good faith with written policies and 
procedures that are reasonably designed to ensure that the persons 
responsible for evaluating the recommendation and making trading 
decisions on behalf of the counterparty are capable of doing so; or
    (ii) In the case of a counterparty that is a special entity, satisfy 
the terms of the safe harbor in Sec.240.15Fh-5(b).
    (4) For purposes of paragraph (f)(2) of this section, an 
institutional counterparty is a counterparty that is an eligible 
contract participant as defined in clauses (A)(i), (ii), (iii), (iv), 
(viii), (ix) or (x), or clause (B)(ii) (other than a person described in 
clause (A)(v)) of section 1a(18) of the Commodity Exchange Act (7 U.S.C. 
1(a)(18)) and the rules and regulations thereunder, or any person 
(whether a natural person, corporation, partnership, trust or otherwise) 
with total assets of at least $50 million.
    (g) Fair and balanced communications. A security-based swap dealer 
or major security-based swap participant shall communicate with 
counterparties in a fair and balanced manner based on principles of fair 
dealing and good faith. In particular:
    (1) Communications must provide a sound basis for evaluating the 
facts with regard to any particular security-based swap or trading 
strategy involving a security-based swap;
    (2) Communications may not imply that past performance will recur or 
make any exaggerated or unwarranted claim, opinion or forecast; and
    (3) Any statement referring to the potential opportunities or 
advantages presented by a security-based swap

[[Page 521]]

shall be balanced by an equally detailed statement of the corresponding 
risks.
    (h) Supervision--(1) In general. A security-based swap dealer or 
major security-based swap participant shall establish and maintain a 
system to supervise, and shall diligently supervise, its business and 
the activities of its associated persons. Such a system shall be 
reasonably designed to prevent violations of the provisions of 
applicable federal securities laws and the rules and regulations 
thereunder relating to its business as a security-based swap dealer or 
major security-based swap participant, respectively.
    (2) Minimum requirements. The system required by paragraph (h)(1) of 
this section shall, at a minimum, provide for:
    (i) The designation of at least one person with authority to carry 
out the supervisory responsibilities of the security-based swap dealer 
or major security-based swap participant for each type of business in 
which it engages for which registration as a security-based swap dealer 
or major security-based swap participant is required;
    (ii) The use of reasonable efforts to determine that all supervisors 
are qualified, either by virtue of experience or training, to carry out 
their assigned responsibilities; and
    (iii) Establishment, maintenance and enforcement of written policies 
and procedures addressing the supervision of the types of security-based 
swap business in which the security-based swap dealer or major security-
based swap participant is engaged and the activities of its associated 
persons that are reasonably designed to prevent violations of applicable 
federal securities laws and the rules and regulations thereunder, and 
that include, at a minimum:
    (A) Procedures for the review by a supervisor of transactions for 
which registration as a security-based swap dealer or major security-
based swap participant is required;
    (B) Procedures for the review by a supervisor of incoming and 
outgoing written (including electronic) correspondence with 
counterparties or potential counterparties and internal written 
communications relating to the security-based swap dealer's or major 
security-based swap participant's business involving security-based 
swaps;
    (C) Procedures for a periodic review, at least annually, of the 
security-based swap business in which the security-based swap dealer or 
major security-based swap participant engages that is reasonably 
designed to assist in detecting and preventing violations of applicable 
federal securities laws and the rules and regulations thereunder;
    (D) Procedures to conduct a reasonable investigation regarding the 
good character, business repute, qualifications, and experience of any 
person prior to that person's association with the security-based swap 
dealer or major security-based swap participant;
    (E) Procedures to consider whether to permit an associated person to 
establish or maintain a securities or commodities account or a trading 
relationship in the name of, or for the benefit of such associated 
person, at another security-based swap dealer, broker, dealer, 
investment adviser, or other financial institution; and if permitted, 
procedures to supervise the trading at the other security-based swap 
dealer, broker, dealer, investment adviser, or financial institution;
    (F) A description of the supervisory system, including the titles, 
qualifications and locations of supervisory persons and the 
responsibilities of each supervisory person with respect to the types of 
business in which the security-based swap dealer or major security-based 
swap participant is engaged;
    (G) Procedures prohibiting an associated person who performs a 
supervisory function from supervising his or her own activities or 
reporting to, or having his or her compensation or continued employment 
determined by, a person or persons he or she is supervising; provided, 
however, that if the security-based swap dealer or major security-based 
swap participant determines, with respect to any of its supervisory 
personnel, that compliance with this requirement is not possible because 
of the firm's size or a supervisory person's position within the firm, 
the security-based swap dealer or major security-based swap participant 
must document

[[Page 522]]

the factors used to reach such determination and how the supervisory 
arrangement with respect to such supervisory personnel otherwise 
complies with paragraph (h)(1) of this section, and include a summary of 
such determination in the annual compliance report prepared by the 
security-based swap dealer's or major security-based swap participant's 
chief compliance officer pursuant to Sec.240.15Fk-1(c);
    (H) Procedures reasonably designed to prevent the supervisory system 
required by paragraph (h)(1) of this section from being compromised due 
to the conflicts of interest that may be present with respect to the 
associated person being supervised, including the position of such 
person, the revenue such person generates for the security-based swap 
dealer or major security-based swap participant, or any compensation 
that the associated person conducting the supervision may derive from 
the associated person being supervised; and
    (I) Procedures reasonably designed, taking into consideration the 
nature of such security-based swap dealer's or major security-based swap 
participant's business, to comply with the duties set forth in section 
15F(j) of the Act.
    (3) Failure to supervise. A security-based swap dealer or major 
security-based swap participant or an associated person of a security-
based swap dealer or major security-based swap participant shall not be 
deemed to have failed to diligently supervise any other person, if such 
other person is not subject to his or her supervision, or if:
    (i) The security-based swap dealer or major security-based swap 
participant has established and maintained written policies and 
procedures as required in Sec.240.15Fh-3(h)(2)(iii), and a documented 
system for applying those policies and procedures, that would reasonably 
be expected to prevent and detect, insofar as practicable, any violation 
of the federal securities laws and the rules and regulations thereunder 
relating to security-based swaps; and
    (ii) The security-based swap dealer or major security-based swap 
participant, or associated person of the security-based swap dealer or 
major security-based swap participant, has reasonably discharged the 
duties and obligations required by such written policies and procedures 
and documented system and did not have a reasonable basis to believe 
that such written policies and procedures and documented system were not 
being followed.
    (4) Maintenance of written supervisory procedures. A security-based 
swap dealer or major security-based swap participant shall:
    (i) Promptly amend its written supervisory procedures as appropriate 
when material changes occur in applicable securities laws or rules or 
regulations thereunder, and when material changes occur in its business 
or supervisory system; and
    (ii) Promptly communicate any material amendments to its supervisory 
procedures to all associated persons to whom such amendments are 
relevant based on their activities and responsibilities.

[81 FR 30144, May 13, 2016]



Sec.240.15Fh-4  Antifraud provisions for security-based swap dealers 
and major security-based swap participants; special requirements
for security-based swap dealers acting as advisors to special entities.

    (a) Antifraud provisions. It shall be unlawful for a security-based 
swap dealer or major security-based swap participant:
    (1) To employ any device, scheme, or artifice to defraud any special 
entity or prospective customer who is a special entity;
    (2) To engage in any transaction, practice, or course of business 
that operates as a fraud or deceit on any special entity or prospective 
customer who is a special entity; or
    (3) To engage in any act, practice, or course of business that is 
fraudulent, deceptive, or manipulative.
    (b) Special requirements for security-based swap dealers acting as 
advisors to special entities. A security-based swap dealer that acts as 
an advisor to a special entity regarding a security-based swap shall 
comply with the following requirements:

[[Page 523]]

    (1) Duty. The security-based swap dealer shall have a duty to make a 
reasonable determination that any security-based swap or trading 
strategy involving a security-based swap recommended by the security-
based swap dealer is in the best interests of the special entity.
    (2) Reasonable efforts. The security-based swap dealer shall make 
reasonable efforts to obtain such information that the security-based 
swap dealer considers necessary to make a reasonable determination that 
a security-based swap or trading strategy involving a security-based 
swap is in the best interests of the special entity. This information 
shall include, but not be limited to:
    (i) The authority of the special entity to enter into a security-
based swap;
    (ii) The financial status of the special entity, as well as future 
funding needs;
    (iii) The tax status of the special entity;
    (iv) The hedging, investment, financing or other objectives of the 
special entity;
    (v) The experience of the special entity with respect to entering 
into security-based swaps, generally, and security-based swaps of the 
type and complexity being recommended;
    (vi) Whether the special entity has the financial capability to 
withstand changes in market conditions during the term of the security-
based swap; and
    (vii) Such other information as is relevant to the particular facts 
and circumstances of the special entity, market conditions and the type 
of security-based swap or trading strategy involving a security-based 
swap being recommended.
    (3) Exception. The requirements of this paragraph (b) shall not 
apply with respect to a security-based swap if:
    (i) The transaction is executed on a registered or exempt security-
based swap execution facility or registered national securities 
exchange; and
    (ii) The security-based swap dealer does not know the identity of 
the counterparty at a reasonably sufficient time prior to execution of 
the transaction to permit the security-based swap dealer to comply with 
the obligations of paragraph (b) of this section.

[81 FR 30144, May 13, 2016]



Sec.240.15Fh-5  Special requirements for security-based swap dealers
and major security-based swap participants acting as counterparties 
to special entities.

    (a)(1) A security-based swap dealer or major security-based swap 
participant that offers to enter into or enters into a security-based 
swap with a special entity, other than a special entity defined in Sec.
240.15Fh-2(d)(3), must have a reasonable basis to believe that the 
special entity has a qualified independent representative. For these 
purposes, a qualified independent representative is a representative 
that:
    (i) Has sufficient knowledge to evaluate the transaction and risks;
    (ii) Is not subject to a statutory disqualification;
    (iii) Undertakes a duty to act in the best interests of the special 
entity;
    (iv) Makes appropriate and timely disclosures to the special entity 
of material information concerning the security-based swap;
    (v) Evaluates, consistent with any guidelines provided by the 
special entity, the fair pricing and the appropriateness of the 
security-based swap;
    (vi) In the case of a special entity defined in Sec.Sec.240.15Fh-
2(d)(2) or (5), is a person that is subject to rules of the Commission, 
the Commodity Futures Trading Commission or a self-regulatory 
organization subject to the jurisdiction of the Commission or the 
Commodity Futures Trading Commission prohibiting it from engaging in 
specified activities if certain political contributions have been made, 
provided that this paragraph (a)(1)(vi) shall not apply if the 
independent representative is an employee of the special entity; and
    (vii) Is independent of the security-based swap dealer or major 
security-based swap participant.
    (A) A representative of a special entity is independent of a 
security-based swap dealer or major security-based swap participant if 
the representative does not have a relationship with the security-based 
swap dealer or major security-based swap participant, whether

[[Page 524]]

compensatory or otherwise, that reasonably could affect the independent 
judgment or decision-making of the representative.
    (B) A representative of a special entity will be deemed to be 
independent of a security-based swap dealer or major security-based swap 
participant if:
    (1) The representative is not and, within one year of representing 
the special entity in connection with the security-based swap, was not 
an associated person of the security-based swap dealer or major 
security-based swap participant;
    (2) The representative provides timely disclosures to the special 
entity of all material conflicts of interest that could reasonably 
affect the judgment or decision making of the representative with 
respect to its obligations to the special entity and complies with 
policies and procedures reasonably designed to manage and mitigate such 
material conflicts of interest; and
    (3) The security-based swap dealer or major security-based swap 
participant did not refer, recommend, or introduce the representative to 
the special entity within one year of the representative's 
representation of the special entity in connection with the security-
based swap.
    (2) A security-based swap dealer or major security-based swap 
participant that offers to enter into or enters into a security-based 
swap with a special entity as defined in Sec.240.15Fh-2(d)(3) must 
have a reasonable basis to believe that the special entity has a 
representative that is a fiduciary as defined in section 3 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002).
    (b) Safe harbor. (1) A security-based swap dealer or major security-
based swap participant shall be deemed to have a reasonable basis to 
believe that the special entity, other than a special entity defined in 
Sec.240.15Fh-2(d)(3), has a representative that satisfies the 
applicable requirements of paragraph (a)(1) of this section, provided 
that:
    (i) The special entity represents in writing to the security-based 
swap dealer or major security-based swap participant that it has 
complied in good faith with written policies and procedures reasonably 
designed to ensure that it has selected a representative that satisfies 
the applicable requirements of paragraph (a)(1) of this section, and 
that such policies and procedures provide for ongoing monitoring of the 
performance of such representative consistent with the requirements of 
paragraph (a)(1) of this section; and
    (ii) The representative represents in writing to the special entity 
and security-based swap dealer or major security-based swap participant 
that the representative:
    (A) Has policies and procedures reasonably designed to ensure that 
it satisfies the applicable requirements of paragraph (a)(1) of this 
section;
    (B) Meets the independence test in paragraph (a)(1)(vii) of this 
section; has the knowledge required under paragraph (a)(1)(i) of this 
section; is not subject to a statutory disqualification under paragraph 
(a)(1)(ii) of this section; undertakes a duty to act in the best 
interests of the special entity as required under paragraph (a)(1)(iii) 
of this section; and is subject to the requirements regarding political 
contributions, as applicable, under paragraph (a)(1)(vi) of this 
section; and
    (C) Is legally obligated to comply with the applicable requirements 
of paragraph (a)(1) of this section by agreement, condition of 
employment, law, rule, regulation, or other enforceable duty.
    (2) A security-based swap dealer or major security-based swap 
participant shall be deemed to have a reasonable basis to believe that a 
special entity defined in Sec.240.15Fh-2(d)(3) of this section has a 
representative that satisfies the applicable requirements in paragraph 
(a)(2) of this section, provided that the special entity provides in 
writing to the security-based swap dealer or major security-based swap 
participant the representative's name and contact information, and 
represents in writing that the representative is a fiduciary as defined 
in section 3 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1002).
    (c) Before initiation of a security-based swap with a special 
entity, a security-based swap dealer shall disclose to the special 
entity in writing the capacity in which the security-based swap dealer 
is acting in connection

[[Page 525]]

with the security-based swap and, if the security-based swap dealer 
engages in business with the counterparty in more than one capacity, the 
security-based swap dealer shall disclose the material differences 
between such capacities and any other financial transaction or service 
involving the counterparty.
    (d) The requirements of this section shall not apply with respect to 
a security-based swap if:
    (1) The transaction is executed on a registered or exempt security-
based swap execution facility or registered national securities 
exchange; and
    (2) The security-based swap dealer or major security-based swap 
participant does not know the identity of the counterparty at a 
reasonably sufficient time prior to execution of the transaction to 
permit the security-based swap dealer or major security-based swap 
participant to comply with the obligations of paragraphs (a) through (c) 
of this section.

[81 FR 30144, May 13, 2016]



Sec.240.15Fh-6  Political contributions by certain security-based
swap dealers.

    (a) Definitions. For the purposes of this section:
    (1) The term contribution means any gift, subscription, loan, 
advance, or deposit of money or anything of value made:
    (i) For the purpose of influencing any election for federal, state 
or local office;
    (ii) For payment of debt incurred in connection with any such 
election; or
    (iii) For transition or inaugural expenses incurred by the 
successful candidate for state or local office.
    (2) The term covered associate means:
    (i) Any general partner, managing member or executive officer, or 
other person with a similar status or function;
    (ii) Any employee who solicits a municipal entity to enter into a 
security-based swap with the security-based swap dealer and any person 
who supervises, directly or indirectly, such employee; and
    (iii) A political action committee controlled by the security-based 
swap dealer or by a person described in paragraphs (a)(2)(i) and (ii) of 
this section.
    (3) The term executive officer of a security-based swap dealer 
means:
    (i) The president;
    (ii) Any vice president in charge of a principal business unit, 
division or function (such as sales, administration or finance);
    (iii) Any other officer of the security-based swap dealer who 
performs a policy-making function; or
    (iv) Any other person who performs similar policy-making functions 
for the security-based swap dealer.
    (4) The term municipal entity is defined in section 15B(e)(8) of the 
Act.
    (5) The term official of a municipal entity means any person 
(including any election committee for such person) who was, at the time 
of the contribution, an incumbent, candidate or successful candidate for 
elective office of a municipal entity, if the office:
    (i) Is directly or indirectly responsible for, or can influence the 
outcome of, the selection of a security-based swap dealer by a municipal 
entity; or
    (ii) Has authority to appoint any person who is directly or 
indirectly responsible for, or can influence the outcome of, the 
selection of a security-based swap dealer by a municipal entity.
    (6) The term payment means any gift, subscription, loan, advance, or 
deposit of money or anything of value.
    (7) The term regulated person means:
    (i) A person that is subject to rules of the Commission, the 
Commodity Futures Trading Commission or a self-regulatory organization 
subject to the jurisdiction of the Commission or the Commodity Futures 
Trading Commission prohibiting it from engaging in specified activities 
if certain political contributions have been made, or its officers or 
employees;
    (ii) A general partner, managing member or executive officer of such 
person, or other individual with a similar status or function; or
    (iii) An employee of such person who solicits a municipal entity for 
the security-based swap dealer and any person who supervises, directly 
or indirectly, such employee.
    (8) The term solicit means a direct or indirect communication by any 
person

[[Page 526]]

with a municipal entity for the purpose of obtaining or retaining an 
engagement related to a security-based swap.
    (b) Prohibitions and exceptions. (1) It shall be unlawful for a 
security-based swap dealer to offer to enter into, or enter into, a 
security-based swap, or a trading strategy involving a security-based 
swap, with a municipal entity within two years after any contribution to 
an official of such municipal entity was made by the security-based swap 
dealer, or by any covered associate of the security-based swap dealer.
    (2) The prohibition in paragraph (b)(1) of this section does not 
apply:
    (i) If the only contributions made by the security-based swap dealer 
to an official of such municipal entity were made by a covered 
associate, if a natural person:
    (A) To officials for whom the covered associate was entitled to vote 
at the time of the contributions, if the contributions in the aggregate 
do not exceed $350 to any one official per election; or
    (B) To officials for whom the covered associate was not entitled to 
vote at the time of the contributions, if the contributions in the 
aggregate do not exceed $150 to any one official, per election;
    (ii) To a security-based swap dealer as a result of a contribution 
made by a natural person more than six months prior to becoming a 
covered associate of the security-based swap dealer, however, this 
exclusion shall not apply if the natural person, after becoming a 
covered associate, solicits the municipal entity on behalf of the 
security-based swap dealer to offer to enter into, or to enter into, 
security-based swap, or a trading strategy involving a security-based 
swap; or
    (iii) With respect to a security-based swap that is executed on a 
registered national securities exchange or registered or exempt 
security-based swap execution facility where the security-based swap 
dealer does not know the identity of the counterparty to the transaction 
at a reasonably sufficient time prior to execution of the transaction to 
permit the security-based swap dealer to comply with the obligations of 
paragraph (b)(1) of this section.
    (3) No security-based swap dealer or any covered associate of the 
security-based swap dealer shall:
    (i) Provide or agree to provide, directly or indirectly, payment to 
any person to solicit a municipal entity to offer to enter into, or to 
enter into, a security-based swap or any trading strategy involving a 
security-based swap with that security-based swap dealer unless such 
person is a regulated person; or
    (ii) Coordinate, or solicit any person or political action committee 
to make, any:
    (A) Contribution to an official of a municipal entity with which the 
security-based swap dealer is offering to enter into, or has entered 
into, a security-based swap or a trading strategy involving a security-
based swap; or
    (B) Payment to a political party of a state or locality with which 
the security-based swap dealer is offering to enter into, or has entered 
into, a security-based swap or a trading strategy involving a security-
based swap.
    (c) Circumvention of rule. No security-based swap dealer shall, 
directly or indirectly, through or by any other person or means, do any 
act that would result in a violation of paragraph (a) or (b) of this 
section.
    (d) Requests for exemption. The Commission, upon application, may 
conditionally or unconditionally exempt a security-based swap dealer 
from the prohibition under paragraph (b)(1) of this section. In 
determining whether to grant an exemption, the Commission will consider, 
among other factors:
    (1) Whether the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes of the Act;
    (2) Whether the security-based swap dealer:
    (i) Before the contribution resulting in the prohibition was made, 
adopted and implemented policies and procedures reasonably designed to 
prevent violations of this section;
    (ii) Prior to or at the time the contribution which resulted in such 
prohibition was made, had no actual knowledge of the contribution; and
    (iii) After learning of the contribution:

[[Page 527]]

    (A) Has taken all available steps to cause the contributor involved 
in making the contribution which resulted in such prohibition to obtain 
a return of the contribution; and
    (B) Has taken such other remedial or preventive measures as may be 
appropriate under the circumstances;
    (3) Whether, at the time of the contribution, the contributor was a 
covered associate or otherwise an employee of the security-based swap 
dealer, or was seeking such employment;
    (4) The timing and amount of the contribution which resulted in the 
prohibition;
    (5) The nature of the election (e.g., federal, state or local); and
    (6) The contributor's apparent intent or motive in making the 
contribution that resulted in the prohibition, as evidenced by the facts 
and circumstances surrounding the contribution.
    (e) Prohibitions inapplicable. (1) The prohibitions under paragraph 
(b) of this section shall not apply to a contribution made by a covered 
associate of the security-based swap dealer if:
    (i) The security-based swap dealer discovered the contribution 
within 120 calendar days of the date of such contribution;
    (ii) The contribution did not exceed $350; and
    (iii) The covered associate obtained a return of the contribution 
within 60 calendar days of the date of discovery of the contribution by 
the security-based swap dealer.
    (2) A security-based swap dealer that has more than 50 covered 
associates may not rely on paragraph (e)(1) of this section more than 
three times in any 12-month period, while a security-based swap dealer 
that has 50 or fewer covered associates may not rely on paragraph (e)(1) 
of this section more than twice in any 12-month period.
    (3) A security-based swap dealer may not rely on paragraph (e)(1) of 
this section more than once for any covered associate, regardless of the 
time between contributions.

[81 FR 30144, May 13, 2016]



Sec.240.15Fi-1  Definitions.

    For the purposes of Sec.240.15Fi-1 and Sec.240.15Fi-2:
    (a) The term business day means any day other than a Saturday, 
Sunday, or legal holiday.
    (b) The term clearing agency means a clearing agency as defined in 
section 3(a)(23) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(23)) that is registered pursuant to section 17A of the Securities 
Exchange Act of 1934 (15 U.S.C. 78q-1) and provides central counterparty 
services for security-based swap transactions.
    (c) The term clearing transaction means a security-based swap that 
has a clearing agency as a direct counterparty.
    (d) The term day of execution means the calendar day of the 
counterparty to the security-based swap transaction that ends the 
latest, provided that if a security-based swap transaction is
    (1) Entered into after 4:00 p.m. in the place of a counterparty; or
    (2) Entered into on a day that is not a business day in the place of 
a counterparty, then such security-based swap transaction shall be 
deemed to have been entered into by that counterparty on the immediately 
succeeding business day of that counterparty, and the day of execution 
shall be determined with reference to such business day.
    (e) The term execution means the point at which the counterparties 
become irrevocably bound to a transaction under applicable law.
    (f) The term security-based swap execution facility means a 
security-based swap execution facility as defined in section 3(a)(77) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) that is 
registered pursuant to section 3D of the Securities Exchange Act of 1934 
(15 U.S.C. 78c-4).
    (g) The term national securities exchange means an exchange as 
defined in section 3(a)(1) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(1)) that is registered pursuant to section 6 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78f).
    (h) The term trade acknowledgment means a written or electronic 
record of a security-based swap transaction sent by one counterparty of 
the security-based swap transaction to the other.

[[Page 528]]

    (i) The term verification means the process by which a trade 
acknowledgment has been manually, electronically, or by some other 
legally equivalent means, signed by the receiving counterparty.

[81 FR 39844, June 17, 2016]

    Effective Date Note: At 85 FR 6352, Feb. 4, 2020, Sec.240.15Fi-1 
was revised, effective Apr. 6, 2020. For the convenience of the user, 
the revised text is set forth as follows:



Sec.240.15Fi-1  Definitions.

    For the purposes of Sec.Sec.240.15Fi-1 through 240.15Fi-5:
    (a) The term bilateral portfolio compression exercise means an 
exercise by which two security-based swap counterparties wholly 
terminate or change the notional value of some or all of the security-
based swaps submitted by the counterparties for inclusion in the 
portfolio compression exercise and, depending on the methodology 
employed, replace the terminated security-based swaps with other 
security-based swaps whose combined notional value (or some other 
measure of risk) is less than the combined notional value (or some other 
measure of risk) of the terminated security-based swaps in the exercise.
    (b) The term business day means any day other than a Saturday, 
Sunday, or legal holiday.
    (c) Solely for purposes of Sec.240.15Fi-2, the term clearing 
agency means a clearing agency as defined in section 3(a)(23) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(23)) that is 
registered pursuant to section 17A of the Securities Exchange Act of 
1934 (15 U.S.C. 78q-1) and provides central counterparty services for 
security-based swap transactions.
    (d) The term clearing transaction means a security-based swap that 
has a clearing agency as a direct counterparty.
    (e) The term day of execution means the calendar day of the 
counterparty to the security-based swap transaction that ends the 
latest, provided that if a security-based swap transaction is:
    (1) Entered into after 4:00 p.m. in the place of a counterparty; or
    (2) Entered into on a day that is not a business day in the place of 
a counterparty, then such security-based swap transaction shall be 
deemed to have been entered into by that counterparty on the immediately 
succeeding business day of that counterparty, and the day of execution 
shall be determined with reference to such business day.
    (f) The term execution means the point at which the counterparties 
become irrevocably bound to a transaction under applicable law.
    (g) The term financial counterparty means a counterparty that is not 
a security-based swap dealer or a major security-based swap participant 
and that is one of the following:
    (1) A swap dealer;
    (2) A major swap participant;
    (3) A commodity pool as defined in section 1a(10) of the Commodity 
Exchange Act (7 U.S.C. 1a(10));
    (4) A private fund as defined in section 202(a)(29) of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a));
    (5) An employee benefit plan as defined in paragraphs (3) and (32) 
of section 3 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1002); and
    (6) A person predominantly engaged in activities that are in the 
business of banking, or in activities that are financial in nature, as 
defined in section 4(k) of the Bank Holding Company Act of 1956 (12 
U.S.C. 1843k).
    (h) The term fully offsetting security-based swaps means security-
based swaps of equivalent terms where no net cash flow would be owed to 
either counterparty after the offset of payment obligations thereunder.
    (i) The term material terms means each term that is required to be 
reported to a registered security-based swap data repository or the 
Commission pursuant to Sec.242.901 of this chapter; provided, however, 
that such definition does not include any term that is not relevant to 
the ongoing rights and obligations of the parties and the valuation of 
the security-based swap.
    (j) The term multilateral portfolio compression exercise means an 
exercise by which multiple security-based swap counterparties wholly 
terminate or change the notional value of some or all of the security-
based swaps submitted by the counterparties for inclusion in the 
portfolio compression exercise and, depending on the methodology 
employed, replace the terminated security-based swaps with other 
security-based swaps whose combined notional value (or some other 
measure of risk) is less than the combined notional value (or some other 
measure of risk) of the terminated security-based swaps in the exercise.
    (k) The term national securities exchange means an exchange as 
defined in section 3(a)(1) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(1)) that is registered pursuant to section 6 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78f).
    (l) The term portfolio reconciliation means any process by which the 
counterparties to one or more security-based swaps:
    (1) Exchange the material terms of all security-based swaps in the 
security-based swap portfolio between the counterparties;
    (2) Exchange each counterparty's valuation of each security-based 
swap in the security-based swap portfolio between the counterparties as 
of the close of business on the immediately preceding business day; and
    (3) Resolve any discrepancy in valuations or material terms.

[[Page 529]]

    (m) The term prudential regulator has the meaning given to the term 
in section 3(a)(74) of the Act (15 U.S.C. 78c(a)(74)) and includes the 
Board of Governors of the Federal Reserve System, the Office of the 
Comptroller of the Currency, the Federal Deposit Insurance Corporation, 
the Farm Credit Association, and the Federal Housing Finance Agency, as 
applicable to the security-based swap dealer or major security-based 
swap participant.
    (n) The term security-based swap execution facility means a 
security-based swap execution facility as defined in section 3(a)(77) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) that is 
registered pursuant to section 3D of the Securities Exchange Act of 1934 
(15 U.S.C. 78c-4).
    (o) The term security-based swap portfolio means all security-based 
swaps currently in effect between a particular security-based swap 
dealer or major security-based swap participant and a particular 
counterparty.
    (p) The term trade acknowledgment means a written or electronic 
record of a security-based swap transaction sent by one counterparty of 
the security-based swap transaction to the other.
    (q) The term valuation means the current market value or net present 
value of a security-based swap.
    (r) The term verification means the process by which a trade 
acknowledgment has been manually, electronically, or by some other 
legally equivalent means, signed by the receiving counterparty.



Sec.240.15Fi-2  Acknowledgment and verification of security-based 
swap transactions.

    (a) Trade acknowledgment requirement. In any transaction in which a 
security-based swap dealer or major security-based swap participant 
purchases from or sells to any counterparty a security-based swap, a 
trade acknowledgment must be provided by:
    (1) The security-based swap dealer, if the transaction is between a 
security-based swap dealer and a major security-based swap participant;
    (2) The security-based swap dealer or major security-based swap 
participant, if only one counterparty in the transaction is a security-
based swap dealer or major security-based swap participant; or
    (3) The counterparty that the counterparties have agreed will 
provide the trade acknowledgment in any transaction other than one 
described by paragraph (a)(1) or (a)(2) of this section.
    (b) Prescribed time. Any trade acknowledgment required by paragraph 
(a) of this section must be provided promptly, but in any event by the 
end of the first business day following the day of execution.
    (c) Form and content of trade acknowledgment. Any trade 
acknowledgment required by paragraph (a) of this section must be 
provided through electronic means that provide reasonable assurance of 
delivery and a record of transmittal, and must disclose all the terms of 
the security-based swap transaction.
    (d) Trade verification. (1) A security-based swap dealer or major 
security-based swap participant must establish, maintain, and enforce 
written policies and procedures that are reasonably designed to obtain 
prompt verification of the terms of a trade acknowledgment provided 
pursuant to paragraph (a) of this section.
    (2) A security-based swap dealer or major security-based swap 
participant must promptly verify the accuracy of, or dispute with its 
counterparty, the terms of a trade acknowledgment it receives pursuant 
to paragraph (a) of this section.
    (e) Exception for clearing transactions. A security-based swap 
dealer or major security-based swap participant is excepted from the 
requirements of this section with respect to any clearing transaction.
    (f) Exception for transactions executed on a security-based swap 
execution facility or national securities exchange or accepted for 
clearing by a clearing agency.
    (1) A security-based swap dealer or major security-based swap 
participant is excepted from the requirements of this subsection with 
respect to any security-based swap transaction executed on a security-
based swap execution facility or national securities exchange, provided 
that the rules, procedures or processes of the security-based swap 
execution facility or national securities exchange provide for the 
acknowledgment and verification of all terms of the security-based swap 
transaction no later than the time required by paragraphs (b) and (d)(2) 
of this section.

[[Page 530]]

    (2) A security-based swap dealer or major security-based swap 
participant is excepted from the requirements of this subsection with 
respect to any security-based swap transaction that is submitted for 
clearing to a clearing agency, provided that:
    (i) The security-based swap transaction is submitted for clearing as 
soon as technologically practicable, but in any event no later than the 
time established for providing a trade acknowledgment under paragraph 
(b) of this section; and
    (ii) The rules, procedures or processes of the clearing agency 
provide for the acknowledgment and verification of all terms of the 
security-based swap transaction prior to or at the same time that the 
security-based swap transaction is accepted for clearing.
    (3) If a security-based swap dealer or major security-based swap 
participant receives notice that a security-based swap transaction has 
not been acknowledged and verified pursuant to the rules, procedures or 
processes of a security-based swap execution facility or a national 
securities exchange, or accepted for clearing by a clearing agency, the 
security-based swap dealer or major security-based swap participant 
shall comply with the requirements of this section with respect to such 
security-based swap transaction as if such security-based swap 
transaction were executed at the time the security-based swap dealer or 
major security-based swap participant receives such notice.
    (g) Exemption from Sec.240.10b-10. A security-based swap dealer or 
major security-based swap participant that is also a broker or dealer, 
is purchasing from or selling to any counterparty, and that complies 
with paragraph (a) or (d)(2) of this section with respect to the 
security-based swap transaction, is exempt from the requirements of 
Sec.240.10b-10 with respect to the security-based swap transaction.

[81 FR 39844, June 17, 2016]



Sec.240.15Fi-3  Security-based swap portfolio reconciliation.

    (a) Security-based swaps with security-based swap dealers or major 
security-based swap participants. Each security-based swap dealer and 
major security-based swap participant shall engage in portfolio 
reconciliation as follows for all security-based swaps in which its 
counterparty is also a security-based swap dealer or major security-
based swap participant.
    (1) Each security-based swap dealer or major security-based swap 
participant shall agree in writing with each of its counterparties on 
the terms of the portfolio reconciliation including, if applicable, 
agreement on the selection of any third party service provider who may 
be performing the portfolio reconciliation.
    (2) The portfolio reconciliation may be performed on a bilateral 
basis by the counterparties or by a third party selected by the 
counterparties in accordance with paragraph (a)(1) of this section.
    (3) The portfolio reconciliation shall be performed no less 
frequently than:
    (i) Once each business day for each security-based swap portfolio 
that includes 500 or more security-based swaps;
    (ii) Once each week for each security-based swap portfolio that 
includes more than 50 but fewer than 500 security-based swaps on any 
business day during the week; and
    (iii) Once each calendar quarter for each security-based swap 
portfolio that includes no more than 50 security-based swaps at any time 
during the calendar quarter.
    (4) Each security-based swap dealer and major security-based swap 
participant shall resolve immediately any discrepancy in a material term 
of a security-based swap identified as part of a portfolio 
reconciliation or otherwise.
    (5) Each security-based swap dealer and major security-based swap 
participant shall establish, maintain, and follow written policies and 
procedures reasonably designed to resolve any discrepancy in a valuation 
identified as part of a portfolio reconciliation or otherwise as soon as 
possible, but in any event within five business days after the date on 
which the discrepancy is first identified, provided that the security-
based swap dealer and major security-based swap participant establishes, 
maintains, and follows written policies and procedures reasonably 
designed to identify how the security-

[[Page 531]]

based swap dealer or major security-based swap participant will comply 
with any variation margin requirements under section 15F(e) of the Act 
(15 U.S.C. 78o-10(e)) and Sec.240.18a-3 (and any subsequent 
regulations promulgated pursuant to section 15F(e) of the Act (15 U.S.C. 
78o-10(e))) pending resolution of the discrepancy in valuation. For 
purposes of this paragraph (a)(5), a difference between the lower 
valuation and the higher valuation of less than 10 percent of the higher 
valuation need not be deemed a discrepancy.
    (b) Security-based swaps with entities other than security-based 
swap dealers or major security-based swap participants. Each security-
based swap dealer and major security-based swap participant shall 
establish, maintain, and follow written policies and procedures 
reasonably designed to ensure that it engages in portfolio 
reconciliation for all security-based swaps in which its counterparty is 
neither a security-based swap dealer nor a major security-based swap 
participant as follows.
    (1) Each security-based swap dealer or major security-based swap 
participant shall agree in writing with each of its counterparties on 
the terms of the portfolio reconciliation including, if applicable, 
agreement on the selection of any third party service provider who may 
be performing the reconciliation.
    (2) The portfolio reconciliation may be performed on a bilateral 
basis by the counterparties or by one or more third parties selected by 
the counterparties in accordance with paragraph (b)(1) of this section.
    (3) The portfolio reconciliation will be required to be performed no 
less frequently than:
    (i) Once each calendar quarter for each security-based swap 
portfolio that includes more than 100 security-based swaps at any time 
during the calendar quarter; and
    (ii) Once annually for each security-based swap portfolio that 
includes no more than 100 security-based swaps at any time during the 
calendar year.
    (4) Each security-based swap dealer or major security-based swap 
participant shall establish, maintain, and follow written procedures 
reasonably designed to resolve any discrepancies in the valuation or 
material terms of each security-based swap identified as part of a 
portfolio reconciliation or otherwise with a counterparty that is 
neither a security-based swap dealer nor major security-based swap 
participant in a timely fashion. For purposes of this paragraph (b)(4), 
a difference between the lower valuation and the higher valuation of 
less than 10 percent of the higher valuation need not be deemed a 
discrepancy.
    (c) Reporting of security-based swap valuation disputes--(1) Notice 
requirement. Each security-based swap dealer and major security-based 
swap participant shall promptly notify the Commission, in a form and 
manner acceptable to the Commission, and any applicable prudential 
regulator of any security-based swap valuation dispute in excess of 
$20,000,000 (or its equivalent in any other currency), at either the 
transaction or portfolio level, if not resolved within:
    (i) Three business days, if the dispute is with a counterparty that 
is a security-based swap dealer or major security-based swap 
participant; or
    (ii) Five business days, if the dispute is with a counterparty that 
is not a security-based swap dealer or major security-based swap 
participant.
    (2) Amendments. Each security-based swap dealer and major security-
based swap participant shall notify the Commission, in a form and manner 
acceptable to the Commission, and any applicable prudential regulator, 
if the amount of any security-based swap valuation dispute that was the 
subject of a previous notice made pursuant to paragraph (c)(1) of this 
section increases or decreases by more than $20,000,000 (or its 
equivalent in any other currency), at either the transaction or 
portfolio level. Such amended notice shall be provided to the Commission 
and any applicable prudential regulator no later than the last business 
day of the calendar month in which the applicable security-based swap 
valuation dispute increases or decreases by the applicable dispute 
amount.
    (d) Reconciliation of cleared security-based swaps. Nothing in this 
section shall apply to any security-based swap that is, directly or 
indirectly, submitted to and cleared by a clearing

[[Page 532]]

agency registered pursuant to section 17A of the Act (15 U.S.C. 78q-1) 
or by a clearing agency that the Commission has exempted from 
registration by rule or order pursuant to section 17A of the Act (15 
U.S.C. 78q-1).

[85 FR 6413, Feb. 4, 2020]

    Effective Date Note: 85 FR 6413, Feb. 4, 2020, Sec.240.15Fi-3 was 
added, effective Apr. 6, 2020.



Sec.240.15Fi-4  Security-based swap portfolio compression.

    (a) Portfolio compression with security-based swap dealers and major 
security-based swap participants--(1) Bilateral offset. Each security-
based swap dealer and major security-based swap participant shall 
establish, maintain, and follow written policies and procedures for 
terminating each fully offsetting security-based swap between a 
security-based swap dealer or major security-based swap participant and 
another security-based swap dealer or major security-based swap 
participant in a timely fashion, when appropriate.
    (2) Bilateral compression. Each security-based swap dealer and major 
security-based swap participant shall establish, maintain, and follow 
written policies and procedures for periodically engaging in bilateral 
portfolio compression exercises, when appropriate, with each 
counterparty that is also a security-based swap dealer or major 
security-based swap participant. Such policies and procedures shall 
address, among other things, the evaluation of bilateral portfolio 
compression exercises that are initiated, offered, or sponsored by any 
third party.
    (3) Multilateral compression. Each security-based swap dealer and 
major security-based swap participant shall establish, maintain, and 
follow written policies and procedures for periodically engaging in 
multilateral portfolio compression exercises, when appropriate, with 
each counterparty that is also a security-based swap dealer or major 
security-based swap participant. Such policies and procedures shall 
address, among other things, the evaluation of multilateral portfolio 
compression exercises that are initiated, offered, or sponsored by any 
third party.
    (b) Portfolio compression with counterparties other than security-
based swap dealers and major security-based swap participants. Each 
security-based swap dealer and major security-based swap participant 
shall establish, maintain, and follow written policies and procedures 
for periodically terminating fully offsetting security-based swaps and 
for engaging in bilateral or multilateral portfolio compression 
exercises with respect to security-based swaps in which its counterparty 
is an entity other than a security-based swap dealer or major security-
based swap participant, when appropriate and to the extent requested by 
any such counterparty.
    (c) Portfolio compression of cleared security-based swaps. Nothing 
in this section shall apply to any security-based swap that is, directly 
or indirectly, submitted to and cleared by a clearing agency registered 
pursuant to section 17A of the Act (15 U.S.C. 78q-1) or by a clearing 
agency that the Commission has exempted from registration by rule or 
order pursuant to section 17A of the Act (15 U.S.C. 78q-1).

[85 FR 6414, Feb. 4, 2020]

    Effective Date Note: 85 FR 6414, Feb. 4, 2020, Sec.240.15Fi-4 was 
added, effective Apr. 6, 2020.



Sec.240.15Fi-5  Security-based swap trading relationship documentation.

    (a) Scope--(1) Applicability. The requirements of this section shall 
not apply to:
    (i) Security-based swaps executed prior to the date on which a 
security-based swap dealer or major security-based swap participant is 
required to be in compliance with this section;
    (ii) Any security-based swap that is, directly or indirectly, 
submitted to and cleared by a clearing agency registered pursuant to 
section 17A of the Act (15 U.S.C. 78q-1) or by a clearing agency that 
the Commission has exempted from registration by rule or order pursuant 
to section 17A of the Act (15 U.S.C. 78q-1); and
    (iii) Security-based swaps executed anonymously on a national 
securities exchange or a security-based swap execution facility, 
Provided that:
    (A) Such security-based swaps are intended to be cleared and are 
actually submitted for clearing to a clearing agency;

[[Page 533]]

    (B) All terms of such security-based swaps conform to the rules of 
the clearing agency; and
    (C) Upon acceptance of such security-based swap by the clearing 
agency:
    (1) The original security-based swap is extinguished;
    (2) The original security-based swap is replaced by equal and 
opposite security-based swaps with the clearing agency; and
    (3) All terms of the security-based swap shall conform to the 
product specifications of the cleared security-based swap established 
under the clearing agency's rules; and Provided further, That if a 
security-based swap dealer or major security-based swap participant 
receives notice that a security-based swap transaction has not been 
accepted for clearing by a clearing agency, the security-based swap 
dealer or major security-based swap participant shall be required to 
comply with the requirements of this section in all respects promptly 
after receipt of such notice.
    (2) Policies and procedures. Each security-based swap dealer and 
major security-based swap participant shall establish, maintain, and 
follow written policies and procedures reasonably designed to ensure 
that the security-based swap dealer or major security-based swap 
participant executes written security-based swap trading relationship 
documentation with its counterparty that complies with the requirements 
of this section. The policies and procedures shall be approved in 
writing by a senior officer of the security-based swap dealer or major 
security-based swap participant, and a record of the approval shall be 
retained. Other than trade acknowledgements and verifications of 
security-based swap transactions under Sec.240.15Fi-2, the security-
based swap trading relationship documentation shall be executed prior 
to, or contemporaneously with, executing a security-based swap with any 
counterparty.
    (b) Security-based swap trading relationship documentation. (1) The 
security-based swap trading relationship documentation shall be in 
writing and shall include all terms governing the trading relationship 
between the security-based swap dealer or major security-based swap 
participant and its counterparty, including, without limitation, terms 
addressing payment obligations, netting of payments, events of default 
or other termination events, calculation and netting of obligations upon 
termination, transfer of rights and obligations, governing law, 
valuation, and dispute resolution.
    (2) The security-based swap trading relationship documentation shall 
include all trade acknowledgements and verifications of security-based 
swap transactions under Sec.240.15Fi-2.
    (3) The security-based swap trading relationship documentation shall 
include credit support arrangements, which shall contain, in accordance 
with applicable requirements under Commission regulations or regulations 
adopted by prudential regulators and without limitation, the following:
    (i) Initial and variation margin requirements, if any;
    (ii) Types of assets that may be used as margin and asset valuation 
haircuts, if any;
    (iii) Investment and re-hypothecation terms for assets used as 
margin for uncleared security-based swaps, if any; and
    (iv) Custodial arrangements for margin assets, including whether 
margin assets are to be segregated with an independent third party, in 
accordance with the notice requirement in section 3E(f)(1)(A) of the Act 
(15 U.S.C. 78c-5(f)(1)(A)) (and either Sec.240.15c3-3(p)(4)(i) or 
Sec.240.18a-4(d)(1) thereunder, as applicable), if any.
    (4)(i) The security-based swap trading relationship documentation 
between security-based swap dealers, between major security-based swap 
participants, between a security-based swap dealer and major security-
based swap participant, between a security-based swap dealer or major 
security-based swap participant and a financial counterparty, and, if 
requested by any other counterparty, between a security-based swap 
dealer or major security-based swap participant and such counterparty, 
shall include written documentation in which the parties agree on the 
process, which may include any agreed upon methods, procedures, rules, 
and inputs, for determining the value of each security-based swap at any 
time from execution

[[Page 534]]

to the termination, maturity, or expiration of such security-based swap 
for the purposes of complying with the margin requirements under section 
15F(e) of the Act (15 U.S.C. 78o-10(e)) and Sec.240.18a-3 (and any 
subsequent regulations promulgated pursuant to section 15F(e) of the Act 
(15 U.S.C. 78o-10(e))), and the risk management requirements under 
section 15F(j) of the Act (15 U.S.C. 78o-10(j)) of the Act and Sec.
240.15Fh-3(h)(2)(iii)(I) (and any subsequent regulations promulgated 
pursuant to section 15F(j) of the Act (15 U.S.C. 78o-10(j))). To the 
maximum extent practicable, the valuation of each security-based swap 
shall be based on recently executed transactions, valuations provided by 
independent third parties, or other objective criteria.
    (ii) Such documentation shall include either:
    (A) Alternative methods for determining the value of the security-
based swap for the purposes of complying with this paragraph (b)(4) in 
the event of the unavailability or other failure of any input required 
to value the security-based swap for such purposes; or
    (B) A valuation dispute resolution process by which the value of the 
security-based swap shall be determined for the purposes of complying 
with this paragraph (b)(4).
    (iii) A security-based swap dealer or major security-based swap 
participant is not required to disclose to the counterparty 
confidential, proprietary information about any model it may use to 
value a security-based swap.
    (iv) The parties may agree on changes or procedures for modifying or 
amending the documentation at any time.
    (5) The security-based swap trading relationship documentation of a 
security-based swap dealer or major security-based swap participant 
shall include the following:
    (i) A statement of whether the security-based swap dealer or major 
security-based swap participant is an insured depository institution (as 
defined in 12 U.S.C. 1813) or a financial company (as defined in section 
201(a)(11) of the Dodd-Frank Act, 12 U.S.C. 5381(a)(11));
    (ii) A statement of whether the counterparty is an insured 
depository institution or financial company;
    (iii) A statement that in the event either the security-based swap 
dealer or major security-based swap participant or its counterparty 
becomes a covered financial company (as defined in section 201(a)(8) of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. 
5381(a)(8)) or is an insured depository institution for which the 
Federal Deposit Insurance Corporation (FDIC) has been appointed as a 
receiver (the ``covered party''), certain limitations under Title II of 
the Dodd-Frank Act or the Federal Deposit Insurance Act may apply to the 
right of the non-covered party to terminate, liquidate, or net any 
security-based swap by reason of the appointment of the FDIC as 
receiver, notwithstanding the agreement of the parties in the security-
based swap trading relationship documentation, and that the FDIC may 
have certain rights to transfer security-based swaps of the covered 
party under section 210(c)(9)(A) of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act, 12 U.S.C. 5390(c)(9)(A), or 12 U.S.C. 
1821(e)(9)(A); and
    (iv) An agreement between the security-based swap dealer or major 
security-based swap participant and its counterparty to provide notice 
if either it or its counterparty becomes or ceases to be an insured 
depository institution or a financial company.
    (6) The security-based swap trading relationship documentation of 
each security-based swap dealer and major security-based swap 
participant shall contain a notice that, upon acceptance of a security-
based swap by a clearing agency:
    (i) The original security-based swap is extinguished;
    (ii) The original security-based swap is replaced by equal and 
opposite security-based swaps with the clearing agency; and
    (iii) All terms of the security-based swap shall conform to the 
product specifications of the cleared security-based swap established 
under the clearing agency's rules.

[[Page 535]]

    (c) Audit of security-based swap trading relationship documentation. 
Each security-based swap dealer and major security-based swap 
participant shall have an independent auditor conduct periodic audits 
sufficient to identify any material weakness in its documentation 
policies and procedures required by this section. A record of the 
results of each audit shall be retained.

[85 FR 6414, Feb. 4, 2020]

    Effective Date Note: 85 FR 6414, Feb. 4, 2020, Sec.240.15Fi-5 was 
added, effective Apr. 6, 2020.



Sec.240.15Fk-1  Designation of chief compliance officer for security-
based swap dealers and major security-based swap participants.

    (a) In general. A security-based swap dealer and major security-
based swap participant shall designate an individual to serve as a chief 
compliance officer on its registration form.
    (b) Duties. The chief compliance officer shall:
    (1) Report directly to the board of directors or to the senior 
officer of the security-based swap dealer or major security-based swap 
participant; and
    (2) Take reasonable steps to ensure that the registrant establishes, 
maintains and reviews written policies and procedures reasonably 
designed to achieve compliance with the Act and the rules and 
regulations thereunder relating to its business as a security-based swap 
dealer or major security-based swap participant by:
    (i) Reviewing the compliance of the security-based swap dealer or 
major security-based swap participant with respect to the security-based 
swap dealer and major security-based swap participant requirements 
described in section 15F of the Act, and the rules and regulations 
thereunder, where the review shall involve preparing the registrant's 
annual assessment of its written policies and procedures reasonably 
designed to achieve compliance with section 15F of the Act, and the 
rules and regulations thereunder, by the security-based swap dealer or 
major security-based swap participant;
    (ii) Taking reasonable steps to ensure that the registrant 
establishes, maintains and reviews policies and procedures reasonably 
designed to remediate non-compliance issues identified by the chief 
compliance officer through any means, including any:
    (A) Compliance office review;
    (B) Look-back;
    (C) Internal or external audit finding;
    (D) Self-reporting to the Commission and other appropriate 
authorities; or
    (E) Complaint that can be validated; and
    (iii) Taking reasonable steps to ensure that the registrant 
establishes and follows procedures reasonably designed for the handling, 
management response, remediation, retesting, and resolution of non-
compliance issues;
    (3) In consultation with the board of directors or the senior 
officer of the security-based swap dealer or major security-based swap 
participant, take reasonable steps to resolve any material conflicts of 
interest that may arise; and
    (4) Administer each policy and procedure that is required to be 
established pursuant to section 15F of the Act and the rules and 
regulations thereunder.
    (c) Annual reports--(1) In general. The chief compliance officer 
shall annually prepare and sign a compliance report that contains a 
description of the written policies and procedures of the security-based 
swap dealer or major security-based swap participant described in 
paragraph (b) of this section (including the code of ethics and conflict 
of interest policies).
    (2) Requirements. (i) Each compliance report shall also contain, at 
a minimum, a description of:
    (A) The security-based swap dealer or major security-based swap 
participant's assessment of the effectiveness of its policies and 
procedures relating to its business as a security-based swap dealer or 
major security-based participant;
    (B) Any material changes to the registrant's policies and procedures 
since the date of the preceding compliance report;
    (C) Any areas for improvement, and recommended potential or 
prospective changes or improvements to its compliance program and 
resources devoted to compliance;
    (D) Any material non-compliance matters identified; and

[[Page 536]]

    (E) The financial, managerial, operational, and staffing resources 
set aside for compliance with the Act and the rules and regulations 
thereunder relating to its business as a security-based swap dealer or 
major security-based swap participant, including any material 
deficiencies in such resources.
    (ii) A compliance report under paragraph (c)(1) of this section also 
shall:
    (A) Be submitted to the Commission within 30 days following the 
deadline for filing the security-based swap dealer's or major security-
based swap participant's annual financial report with the Commission 
pursuant to section 15F of the Act and rules and regulations thereunder;
    (B) Be submitted to the board of directors and audit committee (or 
equivalent bodies) and the senior officer of the security-based swap 
dealer or major security-based swap participant prior to submission to 
the Commission;
    (C) Be discussed in one or more meetings conducted by the senior 
officer with the chief compliance officer(s) in the preceding 12 months, 
the subject of which addresses the obligations in this section; and
    (D) Include a certification by the chief compliance officer or 
senior officer that, to the best of his or her knowledge and reasonable 
belief and under penalty of law, the information contained in the 
compliance report is accurate and complete in all material respects.
    (iii) Extensions of time. A security-based swap dealer or major 
security-based swap participant may request from the Commission an 
extension of time to submit its compliance report, provided the 
registrant's failure to timely submit the report could not be eliminated 
by the registrant without unreasonable effort or expense. Extensions of 
the deadline will be granted at the discretion of the Commission.
    (iv) Incorporation by reference. A security-based swap dealer or 
major security-based swap participant may incorporate by reference 
sections of a compliance report that have been submitted within the 
current or immediately preceding reporting period to the Commission.
    (v) Amendments. A security-based swap dealer or major security-based 
swap participant shall promptly submit an amended compliance report if 
material errors or omissions in the report are identified. An amendment 
must contain the certification required under paragraph (c)(2)(ii)(D) of 
this section.
    (d) Compensation and removal. The compensation and removal of the 
chief compliance officer shall require the approval of a majority of the 
board of directors of the security-based swap dealer or major security-
based swap participant.
    (e) Definitions. For purposes of this section, references to:
    (1) The board or board of directors shall include a body performing 
a function similar to the board of directors.
    (2) The senior officer shall include the chief executive officer or 
other equivalent officer.
    (3) Complaint that can be validated shall include any written 
complaint by a counterparty involving the security-based swap dealer or 
major security-based swap participant or associated person of a 
security-based swap dealer or major security-based swap participant that 
can be supported upon reasonable investigation.
    (4) A material non-compliance matter means any non-compliance matter 
about which the board of directors of the security-based swap dealer or 
major security-based swap participant would reasonably need to know to 
oversee the compliance of the security-based swap dealer or major 
security-based swap participant, and that involves, without limitation:
    (i) A violation of the federal securities laws relating to its 
business as a security-based swap dealer or major security-based swap 
participant by the firm or its officers, directors, employees or agents;
    (ii) A violation of the policies and procedures relating to its 
business as a security-based swap dealer or major security-based swap 
participant by the firm or its officers, directors, employees or agents; 
or
    (iii) A weakness in the design or implementation of the policies and 
procedures relating to its business as a security-based swap dealer or 
major security-based swap participant.

[81 FR 30144, May 13, 2016]

[[Page 537]]



Sec.240.15Ga-1  Repurchases and replacements relating to asset-backed 
securities.

    (a) General. With respect to any asset-backed security (as that term 
is defined in Section 3(a)(79) of the Securities Exchange Act of 1934 
(15 U.S.C. 78c(a)(79)) for which the underlying transaction agreements 
contain a covenant to repurchase or replace an underlying asset for 
breach of a representation or warranty, a securitizer (as that term is 
defined in Section 15G(a) of the Securities Exchange Act of 1934) shall 
disclose fulfilled and unfulfilled repurchase requests across all trusts 
by providing the information required in paragraph (a)(1) of this 
section concerning all assets securitized by the securitizer that were 
the subject of a demand to repurchase or replace for breach of the 
representations and warranties concerning the pool assets for all asset-
backed securities held by non-affiliates of the securitizer during the 
reporting period.

[[Page 538]]

[GRAPHIC] [TIFF OMITTED] TR26JA11.005

    (1) The table shall:
    (i) Disclose the asset class and group the issuing entities by asset 
class (column (a)).
    (ii) Disclose the name of the issuing entity (as that term is 
defined in Item 1101(f) of Regulation AB (17 CFR

[[Page 539]]

229.1101(f)) of the asset-backed securities. List the issuing entities 
in order of the date of formation (column (a)).

    Instruction to paragraph (a)(1)(ii): Include all issuing entities 
with outstanding asset-backed securities during the reporting period.

    (iii) For each named issuing entity, indicate by check mark whether 
the transaction was registered under the Securities Act of 1933 (column 
(b)) and disclose the CIK number of the issuing entity (column (a)).
    (iv) Disclose the name of the originator of the underlying assets 
(column (c)).

    Instruction to paragraph (a)(1)(iv): Include all originators that 
originated assets in the asset pool for each issuing entity.

    (v) Disclose the number, outstanding principal balance and 
percentage by principal balance of assets at the time of securitization 
(columns (d) through (f)).
    (vi) Disclose the number, outstanding principal balance and 
percentage by principal balance of assets that were subject of a demand 
to repurchase or replace for breach of representations and warranties 
(columns (g) through (i)).
    (vii) Disclose the number, outstanding principal balance and 
percentage by principal balance of assets that were repurchased or 
replaced for breach of representations and warranties (columns (j) 
through (l)).
    (viii) Disclose the number, outstanding principal balance and 
percentage by principal balance of assets that are pending repurchase or 
replacement for breach of representations and warranties due to the 
expiration of a cure period (columns (m) through (o)).
    (ix) Disclose the number, outstanding principal balance and 
percentage by principal balance of assets that are pending repurchase or 
replacement for breach of representations and warranties because the 
demand is currently in dispute (columns (p) through (r)).
    (x) Disclose the number, outstanding principal balance and 
percentage by principal balance of assets that were not repurchased or 
replaced because the demand was withdrawn (columns (s) through (u)).
    (xi) Disclose the number, outstanding principal balance and 
percentage by principal balance of assets that were not repurchased or 
replaced because the demand was rejected (columns (v) through (x)).

    Instruction to paragraphs (a)(1)(vi) through (xi): For purposes of 
these (a)(1)(vi) through (xi) the outstanding principal balance shall be 
the principal balance as of the reporting period end date and the 
percentage by principal balance shall be the outstanding principal 
balance of an asset divided by the outstanding principal balance of the 
asset pool as of the reporting period end date.

    (xii) Provide totals by asset class, issuing entity and for all 
issuing entities for columns that require number of assets and principal 
amounts (columns (d), (e), (g), (h), (j), (k), (m), (n) (p), (q), (s), 
(t), (v) and (w)).

    Instruction 1 to paragraph (a)(1): The table should include any 
activity during the reporting period, including activity related to 
assets subject to demands made prior to the beginning of the reporting 
period.
    Instruction 2 to paragraph (a)(1): Indicate by footnote and provide 
narrative disclosure in order to further explain the information 
presented in the table, as appropriate.

    (2) If any of the information required by this paragraph (a) is 
unknown and not available to the securitizer without unreasonable effort 
or expense, such information may be omitted, provided the securitizer 
provides the information it possesses or can acquire without 
unreasonable effort or expense, and the securitizer includes a statement 
showing that unreasonable effort or expense would be involved in 
obtaining the omitted information. Further, if a securitizer requested 
and was unable to obtain all information with respect to investor 
demands upon a trustee that occurred prior to July 22, 2010, so state by 
footnote. In this case, also state that the disclosures do not contain 
investor demands upon a trustee made prior to July 22, 2010.
    (b) In the case of multiple affiliated securitizers for a single 
asset-backed securities transaction, if one securitizer has filed all 
the disclosures required in order to meet the obligations under 
paragraph (a) of this section, other affiliated securitizers shall not 
be required to separately provide

[[Page 540]]

and file the same disclosures related to the same asset-backed security.
    (c) The disclosures in paragraph (a) of this section shall be 
provided by a securitizer:
    (1) For the three year period ended December 31, 2011, by any 
securitizer that issued an asset-backed security during the period, or 
organized and initiated an asset-backed securities transaction during 
the period, by securitizing an asset, either directly or indirectly, 
including through an affiliate, in each case, if the underlying 
transaction agreements provide a covenant to repurchase or replace an 
underlying asset for breach of a representation or warranty and the 
securitizer has asset-backed securities, containing such a covenant, 
outstanding and held by non-affiliates as of the end of the three year 
period. If a securitizer has no activity to report, it shall indicate by 
checking the appropriate box on Form ABS-15G (17 CFR 249.1400). The 
requirement of this paragraph (c)(1) applies to all issuances of asset-
backed securities whether or not publicly registered under the 
provisions of the Securities Act of 1933. The disclosures required by 
this paragraph (c)(1) shall be filed no later than February 14, 2012.

    Instruction to paragraph (c)(1): For demands made prior to January 
1, 2009, the disclosure should include any related activity subsequent 
to January 1, 2009 associated with such demand.

    (2) For each calendar quarter, by any securitizer that issued an 
asset-backed security during the period, or organized and initiated an 
asset-backed securities transaction by securitizing an asset, either 
directly or indirectly, including through an affiliate, or had 
outstanding asset-backed securities held by non-affiliates during the 
period, in each case, if the underlying transaction agreements provide a 
covenant to repurchase or replace an underlying asset for breach of a 
representation or warranty. The disclosures required by this paragraph 
(c)(2) shall be filed no later than 45 calendar days after the end of 
such calendar quarter:
    (i) Except that, a securitizer may suspend its duty to provide 
periodic quarterly disclosures if no activity occurred during the 
initial filing period in paragraph (c)(1) of this section or during a 
calendar quarter that is required to be reported under paragraph (a) of 
this section. A securitizer shall indicate that it has no activity to 
report by checking the appropriate box on Form ABS-15G (17 CFR 
249.1400). Thereafter, a periodic quarterly report required by this 
paragraph (c)(2) will only be required if a change in the demand, 
repurchase or replacement activity occurs that is required to be 
reported under paragraph (a) of this section during a calendar quarter; 
and
    (ii) Except that, annually, any securitizer that has suspended its 
duty to provide quarterly disclosures pursuant to paragraph (c)(2)(i) of 
this section must confirm that no activity occurred during the previous 
calendar year by checking the appropriate box on Form ABS-15G (17 CFR 
249.1400). The confirmation required by this paragraph (c)(2)(ii) shall 
be filed no later than 45 days after each calendar year.
    (3) Except that, if a securitizer has no asset-backed securities 
outstanding held by non-affiliates, the duty under paragraph (c)(2) of 
this section to file periodically the disclosures required by paragraph 
(a) of this section shall be terminated immediately upon filing a notice 
on Form ABS-15G (17 CFR 249.1400).

[76 FR 4511, Jan. 26, 2011, as amended at 76 FR 54375, Sept. 1, 2011; 79 
FR 57344, Sept. 24, 2014]



Sec.240.15Ga-2  Findings and conclusions of third-party due diligence
reports.

    (a) The issuer or underwriter of an offering of any asset-backed 
security (as that term is defined in Section 3(a)(79) of the Act (15 
U.S.C. 78c(a)(79))) that is to be rated by a nationally recognized 
statistical rating organization must furnish Form ABS-15G (Sec.
249.1400 of this chapter) to the Commission containing the findings and 
conclusions of any third-party due diligence report obtained by the 
issuer or underwriter at least five business days prior to the first 
sale in the offering.
    Instruction to paragraph (a): Disclosure of the findings and 
conclusions includes, but is not limited to, disclosure of the criteria 
against which the loans were evaluated, and how the evaluated loans 
compared to those criteria along with the basis for including any loans

[[Page 541]]

not meeting those criteria. This disclosure is only required for an 
initial rating and does not need to be furnished in connection with any 
subsequent rating actions. For purposes of this rule, the date of first 
sale is the date on which the first investor is irrevocably 
contractually committed to invest, which, depending on the terms and 
conditions of the contract, could be the date on which the issuer 
receives the investor's subscription agreement or check.
    (b) In the case where the issuer and one or more underwriters have 
obtained the same third-party due diligence report related to a 
particular asset-backed securities transaction, if any one such party 
has furnished all the disclosures required in order to meet the 
obligations under paragraph (a) of this section, the other party or 
parties are not required to separately furnish the same disclosures 
related to such third-party due diligence report.
    (c) If the disclosure required by this rule has been made in the 
prospectus (including an attribution to the third-party that provided 
the third-party due diligence report), the issuer or underwriter may 
refer to that section of the prospectus in Form ABS-15G rather than 
providing the findings and conclusions itself directly in Form ABS-15G.
    (d) For purposes of paragraphs (a) and (b) of this section, issuer 
is defined in Rule 17g-10(d)(2) (Sec.240.17g-10(d)(2) of this chapter) 
and third-party due diligence report means any report containing 
findings and conclusions of any due diligence services as defined in 
Rule 17g-10(d)(1) (Sec.240.17g-10(d)(1) of this chapter) performed by 
a third party.
    (e) The requirements of this rule would not apply to an offering of 
an asset-backed security if certain conditions are met, including:
    (1) The offering is not required to be, and is not, registered under 
the Securities Act of 1933;
    (2) The issuer of the rated security is not a U.S. person (as 
defined in Sec.230.902(k)); and
    (3) All offers and sales of the security by any issuer, sponsor, or 
underwriter linked to the security will occur outside the United States 
(as that phrase is used in Sec.Sec.230.901 through 230.905 
(Regulation S)).
    (f) The requirements of this rule would not apply to an offering of 
an asset-backed security if certain conditions are met, including:
    (1) The issuer of the rated security is a municipal issuer; and
    (2) The offering is not required to be, and is not, registered under 
the Securities Act of 1933.
    (g) For purposes of paragraph (f) of this section, a municipal 
issuer is an issuer (as that term is defined in Rule 17g-10(d)(2) (Sec.
240.17g-10(d)(2) of this chapter)) that is any State or Territory of the 
United States, the District of Columbia, any political subdivision of 
any State, Territory or the District of Columbia, or any public 
instrumentality of one or more States, Territories or the District of 
Columbia.
    (h) An offering of an asset-backed security that is exempted from 
the requirements of this rule pursuant to paragraph (f) of this section 
remains subject to the requirements of Section 15E(s)(4)(A) of the Act 
(15 U.S.C. 78o-7(s)(4)(A)), which requires that the issuer or 
underwriter of any asset-backed security shall make publicly available 
the findings and conclusions of any third-party due diligence report 
obtained by the issuer or underwriter.

[79 FR 55261, Sept. 15, 2014; 79 FR 61576, Oct. 14, 2014, as amended at 
84 FR 40258, Sept. 13, 2019]



Sec.240.16a-1  Definition of terms.

    Terms defined in this rule shall apply solely to section 16 of the 
Act and the rules thereunder. These terms shall not be limited to 
section 16(a) of the Act but also shall apply to all other subsections 
under section 16 of the Act.
    (a) The term beneficial owner shall have the following applications:
    (1) Solely for purposes of determining whether a person is a 
beneficial owner of more than ten percent of any class of equity 
securities registered pursuant to section 12 of the Act, the term 
``beneficial owner'' shall mean any person who is deemed a beneficial 
owner pursuant to section 13(d) of the Act and the rules thereunder; 
provided, however, that the following institutions or persons shall not 
be deemed the beneficial owner of securities of such class held for the 
benefit of third parties or in customer or fiduciary accounts in the

[[Page 542]]

ordinary course of business (or in the case of an employee benefit plan 
specified in paragraph (a)(1)(vi) of this section, of securities of such 
class allocated to plan participants where participants have voting 
power) as long as such shares are acquired by such institutions or 
persons without the purpose or effect of changing or influencing control 
of the issuer or engaging in any arrangement subject to Rule 13d-3(b) 
(Sec.240.13d-3(b)):
    (i) A broker or dealer registered under section 15 of the Act (15 
U.S.C. 78o);
    (ii) A bank as defined in section 3(a)(6) of the Act (15 U.S.C. 
78c);
    (iii) An insurance company as defined in section 3(a)(19) of the Act 
(15 U.S.C. 78c);
    (iv) An investment company registered under section 8 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-8);
    (v) Any person registered as an investment adviser under Section 203 
of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3) or under the 
laws of any state;
    (vi) An employee benefit plan as defined in Section 3(3) of the 
Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. 
1001 et seq. (``ERISA'') that is subject to the provisions of ERISA, or 
any such plan that is not subject to ERISA that is maintained primarily 
for the benefit of the employees of a state or local government or 
instrumentality, or an endowment fund;
    (vii) A parent holding company or control person, provided the 
aggregate amount held directly by the parent or control person, and 
directly and indirectly by their subsidiaries or affiliates that are not 
persons specified in Sec.240.16a-1 (a)(1)(i) through (x), does not 
exceed one percent of the securities of the subject class;
    (viii) A savings association as defined in Section 3(b) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813);
    (ix) A church plan that is excluded from the definition of an 
investment company under section 3(c)(14) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-30;
    (x) A non-U.S. institution that is the functional equivalent of any 
of the institutions listed in paragraphs (a)(1)(i) through (ix) of this 
section, so long as the non-U.S. institution is subject to a regulatory 
scheme that is substantially comparable to the regulatory scheme 
applicable to the equivalent U.S. institution and the non-U.S. 
institution is eligible to file a Schedule 13G pursuant to Sec.
240.13d-1(b)(1)(ii)(J); and
    (xi) A group, provided that all the members are persons specified in 
Sec.240.16a-1 (a)(1)(i) through (x).

    Note to paragraph (a): Pursuant to this section, a person deemed a 
beneficial owner of more than ten percent of any class of equity 
securities registered under section 12 of the Act would file a Form 3 
(Sec.249.103), but the securities holdings disclosed on Form 3, and 
changes in beneficial ownership reported on subsequent Forms 4 (Sec.
249.104) or 5 (Sec.249.105), would be determined by the definition of 
``beneficial owner'' in paragraph (a)(2) of this section.

    (2) Other than for purposes of determining whether a person is a 
beneficial owner of more than ten percent of any class of equity 
securities registered under Section 12 of the Act, the term beneficial 
owner shall mean any person who, directly or indirectly, through any 
contract, arrangement, understanding, relationship or otherwise, has or 
shares a direct or indirect pecuniary interest in the equity securities, 
subject to the following:
    (i) The term pecuniary interest in any class of equity securities 
shall mean the opportunity, directly or indirectly, to profit or share 
in any profit derived from a transaction in the subject securities.
    (ii) The term indirect pecuniary interest in any class of equity 
securities shall include, but not be limited to:
    (A) Securities held by members of a person's immediate family 
sharing the same household; provided, however, that the presumption of 
such beneficial ownership may be rebutted; see also Sec.240.16a-
1(a)(4);
    (B) A general partner's proportionate interest in the portfolio 
securities held by a general or limited partnership. The general 
partner's proportionate interest, as evidenced by the partnership 
agreement in effect at the time of the transaction and the partnership's 
most recent financial statements, shall be the greater of:

[[Page 543]]

    (1) The general partner's share of the partnership's profits, 
including profits attributed to any limited partnership interests held 
by the general partner and any other interests in profits that arise 
from the purchase and sale of the partnership's portfolio securities; or
    (2) The general partner's share of the partnership capital account, 
including the share attributable to any limited partnership interest 
held by the general partner.
    (C) A performance-related fee, other than an asset-based fee, 
received by any broker, dealer, bank, insurance company, investment 
company, investment adviser, investment manager, trustee or person or 
entity performing a similar function; provided, however, that no 
pecuniary interest shall be present where:
    (1) The performance-related fee, regardless of when payable, is 
calculated based upon net capital gains and/or net capital appreciation 
generated from the portfolio or from the fiduciary's overall performance 
over a period of one year or more; and
    (2) Equity securities of the issuer do not account for more than ten 
percent of the market value of the portfolio. A right to a 
nonperformance-related fee alone shall not represent a pecuniary 
interest in the securities;
    (D) A person's right to dividends that is separated or separable 
from the underlying securities. Otherwise, a right to dividends alone 
shall not represent a pecuniary interest in the securities;
    (E) A person's interest in securities held by a trust, as specified 
in Sec.240.16a-8(b); and
    (F) A person's right to acquire equity securities through the 
exercise or conversion of any derivative security, whether or not 
presently exercisable.
    (iii) A shareholder shall not be deemed to have a pecuniary interest 
in the portfolio securities held by a corporation or similar entity in 
which the person owns securities if the shareholder is not a controlling 
shareholder of the entity and does not have or share investment control 
over the entity's portfolio.
    (3) Where more than one person subject to section 16 of the Act is 
deemed to be a beneficial owner of the same equity securities, all such 
persons must report as beneficial owners of the securities, either 
separately or jointly, as provided in Sec.240.16a-3(j). In such cases, 
the amount of short-swing profit recoverable shall not be increased 
above the amount recoverable if there were only one beneficial owner.
    (4) Any person filing a statement pursuant to section 16(a) of the 
Act may state that the filing shall not be deemed an admission that such 
person is, for purposes of section 16 of the Act or otherwise, the 
beneficial owner of any equity securities covered by the statement.
    (5) The following interests are deemed not to confer beneficial 
ownership for purposes of section 16 of the Act:
    (i) Interests in portfolio securities held by any investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et 
seq.); and
    (ii) Interests in securities comprising part of a broad-based, 
publicly traded market basket or index of stocks, approved for trading 
by the appropriate federal governmental authority.
    (b) The term call equivalent position shall mean a derivative 
security position that increases in value as the value of the underlying 
equity increases, including, but not limited to, a long convertible 
security, a long call option, and a short put option position.
    (c) The term derivative securities shall mean any option, warrant, 
convertible security, stock appreciation right, or similar right with an 
exercise or conversion privilege at a price related to an equity 
security, or similar securities with a value derived from the value of 
an equity security, but shall not include:
    (1) Rights of a pledgee of securities to sell the pledged 
securities;
    (2) Rights of all holders of a class of securities of an issuer to 
receive securities pro rata, or obligations to dispose of securities, as 
a result of a merger, exchange offer, or consolidation involving the 
issuer of the securities;
    (3) Rights or obligations to surrender a security, or have a 
security withheld, upon the receipt or exercise of a derivative security 
or the receipt or vesting of equity securities, in order to satisfy

[[Page 544]]

the exercise price or the tax withholding consequences of receipt, 
exercise or vesting;
    (4) Interests in broad-based index options, broad-based index 
futures, and broad-based publicly traded market baskets of stocks 
approved for trading by the appropriate federal governmental authority;
    (5) Interests or rights to participate in employee benefit plans of 
the issuer;
    (6) Rights with an exercise or conversion privilege at a price that 
is not fixed; or
    (7) Options granted to an underwriter in a registered public 
offering for the purpose of satisfying over-allotments in such offering.
    (d) The term equity security of such issuer shall mean any equity 
security or derivative security relating to an issuer, whether or not 
issued by that issuer.
    (e) The term immediate family shall mean any child, stepchild, 
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-
law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or 
sister-in-law, and shall include adoptive relationships.
    (f) The term ``officer'' shall mean an issuer's president, principal 
financial officer, principal accounting officer (or, if there is no such 
accounting officer, the controller), any vice-president of the issuer in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), any other officer who performs a 
policy-making function, or any other person who performs similar policy-
making functions for the issuer. Officers of the issuer's parent(s) or 
subsidiaries shall be deemed officers of the issuer if they perform such 
policy-making functions for the issuer. In addition, when the issuer is 
a limited partnership, officers or employees of the general partner(s) 
who perform policy-making functions for the limited partnership are 
deemed officers of the limited partnership. When the issuer is a trust, 
officers or employees of the trustee(s) who perform policy-making 
functions for the trust are deemed officers of the trust.

    Note: ``Policy-making function'' is not intended to include policy-
making functions that are not significant. If pursuant to Item 401(b) of 
Regulation S-K (Sec.229.401(b)) the issuer identifies a person as an 
``executive officer,'' it is presumed that the Board of Directors has 
made that judgment and that the persons so identified are the officers 
for purposes of Section 16 of the Act, as are such other persons 
enumerated in this paragraph (f) but not in Item 401(b).

    (g) The term portfolio securities shall mean all securities owned by 
an entity, other than securities issued by the entity.
    (h) The term put equivalent position shall mean a derivative 
security position that increases in value as the value of the underlying 
equity decreases, including, but not limited to, a long put option and a 
short call option position.

[56 FR 7265, Feb. 21, 1991, as amended at 56 FR 19927, May 1, 1991; 61 
FR 30391, June 14, 1996; 63 FR 2868, Jan. 16, 1998; 73 FR 60093, Oct. 9, 
2008; 76 FR 71876, Nov. 21, 2011]



Sec.240.16a-2  Persons and transactions subject to section 16.

    Any person who is the beneficial owner, directly or indirectly, of 
more than ten percent of any class of equity securities (``ten percent 
beneficial owner'') registered pursuant to section 12 of the Act (15 
U.S.C. 78l), any director or officer of the issuer of such securities, 
and any person specified in section 30(h) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-29(h)), including any person specified in Sec.
240.16a-8, shall be subject to the provisions of section 16 of the Act 
(15 U.S.C. 78p). The rules under section 16 of the Act apply to any 
class of equity securities of an issuer whether or not registered under 
section 12 of the Act. The rules under section 16 of the Act also apply 
to non-equity securities as provided by the Investment Company Act of 
1940. With respect to transactions by persons subject to section 16 of 
the Act:
    (a) A transaction(s) carried out by a director or officer in the six 
months prior to the director or officer becoming subject to section 16 
of the Act shall be subject to section 16 of the Act and reported on the 
first required Form 4 only if the transaction(s) occurred within six 
months of the transaction giving rise to the Form 4 filing obligation 
and the director or officer became subject to section 16 of the Act 
solely as a result of the issuer registering a

[[Page 545]]

class of equity securities pursuant to section 12 of the Act.
    (b) A transaction(s) following the cessation of director or officer 
status shall be subject to section 16 of the Act only if:
    (1) Executed within a period of less than six months of an opposite 
transaction subject to section 16(b) of the Act that occurred while that 
person was a director or officer; and
    (2) Not otherwise exempted from section 16(b) of the Act pursuant to 
the provisions of this chapter.

    Note to paragraph (b): For purposes of this paragraph, an 
acquisition and a disposition each shall be an opposite transaction with 
respect to the other.

    (c) The transaction that results in a person becoming a ten percent 
beneficial owner is not subject to section 16 of the Act unless the 
person otherwise is subject to section 16 of the Act. A ten percent 
beneficial owner not otherwise subject to section 16 of the Act must 
report only those transactions conducted while the beneficial owner of 
more than ten percent of a class of equity securities of the issuer 
registered pursuant to section 12 of the Act.
    (d)(1) Transactions by a person or entity shall be exempt from the 
provisions of section 16 of the Act for the 12 months following 
appointment and qualification, to the extent such person or entity is 
acting as:
    (i) Executor or administrator of the estate of a decedent;
    (ii) Guardian or member of a committee for an incompetent;
    (iii) Receiver, trustee in bankruptcy, assignee for the benefit of 
creditors, conservator, liquidating agent, or other similar person duly 
authorized by law to administer the estate or assets of another person; 
or
    (iv) Fiduciary in a similar capacity.
    (2) Transactions by such person or entity acting in a capacity 
specified in paragraph (d)(1) of this section after the period specified 
in that paragraph shall be subject to section 16 of the Act only where 
the estate, trust or other entity is a beneficial owner of more than ten 
percent of any class of equity security registered pursuant to section 
12 of the Act.

[56 FR 7265, Feb. 21, 1991, as amended at 61 FR 30392, June 14, 1996; 67 
FR 43535, June 28, 2002; 76 FR 71877, Nov. 21, 2011]



Sec.240.16a-3  Reporting transactions and holdings.

    (a) Initial statements of beneficial ownership of equity securities 
required by section 16(a) of the Act shall be filed on Form 3. 
Statements of changes in beneficial ownership required by that section 
shall be filed on Form 4. Annual statements shall be filed on Form 5. At 
the election of the reporting person, any transaction required to be 
reported on Form 5 may be reported on an earlier filed Form 4. All such 
statements shall be prepared and filed in accordance with the 
requirements of the applicable form.
    (b) A person filing statements pursuant to section 16(a) of the Act 
with respect to any class of equity securities registered pursuant to 
section 12 of the Act need not file an additional statement on Form 3:
    (1) When an additional class of equity securities of the same issuer 
becomes registered pursuant to section 12 of the Act; or
    (2) When such person assumes a different or an additional 
relationship to the same issuer (for example, when an officer becomes a 
director).
    (c) Any issuer that has equity securities listed on more than one 
national securities exchange may designate one exchange as the only 
exchange with which reports pursuant to section 16(a) of the Act need be 
filed. Such designation shall be made in writing and shall be filed with 
the Commission and with each national securities exchange on which any 
equity security of the issuer is listed at the time of such election. 
The reporting person's obligation to file reports with each national 
securities exchange on which any equity security of the issuer is listed 
shall be satisfied by filing with the exchange so designated.
    (d) Any person required to file a statement with respect to 
securities of a single issuer under both section 16(a) of the Act (15 
U.S.C. 78p(a)) and section 30(h) of the Investment Company Act of 1940 
(15 U.S.C. 80a-29(h)) may file a

[[Page 546]]

single statement containing the required information, which will be 
deemed to be filed under both Acts.
    (e) [Reserved]
    (f)(1) A Form 5 shall be filed by every person who at any time 
during the issuer's fiscal year was subject to section 16 of the Act 
with respect to such issuer, except as provided in paragraph (f)(2) of 
this section. The Form shall be filed within 45 days after the issuer's 
fiscal year end, and shall disclose the following holdings and 
transactions not reported previously on Forms 3, 4 or 5:
    (i) All transactions during the most recent fiscal year that were 
exempt from section 16(b) of the Act, except:
    (A) Exercises and conversions of derivative securities exempt under 
either Sec.240.16b-3 or Sec.240.16b-6(b), and any transaction exempt 
under Sec.240.16b-3(d), Sec.240.16b-3(e), or Sec.240.16b-3(f) 
(these are required to be reported on Form 4);
    (B) Transactions exempt from section 16(b) of the Act pursuant to 
Sec.240.16b-3(c), which shall be exempt from section 16(a) of the Act; 
and
    (C) Transactions exempt from section 16(a) of the Act pursuant to 
another rule;
    (ii) Transactions that constituted small acquisitions pursuant to 
Sec.240.16a-6(a);
    (iii) All holdings and transactions that should have been reported 
during the most recent fiscal year, but were not; and
    (iv) With respect to the first Form 5 requirement for a reporting 
person, all holdings and transactions that should have been reported in 
each of the issuer's last two fiscal years but were not, based on the 
reporting person's reasonable belief in good faith in the completeness 
and accuracy of the information.
    (2) Notwithstanding the above, no Form 5 shall be required where all 
transactions otherwise required to be reported on the Form 5 have been 
reported before the due date of the Form 5.

    Persons no longer subject to section 16 of the Act, but who were 
subject to the Section at any time during the issuer's fiscal year, must 
file a Form 5 unless paragraph (f)(2) is satisfied. See also Sec.
240.16a-2(b) regarding the reporting obligations of persons ceasing to 
be officers or directors.

    (g)(1) A Form 4 must be filed to report: All transactions not exempt 
from section 16(b) of the Act; All transactions exempt from section 
16(b) of the Act pursuant to Sec.240.16b-3(d), Sec.240.16b-3(e), or 
Sec.240.16b-3(f); and all exercises and conversions of derivative 
securities, regardless of whether exempt from section 16(b) of the Act. 
Form 4 must be filed before the end of the second business day following 
the day on which the subject transaction has been executed.
    (2) Solely for purposes of section 16(a)(2)(C) of the Act and 
paragraph (g)(1) of this section, the date on which the executing 
broker, dealer or plan administrator notifies the reporting person of 
the execution of the transaction is deemed the date of execution for a 
transaction where the following conditions are satisfied:
    (i) the transaction is pursuant to a contract, instruction or 
written plan for the purchase or sale of equity securities of the issuer 
(as defined in Sec.16a-1(d)) that satisfies the affirmative defense 
conditions of Sec.240.10b5-1(c) of this chapter; and
    (ii) the reporting person does not select the date of execution.
    (3) Solely for purposes of section 16(a)(2)(C) of the Act and 
paragraph (g)(1) of this section, the date on which the plan 
administrator notifies the reporting person that the transaction has 
been executed is deemed the date of execution for a discretionary 
transaction (as defined in Sec.16b-3(b)(1)) for which the reporting 
person does not select the date of execution.
    (4) In the case of the transactions described in paragraphs (g)(2) 
and (g)(3) of this section, if the notification date is later than the 
third business day following the trade date of the transaction, the date 
of execution is deemed to be the third business day following the trade 
date of the transaction.
    (5) At the option of the reporting person, transactions that are 
reportable on Form 5 may be reported on Form 4, so long as the Form 4 is 
filed no later than the due date of the Form 5 on which the transaction 
is otherwise required to be reported.
    (h) The date of filing with the Commission shall be the date of 
receipt by the Commission.

[[Page 547]]

    (i) Signatures. Where Section 16 of the Act, or the rules or forms 
thereunder, require a document filed with or furnished to the Commission 
to be signed, such document shall be manually signed, or signed using 
either typed signatures or duplicated or facsimile versions of manual 
signatures. Where typed, duplicated or facsimile signatures are used, 
each signatory to the filing shall manually sign a signature page or 
other document authenticating, acknowledging or otherwise adopting his 
or her signature that appears in the filing. Such document shall be 
executed before or at the time the filing is made and shall be retained 
by the filer for a period of five years. Upon request, the filer shall 
furnish to the Commission or its staff a copy of any or all documents 
retained pursuant to this section.
    (j) Where more than one person subject to section 16 of the Act is 
deemed to be a beneficial owner of the same equity securities, all such 
persons must report as beneficial owners of the securities, either 
separately or jointly. Where persons in a group are deemed to be 
beneficial owners of equity securities pursuant to Sec.240.16a-1(a)(1) 
due to the aggregation of holdings, a single Form 3, 4 or 5 may be filed 
on behalf of all persons in the group. Joint and group filings must 
include all required information for each beneficial owner, and such 
filings must be signed by each beneficial owner, or on behalf of such 
owner by an authorized person.
    (k) Any issuer that maintains a corporate Web site shall post on 
that Web site by the end of the business day after filing any Form 3, 4 
or 5 filed under section 16(a) of the Act as to the equity securities of 
that issuer. Each such form shall remain accessible on such issuer's Web 
site for at least a 12-month period. In the case of an issuer that is an 
investment company and that does not maintain its own Web site, if any 
of the issuer's investment adviser, sponsor, depositor, trustee, 
administrator, principal underwriter, or any affiliated person of the 
investment company maintains a Web site that includes the name of the 
issuer, the issuer shall comply with the posting requirements by posting 
the forms on one such Web site.

[56 FR 7265, Feb. 21, 1991, as amended at 60 FR 26622, May 17, 1995; 61 
FR 30392, 30404, June 14, 1996; 67 FR 43535, June 28, 2002; 67 FR 56467, 
Sept. 3, 2002; 68 FR 25799, May 13, 2003; 76 FR 71877, Nov. 21, 2011; 84 
FR 12728, Apr. 2, 2019]



Sec.240.16a-4  Derivative securities.

    (a) For purposes of section 16 of the Act, both derivative 
securities and the underlying securities to which they relate shall be 
deemed to be the same class of equity securities, except that the 
acquisition or disposition of any derivative security shall be 
separately reported.
    (b) The exercise or conversion of a call equivalent position shall 
be reported on Form 4 and treated for reporting purposes as:
    (1) A purchase of the underlying security; and
    (2) A closing of the derivative security position.
    (c) The exercise or conversion of a put equivalent position shall be 
reported on Form 4 and treated for reporting purposes as:
    (1) A sale of the underlying security; and
    (2) A closing of the derivative security position.
    (d) The disposition or closing of a long derivative security 
position, as a result of cancellation or expiration, shall be exempt 
from section 16(a) of the Act if exempt from section 16(b) of the Act 
pursuant to Sec.240.16b-6(d).

    Note to Sec.240.16a-4: A purchase or sale resulting from an 
exercise or conversion of a derivative security may be exempt from 
section 16(b) of the Act pursuant to Sec.240.16b-3 or Sec.240.16b-
6(b).

[56 FR 7265, Feb. 21, 1991, as amended at 56 FR 19927, May 1, 1991; 61 
FR 30392, June 14, 1996]



Sec.240.16a-5  Odd-lot dealers.

    Transactions by an odd-lot dealer (a) in odd-lots as reasonably 
necessary to carry on odd-lot transactions, or (b) in round lots to 
offset odd-lot transactions previously or simultaneously executed or 
reasonably anticipated in the usual course of business, shall be exempt 
from the provisions of section

[[Page 548]]

16(a) of the Act with respect to participation by such odd-lot dealer in 
such transaction.



Sec.240.16a-6  Small acquisitions.

    (a) Any acquisition of an equity security or the right to acquire 
such securities, other than an acquisition from the issuer (including an 
employee benefit plan sponsored by the issuer), not exceeding $10,000 in 
market value shall be reported on Form 5, subject to the following 
conditions:
    (1) Such acquisition, when aggregated with other acquisitions of 
securities of the same class (including securities underlying derivative 
securities, but excluding acquisitions exempted by rule from section 
16(b) or previously reported on Form 4 or Form 5) within the prior six 
months, does not exceed a total of $10,000 in market value; and
    (2) The person making the acquisition does not within six months 
thereafter make any disposition, other than by a transaction exempt from 
section 16(b) of the Act.
    (b) If an acquisition no longer qualifies for the reporting deferral 
in paragraph (a) of this section, all such acquisitions that have not 
yet been reported must be reported on Form 4 before the end of the 
second business day following the day on which the conditions of 
paragraph (a) of this section are no longer met.

[56 FR 7265, Feb. 21, 1991, as amended at 61 FR 30392, June 14, 1996; 67 
FR 56467, Sept. 3, 2002]



Sec.240.16a-7  Transactions effected in connection with a distribution.

    (a) Any purchase and sale, or sale and purchase, of a security that 
is made in connection with the distribution of a substantial block of 
securities shall be exempt from the provisions of section 16(a) of the 
Act, to the extent specified in this rule, subject to the following 
conditions:
    (1) The person effecting the transaction is engaged in the business 
of distributing securities and is participating in good faith, in the 
ordinary course of such business, in the distribution of such block of 
securities; and
    (2) The security involved in the transaction is:
    (i) Part of such block of securities and is acquired by the person 
effecting the transaction, with a view to distribution thereof, from the 
issuer or other person on whose behalf such securities are being 
distributed or from a person who is participating in good faith in the 
distribution of such block of securities; or
    (ii) A security purchased in good faith by or for the account of the 
person effecting the transaction for the purpose of stabilizing the 
market price of securities of the class being distributed or to cover an 
over-allotment or other short position created in connection with such 
distribution.
    (b) Each person participating in the transaction must qualify on an 
individual basis for an exemption pursuant to this section.



Sec.240.16a-8  Trusts.

    (a) Persons subject to section 16--(1) Trusts. A trust shall be 
subject to section 16 of the Act with respect to securities of the 
issuer if the trust is a beneficial owner, pursuant to Sec.240.16a-
1(a)(1), of more than ten percent of any class of equity securities of 
the issuer registered pursuant to section 12 of the Act (``ten percent 
beneficial owner'').
    (2) Trustees, beneficiaries, and settlors. In determining whether a 
trustee, beneficiary, or settlor is a ten percent beneficial owner with 
respect to the issuer:
    (i) Such persons shall be deemed the beneficial owner of the 
issuer's securities held by the trust, to the extent specified by Sec.
240.16a-1(a)(1); and
    (ii) Settlors shall be deemed the beneficial owner of the issuer's 
securities held by the trust where they have the power to revoke the 
trust without the consent of another person.
    (b) Trust Holdings and Transactions. Holdings and transactions in 
the issuer's securities held by a trust shall be reported by the trustee 
on behalf of the trust, if the trust is subject to section 16 of the 
Act, except as provided below. Holdings and transactions in the issuer's 
securities held by a trust (whether or not subject to section 16 of the 
Act) may be reportable by other parties as follows:
    (1) Trusts. The trust need not report holdings and transactions in 
the issuer's securities held by the trust in

[[Page 549]]

an employee benefit plan subject to the Employee Retirement Income 
Security Act over which no trustee exercises investment control.
    (2) Trustees. If, as provided by Sec.240.16a-1(a)(2), a trustee 
subject to section 16 of the Act has a pecuniary interest in any holding 
or transaction in the issuer's securities held by the trust, such 
holding or transaction shall be attributed to the trustee and shall be 
reported by the trustee in the trustee's individual capacity, as well as 
on behalf of the trust. With respect to performance fees and holdings of 
the trustee's immediate family, trustees shall be deemed to have a 
pecuniary interest in the trust holdings and transactions in the 
following circumstances:
    (i) A performance fee is received that does not meet the proviso of 
Sec.240.16a-1(a)(2)(ii)(C); or
    (ii) At least one beneficiary of the trust is a member of the 
trustee's immediate family. The pecuniary interest of the immediate 
family member(s) shall be attributed to and reported by the trustee.
    (3) Beneficiaries. A beneficiary subject to section 16 of the Act 
shall have or share reporting obligations with respect to transactions 
in the issuer's securities held by the trust, if the beneficiary is a 
beneficial owner of the securities pursuant to Sec.240.16a-1(a)(2), as 
follows:
    (i) If a beneficiary shares investment control with the trustee with 
respect to a trust transaction, the transaction shall be attributed to 
and reported by both the beneficiary and the trust;
    (ii) If a beneficiary has investment control with respect to a trust 
transaction without consultation with the trustee, the transaction shall 
be attributed to and reported by the beneficiary only; and
    (iii) In making a determination as to whether a beneficiary is the 
beneficial owner of the securities pursuant to Sec.240.16a-1(a)(2), 
beneficiaries shall be deemed to have a pecuniary interest in the 
issuer's securities held by the trust to the extent of their pro rata 
interest in the trust where the trustee does not exercise exclusive 
investment control.

    Note to paragraph (b)(3): Transactions and holdings attributed to a 
trust beneficiary may be reported by the trustee on behalf of the 
beneficiary, provided that the report is signed by the beneficiary or 
other authorized person. Where the transactions and holdings are 
attributed both to the trustee and trust beneficiary, a joint report may 
be filed in accordance with Sec.240.16a-3(j).

    (4) Settlors. If a settlor subject to section 16 of the Act reserves 
the right to revoke the trust without the consent of another person, the 
trust holdings and transactions shall be attributed to and reported by 
the settlor instead of the trust; Provided, however, That if the settlor 
does not exercise or share investment control over the issuer's 
securities held by the trust, the trust holdings and transactions shall 
be attributed to and reported by the trust instead of the settlor.
    (c) Remainder interests. Remainder interests in a trust are deemed 
not to confer beneficial ownership for purposes of section 16 of the 
Act, provided that the persons with the remainder interests have no 
power, directly or indirectly, to exercise or share investment control 
over the trust.
    (d) A trust, trustee, beneficiary or settlor becoming subject to 
section 16(a) of the Act pursuant to this rule also shall be subject to 
sections 16(b) and 16(c) of the Act.

[56 FR 7265, Feb. 21, 1991, as amended at 56 FR 19927, May 1, 1991; 61 
FR 30392, June 14, 1996; 67 FR 56467, Sept. 3, 2002]



Sec.240.16a-9  Stock splits, stock dividends, and pro rata rights.

    The following shall be exempt from section 16 of the Act:
    (a) The increase or decrease in the number of securities held as a 
result of a stock split or stock dividend applying equally to all 
securities of a class, including a stock dividend in which equity 
securities of a different issuer are distributed; and
    (b) The acquisition of rights, such as shareholder or pre-emptive 
rights, pursuant to a pro rata grant to all holders of the same class of 
equity securities registered under section 12 of the Act.

    Note: The exercise or sale of a pro rata right shall be reported 
pursuant to Sec.240.16a-4 and the exercise shall be eligible for 
exemption from section 16(b) of the Act pursuant to Sec.240.16b-6(b).

[56 FR 7265, Feb. 21, 1991, as amended at 61 FR 30393, June 14, 1996]

[[Page 550]]



Sec.240.16a-10  Exemptions under section 16(a).

    Except as provided in Sec.240.16a-6, any transaction exempted from 
the requirements of section 16(a) of the Act, insofar as it is otherwise 
subject to the provisions of section 16(b), shall be likewise exempt 
from section 16(b) of the Act.



Sec.240.16a-11  Dividend or interest reinvestment plans.

    Any acquisition of securities resulting from the reinvestment of 
dividends or interest on securities of the same issuer shall be exempt 
from section 16 of the Act if the acquisition is made pursuant to a plan 
providing for the regular reinvestment of dividends or interest and the 
plan provides for broad-based participation, does not discriminate in 
favor of employees of the issuer, and operates on substantially the same 
terms for all plan participants.

[61 FR 30393, June 14, 1996]



Sec.240.16a-12  Domestic relations orders.

    The acquisition or disposition of equity securities pursuant to a 
domestic relations order, as defined in the Internal Revenue Code or 
Title I of the Employee Retirement Income Security Act, or the rules 
thereunder, shall be exempt from section 16 of the Act.

[61 FR 30393, June 14, 1996]



Sec.240.16a-13  Change in form of beneficial ownership.

    A transaction, other than the exercise or conversion of a derivative 
security or deposit into or withdrawal from a voting trust, that effects 
only a change in the form of beneficial ownership without changing a 
person's pecuniary interest in the subject equity securities shall be 
exempt from section 16 of the Act.

[61 FR 30393, June 14, 1996]

          Exemption of Certain Transactions From Section 16(b)

    Source: Sections 240.16b-1 through 240.16b-8 appear at 56 FR 7270, 
Feb. 21, 1991, unless otherwise noted.



Sec.240.16b-1  Transactions approved by a regulatory authority.

    Any purchase and sale, or sale and purchase, of a security shall be 
exempt from section 16(b) of the Act, if the transaction is effected by 
an investment company registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.) and both the purchase and sale of such 
security have been exempted from the provisions of section 17(a) (15 
U.S.C. 80a-17(a)) of the Investment Company Act of 1940, by rule or 
order of the Commission.

[56 FR 7270, Feb. 21, 1991, as amended at 61 FR 30404, June 14, 1996; 76 
FR 71877, Nov. 21, 2011]



Sec.240.16b-2  [Reserved]



Sec.240.16b-3  Transactions between an issuer and its officers
or directors.

    (a) General. A transaction between the issuer (including an employee 
benefit plan sponsored by the issuer) and an officer or director of the 
issuer that involves issuer equity securities shall be exempt from 
section 16(b) of the Act if the transaction satisfies the applicable 
conditions set forth in this section.
    (b) Definitions--(1) A Discretionary Transaction shall mean a 
transaction pursuant to an employee benefit plan that:
    (i) Is at the volition of a plan participant;
    (ii) Is not made in connection with the participant's death, 
disability, retirement or termination of employment;
    (iii) Is not required to be made available to a plan participant 
pursuant to a provision of the Internal Revenue Code; and
    (iv) Results in either an intra-plan transfer involving an issuer 
equity securities fund, or a cash distribution funded by a volitional 
disposition of an issuer equity security.
    (2) An Excess Benefit Plan shall mean an employee benefit plan that 
is operated in conjunction with a Qualified Plan, and provides only the 
benefits or contributions that would be provided under a Qualified Plan 
but for any benefit or contribution limitations set forth in the 
Internal Revenue Code of 1986, or any successor provisions thereof.

[[Page 551]]

    (3)(i) A Non-Employee Director shall mean a director who:
    (A) Is not currently an officer (as defined in Sec.240.16a-1(f)) 
of the issuer or a parent or subsidiary of the issuer, or otherwise 
currently employed by the issuer or a parent or subsidiary of the 
issuer;
    (B) Does not receive compensation, either directly or indirectly, 
from the issuer or a parent or subsidiary of the issuer, for services 
rendered as a consultant or in any capacity other than as a director, 
except for an amount that does not exceed the dollar amount for which 
disclosure would be required pursuant to Sec.229.404(a) of this 
chapter; and
    (C) Does not possess an interest in any other transaction for which 
disclosure would be required pursuant to Sec.229.404(a) of this 
chapter.
    (ii) Notwithstanding paragraph (b)(3)(i) of this section, a Non-
Employee Director of a closed-end investment company shall mean a 
director who is not an ``interested person'' of the issuer, as that term 
is defined in Section 2(a)(19) of the Investment Company Act of 1940.
    (4) A Qualified Plan shall mean an employee benefit plan that 
satisfies the coverage and participation requirements of sections 410 
and 401(a)(26) of the Internal Revenue Code of 1986, or any successor 
provisions thereof.
    (5) A Stock Purchase Plan shall mean an employee benefit plan that 
satisfies the coverage and participation requirements of sections 
423(b)(3) and 423(b)(5), or section 410, of the Internal Revenue Code of 
1986, or any successor provisions thereof.
    (c) Tax-conditioned plans. Any transaction (other than a 
Discretionary Transaction) pursuant to a Qualified Plan, an Excess 
Benefit Plan, or a Stock Purchase Plan shall be exempt without 
condition.
    (d) Acquisitions from the issuer. Any transaction, other than a 
Discretionary Transaction, involving an acquisition from the issuer 
(including without limitation a grant or award), whether or not intended 
for a compensatory or other particular purpose, shall be exempt if:
    (1) The transaction is approved by the board of directors of the 
issuer, or a committee of the board of directors that is composed solely 
of two or more Non-Employee Directors;
    (2) The transaction is approved or ratified, in compliance with 
section 14 of the Act, by either: the affirmative votes of the holders 
of a majority of the securities of the issuer present, or represented, 
and entitled to vote at a meeting duly held in accordance with the 
applicable laws of the state or other jurisdiction in which the issuer 
is incorporated; or the written consent of the holders of a majority of 
the securities of the issuer entitled to vote; provided that such 
ratification occurs no later than the date of the next annual meeting of 
shareholders; or
    (3) The issuer equity securities so acquired are held by the officer 
or director for a period of six months following the date of such 
acquisition, provided that this condition shall be satisfied with 
respect to a derivative security if at least six months elapse from the 
date of acquisition of the derivative security to the date of 
disposition of the derivative security (other than upon exercise or 
conversion) or its underlying equity security.
    (e) Dispositions to the issuer. Any transaction, other than a 
Discretionary Transaction, involving the disposition to the issuer of 
issuer equity securities, whether or not intended for a compensatory or 
other particular purpose, shall be exempt, provided that the terms of 
such disposition are approved in advance in the manner prescribed by 
either paragraph (d)(1) or paragraph (d)(2) of this section.
    (f) Discretionary Transactions. A Discretionary Transaction shall be 
exempt only if effected pursuant to an election made at least six months 
following the date of the most recent election, with respect to any plan 
of the issuer, that effected a Discretionary Transaction that was:
    (1) An acquisition, if the transaction to be exempted would be a 
disposition; or
    (2) A disposition, if the transaction to be exempted would be an 
acquisition.

                        Notes to Sec.240.16b-3

    Note (1): The exercise or conversion of a derivative security that 
does not satisfy the

[[Page 552]]

conditions of this section is eligible for exemption from section 16(b) 
of the Act to the extent that the conditions of Sec.240.16b-6(b) are 
satisfied.
    Note (2): Section 16(a) reporting requirements applicable to 
transactions exempt pursuant to this section are set forth in Sec.
240.16a-3(f) and (g) and Sec.240.16a-4.
    Note (3): The approval conditions of paragraphs (d)(1), (d)(2) and 
(e) of this section require the approval of each specific transaction, 
and are not satisfied by approval of a plan in its entirety except for 
the approval of a plan pursuant to which the terms and conditions of 
each transaction are fixed in advance, such as a formula plan. Where the 
terms of a subsequent transaction (such as the exercise price of an 
option, or the provision of an exercise or tax withholding right) are 
provided for in a transaction as initially approved pursuant to 
paragraphs (d)(1), (d)(2) or (e), such subsequent transaction shall not 
require further specific approval.
    Note (4): For purposes of determining a director's status under 
those portions of paragraph (b)(3)(i) that reference Sec.229.404(a) of 
this chapter, an issuer may rely on the disclosure provided under Sec.
229.404(a) of this chapter for the issuer's most recent fiscal year 
contained in the most recent filing in which disclosure required under 
Sec.229.404(a) is presented. Where a transaction disclosed in that 
filing was terminated before the director's proposed service as a Non-
Employee Director, that transaction will not bar such service. The 
issuer must believe in good faith that any current or contemplated 
transaction in which the director participates will not be required to 
be disclosed under Sec.229.404(a) of this chapter, based on 
information readily available to the issuer and the director at the time 
such director proposes to act as a Non-Employee Director. At such time 
as the issuer believes in good faith, based on readily available 
information, that a current or contemplated transaction with a director 
will be required to be disclosed under Sec.229.404(a) in a future 
filing, the director no longer is eligible to serve as a Non-Employee 
Director; provided, however, that this determination does not result in 
retroactive loss of a Rule 16b-3 exemption for a transaction previously 
approved by the director while serving as a Non-Employee Director 
consistent with this note. In making the determinations specified in 
this Note, the issuer may rely on information it obtains from the 
director, for example, pursuant to a response to an inquiry.

[61 FR 30393, June 14, 1996, as amended at 70 FR 46089, Aug. 9, 2005; 71 
FR 53263, Sept. 8, 2006]



Sec.240.16b-4  [Reserved]



Sec.240.16b-5  Bona fide gifts and inheritance.

    Both the acquisition and the disposition of equity securities shall 
be exempt from the operation of section 16(b) of the Act if they are: 
(a) Bona fide gifts; or (b) transfers of securities by will or the laws 
of descent and distribution.



Sec.240.16b-6  Derivative securities.

    (a) The establishment of or increase in a call equivalent position 
or liquidation of or decrease in a put equivalent position shall be 
deemed a purchase of the underlying security for purposes of section 
16(b) of the Act, and the establishment of or increase in a put 
equivalent position or liquidation of or decrease in a call equivalent 
position shall be deemed a sale of the underlying securities for 
purposes of section 16(b) of the Act: Provided, however, That if the 
increase or decrease occurs as a result of the fixing of the exercise 
price of a right initially issued without a fixed price, where the date 
the price is fixed is not known in advance and is outside the control of 
the recipient, the increase or decrease shall be exempt from section 
16(b) of the Act with respect to any offsetting transaction within the 
six months prior to the date the price is fixed.
    (b) The closing of a derivative security position as a result of its 
exercise or conversion shall be exempt from the operation of section 
16(b) of the Act, and the acquisition of underlying securities at a 
fixed exercise price due to the exercise or conversion of a call 
equivalent position or the disposition of underlying securities at a 
fixed exercise price due to the exercise of a put equivalent position 
shall be exempt from the operation of section 16(b) of the Act: 
Provided, however, That the acquisition of underlying securities from 
the exercise of an out-of-the-money option, warrant, or right shall not 
be exempt unless the exercise is necessary to comport with the 
sequential exercise provisions of the Internal Revenue Code (26 U.S.C. 
422A).

    Note to paragraph (b): The exercise or conversion of a derivative 
security that does not satisfy the conditions of this section is

[[Page 553]]

eligible for exemption from section 16(b) of the Act to the extent that 
the conditions of Sec.240.16b-3 are satisfied.

    (c) In determining the short-swing profit recoverable pursuant to 
section 16(b) of the Act from transactions involving the purchase and 
sale or sale and purchase of derivative and other securities, the 
following rules apply:
    (1) Short-swing profits in transactions involving the purchase and 
sale or sale and purchase of derivative securities that have identical 
characteristics (e.g., purchases and sales of call options of the same 
strike price and expiration date, or purchases and sales of the same 
series of convertible debentures) shall be measured by the actual prices 
paid or received in the short-swing transactions.
    (2) Short-swing profits in transactions involving the purchase and 
sale or sale and purchase of derivative securities having different 
characteristics but related to the same underlying security (e.g., the 
purchase of a call option and the sale of a convertible debenture) or 
derivative securities and underlying securities shall not exceed the 
difference in price of the underlying security on the date of purchase 
or sale and the date of sale or purchase. Such profits may be measured 
by calculating the short-swing profits that would have been realized had 
the subject transactions involved purchases and sales solely of the 
derivative security that was purchased or solely of the derivative 
security that was sold, valued as of the time of the matching purchase 
or sale, and calculated for the lesser of the number of underlying 
securities actually purchased or sold.
    (d) Upon cancellation or expiration of an option within six months 
of the writing of the option, any profit derived from writing the option 
shall be recoverable under section 16(b) of the Act. The profit shall 
not exceed the premium received for writing the option. The disposition 
or closing of a long derivative security position, as a result of 
cancellation or expiration, shall be exempt from section 16(b) of the 
Act where no value is received from the cancellation or expiration.

[56 FR 7270, Feb. 21, 1991, as amended at 61 FR 30394, June 14, 1996]



Sec.240.16b-7  Mergers, reclassifications, and consolidations.

    (a) The following transactions shall be exempt from the provisions 
of section 16(b) of the Act:
    (1) The acquisition of a security of a company, pursuant to a 
merger, reclassification or consolidation, in exchange for a security of 
a company that before the merger, reclassification or consolidation, 
owned 85 percent or more of either:
    (i) The equity securities of all other companies involved in the 
merger, reclassification or consolidation, or in the case of a 
consolidation, the resulting company; or
    (ii) The combined assets of all the companies involved in the 
merger, reclassification or consolidation, computed according to their 
book values before the merger, reclassification or consolidation as 
determined by reference to their most recent available financial 
statements for a 12 month period before the merger, reclassification or 
consolidation, or such shorter time as the company has been in 
existence.
    (2) The disposition of a security, pursuant to a merger, 
reclassification or consolidation, of a company that before the merger, 
reclassification or consolidation, owned 85 percent or more of either:
    (i) The equity securities of all other companies involved in the 
merger, reclassification or consolidation or, in the case of a 
consolidation, the resulting company; or
    (ii) The combined assets of all the companies undergoing merger, 
reclassification or consolidation, computed according to their book 
values before the merger, reclassification or consolidation as 
determined by reference to their most recent available financial 
statements for a 12 month period before the merger, reclassification or 
consolidation.
    (b) A merger within the meaning of this section shall include the 
sale or purchase of substantially all the assets of one company by 
another in exchange for equity securities which are then distributed to 
the security holders of the company that sold its assets.
    (c) The exemption provided by this section applies to any securities 
transaction that satisfies the conditions

[[Page 554]]

specified in this section and is not conditioned on the transaction 
satisfying any other conditions.
    (d) Notwithstanding the foregoing, if a person subject to section 16 
of the Act makes any non-exempt purchase of a security in any company 
involved in the merger, reclassification or consolidation and any non-
exempt sale of a security in any company involved in the merger, 
reclassification or consolidation within any period of less than six 
months during which the merger, reclassification or consolidation took 
place, the exemption provided by this section shall be unavailable to 
the extent of such purchase and sale.

[70 FR 46089, Aug. 9, 2005]



Sec.240.16b-8  Voting trusts.

    Any acquisition or disposition of an equity security or certificate 
representing equity securities involved in the deposit or withdrawal 
from a voting trust or deposit agreement shall be exempt from section 
16(b) of the Act if substantially all of the assets held under the 
voting trust or deposit agreement immediately after the deposit or 
immediately prior to the withdrawal consisted of equity securities of 
the same class as the security deposited or withdrawn: Provided, 
however, That this exemption shall not apply if there is a non-exempt 
purchase or sale of an equity security of the class deposited within six 
months (including the date of withdrawal or deposit) of a non-exempt 
sale or purchase, respectively, of any certificate representing such 
equity security (other than the actual deposit or withdrawal).

          Exemption of Certain Transactions From Section 16(c)

    Source: Sections 240.16c-1 through 240.16c-4 appear at 56 FR 7273, 
Feb. 21, 1991, unless otherwise noted.



Sec.240.16c-1  Brokers.

    Any transaction shall be exempt from section 16(c) of the Act to the 
extent necessary to render lawful the execution by a broker of an order 
for an account in which the broker has no direct or indirect interest.



Sec.240.16c-2  Transactions effected in connection with a distribution.

    Any transaction shall be exempt from section 16(c) of the Act to the 
extent necessary to render lawful any sale made by or on behalf of a 
dealer in connection with a distribution of a substantial block of 
securities, where the sale is represented by an over-allotment in which 
the dealer is participating as a member of an underwriting group, or the 
dealer or a person acting on the dealer's behalf intends in good faith 
to offset such sale with a security to be acquired by or on behalf of 
the dealer as a participant in an underwriting, selling, or soliciting-
dealer group of which the dealer is a member at the time of the sale, 
whether or not the security to be acquired is subject to a prior 
offering to existing security holders or some other class of persons.



Sec.240.16c-3  Exemption of sales of securities to be acquired.

    (a) Whenever any person is entitled, incident to ownership of an 
issued security and without the payment of consideration, to receive 
another security ``when issued'' or ``when distributed,'' the sale of 
the security to be acquired shall be exempt from the operation of 
section 16(c) of the Act: Provided, That:
    (1) The sale is made subject to the same conditions as those 
attaching to the right of acquisition;
    (2) Such person exercises reasonable diligence to deliver such 
security to the purchaser promptly after the right of acquisition 
matures; and
    (3) Such person reports the sale on the appropriate form for 
reporting transactions by persons subject to section 16(a) of the Act.
    (b) This section shall not exempt transactions involving both a sale 
of the issued security and a sale of a security ``when issued'' or 
``when distributed'' if the combined transactions result in a sale of 
more securities than the aggregate of issued securities owned by the 
seller plus those to be received for the other security ``when issued'' 
or ``when distributed.''



Sec.240.16c-4  Derivative securities.

    Establishing or increasing a put equivalent position shall be exempt 
from section 16(c) of the Act, so long as

[[Page 555]]

the amount of securities underlying the put equivalent position does not 
exceed the amount of underlying securities otherwise owned.

                         Arbitrage Transactions



Sec.240.16e-1  Arbitrage transactions under section 16.

    It shall be unlawful for any director or officer of an issuer of an 
equity security which is registered pursuant to section 12 of the Act to 
effect any foreign or domestic arbitrage transaction in any equity 
security of such issuer, whether registered or not, unless he shall 
include such transaction in the statements required by section 16(a) and 
shall account to such issuer for the profits arising from such 
transaction, as provided in section 16(b). The provision of section 
16(c) shall not apply to such arbitrage transactions. The provisions of 
section 16 shall not apply to any bona fide foreign or domestic 
arbitrage transaction insofar as it is effected by any person other than 
such director or officer of the issuer of such security.

(Secs. 4, 12, 13, 15, 16, 19, 24, 48 Stat. 77, 892, 894, 895, 896, 85, 
as amended, 901; 15 U.S.C. 77d, 78l, 78m, 78o, 78p, 77s, 78x)

[30 FR 2025, Feb. 13, 1965]

  Preservation of Records and Reports of Certain Stabilizing Activities



Sec.240.17a-1  Recordkeeping rule for national securities exchanges,
national securities associations, registered clearing agencies and
the Municipal Securities Rulemaking Board.
          

    (a) Every national securities exchange, national securities 
association, registered clearing agency and the Municipal Securities 
Rulemaking Board shall keep and preserve at least one copy of all 
documents, including all correspondence, memoranda, papers, books, 
notices, accounts, and other such records as shall be made or received 
by it in the course of its business as such and in the conduct of its 
self-regulatory activity.
    (b) Every national securities exchange, national securities 
association, registered clearing agency and the Municipal Securities 
Rulemaking Board shall keep all such documents for a period of not less 
than five years, the first two years in an easily accessible place, 
subject to the destruction and disposition provisions of Rule 17a-6.
    (c) Every national securities exchange, registered securities 
association, registered clearing agency and the Municipal Securities 
Rulemaking Board shall, upon request of any representative of the 
Commission, promptly furnish to the possession of such representative 
copies of any documents required to be kept and preserved by it pursuant 
to paragraphs (a) and (b) of this section.

[45 FR 79426, Dec. 1, 1980]



Sec.240.17a-2  Recordkeeping requirements relating to stabilizing
activities.

    (a) Scope of section. This section shall apply to any person who 
effects any purchase of a security subject to Sec.242.104 of this 
chapter for the purpose of, or who participates in a syndicate or group 
that engages in, ``stabilizing,'' as defined in Sec.242.100 of this 
chapter, the price of any security; or effects a purchase that is a 
``syndicate covering transaction,'' as defined in Sec.242.100 of this 
chapter; or imposes a ``penalty bid,'' as defined in Sec.242.100 of 
this chapter:
    (1) With respect to which a registration statement has been, or is 
to be, filed pursuant to the Securities Act of 1933 (15 U.S.C. 77a et 
seq.); or
    (2) Which is being, or is to be, offered pursuant to an exemption 
from registration under Regulation A (Sec.Sec.230.251 through 230.263 
of this chapter) adopted under the Securities Act of 1933 (15 U.S.C. 77a 
et seq.); or
    (3) Which is being, or is to be, otherwise offered, if the aggregate 
offering price of the securities being offered exceeds $5,000,000.
    (b) Definitions. For purposes of this section, the following 
definitions shall apply:
    (1) The term manager shall mean the person stabilizing or effecting 
syndicate covering transactions or imposing a penalty bid for its sole 
account or for the account of a syndicate or group in which it is a 
participant, and who, by contract or otherwise, deals with the issuer, 
organizes the selling effort,

[[Page 556]]

receives some benefit from the underwriting that is not shared by other 
underwriters, or represents any other underwriters in such matters as 
maintaining the records of the distribution and arranging for allotments 
of the securities offered.
    (2) The term exempted security means an exempted security as defined 
in section 3(a)(12) of the Act, including securities issued, or 
guaranteed both as to principal and interest, by the International Bank 
for Reconstruction and Development.
    (c) Records relating to stabilizing, syndicate covering 
transactions, and penalty bids required to be maintained by manager. Any 
person subject to this section who acts as a manager and stabilizes or 
effects syndicate covering transactions or imposes a penalty bid shall:
    (1) Promptly record and maintain the following separately 
retrievable information, for a period of not less than three years, the 
first two years in an easily accessible place; Provided, however, That 
if the information is in a record required to be made pursuant to Sec.
240.17a-3 or Sec.240.17a-4, or otherwise preserved, such information 
need not be maintained in a separate file if the person can sort 
promptly and retrieve the information as if it had been kept in a 
separate file as a record made pursuant to, and preserves the 
information in accordance with the time periods specified in, this 
paragraph (c)(1):
    (i) The name and class of any security stabilized or any security in 
which syndicate covering transactions have been effected or a penalty 
bid has been imposed;
    (ii) The price, date, and time at which each stabilizing purchase or 
syndicate covering transaction was effected by the manager or by any 
participant in the syndicate or group, and whether any penalties were 
assessed;
    (iii) The names and the addresses of the members of the syndicate or 
group;
    (iv) Their respective commitments, or, in the case of a standby or 
contingent underwriting, the percentage participation of each member of 
the syndicate or group therein; and
    (v) The dates when any penalty bid was in effect.
    (2) Promptly furnish to each of the members of the syndicate or 
group the name and class of any security being stabilized, and the date 
and time at which the first stabilizing purchase was effected by the 
manager or by any participant in the syndicate or group; and
    (3) Promptly notify each of the members of such syndicate or group 
of the date and time when stabilizing was terminated.
    (d) Notification to manager. Any person who has a participation in a 
syndicate account but who is not a manager of such account, and who 
effects one or more stabilizing purchases or syndicate covering 
transactions for its sole account or for the account of a syndicate or 
group, shall within three business days following such purchase notify 
the manager of the price, date, and time at which such stabilizing 
purchase or syndicate covering transaction was effected, and shall in 
addition notify the manager of the date and time when such stabilizing 
purchase or syndicate covering transaction was terminated. The manager 
shall maintain such notifications in a separate file, together with the 
information required by paragraph (c)(1) of this section, for a period 
of not less than three years, the first two years in an easily 
accessible place.

(Secs. 9(a)(6), 10(b), 17(a) and 23(a) of the Act, 15 U.S.C. 78i(a)(6), 
78j(b), 78q(a) and 78w(a))

[48 FR 41378, Sept. 15, 1983, as amended at 62 FR 544, Jan. 3, 1997]



Sec.240.17a-3  Records to be made by certain exchange members,
brokers and dealers.

    This section applies to the following types of entities: A member of 
a national securities exchange who transacts a business in securities 
directly with others than members of a national securities exchange; a 
broker or dealer who transacts a business in securities through the 
medium of a member of a national securities exchange; a broker or 
dealer, including an OTC derivatives dealer as that term is defined in 
Sec.240.3b-12, registered pursuant to section 15 of the Act (15 U.S.C. 
78o); a security-based swap dealer registered pursuant to section 15F of 
the Act (15 U.S.C. 78o-10) that is also a broker or dealer, including an 
OTC derivatives dealer, registered pursuant to section

[[Page 557]]

15 of the Act; and a major security-based swap participant registered 
pursuant to section 15F of the Act that is also a broker or dealer, 
including an OTC derivatives dealer, registered pursuant to section 15 
of the Act. Section 240.18a-5 (rather than this section) applies to the 
following types of entities: A security-based swap dealer registered 
pursuant to section 15F of the Act that is not also a broker or dealer, 
including an OTC derivatives dealer, registered pursuant to section 15 
of the Act; and a major security-based swap participant registered 
pursuant to section 15F of the Act that is not also a broker or dealer, 
including an OTC derivatives dealer, registered pursuant to section 15 
of the Act.
    (a) Every member of a national securities exchange who transacts a 
business in securities directly with others than members of a national 
securities exchange, every broker or dealer who transacts a business in 
securities through the medium of any such member, and every broker or 
dealer registered pursuant to section 15 of the Act (15 U.S.C. 78o) must 
make and keep current the following books and records relating to its 
business:
    (1) Blotters (or other records of original entry) containing an 
itemized daily record of all purchases and sales of securities 
(including security-based swaps), all receipts and deliveries of 
securities (including certificate numbers), all receipts and 
disbursements of cash and all other debits and credits. Such records 
must show the account for which each such purchase or sale was effected, 
the name and amount of securities, the unit and aggregate purchase or 
sale price, if any (including the financial terms for security-based 
swaps), the trade date, and the name or other designation of the person 
from whom such securities were purchased or received or to whom sold or 
delivered. For security-based swaps, such records must also show, for 
each transaction, the type of security-based swap, the reference 
security, index, or obligor, the date and time of execution, the 
effective date, the scheduled termination date, the notional amount(s) 
and the currenc(ies) in which the notional amount(s) is expressed, the 
unique transaction identifier, and the counterparty's unique 
identification code.
    (2) Ledgers (or other records) reflecting all assets and 
liabilities, income and expense and capital accounts.
    (3) Ledger accounts (or other records) itemizing separately as to 
each cash, margin, or security-based swap account of every customer and 
of such member, broker or dealer and partners thereof, all purchases, 
sales, receipts and deliveries of securities (including security-based 
swaps) and commodities for such account, and all other debits and 
credits to such account; and, in addition, for a security-based swap, 
the type of security-based swap, the reference security, index, or 
obligor, the date and time of execution, the effective date, the 
scheduled termination date, the notional amount(s) and the currenc(ies) 
in which the notional amount(s) is expressed, the unique transaction 
identifier, and the counterparty's unique identification code.
    (4) Ledgers (or other records) reflecting the following:
    (i) Securities in transfer;
    (ii) Dividends and interest received;
    (iii) Securities borrowed and securities loaned;
    (iv) Moneys borrowed and moneys loaned (together with a record of 
the collateral therefor and any substitutions in such collateral);
    (v) Securities failed to receive and failed to deliver;
    (vi) All long and all short securities record differences arising 
from the examination, count, verification, and comparison pursuant to 
Sec.Sec.240.17a-5, 240.17a-12, 240.17a-13, and 240.18a-7, as 
applicable (by date of examination, count, verification, and comparison 
showing for each security the number of long or short count 
differences); and
    (vii) Repurchase and reverse repurchase agreements.
    (5) A securities record or ledger reflecting separately for each:
    (i) Security, other than a security-based swap, as of the clearance 
dates all ``long'' or ``short'' positions (including securities in 
safekeeping and securities that are the subjects of repurchase or 
reverse repurchase agreements) carried by such member, broker or dealer 
for its account or for the account of its customers or partners, or

[[Page 558]]

others, and showing the location of all securities long and the 
offsetting position to all securities short, including long security 
count differences and short security count differences classified by the 
date of the physical count and verification in which they were 
discovered, and in all cases the name or designation of the account in 
which each position is carried.
    (ii) Security-based swap, the reference security, index, or obligor, 
the unique transaction identifier, the counterparty's unique 
identification code, whether it is a ``bought'' or ``sold'' position in 
the security-based swap, whether the security-based swap is cleared or 
not cleared, and if cleared, identification of the clearing agency where 
the security-based swap is cleared.
    (6)(i) A memorandum of each brokerage order, and of any other 
instruction, given or received for the purchase or sale of a security, 
except for the purchase or sale of a security-based swap, whether 
executed or unexecuted.
    (A) The memorandum must show the terms and conditions of the order 
or instructions and of any modification or cancellation thereof, the 
account for which entered, the time the order was received, the time of 
entry, the price at which executed, the identity of each associated 
person, if any, responsible for the account, the identity of any other 
person who entered or accepted the order on behalf of the customer, or, 
if a customer entered the order on an electronic system, a notation of 
that entry; and, to the extent feasible, the time of execution or 
cancellation. The memorandum need not show the identity of any person, 
other than the associated person responsible for the account, who may 
have entered or accepted the order if the order is entered into an 
electronic system that generates the memorandum and if that system is 
not capable of receiving an entry of the identity of any person other 
than the responsible associated person; in that circumstance, the 
member, broker or dealer must produce upon request by a representative 
of a securities regulatory authority a separate record which identifies 
each other person. An order entered pursuant to the exercise of 
discretionary authority by the member, broker or dealer, or associated 
person thereof, must be so designated. The term instruction must include 
instructions between partners and employees of a member, broker or 
dealer. The term time of entry means the time when the member, broker or 
dealer transmits the order or instruction for execution.
    (B) The memorandum need not be made as to a purchase, sale or 
redemption of a security on a subscription way basis directly from or to 
the issuer, if the member, broker or dealer maintains a copy of the 
customer's or non-customer's subscription agreement regarding a 
purchase, or a copy of any other document required by the issuer 
regarding a sale or redemption.
    (ii) A memorandum of each brokerage order, and of any other 
instruction, given or received for the purchase or sale of a security-
based swap, whether executed or unexecuted. The memorandum must show the 
terms and conditions of the order or instructions and of any 
modification or cancellation thereof; the account for which entered; the 
time the order was received; the time of entry; the price at which 
executed; the identity of each associated person, if any, responsible 
for the account; the identity of any other person who entered or 
accepted the order on behalf of the customer, or, if a customer entered 
the order on an electronic system, a notation of that entry; and, to the 
extent feasible, the time of cancellation, if applicable. The memorandum 
also must include the type of the security-based swap, the reference 
security, index, or obligor, the date and time of execution, the 
effective date, the scheduled termination, the notional amount(s) and 
the currenc(ies) in which the notional amount(s) is expressed, the 
unique transaction identifier, and the counterparty's unique 
identification code. An order entered pursuant to the exercise of 
discretionary authority must be so designated.
    (7)(i) A memorandum of each purchase or sale of a security, other 
than for the purchase or sale of a security-based swap, for the account 
of the member, broker or dealer showing the price and, to the extent 
feasible, the time of execution; and, in addition,

[[Page 559]]

where the purchase or sale is with a customer other than a broker or 
dealer, a memorandum of each order received, showing the time of 
receipt; the terms and conditions of the order and of any modification 
thereof; the account for which it was entered; the identity of each 
associated person, if any, responsible for the account; the identity of 
any other person who entered or accepted the order on behalf of the 
customer, or, if a customer entered the order on an electronic system, a 
notation of that entry. The memorandum need not show the identity of any 
person other than the associated person responsible for the account who 
may have entered the order if the order is entered into an electronic 
system that generates the memorandum and if that system is not capable 
of receiving an entry of the identity of any person other than the 
responsible associated person. In the circumstance in the preceding 
sentence, the member, broker or dealer must produce upon request by a 
representative of a securities regulatory authority a separate record 
that identifies each other person. An order with a customer other than a 
member, broker or dealer entered pursuant to the exercise of 
discretionary authority by the member, broker or dealer, or associated 
person thereof, must be so designated.
    (ii) A memorandum of each purchase or sale of a security-based swap 
for the account of the member, broker or dealer showing the price; and, 
in addition, where the purchase or sale is with a customer other than a 
broker or dealer, a memorandum of each order received, showing the time 
of receipt; the terms and conditions of the order and of any 
modification thereof; the account for which it was entered; the identity 
of any other person who entered or accepted the order on behalf of the 
customer, or, if a customer entered the order on an electronic system, a 
notation of that entry. The memorandum must also include the type of 
security-based swap, the reference security, index, or obligor, the date 
and time of execution, the effective date, the scheduled termination 
date, the notional amount(s) and the currenc(ies) in which the notional 
amount(s) is expressed, the unique transaction identifier, and the 
counterparty's unique identification code. An order entered pursuant to 
the exercise of discretionary authority must be so designated.
    (8)(i) With respect to a security other than a security-based swap, 
copies of confirmations of all purchases and sales of securities, 
including all repurchase and reverse repurchase agreements, and copies 
of notices of all other debits and credits for securities, cash and 
other items for the account of customers and partners of such member, 
broker or dealer.
    (ii) With respect to a security-based swap, copies of the security-
based swap trade acknowledgment and verification made in compliance with 
Sec.240.15Fi-2.
    (9) A record with respect to each cash, margin, and security-based 
swap account with such member, broker or dealer indicating, as 
applicable:
    (i) The name and address of the beneficial owner of such account;
    (ii) Except with respect to exempt employee benefit plan securities 
as defined in Sec.240.14a-1(d), but only to the extent such securities 
are held by employee benefit plans established by the issuer of the 
securities, whether or not the beneficial owner of securities registered 
in the name of such members, brokers or dealers, or a registered 
clearing agency or its nominee objects to disclosure of his or her 
identity, address, and securities positions to issuers;
    (iii) In the case of a margin account, the signature of such owner; 
provided that, in the case of a joint account or an account of a 
corporation, such records are required only in respect of the person or 
persons authorized to transact business for such account; and
    (iv) For each security-based swap account, a record of the unique 
identification code of such counterparty, the name and address of such 
counterparty, and a record of the authorization of each person the 
counterparty has granted authority to transact business in the security-
based swap account.
    (10) A record of all puts, calls, spreads, straddles, and other 
options in which such member, broker or dealer has any direct or 
indirect interest or which such member, broker or dealer,

[[Page 560]]

has granted or guaranteed, containing, at least, an identification of 
the security, and the number of units involved. An OTC derivatives 
dealer must also keep a record of all eligible OTC derivative 
instruments as defined in Sec.240.3b-13 in which the OTC derivatives 
dealer has any direct or indirect interest or which it has written or 
guaranteed, containing, at a minimum, an identification of the security 
or other instrument, the number of units involved, and the identity of 
the counterparty.
    (11) A record of the proof of money balances of all ledger accounts 
in the form of trial balances and a record of the computation of 
aggregate indebtedness and net capital, as of the trial balance date, 
pursuant to Sec.240.15c3-1 or Sec.240.18a-1, as applicable. The 
computation need not be made by any member, broker or dealer 
unconditionally exempt from Sec.240.15c3-1 pursuant to Sec.240.15c3-
1(b)(1) or (3). Such trial balances and computations must be prepared 
currently at least once a month.
    (12)(i) A questionnaire or application for employment executed by 
each associated person as that term is defined in paragraph (g)(4) of 
this section of the member, broker or dealer, which questionnaire or 
application must be approved in writing by an authorized representative 
of the member, broker or dealer and must contain at least the following 
information with respect to the associated person:
    (A) The associated person's name, address, social security number, 
and the starting date of the associated person's employment or other 
association with the member, broker or dealer;
    (B) The associated person's date of birth;
    (C) A complete, consecutive statement of all the associated person's 
business connections for at least the preceding ten years, including 
whether the employment was part-time or full-time;
    (D) A record of any denial of membership or registration, and of any 
disciplinary action taken, or sanction imposed, upon the associated 
person by any federal or state agency, or by any national securities 
exchange or national securities association, including any finding that 
the associated person was a cause of any disciplinary action or had 
violated any law;
    (E) A record of any denial, suspension, expulsion, or revocation of 
membership or registration of any member, broker or dealer with which 
the associated person was associated in any capacity when such action 
was taken;
    (F) A record of any permanent or temporary injunction entered 
against the associated person, or any member, broker, dealer, security-
based swap dealer or major security-based swap participant with which 
the associated person was associated in any capacity at the time such 
injunction was entered;
    (G) A record of any arrest or indictment for any felony, or any 
misdemeanor pertaining to securities, commodities, banking, insurance or 
real estate (including, but not limited to, acting or being associated 
with a broker or dealer, investment company, investment adviser, futures 
sponsor, bank, or savings and loan association), fraud, false statements 
or omissions, wrongful taking of property or bribery, forgery, 
counterfeiting, or extortion, and the disposition of the foregoing; and
    (H) A record of any other name or names by which the associated 
person has been known or which the associated person has used.
    (I) Provided, however, that if such associated person has been 
registered as a registered representative of such member, broker or 
dealer with, or the associated person's employment has been approved by 
a registered national securities association or a registered national 
securities exchange, then retention of a full, correct, and complete 
copy of any and all applications for such registration or approval will 
be deemed to satisfy the requirements of this paragraph (a)(12)(i).
    (ii) A record listing every associated person of the member, broker 
or dealer which shows, for each associated person, every office of the 
member, broker or dealer, where the associated person regularly conducts 
the business of handling funds or securities or effecting any 
transactions in, or inducing or attempting to induce the purchase or 
sale of any security for the member,

[[Page 561]]

broker or dealer and the Central Registration Depository number, if any, 
and every internal identification number or code assigned to that person 
by the member, broker or dealer.
    (13) Records required to be maintained pursuant to paragraph (d) of 
Sec.240.17f-2.
    (14) Copies of all Forms X-17F-1A filed pursuant to Sec.240.17f-1, 
all agreements between reporting institutions regarding registration or 
other aspects of Sec.240.17f-1, and all confirmations or other 
information received from the Commission or its designee as a result of 
inquiry.
    (15) Records required to be maintained pursuant to paragraph (e) of 
Sec.240.17f-2.
    (16)(i) The following records regarding any internal broker-dealer 
system of which such a broker or dealer is the sponsor:
    (A) A record of the broker's or dealer's customers that have access 
to an internal broker-dealer system sponsored by such broker or dealer 
(identifying any affiliations between such customers and the broker or 
dealer);
    (B) Daily summaries of trading in the internal broker-dealer system, 
including:
    (1) Securities for which transactions have been executed through use 
of such system; and
    (2) Transaction volume (separately stated for trading occurring 
during hours when consolidated trade reporting facilities are and are 
not in operation):
    (i) With respect to equity securities, stated in number of trades, 
number of shares, and total U.S. dollar value;
    (ii) With respect to debt securities, stated in total settlement 
value in U.S. dollars; and
    (iii) With respect to other securities, stated in number of trades, 
number of units of securities, and in dollar value, or other appropriate 
commonly used measure of value of such securities; and
    (C) Time-sequenced records of each transaction effected through the 
internal broker-dealer system, including date and time executed, price, 
size, security traded, counterparty identification information, and 
method of execution (if internal broker-dealer system allows alternative 
means or locations for execution, such as routing to another market, 
matching with limit orders, or executing against the quotations of the 
broker or dealer sponsoring the system).
    (ii) For purposes of paragraph (a) of this section, the term:
    (A) Internal broker-dealer system means any facility, other than a 
national securities exchange, an exchange exempt from registration based 
on limited volume, or an alternative trading system as defined in 
Regulation ATS, Sec.Sec.242.300 through 242.303 of this chapter, that 
provides a mechanism, automated in full or in part, for collecting, 
receiving, disseminating, or displaying system orders and facilitating 
agreement to the basic terms of a purchase or sale of a security between 
a customer and the sponsor, or between two customers of the sponsor, 
through use of the internal broker-dealer system or through the broker 
or dealer sponsor of such system;
    (B) Sponsor means any broker or dealer that organizes, operates, 
administers, or otherwise directly controls an internal broker-dealer 
trading system or, if the operator of the internal broker-dealer system 
is not a registered broker or dealer, any broker or dealer that, 
pursuant to contract, affiliation, or other agreement with the system 
operator, is involved on a regular basis with executing transactions in 
connection with use of the internal broker-dealer system, other than 
solely for its own account or as a customer with access to the internal 
broker-dealer system; and
    (C) System order means any order or other communication or 
indication submitted by any customer with access to the internal broker-
dealer system for entry into a trading system announcing an interest in 
purchasing or selling a security. The term ``system order'' does not 
include inquiries or indications of interest that are not entered into 
the internal broker-dealer system.
    (17) For each account with a natural person as a customer or owner:
    (i)(A) An account record including the customer's or owner's name, 
tax

[[Page 562]]

identification number, address, telephone number, date of birth, 
employment status (including occupation and whether the customer is an 
associated person of a member, broker or dealer), annual income, net 
worth (excluding value of primary residence), and the account's 
investment objectives. In the case of a joint account, the account 
record must include personal information for each joint owner who is a 
natural person; however, financial information for the individual joint 
owners may be combined. The account record must indicate whether it has 
been signed by the associated person responsible for the account, if 
any, and approved or accepted by a principal of the member, broker or 
dealer. For accounts in existence on the effective date of this section, 
the member, broker or dealer must obtain this information within three 
years of the effective date of the section.
    (B) A record indicating that:
    (1) The member, broker or dealer has furnished to each customer or 
owner within three years of the effective date of this section, and to 
each customer or owner who opened an account after the effective date of 
this section within thirty days of the opening of the account, and 
thereafter at intervals no greater than thirty-six months, a copy of the 
account record or an alternate document with all information required by 
paragraph (a)(17)(i)(A) of this section. The member, broker or dealer 
may elect to send this notification with the next statement mailed to 
the customer or owner after the opening of the account. The member, 
broker or dealer may choose to exclude any tax identification number and 
date of birth from the account record or alternative document furnished 
to the customer or owner. The member, broker or dealer must include with 
the account record or alternative document provided to each customer or 
owner an explanation of any terms regarding investment objectives. The 
account record or alternate document furnished to the customer or owner 
must include or be accompanied by prominent statements that the customer 
or owner should mark any corrections and return the account record or 
alternate document to the member, broker or dealer, and that the 
customer or owner should notify the member, broker or dealer of any 
future changes to information contained in the account record.
    (2) For each account record updated to reflect a change in the name 
or address of the customer or owner, the member, broker or dealer 
furnished a notification of that change to the customer's old address, 
or to each joint owner, and the associated person, if any, responsible 
for that account, on or before the 30th day after the date the member, 
broker or dealer received notice of the change.
    (3) For each change in the account's investment objectives the 
member, broker or dealer has furnished to each customer or owner, and 
the associated person, if any, responsible for that account a copy of 
the updated customer account record or alternative document with all 
information required to be furnished by paragraph (a)(17)(i)(B)(1) of 
this section, on or before the 30th day after the date the member, 
broker or dealer received notice of any change, or, if the account was 
updated for some reason other than the firm receiving notice of a 
change, after the date the account record was updated. The member, 
broker or dealer may elect to send this notification with the next 
statement scheduled to be mailed to the customer or owner.
    (C) For purposes of this paragraph (a)(17), the neglect, refusal, or 
inability of a customer or owner to provide or update any account record 
information required under paragraph (a)(17)(i)(A) of this section will 
excuse the member, broker or dealer from obtaining that required 
information.
    (D) The account record requirements in paragraph (a)(17)(i)(A) of 
this section will only apply to accounts for which the member, broker or 
dealer is, or has within the past 36 months been, required to make a 
suitability determination under the federal securities laws or under the 
requirements of a self-regulatory organization of which it is a member. 
Additionally, the furnishing requirement in paragraph (a)(17)(i)(B)(1) 
of this section will not be applicable to an account for which, within 
the last 36 months, the member, broker or dealer has not been required

[[Page 563]]

to make a suitability determination under the federal securities laws or 
under the requirements of a self-regulatory organization of which it is 
a member. This paragraph (a)(17)(i)(D) does not relieve a member, broker 
or dealer from any obligation arising from the rules of a self-
regulatory organization of which it is a member regarding the collection 
of information from a customer or owner.
    (ii) If an account is a discretionary account, a record containing 
the dated signature of each customer or owner granting the authority and 
the dated signature of each natural person to whom discretionary 
authority was granted.
    (iii) A record for each account indicating that each customer or 
owner was furnished with a copy of each written agreement entered into 
on or after the effective date of this paragraph pertaining to that 
account and that, if requested by the customer or owner, the customer or 
owner was furnished with a fully executed copy of each agreement.
    (18) A record:
    (i) As to each associated person of each written customer complaint 
received by the member, broker or dealer concerning that associated 
person. The record must include the complainant's name, address, and 
account number; the date the complaint was received; the name of any 
other associated person identified in the complaint; a description of 
the nature of the complaint; and the disposition of the complaint. 
Instead of the record, a member, broker or dealer may maintain a copy of 
each original complaint in a separate file by the associated person 
named in the complaint along with a record of the disposition of the 
complaint.
    (ii) Indicating that each customer of the member, broker or dealer 
has been provided with a notice containing the address and telephone 
number of the department of the member, broker or dealer to which any 
complaints as to the account may be directed.
    (19) A record:
    (i) As to each associated person listing each purchase and sale of a 
security attributable, for compensation purposes, to that associated 
person. The record must include the amount of compensation if monetary 
and a description of the compensation if non-monetary. In lieu of making 
this record, a member, broker or dealer may elect to produce the 
required information promptly upon request of a representative of a 
securities regulatory authority.
    (ii) Of all agreements pertaining to the relationship between each 
associated person and the member, broker or dealer including a summary 
of each associated person's compensation arrangement or plan with the 
member, broker or dealer, including commission and concession schedules 
and, to the extent that compensation is based on factors other than 
remuneration per trade, the method by which the compensation is 
determined.
    (20) A record, which need not be separate from the advertisements, 
sales literature, or communications, documenting that the member, broker 
or dealer has complied with, or adopted policies and procedures 
reasonably designed to establish compliance with, applicable federal 
requirements and rules of a self-regulatory organization of which the 
member, broker or dealer is a member which require that advertisements, 
sales literature, or any other communications with the public by a 
member, broker or dealer or its associated persons be approved by a 
principal.
    (21) A record for each office listing, by name or title, each person 
at that office who, without delay, can explain the types of records the 
firm maintains at that office and the information contained in those 
records.
    (22) A record listing each principal of a member, broker or dealer 
responsible for establishing policies and procedures that are reasonably 
designed to ensure compliance with any applicable federal requirements 
or rules of a self-regulatory organization of which the member, broker 
or dealer is a member that require acceptance or approval of a record by 
a principal.
    (23) A record documenting the credit, market, and liquidity risk 
management controls established and maintained by the broker or dealer 
to assist it in analyzing and managing the risks associated with its 
business activities,

[[Page 564]]

Provided, that the records required by this paragraph (a)(23) need only 
be made if the broker or dealer has more than:
    (i) $1,000,000 in aggregate credit items as computed under Sec.
240.15c3-3a; or
    (ii) $20,000,000 in capital, which includes debt subordinated in 
accordance with Sec.240.15c3-1d.
    (24) A record of the date that each Form CRS was provided to each 
retail investor, including any Form CRS provided before such retail 
investor opens an account.
    (25) A record of the daily calculation of the current exposure and, 
if applicable, the initial margin amount for each account of a 
counterparty required under Sec.240.18a-3(c).
    (26) A record of compliance with possession or control requirements 
under Sec.240.15c3-3(p)(2).
    (27) A record of the reserve computation required under Sec.
240.15c3-3(p)(3).
    (28) A record of each security-based swap transaction that is not 
verified under Sec.240.15Fi-2 within five business days of execution 
that includes, at a minimum, the unique transaction identifier and the 
counterparty's unique identification code.
    (29) A record documenting that the broker or dealer has complied 
with the business conduct standards as required under Sec.240.15Fh-6.
    (30) A record documenting that the broker or dealer has complied 
with the business conduct standards as required under Sec.Sec.
240.15Fh-1 through 240.15Fh-5 and 240.15Fk-1.
    (31)-(34) [Reserved]
    (35) For each retail customer to whom a recommendation of any 
securities transaction or investment strategy involving securities is or 
will be provided:
    (i) A record of all information collected from and provided to the 
retail customer pursuant to Sec.240.15l-1, as well as the identity of 
each natural person who is an associated person, if any, responsible for 
the account.
    (ii) For purposes of this paragraph (a)(35), the neglect, refusal, 
or inability of the retail customer to provide or update any information 
described in paragraph (a)(35)(i) of this section shall excuse the 
broker, dealer, or associated person from obtaining that required 
information.
    (b) A broker or dealer may comply with the recordkeeping 
requirements of the Commodity Exchange Act and chapter I of this title 
applicable to swap dealers and major swap participants in lieu of 
complying with paragraphs (a)(1), (3), and (5) of this section solely 
with respect to required information regarding security-based swap 
transactions and positions if:
    (1) The broker or dealer is registered as a security-based swap 
dealer or major security-based swap participant pursuant to section 15F 
of the Act (15 U.S.C. 78o-10);
    (2) The broker or dealer is registered as a swap dealer or major 
swap participant pursuant to section 4s of the Commodity Exchange Act 
and chapter I of this title;
    (3) The broker or dealer is subject to 17 CFR 23.201, 23.202, 
23.402, and 23.501 with respect to its swap-related books and records;
    (4) The broker or dealer preserves all of the data elements 
necessary to create the records required by paragraphs (a)(1), (3), and 
(5) of this section as they pertain to security-based swap and swap 
transactions and positions;
    (5) The broker or dealer upon request furnishes promptly to 
representatives of the Commission the records required by paragraphs 
(a)(1), (3), and (5) of this section as well as the records required by 
17 CFR 23.201, 23.202, 23.402, and 23.501 as they pertain to security-
based swap and swap transactions and positions in the format applicable 
to that category of record as set forth in this section; and
    (6) The broker or dealer provides notice of its intent to utilize 
this paragraph (b) by notifying in writing the Commission, both at the 
principal office of the Commission in Washington, DC, and at the 
regional office of the Commission for the region in which the registrant 
has its principal place of business, as well as by notifying in writing 
the registrant's designated examining authority.
    (c) A member of a national securities exchange, or a broker or 
dealer registered pursuant to section 15 of the Act (15 U.S.C. 78o), 
that introduces accounts on a fully-disclosed basis, is not

[[Page 565]]

required to make or keep such records of transactions cleared for such 
member, broker or dealer as are made and kept by a clearing broker or 
dealer pursuant to the requirements of this section and Sec.240.17a-4. 
Nothing in this paragraph (c) will be deemed to relieve such member, 
broker or dealer from the responsibility that such books and records be 
accurately maintained and preserved as specified in this section and 
Sec.240.17a-4.
    (d) For purposes of transactions in municipal securities by 
municipal securities brokers and municipal securities dealers, 
compliance with Rule G-8 of the Municipal Securities Rulemaking Board or 
any successor rule will be deemed to be in compliance with this section.
    (e) The provisions of this section will not apply to security 
futures product transactions and positions in a futures account (as that 
term is defined in Sec.240.15c3-3(a)(15)); provided, that the 
Commodity Futures Trading Commission's recordkeeping rules apply to 
those transactions and positions.
    (f) Every member, broker or dealer must make and keep current, as to 
each office, the books and records described in paragraphs (a)(1), (6), 
(7), (12), and (17), (a)(18)(i), and (a)(19) through (22) of this 
section.
    (g) When used in this section:
    (1) The term office means any location where one or more associated 
persons regularly conduct the business of handling funds or securities 
or effecting any transactions in, or inducing or attempting to induce 
the purchase or sale of, any security.
    (2) The term principal means any individual registered with a 
registered national securities association as a principal or branch 
manager of a member, broker or dealer or any other person who has been 
delegated supervisory responsibility over associated persons by the 
member, broker or dealer.
    (3) The term securities regulatory authority means the Commission, 
any self-regulatory organization, or any securities commission (or any 
agency or office performing like functions) of the States.
    (4) The term associated person means a ``person associated with a 
broker or dealer'' or ``person associated with a security-based swap 
dealer or major security-based swap participant'' as defined in sections 
3(a)(18) and (70) of the Act (15 U.S.C. 78c(a)(18) and (70)) 
respectively, but does not include persons whose functions are solely 
clerical or ministerial.

    Cross Reference: For interpretative release applicable to Sec.
240.17a-3, see No. 3040 in tabulation, part 241 of this chapter.

[13 FR 8212, Dec. 22, 1948]

    Editorial Note: For Federal Register citations affecting Sec.
240.17a-3, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.

    Effective Date Note: At 85 FR 6416, Feb. 4, 2020, Sec.240.17a-3 
was amended by adding paragraph (a)(31), effective Apr. 6, 2020. For the 
convenience of the user, the added text is set forth as follows:



Sec.240.17a-3  Records to be made by certain exchange members, brokers 
          and dealers.

                                * * * * *

    (a) * * *
    (31)(i) A record of each security-based swap portfolio 
reconciliation, whether conducted pursuant to Sec.240.15Fi-3 or 
otherwise, including the dates of the security-based swap portfolio 
reconciliation, the number of portfolio reconciliation discrepancies, 
the number of security-based swap valuation disputes (including the 
time-to-resolution of each valuation dispute and the age of outstanding 
valuation disputes, categorized by transaction and counterparty), and 
the name of the third-party entity performing the security-based swap 
portfolio reconciliation, if any.
    (ii) A copy of each notification required to be provided to the 
Commission pursuant to Sec.240.15Fi-3(c).
    (iii) A record of each bilateral offset and each bilateral portfolio 
compression exercise or multilateral portfolio compression exercise in 
which it participates, whether conducted pursuant to Sec.240.15Fi-4 or 
otherwise, including the dates of the offset or compression, the 
security-based swaps included in the offset or compression, the identity 
of the counterparties participating in the offset or compression, the 
results of the compression, and the name of the third-party entity 
performing the offset or compression, if any.

                                * * * * *

[[Page 566]]



Sec.240.17a-4  Records to be preserved by certain exchange members,
brokers and dealers.

    This section applies to the following types of entities: A member of 
a national securities exchange who transacts a business in securities 
directly with others than members of a national securities exchange; a 
broker or dealer who transacts a business in securities through the 
medium of a member of a national securities exchange; a broker or 
dealer, including an OTC derivatives dealer as that term is defined in 
Sec.240.3b-12, registered pursuant to section 15 of the Act (15 U.S.C. 
78o); a security-based swap dealer registered pursuant to section 15F of 
the Act (15 U.S.C. 78o-10) that is also a broker or dealer, including an 
OTC derivatives dealer, registered pursuant to section 15 of the Act; 
and a major security-based swap participant registered pursuant to 
section 15F of the Act that is also a broker or dealer, including an OTC 
derivatives dealer, registered pursuant to section 15 of the Act. 
Section 240.18a-6 (rather than this section) applies to the following 
types of entities: A security-based swap dealer registered pursuant to 
section 15F of the Act that is not also a broker or dealer, including an 
OTC derivatives dealer, registered pursuant to section 15 of the Act; 
and a major security-based swap participant registered pursuant to 
section 15F of the Act that is not also a broker or dealer, including an 
OTC derivatives dealer, registered pursuant to section 15 of the Act.
    (a) Every member, broker or dealer subject to Sec.240.17a-3 must 
preserve for a period of not less than 6 years, the first two years in 
an easily accessible place, all records required to be made pursuant to 
Sec.240.17a-3(a)(1) through (3), (5), and (21) and (22), and analogous 
records created pursuant to Sec.240.17a-3(d).
    (b) Every member, broker or dealer subject to Sec.240.17a-3 must 
preserve for a period of not less than three years, the first two years 
in an easily accessible place:
    (1) All records required to be made pursuant to Sec.240.17a-
3(a)(4), (6) through (11), (16), (18) through (20), and (25) through 
(30), and analogous records created pursuant to Sec.240.17a-3(e).
    (2) All check books, bank statements, cancelled checks and cash 
reconciliations.
    (3) All bills receivable or payable (or copies thereof), paid or 
unpaid, relating to the member, broker or dealer's business as such.
    (4) Originals of all communications received and copies of all 
communications sent (and any approvals thereof) by the member, broker or 
dealer (including inter-office memoranda and communications) relating to 
its business as such, including all communications which are subject to 
rules of a self-regulatory organization of which the member, broker or 
dealer is a member regarding communications with the public. As used in 
this paragraph (b)(4), the term communications includes sales scripts 
and recordings of telephone calls required to be maintained pursuant to 
section 15F(g)(1) of the Act (15 U.S.C. 78o-10(g)(1)).
    (5) All trial balances, computations of aggregate indebtedness and 
net capital (and working papers in connection therewith), financial 
statements, branch office reconciliations, and internal audit working 
papers, relating to the member, broker or dealer's business as such.
    (6) All guarantees of accounts and all powers of attorney and other 
evidence of the granting of any discretionary authority given in respect 
of any account, and copies of resolutions empowering an agent to act on 
behalf of a corporation.
    (7) All written agreements (or copies thereof) entered into by such 
member, broker or dealer relating to its business as such, including 
agreements with respect to any account. Written agreements with respect 
to a security-based swap customer or non-customer, including governing 
documents or any document establishing the terms and conditions of the 
customer's or non-customer's security-based swaps must be maintained 
with the customer's or non-customer's account records.
    (8) Records which contain the following information in support of 
amounts included in the report prepared as of the fiscal year end on 
Part II or IIA of Form X-17A-5 (Sec.249.617 of this chapter), as 
applicable, and in the annual financial statements filed with

[[Page 567]]

the Commission required by Sec.240.17a-5(d), Sec.240.17a-12(b), or 
Sec.240.18a-7(c), as applicable:
    (i) Money balance and position, long or short, including 
description, quantity, price, and valuation of each security including 
contractual commitments in customers' accounts, in cash and fully 
secured accounts, partly secured accounts, unsecured accounts, and in 
securities accounts payable to customers;
    (ii) Money balance and position, long or short, including 
description, quantity, price and valuation of each security including 
contractual commitments in non-customers' accounts, in cash and fully 
secured accounts, partly secured and unsecured accounts, and in 
securities accounts payable to non-customers;
    (iii) Position, long or short, including description, quantity, 
price and valuation of each security including contractual commitments 
included in the Computation of Net Capital as commitments, securities 
owned, securities owned not readily marketable, and other investments 
owned not readily marketable;
    (iv) Amount of secured demand note, description of collateral 
securing such secured demand note including quantity, price and 
valuation of each security and cash balance securing such secured demand 
note;
    (v) Description of futures commodity contracts or swaps, contract 
value on trade date, market value, gain or loss, and liquidating equity 
or deficit in customers' and non-customers' accounts;
    (vi) Description of futures commodity contracts or swaps, contract 
value on trade date, market value, gain or loss, and liquidating equity 
or deficit in trading and investment accounts;
    (vii) Description, money balance, quantity, price, and valuation of 
each spot commodity, and swap position or commitments in customers' and 
non-customers' accounts;
    (viii) Description, money balance, quantity, price, and valuation of 
each spot commodity, and swap position or commitments in trading and 
investment accounts;
    (ix) Number of shares, description of security, exercise price, cost 
and market value of put and call options including short out of the 
money options having no market or exercise value, showing listed and 
unlisted put and call options separately;
    (x) Quantity, price, and valuation of each security underlying the 
haircut for undue concentration made in the Computation for Net Capital;
    (xi) Description, quantity, price and valuation of each security and 
commodity position or contractual commitment, long or short, in each 
joint account in which the broker or dealer has an interest, including 
each participant's interest and margin deposit;
    (xii) Description, settlement date, contract amount, quantity, 
market price, and valuation for each aged failed to deliver requiring a 
charge in the Computation of Net Capital pursuant to Sec.240.15c3-1 or 
Sec.240.18a-1, as applicable;
    (xiii) Detail relating to information for possession or control 
requirements under Sec.240.15c3-3 or Sec.240.18a-4, as applicable 
and reported in Part II or IIA of Form X-17A-5 (Sec.249.617 of this 
chapter), as applicable;
    (xiv) Detail relating to information for security-based swap 
possession or control requirements under Sec.240.15c3-3 or Sec.
240.18a-4, as applicable, and reported in Part II or IIA of Form X-17A-5 
(Sec.249.617 of this chapter);
    (xv) Detail of all items, not otherwise substantiated, which are 
charged or credited in the Computation of Net Capital pursuant to Sec.
240.15c3-1 or Sec.240.18a-1, as applicable, such as cash margin 
deficiencies, deductions related to securities values and undue 
concentration, aged securities differences, and insurance claims 
receivable;
    (xvi) Detail relating to the calculation of the risk margin amount 
pursuant to Sec.240.15c3-1(c)(17) or Sec.240.18a-1(c)(6), as 
applicable; and
    (xvii) Other schedules which are specifically prescribed by the 
Commission as necessary to support information reported as required by 
Sec.Sec.240.17a-5, 240.17a-12, and 240.18a-7, as applicable.
    (9) The records required to be made pursuant to Sec.240.15c3-
3(d)(5) and (o) or Sec.240.18a-4, as applicable.
    (10) The records required to be made pursuant to Sec.240.15c3-4 
and the results

[[Page 568]]

of the periodic reviews conducted pursuant to Sec.240.15c3-4(d).
    (11) All notices relating to an internal broker-dealer system 
provided to the customers of the broker or dealer that sponsors such 
internal broker-dealer system, as defined in paragraph (a)(16)(ii)(A) of 
Sec.240.17a-3. Notices, whether written or communicated through the 
internal broker-dealer trading system or other automated means, must be 
preserved under this paragraph (b)(11) if they are provided to all 
customers with access to an internal broker-dealer system, or to one or 
more classes of customers. Examples of notices to be preserved under 
this paragraph (b)(11) include, but are not limited to, notices 
addressing hours of system operations, system malfunctions, changes to 
system procedures, maintenance of hardware and software, and 
instructions pertaining to access to the internal broker-dealer system.
    (12) The records required to be made pursuant to Sec.240.15c3-
1e(c)(4)(vi) or Sec.240.18a-1(e)(2)(iii)(F)(2), as applicable.
    (13) The written policies and procedures the broker-dealer 
establishes, documents, maintains, and enforces to assess 
creditworthiness for the purpose of Sec.240.15c3-1(c)(2)(vi)(E), 
(c)(2)(vi)(F)(1) and (2), and (c)(2)(vi)(H) or Sec.240.18a-
1(c)(1)(vi)(2), as applicable.
    (14) A copy of information required to be reported under Sec.Sec.
242.901 through 242.909 of this chapter (Regulation SBSR).
    (15) Copies of documents, communications, disclosures, and notices 
related to business conduct standards as required under Sec.Sec.
240.15Fh-1 through 240.15Fh-6 and 240.15Fk-1.
    (16) Copies of documents used to make a reasonable determination 
with respect to special entities, including information relating to the 
financial status, the tax status, the investment or financing objectives 
of the special entity as required under section 15F(h)(4)(C) and (5)(A) 
of the Act (15 U.S.C. 78o-10(h)(4)(C) and (5)(A)).
    (c) Every member, broker or dealer subject to Sec.240.17a-3 must 
preserve for a period of not less than six years after the closing of 
any customer's account any account cards or records which relate to the 
terms and conditions with respect to the opening and maintenance of the 
account.
    (d) Every member, broker or dealer subject to Sec.240.17a-3 must 
preserve during the life of the enterprise and of any successor 
enterprise all partnership articles or, in the case of a corporation, 
all articles of incorporation or charter, minute books, and stock 
certificate books (or, in the case of any other form of legal entity, 
all records such as articles of organization or formation, and minute 
books used for a purpose similar to those records required for 
corporations or partnerships), all Forms BD (Sec.249.501 of this 
chapter), all Forms BDW (Sec.249.501a of this chapter), all Forms 
SBSE-BD (Sec.249.1600b of this chapter), all Forms SBSE-C (Sec.
249.1600c of this chapter), all Forms SBSE-W (Sec.249.1601 of this 
chapter), all amendments to these forms, and all licenses or other 
documentation showing the registration of the member, broker or dealer 
with any securities regulatory authority or the Commodity Futures 
Trading Commission.
    (e) Every member, broker or dealer subject to Sec.240.17a-3 must 
maintain and preserve in an easily accessible place:
    (1) All records required under Sec.240.17a-3(a)(12) until at least 
three years after the associated person's employment and any other 
connection with the member, broker or dealer has terminated.
    (2) All records required under Sec.240.17a-3(a)(13) until at least 
three years after the termination of employment or association of those 
persons required by Sec.240.17f-2 to be fingerprinted.
    (3) All records required pursuant to Sec.240.17a-3(a)(15) during 
the life of the enterprise.
    (4) All records required pursuant to Sec.240.17a-3(a)(14) for 
three years.
    (5) All account record information required pursuant to Sec.
240.17a-3(a)(17) and all records required pursuant to Sec.240.17a-
3(a)(35), in each case until at least six years after the earlier of the 
date the account was closed or the date on which the information was 
collected, provided, replaced, or updated.
    (6) Each report which a securities regulatory authority or the 
Commodity Futures Trading Commission

[[Page 569]]

has requested or required the member, broker or dealer to make and 
furnish to it pursuant to an order or settlement, and each securities 
regulatory authority, Commodity Futures Trading Commission, or 
prudential regulator examination report until three years after the date 
of the report.
    (7) Each compliance, supervisory, and procedures manual, including 
any updates, modifications, and revisions to the manual, describing the 
policies and practices of the member, broker or dealer with respect to 
compliance with applicable laws and rules, and supervision of the 
activities of each natural person associated with the member, broker or 
dealer until three years after the termination of the use of the manual.
    (8) All reports produced to review for unusual activity in customer 
accounts until eighteen months after the date the report was generated. 
In lieu of maintaining the reports, a member, broker or dealer may 
produce promptly the reports upon request by a representative of a 
securities regulatory authority. If a report was generated in a computer 
system that has been changed in the most recent eighteen month period in 
a manner such that the report cannot be reproduced using historical data 
in the same format as it was originally generated, the report may be 
produced by using the historical data in the current system, but must be 
accompanied by a record explaining each system change which affected the 
reports. If a report is generated in a computer system that has been 
changed in the most recent eighteen month period in a manner such that 
the report cannot be reproduced in any format using historical data, the 
member, broker or dealer must promptly produce upon request a record of 
the parameters that were used to generate the report at the time 
specified by a representative of a securities regulatory authority, 
including a record of the frequency with which the reports were 
generated.
    (9) All records required pursuant to Sec.240.17a-3(a)(23) until 
three years after the termination of the use of the risk management 
controls documented therein.
    (10) All records required pursuant to Sec.240.17a-3(a)(24), as 
well as a copy of each Form CRS, until at least six years after such 
record or Form CRS is created.
    (f) The records required to be maintained and preserved pursuant to 
Sec.Sec.240.17a-3 and 240.17a-4 may be immediately produced or 
reproduced on ``micrographic media'' (as defined in this section) or by 
means of ``electronic storage media'' (as defined in this section) that 
meet the conditions set forth in this section and be maintained and 
preserved for the required time in that form.
    (1) For purposes of this section:
    (i) The term micrographic media means microfilm or microfiche, or 
any similar medium; and
    (ii) The term electronic storage media means any digital storage 
medium or system and, in the case of both paragraphs (f)(1)(i) and 
(f)(1)(ii) of this section, that meets the applicable conditions set 
forth in this paragraph (f).
    (2) If electronic storage media is used by a member, broker, or 
dealer, it must comply with the following requirements:
    (i) The member, broker, or dealer must notify its examining 
authority designated pursuant to section 17(d) of the Act (15 U.S.C. 
78q(d)) prior to employing electronic storage media. If employing any 
electronic storage media other than optical disk technology (including 
CD-ROM), the member, broker, or dealer must notify its designated 
examining authority at least 90 days prior to employing such storage 
media. In either case, the member, broker, or dealer must provide its 
own representation or one from the storage medium vendor or other third 
party with appropriate expertise that the selected storage media meets 
the conditions set forth in this paragraph (f)(2).
    (ii) The electronic storage media must:
    (A) Preserve the records exclusively in a non-rewriteable, non-
erasable format;
    (B) Verify automatically the quality and accuracy of the storage 
media recording process;
    (C) Serialize the original and, if applicable, duplicate units of 
storage

[[Page 570]]

media, and time-date for the required period of retention the 
information placed on such electronic storage media; and
    (D) Have the capacity to readily download indexes and records 
preserved on the electronic storage media to any medium acceptable under 
this paragraph (f) as required by the Commission or the self-regulatory 
organizations of which the member, broker, or dealer is a member.
    (3) If a member, broker, or dealer uses micrographic media or 
electronic storage media, it must:
    (i) At all times have available, for examination by the staffs of 
the Commission and self-regulatory organizations of which it is a 
member, facilities for immediate, easily readable projection or 
production of micrographic media or electronic storage media images and 
for producing easily readable images.
    (ii) Be ready at all times to provide, and immediately provide, any 
facsimile enlargement which the staffs of the Commission, any self-
regulatory organization of which it is a member, or any State securities 
regulator having jurisdiction over the member, broker or dealer may 
request.
    (iii) Store separately from the original, a duplicate copy of the 
record stored on any medium acceptable under Sec.240.17a-4 for the 
time required.
    (iv) Organize and index accurately all information maintained on 
both original and any duplicate storage media.
    (A) At all times, a member, broker, or dealer must be able to have 
such indexes available for examination by the staffs of the Commission 
and the self- regulatory organizations of which the broker or dealer is 
a member.
    (B) Each index must be duplicated and the duplicate copies must be 
stored separately from the original copy of the index.
    (C) Original and duplicate indexes must be preserved for the time 
required for the indexed records.
    (v) The member, broker, or dealer must have in place an audit system 
providing for accountability regarding inputting of records required to 
be maintained and preserved pursuant to Sec.Sec.240.17a-3 and 
240.17a-4 to electronic storage media and inputting of any changes made 
to every original and duplicate record maintained and preserved thereby.
    (A) At all times, a member, broker, or dealer must be able to have 
the results of such audit system available for examination by the staffs 
of the Commission and the self-regulatory organizations of which the 
broker or dealer is a member.
    (B) The audit results must be preserved for the time required for 
the audited records.
    (vi) The member, broker, or dealer must maintain, keep current, and 
provide promptly upon request by the staffs of the Commission or any 
self-regulatory organization of which the member, broker, or broker-
dealer is a member all information necessary to access records and 
indexes stored on the electronic storage media; or place in escrow and 
keep current a copy of the physical and logical file format of the 
electronic storage media, the field format of all different information 
types written on the electronic storage media and the source code, 
together with the appropriate documentation and information necessary to 
access records and indexes.
    (vii) For every member, broker or dealer exclusively using 
electronic storage media for some or all of its record preservation 
under this section, at least one third party (the undersigned), who has 
access to and the ability to download information from the member's, 
broker's or dealer's electronic storage media to any acceptable medium 
under this section, must file with the designated examining authority 
for the member, broker or dealer the following undertakings with respect 
to such records:

    The undersigned hereby undertakes to furnish promptly to the U.S. 
Securities and Exchange Commission (``Commission''), its designees or 
representatives, any self-regulatory organization of which it is a 
member, or any State securities regulator having jurisdiction over the 
member, broker or dealer, upon reasonable request, such information as 
deemed necessary by the staffs of the Commission, any self-regulatory 
organization of which it is a member, or any State securities regulator 
having jurisdiction over the member, broker or dealer to download 
information kept on the member's, broker's or dealer's electronic 
storage media to any medium acceptable under Sec.240.17a-4. 
Furthermore, the undersigned hereby undertakes to take

[[Page 571]]

reasonable steps to provide access to information contained on the 
member's, broker's or dealer's electronic storage media, including, as 
appropriate, arrangements for the downloading of any record required to 
be maintained and preserved by the member, broker or dealer pursuant to 
Sec.Sec.240.17a-3 and 240.17a-4 in a format acceptable to the staffs 
of the Commission, any self-regulatory organization of which it is a 
member, or any State securities regulator having jurisdiction over the 
member, broker or dealer. Such arrangements will provide specifically 
that in the event of a failure on the part of a member, broker or dealer 
to download the record into a readable format and after reasonable 
notice to the broker or dealer, upon being provided with the appropriate 
electronic storage medium, the undersigned will undertake to do so, as 
the staffs of the Commission, any self-regulatory organization of which 
it is a member, or any State securities regulator having jurisdiction 
over the member, broker or dealer may request.

    (g) If a person who has been subject to Sec.240.17a-3 ceases to 
transact a business in securities directly with others than members of a 
national securities exchange, or ceases to transact a business in 
securities through the medium of a member of a national securities 
exchange, or ceases to be registered pursuant to section 15 of the Act 
(15 U.S.C. 78o) such person must, for the remainder of the periods of 
time specified in this section, continue to preserve the records which 
it theretofore preserved pursuant to this section.
    (h) For purposes of transactions in municipal securities by 
municipal securities brokers and municipal securities dealers, 
compliance with Rule G-9 of the Municipal Securities Rulemaking Board or 
any successor rule will be deemed to be in compliance with this section.
    (i)(1) If the records required to be maintained and preserved 
pursuant to the provisions of Sec.Sec.240.17a-3 and 240.17a-4 are 
prepared or maintained by an outside service bureau, depository, bank 
which does not operate pursuant to Sec.240.17a-3(b)(2), or other 
recordkeeping service on behalf of the member, broker or dealer required 
to maintain and preserve such records, such outside entity must file 
with the Commission a written undertaking in form acceptable to the 
Commission, signed by a duly authorized person, to the effect that such 
records are the property of the member, broker or dealer required to 
maintain and preserve such records and will be surrendered promptly on 
request of the member, broker or dealer and including the following 
provision:

    With respect to any books and records maintained or preserved on 
behalf of [BD], the undersigned hereby undertakes to permit examination 
of such books and records at any time or from time to time during 
business hours by representatives or designees of the Securities and 
Exchange Commission, and to promptly furnish to said Commission or its 
designee true, correct, complete and current hard copy of any or all or 
any part of such books and records.

    (2) Agreement with an outside entity will not relieve such member, 
broker or dealer from the responsibility to prepare and maintain records 
as specified in this section or in Sec.240.17a-3.
    (j) Every member, broker and dealer subject to this section must 
furnish promptly to a representative of the Commission legible, true, 
complete, and current copies of those records of the member, broker or 
dealer that are required to be preserved under this section, or any 
other records of the member, broker or dealer subject to examination 
under section 17(b) of the Act (15 U.S.C. 78q(b)) that are requested by 
the representative of the Commission.
    (k) Exchanges of futures for physical. (1) Except as provided in 
paragraph (k)(2) of this section, upon request of any designee or 
representative of the Commission or of any self-regulatory organization 
of which it is a member, every member, broker or dealer subject to this 
section must request and obtain from its customers documentation 
regarding an exchange of security futures products for physical 
securities, including documentation of underlying cash transactions and 
exchanges. Upon receipt of such documentation, the member, broker or 
dealer must promptly provide that documentation to the requesting 
designee or representative.
    (2) This paragraph (k) does not apply to an underlying cash 
transaction(s) or exchange(s) that was effected through a member, broker 
or dealer registered with the Commission and is of a type required to be 
recorded pursuant to Sec.240.17a-3.

[[Page 572]]

    (l) Records for the most recent two year period required to be made 
pursuant to Sec.240.17a-3(e) and paragraphs (b)(4) and (e)(7) of this 
section which relate to an office shall be maintained at the office to 
which they relate. If an office is a private residence where only one 
associated person (or multiple associated persons who reside at that 
location and are members of the same immediate family) regularly 
conducts business, and it is not held out to the public as an office nor 
are funds or securities of any customer of the member, broker or dealer 
handled there, the member, broker or dealer need not maintain records at 
that office, but the records must be maintained at another location 
within the same State as the member, broker or dealer may select. Rather 
than maintain the records at each office, the member, broker or dealer 
may choose to produce the records promptly at the request of a 
representative of a securities regulatory authority at the office to 
which they relate or at another location agreed to by the 
representative.
    (m) When used in this section:
    (1) The term office has the meaning set forth in Sec.240.17a-
3(g)(1).
    (2) The term principal has the meaning set forth in Sec.240.17a-
3(g)(2).
    (3) The term securities regulatory authority has the meaning set 
forth in Sec.240.17a-3(g)(3).
    (4) The term associated person has the meaning set forth in Sec.
240.17a-3(g)(4).
    (5) The term business as such includes security-based swap activity.

    Cross Reference: For interpretative releases applicable to Sec.
240.17a-4, see No. 3040 and No. 8024 in tabulation, part 241 of this 
chapter.

[13 FR 8212, Dec. 22, 1948]

    Editorial Note: For Federal Register citations affecting Sec.
240.17a-4, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.

    Effective Date Note: At 85 FR 6416, Feb. 4, 2020, Sec.240.17a-4 
was amended by revising paragraph (b)(1) and adding paragraphs (e)(11) 
and (12), effective Apr. 6, 2020. For the convenience of the user, the 
added and revised text is set forth as follows:



Sec.240.17a-4  Records to be preserved by certain exchange members, 
          brokers and dealers.

                                * * * * *

    (b) * * *
    (1) All records required to be made pursuant to Sec.240.17a-
3(a)(4), (6) through (11), (16), (18) through (20), and (25) through 
(31), and analogous records created pursuant to Sec.240.17a-3(e).

                                * * * * *

    (e) * * *
    (11) The written policies and procedures required pursuant to 
Sec.Sec.240.15Fi-3, 240.15Fi-4, and 240.15Fi-5 until three years 
after termination of the use of the policies and procedures.
    (12)(i) Each written agreement with counterparties on the terms of 
portfolio reconciliation with those counterparties as required to be 
created under Sec.240.15Fi-3(a)(1) and (b)(1) until three years after 
the termination of the agreement and all transactions governed thereby.
    (ii) Security-based swap trading relationship documentation with 
counterparties required to be created under Sec.240.15Fi-5 until three 
years after the termination of such documentation and all transactions 
governed thereby.
    (iii) A record of the results of each audit required to be performed 
pursuant to Sec.240.15Fi-5(c) until three years after the conclusion 
of the audit.

                                * * * * *



Sec.240.17a-5  Reports to be made by certain brokers and dealers.

    This section applies to the following types of entities: Except as 
provided in this introductory text, a broker or dealer, including an OTC 
derivatives dealer as that term is defined in Sec.240.3b-12 registered 
pursuant to section 15 of the Act (15 U.S.C. 78o); a broker or dealer, 
other than an OTC derivatives dealer, registered pursuant to section 15 
of the Act that is also a security-based swap dealer registered pursuant 
to section 15F of the Act (15 U.S.C. 78o-10); and a broker or dealer, 
including an OTC derivatives dealer, registered pursuant to section 15 
of the Act that is also a major-security-based swap participant 
registered pursuant to section 15F of the Act. Section 240.18a-7 (rather 
than this section) applies to the following types of entities:

[[Page 573]]

A security-based swap dealer registered pursuant to section 15F of the 
Act that is not also a broker or dealer, other than an OTC derivatives 
dealer, registered pursuant to section 15 of the Act; a security-based 
swap dealer registered pursuant to section 15F of the Act that is also 
an OTC derivatives dealer; and a major security-based swap participant 
registered pursuant to section 15F of the Act that is not also a broker 
or dealer, including an OTC derivatives dealer, registered pursuant to 
section 15 of the Act.
    (a) Monthly and quarterly reports. (1)(i) Every broker or dealer 
subject to this paragraph (a) who clears transactions or carries 
customer accounts must file with the Commission Part I of Form X-17A-5 
(Sec.249.617 of this chapter) within 10 business days after the end of 
each month.
    (ii) Every broker or dealer subject to this paragraph (a) who clears 
transactions or carries customer accounts and every broker or dealer 
that is registered as a security-based swap dealer or major security-
based swap participant under section 15F of the Act (15 U.S.C. 78o-10) 
must file with the Commission an executed Part II of Form X-17A-5 (Sec.
249.617 of this chapter) within 17 business days after the end of the 
calendar quarter and within 17 business days after the end of the fiscal 
year of the broker or dealer where that date is not the end of a 
calendar quarter. Certain of such brokers or dealers must file with the 
Commission an executed Part IIA in lieu thereof if the nature of their 
business is limited as described in the instructions to Part II of Form 
X-17A-5 (Sec.249.617 of this chapter).
    (iii) Every broker or dealer that neither clears transactions nor 
carries customer accounts and that is not registered as a security-based 
swap dealer or major security-based swap participant under section 15F 
of the Act (15 U.S.C. 78o-10) must file with the Commission an executed 
Part IIA of Form X-17A-5 (Sec.249.617 of this chapter) within 17 
business days after the end of each calendar quarter and within 17 
business days after the end of the fiscal year of the broker or dealer 
where that date is not the end of a calendar quarter.
    (iv) Upon receiving written notice from the Commission or the 
examining authority designated pursuant to section 17(d) of the Act (15 
U.S.C. 78q(d)) (``designated examining authority''), a broker or dealer 
who receives such notice must file with the Commission on a monthly 
basis, or at such times as will be specified, an executed Part II or 
Part IIA of Form X-17A-5 (Sec.249.617 of this chapter), and such other 
financial or operational information as will be required by the 
Commission or the designated examining authority.
    (2) The reports provided for in this paragraph (a) that must be 
filed with the Commission will be considered filed when received at the 
Commission's principal office in Washington, DC, and the regional office 
of the Commission for the region in which the broker or dealer has its 
principal place of business. All reports filed pursuant to this 
paragraph (a) will be deemed to be confidential.
    (3) The provisions of paragraph (a)(1) of this section will not 
apply to a member of a national securities exchange or a registered 
national securities association if said exchange or association 
maintains records containing the information required by Part I, Part 
II, or Part IIA of Form X-17A-5 (Sec.249.617 of this chapter), as to 
such member, and transmits to the Commission a copy of the applicable 
parts of Form X-17A-5 (Sec.249.617 of this chapter) as to such member, 
pursuant to a plan, the procedures and provisions of which have been 
submitted to and declared effective by the Commission. Any such plan 
filed by a national securities exchange or a registered national 
securities association may provide that when a member is also a member 
of one or more national securities exchanges, or of one or more national 
securities exchanges and a registered national securities association, 
the information required to be submitted with respect to any such member 
may be submitted by only one specified national securities exchange or 
registered national securities association. For the purposes of this 
section, a plan filed with the Commission by a national securities 
exchange or a registered national securities association will not become 
effective unless the Commission, having due regard for

[[Page 574]]

the fulfillment of the Commission's duties and responsibilities under 
the provisions of the Act, declares the plan to be effective. Further, 
the Commission, in declaring any such plan effective, may impose such 
terms and conditions relating to the provisions of the plan and the 
period of its effectiveness as may be deemed necessary or appropriate in 
the public interest, for the protection of investors, or to carry out 
the Commission's duties and responsibilities under the Act.
    (4) Every broker or dealer subject to this paragraph (a) must file 
Form Custody (Sec.249.639 of this chapter) with its designated 
examining authority within 17 business days after the end of each 
calendar quarter and within 17 business days after the end of the fiscal 
year of the broker or dealer where that date is not the end of a 
calendar quarter. The designated examining authority must maintain the 
information obtained through the filing of Form Custody and must 
promptly transmit that information to the Commission at such time as it 
transmits the applicable part of Form X-17A-5 (Sec.249.617 of this 
chapter) as required in paragraph (a)(2) of this section.
    (5) Broker-dealers that have been authorized by the Commission to 
compute net capital pursuant to Sec.240.15c3-1e must file the 
following additional reports with the Commission:
    (i) For each product for which the broker or dealer calculates a 
deduction for market risk other than in accordance with Sec.240.15c3-
1e(b)(1) or (3), the product category and the amount of the deduction 
for market risk within 17 business days after the end of the month;
    (ii) A graph reflecting, for each business line, the daily intra-
month value at risk within 17 business days after the end of the month;
    (iii) The aggregate value at risk for the broker or dealer within 17 
business days after the end of the month;
    (iv) For each product for which the broker or dealer uses scenario 
analysis, the product category and the deduction for market risk within 
17 business days after the end of the month;
    (v) Credit risk information on derivatives exposures within 17 
business days after the end of the month, including:
    (A) Overall current exposure;
    (B) Current exposure (including commitments) listed by counterparty 
for the 15 largest exposures;
    (C) The ten largest commitments listed by counterparty;
    (D) The broker's or dealer's maximum potential exposure listed by 
counterparty for the 15 largest exposures;
    (E) The broker's or dealer's aggregate maximum potential exposure;
    (F) A summary report reflecting the broker's or dealer's current and 
maximum potential exposures by credit rating category; and
    (G) A summary report reflecting the broker's or dealer's current 
exposure for each of the top ten countries to which the broker or dealer 
is exposed (by residence of the main operating group of the 
counterparty);
    (vi) Regular risk reports supplied to the broker's or dealer's 
senior management in the format described in the application, within 17 
business days after the end of the month;
    (vii) [Reserved]
    (viii) A report identifying the number of business days for which 
the actual daily net trading loss exceeded the corresponding daily VaR 
within 17 business days after the end of each calendar quarter; and
    (ix) The results of backtesting of all internal models used to 
compute allowable capital, including VaR and credit risk models, 
indicating the number of backtesting exceptions within 17 business days 
after the end of the calendar quarter.
    (6) Upon written application by a broker or dealer to its designated 
examining authority, the designated examining authority may extend the 
time for filing the information required by this paragraph (a). The 
designated examining authority for the broker or dealer will maintain, 
in the manner prescribed in Sec.240.17a-1, a record of each extension 
granted.
    (b) Report filed upon termination of membership interest. (1) If a 
broker or dealer holding any membership interest in a national 
securities exchange or registered national securities association ceases 
to be a member in good

[[Page 575]]

standing of such exchange or association, such broker or dealer must, 
within two business days after such event, file with the Commission Part 
II or Part IIA of Form X-17A-5 (Sec.249.617 of this chapter) as 
determined by the standards set forth in paragraphs (a)(1)(ii) through 
(iv) of this section as of the date of such event. The report must be 
filed at the Commission's principal office in Washington, DC, and with 
the regional office of the Commission for the region in which the broker 
or dealer has its principal place of business; provided, however, that 
such report need not be made or filed if the Commission, upon written 
request or upon its own motion, exempts such broker or dealer, either 
unconditionally or on specified terms and conditions, from such 
requirement; provided, further, that the Commission may, upon request of 
the broker or dealer, grant extensions of time for filing the report 
specified herein for good cause shown.
    (2) The broker or dealer must attach to the report required by 
paragraph (b)(1) of this section an oath or affirmation that to the best 
knowledge and belief of the person making the oath or affirmation the 
information contained in the report is true and correct. The oath or 
affirmation must be made before a person duly authorized to administer 
such oaths or affirmations. If the broker or dealer is a sole 
proprietorship, the oath or affirmation must be made by the proprietor; 
if a partnership, by a general partner; if a corporation, by a duly 
authorized officer; or if a limited liability company or limited 
liability partnership, by the chief executive officer, chief financial 
officer, manager, managing member, or those members vested with 
management authority for the limited liability company or limited 
liability partnership.
    (3) For the purposes of this paragraph (b) ``membership interest'' 
will include the following: full membership, allied membership, 
associated membership, floor privileges, and any other interest that 
entitles a broker or dealer to the exercise of any privilege on an 
exchange or with an association.
    (4) For the purposes of this paragraph (b), any broker or dealer 
will be deemed to have ceased to be a member in good standing of such 
exchange or association when the broker or dealer has resigned, 
withdrawn, or been suspended or expelled from a membership interest in 
such exchange or association, or has directly or through any associated 
person sold or entered into an agreement for the sale of a membership 
interest which would on consummation thereof result in the termination 
of the broker's or dealer's membership interest in such exchange or 
association.
    (5) Whenever any national securities exchange or registered national 
securities association takes any action which causes any broker or 
dealer which is a member of such exchange or association to cease to be 
a member in good standing of such exchange or association or when such 
exchange or association learns of any action by such member of any other 
person which causes such broker or dealer to cease to be a member in 
good standing of such exchange or association, such exchange or 
association will report such action promptly to the Commission, 
furnishing information as to the circumstances surrounding the event, 
and will send a copy of such notification to the broker or dealer and 
notify such broker or dealer of its responsibilities under this 
paragraph (b).
    (c) Customer Statements--(1) Who must furnish the statements. Every 
broker or dealer must file with the Commission at its principal office 
in Washington, DC, with the regional office of the Commission for the 
region in which the broker or dealer has its principal place of 
business, and with each national securities exchange and registered 
national securities association of which it is a member, and must send 
to its customers the statements prescribed by paragraphs (c) (2) and (3) 
of this section, except as provided in paragraph (c)(5) of this section 
or if the activities of such broker or dealer are limited to any one or 
combination of the following and are conducted in the manner prescribed 
herein:
    (i) As introducing broker or dealer, the forwarding of all the 
transactions of customers of the introducing broker or dealer to a 
clearing broker or dealer on a fully disclosed basis: Provided, That 
such clearing broker or dealer reflects such transactions on its books

[[Page 576]]

and records in accounts it carries in the names of such customers and 
that the introducing broker or dealer does not hold funds or securities 
for, or owe funds or securities to, customers other than funds and 
securities promptly forwarded to the clearing broker or dealer or to 
customers;
    (ii) The prompt forwarding of subscriptions for securities to the 
issuer, underwriter or other distributor of such securities and of 
receiving checks, drafts, notes, or other evidences of indebtedness 
payable solely to the issuer, underwriter or other distributor who 
delivers the security directly to the subscriber or to a custodian bank, 
if the broker or dealer does not otherwise hold funds or securities for, 
or owe money or securities to, customers;
    (iii) The sale and redemption of redeemable shares of registered 
investment companies or the solicitation of share accounts of savings 
and loan associations and otherwise qualified to maintain net capital of 
no less than what is required under Sec.240.15c3-1(a)(2)(iv) or the 
offering to extend any credit to or participate in arranging a loan for 
a customer to purchase insurance in connection with the sale of 
redeemable shares of registered investment companies; or
    (iv) Conduct which would exempt the broker or dealer from the 
provisions of Sec.240.17a-13 by reason of the provisions of paragraph 
(a) of that section.
    (2) Audited statements to be furnished. Audited statements must be 
furnished within 105 days after the end of the fiscal year of the broker 
or dealer. The statements may be furnished 30 days after that time limit 
has expired if the broker or dealer sends them with the next mailing of 
the broker's or dealer's quarterly customer statements of account. In 
that case, the broker or dealer must include a statement in that mailing 
of the amount of the broker's or dealer's net capital and its required 
net capital in accordance with Sec.240.15c3-1, as of a fiscal month 
end that is within the 75-day period immediately preceding the date the 
statements are sent to customers. The audited statements must include 
the following:
    (i) A Statement of Financial Condition with appropriate notes 
prepared in accordance with U.S. generally accepted accounting 
principles which must be audited if the financial statements furnished 
in accordance with paragraph (d) of this section are required to be 
certified;
    (ii) A footnote containing a statement of the amount of the broker's 
or dealer's net capital and its required net capital, computed in 
accordance with Sec.240.15c3-1. Such statement must include summary 
financial statements of subsidiaries consolidated pursuant to Appendix C 
of Sec.240.15c3-1, where material, and the effect thereof on the net 
capital and required net capital of the broker or dealer;
    (iii) A statement indicating that the Statement of Financial 
Condition of the most recent financial report of the broker or dealer 
under paragraph (d)(1)(i)(A) of this section is available for 
examination at the principal office of the broker or dealer and at the 
regional office of the Commission for the region in which the broker or 
dealer has its principal place of business; and
    (iv) If, in connection with the most recent annual reports required 
under paragraph (d) of this section, the report of the independent 
public accountant required under paragraph (d)(1)(i)(C) of this section 
covering the report of the broker or dealer required under paragraph 
(d)(1)(i)(B)(1) of this section identifies one or more material 
weaknesses, a statement by the broker or dealer that one or more 
material weaknesses have been identified and that a copy of the report 
of the independent public accountant required under paragraph 
(d)(1)(i)(C) of this section is currently available for the customer's 
inspection at the principal office of the Commission in Washington, DC, 
and the regional office of the Commission for the region in which the 
broker or dealer has its principal place of business.
    (3) Unaudited statements to be furnished. Unaudited statements dated 
6 months after the date of the audited statements required to be 
furnished by paragraphs (c)(1) and (2) of this section must be furnished 
within 65 days after the date of the unaudited statements. The unaudited 
statements may be furnished 70 days after that time limit has expired if 
the broker or dealer sends

[[Page 577]]

them with the next mailing of the broker's or dealer's quarterly 
customer statements of account. In that case, the broker or dealer must 
include a statement in that mailing of the amount of the broker's or 
dealer's net capital and its required net capital in accordance with 
Sec.240.15c3-1, as of a fiscal month end that is within the 75-day 
period immediately preceding the date the statements are sent to 
customers. The unaudited statements must contain the information 
specified in paragraphs (c)(2)(i) and (ii) of this section.
    (4) Definition of ``customer.'' For purposes of this paragraph (c), 
the term customer includes any person other than:
    (i) Another broker or dealer who is exempted by paragraph (c)(1) of 
this section;
    (ii) A general, special or limited partner or director or officer of 
a broker or dealer; or
    (iii) Any person to the extent that such person has a claim for 
property or funds which by contract, agreement or understanding, or by 
operation of law, is part of the capital of the broker or dealer or is 
subordinated to the claims of creditors of the broker or dealer, for or 
with whom a broker or dealer has effected a securities transaction in a 
particular month, which month must be either the month preceding the 
balance sheet date or the month following the balance sheet date in 
which the statement is sent.
    (iv) The term ``customer'' also includes any person for whom the 
broker or dealer holds securities for safekeeping or as collateral or 
for whom the broker or dealer carries a free credit balance in the month 
in which customers are determined for purposes of this paragraph (c).
    (5) Exemption from sending certain financial information to 
customers. A broker or dealer is not required to send to its customers 
the statements prescribed by paragraphs (c)(2) and (c)(3) of this 
section if the following conditions are met:
    (i) The broker or dealer semi-annually sends its customers, at the 
times it otherwise is required to send its customers the statements 
prescribed by paragraphs (c)(2) and (c)(3) of this section, a financial 
disclosure statement that includes:
    (A) The amount of the broker's or dealer's net capital and its 
required net capital in accordance with Sec.240.15c3-1, as of the date 
of the statements prescribed by paragraphs (c)(2) and (c)(3) of this 
section;
    (B) To the extent required under paragraph (c)(2)(ii) of this 
section, a description of the effect on the broker's or dealer's net 
capital and required net capital of the consolidation of the assets and 
liabilities of subsidiaries or affiliates consolidated pursuant to 
Appendix C of Sec.240.15c3-1; and
    (C) Any statements otherwise required by paragraphs (c)(2)(iii) and 
(iv) of this section.
    (ii) The financial disclosure statement is given prominence in the 
materials delivered to customers of the broker or dealer and includes an 
appropriate caption stating that customers may obtain the statements 
prescribed by paragraphs (c)(2) and (c)(3) of this section, at no cost, 
by:
    (A) Accessing the broker's or dealer's Website at the specified 
Internet Uniform Resource Locator (URL); or
    (B) Calling the broker's or dealer's specified toll-free telephone 
number.
    (iii) Not later than 90 days after the date of the audited 
statements prescribed by paragraph (c)(2) of this section and not later 
than 75 days after the date of the unaudited statements prescribed by 
paragraph (c)(3) of this section, the broker or dealer publishes the 
statements on its Website, accessible by hyperlinks in either textual or 
button format, which are separate, prominent links, are clearly visible, 
and are placed in each of the following locations:
    (A) On the broker's or dealer's Website home page; and
    (B) On each page at which a customer can enter or log on to the 
broker's or dealer's Website; and
    (C) If the Websites for two or more brokers or dealers can be 
accessed from the same home page, on the home page of the Website of 
each broker or dealer.
    (iv) The broker or dealer maintains a toll-free telephone number 
that customers can call to request a copy of the statements prescribed 
by paragraphs (c)(2) and (c)(3) of this section.

[[Page 578]]

    (v) If a customer requests a copy of the statements prescribed by 
paragraphs (c)(2) and (c)(3) of this section, the broker or dealer sends 
it promptly at no cost to the customer.
    (d) Annual reports. (1)(i) Except as provided in paragraphs 
(d)(1)(iii) and (iv) of this section, every broker or dealer registered 
under section 15 of the Act (15 U.S.C. 78o) must file annually:
    (A) A financial report as described in paragraph (d)(2) of this 
section; and
    (B)(1) If the broker or dealer did not claim it was exempt from 
Sec.240.15c3-3 throughout the most recent fiscal year or the broker or 
dealer is subject to Sec.240.15c3-3(p), a compliance report as 
described in paragraph (d)(3) of this section executed by the person who 
makes the oath or affirmation under paragraph (e)(2) of this section; or
    (2) If the broker or dealer did claim it was exempt from Sec.
240.15c3-3 throughout the most recent fiscal year and the broker or 
dealer is not subject to Sec.240.15c3-3(p), an exemption report as 
described in paragraph (d)(4) of this section executed by the person who 
makes the oath or affirmation under paragraph (e)(2) of this section;
    (C) Except as provided in paragraph (e)(1)(i) of this section, a 
report prepared by an independent public accountant, under the 
engagement provisions in paragraph (g) of this section, covering each 
report required to be filed under paragraphs (d)(1)(i)(A) and (B) of 
this section.
    (ii) The reports required to be filed under this paragraph (d) must 
be as of the same fiscal year end each year, unless a change is approved 
in writing by the designated examining authority for the broker or 
dealer under paragraph (n) of this section. A copy of the written 
approval must be sent to the Commission's principal office in 
Washington, DC, and the regional office of the Commission for the region 
in which the broker or dealer has its principal place of business.
    (iii) A broker or dealer succeeding to and continuing the business 
of another broker or dealer need not file the reports under this 
paragraph (d) as of a date in the fiscal year in which the succession 
occurs if the predecessor broker or dealer has filed reports in 
compliance with this paragraph (d) as of a date in such fiscal year.
    (iv) A broker or dealer that is a member of a national securities 
exchange, has transacted a business in securities solely with or for 
other members of a national securities exchange, and has not carried any 
margin account, credit balance, or security for any person who is 
defined as a customer in paragraph (c)(4) of this section, is not 
required to file reports under this paragraph (d).
    (2) Financial report. The financial report must contain:
    (i) A Statement of Financial Condition, a Statement of Income, a 
Statement of Cash Flows, a Statement of Changes in Stockholders' or 
Partners' or Sole Proprietor's Equity, and a Statement of Changes in 
Liabilities Subordinated to Claims of General Creditors. The statements 
must be prepared in accordance with U.S. generally accepted accounting 
principles and must be in a format that is consistent with the 
statements contained in Part II or Part IIA of Form X-17A-5 (Sec.
249.617 of this chapter), as applicable. If the Statement of Financial 
Condition filed in accordance with instructions to Part II or Part IIA 
of Form X-17A-5 (Sec.249.617 of this chapter), as applicable, is not 
consolidated, a summary of financial data, including the assets, 
liabilities, and net worth or stockholders' equity, for subsidiaries not 
consolidated in the applicable Part II or Part IIA as filed by the 
broker or dealer must be included in the notes to the financial 
statements reported on by the independent public accountant.
    (ii) Supporting schedules that include, from Part II or Part IIA of 
Form X-17A-5 (Sec.249.617 of this chapter), a Computation of Net 
Capital under Sec.240.15c3-1, a Computation for Determination of 
Customer Reserve Requirements under Sec.240.15c3-3a (Exhibit A of 
Sec.240.15c3-3), a Computation for Determination of PAB Requirements 
under Exhibit A of Sec.240.15c3-3, a Computation for Determination of 
Security-Based Swap Customer Reserve Requirements under Sec.240.15c3-
3b (Exhibit B of Sec.240.15c3-3), Information Relating to the 
Possession or Control Requirements for Customers under Sec.240.15c3-3, 
and Information Relating to the Possession or Control Requirements for

[[Page 579]]

Security-Based Swap Customers under Sec.240.15c3-3, as applicable.
    (iii) If any of the Computation of Net Capital under Sec.240.15c3-
1, the Computation for Determination of Customer Reserve Requirements 
Under Exhibit A of Sec.240.15c3-3, or the Computation for 
Determination of Security-Based Swap Customer Reserve Requirements under 
Exhibit B of Sec.240.15c3-3, as applicable, in the financial report is 
materially different from the corresponding computation in the most 
recent Part II or Part IIA of Form X-17A-5 (Sec.249.617 of this 
chapter), as applicable, filed by the broker or dealer pursuant to 
paragraph (a) of this section, a reconciliation, including appropriate 
explanations, between the computation in the financial report and the 
computation in the most recent Part II or Part IIA of Form X-17A-5, as 
applicable, filed by the broker or dealer. If no material differences 
exist, a statement so indicating must be included in the financial 
report.
    (3) Compliance report. (i) The compliance report must contain:
    (A) Statements as to whether:
    (1) The broker or dealer has established and maintained Internal 
Control Over Compliance as that term is defined in paragraph (d)(3)(ii) 
of this section;
    (2) The Internal Control Over Compliance of the broker or dealer was 
effective during the most recent fiscal year;
    (3) The Internal Control Over Compliance of the broker or dealer was 
effective as of the end of the most recent fiscal year;
    (4) The broker or dealer was in compliance with Sec.Sec.240.15c3-
1, 240.15c3-3(e) and, if applicable, 240.15c3-3(p)(3) as of the end of 
the most recent fiscal year; and
    (5) The information the broker or dealer used to state whether it 
was in compliance with Sec.Sec.240.15c3-1, 240.15c3-3(e) and, if 
applicable, 240.15c3-3(p)(3) was derived from the books and records of 
the broker or dealer.
    (B) If applicable, a description of each identified material 
weakness in the Internal Control Over Compliance of the broker or dealer 
during the most recent fiscal year.
    (C) If applicable, a description of an instance of non-compliance 
with Sec.240.15c3-1, Sec.240.15c3-3(e), or, if applicable, Sec.
240.15c3-3(p)(3) as of the end of the most recent fiscal year.
    (ii) The term Internal Control Over Compliance means internal 
controls that have the objective of providing the broker or dealer with 
reasonable assurance that non-compliance with Sec.240.15c3-1, Sec.
240.15c3-3, Sec.240.17a-13, or any rule of the designated examining 
authority of the broker or dealer that requires account statements to be 
sent to the customers of the broker or dealer (an ``Account Statement 
Rule'') will be prevented or detected on a timely basis.
    (iii) The broker or dealer is not permitted to conclude that its 
Internal Control Over Compliance was effective during the most recent 
fiscal year if there were one or more material weaknesses in its 
Internal Control Over Compliance during the most recent fiscal year. The 
broker or dealer is not permitted to conclude that its Internal Control 
Over Compliance was effective as of the end of the most recent fiscal 
year if there were one or more material weaknesses in its internal 
control as of the end of the most recent fiscal year. A material 
weakness is a deficiency, or a combination of deficiencies, in Internal 
Control Over Compliance such that there is a reasonable possibility that 
non-compliance with Sec.240.15c3-1, Sec.240.15c3-3(e), or Sec.
240.15c3-3(p)(3) will not be prevented or detected on a timely basis or 
that non-compliance to a material extent with Sec.240.15c3-3, except 
for paragraph (e), Sec.240.15c3-3(p), except for paragraph (p)(3), 
Sec.240.17a-13, or any Account Statement Rule will not be prevented or 
detected on a timely basis. A deficiency in Internal Control Over 
Compliance exists when the design or operation of a control does not 
allow the management or employees of the broker or dealer, in the normal 
course of performing their assigned functions, to prevent or detect on a 
timely basis non-compliance with Sec.240.15c3-1, Sec.240.15c3-3, or 
Sec.240.17a-13, or any Account Statement Rule.
    (4) Exemption report. The exemption report must contain the 
following statements made to the best knowledge and belief of the broker 
or dealer:
    (i) A statement that identifies the provisions in Sec.240.15c3-
3(k) under which

[[Page 580]]

the broker or dealer claimed an exemption from Sec.240.15c3-3;
    (ii) A statement that the broker or dealer met the identified 
exemption provisions in Sec.240.15c3-3(k) throughout the most recent 
fiscal year without exception or that it met the identified exemption 
provisions in Sec.240.15c3-3(k) throughout the most recent fiscal year 
except as described under paragraph (d)(4)(iii) of this section; and
    (iii) If applicable, a statement that identifies each exception 
during the most recent fiscal year in meeting the identified exemption 
provisions in Sec.240.15c3-3(k) and that briefly describes the nature 
of each exception and the approximate date(s) on which the exception 
existed.
    (5) The annual reports must be filed not more than sixty (60) 
calendar days after the end of the fiscal year of the broker or dealer.
    (6) Filing of annual reports. The annual reports must be filed with 
the Commission at the regional office of the Commission for the region 
in which the broker or dealer has its principal place of business and to 
the Commission's principal office in Washington, DC, or the annual 
reports may be filed with the Commission electronically in accordance 
with directions provided on the Commission's website. The annual reports 
must also be filed at the principal office of the designated examining 
authority for the broker or dealer and with the Securities Investor 
Protection Corporation (``SIPC'') if the broker or dealer is a member of 
SIPC. Copies of the reports must be provided to all self-regulatory 
organizations of which the broker or dealer is a member, unless the 
self-regulatory organization by rule waives the requirement in this 
paragraph (d)(6).
    (e) Nature and form of reports. The annual reportsfiled pursuant to 
paragraph (d) of this section must be prepared and filed in accordance 
with the following requirements:
    (1)(i) The broker or dealer is not required to engage an independent 
public accountant to provide the reports required under paragraph 
(d)(1)(i)(C) of this section if, since the date of the registration of 
the broker or dealer under section 15 of the Act (15 U.S.C. 78o) or of 
the previous annual reports filed under paragraph (d) of this section:
    (A) The securities business of the broker or dealer has been limited 
to acting as broker (agent) for a single issuer in soliciting 
subscriptions for securities of that issuer, the broker has promptly 
transmitted to the issuer all funds and promptly delivered to the 
subscriber all securities received in connection with the transaction, 
and the broker has not otherwise held funds or securities for or owed 
money or securities to customers; or
    (B) The securities business of the broker or dealer has been limited 
to buying and selling evidences of indebtedness secured by mortgage, 
deed of trust, or other lien upon real estate or leasehold interests, 
and the broker or dealer has not carried any margin account, credit 
balance, or security for any securities customer.
    (ii) A broker or dealer that files an annual report under paragraph 
(d) of this section that is not covered by a report prepared by an 
independent public accountant must include in the oath or affirmation 
required by paragraph (e)(2) of this section a statement of the facts 
and circumstances relied upon as a basis for exemption from the 
requirement that the annual report filed under paragraph (d) of this 
section be covered by reports prepared by an independent public 
accountant.
    (2) The broker or dealer must attach to the financial report an oath 
or affirmation that, to the best knowledge and belief of the person 
making the oath or affirmation:
    (i) The financial report is true and correct; and
    (ii) Neither the broker or dealer, nor any partner, officer, 
director, or equivalent person, as the case may be, has any proprietary 
interest in any account classified solely as that of a customer. The 
oath or affirmation must be made before a person duly authorized to 
administer such oaths or affirmations. If the broker or dealer is a sole 
proprietorship, the oath or affirmation must be made by the proprietor; 
if a partnership, by a general partner; if a corporation, by a duly 
authorized officer; or if a limited liability company or limited 
liability partnership, by the chief executive officer, chief financial

[[Page 581]]

officer, manager, managing member, or those members vested with 
management authority for the limited liability company or limited 
liability partnership.
    (3) The annual reports filed under paragraph (d) of this section are 
not confidential, except that, if the Statement of Financial Condition 
in a format that is consistent with Part II or Part IIA of Form X-17A-5 
(Sec.249.617 of this chapter) is bound separately from the balance of 
the annual reports filed under paragraph (d) of this section, and each 
page of the balance of the annual reports is stamped ``confidential,'' 
then the balance of the annual reports will be deemed confidential to 
the extent permitted by law. However, the annual reports, including the 
confidential portions, will be available for official use by any 
official or employee of the U.S. or any State, by national securities 
exchanges and registered national securities associations of which the 
broker or dealer filing such a report is a member, by the Public Company 
Accounting Oversight Board, and by any other person if the Commission 
authorizes disclosure of the annual reports to that person as being in 
the public interest. Nothing contained in this paragraph (e)(3) may be 
construed to be in derogation of the rules of any registered national 
securities association or national securities exchange that give to 
customers of a broker or dealer the right, upon request to the broker or 
dealer, to obtain information relative to its financial condition.
    (4) The broker or dealer must file with SIPC a report on the SIPC 
annual general assessment reconciliation or exclusion from membership 
forms that contains such information and is in such format as determined 
by SIPC by rule and approved by the Commission.
    (f)(1) Qualifications of independent public accountant. The 
independent public accountant must be qualified and independent in 
accordance with Sec.210.2-01 of this chapter and the independent 
public accountant must be registered with the Public Company Accounting 
Oversight Board if required by the Sarbanes-Oxley Act of 2002.
    (2) Statement regarding independent public accountant. (i) Every 
broker or dealer that is required to file annual reports under paragraph 
(d) of this section must file no later than December 10 of each year (or 
30 calendar days after the effective date of its registration as a 
broker or dealer, if earlier) a statement as prescribed in paragraph 
(f)(2)(ii) of this section with the Commission's principal office in 
Washington, DC, the regional office of the Commission for the region in 
which its principal place of business is located, and the principal 
office of the designated examining authority for the broker or dealer. 
The statement must be dated no later than December 1 (or 20 calendar 
days after the effective date of its registration as a broker or dealer, 
if earlier). If the engagement of an independent public accountant is of 
a continuing nature, providing for successive engagements, no further 
filing is required. If the engagement is for a single year, or if the 
most recent engagement has been terminated or amended, a new statement 
must be filed by the required date.
    (ii) The statement must be headed ``Statement regarding independent 
public accountant under Rule 17a-5(f)(2)'' and must contain the 
following information and representations:
    (A) Name, address, telephone number, and registration number of the 
broker or dealer.
    (B) Name, address, and telephone number of the independent public 
accountant.
    (C) The date of the fiscal year of the annual reports of the broker 
or dealer covered by the engagement.
    (D) Whether the engagement is for a single year or is of a 
continuing nature.
    (E) A representation that the independent public accountant has 
undertaken the items enumerated in paragraphs (g)(1) and (2) of this 
section.
    (F) Except as provided in paragraph (f)(2)(iii) of this section, a 
representation that the broker or dealer agrees to allow representatives 
of the Commission or its designated examining authority, if requested in 
writing for purposes of an examination of the broker or dealer, to 
review the audit documentation associated with the reports of the 
independent public accountant filed under paragraph (d)(1)(i)(C) of this

[[Page 582]]

section. For purposes of this paragraph, ``audit documentation'' has the 
meaning provided in standards of the Public Company Accounting Oversight 
Board. The Commission anticipates that, if requested, it will accord 
confidential treatment to all documents it may obtain from an 
independent public accountant under this paragraph to the extent 
permitted by law.
    (G) Except as provided in paragraph (f)(2)(iii) of this section, a 
representation that the broker or dealer agrees to allow the independent 
public accountant to discuss with representatives of the Commission and 
its designated examining authority, if requested in writing for purposes 
of an examination of the broker or dealer, the findings associated with 
the reports of the independent public accountant filed under paragraph 
(d)(1)(i)(C) of this section.
    (iii) If a broker or dealer neither clears transactions nor carries 
customer accounts, the broker or dealer is not required to include the 
representations in paragraphs (f)(2)(ii)(F) and (G) of this section.
    (iv) Any broker or dealer that is not required to file reports 
prepared by an independent public accountant under paragraph 
(d)(1)(i)(C) of this section must file a statement required under 
paragraph (f)(2)(i) of this section indicating the date as of which the 
unaudited reports will be prepared.
    (3) Replacement of accountant. A broker or dealer must file a notice 
that must be received by the Commission's principal office in 
Washington, DC, the regional office of the Commission for the region in 
which its principal place of business is located, and the principal 
office of the designated examining authority for the broker or dealer 
not more than 15 business days after:
    (i) The broker or dealer has notified the independent public 
accountant that provided the reports the broker or dealer filed under 
paragraph (d)(1)(i)(C) of this section for the most recent fiscal year 
that the independent public accountant's services will not be used in 
future engagements; or
    (ii) The broker or dealer has notified an independent public 
accountant that was engaged to provide the reports required under 
paragraph (d)(1)(i)(C) of this section that the engagement has been 
terminated; or
    (iii) An independent public accountant has notified the broker or 
dealer that the independent public accountant would not continue under 
an engagement to provide the reports required under paragraph 
(d)(1)(i)(C) of this section; or
    (iv) A new independent public accountant has been engaged to provide 
the reports required under paragraph (d)(1)(i)(C) of this section 
without any notice of termination having been given to or by the 
previously engaged independent public accountant.
    (v) The notice must include:
    (A) The date of notification of the termination of the engagement or 
of the engagement of the new independent public accountant, as 
applicable; and
    (B) The details of any issues arising during the 24 months (or the 
period of the engagement, if less than 24 months) preceding the 
termination or new engagement relating to any matter of accounting 
principles or practices, financial statement disclosure, auditing scope 
or procedure, or compliance with applicable rules of the Commission, 
which issues, if not resolved to the satisfaction of the former 
independent public accountant, would have caused the independent public 
accountant to make reference to them in the report of the independent 
public accountant. The issues required to be reported include both those 
resolved to the former independent public accountant's satisfaction and 
those not resolved to the former accountant's satisfaction. Issues 
contemplated by this section are those that occur at the decision-making 
level--that is, between principal financial officers of the broker or 
dealer and personnel of the accounting firm responsible for rendering 
its report. The notice must also state whether the accountant's report 
filed under paragraph (d)(1)(i)(C) of this section for any of the past 
two fiscal years contained an adverse opinion or a disclaimer of opinion 
or was qualified as to uncertainties, audit scope, or accounting 
principles, and must describe the nature of each such adverse opinion, 
disclaimer of opinion, or qualification. The broker or dealer must also 
request

[[Page 583]]

the former independent public accountant to furnish the broker or dealer 
with a letter addressed to the Commission stating whether the 
independent public accountant agrees with the statements contained in 
the notice of the broker or dealer and, if not, stating the respects in 
which the independent public accountant does not agree. The broker or 
dealer must file three copies of the notice and the accountant's letter, 
one copy of which must be manually signed by the sole proprietor, a 
general partner, or a duly authorized corporate, limited liability 
company, or limited liability partnership officer or member, as 
appropriate, and by the independent public accountant, respectively.
    (g) Engagement of independent public accountant. The independent 
public accountant engaged by the broker or dealer to provide the reports 
required under paragraph (d)(1)(i)(C) of this section must, as part of 
the engagement, undertake the following, as applicable:
    (1) To prepare an independent public accountant's report based on an 
examination of the financial report required to be filed by the broker 
or dealer under paragraph (d)(1)(i)(A) of this section in accordance 
with standards of the Public Company Accounting Oversight Board; and
    (2)(i) To prepare an independent public accountant's report based on 
an examination of the statements required under paragraphs 
(d)(3)(i)(A)(2) through (5) of this section in the compliance report 
required to be filed by the broker or dealer under paragraph 
(d)(1)(i)(B)(1) of this section in accordance with standards of the 
Public Company Accounting Oversight Board; or
    (ii) To prepare an independent public accountant's report based on a 
review of the statements required under paragraphs (d)(4)(i) through 
(iii) of this section in the exemption report required to be filed by 
the broker or dealer under paragraph (d)(1)(i)(B)(2) of this section in 
accordance with standards of the Public Company Accounting Oversight 
Board.
    (h) Notification of non-compliance or material weakness. If, during 
the course of preparing the independent public accountant's reports 
required under paragraph (d)(1)(i)(C) of this section, the independent 
public accountant determines that the broker or dealer is not in 
compliance with Sec.240.15c3-1, Sec.240.15c3-3, or Sec.240.17a-13 
or any rule of the designated examining authority of the broker or 
dealer that requires account statements to be sent to the customers of 
the broker or dealer, as applicable, or the independent public 
accountant determines that any material weaknesses (as defined in 
paragraph (d)(3)(iii) of this section) exist, the independent public 
accountant must immediately notify the chief financial officer of the 
broker or dealer of the nature of the non-compliance or material 
weakness. If the notice from the accountant concerns an instance of non-
compliance that would require a broker or dealer to provide a 
notification under Sec.240.15c3-1, Sec.240.15c3-3, or Sec.240.17a-
11, or if the notice concerns a material weakness, the broker or dealer 
must provide a notification in accordance with Sec.240.15c3-1, Sec.
240.15c3-3, or Sec.240.17a-11, as applicable, and provide a copy of 
the notification to the independent public accountant. If the 
independent public accountant does not receive the notification within 
one business day, or if the independent public accountant does not agree 
with the statements in the notification, then the independent public 
accountant must notify the Commission and the designated examining 
authority within one business day. The report from the accountant must, 
if the broker or dealer failed to file a notification, describe any 
instances of non-compliance that required a notification under Sec.
240.15c3-1, Sec.240.15c3-3, or Sec.240.17a-11, or any material 
weaknesses. If the broker or dealer filed a notification, the report 
from the accountant must detail the aspects of the notification of the 
broker or dealer with which the accountant does not agree.

    Note 1 to paragraph (h): The attention of the broker or dealer and 
the independent public accountant is called to the fact that under Sec.
240.17a-11(a)(1), among other things, a broker or dealer whose net 
capital declines below the minimum required pursuant to Sec.240.15c3-1 
must give notice of such deficiency that same day in accordance with 
Sec.240.17a-11(h) and the notice must specify the broker or dealer's 
net capital requirement and its current amount of net capital.

[[Page 584]]

The attention of the broker or dealer and accountant also is called to 
the fact that under Sec.240.15c3-3(i), if a broker or dealer fails to 
make a reserve bank account or special reserve account deposit, as 
required by Sec.240.15c3-3, the broker or dealer must immediately 
notify the Commission and the regulatory authority for the broker or 
dealer, which examines such broker or dealer as to financial 
responsibility and must promptly thereafter confirm such notification in 
writing.

    (i) Reports of the independent public accountant required under 
paragraph (d)(1)(i)(C) of this section--(1) Technical requirements. The 
independent public accountant's reports must:
    (i) Be dated;
    (ii) Be signed manually;
    (iii) Indicate the city and state where issued; and
    (iv) Identify without detailed enumeration the items covered by the 
reports.
    (2) Representations. The independent public accountant's reports 
must:
    (i) State whether the examinations or review, as applicable, were 
made in accordance with standards of the Public Company Accounting 
Oversight Board;
    (ii) Identify any examination and, if applicable, review procedures 
deemed necessary by the independent public accountant under the 
circumstances of the particular case that have been omitted and the 
reason for their omission.
    (iii) Nothing in this section may be construed to imply authority 
for the omission of any procedure that independent public accountants 
would ordinarily employ in the course of an examination or review made 
for the purpose of expressing the opinions or conclusions required under 
this section.
    (3) Opinion or conclusion to be expressed. The independent public 
accountant's reports must state clearly:
    (i) The opinion of the independent public accountant with respect to 
the financial report required under paragraph (d)(1)(i)(A) of this 
section and the accounting principles and practices reflected in that 
report;
    (ii) The opinion of the independent public accountant with respect 
to the financial report required under paragraph (d)(1)(i)(A) of this 
section, as to the consistency of the application of the accounting 
principles, or as to any changes in those principles, that have a 
material effect on the financial statements; and
    (iii)(A) The opinion of the independent public accountant with 
respect to the statements required under paragraphs (d)(3)(i)(A)(2) 
through (5) of this section in the compliance report required under 
paragraph (d)(1)(i)(B)(1) of this section; or
    (B) The conclusion of the independent public accountant with respect 
to the statements required under paragraphs (d)(4)(i) through (iii) of 
this section in the exemption report required under paragraph 
(d)(1)(i)(B)(2) of this section.
    (4) Exceptions. Any matters to which the independent public 
accountant takes exception must be clearly identified, the exceptions 
must be specifically and clearly stated, and, to the extent practicable, 
the effect of each such exception on any related items contained in the 
annual reports required under paragraph (d) of this section must be 
given.
    (j) [Reserved]
    (k) Supplemental reports. Each broker or dealer that computes 
certain of its capital charges in accordance with Sec.240.15c3-1e must 
file concurrently with the annual audit report a supplemental report on 
management controls, which must be prepared by a registered public 
accounting firm (as that term is defined in section 2(a)(12) of the 
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.)). The supplemental 
report must indicate the results of the accountant's review of the 
internal risk management control system established and documented by 
the broker or dealer in accordance with Sec.240.15c3-4. This review 
must be conducted in accordance with procedures agreed upon by the 
broker or dealer and the registered public accounting firm conducting 
the review. The agreed upon procedures are to be performed and the 
report is to be prepared in accordance with the rules promulgated by the 
Public Company Accounting Oversight Board. The purpose of the review is 
to confirm that the broker or dealer has established, documented, and is 
in

[[Page 585]]

compliance with the internal risk management controls established in 
accordance with Sec.240.15c3-4. Before commencement of the review and 
no later than December 10 of each year, the broker or dealer must file a 
statement with the Division of Trading and Markets, Office of Financial 
Responsibility, at the Commission's principal office in Washington, DC 
that includes:
    (1) A description of the agreed-upon procedures agreed to by the 
broker or dealer and the registered public accounting firm; and
    (2) A notice describing changes in those agreed-upon procedures, if 
any. If there are no changes, the broker or dealer should so indicate.
    (l) Use of certain statements filed with the Securities and Exchange 
Commission. At the request of any broker or dealer who is an investment 
company registered under the Investment Company Act of 1940, or a 
sponsor or depositor of such a registered investment company who effects 
transactions in securities only with, or on behalf of, such registered 
investment company, the Commission will accept the financial statements 
filed pursuant to section 13 or 15(d) of the Act or section 30 of the 
Investment Company Act of 1940 and the rules and regulations promulgated 
thereunder as a filing pursuant to paragraph (d) of this section. Such a 
filing must be deemed to satisfy the requirements of this section for 
any calendar year in which such financial statements are filed, provided 
that the statements so filed meet the requirements of the other rules 
under which they are filed with respect to time of filing and content.
    (m) Extentions and exemptions. (1) A broker's or dealer's designated 
examining authority may extend the period under paragraph (d) of this 
section for filing annual reports. The designated examining authority 
for the broker or dealer must maintain, in the manner prescribed in 
Sec.240.17a-1, a record of each extension granted.
    (2) Any ``bank'' as defined in section 3(a)(6) of the Act (15 U.S.C. 
78c) and any ``insurance company'' as defined in section 3(a)(19) of the 
Act (15 U.S.C. 78c) registered as a broker or dealer to sell variable 
contracts but exempt from Sec.240.15c3-1 shall be exempt from the 
provisions of this section.
    (3) On written request of any national securities exchange, 
registered national securities association, broker or dealer, or on its 
own motion, the Commission may grant an extension of time or an 
exemption from any of the requirements of this section either 
unconditionally or on specified terms and conditions.
    (4) The provisions of Sec.240.17a-5 will not apply to a broker or 
dealer registered pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) that is not a member of either a national securities 
exchange pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or a 
national securities association registered pursuant to section 15A(a) of 
the Act (15 U.S.C. 78o-3(a)).
    (n) Notification of change of fiscal year. (1) In the event any 
broker or dealer finds it necessary to change its fiscal year, it must 
file, with the Commission's principal office in Washington, DC, the 
regional office of the Commission for the region in which the broker or 
dealer has its principal place of business and the principal office of 
the designated examining authority for such broker or dealer, a notice 
of such change.
    (2) Such notice must contain a detailed explanation of the reasons 
for the change. Any change in the filing period for the annual report 
must be approved in writing by the designated examining authority of the 
broker or dealer
    (o) Filing requirements. For purposes of filing requirements as 
described in this section, filing will be deemed to have been 
accomplished upon receipt at the Commission's principal office in 
Washington, DC, with duplicate originals simultaneously filed at the 
locations prescribed in the particular paragraph of this section which 
is applicable.
    (p) Compliance with Sec.240.17a-12. An OTC derivatives dealer may 
comply with Sec.240.17a-5 by complying with the provisions of Sec.
240.17a-12.

    Cross Reference: For interpretative release applicable to Sec.
240.17a-5, see No. 51 in tabulation, part 211 of this chapter.

[40 FR 59713, Dec. 30, 1975]

[[Page 586]]


    Editorial Note: For Federal Register citations affecting Sec.
240.17a-5, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.240.17a-6  Right of national securities exchange, national 
securities association, registered clearing agency or the Municipal
Securities Rulemaking Board to destroy or dispose of documents.
          

    (a) Any document kept by or on file with a national securities 
exchange, national securities association, registered clearing agency or 
the Municipal Securities Rulemaking Board pursuant to the Act or any 
rule or regulation thereunder may be destroyed or otherwise disposed of 
by such exchange, association, clearing agency or the Municipal 
Securities Rulemaking Board at the end of five years or at such earlier 
date as is specified in a plan for the destruction or disposition of any 
such documents if such plan has been filed with the Commission by such 
exchange, association, clearing agency or the Municipal Securities 
Rulemaking Board and has been declared effective by the Commission.
    (b) Such plan may provide that any such document may be transferred 
to microfilm or other recording medium after such time as specified in 
the plan and thereafter be maintained and preserved in that form. If a 
national securities exchange, association, clearing agency or the 
Municipal Securities Rulemaking Board uses microfilm or other recording 
medium it shall:
    (1) Be ready at all times to provide, and immediately provide, 
easily readable projection of the microfilm or other recording medium 
and easily readable hard copy thereof;
    (2) Provide indexes permitting the immediate location of any such 
document on the microfilm or other recording medium; and
    (3) In the case of microfilm, store a duplicate copy of the 
microfilm separately from the original microfilm for the time required.
    (c) For the purposes of this rule a plan filed with the Commission 
by a national securities exchange, association, clearing agency or the 
Municipal Securities Rulemaking Board shall not become effective unless 
the Commission, having due regard for the public interest and for the 
protection of investors, declares the plan to be effective. The 
Commission in its declaration may limit the applications, reports, and 
documents as to which it shall apply, and may impose any other terms and 
conditions to the plan and to the period of its effectiveness which it 
deems necessary or appropriate in the public interest or for the 
protection of investors.

[45 FR 79426, Dec. 1, 1980]



Sec.240.17a-7  Records of non-resident brokers and dealers.

    (a)(1) Except as provided in paragraphs (b) and (c) of this section, 
each non-resident broker or dealer registered or applying for 
registration pursuant to section 15 of the Securities Exchange Act of 
1934, as amended, shall keep, maintain, and preserve, at a place within 
the United States designated in a notice from him as provided in 
paragraph (a)(2) of this section, true, correct, complete and current 
copies of the books and records which he is required to make, keep 
current, maintain or preserve pursuant to any provision of any rule or 
regulation of the Commission adopted under the act.
    (2) Except as provided in paragraph (b) of this section, each non-
resident broker or dealer subject to this section shall furnish to the 
Commission a written notice specifying the address of the place within 
the United States where the copies of the books and records required to 
be kept and preserved by him pursuant to paragraph (a)(1) of this 
section are located. Each non-resident broker or dealer registered or 
applying for registration when this section becomes effective shall file 
such notice within 30 days after such rule becomes effective. Each non-
resident broker or dealer who files an application for registration 
after this section becomes effective shall file such notice with such 
application for registration.
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
a non-resident broker or dealer subject to this section need not keep or 
preserve within the United States copies of the books and records 
referred to in said paragraph (a) of this section, if:

[[Page 587]]

    (1) Such broker or dealer files with the Commission, at the time or 
within the period provided by paragraph (a)(2) of this section, a 
written undertaking in form acceptable to the Commission and signed by a 
person thereunto duly authorized, to furnish to the Commission, upon 
demand, at its principal office in Washington, DC, or at any Regional 
Office of the Commission designated in such demand, true, correct, 
complete and current copies of any or all of the books and records which 
he is required to make, keep current, maintain, or preserve pursuant to 
any provision of any rule or regulation of the Commission adopted under 
the act, or any part of such books and records which may be specified in 
such demand. Such undertaking shall be in substantially the following 
form:

    The undersigned hereby undertakes to furnish at his own expense to 
the Securities and Exchange Commission at its principal office in 
Washington, DC, or at any Regional Office of said Commission specified 
in a demand for copies of books and records made by or on behalf of said 
Commission, true, correct, complete, and current copies of any or all, 
or any part, of the books and records which the undersigned is required 
to make, keep current or preserve pursuant to any provision of any rule 
or regulation of the Securities and Exchange Commission under the 
Securities Exchange Act of 1934. This undertaking shall be suspended 
during any period when the undersigned is making, keeping current, and 
preserving copies of all of said books and records at a place within the 
United States in compliance with Sec.240.17a-7 (Rule X-17A-7) under 
the Securities Exchange Act of 1934. This undertaking shall be binding 
upon the undersigned and the heirs, successors and assigns of the 
undersigned, and the written irrevocable consents and powers of attorney 
of the undersigned, its general partners and managing agents filed with 
the Securities and Exchange Commission shall extend to and cover any 
action to enforce same.


and
    (2) Such broker or dealer furnishes to the Commission at his own 
expense within 14 days after written demand therefor forwarded to him by 
registered mail at his last address of record filed with the Commission 
and signed by the Secretary of the Commission or such other person as 
the Commission may authorize to act in its behalf, true, correct, 
complete and current copies of any or all books and records which such 
broker or dealer is required to make, keep current or preserve pursuant 
to any provision of any rule or regulation of the Commission adopted 
under the act, or any part of such books and records which may be 
specified in said written demand. Such copies shall be furnished to the 
Commission at its principal office in Washington, DC, or at any Regional 
Office of the Commission which may be specified in said written demand.
    (c) The provisions of this section shall not apply to a broker or 
dealer registered pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) that is not a member of either a national securities 
exchange pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or a 
national securities association registered pursuant to section 15A(a) of 
the Act (15 U.S.C. 78o-3(a)).
    (d) For purposes of this section the following definitions shall 
apply:
    (1) The term broker shall have the meaning set out in section 
3(a)(4) of the Securities Exchange Act of 1934;
    (2) The term dealer shall have the meaning set out in section 
3(a)(5) of the Securities Exchange Act of 1934;
    (3) The term non-resident broker or dealer shall mean (i) in the 
case of an individual, one who resides in or has his principal place of 
business in any place not subject to the jurisdiction of the United 
States; (ii) in the case of a corporation, one incorporated in or having 
its principal place of business in any place not subject to the 
jurisdiction of the United States; (iii) in the case of a partnership of 
other unincorporated organization or association, one having its 
principal place of business in any place not subject to the jurisdiction 
of the United States.

[21 FR 5524, July 24, 1956, as amended at 59 FR 5945, Feb. 9, 1994; 67 
FR 58300, Sept. 13, 2002; 73 FR 32228, June 5, 2008]



Sec.240.17a-8  Financial recordkeeping and reporting of currency
and foreign transactions.

    Every registered broker or dealer who is subject to the requirements 
of the Currency and Foreign Transactions Reporting Act of 1970 shall 
comply with the reporting, recordkeeping and

[[Page 588]]

record retention requirements of chapter X of title 31 of the Code of 
Federal Regulations. Where chapter X of title 31 of the Code of Federal 
Regulations and Sec.240.17a-4 of this chapter require the same records 
or reports to be preserved for different periods of time, such records 
or reports shall be preserved for the longer period of time.

[46 FR 61455, Dec. 17, 1981, as amended at 76 FR 11328, Mar. 2, 2011]



Sec.240.17a-9T  Records to be made and retained by certain exchange 
members, brokers and dealers.

    This section applies to every member, broker or dealer registered 
pursuant to Section 15 of the Act, (15 U.S.C. 78o), that is required to 
maintain, as of December 29, December 30 and December 31, 1999, minimum 
net capital of $250,000 pursuant to Sec.240.15c3-1(a)(2)(i).
    (a) You must make before January 1, 2000, for each of December 29, 
December 30 and December 31, 1999, separate copies of the blotters 
pursuant to Sec.240.17a-3(a)(1).
    (b) You must make before January 1, 2000, as of the close of 
business for each of December 29, December 30 and December 31, 1999, a 
separate copy of the securities record or ledger pursuant to Sec.
240.17a-3(a)(5).
    (c) You must preserve these records for a period of not less than 
one year.
    (d) The provisions of Sec.240.17a-4(i) shall apply as if part of 
this Sec.240.17a-9T.
    (e) You may preserve these records in any format that is acceptable 
and in compliance with the conditions described in Sec.240.17a-4(f).
    (f) You must furnish promptly to a representative of the Commission 
such legible, true and complete copies of those records, as may be 
requested.
    (g) This temporary section will expire on July 1, 2001.

[64 FR 42029, Aug. 3, 1999]



Sec.240.17a-10  Report on revenue and expenses.

    (a)(1) Every broker or dealer exempted from the filing requirements 
of paragraph (a) of Sec.240.17a-5 shall, not later than 17 business 
days after the close of each calendar year, file the Facing Page, a 
Statement of Income (Loss) and balance sheet from Part IIA of Form X-
17A-5 (Sec.249.617 of this chapter) and Schedule I of Form X-17A-5 
(Sec.249.617 of this chapter) for such calendar year.
    (2) Every broker or dealer subject to the filing requirements of 
paragraph (a) of Sec.240.17a-5 shall submit Schedule I of Form X-17A-5 
(Sec.249.617 of this chapter) with its Form X-17A-5 (Sec.249.617 of 
this chapter) for the calendar quarter ending December 31 of each year.
    (b) The provisions of paragraph (a) of this section shall not apply 
to a member of a national securities exchange or a registered national 
securities association which maintains records containing the 
information required by Form X-17A-5 (Sec.249.617 of this chapter) as 
to each of its members, and which transmits to the Commission a copy of 
the record as to each such member, pursuant to a plan the procedures and 
provisions of which have been submitted to and declared effective by the 
Commission. Any such plan filed by a national securities exchange or a 
registered national securities association may provide that when a 
member is also a member of one or more national securities exchanges, or 
of one or more national securities exchanges and a registered national 
securities association, the information required to be submitted with 
respect to any such member may be transmitted by only one specified 
national securities exchange or registered national securities 
association. For the purpose of this section, a plan filed with the 
Commission by a national securities exchange or a registered national 
securities association shall not become effective unless the Commission, 
having due regard for the public interest, for the protection of 
investors, and for the fulfillment of the Commission's functions under 
the provisions of the Act, declares the plan to be effective. Further, 
the Commission, in declaring any such plan effective, may impose such 
terms and conditions relating to the provisions of the plan and the 
period of its effectiveness as may be deemed necessary or appropriate in 
the public interest, for the protection of investors, or to carry out 
the Commission's duties under the Act.
    (c) Individual reports filed by, or on behalf of, brokers, dealers, 
or members

[[Page 589]]

of national securities exchanges pursuant to this section are to be 
considered nonpublic information, except in cases where the Commission 
determines that it is in the public interest to direct otherwise.
    (d) In the event any broker or dealer finds that it cannot file the 
annual report required by paragraph (a) of this section within the time 
specified without undue hardship, it may file with the Commission's 
principal office in Washington, DC, prior to the date upon which the 
report is due, an application for an extension of time to a specified 
date which shall not be later than 60 days after the close of the 
calendar year for which the report is to be made. The application shall 
state the reasons for the requested extension and shall contain an 
agreement to file the report on or before the specified date.

(Sec.17, 48 Stat. 897; 15 U.S.C. 78q)

[33 FR 10390, July 20, 1968, as amended at 35 FR 3804, Feb. 27, 1970; 35 
FR 7644, May 16, 1970; 37 FR 13615, July 12, 1972; 40 FR 59717, Dec. 30, 
1975; 42 FR 23789, May 10, 1977; 46 FR 60193, Dec. 9, 1981]



Sec.240.17a-11  Notification provisions for brokers and dealers.

    This section applies to the following types of entities: Except as 
provided in this introductory text, a broker or dealer, including an OTC 
derivatives dealer as that term is defined in Sec.240.3b-12, 
registered pursuant to section 15 of the Act (15 U.S.C. 78o); a broker 
or dealer, other than an OTC derivatives dealer, registered pursuant to 
section 15 of the Act that is also a security-based swap dealer 
registered pursuant to section 15F of the Act (15 U.S.C. 78o-10); and a 
broker or dealer, including an OTC derivatives dealer, registered 
pursuant to section 15 of the Act that is also a major-security-based 
swap participant registered pursuant to section 15F of the Act. Section 
240.18a-8 (rather than this section) applies to the following types of 
entities: A security-based swap dealer registered pursuant to section 
15F of the Act that is not also a broker or dealer, other than an OTC 
derivatives dealer, registered pursuant to section 15 of the Act; a 
security-based swap dealer registered pursuant to section 15F of the Act 
that is also an OTC derivatives dealer; and a major security-based swap 
participant registered pursuant to section 15F of the Act that is not 
also a broker or dealer, including an OTC derivatives dealer, registered 
pursuant to section 15 of the Act.
    (a)(1) Every broker or dealer whose net capital declines below the 
minimum amount required pursuant to Sec.240.15c3-1, or is insolvent as 
that term is defined in Sec.240.15c3-1(c)(16), must give notice of 
such deficiency that same day in accordance with paragraph (h) of this 
section. The notice must specify the broker or dealer's net capital 
requirement and its current amount of net capital. If a broker or dealer 
is informed by its designated examining authority or the Commission that 
it is, or has been, in violation of Sec.240.15c3-1 and the broker or 
dealer has not given notice of the capital deficiency under this 
section, the broker or dealer, even if it does not agree that it is, or 
has been, in violation of Sec.240.15c3-1, must give notice of the 
claimed deficiency, which notice may specify the broker's or dealer's 
reasons for its disagreement.
    (2) In addition to the requirements of paragraph (b)(1) of this 
section, an OTC derivatives dealer or broker or dealer permitted to 
compute net capital pursuant to the alternative method of Sec.
240.15c3-1e must also provide notice if its tentative net capital falls 
below the minimum amount required pursuant to Sec.240.15c3-1. The 
notice must specify the tentative net capital requirements, and current 
amount of net capital and tentative net capital, of the OTC derivatives 
dealer or the broker or dealer permitted to compute net capital pursuant 
to the alternative method of Sec.240.15c3-1e.
    (b) Every broker or dealer must send notice promptly (but within 24 
hours) after the occurrence of the events specified in paragraphs (b)(1) 
through (5) of this section in accordance with paragraph (h) of this 
section:
    (1) If a computation made by a broker or dealer subject to the 
aggregate indebtedness standard of Sec.240.15c3-1 shows that its 
aggregate indebtedness is in excess of 1,200 percent of its net capital; 
or
    (2) If a computation made by a broker or dealer, which has elected 
the

[[Page 590]]

alternative standard of Sec.240.15c3-1, shows that its net capital is 
less than 5 percent of aggregate debit items computed in accordance with 
Sec.240.15c3-3a Exhibit A: Formula for Determination Reserve 
Requirement of Brokers and Dealers under Sec.240.15c3-3; or
    (3) If a computation made by a broker or dealer pursuant to Sec.
240.15c3-1 shows that its total net capital is less than 120 percent of 
the broker's or dealer's required minimum net capital, or if a 
computation made by an OTC derivatives dealer pursuant to Sec.
240.15c3-1 shows that its total tentative net capital is less than 120 
percent of the dealer's required minimum tentative net capital.
    (4) The occurrence of the fourth and each subsequent backtesting 
exception under Sec.240.15c3-1f(e)(1)(iv) during any 250 business day 
measurement period.
    (5) If a computation made by a broker or dealer pursuant to Sec.
240.15c3-1 shows that the total amount of money payable against all 
securities loaned or subject to a repurchase agreement or the total 
contract value of all securities borrowed or subject to a reverse 
repurchase agreement is in excess of 2500 percent of its tentative net 
capital; provided, however, that for purposes of this leverage test 
transactions involving government securities, as defined in section 
3(a)(42) of the Act (15 U.S.C. 78c(a)(42)), must be excluded from the 
calculation; provided further, however, that a broker or dealer will not 
be required to send the notice required by this paragraph (c)(5) if it 
reports monthly its securities lending and borrowing and repurchase and 
reverse repurchase activity (including the total amount of money payable 
against securities loaned or subject to a repurchase agreement and the 
total contract value of securities borrowed or subject to a reverse 
repurchase agreement) to its designated examining authority in a form 
acceptable to its designated examining authority.
    (c) Every broker or dealer that fails to make and keep current the 
books and records required by Sec.240.17a-3, must give notice of this 
fact that same day in accordance with paragraph (h) of this section, 
specifying the books and records which have not been made or which are 
not current. The broker or dealer must also transmit a report in 
accordance with paragraph (h) of this section within 48 hours of the 
notice stating what the broker or dealer has done or is doing to correct 
the situation.
    (d) Whenever any broker or dealer discovers, or is notified by an 
independent public accountant under Sec.240.17a-12(i)(2), of the 
existence of any material inadequacy as defined in Sec.240.17a-
12(h)(2), or whenever any broker or dealer discovers, or is notified by 
an independent public accountant under Sec.240.17a-5(h), of the 
existence of any material weakness as defined in Sec.240.17a-
5(d)(3)(iii), the broker or dealer must:
    (1) Give notice, in accordance with paragraph (h) of this section, 
of the material inadequacy or material weakness within 24 hours of the 
discovery or notification of the material inadequacy or material 
weakness; and
    (2) Transmit a report in accordance with paragraph (h) of this 
section, within 48 hours of the notice stating what the broker or dealer 
has done or is doing to correct the situation.
    (e) [Reserved]
    (f) If a broker-dealer fails to make in its special reserve account 
for the exclusive benefit of security-based swap customers a deposit, as 
required by Sec.240.15c3-3(p), the broker-dealer must give immediate 
notice in writing in accordance with paragraph (h) of this section.
    (g) Every national securities exchange or national securities 
association that learns that a broker or dealer has failed to send 
notice or transmit a report as required by this section, even after 
being advised by the securities exchange or the national securities 
association to send notice or transmit a report, must immediately give 
notice of such failure in accordance with paragraph (h) of this section.
    (h) Every notice or report required to be given or transmitted by 
this section must be given or transmitted to the principal office of the 
Commission in Washington DC and the regional office of the Commission 
for the region in which the broker or dealer has its principal place of 
business, or to an email address provided on the Commission's

[[Page 591]]

website, and to the designated examining authority of which such broker 
or dealer is a member, and to the Commodity Futures Trading Commission 
(CFTC) if the broker or dealer is registered as a futures commission 
merchant with the CFTC. The report required by paragraph (c) or (d)(2) 
of this section may be transmitted by overnight delivery.
    (i) Other notice provisions relating to the Commission's financial 
responsibility or reporting rules are contained in Sec.Sec.240.15c3-
1, 240.15c3-1d, 240.15c3-3, 240.17a-5, and 240.17a-12.
    (j) The provisions of this section will not apply to a broker or 
dealer registered pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) that is not a member of either a national securities 
exchange pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or a 
national securities association registered pursuant to section 15A(a) of 
the Act (15 U.S.C. 78o-3(a)).

[58 FR 37657, July 13, 1993, as amended at 59 FR 5945, Feb. 9, 1994; 63 
FR 59401, Nov. 3, 1998; 67 FR 58300, Sept. 13, 2002; 69 FR 34472, June 
21, 2004; 73 FR 32228, June 5, 2008; 78 FR 51907, Aug. 21, 2013; 78 FR 
51933, Aug. 21, 2013; 84 FR 68655, Dec. 16, 2019]



Sec.240.17a-12  Reports to be made by certain OTC derivatives dealers.

    (a) Filing of quarterly reports. (1) This paragraph (a) shall apply 
to every OTC derivatives dealer registered pursuant to Section 15 of the 
Act (15 U.S.C. 78o).
    (i) Every OTC derivatives dealer shall file Part II of Form X-17A-5 
(Sec.249.617 of this chapter) within 17 business days after the end of 
each calendar quarter and within 17 business days after the date 
selected for the annual audit of financial statements where said date is 
other than the end of the calendar quarter.
    (ii) Upon receiving from the Commission written notice that 
additional reporting is required, an OTC derivatives dealer shall file 
monthly, or at such times as shall be specified, Part II of Form X-17A-5 
(Sec.249.617 of this chapter) and such other financial or operational 
information as shall be required by the Commission.
    (2) The reports provided for in this paragraph (a) shall be 
considered filed when received at the Commission's principal office in 
Washington, DC. All reports filed pursuant to this paragraph (a) shall 
be deemed to be confidential.
    (3) Upon written application by an OTC derivatives dealer to the 
Commission, the Commission may extend the time for filing the 
information required by this paragraph (a). The written application 
shall be filed with the Commission at its principal office in Washington 
DC.
    (b) Annual filing of audited financial statements. (1)(i) Every OTC 
derivatives dealer registered pursuant to Section 15 of the Act (15 
U.S.C. 78o) shall file annually, on a calendar or fiscal year basis, a 
report which shall be audited by a certified public accountant. Reports 
filed pursuant to this paragraph (b) shall be as of the same fixed or 
determinable date each year, unless a change is approved in writing by 
the Commission.
    (ii) An OTC derivatives dealer succeeding to and continuing the 
business of another OTC derivatives dealer need not file a report under 
this paragraph (b) as of a date in the fiscal or calendar year in which 
the succession occurs if the predecessor OTC derivatives dealer has 
filed a report in compliance with this paragraph (b) as of a date in 
such fiscal or calendar year.
    (2) The annual audit report shall contain a Statement of Financial 
Condition (in a format and on a basis which is consistent with the total 
reported on the Statement of Financial Condition contained in Form X-
17A-5 (Sec.249.617 of this chapter), Part II, a Statement of Income, a 
Statement of Cash Flows, a Statement of Changes in Stockholders' or 
Partners' or Sole Proprietor's Equity, and a Statement of Changes in 
Liabilities Subordinated to Claims of General Creditors. Such statements 
shall be in a format which is consistent with such statements as 
contained in Form X-17A-5 (Sec.249.617 of this chapter), Part II. If 
the Statement of Financial Condition filed in accordance with 
instructions to Form X-17A-5 (Sec.249.617 of this chapter), Part II, 
is not consolidated, a summary of financial data for subsidiaries not 
consolidated in the Part II Statement of Financial Condition as filed by 
the OTC derivatives dealer shall be included in the notes to

[[Page 592]]

the consolidated statement of financial condition reported on by the 
certified public accountant. The summary financial data shall include 
the assets, liabilities, and net worth or stockholders' equity of the 
unconsolidated subsidiaries.

    Note 1 to paragraph (b)(2). If there is other comprehensive income 
in the period(s) presented, the financial report must contain a 
Statement of Comprehensive Income (as defined in Sec.210.1-02 of 
Regulation S-X of this chapter) in place of a Statement of Income.

    (3) Supporting schedules shall include, from Part II of Form X-17A-5 
(Sec.249.617 of this chapter), a Computation of Net Capital under 
Sec.240.15c3-1.
    (4) A reconciliation, including appropriate explanations, of the 
Computation of Net Capital under Sec.240.15c3-1 contained in the audit 
report with the broker's or dealer's corresponding unaudited most recent 
Part II filing shall be filed with the report when material differences 
exist. If no material differences exist, a statement so indicating shall 
be filed.
    (5) The annual audit report shall be filed not more than sixty days 
after the date of the financial statements.
    (6) Two copies of the annual audit report shall be filed at the 
Commission's principal office in Washington, DC.
    (c) Nature and form of reports. The financial statements filed 
pursuant to paragraph (b) of this section shall be prepared and filed in 
accordance with the following requirements:
    (1) An audit shall be conducted by a certified public accountant who 
shall be in fact independent as defined in paragraph (f) of this 
section, and it shall give an opinion covering the statements filed 
pursuant to paragraph (b) of this section.
    (2) Attached to the report shall be an oath or affirmation that, to 
the best knowledge and belief of the person making such oath or 
affirmation, the financial statements and schedules are true and correct 
and neither the OTC derivatives dealer, nor any partner, officer, or 
director, as the case may be, has any significant interest in any 
counterparty or in any account classified solely as that of a 
counterparty. The oath or affirmation shall be made before a person duly 
authorized to administer such oaths or affirmations. If the OTC 
derivatives dealer is a sole proprietorship, the oath or affirmation 
shall be made by the proprietor; if a partnership, by a general partner; 
or if a corporation, by a duly authorized officer.
    (3) All of the statements filed pursuant to paragraph (b) of this 
section shall be confidential except that they shall be available for 
use by any official or employee of the United States or by any other 
person to whom the Commission authorizes disclosure of such information 
as being in the public interest.
    (d) Qualification of accountants. The Commission will not recognize 
any person as a certified public accountant who is not duly registered 
and in good standing as such under the laws of the State of his 
principal office.
    (e) Designation of accountant. (1) Every OTC derivatives dealer 
shall file no later than December 10 of each year with the Commission's 
principal office in Washington, DC a statement indicating the existence 
of an agreement, dated no later than December 1 of that year, with a 
certified public accountant covering a contractual commitment to conduct 
the OTC derivatives dealer's annual audit during the following calendar 
year.
    (2) If the agreement is of a continuing nature, providing for 
successive yearly audits, no further filing is required. If the 
agreement is for a single audit, or if the continuing agreement 
previously filed has been terminated or amended, a new statement must be 
filed by the required date.
    (3) The statement shall be headed ``Notice pursuant to Sec.
240.17a-12(e)'' and shall contain the following information:
    (i) Name, address, telephone number, and registration number of the 
OTC derivatives dealer;
    (ii) Name, address, and telephone number of the certified public 
accounting firm; and
    (iii) The audit date of the OTC derivatives dealer for the year 
covered by the agreement.
    (4) Notwithstanding the date of filing specified in paragraph (e)(1) 
of this section, every OTC derivatives dealer shall file the notice 
provided for in paragraph (e) of this section within 30

[[Page 593]]

days following the effective date of registration as an OTC derivatives 
dealer.
    (f) Independence of accountant. A certified public accountant shall 
be independent in accordance with the provisions of Sec.210.2-01(b) 
and (c) of this chapter.
    (g) Replacement of accountant. (1) An OTC derivatives dealer shall 
file a notice that must be received by the Commission's principal office 
in Washington, DC not more than 15 business days after:
    (i) The OTC derivatives dealer has notified the certified public 
accountant whose opinion covered the most recent financial statements 
filed under paragraph (b) of this section that the certified public 
accountant's services will not be utilized in future engagements; or
    (ii) The OTC derivatives dealer has notified a certified public 
accountant who was engaged to give an opinion covering the financial 
statements to be filed under paragraph (b) of this section that the 
engagement has been terminated; or
    (iii) A certified public accountant has notified the OTC derivatives 
dealer that it will not continue under an engagement or give an opinion 
covering the financial statements to be filed under paragraph (b) of 
this section; or
    (iv) A new certified public accountant has been engaged to give an 
opinion covering the financial statements to be filed under paragraph 
(b) of this section without any notice of termination having been given 
to or by the previously engaged certified public accountant.
    (2) Such notice shall state the date of notification of the 
termination of the engagement of the former certified public accountant 
or the engagement of the new certified public accountant, as applicable, 
and the details of any disagreements existing during the 24 months (or 
the period of the engagement, if less) preceding such termination or new 
engagement relating to any matter of accounting principles or practices, 
financial statement disclosure, auditing scope or procedure, or 
compliance with applicable rules of the Commission, which disagreements, 
if not resolved to the satisfaction of the former certified public 
accountant, would have caused the former certified public accountant to 
make reference to them in connection with the report on the subject 
matter of the disagreements. The disagreements required to be reported 
in response to the preceding sentence include both those resolved to the 
former certified public accountant's satisfaction and those not resolved 
to the former certified public accountant's satisfaction. Disagreements 
contemplated by this section are those that occur at the decision-making 
level (i.e., between principal financial officers of the OTC derivatives 
dealer and personnel of the certified public accounting firm responsible 
for rendering its report). The notice shall also state whether the 
certified public accountant's report on the financial statements for any 
of the past two years contained an adverse opinion or a disclaimer of 
opinion or was qualified as to uncertainties, audit scope, or accounting 
principles, and describe the nature of each such adverse opinion, 
disclaimer of opinion, or qualification. The OTC derivatives dealer 
shall also request the former certified public accountant to furnish the 
OTC derivatives dealer with a letter addressed to the Commission stating 
whether the former certified public accountant agrees with the 
statements contained in the notice of the OTC derivatives dealer and, if 
not, stating the respects in which the former certified public 
accountant does not agree. The OTC derivatives dealer shall file three 
copies of the notice and the certified public accountant's letter, one 
copy of which shall be manually signed by the sole proprietor, or a 
general partner or a duly authorized corporate officer, as appropriate, 
and by the certified public accountant.
    (h) Audit objectives. (1) The audit shall be made in accordance with 
U.S. Generally Accepted Auditing Standards and shall include a review of 
the accounting system, the internal accounting controls, and procedures 
for safeguarding securities including appropriate tests thereof for the 
period since the date of the prior audited financial statements. The 
audit shall include all procedures necessary under the circumstances to 
enable the certified public accountant to express an opinion on

[[Page 594]]

the statement of financial condition, results of operations, cash flows, 
and the Computation of Net Capital under Sec.240.15c3-1. The scope of 
the audit and review of the accounting system, the internal accounting 
controls, and procedures for safeguarding securities shall be sufficient 
to provide reasonable assurance that any material inadequacies existing 
at the date of the examination in the following are disclosed:
    (i) The accounting system;
    (ii) The internal accounting controls; and
    (iii) The procedures for safeguarding securities.
    (2) A material inadequacy in the accounting system, internal 
accounting controls, procedures for safeguarding securities, and 
practices and procedures referred to in paragraph (h) (1) of this 
section that must be reported under these audit objectives includes any 
condition which has contributed substantially to or, if appropriate 
corrective action is not taken, could reasonably be expected to:
    (i) Inhibit an OTC derivatives dealer from promptly completing 
securities transactions or promptly discharging its responsibilities to 
counterparties, other brokers and dealers, or creditors;
    (ii) Result in material financial loss;
    (iii) Result in material misstatements of the OTC derivatives 
dealer's financial statements; or
    (iv) Result in violations of the Commission's recordkeeping or 
financial responsibility rules to an extent that could reasonably be 
expected to result in the conditions described in paragraphs (h)(2)(i), 
(ii), or (iii) of this section.
    (i) Extent and timing of audit procedures. (1) The extent and timing 
of audit procedures are matters for the certified public accountant to 
determine on the basis of its review and evaluation of existing internal 
controls and other audit procedures performed in accordance with U.S. 
Generally Accepted Auditing Standards and the audit objectives set forth 
in paragraph (h) of this section.
    (2) If, during the course of the audit or interim work, the 
certified public accountant determines that any material inadequacies 
exist in the accounting system, internal accounting controls, procedures 
for safeguarding securities, or as otherwise defined in paragraph (h)(2) 
of this section, then the certified public accountant shall call it to 
the attention of the chief financial officer of the OTC derivatives 
dealer, who shall inform the Commission by telegraphic or facsimile 
notice within 24 hours thereafter as set forth in Sec.240.17a-11(e) 
and (g). The OTC derivatives dealer shall also furnish the certified 
public accountant with a copy of said notice to the Commission by 
telegram or facsimile within the same 24 hour period. If the certified 
public accountant fails to receive such notice from the OTC derivatives 
dealer within that 24 hour period, or if the certified public accountant 
disagrees with the statements contained in the notice of the OTC 
derivatives dealer, the certified public accountant shall inform the 
Commission by report of material inadequacy within 24 hours thereafter 
as set forth in Sec.240.17a-11(g). Such report from the certified 
public accountant shall, if the OTC derivatives dealer failed to file a 
notice, describe any material inadequacies found to exist. If the OTC 
derivatives dealer filed a notice, the certified public accountant shall 
file a report detailing the aspects, if any, of the OTC derivatives 
dealer's notice with which the certified public accountant does not 
agree.
    (j) Accountant's report, general provisions--(1) Technical 
requirements. The certified public accountant's report shall be dated; 
be signed manually; indicate the city and state where issued; and 
identify without detailed enumeration the financial statements and 
schedules covered by the report.
    (2) Representations as to the audit. The certified public 
accountant's report shall state that the audit was made in accordance 
with U.S. Generally Accepted Auditing Standards; state whether the 
certified public accountant reviewed the procedures followed for 
safeguarding securities; and designate any auditing procedures deemed 
necessary by the certified public accountant under the circumstances of 
the particular case that have been omitted, and the reason for their 
omission. Nothing in this section shall be construed to imply authority 
for the

[[Page 595]]

omission of any procedure which certified public accountants would 
ordinarily employ in the course of an audit made for the purpose of 
expressing the opinions required under this section.
    (3) Opinion to be expressed. The certified public accountant's 
report shall state clearly the opinion of the certified public 
accountant:
    (i) In respect of the financial statements and schedules covered by 
the report and the accounting principles and practices reflected 
therein; and
    (ii) As to the consistency of the application of the accounting 
principles, or as to any changes in such principles which have a 
material effect on the financial statements.
    (4) Exceptions. Any matters to which the certified public accountant 
takes exception shall be clearly identified, explained, and, to the 
extent practicable, the effect of each such exception on the related 
financial statements shall be provided.
    (5) Definitions. For the purpose of this section, the terms audit 
(or examination), accountant's report, and certified shall have the 
meanings given in Sec.210.1-02 of this chapter.
    (k) Accountant's report on material inadequacies and reportable 
conditions. The OTC derivatives dealer shall file concurrently with the 
annual audit report a supplemental report by the certified public 
accountant describing any material inadequacies or any matter that would 
be deemed to be a reportable condition under U.S. Generally Accepted 
Auditing Standards that are unresolved as of the date of the certified 
public accountant's report. The report shall also describe any material 
inadequacies found to have existed since the date of the previous audit. 
The supplemental report shall indicate any corrective action taken or 
proposed by the OTC derivatives dealer with regard to any identified 
material inadequacies or reportable conditions. If the audit did not 
disclose any material inadequacies or reportable conditions, the 
supplemental report shall so state.
    (l) Accountant's report on management controls. (1) The OTC 
derivatives dealer shall file concurrently with the annual audit report 
a supplemental report by the certified public accountant indicating the 
results of the certified public accountant's review of the OTC 
derivatives dealer's internal risk management control system with 
respect to the requirements of Sec.240.15c3-4. This review shall be 
conducted in accordance with procedures agreed to by the OTC derivatives 
dealer and the certified public accountant conducting the review. The 
purpose of the review is to confirm that the OTC derivatives dealer has 
established, documented, and maintained an internal risk management 
control system in accordance with Sec.240.15c3-4, and is in compliance 
with that internal risk management control system.
    (2) The agreed-upon procedures are to be performed, and the report 
is to be prepared, in accordance with U.S. Generally Accepted 
Attestation Standards.
    (3) Prior to the commencement of the initial review, every OTC 
derivatives dealer shall file the procedures to be performed pursuant to 
paragraph (l)(1) of this section with the Commission's principal office 
in Washington, DC. Prior to the commencement of any subsequent review, 
every OTC derivatives dealer shall file with the Commission's principal 
office in Washington, DC a notice of changes to the agreed-upon 
procedures.
    (m) Accountant's report on inventory pricing and modeling. (1) The 
OTC derivatives dealer shall file concurrently with the annual audit 
report a supplemental report by the certified public accountant 
indicating the results of the certified public accountant's review of 
the broker's or dealer's inventory pricing and modeling procedures. This 
review shall be conducted in accordance with procedures agreed to by the 
OTC derivatives dealer and by the certified public accountant conducting 
the review. The purpose of the review is to confirm that the pricing and 
modeling procedures relied upon by the OTC derivatives dealer conform to 
the procedures submitted to the Commission as part of its OTC 
derivatives dealer application, and that the procedures comply with the 
qualitative and quantitative standards set forth in Sec.240.15c3-1f.
    (2) The agreed-upon procedures are to be performed and the report is 
to be prepared in accordance with U.S. Generally Accepted Attestation 
Standards.

[[Page 596]]

    (3) Every OTC derivatives dealer shall file prior to the 
commencement of the initial review, the procedures to be performed 
pursuant to paragraph (m)(1) of this section with the Commission's 
principal office in Washington, DC. Prior to the commencement of each 
subsequent review, every OTC derivatives dealer shall file with the 
Commission's principal office in Washington, DC notice of changes in the 
agreed-upon procedures.
    (n) Extensions and exemptions. Upon the written request of the OTC 
derivatives dealer, or on its own motion, the Commission may grant an 
extension of time or an exemption from any of the requirements of this 
section either unconditionally or on specified terms and conditions.
    (o) Notification of change of fiscal year. (1) In the event any OTC 
derivatives dealer finds it necessary to change its fiscal year, it must 
file a notice of such change with the Commission's principal office in 
Washington, DC.
    (2) Such notice shall contain a detailed explanation of the reasons 
for the change. Any change in the filing period for the audit report 
must be approved by the Commission.
    (p) Filing requirements. For purposes of filing requirements as 
described in Sec.240.17a-12, these filings shall be deemed to have 
been accomplished upon receipt at the Commission's principal office in 
Washington, DC.

[63 FR 59401, Nov. 3, 1998, as amended at 69 FR 34494, June 21, 2004; 83 
FR 50223, Oct. 4, 2018; 84 FR 68656, Dec. 16, 2019]



Sec.240.17a-13  Quarterly security counts to be made by certain 
exchange members, brokers, and dealers.

    (a) This section shall apply to every member of a national 
securities exchange who transacts a business in securities directly with 
or for others than members of a national securities exchange, every 
broker or dealer (other than a member) who transacts a business in 
securities through the medium of any member of a national securities 
exchange, and every broker or dealer registered pursuant to section 15 
of the Act; except that a broker or dealer meeting all of the following 
conditions shall be exempt from the provisions of this section:
    (1) His dealer transactions (as principal for his own account) are 
limited to the purchase, sale, and redemption of redeemable shares of 
registered investment companies or of interests or participations in an 
insurance company separate account, whether or not registered as an 
investment company; except that a broker or dealer transacting business 
as a sole proprietor may also effect occasional transactions in other 
securities for his own account with or through another registered 
broker-dealer;
    (2) His transactions as broker (agent) are limited to:
    (i) The sale and redemption of redeemable securities of registered 
investment companies or of interests or participations in an insurance 
company separate account, whether or not registered as an investment 
company;
    (ii) The solicitation of share accounts for savings and loan 
associations insured by an instrumentality of the United States; and
    (iii) The sale of securities for the account of a customer to obtain 
funds for immediate reinvestment in redeemable securities of registered 
investment companies; and
    (3) He promptly transmits all funds and delivers all securities 
received in connection with his activities as a broker or dealer, and 
does not otherwise hold funds or securities for, or owe money or 
securities to, customers.

Notwithstanding the foregoing, this rule shall not apply to any 
insurance company which is a registered broker-dealer, and which 
otherwise meets all of the conditions in paragraphs (a)(1), (2), and (3) 
of this section, solely by reason of its participation in transactions 
that are a part of the business of insurance, including the purchasing, 
selling, or holding of securities for or on behalf of such company's 
general and separate accounts.
    (b) Any member, broker, or dealer who is subject to the provisions 
of this rule shall at least once in each calendar quarter-year:
    (1) Physically examine and count all securities held including 
securities that are the subjects of repurchase or reverse repurchase 
agreements;

[[Page 597]]

    (2) Account for all securities in transfer, in transit, pledged, 
loaned, borrowed, deposited, failed to receive, failed to deliver, 
subject to repurchase or reverse repurchase agreements or otherwise 
subject to his control or direction but not in his physical possession 
by examination and comparison of the supporting detail records with the 
appropriate ledger control accounts;
    (3) Verify all securities in transfer, in transit, pledge, loaned, 
borrowed, deposited, failed to receive, failed to deliver, subject to 
repurchase or reverse repurchase agreements or otherwise subject to his 
control or direction but not in his physical possession, where such 
securities have been in said status for longer than thirty days;
    (4) Compare the results of the count and verification with his 
records; and
    (5) Record on the books and records of the member, broker, or dealer 
all unresolved differences setting forth the security involved and date 
of comparison in a security count difference account no later than 7 
business days after the date of each required quarterly security 
examination, count, and verification in accordance with the requirements 
provided in paragraph (c) of this section. Provided, however, That no 
examination, count, verification, and comparison for the purpose of this 
section shall be within 2 months of or more than 4 months following a 
prior examination, count, verification, and comparison made hereunder.
    (c) The examination, count, verification, and comparison may be made 
either as of a date certain or on a cyclical basis covering the entire 
list of securities. In either case the recordation shall be effected 
within 7 business days subsequent to the examination, count, 
verification, and comparison of a particular security. In the event that 
an examination, count, verification, and comparison is made on a 
cyclical basis, it shall not extend over more than 1 calendar quarter-
year, and no security shall be examined, counted, verified, or compared 
for the purpose of this rule less than 2 months or more than 4 months 
after a prior examination, count, verification, and comparison.
    (d) The examination, count, verification, and comparison shall be 
made or supervised by persons whose regular duties do not require them 
to have direct responsibility for the proper care and protection of the 
securities or the making or preservation of the subject records.
    (e) The provisions of this section shall not apply to a broker or 
dealer registered pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) that is not a member of either a national securities 
exchange pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or a 
national securities association registered pursuant to section 15A(a) of 
the Act (15 U.S.C. 78o-3(a)).
    (f) The Commission may, upon written request, exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any member, broker, or dealer who satisfies the 
Commission that it is not necessary in the public interest and for the 
protection of investors to subject the particular member, broker, or 
dealer to certain or all of the provisions of this section, because of 
the special nature of his business, the safeguards he has established 
for the protection of customers' funds and securities, or such other 
reason as the Commission deems appropriate.

[36 FR 21179, Nov. 4, 1971, as amended at 42 FR 23790, May 10, 1977; 52 
FR 22299, June 11, 1987; 67 FR 58300, Sept. 13, 2002]



Sec.240.17a-14  Form CRS, for preparation, filing and delivery
of Form CRS.

    (a) Scope of section. This section shall apply to every broker or 
dealer registered with the Commission pursuant to section 15 of the Act 
that offers services to a retail investor.
    (b) Form CRS. You must:
    (1) Prepare Form CRS 17 CFR 249.640, by following the instructions 
in the form.
    (2) File your current Form CRS electronically with the Commission 
through the Central Registration Depository (``Web CRD[supreg]'') 
operated by the Financial Industry Regulatory Authority, Inc., and 
thereafter, file an amended Form CRS in accordance with the instructions 
in Form CRS.
    (3) Amend your Form CRS as required by the instructions in the form.

[[Page 598]]

    (c) Delivery of Form CRS. You must:
    (1) Deliver to each retail investor your current Form CRS before or 
at the earliest of:
    (i) A recommendation of an account type, a securities transaction; 
or an investment strategy involving securities;
    (ii) Placing an order for the retail investor; or
    (iii) The opening of a brokerage account for the retail investor.
    (2) Deliver to each retail investor who is an existing customer your 
current Form CRS before or at the time you:
    (i) Open a new account that is different from the retail investor's 
existing account(s);
    (ii) Recommend that the retail investor roll over assets from a 
retirement account into a new or existing account or investment; or
    (iii) Recommend or provide a new brokerage service or investment 
that does not necessarily involve the opening of a new account and would 
not be held in an existing account.
    (3) Post the current Form CRS prominently on your public website, if 
you have one, in a location and format that is easily accessible for 
retail investors.
    (4) Communicate any changes made to Form CRS to each retail investor 
who is an existing customer within 60 days after the amendments are 
required to be made and without charge. The communication can be made by 
delivering the amended Form CRS or by communicating the information 
through another disclosure that is delivered to the retail investor.
    (5) Deliver a current Form CRS to each retail investor within 30 
days upon request.
    (d) Other disclosure obligations. Delivering a Form CRS in 
compliance with this section does not relieve you of any other 
disclosure obligations arising under the federal securities laws and 
regulations or other laws or regulations (including the rules of a self-
regulatory organization).
    (e) Definitions. For purposes of this section:
    (1) Current Form CRS means the most recent version of the Form CRS.
    (2) Retail investor means a natural person, or the legal 
representative of such natural person, who seeks to receive or receives 
services primarily for personal, family or household purposes.
    (f) Transition rule. (1) If you are registered with the Commission 
prior to June 30, 2020, pursuant to Section 15 of the Act, you must file 
your initial Form CRS with the Commission in accordance with section 
(b)(2) of this section, beginning on May 1, 2020, and by no later than 
June 30, 2020.
    (2) On or after June 30, 2020, if you file an application for 
registration with the Commission or have an application for registration 
pending with the Commission as a broker or dealer pursuant to Section 15 
of the Act, you must begin to comply with this section by the date on 
which your registration application becomes effective pursuant to 
Section 15 of the Act, including by filing your Form CRS in accordance 
with paragraph (b)(2) of this section.
    (3) Within 30 days after the date by which you are first required by 
paragraph (f) of this section to electronically file your initial Form 
CRS with the Commission, you must deliver to each of your existing 
customers who is a retail investor your current Form CRS.
    (4) As of the date by which you are first required to electronically 
file your Form CRS with the Commission pursuant to this section, you 
must begin using your Form CRS as required to comply with paragraph (c) 
of this rule.

[84 FR 33629, July 12, 2019]



Sec.240.17a-18  [Reserved]



Sec.240.17a-19  Form X-17A-19 Report by national securities exchanges
and registered national securities associations of changes in the
membership status of any of their members.
          

    Every national securities exchange and every registered national 
securities association shall file with the Commission at its principal 
office in Washington, DC, and with the Securities Investor Protection 
Corporation such information as is required by Sec.249.635 of this 
chapter on Form X-17A-19 within 5 business days of the occurrence of the 
initiation of the membership of any person or the suspension or 
termination of the membership of any

[[Page 599]]

member. Nothing in this section shall be deemed to relieve a national 
securities exchange or a registered national securities association of 
its responsibilities under Sec.240.17a-5(b)(5) except that, to the 
extent a national securities exchange or a registered national 
securities association promptly files a report on Form X-17A-19 
including therewith, inter alia, information sufficient to satisfy the 
requirements of Sec.240.17a-5(b)(5), it shall not be required to file 
a report pursuant to Sec.240.17a-5(b). Upon the occurrence of the 
events described in this paragraph, every national securities exchange 
and every registered national securities association shall notify in 
writing such member of its responsibilities under Sec.240.17a-5(b).

[45 FR 39841, June 12, 1980]



Sec.240.17a-21  Reports of the Municipal Securities Rulemaking Board.

    (a) Annual Report of the Municipal Securities Rulemaking Board. The 
Municipal Securities Rulemaking Board shall file annual reports with the 
Commission as follows:
    (1) Prior to October 1, 1976, the Municipal Securities Rulemaking 
Board shall file with the Commission an annual report for the period 
from its formation until June 30, 1976 and shall include whatever 
information, data and recommendations it considers advisable with regard 
to matters within its jurisdiction.
    (2) Prior to December 1, 1977, the Municipal Securities Rulemaking 
Board shall file with the Commission an annual report for the period 
from July 1, 1976 until September 30, 1977 and shall include whatever 
information, data and recommendations it considers advisable with regard 
to matters within its jurisdiction.
    (3) Prior to December 1 of each year beginning in 1978, the 
Municipal Securities Rulemaking Board shall file with the Commission an 
annual report for the twelve months immediately preceding October 1 of 
that year and shall include whatever information, data and 
recommendations it considers advisable with regard to matters within its 
jurisdiction.
    (4) The Municipal Securities Rulemaking Board shall include in its 
annual report a statement and an analysis of its expenses and operations 
including:
    (i) A balance sheet as of the end of the period covered by the 
report and a statement of revenues and expenses for the Board for that 
period;
    (ii) The rules of the Board including any written interpretations of 
the rules or staff interpretive letters, except that this information 
may be included in the annual report once every three years and shall be 
up to date as of the latest practicable date within 3 months of the date 
on which this information is filed. If the Board publishes or cooperates 
in the publication of this information on an annual or more frequent 
basis, in lieu of including such information in the annual report the 
Board may:
    (A) Identify the publication in which such information is available, 
the name, address, and telephone number of the person from whom such 
publication may be obtained, and the price thereof; and
    (B) Certify to the accuracy of such information as of its date. If 
the Board keeps this information up to date and makes it available to 
the Commission and the public upon request, in lieu of filing such 
information the Board may certify that the information is kept up to 
date and is available to the Commission and the public upon request;
    (iii) The following information concerning members of the Board:
    (A) Name;
    (B) Dates of commencement and termination of present term of office;
    (C) Length of time each member has held such office;
    (D) Name of principal organization with which connected;
    (E) Title; and
    (F) City wherein the principal office of such organization is 
located;
    (iv) Address of the Board, the name and address of each person 
authorized to receive notices on behalf of the Board from the 
Commission, and the name and address of counsel to the Board, if any; 
and
    (v) A list, including addresses, as of the latest practicable date, 
alphabetically arranged, of all municipal securities brokers and 
municipal securities dealers which have paid to the Board

[[Page 600]]

fees and charges to defray the costs and expenses of operating the 
Board.
    (5) Within 10 days after the discovery of any material inaccuracy in 
its annual report or in any amendment thereto the Municipal Securities 
Rulemaking Board shall file with the Commission an amendment correcting 
such inaccuracy.
    (b) Supplemental reports of the Municipal Securities Rulemaking 
Board. The Municipal Securities Rulemaking Board shall file supplemental 
reports to the Commission as follows:
    (1) Within 10 days after issuing or making generally available to 
municipal securities brokers and municipal securities dealers any 
materials (including notices, circulars, bulletins, lists, periodicals, 
etc.), the Municipal Securities Rulemaking Board shall file with the 
Commission three copies of such material (unless such material is filed 
with the Commission pursuant to Rule 19b-4).
    (2) Within 10 days after any action is taken which renders no longer 
accurate any of the information required by paragraphs (a)(3) (iii), 
(iv), (v), and (vi) of this section to be contained in the annual report 
of the Municipal Securities Rulemaking Board (except action reported to 
the Commission pursuant to Rule 19b-4), the Board shall file with the 
Commission written notification in triplicate setting forth the nature 
of such action and the effective date thereof. Such notice may be filed 
either in the form of a letter or in the form of a notice made generally 
available to municipal securities brokers and municipal securities 
dealers.

[41 FR 36200, Aug. 27, 1976, as amended at 59 FR 66701, Dec. 28, 1994]



Sec.240.17a-22  Supplemental material of registered clearing agencies.

    Within ten days after issuing, or making generally available, to its 
participants or to other entities with whom it has a significant 
relationship, such as pledgees, transfer agents, or self-regulatory 
organizations, any material (including, for example, manuals, notices, 
circulars, bulletins, lists, or periodicals), a registered clearing 
agency shall file three copies of such material with the Commission. A 
registered clearing agency for which the Commission is not the 
appropriate regulatory agency shall at the same time file one copy of 
such material with its appropriate regulatory agency.

[45 FR 73914, Nov. 7, 1980]



Sec.240.17a-25  Electronic submission of securities transaction
information by exchange members, brokers, and dealers.

    (a) Every member, broker, or dealer subject to Sec.240.17a-3 
shall, upon request, electronically submit to the Commission the 
securities transaction information as required in this section:
    (1) If the transaction was a proprietary transaction effected or 
caused to be effected by the member, broker, or dealer for any account 
in which such member, broker, or dealer, or person associated with the 
member, broker, or dealer, is directly or indirectly interested, such 
member, broker or dealer shall submit the following information:
    (i) Clearing house number, or alpha symbol of the member, broker, or 
dealer submitting the information;
    (ii) Clearing house number(s), or alpha symbol(s) of the member(s), 
broker(s) or dealer(s) on the opposite side of the transaction;
    (iii) Identifying symbol assigned to the security;
    (iv) Date transaction was executed;
    (v) Number of shares, or quantity of bonds or options contracts, for 
each specific transaction; whether each transaction was a purchase, 
sale, or short sale; and, if an options contract, whether open long or 
short or close long or short;
    (vi) Transaction price;
    (vii) Account number; and
    (viii) The identity of the exchange or other market where the 
transaction was executed.
    (2) If the transaction was effected or caused to be effected by the 
member, broker, or dealer for any customer account, such member, broker, 
or dealer shall submit the following information:
    (i) Information contained in paragraphs (a)(1)(i) through 
(a)(1)(viii) of this section;
    (ii) Customer name, address(es), branch office number, registered 
representative number, whether the order

[[Page 601]]

was solicited or unsolicited, date account opened, and the customer's 
tax identification number(s); and
    (iii) If the transaction was effected for a customer of another 
member, broker, or dealer, whether the other member, broker, or dealer 
was acting as principal or agent on the transaction.
    (b) In addition to the information in paragraph (a) of this section, 
a member, broker, or dealer shall, upon request, electronically submit 
to the Commission the following securities transaction information for 
transactions involving entities that trade using multiple accounts:
    (1)(i) If part or all of an account's transactions at the reporting 
member, broker, or dealer have been transferred or otherwise forwarded 
to one or more accounts at another member, broker, or dealer, an 
identifier for this type of transaction; and
    (ii) If part or all of an account's transactions at the reporting 
member, broker, or dealer have been transferred or otherwise received 
from one or more other members, brokers, or dealers, an identifier for 
this type of transaction.
    (2)(i) If part or all of an account's transactions at the reporting 
member, broker, or dealer have been transferred or otherwise received 
from another account at the reporting member, broker, or dealer, an 
identifier for this type of transaction; and
    (ii) If part or all of an account's transactions at the reporting 
member, broker, or dealer have been transferred or otherwise forwarded 
to one or more other accounts at the reporting member, broker, or 
dealer, an identifier for this type of transaction.
    (3) If an account's transaction was processed by a depository 
institution, the identifier assigned to the account by the depository 
institution.
    (c) Every member, broker, or dealer shall, upon request, submit to 
the Commission and, keep current, information containing the full name, 
title, address, telephone number(s), facsimile number(s), and 
electronic-mail address(es) for each person designated by the member, 
broker, or dealer as responsible for processing securities transaction 
information requests from the Commission.
    (d) The member, broker, or dealer should comply with the format for 
the electronic submission of the securities transaction information 
described in paragraphs (a) and (b) of this section as specified by the 
member, broker, or dealer's designated self-regulatory organization 
under Sec.240.17d-1, unless otherwise specified by Commission rule.

[66 FR 35843, July 9, 2001]



Sec.240.17d-1  Examination for compliance with applicable financial
responsibility rules.

    (a) Where a member of SIPC is a member of more than one self-
regulatory organization, the Commission shall designate by written 
notice to one of such organizations responsibility for examining such 
member for compliance with applicable financial responsibility rules. In 
making such designations the Commission shall take into consideration 
the regulatory capabilities and procedures of the self-regulatory 
organizations, availability of staff, convenience of location, 
unnecessary regulatory duplication, and such other factors as the 
Commission may consider germane to the protection of investors, the 
cooperation and coordination among self-regulatory organizations, and 
the development of a national market system and a national system for 
the clearance and settlement of securities transactions.
    (b) Upon designation of responsibility pursuant to paragraph (a) of 
this section, all other self-regulatory organizations of which such 
person is a member shall be relieved of such responsibility to the 
extent specified.
    (c) After the Commission has acted pursuant to paragraphs (a) and 
(b) of this section, any self-regulatory organization relieved of 
responsibility with respect to a member may notify customers of, and 
persons doing business with, such member of the limited nature of its 
responsibility for such member's compliance with applicable financial 
responsibility rules.

[41 FR 18809, May 7, 1976]

[[Page 602]]



Sec.240.17d-2  Program for allocation of regulatory responsibility.

    (a) Any two or more self-regulatory organizations may file with the 
Commission within ninety (90) days of the effective date of this rule, 
and thereafter as changes in designation are necessary or appropriate, a 
plan for allocating among the self-regulatory organizations the 
responsibility to receive regulatory reports from persons who are 
members or participants of more than one of such self-regulatory 
organizations to examine such persons for compliance, or to enforce 
compliance by such persons, with specified provisions of the Securities 
Exchange Act of 1934, the rules and regulations thereunder, and the 
rules of such self-regulatory organizations, or to carry out other 
specified regulatory functions with respect to such persons.
    (b) Any plan filed hereunder may contain provisions for the 
allocation among the parties of expenses reasonably incurred by the 
self-regulatory organization having regulatory responsibilities under 
the plan.
    (c) After appropriate notice and opportunity for comment, the 
Commission may, by written notice, declare such a plan, or any part of 
the plan, effective if it finds the plan, or any part thereof, necessary 
or appropriate in the public interest and for the protection of 
investors, to foster cooperation and coordination among self-regulatory 
organizations, or to remove impediments to and foster the development of 
the national market system and a national system for the clearance and 
settlement of securities transactions and in conformity with the factors 
set forth in section 17(d) of the Securities Exchange Act of 1934.
    (d) Upon the effectiveness of such a plan or part thereof, any self-
regulatory organization which is a party to the plan shall be relieved 
of responsibility as to any person for whom such responsibility is 
allocated under the plan to another self-regulatory organization to the 
extent of such allocation.
    (e) Nothing herein shall preclude any self-regulatory organization 
from entering into more than one plan filed hereunder.
    (f) After the Commission has declared a plan or part thereof 
effective pursuant to paragraph (c) of this section or acted pursuant to 
paragraph (g) of this section, a self-regulatory organization relieved 
of responsibility may notify customers of, and persons doing business 
with, such member or participant of the limited nature of its 
responsibility for such member's or participant's acts, practices, and 
course of business.
    (g) In the event that plans declared effective pursuant to paragraph 
(c) of this section do not provide for all members or participants or do 
not allocate all regulatory responsibilities, the Commission may, after 
due consideration of the factors enumerated in section 17(d)(1) and 
notice and opportunity for comment, designate one or more of the self-
regulatory organizations responsible for specified regulatory 
responsibilities with respect to such members or participants.

[41 FR 49093, Nov. 8, 1976]



Sec.240.17f-1  Requirements for reporting and inquiry with respect 
to missing, lost, counterfeit or stolen securities.

    (a) Definitions. For purposes of this section:
    (1) The term reporting institution shall include every national 
securities exchange, member thereof, registered securities association, 
broker, dealer, municipal securities dealer, government securities 
broker, government securities dealer, registered transfer agent, 
registered clearing agency, participant therein, member of the Federal 
Reserve System and bank whose deposits are insured by the Federal 
Deposit Insurance Corporation;
    (2) The term uncertificated security shall mean a security not 
represented by an instrument and the transfer of which is registered 
upon books maintained for that purpose by or on behalf of the issuer;
    (3) The term global certificate securities issue shall mean a 
securities issue for which a single master certificate representing the 
entire issue is registered in the nominee name of a registered clearing 
agency and for which beneficial owners cannot receive negotiable 
securities certificates;
    (4) The term customer shall mean any person with whom the reporting 
institution has entered into at least one

[[Page 603]]

prior securities-related transaction; and
    (5) The term securities-related transaction shall mean a purpose, 
sale or pledge of investment securities, or a custodial arrangement for 
investment securities.
    (6) The term securities certificate means any physical instrument 
that represents or purports to represent ownership in a security that 
was printed by or on behalf of the issuer thereof and shall include any 
such instrument that is or was:
    (i) Printed but not issued;
    (ii) Issued and outstanding, including treasury securities;
    (iii) Cancelled, which for this purpose means either or both of the 
procedures set forth in Sec.240.17Ad-19(a)(1); or
    (iv) Counterfeit or reasonably believed to be counterfeit.
    (7) The term issuer shall include an issuer's:
    (i) Transfer agent(s), paying agent(s), tender agent(s), and 
person(s) providing similar services; and
    (ii) Corporate predecessor(s) and successor(s).
    (8) The term missing shall include any securities certificate that:
    (i) Cannot be located or accounted for, but is not believed to be 
lost or stolen; or
    (ii) A transfer agent claims or believes was destroyed in any manner 
other than by the transfer agent's own certificate destruction 
procedures as provided in Sec.240.17Ad-19.
    (b) Every reporting institution shall register with the Commission 
or its designee in accordance with instructions issued by the Commission 
except:
    (1) A member of a national securities exchange who effects 
securities transactions through the trading facilities of the exchange 
and has not received or held customer securities within the last six 
months;
    (2) A reporting institution that, within the last six months, 
limited its securities activities exclusively to uncertificated 
securities, global securities issues or any securities issue for which 
neither record nor beneficial owners can obtain a negotiable securities 
certificate; or
    (3) A reporting institution whose business activities, within the 
last six months, did not involve the handling of securities 
certificates.
    (c) Reporting requirements--(1) Stolen securities. (i) Every 
reporting institution shall report to the Commission or its designee, 
and to a registered transfer agent for the issue, the discovery of the 
theft or loss of any securities certificates where there is substantial 
basis for believing that criminal activity was involved. Such report 
shall be made within one business day of the discovery and, if the 
certificate numbers of the securities cannot be ascertained at that 
time, they shall be reported as soon thereafter as possible.
    (ii) Every reporting institution shall promptly report to the 
Federal Bureau of Investigation upon the discovery of the theft or loss 
of any securities certificate where there is substantial basis for 
believing that criminal activity was involved.
    (2) Missing or lost securities. Every reporting institution shall 
report to the Commission or its designee, and to a registered transfer 
agent for the issue, the discovery of the loss of any securities 
certificate where criminal actions are not suspected when the securities 
certificate has been missing or lost for a period of two business days. 
Such report shall be made within one business day of the end of such 
period except that:
    (i) Securities certificates lost, missing, or stolen while in 
transit to customers, transfer agents, banks, brokers or dealers shall 
be reported by the delivering institution by the later of two business 
days after notice of non-receipt or as soon after such notice as the 
certificate numbers of the securities can be ascertained.
    (ii) Where a shipment of retired securities certificates is in 
transit between any transfer agents, banks, brokers, dealers, or other 
reporting institutions, with no affiliation existing between such 
entities, and the delivering institution fails to receive notice of 
receipt or non-receipt of the certificates, the delivering institution 
shall act to determine the facts. In the event of non-delivery where the 
certificates are not recovered by the delivering institution, the 
delivering institution shall report the certificates as lost, stolen, or 
missing to the Commission or its designee

[[Page 604]]

within a reasonable time under the circumstances but in any event within 
twenty business days from the date of shipment.
    (iii) Securities certificates considered lost or missing as a result 
of securities counts or verifications required by rule, regulation or 
otherwise (e.g., dividend record date verification made as a result of 
firm policy or internal audit function report) shall be reported by the 
later of ten business days after completion of such securities count or 
verification or as soon after such count or verification as the 
certificate numbers of the securities can be ascertained.
    (iv) Securities certificates not received during the completion of 
delivery, deposit or withdrawal shall be reported in the following 
manner:
    (A) Where delivery of the securities certificates is through a 
clearing agency, the delivering institution shall supply to the 
receiving institution the certificate number of the security within two 
business days from the date of request from the receiving institution. 
The receiving institution shall report within one business day of 
notification of the certificate number;
    (B) Where the delivery of securities certificates is in person and 
where the delivering institution has a receipt, the delivering 
institution shall supply the receiving institution the certificate 
numbers of the securities within two business days from the date of 
request from the receiving institution. The receiving institution shall 
report within one business day of notification of the certificate 
number;
    (C) Where the delivery of securities certificates is in person and 
where the delivering institution has no receipt, the delivering 
institution shall report within two business days of notification of 
non-receipt by the receiving institution; or
    (D) Where delivery of securities certificates is made by mail or via 
draft, if payment is not received within ten business days, the 
delivering institution shall confirm with the receiving institution the 
failure to receive such delivery; if confirmation shows non-receipt, the 
delivering institution shall report within two business days of such 
confirmation.
    (3) Counterfeit securities. Every reporting institution shall report 
the discovery of any counterfeit securities certificate to the 
Commission or its designee, to a registered transfer agent for the 
issue, and to the Federal Bureau of Investigation within one business 
day of such discovery.
    (4) Transfer agent reporting obligations. Every transfer agent shall 
make the reports required above only if it receives notification of the 
loss, theft or counterfeiting from a non-reporting institution or if it 
receives notification other than on a Form X-17F-1A or if the 
certificate was in its possession at the time of the loss.
    (5) Recovery. Every reporting institution that originally reported a 
lost, missing or stolen securities certificate pursuant to this Section 
shall report recovery of that securities certificate to the Commission 
or its designee and to a registered transfer agent for the issue within 
one business day of such recovery or finding. Every reporting 
institution that originally made a report in which criminality was 
indicated also shall notify the Federal Bureau of Investigation that the 
securities certificate has been recovered.
    (6) Information to be reported. All reports made pursuant to this 
Section shall include, if applicable or available, the following 
information with respect to each securities certificate:
    (i) Issuer;
    (ii) Type of security and series;
    (iii) Date of issue;
    (iv) Maturity date;
    (v) Denomination;
    (vi) Interest rate;
    (vii) Certificate number, including alphabetical prefix or suffix;
    (viii) Name in which registered;
    (ix) Distinguishing characteristics, if counterfeit;
    (x) Date of discovery of loss or recovery;
    (xi) CUSIP number;
    (xii) Financial Industry Numbering System (``FINS'') Number; and
    (xiii) Type of loss.
    (7) Forms. Reporting institutions shall make all reports to the 
Commission or its designee and to a registered transfer agent for the 
issue pursuant to this section on Form X-17F-1A. Reporting institutions 
shall make reports to

[[Page 605]]

the Federal Bureau of Investigation pursuant to this Section on Form X-
17F-1A, unless the reporting institution is a member of the Federal 
Reserve System or a bank whose deposits are insured by the Federal 
Deposit Insurance Corporation, in which case reports may be made on the 
form required by the institution's appropriate regulatory agency for 
reports to the Federal Bureau of Investigation.
    (d) Required inquiries. (1) Every reporting institution (except a 
reporting institution that, acting in its capacity as transfer agent, 
paying agent, exchange agent or tender agent for an equity issue, or 
registrar for a bond or other debt issue, compares all transactions 
against a shareholder or bondholder list and a current list of stop 
transfers) shall inquire of the Commission or its designee with respect 
to every securities certificate which comes into its possession or 
keeping, whether by pledge, transfer or otherwise, to ascertain whether 
such securities certificate has been reported as missing, lost, 
counterfeit or stolen, unless:
    (i) The securities certificate is received directly from the issuer 
or issuing agent at issuance;
    (ii) The securities certificate is received from another reporting 
institution or from a Federal Reserve Bank or Branch;
    (iii) The securities certificate is received from a customer of the 
reporting institution; and
    (A) Is registered in the name of such customer or its nominee; or
    (B) Was previously sold to such customer, as verified by the 
internal records of the reporting institution;
    (iv) The securities certificate is received as part of a transaction 
which has an aggregate face value of $10,000 or less in the case of 
bonds, or market value of $10,000 or less in the case of stocks; or
    (v) The securities certificate is received directly from a drop 
which is affiliated with a reporting institution for the purposes of 
receiving or delivering certificates on behalf of the reporting 
institution.
    (2) Form of inquiry. Inquiries shall be made in such manner as 
prescribed by the Commission or its designee.
    (3) A reporting institution shall make required inquiries by the end 
of the fifth business day after a securities certificate comes into its 
possession or keeping, provided that such inquiries shall be made before 
the certificate is sold, used as collateral, or sent to another 
reporting institution.
    (e) Permissive reports and inquiries. Every reporting insitution may 
report to or inquire of the Commission or its designee with respect to 
any securities certificate not otherwise required by this section to be 
the subject of a report or inquiry. The Commission on written request or 
upon its own motion may permit reports to and inquiries of the system by 
any other person or entity upon such terms and conditions as it deems 
appropriate and necessary in the public interest and for the protection 
of investors.
    (f) Exemptions. The following types of securities are not subject to 
paragraphs (c) and (d) of this section:
    (1) Security issues not assigned CUSIP numbers;
    (2) Bond coupons;
    (3) Uncertificated securities;
    (4) Global securities issues; and
    (5) Any securities issue for which neither record nor beneficial 
owners can obtain a negotiable securities certificates.
    (g) Recordkeeping. Every reporting institution shall maintain and 
preserve in an easily accessible place for three years copies of all 
Forms X-17F-1A filed pursuant to this section, all agreements between 
reporting institutions regarding registration or other aspects of this 
section, and all confirmations or other information received from the 
Commission or its designee as a result of inquiry.

(Secs. 2, 17, and 23, 15 U.S.C. 78b, 78q, 78w)

[44 FR 31503, May 31, 1979; 45 FR 14022, Mar. 3, 1980, as amended at 53 
FR 37289, Sept. 26, 1988; 53 FR 40721, Oct. 18, 1988; 68 FR 74400, Dec. 
23, 2003]



Sec.240.17f-2  Fingerprinting of securities industry personnel.

    (a) Exemptions for the fingerprinting requirement. Except as 
otherwise provided in paragraph (a)(1) or (2) of this section, every 
member of a national securities exchange, broker, dealer, registered 
transfer agent and registered

[[Page 606]]

clearing agency shall require that each of its partners, directors, 
officers and employees be fingerprinted and shall submit, or cause to be 
submitted, the fingerprints of such persons to the Attorney General of 
the United States or its designee for identification and appropriate 
processing.
    (1) Permissive exemptions. Every member of a national securities 
exchange, broker, dealer, registered transfer agent and registered 
clearing agency may claim one or more of the exemptions in paragraph 
(a)(1) (i), (ii), (iii) or (iv) of this section; Provided, That all the 
requirements of paragraph (e) of this section are also satisfied.
    (i) Member of a national securities exchange, broker, dealer or 
registered clearing agency. Every person who is a partner, director, 
officer or employee of a member of a national securities exchange, 
broker, dealer, or registered clearing agency shall be exempt if that 
person:
    (A) Is not engaged in the sale of securities;
    (B) Does not regularly have access to the keeping, handling or 
processing of (1) securities, (2) monies, or (3) the original books and 
records relating to the securities or the monies; and
    (C) Does not have direct supervisory responsibility over persons 
engaged in the activities referred to in paragraphs (a)(1)(i) (A) and 
(B) of this section.
    (ii) Registered transfer agents. Every person who is a partner, 
director, officer or employee of a registered transfer agent shall be 
exempt if that person:
    (A) Is not engaged in transfer agent functions (as defined in 
section 3(a)(25) of the Securities Exchange Act of 1934) or activities 
incidental thereto; or
    (B) Meets the conditions in paragraphs (a)(1)(i) (B) and (C) of this 
section.
    (iii) Registered broker-dealers engaged in sales of certain 
securities. Every partner, director, officer and employee of a 
registered broker or dealer who satisfies paragraph (a)(1)(i)(B) of this 
section shall be exempt if that broker or dealer:
    (A) Is engaged exclusively in the sale of shares of registered open-
end management investment companies, variable contracts, or interests in 
limited partnerships, unit investment trusts or real estate investment 
trusts; Provided, That those securities ordinarily are not evidenced by 
certificates;
    (B) Is current in its continuing obligation under Sec.Sec.
240.15b1-1 and 15b3-1(b) to update Item 10 of Form BD to disclose the 
existence of any statutory disqualification set forth in sections 
3(a)(39), 15(b)(4) and 15(b)(6) of the Securities Exchange Act of 1934;
    (C) Has insurance or bonding indemnifying it for losses to customers 
caused by the fraudulent or criminal acts of any of its partners, 
directors, officers or employees for whom an exemption is being claimed 
under paragraph (a)(1)(iii) of this section; and
    (D) Is subject to the jurisdiction of a state insurance department 
with respect to its sale of variable contracts.
    (iv) Illegible fingerprint cards. Every person who is a partner, 
director, officer or employee shall be exempt if that member of a 
national securities exchange, broker, dealer, registered transfer agent 
or registered clearing agency, on at least three occasions:
    (A) Attempts in good faith to obtain from such person a complete set 
of fingerprints acceptable to the Attorney General or its designee for 
identification and appropriate processing by requiring that person to be 
fingerprinted, by having that person's fingerprints rolled by a person 
competent to do so and by submitting the fingerprint cards for that 
person to the Attorney General of the United States or its designee in 
accordance with proper procedures;
    (B) Has that person's fingerprint cards returned to it by the 
Attorney General of the United States or its designee without that 
person's fingerprints having been identified because the fingerprints 
were illegible; and
    (C) Retains the returned fingerprint cards and any other required 
records in accordance with paragraph (d) of this section and Sec.Sec.
240.17a-3(a)(13), 17a-4(e)(2) and 240.17Ad-7(e)(1) under the Securities 
Exchange Act of 1934.
    (2) Other exemptions by application to the Commission. The 
Commission, upon specified terms, conditions and periods, may grant 
exemptions to any class of

[[Page 607]]

partners, directors, officers or employees of any member of a national 
securities exchange, broker, dealer, registered transfer agent or 
registered clearing agency, if the Commission finds that such action is 
not inconsistent with the public interest or the protection of 
investors.
    (b) Fingerprinting pursuant to other law. Every member of a national 
securities exchange, broker, dealer, registered transfer agent and 
registered clearing agency may satisfy the fingerprinting requirement of 
section 17(f)(2) of the Securities Exchange Act of 1934 as to any 
partner, director, officer or employee, if:
    (1) The person, in connection with his or her present employment 
with such organization, has been fingerprinted pursuant to any other 
law, statute, rule or regulation of any state or federal government or 
agency thereof;
    (2) The fingerprint cards for that person are submitted, or are 
caused to be submitted, to the Attorney General of the United States or 
its designee for identification and appropriate processing, and the 
Attorney General or its designee has processed those fingerprint cards; 
and
    (3) The processed fingerprint cards or any substitute records, 
together with any information received from the Attorney General or its 
designee, are maintained in accordance with paragraph (d) of this 
section.
    (c) Fingerprinting plans of self-regulatory organizations. The 
fingerprinting requirement of section 17(f)(2) of the Securities 
Exchange Act of 1934 may be satisfied by submitting appropriate and 
complete fingerprint cards to a registered national securities exchange 
or to a registered national securities association which, pursuant to a 
plan filed with, and declared effective by, the Commission, forwards 
such fingerprint cards to the Attorney General of the United States or 
its designee for identification and appropriate processing. Any plan 
filed by a registered national securities exchange or a registered 
national securities association shall not become effective, unless 
declared effective by the Commission as not inconsistent with the public 
interest or the protection of investors; and, in declaring any such plan 
effective, the Commission may impose any terms and conditions relating 
to the provisions of the plan and the period of its effectiveness as it 
may deem necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Securities Exchange Act of 1934.
    (d) Record maintenance--(1) Maintenance of processed fingerprint 
cards and other related information. Every member of a national 
securities exchange, broker, dealer, registered transfer agent and 
registered clearing agency shall maintain the processed fingerprint card 
or any substitute record when such card is not returned after 
processing, together with any information received from the Attorney 
General or its designee, for every person required to be fingerprinted 
under section 17(f)(2) of the Securities Exchange Act of 1934 and for 
persons who have complied with this section pursuant to paragraph (b) or 
(c) of this section. Every substitute record shall state the name of the 
person whose fingerprint card was submitted to the Attorney General of 
the United States, the name of the member of a national securities 
exchange, broker, dealer, registered transfer agent or registered 
clearing agency that submitted the fingerprint card, the name of the 
person or organization that rolled the fingerprints, the date on which 
the fingerprints were rolled, and the date the fingerprint card was 
submitted to the Attorney General of the United States. The processed 
fingerprint card and every other substitute record containing the 
information required by this paragraph, together with any information 
received from the Attorney General of the United States, shall be kept 
in an easily accessible place at the organization's principal office and 
shall be made available upon request to the Commission, the appropriate 
regulatory agency (if not the Commission) or other designated examining 
authority. The organization's principal office must provide to the 
regional, branch or satellite office actually employing the person 
written evidence that the person's fingerprints have been processed by 
the FBI, and must provide to that office a copy of any criminal history 
record information received from the

[[Page 608]]

FBI. All fingerprint cards, records and information required to be 
maintained under this paragraph shall be retained for a period of not 
less than three years after termination of that person's employment or 
relationship with the organization.
    (2) Record maintenance by designated examining authorities. The 
records required to be maintained and preserved by a member of a 
national securities exchange, broker, or dealer pursuant to the 
requirements of paragraph (d)(1) of this section may be maintained and 
preserved on behalf of that member, broker, or dealer by a self-
regulatory organization that is also the designated examining authority 
for that member, broker or dealer, Provided That the self-regulatory 
organization has filed in accordance with Sec.240.17f-2(c) a 
fingerprinting plan or amendments to an existing plan concerning the 
storage and maintenance of records and that plan, as amended, has been 
declared effective by the Commission, and Provided Further That:
    (i) Such records are subject at any time, or from time to time, to 
reasonable periodic, special or other examinations by representatives of 
the Commission; and
    (ii) The self-regulatory organization furnishes to the Commission, 
upon demand, at either the principal office or at the regional office 
complete, correct and current hard copies of any and all such records.
    (3) Reproduction of records on microfilm. The records required to be 
maintained pursuant to paragraph (d)(1) of this section may be produced 
or reproduced on microfilm and preserved in that form. If such microfilm 
substitution for hard copy is made by a member of a national securities 
exchange, broker, dealer, registered transfer agent or registered 
clearing agency, or by a self-regulatory organization maintaining and 
storing records pursuant to paragraph (d)(2) of this section, it shall 
at all times:
    (i) Have available for examination by the Commission, the 
appropriate regulatory agency (if not the Commission) or other 
designated examining authority, facilities for the immediate, easily 
readable projection of the microfilm and for the production of easily 
readable and legible facsimile enlargements;
    (ii) File and index the films in such a manner as to permit the 
immediate location and retrieval of any particular record;
    (iii) Be ready to provide, and immediately provide, any facsimile 
enlargement which the Commission, the appropriate regulatory agency (if 
not the Commission) or other designated examining authority by their 
examiners or other representatives may request; and
    (iv) For the period for which the microfilm records are required to 
be maintained, store separately from the original microfilm records a 
copy of the microfilm records.
    (e) Notice requirement. Every member of a national securities 
exchange, broker, dealer, registered transfer agent and registered 
clearing agency that claims one or more of the exemptions in paragraph 
(a)(1) of this section shall make and keep current a statement entitled 
``Notice Pursuant to Rule 17f-2'' containing the information specified 
in paragraph (e)(1) of this section.
    (1) Contents of statement. The Notice required by paragraph (e) of 
this section shall:
    (i) State the name of the organization and state whether it is a 
member of a national securities exchange, broker, dealer, registered 
transfer agent, or registered clearing agency;
    (ii) Identify by division, department, class, or name and position 
within the organization all persons who are claimed to have satisfied 
the fingerprinting requirement of section 17(f)(2) of the Securities 
Exchange Act of 1934 pursuant to paragraph (b) of this section;
    (iii) Identify by division, department, class, title or position 
within the organization all persons claimed to be exempt under 
paragraphs (a)(1)(i) through (iii) of this section, and identify by name 
all persons claimed to be exempt under paragraph (a)(1)(iv). Persons 
identified under this paragraph (e)(1)(iii) shall be exempt from the 
requirement of section 17(f)(2) of the Securities Exchange Act of 1934 
unless notified to the contrary by the Commission;

[[Page 609]]

    (iv) Describe, in generic terms, the nature of the duties of the 
person or classes of persons, and the nature of the functions and 
operations of the divisions and departments, identified as exempt in 
paragraph (e)(1)(iii) of this section; and
    (v) Describe the security measures utilized to ensure that only 
those persons who have been fingerprinted in accordance with the 
fingerprinting requirement of section 17(f)(2) of the Securities 
Exchange Act of 1934 or who are exempt under paragraph (a)(1)(iv) of 
this section have access to the keeping, handling or processing of 
securities or monies or the original books and records relating thereto.
    (2) Record maintenance. A copy of the Notice required to be made and 
kept current under paragraph (e) of this section shall be kept in an 
easily accessible place at the organization's principal office and at 
the office employing the persons for whom exemptions are claimed and 
shall be made available upon request for inspection by the Commission, 
appropriate regulatory agency (if not the Commission) or other 
designated examining authority.
    (3) Exemption from the notice requirement. A registered transfer 
agent that performs transfer agent functions only on behalf of itself as 
an issuer and that receives fewer than 500 items for transfer and fewer 
than 500 items for processing during any six consecutive months shall be 
exempt from the notice requirement of paragraph (c) of this section.

[47 FR 54060, Dec. 1, 1982]

         Nationally Recognized Statistical Rating Organizations

    Source: 72 FR 33620, June 18, 2007, unless otherwise noted.



Sec.240.17g-1  Application for registration as a nationally recognized
statistical rating organization.

    (a) Initial application. A credit rating agency applying to the 
Commission to be registered under section 15E of the Act (15 U.S.C. 78o-
7) as a nationally recognized statistical rating organization must file 
with the Commission two paper copies of an initial application on Form 
NRSRO (Sec.249b.300 of this chapter) that follows all applicable 
instructions for the Form.
    (b) Application to register for an additional class of credit 
ratings. A nationally recognized statistical rating organization 
applying to register for an additional class of the credit ratings 
described in section 3(a)(62)(B) of the Act (15 U.S.C. 78c(a)(62)(B)) 
must file with the Commission two paper copies of an application to add 
a class of credit ratings on Form NRSRO that follows all applicable 
instructions for the Form. The application will be subject to the 
requirements of section 15E(a)(2) of the Act (15 U.S.C. 78o-7(a)(2)).
    (c) Supplementing an application prior to final action by the 
Commission. An applicant must promptly file with the Commission two 
paper copies of a written notice if information submitted to the 
Commission in an initial application to be registered as a nationally 
recognized statistical rating organization or in an application to 
register for an additional class of credit ratings is found to be or 
becomes materially inaccurate prior to the date of a Commission order 
granting or denying the application. The notice must identify the 
information that was found to be materially inaccurate. The applicant 
also must promptly file with the Commission two paper copies of an 
application supplement on Form NRSRO that follows all applicable 
instructions for the Form.
    (d) Withdrawing an application. An applicant may withdraw an initial 
application to be registered as a nationally recognized statistical 
rating organization or an application to register for an additional 
class of credit ratings prior to the date of a Commission order granting 
or denying the application. To withdraw the application, the applicant 
must furnish the Commission with two paper copies of a written notice of 
withdrawal executed by a duly authorized person.
    (e) Update of registration. A nationally recognized statistical 
rating organization amending materially inaccurate information in its 
application for registration pursuant to section 15E(b)(1) of the Act 
(15 U.S.C. 78o-7(b)(1)) must promptly file with the Commission an update 
of its registration on Form

[[Page 610]]

NRSRO that follows all applicable instructions for the Form. A Form 
NRSRO and the information and documents in Exhibits 2 through 9 to Form 
NRSRO, as applicable, filed under this paragraph must be filed 
electronically with the Commission on EDGAR as a PDF document in the 
format required by the EDGAR Filer Manual, as defined in Rule 11 of 
Regulation S-T (Sec.232.11 of this chapter).
    (f) Annual certification. A nationally recognized statistical rating 
organization amending its application for registration pursuant to 
section 15E(b)(2) of the Act (15 U.S.C. 78o-7(b)(2)) must file with the 
Commission an annual certification on Form NRSRO that follows all 
applicable instructions for the Form not later than 90 days after the 
end of each calendar year. A Form NRSRO and the information and 
documents in Exhibits 1 through 9 to Form NRSRO filed under this 
paragraph must be filed electronically with the Commission on EDGAR as a 
PDF document in the format required by the EDGAR Filer Manual, as 
defined in Rule 11 of Regulation S-T.
    (g) Withdrawal from registration. A nationally recognized 
statistical rating organization withdrawing from registration pursuant 
to section 15E(e)(1) of the Act (15 U.S.C. 78o-7(e)(1)) must furnish the 
Commission with a notice of withdrawal from registration on Form NRSRO 
that follows all applicable instructions for the Form. The withdrawal 
from registration will become effective 45 calendar days after the 
notice is furnished to the Commission upon such terms and conditions as 
the Commission may establish as necessary in the public interest or for 
the protection of investors. A Form NRSRO furnished under this paragraph 
must be furnished electronically with the Commission on EDGAR as a PDF 
document in the format required by the EDGAR Filer Manual, as defined in 
Rule 11 of Regulation S-T.
    (h) Filing or furnishing Form NRSRO. A Form NRSRO filed or 
furnished, as applicable, under any paragraph of this section will be 
considered filed with or furnished to the Commission on the date the 
Commission receives a complete and properly executed Form NRSRO that 
follows all applicable instructions for the Form. Information filed or 
furnished, as applicable, on a confidential basis and for which 
confidential treatment has been requested pursuant to applicable 
Commission rules will be accorded confidential treatment to the extent 
permitted by law.
    (i) Public availability of Form NRSRO. A nationally recognized 
statistical rating organization must make its current Form NRSRO and 
information and documents in Exhibits 1 through 9 to Form NRSRO publicly 
and freely available on an easily accessible portion of its corporate 
Internet Web site within 10 business days after the date of the 
Commission order granting an initial application for registration as a 
nationally recognized statistical rating organization or an application 
to register for an additional class of credit ratings and within 10 
business days after filing with or furnishing to, as applicable, the 
Commission a Form NRSRO under paragraph (e), (f), or (g) of this 
section. In addition, a nationally recognized statistical rating 
organization must make its most recently filed Exhibit 1 to Form NRSRO 
freely available in writing to any individual who requests a copy of the 
Exhibit.

[13 FR 8178, Dec. 22, 1948, as amended at 79 FR 55262, Sept. 15, 2014]



Sec.240.17g-2  Records to be made and retained by nationally 
recognized statistical rating organizations.

    (a) Records required to be made and retained. A nationally 
recognized statistical rating organization must make and retain the 
following books and records, which must be complete and current:
    (1) Records of original entry into the accounting system of the 
nationally recognized statistical rating organization and records 
reflecting entries to and balances in all general ledger accounts of the 
nationally recognized statistical rating organization for each fiscal 
year.
    (2) Records with respect to each current credit rating of the 
nationally recognized statistical rating organization indicating (as 
applicable):
    (i) The identity of any credit analyst(s) that participated in 
determining the credit rating;

[[Page 611]]

    (ii) The identity of the person(s) that approved the credit rating 
before it was issued;
    (iii) If a quantitative model was a substantial component in the 
process of determining the credit rating of a security or money market 
instrument issued by an asset pool or as part of any asset-backed 
securities transaction, a record of the rationale for any material 
difference between the credit rating implied by the model and the final 
credit rating issued; and
    (iv) Whether the credit rating was solicited or unsolicited.
    (3) An account record for each person (for example, an obligor, 
issuer, underwriter, or other user) that has paid the nationally 
recognized statistical rating organization for the issuance or 
maintenance of a credit rating indicating:
    (i) The identity and address of the person; and
    (ii) The credit rating(s) determined or maintained for the person.
    (4) An account record for each subscriber to the credit ratings and/
or credit analysis reports of the nationally recognized statistical 
rating organization indicating the identity and address of the 
subscriber.
    (5) A record listing the general types of services and products 
offered by the nationally recognized statistical rating organization.
    (6) A record documenting the established procedures and 
methodologies used by the nationally recognized statistical rating 
organization to determine credit ratings.
    (7) A record that lists each security and money market instrument 
and its corresponding credit rating issued by an asset pool or as part 
of any asset-backed securities transaction where the nationally 
recognized statistical rating organization, in determining the credit 
rating for the security or money market instrument, treats assets within 
such pool or as a part of such transaction that are not subject to a 
credit rating of the nationally recognized statistical rating 
organization by any or a combination of the following methods:
    (i) Determining credit ratings for the unrated assets;
    (ii) Performing credit assessments or determining private credit 
ratings for the unrated assets;
    (iii) Determining credit ratings or private credit ratings, or 
performing credit assessments for the unrated assets by taking into 
consideration the internal credit analysis of another person; or
    (iv) Determining credit ratings or private credit ratings, or 
performing credit assessments for the unrated assets by taking into 
consideration (but not necessarily adopting) the credit ratings of 
another nationally recognized statistical rating organization.
    (8) For each outstanding credit rating, a record showing all rating 
actions and the date of such actions from the initial credit rating to 
the current credit rating identified by the name of the rated security 
or obligor and, if applicable, the CUSIP of the rated security or the 
Central Index Key (CIK) number of the rated obligor.
    (9) A record documenting the policies and procedures the nationally 
recognized statistical rating organization is required to establish, 
maintain, and enforce pursuant to section 15E(h)(4)(A) of the Act (15 
U.S.C. 78o-7(h)(4)(A)) and Sec.240.17g-8(c).
    (b) Records required to be retained. A nationally recognized 
statistical rating organization must retain the following books and 
records (excluding drafts of documents) that relate to its business as a 
credit rating agency:
    (1) Significant records (for example, bank statements, invoices, and 
trial balances) underlying the information included in the annual 
financial reports the nationally recognized statistical rating 
organization filed with or furnished to, as applicable, the Commission 
pursuant to Sec.240.17g-3.
    (2) Internal records, including nonpublic information and work 
papers, used to form the basis of a credit rating issued by the 
nationally recognized statistical rating organization.
    (3) Credit analysis reports, credit assessment reports, and private 
credit rating reports of the nationally recognized statistical rating 
organization and internal records, including nonpublic information and 
work papers, used to form the basis for the opinions expressed in these 
reports.
    (4) Compliance reports and compliance exception reports.

[[Page 612]]

    (5) Internal audit plans, internal audit reports, documents relating 
to internal audit follow-up measures, and all records identified by the 
internal auditors of the nationally recognized statistical rating 
organization as necessary to perform the audit of an activity that 
relates to its business as a credit rating agency.
    (6) Marketing materials of the nationally recognized statistical 
rating organization that are published or otherwise made available to 
persons that are not associated with the nationally recognized 
statistical rating organization.
    (7) External and internal communications, including electronic 
communications, received and sent by the nationally recognized 
statistical rating organization and its employees that relate to 
initiating, determining, maintaining, monitoring, changing,, or 
withdrawing a credit rating.
    (8) Any written communications received from persons not associated 
with the nationally recognized statistical rating organization that 
contain complaints about the performance of a credit analyst in 
initiating, determining, maintaining, monitoring, changing, or 
withdrawing a credit rating.
    (9) Internal documents that contain information, analysis, or 
statistics that were used to develop a procedure or methodology to treat 
the credit ratings of another nationally recognized statistical rating 
organization for the purpose of determining a credit rating for a 
security or money market instrument issued by an asset pool or part of 
any asset-backed securities transaction.
    (10) For each security or money market instrument identified in the 
record required to be made and retained under paragraph (a)(7) of this 
section, any document that contains a description of how assets within 
such pool or as a part of such transaction not rated by the nationally 
recognized statistical rating organization but rated by another 
nationally recognized statistical rating organization were treated for 
the purpose of determining the credit rating of the security or money 
market instrument.
    (11) Forms NRSRO (including Exhibits and accompanying information 
and documents) the nationally recognized statistical rating organization 
filed with or furnished to, as applicable, the Commission.
    (12) The internal control structure the nationally recognized 
statistical rating organization is required to establish, maintain, 
enforce, and document pursuant to section 15E(c)(3)(A) of the Act (15 
U.S.C. 78o-7(c)(3)(A)).
    (13) The policies and procedures the nationally recognized 
statistical rating organization is required to establish, maintain, 
enforce, and document pursuant to Sec.240.17g-8(a).
    (14) The policies and procedures the nationally recognized 
statistical rating organization is required to establish, maintain, 
enforce, and document pursuant to Sec.240.17g-8(b).
    (15) The standards of training, experience, and competence for 
credit analysts the nationally recognized statistical rating 
organization is required to establish, maintain, enforce, and document 
pursuant to Sec.240.17g-9.
    (c) Record retention periods. The records required to be retained 
pursuant to paragraphs (a) and (b) of this section must be retained for 
three years after the date the record is made or received, except that a 
record identified in paragraph (a)(9), (b)(12), (b)(13), (b)(14), or 
(b)(15) of this section must be retained until three years after the 
date the record is replaced with an updated record.
    (d) Manner of retention. An original, or a true and complete copy of 
the original, of each record required to be retained pursuant to 
paragraphs (a) and (b) of this section must be maintained in a manner 
that, for the applicable retention period specified in paragraph (c) of 
this section, makes the original record or copy easily accessible to the 
principal office of the nationally recognized statistical rating 
organization and to any other office that conducted activities causing 
the record to be made or received.
    (e) Third-party record custodian. The records required to be 
retained pursuant to paragraphs (a) and (b) of this section may be made 
or retained by a third-party record custodian, provided the nationally 
recognized statistical

[[Page 613]]

rating organization furnishes the Commission at its principal office in 
Washington, DC with a written undertaking of the custodian executed by a 
duly authorized person. The undertaking must be in substantially the 
following form:

    The undersigned acknowledges that books and records it has made or 
is retaining for [the nationally recognized statistical rating 
organization] are the exclusive property of [the nationally recognized 
statistical rating organization]. The undersigned undertakes that upon 
the request of [the nationally recognized statistical rating 
organization] it will promptly provide the books and records to [the 
nationally recognized statistical rating organization] or the U.S. 
Securities and Exchange Commission (``Commission'') or its 
representatives and that upon the request of the Commission it will 
promptly permit examination by the Commission or its representatives of 
the records at any time or from time to time during business hours and 
promptly furnish to the Commission or its representatives a true and 
complete copy of any or all or any part of such books and records.


A nationally recognized statistical rating organization that engages a 
third-party record custodian remains responsible for complying with 
every provision of this section.

    (f) A nationally recognized statistical rating organization must 
promptly furnish the Commission or its representatives with legible, 
complete, and current copies, and, if specifically requested, English 
translations of those records of the nationally recognized statistical 
rating organization required to be retained pursuant to paragraphs (a) 
and (b) this section, or any other records of the nationally recognized 
statistical rating organization subject to examination under section 
17(b) of the Act (15 U.S.C. 78q(b)) that are requested by the Commission 
or its representatives.

[72 FR 33620, June 18, 2007, as amended at 74 FR 6482, Feb. 9, 2009; 74 
FR 63863, Dec. 4, 2009; 79 FR 55263, Nov. 14, 2014]




Sec.240.17g-3  Annual financial and other reports to be filed or 
furnished by nationally recognized statistical rating organizations.

    (a) A nationally recognized statistical rating organization must 
annually, not more than 90 calendar days after the end of its fiscal 
year (as indicated on its current Form NRSRO):
    (1) File with the Commission a financial report, as of the end of 
the fiscal year, containing audited financial statements of the 
nationally recognized statistical rating organization or audited 
consolidated financial statements of its parent if the nationally 
recognized statistical rating organization is a separately identifiable 
division or department of the parent. The audited financial statements 
must:
    (i) Include a balance sheet, an income statement (or a statement of 
comprehensive income, as defined in Sec.210.1-02 of Regulation S-X of 
this chapter, if required by the applicable generally accepted 
accounting principles noted in paragraph (a)(1)(ii) of this section) and 
statement of cash flows, and a statement of changes in ownership equity;
    (ii) Be prepared in accordance with generally accepted accounting 
principles in the jurisdiction in which the nationally recognized 
statistical rating organization or its parent is incorporated, 
organized, or has its principal office; and
    (iii) Be certified by an accountant who is qualified and independent 
in accordance with paragraphs (a), (b), and (c)(1), (2), (3), (4), (5) 
and (8) of Sec.210.2-01 of this chapter. The accountant must give an 
opinion on the financial statements in accordance with paragraphs (a) 
through (d) of Sec.210.2-02 of this chapter.
    (2) File with the Commission a financial report, as of the end of 
the fiscal year, containing, if applicable, unaudited consolidating 
financial statements of the parent of the nationally recognized 
statistical rating organization that include the nationally recognized 
statistical rating organization.

    Note to paragraph (a)(2): This financial report must be filed only 
if the audited financial statements provided pursuant to paragraph 
(a)(1) of this section are consolidated financial statements of the 
parent of the nationally recognized statistical rating organization.

    (3) File with the Commission an unaudited financial report, as of 
the end of the fiscal year, providing information concerning the revenue 
of the

[[Page 614]]

nationally recognized statistical rating organization in each of the 
following categories (as applicable) for the fiscal year:
    (i) Revenue from determining and maintaining credit ratings;
    (ii) Revenue from subscribers;
    (iii) Revenue from granting licenses or rights to publish credit 
ratings; and
    (iv) Revenue from all other services and products (include 
descriptions of any major sources of revenue).
    (4) File with the Commission an unaudited financial report, as of 
the end of the fiscal year, providing the total aggregate and median 
annual compensation of the credit analysts of the nationally recognized 
statistical rating organization for the fiscal year.

    Note to paragraph (a)(4): In calculating total and median annual 
compensation, the nationally recognized statistical rating organization 
may exclude deferred compensation, provided such exclusion is noted in 
the report.

    (5) File with the Commission an unaudited financial report, as of 
the end of the fiscal year, listing the 20 largest issuers and 
subscribers that used credit rating services provided by the nationally 
recognized statistical rating organization by amount of net revenue 
attributable to the issuer or subscriber during the fiscal year. 
Additionally, include on the list any obligor or underwriter that used 
the credit rating services provided by the nationally recognized 
statistical rating organization if the net revenue attributable to the 
obligor or underwriter during the fiscal year equaled or exceeded the 
net revenue attributable to the 20th largest issuer or subscriber. 
Include the net revenue amount for each person on the list.

    Note to paragraph (a)(5): A person is deemed to have ``used the 
credit rating services'' of the nationally recognized statistical rating 
organization if the person is any of the following: an obligor that is 
rated by the nationally recognized statistical rating organization 
(regardless of whether the obligor paid for the credit rating); an 
issuer that has securities or money market instruments subject to a 
credit rating of the nationally recognized statistical rating 
organization (regardless of whether the issuer paid for the credit 
rating); any other person that has paid the nationally recognized 
statistical rating organization to determine a credit rating with 
respect to a specific obligor, security, or money market instrument; or 
a subscriber to the credit ratings, credit ratings data, or credit 
analysis of the nationally recognized statistical rating organization. 
In calculating net revenue attributable to a person, the nationally 
recognized statistical rating organization should include all revenue 
earned by the nationally recognized statistical rating organization for 
any type of service or product, regardless of whether related to credit 
rating services, and net of any rebates and allowances paid or owed to 
the person by the nationally recognized statistical rating organization.

    (6) Furnish the Commission with an unaudited report, as of the end 
of the fiscal year, of the number of credit ratings actions (upgrades, 
downgrades, placements on credit watch, and withdrawals) taken during 
the fiscal year in each class of credit ratings identified in section 
3(a)(62)(B) of the Act (15 U.S.C. 78c(a)(62)(B)) for which the 
nationally recognized statistical rating organization is registered with 
the Commission.

    Note to paragraph (a)(6): A nationally recognized statistical rating 
organization registered in the class of credit ratings described in 
section 3(a)(62)(B)(iv) of the Act (15 U.S.C. 78c(a)(62)(B)(iv)) must 
include credit ratings actions taken on credit ratings of any security 
or money market instrument issued by an asset pool or as part of any 
asset-backed securities transaction for purposes of reporting the number 
of credit ratings actions in this class.

    (7)(i) File with the Commission an unaudited report containing an 
assessment by management of the effectiveness during the fiscal year of 
the internal control structure governing the implementation of and 
adherence to policies, procedures, and methodologies for determining 
credit ratings the nationally recognized statistical rating organization 
is required to establish, maintain, enforce, and document pursuant to 
section 15E(c)(3)(A) of the Act (15 U.S.C. 78o-7(c)(3)(A)) that 
includes:
    (A) A description of the responsibility of management in 
establishing and maintaining an effective internal control structure;
    (B) A description of each material weakness in the internal control 
structure identified during the fiscal year, if any, and a description, 
if applicable, of how each identified material weakness was addressed; 
and

[[Page 615]]

    (C) A statement as to whether the internal control structure was 
effective as of the end of the fiscal year.
    (ii) Management is not permitted to conclude that the internal 
control structure of the nationally recognized statistical rating 
organization was effective as of the end of the fiscal year if there 
were one or more material weaknesses in the internal control structure 
as of the end of the fiscal year.
    (iii) For purposes of this paragraph (a)(7), a deficiency in the 
internal control structure exists when the design or operation of a 
control does not allow management or employees, in the normal course of 
performing their assigned functions, to prevent or detect a failure of 
the nationally recognized statistical rating organization to:
    (A) Implement a policy, procedure, or methodology for determining 
credit ratings in accordance with the policies and procedures of the 
nationally recognized statistical rating organization; or
    (B) Adhere to an implemented policy, procedure, or methodology for 
determining credit ratings.
    (iv) For purposes of this paragraph (a)(7), a material weakness 
exists if a deficiency, or a combination of deficiencies, in the design 
or operation of the internal control structure creates a reasonable 
possibility that a failure identified in paragraph (a)(7)(iii) of this 
section that is material will not be prevented or detected on a timely 
basis.
    (8) File with the Commission an unaudited annual report on the 
compliance of the nationally recognized statistical rating organization 
with the securities laws and the policies and procedures of the 
nationally recognized statistical rating organization pursuant to 
section 15E(j)(5)(B) of the Act (15 U.S.C. 78o-7(j)(5)(B)).
    (b)(1) The nationally recognized statistical rating organization 
must attach to the reports filed or furnished, as applicable, pursuant 
to paragraphs (a)(1) through (6) of this section a signed statement by a 
duly authorized person associated with the nationally recognized 
statistical rating organization stating that the person has 
responsibility for the reports and, to the best knowledge of the person, 
the reports fairly present, in all material respects, the financial 
condition, results of operations, cash flows, revenues, analyst 
compensation, and credit rating actions of the nationally recognized 
statistical rating organization for the period presented; and
    (2) The nationally recognized statistical rating organization must 
attach to the report filed pursuant to paragraph (a)(7) of this section 
a signed statement by the chief executive officer of the nationally 
recognized statistical rating organization or, if the nationally 
recognized statistical rating organization does not have a chief 
executive officer, an individual performing similar functions, stating 
that the chief executive officer or equivalent individual has 
responsibility for the report and, to the best knowledge of the chief 
executive officer or equivalent individual, the report fairly presents, 
in all material respects: an assessment by management of the 
effectiveness of the internal control structure during the fiscal year 
that includes a description of the responsibility of management in 
establishing and maintaining an effective internal control structure; a 
description of each material weakness in the internal control structure 
identified during the fiscal year, if any, and a description, if 
applicable, of how each identified material weakness was addressed; and 
an assessment by management of the effectiveness of the internal control 
structure as of the end of the fiscal year.
    (c) The Commission may grant an extension of time or an exemption 
with respect to any requirements in this section either unconditionally 
or on specified terms and conditions on the written request of a 
nationally recognized statistical rating organization if the Commission 
finds that such extension or exemption is necessary or appropriate in 
the public interest and consistent with the protection of investors.
    (d) Electronic filing. The reports must be filed with or furnished 
to, as applicable, the Commission electronically on EDGAR as PDF 
documents in the format required by the EDGAR Filer Manual, as defined 
in Rule 11 of Regulation S-T.

[[Page 616]]

    (e) Confidential treatment. Information in a report filed or 
furnished, as applicable, on a confidential basis and for which 
confidential treatment has been requested pursuant to applicable 
Commission rules will be accorded confidential treatment to the extent 
permitted by law. Confidential treatment may be requested by marking 
each page ``Confidential Treatment Requested'' and by complying with 
Commission rules governing confidential treatment.

[72 FR 33620, June 18, 2007, as amended at 74 FR 6482, Feb. 9, 2009; 79 
FR 55263, Sept. 15, 2014; 79 FR 61576, Nov. 14, 2014; 83 FR 50223, Oct. 
4, 2018]



Sec.240.17g-4  Prevention of misuse of material nonpublic information.

    (a) The written policies and procedures a nationally recognized 
statistical rating organization establishes, maintains, and enforces to 
prevent the misuse of material, nonpublic information pursuant to 
section 15E(g)(1) of the Act (15 U.S.C. 78o-7(g)(1)) must include 
policies and procedures reasonably designed to prevent:
    (1) The inappropriate dissemination within and outside the 
nationally recognized statistical rating organization of material 
nonpublic information obtained in connection with the performance of 
credit rating services;
    (2) A person within the nationally recognized statistical rating 
organization from purchasing, selling, or otherwise benefiting from any 
transaction in securities or money market instruments when the person is 
aware of material nonpublic information obtained in connection with the 
performance of credit rating services that affects the securities or 
money market instruments; and
    (3) The inappropriate dissemination within and outside the 
nationally recognized statistical rating organization of a pending 
credit rating action before issuing the credit rating on the Internet or 
through another readily accessible means.
    (b) For the purposes of this section, the term person within a 
nationally recognized statistical rating organization means a nationally 
recognized statistical rating organization, its credit rating affiliates 
identified on Form NRSRO, and any partner, officer, director, branch 
manager, and employee of the nationally recognized statistical rating 
organization or its credit rating affiliates (or any person occupying a 
similar status or performing similar functions).



Sec.240.17g-5  Conflicts of interest.

    (a) A person within a nationally recognized statistical rating 
organization is prohibited from having a conflict of interest relating 
to the issuance or maintenance of a credit rating identified in 
paragraph (b) of this section, unless:
    (1) The nationally recognized statistical rating organization has 
disclosed the type of conflict of interest in Exhibit 6 to Form NRSRO in 
accordance with section 15E(a)(1)(B)(vi) of the Act (15 U.S.C. 78o-
7(a)(1)(B)(vi)) and Sec.240.17g-1;
    (2) The nationally recognized statistical rating organization has 
established and is maintaining and enforcing written policies and 
procedures to address and manage conflicts of interest in accordance 
with section 15E(h) of the Act (15 U.S.C. 78o-7(h)); and
    (3) In the case of the conflict of interest identified in paragraph 
(b)(9) of this section relating to issuing or maintaining a credit 
rating for a security or money market instrument issued by an asset pool 
or as part of any asset-backed securities transaction, the nationally 
recognized statistical rating organization:
    (i) Maintains on a password-protected Internet Web site a list of 
each such security or money market instrument for which it is currently 
in the process of determining an initial credit rating in chronological 
order and identifying the type of security or money market instrument, 
the name of the issuer, the date the rating process was initiated, and 
the Internet Web site address where the issuer, sponsor, or underwriter 
of the security or money market instrument represents that the 
information described in paragraphs (a)(3)(iii)(C) through (E) of this 
section can be accessed;

[[Page 617]]

    (ii) Provides free and unlimited access to such password-protected 
Internet Web site during the applicable calendar year to any nationally 
recognized statistical rating organization that provides it with a copy 
of the certification described in paragraph (e) of this section that 
covers that calendar year, provided that such certification indicates 
that the nationally recognized statistical rating organization providing 
the certification either:
    (A) Determined and maintained credit ratings for at least 10% of the 
issued securities and money market instruments for which it accessed 
information pursuant to 17 CFR 240.17g-5(a)(3)(iii) in the calendar year 
prior to the year covered by the certification, if it accessed such 
information for 10 or more issued securities or money market 
instruments; or
    (B) Has not accessed information pursuant to 17 CFR 240.17g-5(a)(3) 
10 or more times during the most recently ended calendar year; and
    (iii) Obtains from the issuer, sponsor, or underwriter of each such 
security or money market instrument a written representation that can 
reasonably be relied upon that the issuer, sponsor, or underwriter will:
    (A) Maintain the information described in paragraphs (a)(3)(iii)(C) 
through (E) of this section available at an identified password-
protected Internet Web site that presents the information in a manner 
indicating which information currently should be relied on to determine 
or monitor the credit rating;
    (B) Provide access to such password-protected Internet Web site 
during the applicable calendar year to any nationally recognized 
statistical rating organization that provides it with a copy of the 
certification described in paragraph (e) of this section that covers 
that calendar year, provided that such certification indicates that the 
nationally recognized statistical rating organization providing the 
certification either:
    (1) Determined and maintained credit ratings for at least 10% of the 
issued securities and money market instruments for which it accessed 
information pursuant to 17 CFR 240.17g-5(a)(3)(iii) in the calendar year 
prior to the year covered by the certification, if it accessed such 
information for 10 or more issued securities or money market 
instruments; or
    (2) Has not accessed information pursuant to 17 CFR 240.17g-5(a)(3) 
10 or more times during the most recently ended calendar year.
    (C) Post on such password-protected Internet Web site all 
information the issuer, sponsor, or underwriter provides to the 
nationally recognized statistical rating organization, or contracts with 
a third party to provide to the nationally recognized statistical rating 
organization, for the purpose of determining the initial credit rating 
for the security or money market instrument, including information about 
the characteristics of the assets underlying or referenced by the 
security or money market instrument, and the legal structure of the 
security or money market instrument, at the same time such information 
is provided to the nationally recognized statistical rating 
organization; and
    (D) Post on such password-protected Internet Web site all 
information the issuer, sponsor, or underwriter provides to the 
nationally recognized statistical rating organization, or contracts with 
a third party to provide to the nationally recognized statistical rating 
organization, for the purpose of undertaking credit rating surveillance 
on the security or money market instrument, including information about 
the characteristics and performance of the assets underlying or 
referenced by the security or money market instrument at the same time 
such information is provided to the nationally recognized statistical 
rating organization.
    (E) Post on such password-protected Internet Web site, promptly 
after receipt, any executed Form ABS Due Diligence-15E (Sec.249b.500 
of this chapter) containing information about the security or money 
market instrument delivered by a person employed to provide third-party 
due diligence services with respect to the security or money market 
instrument.
    (iv) The provisions of paragraphs (a)(3)(i) through (iii) of this 
section will not apply to a nationally recognized statistical rating 
organization when issuing or maintaining a credit rating

[[Page 618]]

for a security or money market instrument issued by an asset pool or as 
part of any asset-backed securities transaction, if:
    (A) The issuer of the security or money market instrument is not a 
U.S. person (as defined in Sec.230.902(k) of this chapter); and
    (B) The nationally recognized statistical rating organization has a 
reasonable basis to conclude that all offers and sales of the security 
or money market instrument by any issuer, sponsor, or underwriter linked 
to the security or money market instrument will occur outside the United 
States (as that phrase is used in Sec.Sec.230.901 through 230.905 
(Regulation S) of this chapter).
    (b) Conflicts of interest. For purposes of this section, each of the 
following is a conflict of interest:
    (1) Being paid by issuers or underwriters to determine credit 
ratings with respect to securities or money market instruments they 
issue or underwrite.
    (2) Being paid by obligors to determine credit ratings with respect 
to the obligors.
    (3) Being paid for services in addition to determining credit 
ratings by issuers, underwriters, or obligors that have paid the 
nationally recognized statistical rating organization to determine a 
credit rating.
    (4) Being paid by persons for subscriptions to receive or access the 
credit ratings of the nationally recognized statistical rating 
organization and/or for other services offered by the nationally 
recognized statistical rating organization where such persons may use 
the credit ratings of the nationally recognized statistical rating 
organization to comply with, and obtain benefits or relief under, 
statutes and regulations using the term nationally recognized 
statistical rating organization.
    (5) Being paid by persons for subscriptions to receive or access the 
credit ratings of the nationally recognized statistical rating 
organization and/or for other services offered by the nationally 
recognized statistical rating organization where such persons also may 
own investments or have entered into transactions that could be 
favorably or adversely impacted by a credit rating issued by the 
nationally recognized statistical rating organization.
    (6) Allowing persons within the nationally recognized statistical 
rating organization to directly own securities or money market 
instruments of, or having other direct ownership interests in, issuers 
or obligors subject to a credit rating determined by the nationally 
recognized statistical rating organization.
    (7) Allowing persons within the nationally recognized statistical 
rating organization to have a business relationship that is more than an 
arms length ordinary course of business relationship with issuers or 
obligors subject to a credit rating determined by the nationally 
recognized statistical rating organization.
    (8) Having a person associated with the nationally recognized 
statistical rating organization that is a broker or dealer engaged in 
the business of underwriting securities or money market instruments.
    (9) Issuing or maintaining a credit rating for a security or money 
market instrument issued by an asset pool or as part of any asset-backed 
securities transaction that was paid for by the issuer, sponsor, or 
underwriter of the security or money market instrument;
    (10) Any other type of conflict of interest relating to the issuance 
of credit ratings by the nationally recognized statistical rating 
organization that is material to the nationally recognized statistical 
rating organization and that is identified by the nationally recognized 
statistical rating organization in Exhibit 6 to Form NRSRO in accordance 
with section 15E(a)(1)(B)(vi) of the Act (15 U.S.C. 78o-7(a)(1)(B)(vi)) 
and Sec.240.17g-1.
    (c) Prohibited conflicts. A nationally recognized statistical rating 
organization is prohibited from having the following conflicts of 
interest relating to the issuance or maintenance of a credit rating as a 
credit rating agency:
    (1) The nationally recognized statistical rating organization issues 
or maintains a credit rating solicited by a person that, in the most 
recently ended fiscal year, provided the nationally recognized 
statistical rating organization with net revenue (as reported under 
Sec.240.17g-3) equaling or exceeding

[[Page 619]]

10% of the total net revenue of the nationally recognized statistical 
rating organization for the fiscal year;
    (2) The nationally recognized statistical rating organization issues 
or maintains a credit rating with respect to a person (excluding a 
sovereign nation or an agency of a sovereign nation) where the 
nationally recognized statistical rating organization, a credit analyst 
that participated in determining the credit rating, or a person 
responsible for approving the credit rating, directly owns securities 
of, or has any other direct ownership interest in, the person that is 
subject to the credit rating;
    (3) The nationally recognized statistical rating organization issues 
or maintains a credit rating with respect to a person associated with 
the nationally recognized statistical rating organization;
    (4) The nationally recognized statistical rating organization issues 
or maintains a credit rating where a credit analyst who participated in 
determining the credit rating, or a person responsible for approving the 
credit rating, is an officer or director of the person that is subject 
to the credit rating;
    (5) The nationally recognized statistical rating organization issues 
or maintains a credit rating with respect to an obligor or security 
where the nationally recognized statistical rating organization or a 
person associated with the nationally recognized statistical rating 
organization made recommendations to the obligor or the issuer, 
underwriter, or sponsor of the security about the corporate or legal 
structure, assets, liabilities, or activities of the obligor or issuer 
of the security;
    (6) The nationally recognized statistical rating organization issues 
or maintains a credit rating where the fee paid for the rating was 
negotiated, discussed, or arranged by a person within the nationally 
recognized statistical rating organization who has responsibility for 
participating in determining credit ratings or for developing or 
approving procedures or methodologies used for determining credit 
ratings, including qualitative and quantitative models;
    (7) The nationally recognized statistical rating organization issues 
or maintains a credit rating where a credit analyst who participated in 
determining or monitoring the credit rating, or a person responsible for 
approving the credit rating received gifts, including entertainment, 
from the obligor being rated, or from the issuer, underwriter, or 
sponsor of the securities being rated, other than items provided in the 
context of normal business activities such as meetings that have an 
aggregate value of no more than $25; or
    (8) The nationally recognized statistical rating organization issues 
or maintains a credit rating where a person within the nationally 
recognized statistical rating organization who participates in 
determining or monitoring the credit rating, or developing or approving 
procedures or methodologies used for determining the credit rating, 
including qualitative and quantitative models, also:
    (i) Participates in sales or marketing of a product or service of 
the nationally recognized statistical rating organization or a product 
or service of an affiliate of the nationally recognized statistical 
rating organization; or
    (ii) Is influenced by sales or marketing considerations.
    (d) For the purposes of this section, the term person within a 
nationally recognized statistical rating organization means a nationally 
recognized statistical rating organization, its credit rating affiliates 
identified on Form NRSRO, and any partner, officer, director, branch 
manager, and employee of the nationally recognized statistical rating 
organization or its credit rating affiliates (or any person occupying a 
similar status or performing similar functions).
    (e) Certification. In order to access a password-protected Internet 
Web site described in paragraph (a)(3) of this section, a nationally 
recognized statistical rating organization must furnish to the 
Commission, for each calendar year for which it is requesting a 
password, the following certification, signed by a person duly 
authorized by the certifying entity:

    The undersigned hereby certifies that it will access the Internet 
Web sites described

[[Page 620]]

in 17 CFR 240.17g-5(a)(3) solely for the purpose of determining or 
monitoring credit ratings. Further, the undersigned certifies that it 
will keep the information it accesses pursuant to 17 CFR 240.17g-5(a)(3) 
confidential and treat it as material nonpublic information subject to 
its written policies and procedures established, maintained, and 
enforced pursuant to section 15E(g)(1) of the Act (15 U.S.C. 78o-
7(g)(1)) and 17 CFR 240.17g-4. Further, the undersigned certifies that 
it will determine and maintain credit ratings for at least 10% of the 
issued securities and money market instruments for which it accesses 
information pursuant to 17 CFR 240.17g-5(a)(3)(iii), if it accesses such 
information for 10 or more issued securities or money market instruments 
in the calendar year covered by the certification. Further, the 
undersigned certifies one of the following as applicable: (1) In the 
most recent calendar year during which it accessed information pursuant 
to 17 CFR 240.17g-5(a)(3), the undersigned accessed information for 
[Insert Number] issued securities and money market instruments through 
Internet Web sites described in 17 CFR 240.17g-5(a)(3) and determined 
and maintained credit ratings for [Insert Number] of such securities and 
money market instruments; or (2) The undersigned previously has not 
accessed information pursuant to 17 CFR 240.17g-5(a)(3) 10 or more times 
during the most recently ended calendar year.
    (f) Upon written application by a nationally recognized statistical 
rating organization, the Commission may exempt, either unconditionally 
or on specified terms and conditions, such nationally recognized 
statistical rating organization from the provisions of paragraph (c)(8) 
of this section if the Commission finds that due to the small size of 
the nationally recognized statistical rating organization it is not 
appropriate to require the separation within the nationally recognized 
statistical rating organization of the production of credit ratings from 
sales and marketing activities and such exemption is in the public 
interest.
    (g) In a proceeding pursuant to section 15E(d)(1) of the Act (15 
U.S.C. 78o-7(d)(1)), the Commission shall suspend or revoke the 
registration of a nationally recognized statistical rating organization 
if the Commission finds, in lieu of a finding specified under sections 
15E(d)(1)(A), (B), (C), (D), (E), or (F) of the Act (15 U.S.C. 78o-
7(d)(1)(A) through (F)), that the nationally recognized statistical 
rating organization has violated a rule issued under section 15E(h) of 
the Act (15 U.S.C. 78o-7(h)) and that the violation affected a credit 
rating.

[72 FR 33620, June 18, 2007, as amended at 74 FR 6482, Feb. 9, 2009; 74 
FR 63864, Dec. 4, 2009; 79 FR 55264, Sept. 15, 2014; 79 FR 61576, Oct. 
14, 2014; 84 FR 40258, Sept. 13, 2019]



Sec.240.17g-6  Prohibited acts and practices.

    (a) Prohibitions. A nationally recognized statistical rating 
organization is prohibited from engaging in any of the following unfair, 
coercive, or abusive practices:
    (1) Conditioning or threatening to condition the issuance of a 
credit rating on the purchase by an obligor or issuer, or an affiliate 
of the obligor or issuer, of any other services or products, including 
pre-credit rating assessment products, of the nationally recognized 
statistical rating organization or any person associated with the 
nationally recognized statistical rating organization.
    (2) Issuing, or offering or threatening to issue, a credit rating 
that is not determined in accordance with the nationally recognized 
statistical rating organization's established procedures and 
methodologies for determining credit ratings, based on whether the rated 
person, or an affiliate of the rated person, purchases or will purchase 
the credit rating or any other service or product of the nationally 
recognized statistical rating organization or any person associated with 
the nationally recognized statistical rating organization.
    (3) Modifying, or offering or threatening to modify, a credit rating 
in a manner that is contrary to the nationally recognized statistical 
rating organization's established procedures and methodologies for 
modifying credit ratings based on whether the rated person, or an 
affiliate of the rated person, purchases or will purchase the credit 
rating or any other service or product of the nationally recognized 
statistical rating organization or any person associated with the 
nationally recognized statistical rating organization.
    (4) Issuing or threatening to issue a lower credit rating, lowering 
or threatening to lower an existing credit rating, refusing to issue a 
credit rating, or

[[Page 621]]

withdrawing or threatening to withdraw a credit rating, with respect to 
securities or money market instruments issued by an asset pool or as 
part of any asset-backed securities transaction, unless all or a portion 
of the assets within such pool or part of such transaction also are 
rated by the nationally recognized statistical rating organization, 
where such practice is engaged in by the nationally recognized 
statistical rating organization for an anticompetitive purpose.

[13 FR 8178, Dec. 22, 1948, as amended at 79 FR 55264, Sept. 15, 2014]



Sec.240.17g-7  Disclosure requirements.

    (a) Disclosures to be made when taking a rating action. Except as 
provided in paragraph (a)(3) of this section, a nationally recognized 
statistical rating organization must publish the items described in 
paragraphs (a)(1) and (2) of this section, as applicable, when taking a 
rating action with respect to a credit rating assigned to an obligor, 
security, or money market instrument in a class of credit ratings for 
which the nationally recognized statistical rating organization is 
registered. For purposes of this section, the term rating action means 
any of the following: the publication of an expected or preliminary 
credit rating assigned to an obligor, security, or money market 
instrument before the publication of an initial credit rating; an 
initial credit rating; an upgrade or downgrade of an existing credit 
rating (including a downgrade to, or assignment of, default); and an 
affirmation or withdrawal of an existing credit rating if the 
affirmation or withdrawal is the result of a review of the credit rating 
assigned to the obligor, security, or money market instrument by the 
nationally recognized statistical rating organization using applicable 
procedures and methodologies for determining credit ratings. The items 
described in paragraphs (a)(1) and (2) of this section must be published 
in the same manner as the credit rating that is the result or subject of 
the rating action and made available to the same persons who can receive 
or access the credit rating that is the result or subject of the rating 
action.
    (1) Information disclosure form. A form generated by the nationally 
recognized statistical rating organization that meets the requirements 
of paragraphs (a)(1)(i) through (iii) of this section.
    (i) Format. The form generated by the nationally recognized 
statistical rating organization must be in a format that:
    (A) Organizes the information into numbered items that are 
identified by the type of information being disclosed and a reference to 
the paragraph in this section that specifies the disclosure of the 
information, and are in the order that the paragraphs specifying the 
information to be disclosed are codified in this section;
    Note to paragraph (a)(1)(i)(A): A given item in the form should be 
identified by a title that identifies the type of information and 
references paragraph (a)(1)(ii)(A), (B), (C), (D), (E), (F), (G), (H), 
(I), (J), (K), (L), (M), (N), or (a)(2) of this section based on the 
information being disclosed in the item. For example, the information 
specified in paragraph (a)(1)(ii)(C) of this section should be 
identified with the caption ``Main Assumptions and Principles Used to 
Construct the Rating Methodology used to Determine the Credit Rating as 
required by Paragraph (a)(1)(ii)(C) of Rule 17g-7''). The form must 
organize the items of information in the following order: items 1 
through 14 must contain the information specified in paragraphs 
(a)(1)(ii)(A) through (N) of this section, respectively, and item 15 
must contain the certifications specified in paragraph (a)(2) of this 
section (the information specified in each paragraph comprising a 
separate item). For example, item 3 must contain the information 
specified in paragraph (a)(1)(ii)(C) of this section.
    (B) Is easy to use and helpful for users of credit ratings to 
understand the information contained in the form; and
    (C) Provides the content described in paragraphs (a)(1)(ii)(K) 
through (M) of this section in a manner that is directly comparable 
across types of obligors, securities, and money market instruments.
    (ii) Content. The form generated by the nationally recognized 
statistical rating organization must contain the following information 
about the credit rating:

[[Page 622]]

    (A) The symbol, number, or score in the rating scale used by the 
nationally recognized statistical rating organization to denote credit 
rating categories and notches within categories assigned to the obligor, 
security, or money market instrument that is the subject of the credit 
rating and, as applicable, the identity of the obligor or the identity 
and a description of the security or money market instrument;
    (B) The version of the procedure or methodology used to determine 
the credit rating;
    (C) The main assumptions and principles used in constructing the 
procedures and methodologies used to determine the credit rating, 
including qualitative methodologies and quantitative inputs, and, if the 
credit rating is for a structured finance product, assumptions about the 
correlation of defaults across the underlying assets;
    (D) The potential limitations of the credit rating, including the 
types of risks excluded from the credit rating that the nationally 
recognized statistical rating organization does not comment on, 
including, as applicable, liquidity, market, and other risks;
    (E) Information on the uncertainty of the credit rating including:
    (1) Information on the reliability, accuracy, and quality of the 
data relied on in determining the credit rating; and
    (2) A statement relating to the extent to which data essential to 
the determination of the credit rating were reliable or limited, 
including:
    (i) Any limits on the scope of historical data; and
    (ii) Any limits on accessibility to certain documents or other types 
of information that would have better informed the credit rating;
    (F) Whether and to what extent the nationally recognized statistical 
rating organization used due diligence services of a third party in 
taking the rating action, and, if the nationally recognized statistical 
rating organization used such services, either:
    (1) A description of the information that the third party reviewed 
in conducting the due diligence services and a summary of the findings 
and conclusions of the third party; or
    (2) A cross-reference to a Form ABS Due Diligence-15E executed by 
the third party that is published with the form, provided the cross-
referenced Form ABS Due Diligence-15E (Sec.249b.500 of this chapter) 
contains a description of the information that the third party reviewed 
in conducting the due diligence services and a summary of the findings 
and conclusions of the third party;
    (G) If applicable, how servicer or remittance reports were used, and 
with what frequency, to conduct surveillance of the credit rating;
    (H) A description of the types of data about any obligor, issuer, 
security, or money market instrument that were relied upon for the 
purpose of determining the credit rating;
    (I) A statement containing an overall assessment of the quality of 
information available and considered in determining the credit rating 
for the obligor, security, or money market instrument, in relation to 
the quality of information available to the nationally recognized 
statistical rating organization in rating similar obligors, securities, 
or money market instruments;
    (J) Information relating to conflicts of interest of the nationally 
recognized statistical rating organization, which must include:
    (1) As applicable, a statement that the nationally recognized 
statistical rating organization was:
    (i) Paid to determine the credit rating by the obligor being rated 
or the issuer, underwriter, depositor, or sponsor of the security or 
money market instrument being rated;
    (ii) Paid to determine the credit rating by a person other than the 
obligor being rated or the issuer, underwriter, depositor, or sponsor of 
the security or money market instrument being rated; or
    (iii) Not paid to determine the credit rating;
    (2) If applicable, in a statement required under paragraph 
(a)(1)(ii)(J)(1)(i) or (ii) of this section, a statement that the 
nationally recognized statistical rating organization also was paid for 
services other than determining credit ratings during the most recently 
ended fiscal year by the person that paid the nationally recognized 
statistical rating

[[Page 623]]

organization to determine the credit rating; and
    (3) If the rating action results from a review conducted pursuant to 
section 15E(h)(4)(A) of the Act (15 U.S.C. 78o-7(h)(4)(A)) and Sec.
240.17g-8(c), the following information (as applicable):
    (i) If the rating action is a revision of a credit rating pursuant 
to Sec.240.17g-8(c)(2)(i)(A), an explanation that the reason for the 
action is the discovery that a credit rating assigned to the obligor, 
security, or money market instrument in one or more prior rating actions 
was influenced by a conflict of interest, including a description of the 
nature of the conflict, the date and associated credit rating of each 
prior rating action that the nationally recognized statistical rating 
organization has determined was influenced by the conflict, and a 
description of the impact the conflict had on the prior rating action or 
actions; or
    (ii) If the rating action is an affirmation of a credit rating 
pursuant to Sec.240.17g-8(c)(2)(i)(B), an explanation that the reason 
for the action is the discovery that a credit rating assigned to the 
obligor, security, or money market instrument in one or more prior 
rating actions was influenced by a conflict of interest, including a 
description of the nature of the conflict, an explanation of why no 
rating action was taken to revise the credit rating notwithstanding the 
presence of the conflict, the date and associated credit rating of each 
prior rating action the nationally recognized statistical rating 
organization has determined was influenced by the conflict, and a 
description of the impact the conflict had on the prior rating action or 
actions.
    (K) An explanation or measure of the potential volatility of the 
credit rating, including:
    (1) Any factors that are reasonably likely to lead to a change in 
the credit rating; and
    (2) The magnitude of the change that could occur under different 
market conditions determined by the nationally recognized statistical 
rating organization to be relevant to the rating;
    (L) Information on the content of the credit rating, including:
    (1) If applicable, the historical performance of the credit rating; 
and
    (2) The expected probability of default and the expected loss in the 
event of default;
    (M) Information on the sensitivity of the credit rating to 
assumptions made by the nationally recognized statistical rating 
organization, including:
    (1) Five assumptions made in the ratings process that, without 
accounting for any other factor, would have the greatest impact on the 
credit rating if the assumptions were proven false or inaccurate; 
provided that, if the nationally recognized statistical rating 
organization has made fewer than five such assumptions, it need only 
disclose information on the assumptions that would have an impact on the 
credit rating; and
    (2) An analysis, using specific examples, of how each of the 
assumptions identified in paragraph (a)(1)(ii)(M)(1) of this section 
impacts the credit rating;
    (N)(1) If the credit rating is assigned to an asset-backed security 
as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)), 
information on:
    (i) The representations, warranties, and enforcement mechanisms 
available to investors which were disclosed in the prospectus, private 
placement memorandum or other offering documents for the asset-backed 
security and that relate to the asset pool underlying the asset-backed 
security; and
    (ii) How they differ from the representations, warranties, and 
enforcement mechanisms in issuances of similar securities;
    (2) A nationally recognized statistical rating organization must 
include the information required under paragraph (a)(1)(ii)(N)(1) of 
this section only if the rating action is a preliminary credit rating, 
an initial credit rating, or, in the case of a rating action other than 
a preliminary credit rating or initial credit rating, the rating action 
is the first rating action taken after a material change in the 
representations, warranties, or enforcement mechanisms described in 
paragraph (a)(1)(ii)(N)(1) of this section and the rating action 
involves an asset-backed security that was initially rated by the 
nationally recognized statistical rating organization on or after 
September 26, 2011.

[[Page 624]]

    (iii) Attestation. The nationally recognized statistical rating 
organization must attach to the form a signed statement by a person 
within the nationally recognized statistical rating organization stating 
that the person has responsibility for the rating action and, to the 
best knowledge of the person:
    (A) No part of the credit rating was influenced by any other 
business activities;
    (B) The credit rating was based solely upon the merits of the 
obligor, security, or money market instrument being rated; and
    (C) The credit rating was an independent evaluation of the credit 
risk of the obligor, security, or money market instrument.
    (2) Third-party due diligence certification. Any executed Form ABS 
Due Diligence-15E (Sec.249b.500 of this chapter) containing 
information about the security or money market instrument subject to the 
rating action that is received by the nationally recognized statistical 
rating organization or obtained by the nationally recognized statistical 
rating organization through an Internet Web site maintained by the 
issuer, sponsor, or underwriter of the security or money market 
instrument pursuant to Sec.240.17g-5(a)(3).
    (3) Exemption. The provisions of paragraphs (a)(1) and (2) of this 
section do not apply to a rating action if:
    (i) The rated obligor or issuer of the rated security or money 
market instrument is not a U.S. person (as defined in Sec.230.902(k) 
of this chapter); and
    (ii) The nationally recognized statistical rating organization has a 
reasonable basis to conclude that:
    (A) With respect to any security or money market instrument issued 
by a rated obligor, all offers and sales by any issuer, sponsor, or 
underwriter linked to the security or money market instrument will occur 
outside the United States (as that phrase is used in Sec.Sec.230.901 
through 230.905 (Regulation S) of this chapter); or
    (B) With respect to a rated security or money market instrument, all 
offers and sales by any issuer, sponsor, or underwriter linked to the 
security or money market instrument will occur outside the United States 
(as that phrase is used in Sec.Sec.230.901 through 230.905 
(Regulation S) of this chapter).
    (b) Disclosure of credit rating histories--(1) Credit ratings 
subject to the disclosure requirement. A nationally recognized 
statistical rating organization must publicly disclose for free on an 
easily accessible portion of its corporate Internet Web site:
    (i) For a class of credit rating in which the nationally recognized 
statistical rating organization is registered with the Commission as of 
the effective date of paragraph (b) of this section, the credit rating 
assigned to each obligor, security, and money market instrument in the 
class that was outstanding as of, or initially determined on or after, 
the date three years prior to the effective date of this rule, and any 
subsequent upgrade or downgrade of the credit rating (including a 
downgrade to, or assignment of, default), and a withdrawal of the credit 
rating; and
    (ii) For a class of credit rating in which the nationally recognized 
statistical rating organization is registered with the Commission after 
the effective date of paragraph (b) of this section, the credit rating 
assigned to each obligor, security, and money market instrument in the 
class that was outstanding as of, or initially determined on or after, 
the date three years prior to the date the nationally recognized 
statistical rating organization is registered in the class, and any 
subsequent upgrade or downgrade of the credit rating (including a 
downgrade to, or assignment of, default), and a withdrawal of the credit 
rating.
    (2) Information. A nationally recognized statistical rating 
organization must include, at a minimum, the following information with 
each credit rating disclosed pursuant to paragraph (b)(1) of this 
section:
    (i) The identity of the nationally recognized statistical rating 
organization disclosing the rating action;
    (ii) The date of the rating action;
    (iii) If the rating action is taken with respect to a credit rating 
of an obligor as an entity, the following identifying information about 
the obligor, as applicable:

[[Page 625]]

    (A) The Legal Entity Identifier issued by a utility endorsed or 
otherwise governed by the Global LEI Regulatory Oversight Committee or 
the Global LEI Foundation (LEI) of the obligor, if available, or, if an 
LEI is not available, the Central Index Key (CIK) number of the obligor, 
if available; and
    (B) The name of the obligor.
    (iv) If the rating action is taken with respect to a credit rating 
of a security or money market instrument, as applicable:
    (A) The LEI of the issuer of the security or money market 
instrument, if available, or, if an LEI is not available, the CIK number 
of the issuer of the security or money market instrument, if available;
    (B) The name of the issuer of the security or money market 
instrument; and
    (C) The CUSIP of the security or money market instrument;
    (v) A classification of the rating action as either:
    (A) An addition to the rating history disclosure because the credit 
rating was outstanding as of the date three years prior to the effective 
date of the requirements in paragraph (b) of this section or because the 
credit rating was outstanding as of the date three years prior to the 
nationally recognized statistical rating organization becoming 
registered in the class of credit ratings;
    (B) An initial credit rating;
    (C) An upgrade of an existing credit rating;
    (D) A downgrade of an existing credit rating, which would include 
classifying the obligor, security, or money market instrument as in 
default, if applicable; or
    (E) A withdrawal of an existing credit rating and, if the 
classification is withdrawal, the nationally recognized statistical 
rating organization also must classify the reason for the withdrawal as 
either:
    (1) The obligor defaulted, or the security or money market 
instrument went into default;
    (2) The obligation subject to the credit rating was extinguished by 
payment in full of all outstanding principal and interest due on the 
obligation according to the terms of the obligation; or
    (3) The credit rating was withdrawn for reasons other than those set 
forth in paragraph (b)(2)(v)(E)(1) or (2) of this section; and
    (vi) The classification of the class or subclass that applies to the 
credit rating as either:
    (A) Financial institutions, brokers, or dealers;
    (B) Insurance companies;
    (C) Corporate issuers; or
    (D) Issuers of structured finance products in one of the following 
subclasses:
    (1) Residential mortgage backed securities (``RMBS'') (for purposes 
of this subclass, RMBS means a securitization primarily of residential 
mortgages);
    (2) Commercial mortgage backed securities (``CMBS'') (for purposes 
of this subclass, CMBS means a securitization primarily of commercial 
mortgages);
    (3) Collateralized loan obligations (``CLOs'') (for purposes of this 
subclass, a CLO means a securitization primarily of commercial loans);
    (4) Collateralized debt obligations (``CDOs'') (for purposes of this 
subclass, a CDO means a securitization primarily of other debt 
instruments such as RMBS, CMBS, CLOs, CDOs, other asset backed 
securities, and corporate bonds);
    (5) Asset-backed commercial paper conduits (``ABCP'') (for purposes 
of this subclass, ABCP means short term notes issued by a structure that 
securitizes a variety of financial assets, such as trade receivables or 
credit card receivables, which secure the notes);
    (6) Other asset-backed securities (``other ABS'') (for purposes of 
this subclass, other ABS means a securitization primarily of auto loans, 
auto leases, floor plans, credit card receivables, student loans, 
consumer loans, or equipment leases); or
    (7) Other structured finance products (``other SFPs'') (for purposes 
of this subclass, other SFPs means any structured finance product not 
identified in paragraphs (b)(2)(iv)(D)(1) through (6)) of this section; 
or
    (E) Issuers of government securities, municipal securities, or 
securities issued by a foreign government in one of the following 
subclasses:
    (1) Sovereign issuers;
    (2) U.S. public finance; or

[[Page 626]]

    (3) International public finance; and
    (vii) The credit rating symbol, number, or score in the applicable 
rating scale of the nationally recognized statistical rating 
organization assigned to the obligor, security, or money market 
instrument as a result of the rating action or, if the credit rating 
remained unchanged as a result of the action, the credit rating symbol, 
number, or score in the applicable rating scale of the nationally 
recognized statistical rating organization assigned to the obligor, 
security, or money market instrument as of the date of the rating action 
(in either case, include a credit rating in a default category, if 
applicable).
    (3) Format and frequency of updating. The information identified in 
paragraph (b)(2) of this section must be disclosed in an interactive 
data file that uses an XBRL (eXtensible Business Reporting Language) 
format and the List of XBRL Tags for nationally recognized statistical 
rating organizations as published on the Internet Web site of the 
Commission, and must be updated no less frequently than monthly.
    (4) Timing. The nationally recognized statistical rating 
organization must disclose the information required in paragraph (b)(2) 
of this section:
    (i) Within twelve months from the date the rating action is taken, 
if the credit rating subject to the action was paid for by the obligor 
being rated or by the issuer, underwriter, depositor, or sponsor of the 
security being rated; or
    (ii) Within twenty-four months from the date the rating action is 
taken, if the credit rating subject to the action is not a credit rating 
described in paragraph (b)(4)(i) of this section.
    (5) Removal of a credit rating history. The nationally recognized 
statistical rating organization may cease disclosing a rating history of 
an obligor, security, or money market instrument if at least 15 years 
have elapsed since a rating action classified as a withdrawal of a 
credit rating pursuant to paragraph (b)(2)(v)(E) of this section was 
disclosed in the rating history of the obligor, security, or money 
market instrument.

[79 FR 55264, Sept. 15, 2014, as amended at 84 FR 40258, Sept. 13, 2019]



Sec.240.17g-8  Policies, procedures, and internal controls.

    (a) Policies and procedures with respect to the procedures and 
methodologies used to determine credit ratings. A nationally recognized 
statistical rating organization must establish, maintain, enforce, and 
document policies and procedures reasonably designed to ensure:
    (1) That the procedures and methodologies, including qualitative and 
quantitative data and models, the nationally recognized statistical 
rating organization uses to determine credit ratings are approved by its 
board of directors or a body performing a function similar to that of a 
board of directors.
    (2) That the procedures and methodologies, including qualitative and 
quantitative data and models, the nationally recognized statistical 
rating organization uses to determine credit ratings are developed and 
modified in accordance with the policies and procedures of the 
nationally recognized statistical rating organization.
    (3) That material changes to the procedures and methodologies, 
including changes to qualitative and quantitative data and models, the 
nationally recognized statistical rating organization uses to determine 
credit ratings are:
    (i) Applied consistently to all current and future credit ratings to 
which the changed procedures or methodologies apply; and
    (ii) To the extent that the changes are to surveillance or 
monitoring procedures and methodologies, applied to current credit 
ratings to which the changed procedures or methodologies apply within a 
reasonable period of time, taking into consideration the number of 
credit ratings impacted, the complexity of the procedures and 
methodologies used to determine the credit ratings, and the type of 
obligor, security, or money market instrument being rated.
    (4) That the nationally recognized statistical rating organization 
promptly publishes on an easily accessible portion of its corporate 
Internet Web site:
    (i) Material changes to the procedures and methodologies, including 
to

[[Page 627]]

qualitative models or quantitative inputs, the nationally recognized 
statistical rating organization uses to determine credit ratings, the 
reason for the changes, and the likelihood the changes will result in 
changes to any current credit ratings; and
    (ii) Notice of the existence of a significant error identified in a 
procedure or methodology, including a qualitative or quantitative model, 
the nationally recognized statistical rating organization uses to 
determine credit ratings that may result in a change to current credit 
ratings.
    (5) That the nationally recognized statistical rating organization 
discloses the version of a credit rating procedure or methodology, 
including the qualitative methodology or quantitative inputs, used with 
respect to a particular credit rating.
    (b) Policies and procedures with respect to credit rating symbols, 
numbers, or scores. A nationally recognized statistical rating 
organization must establish, maintain, enforce, and document policies 
and procedures that are reasonably designed to:
    (1) Assess the probability that an issuer of a security or money 
market instrument will default, fail to make timely payments, or 
otherwise not make payments to investors in accordance with the terms of 
the security or money market instrument.
    (2) Clearly define each symbol, number, or score in the rating scale 
used by the nationally recognized statistical rating organization to 
denote a credit rating category and notches within a category for each 
class of credit ratings for which the nationally recognized statistical 
rating organization is registered (including subclasses within each 
class) and to include such definitions in Exhibit 1 to Form NRSRO (Sec.
249b.300 of this chapter).
    (3) Apply any symbol, number, or score defined pursuant to paragraph 
(b)(2) of this section in a manner that is consistent for all types of 
obligors, securities, and money market instruments for which the symbol, 
number, or score is used.
    (c) Policies and procedures with respect to look-back reviews. The 
policies and procedures a nationally recognized statistical rating 
organization is required to establish, maintain, and enforce pursuant to 
section 15E(h)(4)(A) of the Act (15 U.S.C. 78o-7(h)(4)(A)) must address 
instances in which a review conducted pursuant to those policies and 
procedures determines that a conflict of interest influenced a credit 
rating assigned to an obligor, security, or money market instrument by 
including, at a minimum, procedures that are reasonably designed to 
ensure that the nationally recognized statistical rating organization 
will:
    (1) Promptly determine whether the current credit rating assigned to 
the obligor, security, or money market instrument must be revised so 
that it no longer is influenced by a conflict of interest and is solely 
a product of the documented procedures and methodologies the nationally 
recognized statistical rating organization uses to determine credit 
ratings; and
    (2)(i) Promptly publish, based on the determination of whether a 
current credit rating referred to in paragraph (c)(1) of this section 
must be revised (as applicable):
    (A) A revised credit rating, if appropriate, and include with the 
publication of the revised credit rating the information required by 
Sec.240.17g-7(a)(1)(ii)(J)(3)(i); or
    (B) An affirmation of the credit rating, if appropriate, and include 
with the publication of the affirmation the information required by 
Sec.240.17g-7(a)(1)(ii)(J)(3)(ii).
    (ii) If the credit rating is not revised or affirmed pursuant to 
paragraph (c)(2)(i) of this section within fifteen calendar days of the 
date of the discovery that the credit rating was influenced by a 
conflict of interest, publish a rating action placing the credit rating 
on watch or review and include with the publication an explanation that 
the reason for the action is the discovery that the credit rating was 
influenced by a conflict of interest.
    (d) Internal control structures. A nationally recognized statistical 
rating organization must take into consideration the factors identified 
in paragraphs (d)(1) through (4) of this section when establishing, 
maintaining, enforcing, and documenting an effective internal control 
structure governing the implementation of and adherence

[[Page 628]]

to policies, procedures, and methodologies for determining credit 
ratings pursuant to section 15E(c)(3)(A) of the Act.
    (1) With respect to establishing the internal control structure, the 
nationally recognized statistical rating organization must take into 
consideration:
    (i) Controls reasonably designed to ensure that a newly developed 
methodology or proposed update to an in-use methodology for determining 
credit ratings is subject to an appropriate review process (for example, 
by persons who are independent from the persons that developed the 
methodology or methodology update) and to management approval prior to 
the new or updated methodology being employed by the nationally 
recognized statistical rating organization to determine credit ratings;
    (ii) Controls reasonably designed to ensure that a newly developed 
methodology or update to an in-use methodology for determining credit 
ratings is disclosed to the public for consultation prior to the new or 
updated methodology being employed by the nationally recognized 
statistical rating organization to determine credit ratings, that the 
nationally recognized statistical rating organization makes comments 
received as part of the consultation publicly available, and that the 
nationally recognized statistical rating organization considers the 
comments before implementing the methodology;
    (iii) Controls reasonably designed to ensure that in-use 
methodologies for determining credit ratings are periodically reviewed 
(for example, by persons who are independent from the persons who 
developed and/or use the methodology) in order to analyze whether the 
methodology should be updated;
    (iv) Controls reasonably designed to ensure that market participants 
have an opportunity to provide comment on whether in-use methodologies 
for determining credit ratings should be updated, that the nationally 
recognized statistical rating organization makes any such comments 
received publicly available, and that the nationally recognized 
statistical rating organization considers the comments;
    (v) Controls reasonably designed to ensure that newly developed or 
updated quantitative models proposed to be incorporated into a credit 
rating methodology are evaluated and validated prior to being put into 
use;
    (vi) Controls reasonably designed to ensure that quantitative models 
incorporated into in-use credit rating methodologies are periodically 
reviewed and back-tested;
    (vii) Controls reasonably designed to ensure that a nationally 
recognized statistical rating organization engages in analysis before 
commencing the rating of a class of obligors, securities, or money 
market instruments the nationally recognized statistical rating 
organization has not previously rated to determine whether the 
nationally recognized statistical rating organization has sufficient 
competency, access to necessary information, and resources to rate the 
type of obligor, security, or money market instrument;
    (viii) Controls reasonably designed to ensure that a nationally 
recognized statistical rating organization engages in analysis before 
commencing the rating of an ``exotic'' or ``bespoke'' type of obligor, 
security, or money market instrument to review the feasibility of 
determining a credit rating;
    (ix) Controls reasonably designed to ensure that measures (for 
example, statistics) are used to evaluate the performance of credit 
ratings as part of the review of in-use methodologies for determining 
credit ratings to analyze whether the methodologies should be updated or 
the work of the analysts employing the methodologies should be reviewed;
    (x) Controls reasonably designed to ensure that, with respect to 
determining credit ratings, the work and conclusions of the lead credit 
analyst developing an initial credit rating or conducting surveillance 
on an existing credit rating is reviewed by other analysts, supervisors, 
or senior managers before a rating action is formally taken (for 
example, having the work reviewed through a rating committee process);
    (xi) Controls reasonably designed to ensure that a credit analyst 
documents the steps taken in developing an initial credit rating or 
conducting surveillance on an existing credit rating with sufficient 
detail to permit an after-the-

[[Page 629]]

fact review or internal audit of the rating file to analyze whether the 
analyst adhered to the nationally recognized statistical rating 
organization's procedures and methodologies for determining credit 
ratings;
    (xii) Controls reasonably designed to ensure that the nationally 
recognized statistical rating organization conducts periodic reviews or 
internal audits of rating files to analyze whether analysts adhere to 
the nationally recognized statistical rating organization's procedures 
and methodologies for determining credit ratings; and
    (xiii) Any other controls necessary to establish an effective 
internal control structure taking into consideration the nature of the 
business of the nationally recognized statistical rating organization, 
including its size, activities, organizational structure, and business 
model.
    (2) With respect to maintaining the internal control structure, the 
nationally recognized statistical rating organization must take into 
consideration:
    (i) Controls reasonably designed to ensure that the nationally 
recognized statistical rating organization conducts periodic reviews of 
whether it has devoted sufficient resources to implement and operate the 
documented internal control structure as designed;
    (ii) Controls reasonably designed to ensure that the nationally 
recognized statistical rating organization conducts periodic reviews or 
ongoing monitoring to evaluate the effectiveness of the internal control 
structure and whether it should be updated;
    (iii) Controls reasonably designed to ensure that any identified 
deficiencies in the internal control structure are assessed and 
addressed on a timely basis;
    (iv) Any other controls necessary to maintain an effective internal 
control structure taking into consideration the nature of the business 
of the nationally recognized statistical rating organization, including 
its size, activities, organizational structure, and business model.
    (3) With respect to enforcing the internal control structure, the 
nationally recognized statistical rating organization must take into 
consideration:
    (i) Controls designed to ensure that additional training is provided 
or discipline taken with respect to employees who fail to adhere to 
requirements imposed by the internal control structure;
    (ii) Controls designed to ensure that a process is in place for 
employees to report failures to adhere to the internal control 
structure; and
    (iii) Any other controls necessary to enforce an effective internal 
control structure taking into consideration the nature of the business 
of the nationally recognized statistical rating organization, including 
its size, activities, organizational structure, and business model.
    (4) With respect to documenting the internal control structure, the 
nationally recognized statistical rating organization must take into 
consideration any controls necessary to document an effective internal 
control structure taking into consideration the nature of the business 
of the nationally recognized statistical rating organization, including 
its size, activities, organizational structure, and business model.

[79 FR 55267, Sept. 15, 2014]



Sec.240.17g-9  Standards of training, experience, and competence 
for credit analysts.

    (a) A nationally recognized statistical rating organization must 
establish, maintain, enforce, and document standards of training, 
experience, and competence for the individuals it employs to participate 
in the determination of credit ratings that are reasonably designed to 
achieve the objective that the nationally recognized statistical rating 
organization produces accurate credit ratings in the classes of credit 
ratings for which the nationally recognized statistical rating 
organization is registered.
    (b) The nationally recognized statistical rating organization must 
consider the following when establishing the standards required under 
paragraph (a) of this section:
    (1) If the credit rating procedures and methodologies used by the 
individual involve qualitative analysis, the knowledge necessary to 
effectively evaluate and process the data relevant to the 
creditworthiness of the obligor

[[Page 630]]

being rated or the issuer of the securities or money market instruments 
being rated;
    (2) If the credit rating procedures and methodologies used by the 
individual involve quantitative analysis, the technical expertise 
necessary to understand any models and model inputs that are a part of 
the procedures and methodologies;
    (3) The classes and subclasses of credit ratings for which the 
individual participates in determining credit ratings and the factors 
relevant to such classes and subclasses, including the geographic 
location, sector, industry, regulatory and legal framework, and 
underlying assets, applicable to the obligors or issuers in the classes 
and subclasses; and
    (4) The complexity of the obligors, securities, or money market 
instruments for which the individual participates in determining credit 
ratings.
    (c) The nationally recognized statistical rating organization must 
include the following in the standards required under paragraph (a) of 
this section:
    (1) A requirement for periodic testing of the individuals employed 
by the nationally recognized statistical rating organization to 
participate in the determination of credit ratings on their knowledge of 
the procedures and methodologies used by the nationally recognized 
statistical rating organization to determine credit ratings in the 
classes and subclasses of credit ratings for which the individual 
participates in determining credit ratings; and
    (2) A requirement that at least one individual with an appropriate 
level of experience in performing credit analysis, but not less than 
three years, participates in the determination of a credit rating.

[79 FR 55269, Sept. 15, 2014]



Sec.240.17g-10  Certification of providers of third-party due 
diligence services in connection with asset-backed securities.

    (a) The written certification that a person employed to provide 
third-party due diligence services is required to provide to a 
nationally recognized statistical rating organization pursuant to 
section 15E(s)(4)(B) of the Act (15 U.S.C. 78o-7(s)(4)(B)) must be on 
Form ABS Due Diligence-15E (Sec.249b.500 of this chapter).
    (b) The written certification must be signed by an individual who is 
duly authorized by the person providing the third-party due diligence 
services to make such a certification.
    (c) A person employed to provide third-party due diligence services 
will be deemed to have satisfied its obligations under section 
15E(s)(4)(B) of the Act (15 U.S.C. 78o-7(s)(4)(B)) if the person 
promptly delivers an executed Form ABS Due Diligence-15E (Sec.249b.500 
of this chapter) after completion of the due diligence services to:
    (1) A nationally recognized statistical rating organization that 
provided a written request for the Form prior to the completion of the 
due diligence services stating that the services relate to a credit 
rating the nationally recognized statistical rating organization is 
producing;
    (2) A nationally recognized statistical rating organization that 
provides a written request for the Form after the completion of the due 
diligence services stating that the services relate to a credit rating 
the nationally recognized statistical rating organization is producing; 
and
    (3) The issuer or underwriter of the asset-backed security for which 
the due diligence services relate that maintains the Internet Web site 
with respect to the asset-backed security pursuant to Sec.240.17g-
5(a)(3).
    (d) For purposes of section 15E(s)(4)(B) of the Act (15 U.S.C. 78o-
7(s)(4)(B)) and this section:
    (1) The term due diligence services means a review of the assets 
underlying an asset-backed security, as defined in section 3(a)(79) of 
the Act (15 U.S.C. 78c(a)(79)) for the purpose of making findings with 
respect to:
    (i) The accuracy of the information or data about the assets 
provided, directly or indirectly, by the securitizer or originator of 
the assets;
    (ii) Whether the origination of the assets conformed to, or deviated 
from, stated underwriting or credit extension guidelines, standards, 
criteria, or other requirements;
    (iii) The value of collateral securing the assets;

[[Page 631]]

    (iv) Whether the originator of the assets complied with federal, 
state, or local laws or regulations; or
    (v) Any other factor or characteristic of the assets that would be 
material to the likelihood that the issuer of the asset-backed security 
will pay interest and principal in accordance with applicable terms and 
conditions.
    (2) The term issuer includes a sponsor, as defined in Sec.229.1101 
of this chapter, or depositor, as defined in Sec.229.1101 of this 
chapter, that participates in the issuance of an asset-backed security, 
as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)).
    (3) The term originator has the same meaning as in section 15G(a)(4) 
of the Act (15 U.S.C. 78o-9(a)(4)).
    (4) The term securitizer has the same meaning as in section 
15G(a)(3) of the Act (15 U.S.C. 78o-9(a)(3)).

[79 FR 55270, Sept. 15, 2014]



Sec.240.17h-1T  Risk assessment recordkeeping requirements for 
associated persons of brokers and dealers.

    (a) Requirement to maintain and preserve information. (1) Every 
broker or dealer registered with the Commission pursuant to section 15 
of the Act, and every municipal securities dealer registered pursuant to 
Section 15B of the Act for which the Commission is the appropriate 
regulatory agency, unless exempt pursuant to paragraph (d) of this 
section, shall maintain and preserve the following information:
    (i) An organizational chart which includes the broker or dealer and 
all its associated persons. Included in the organizational chart shall 
be a designation of which associated persons are Material Associated 
Persons as that term is used in paragraph (a)(2) of this section;
    (ii) Written policies, procedures, or systems concerning the broker 
or dealer's:
    (A) Method(s) for monitoring and controlling financial and 
operational risks to it resulting from the activities of any of its 
associated persons, other than a natural person;
    (B) Financing and capital adequacy, including information regarding 
sources of funding, together with a narrative discussion by management 
of the liquidity of the material assets, the structure of debt capital, 
and sources of alternative funding; and
    (C) Trading positions and risks, such as records regarding reporting 
responsibilities for trading activities, policies relating to 
restrictions or limitations on trading securities and financial 
instruments or products, and a description of the types of reviews 
conducted to monitor existing positions, and limitations or restrictions 
on trading activities.
    (iii) A description of all material pending legal or arbitration 
proceedings involving a Material Associated Person or the broker or 
dealer that are required to be disclosed by the ultimate holding company 
under generally accepted accounting principles on a consolidated basis;
    (iv) Consolidated and consolidating balance sheets, prepared in 
accordance with generally accepted accounting principles, which may be 
unaudited and which shall include the notes to the financial statements, 
as of quarter end for the broker or dealer and its ultimate holding 
company;
    (v) Quarterly consolidated and consolidating income statements and 
consolidated cash flow statements, prepared in accordance with generally 
accepted accounting principles, which may be unaudited and which shall 
include the notes to the financial statements, for the broker or dealer 
and its ultimate holding company;

    Note 1 to paragraph (a)(1)(v). Statements of comprehensive income 
(as defined in Sec.210.1-02 of Regulation S-X of this chapter) must be 
included in place of income statements, if required by the applicable 
generally accepted accounting principles.

    (vi) The amount as of quarter end, and at month end if greater than 
quarter end, of the aggregate long and short securities and commodities 
positions held by each Material Associated Person, including a separate 
listing of each single unhedged securities or commodities position, 
other than U.S. government or agency securities, that exceeds the 
Materiality Threshold at any month end;
    (vii) The notional or contractual amounts, and in the case of 
options, the value of the underlying instruments, as of quarter end, of 
financial

[[Page 632]]

instruments with off-balance sheet risk and financial instruments with 
concentrations of credit risk where the Material Associated Person 
operates a trading book, with a separate entry of each commitment where 
the credit risk (defined as the possibility that a loss may occur from 
the failure of another party to perform according to the terms of a 
contract) with respect to a counterparty exceeds the Materiality 
Threshold at quarter end;
    (viii) The aggregate amount as of quarter end, and the amount at 
month end if greater than quarter end, of all bridge loans and those 
other material unsecured extensions of credit (not including intra-group 
receivables) with an initial or remaining maturity of less than one year 
by each Material Associated Person, together with the allowance for 
losses for such transactions, including a specific description of any 
extensions of credit to a single borrower exceeding the Materiality 
Threshold at any month end;
    (ix) The aggregate amount as of quarter end, and the amount at month 
end if greater than quarter end, of commercial paper, secured and other 
unsecured borrowing, bank loans, lines of credit, or any other 
borrowings, and the principal installments of long-term or medium-term 
debt, scheduled to mature within twelve months from the most recent 
fiscal quarter for the broker or dealer and each Material Associated 
Person; and
    (x) Data relating to real estate activities, including mortgage 
loans and investments in real estate, but not including trading 
positions in whole loans, conducted by each Material Associated Person, 
including:
    (A) Real estate loans and investments by type of property, such as 
construction and development, residential, commercial and industrial or 
farmland;
    (B) The geographic distribution, as of quarter end, by type of loan 
or investment where the amount exceeds the Materiality Threshold at 
quarter end;
    (C) The aggregate carrying value of loans which each Material 
Associated Person deems to be not current as to interest or principal, 
together with the Material Associated Person's criteria for the 
determination of which loans are not current, or which are in the 
process of foreclosure or that have been restructured;
    (D) The allowance for losses on loans and on investment real estate 
by type of loan or investment, and the activity in the allowance for 
losses account; and
    (E) Information about risk concentration in the real estate 
investment and loan portfolio, including information about risk 
concentration to a single borrower or location of property if the risk 
concentration exceeds the Materiality Threshold at quarter end.
    (2) The determination of whether an associated person of a broker or 
dealer is a Material Associated Person shall involve consideration of 
all aspects of the activities of, and the relationship between, both 
entities, including without limitation, the following factors:
    (i) The legal relationship between the broker or dealer and the 
associated person;
    (ii) The overall financing requirements of the broker or dealer and 
the associated person, and the degree, if any, to which the broker or 
dealer and the associated person are financially dependent on each 
other;
    (iii) The degree, if any, to which the broker or dealer or its 
customers rely on the associated person for operational support or 
services in connection with the broker's or dealer's business;
    (iv) The level of risk present in the activities of the broker's or 
dealer's associated persons; and
    (v) The extent to which the associated person has the authority or 
the ability to cause a withdrawal of capital from the broker or dealer.
    (3) The information, reports and records required by the provisions 
of this section shall be maintained and preserved in accordance with the 
provisions of Sec.240.17a-4 and shall be kept for a period of not less 
than three years in an easily accessible place.
    (4) For the purposes of this section and Sec.240.17h-2T, the term 
``Materiality Threshold'' shall mean the greater of:
    (i) $100 million; or
    (ii) 10 percent of the broker or dealer's tentative net capital 
based on the most recently filed Form X-17A-5 or 10

[[Page 633]]

percent of the Material Associated Person's tangible net worth, 
whichever is greater.
    (b) Special provisions with respect to material associated persons 
subject to the supervision of certain domestic regulators. A broker or 
dealer shall be deemed to be in compliance with the recordkeeping 
requirements of paragraph (a) of this section with respect to a Material 
Associated Person if:
    (1) Such Material Associated Person is subject to examination by, or 
the reporting requirements of, a Federal banking agency and the broker 
or dealer maintains in accordance with the provisions of this section 
copies of all reports submitted by such Material Associated Person with 
the Federal banking agency pursuant to section 5211 of the Revised 
Statutes, section 9 of the Federal Reserve Act, section 7(a) of the 
Federal Deposit Insurance Act, section 10(b) of the Home Owners' Loan 
Act, or section 5 of the Bank Holding Company Act of 1956 other than the 
Form FR 2068; or
    (2) If such Material Associated Person is subject to the supervision 
of an insurance commissioner or other similar official or agency of a 
state, and the broker or dealer maintains in accordance with the 
provisions of this section copies of the Annual and Quarterly Statements 
with Schedules and Exhibits prepared by the insurance company on forms 
prescribed by the National Association of Insurance Commissioners; or
    (3) In the event an insurance company is not required to prepare 
Quarterly Statements on forms prescribed by the National Association of 
Insurance Commissioners, the broker or dealer must maintain and preserve 
the records required by paragraph (a) of this section on a quarterly 
basis; or
    (4) In the case of a Material Associated Person that is subject to 
the supervision of the Commodity Futures Trading Commission, the broker 
or dealer maintains in accordance with the provisions of this section 
copies of the reports filed on Forms 1 FR-FCM or 1 FR-IB by such 
Material Associated Person with the Commodity Futures Trading 
Commission.
    (c) Special provisions with respect to material associated persons 
subject to the supervision of a foreign financial regulatory authority. 
A broker or dealer shall be deemed to be in compliance with the 
recordkeeping requirements of paragraph (a) of this section with respect 
to a Material Associated Person if such broker or dealer maintains in 
accordance with the provisions of this section copies of the reports 
filed by such Material Associated Persons with a Foreign Financial 
Regulatory Authority. The broker or dealer shall maintain a copy of the 
original report and a copy translated into the English language. For the 
purposes of this section, the term Foreign Financial Regulatory 
Authority shall have the meaning set forth in section 3(a)(51) of the 
Act.
    (d) Exemptions. (1) The provisions of this section shall not apply 
to any broker or dealer which is exempt from the provisions of Sec.
240.15c3-3:
    (i) Pursuant to paragraph (k)(1) of Sec.240.15c3-3; or
    (ii) Pursuant to paragraph (k)(2) of Sec.240.15c3-3; or
    (iii) If the broker or dealer does not qualify for an exemption from 
the provisions of Sec.240.15c3-3 and such broker or dealer does not 
hold funds or securities for, or owe money or securities to, customers 
and does not carry the accounts of or for customers; unless
    (iv) In the case of paragraphs (d)(1)(ii) or (d)(1)(iii) of this 
section, the broker or dealer maintains capital including debt 
subordinated in accordance with appendix D of Sec.240.15c3-1 equal to 
or greater than $20,000,000.
    (2) The provisions of this section shall not apply to any broker or 
dealer which maintains capital including debt subordinated in accordance 
with appendix D of section 240.15c3-1 of less than $250,000, even if the 
broker or dealer hold funds or securities for, or owes money or 
securities to, customers or carries the accounts of or for customers.
    (3) In calculating capital for the purposes of this paragraph, a 
broker or dealer shall include the equity capital and subordinated debt 
of any other registered brokers or dealers that are associated with the 
broker or dealer and are not otherwise exempt from the provisions 
pursuant to paragraph (d)(1)(i) of this section.

[[Page 634]]

    (4) The provisions of this section shall not apply to a broker or 
dealer that computes certain of its capital charges in accordance with 
Sec.240.15c3-1e if that broker or dealer is affiliated with an 
ultimate holding company that is not an ultimate holding company that 
has a principal regulator, as defined in Sec.240.15c3-1(c)(13).
    (5) The Commission may, upon written application by a Reporting 
Broker or Dealer, exempt from the provisions of this section, either 
unconditionally or on specified terms and conditions, any brokers or 
dealers associated with such Reporting Broker or Dealer. The term 
``Reporting Broker or Dealer'' shall mean, in the case of a broker or 
dealer that is associated with other registered brokers or dealers, the 
broker or dealer which maintains the greatest amount of net capital as 
reported on its most recently fixed Form X-17A-5. In granting exemptions 
under this section, the Commission shall consider, among other factors, 
whether the records and other information required to be maintained 
pursuant to this section concerning the Material Associated Persons of 
the broker or dealer associated with the Reporting Broker or Dealer will 
be available to the Commission pursuant to Sec.240.17h-2T.
    (e) Location of records. A broker or dealer required to maintain 
records concerning a Material Associated Person pursuant to this section 
may maintain those records either at the Material Associated Person or 
at a records storage facility provided that the records are located 
within the boundaries of the United States and the records are kept in 
an easily accessible place, as that term is used in Sec.240.17a-4. In 
order to operate pursuant to the provisions of this paragraph, the 
Material Associated Person or other entity maintaining the records shall 
file with the Commission a written undertaking in form acceptable to the 
Commission, signed by a duly authorized person, to the effect that the 
records will be treated as if the broker or dealer was maintaining the 
records pursuant to this section and that the entity maintaining the 
records undertakes to permit examination of such records at any time or 
from time to time during business hours by representatives or designees 
of the Commission and to promptly furnish the Commission or its designee 
true, correct, complete and current hard copy of any or all or any part 
of such records. The election to operate pursuant to the provisions of 
this paragraph shall not relieve the broker or dealer required to 
maintain and preserve such records from any of its responsibilities 
under this section or section 240.17h-2T.
    (f) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a broker or dealer 
concerning a Material Associated Person shall be deemed confidential 
information for the purposes of section 24(b) of the Act.
    (g) Temporary implementation schedule. Every broker or dealer 
subject to the requirements of this section shall maintain and preserve 
the information required by paragraphs (a)(1)(i), (ii), and (iii) of 
this section commencing September 30, 1992. Commencing December 31, 
1992, the provisions of this section shall apply in their entirety.

[57 FR 32168, July 21, 1992, as amended at 58 FR 25774, Apr. 28, 1993; 
69 FR 34472, June 21, 2004; 69 FR 34494, June 21, 2004; 76 FR 50122, 
Aug. 12, 2011; 78 FR 42865, July 18, 2013; 83 FR 50223, Oct. 4, 2018]



Sec.240.17h-2T  Risk assessment reporting requirements for brokers
and dealers.

    (a) Reporting requirements of risk assessment information required 
to be maintained by section 240.17h-1T. (1) Every broker or dealer 
registered with the Commission pursuant to section 15 of the Act, and 
every municipal securities dealer registered pursuant to section 15B of 
the Act for which the Commission is the appropriate regulatory agency, 
unless exempt pursuant to paragraph (b) of this section, shall file a 
Form 17-H within 60 calendar days after the end of each fiscal quarter. 
The Form 17-H for the fourth fiscal quarter shall be filed within 60 
calendar days of the end of the fiscal year. The cumulative year-end 
financial statements required by section 240.17h-1T may be filed 
separately within 105 calendar days of the end of the fiscal year.

[[Page 635]]

    (2) The reports required to be filed pursuant to paragraph (a)(1) of 
this section shall be considered filed when received at the Commission's 
principal office in Washington, DC.
    (3) For the purposes of this section, the term Material Associated 
Person shall have the meaning used in Sec.240.17h-1T.
    (b) Exemptions. (1) The provisions of this section shall not apply 
to any broker or dealer which is exempt from the provisions of section 
240.15c3-3:
    (i) Pursuant to paragraph (k)(1) of Sec.240.15c3-3; or
    (ii) Pursuant to paragraph (k)(2) of Sec.240.15c3-3; or
    (iii) If the broker or dealer does not qualify for an exemption from 
the provisions of Sec.240.15c3-3 and such broker or dealer does not 
hold funds or securities for, or owe money or securities to, customers 
and does not carry the accounts of or for customers; unless
    (iv) In the case of paragraphs (b)(1)(ii) or (b)(1)(iii) of this 
section, the broker or dealer maintains capital including debt 
subordinated in accordance with appendix D of Sec.240.15c3-1 equal to 
or greater than $20,000,000.
    (2) The provisions of this section shall not apply to any broker or 
dealer which maintains capital including debt subordinated in accordance 
with appendix D of Sec.240.15c3-1 of less than $250,000, even if the 
broker or dealer hold funds or securities for, or owes money or 
securities to, customers or carries the accounts of or for customers.
    (3) In calculating capital and subordinated debt for the purposes of 
this section, a broker or dealer shall include the equity capital and 
subordinated debt of any other registered brokers or dealers that are 
associated with the broker or dealer and are not otherwise exempt from 
the provisions pursuant to paragraph (b)(1)(i) of this section.
    (4) The provisions of this section shall not apply to a broker or 
dealer that computes certain of its capital charges in accordance with 
Sec.240.15c3-1e if that broker or dealer is affiliated with an 
ultimate holding company that is not an ultimate holding company that 
has a principal regulator, as defined in Sec.240.15c3-1(c)(13).
    (5) The Commission may, upon written application by a Reporting 
Broker or Dealer, exempt from the provisions of this section, either 
unconditionally or on specified terms and conditions, any brokers or 
dealers associated with the Reporting Broker or Dealer. The term 
``Reporting Broker or Dealer'' shall mean, in the case of a broker or 
dealer that is associated with other registered brokers or dealers, the 
broker or dealer which maintains the greatest amount of net capital as 
reported on its most recently filed Form X-17A-5. In granting exemptions 
under this section, the Commission shall consider, among other factors, 
whether the records and other information required to be maintained 
pursuant to Sec.240.17h-1T concerning the Material Associated Persons 
of the broker or dealer associated with the Reporting Broker or Dealer 
will be available to the Commission pursuant to the provisions of this 
section.
    (c) Special provisions with respect to material associated persons 
subject to the supervision of certain domestic regulators. A broker or 
dealer shall be deemed to be in compliance with the reporting 
requirements of paragraph (a) of this section with respect to a Material 
Associated Person if:
    (1) Such Material Associated Person is subject to examination by or 
the reporting requirements of a Federal banking agency and the broker or 
dealer or such Material Associated Person furnishes in accordance with 
paragraph (a) of this section copies of reports filed on Form FR Y-9C, 
Form FR Y-6, Form FR Y-7, and Form FR 2068 by the Material Associated 
Person with the Federal banking agency pursuant to section 5211 of the 
Revised Statutes, section 9 of the Federal Reserve Act, section 7(a) of 
the Federal Deposit Insurance Act, section 10(b) of the Home Owners' 
Loan Act, or section 5 of the Bank Holding Company Act of 1956; or
    (2) If the Material Associated Person is subject to the supervision 
of an insurance commissioner or other similar official agency of a 
state; and
    (i) In the case of a Material Associated Person organized as a 
public stock company, the broker or dealer furnishes in accordance with 
the provisions of this section copies of the filings made by the 
insurance company pursuant to sections 13 or 15 of the Act

[[Page 636]]

and the Investment Company Act of 1940; or
    (ii) In the case of Material Associated Person organized as a mutual 
insurance company or a non-public stock company, the broker or dealer 
furnishes in accordance with the provisions of this section copies of 
the Annual and Quarterly Statements prepared by the insurance company on 
forms prescribed by the National Association of Insurance Commissioners. 
The Annual Statement furnished to the Commission pursuant to this 
section shall include: The classification (distribution by state) 
section from the schedule of real estate; distribution by state, the 
interest overdue (more than three months), in process of foreclosure, 
and foreclosed properties transferred to real estate during the year 
sections from the schedule of mortgages; and the quality and maturity 
distribution of all bonds at statement values and by major types of 
issues section from the schedule of bonds and stocks. All other 
Schedules and Exhibits to such Annual and Quarterly Statements shall be 
maintained at the broker-dealer pursuant to the provisions of Sec.
240.17h-1T but not furnished to the Commission.
    (iii) In the event an insurance company organized as a stock or 
mutual company is not required to prepare Quarterly Statements, the 
broker or dealer must file with the Commission a Form 17-H in accordance 
with the provisions of this section on a quarterly basis.
    (3) In the case of a Material Associated Person that is subject to 
the supervision of the Commodity Futures Trading Commission, the broker 
or dealer furnishes in accordance with the provisions of this section 
copies of the reports filed by the Material Associated Person with the 
Commodity Futures Trading Commission on Forms 1 FR-FCM or 1 FR-IB.
    (4) No broker or dealer shall be required to furnish to the 
Commission any examination report of any Federal banking agency or any 
supervisory recommendations or analyses contained therein with respect 
to a Material Associated Person that is subject to the regulation of a 
Federal banking agency. All information received by the Commission 
pursuant to this section concerning a Material Associated Person that is 
subject to examination by or the reporting requirements of a Federal 
banking agency shall be deemed confidential for the purposes of section 
24(b) of the Act.
    (5) The furnishing of any information or documents by a broker or 
dealer pursuant to this section shall not constitute an admission for 
any purpose that a Material Associated Person is otherwise subject to 
the Act. Any documents or information furnished to the Commission by a 
broker or dealer pursuant to this rule shall not be deemed to be 
``filed'' for the purposes of the liabilities set forth in section 18 of 
the Act.
    (d) Special provisions with respect to material associated persons 
subject to the supervision of a foreign financial regulatory authority. 
A broker or dealer shall be deemed to be in compliance with the 
reporting requirements of this section with respect to a Material 
Associated Person if such broker or dealer furnishes in accordance with 
the provisions of this section copies of the reports filed by such 
Material Associated Person with a Foreign Financial Regulatory 
Authority. The broker or dealer shall file a copy of the original report 
and a copy translated into the English language. For the purposes of 
this section, the term Foreign Financial Regulatory Authority shall have 
the meaning set forth in section 3(a)(51) of the Act.
    (e) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a broker or dealer 
concerning a Material Associated Person shall be deemed confidential 
information for the purposes of section 24(b) of the Act.
    (f) Temporary implementation schedule. Every broker or dealer 
subject to the requirements of this section shall file the information 
required by Items 1, 2 and 3 of Form 17-H by October 31, 1992. 
Commencing December 31, 1992, the provisions of this section shall apply 
in their entirety.

[57 FR 32170, July 21, 1992, as amended at 69 FR 34472, June 21, 2004; 
69 FR 34494, June 21, 2004; 78 FR 42865, July 18, 2013]

[[Page 637]]



Sec.240.17Ab2-1  Registration of clearing agencies.

    (a) An application for registration or for exemption from 
registration as a clearing agency, as defined in section 3(a)(23) of the 
Act, or an amendment to any such application shall be filed with the 
Commission on Form CA-1, in accordance with the instructions thereto.
    (b) Any applicant for registration or for exemption from 
registration as a clearing agency whose application is filed with the 
Commission on or before November 24, 1975, on and in accordance with the 
instructions to Form CA-1, with respect to the clearing agency 
activities described in the application shall, during the period from 
December 1, 1975 until the Commission grants registration, denies 
registration or grants an exemption from registration, be exempt from 
the registration provisions of section 17A(b) of the Act and the rules 
and regulations thereunder and, unless the Commission shall otherwise 
provide by rule or by order, the provisions of the Act and the rules and 
regulations thereunder which would be applicable to clearing agencies as 
a result of registration under the Act.
    (c)(1) The Commission, upon the request of a clearing agency, may 
grant registration of the clearing agency in accordance with sections 
17A(b) and 19(a)(1) of the Act but exempt the registrant from one or 
more of the requirements as to which the Commission is directed to make 
a determination pursuant to paragraphs (A) through (I) of section 
17A(b)(3) of the Act, provided that any such registration shall be 
effective only for eighteen months from the date the registration is 
made effective (or such longer period as the Commission may provide by 
order).
    (2) In the case of any clearing agency registered in accordance with 
paragraph (c)(1) of this section, not later than nine months from the 
date such registration is made effective the Commission either will 
grant registration in accordance with sections 17A(b) and 19(a)(1) of 
the Act, without exempting the registrant from one or more of the 
requirements as to which the Commission is directed to make a 
determination pursuant to subparagraphs (A) through (I) of section 
17A(b)(3) of the Act, or will institute proceedings in accordance with 
section 19(a)(1)(B) of the Act to determine whether registration should 
be denied at the expiration of the registration granted in accordance 
with paragraph (c)(1) of this section.
    (d) The filing of an amendment to an application for registration or 
for exemption from registration as a clearing agency, which registration 
or exemption has not been granted, or the filing of additional 
information or documents prior to the granting of registration or an 
exemption from registration shall extend to ninety days from the date 
such filing is made (or to such longer period as to which the applicant 
consents) the period within which the Commission shall grant 
registration, institute proceedings to determine whether such 
registration shall be denied, or conditionally or unconditionally exempt 
registrant from the registration and other provisions of section 17A of 
the Act or the rules or regulations thereunder.
    (e) If any information reported at items 1-3 of Form CA-1 is or 
becomes inaccurate, misleading or incomplete for any reason, whether 
before or after registration or an exemption from registration has been 
granted, the registrant shall file promptly an amendment on Form CA-1 
correcting the inaccurate, misleading or incomplete information.
    (f) Every application for registration or for exemption from 
registration as a clearing agency or amendment to, or additional 
information or document filed in connection with, any such application 
shall constitute a ``report'' or ``application'' within the meaning of 
sections 17, 17A, 19 and 32(a) of the Act.

[40 FR 52358, Nov. 10, 1975]



Sec.240.17Ab2-2  Determinations affecting covered clearing agencies.

    (a) The Commission may, if it deems appropriate, upon application by 
any clearing agency or member of a clearing agency, or on its own 
initiative, determine whether a covered clearing agency is systemically 
important in multiple jurisdictions. In determining whether a covered 
clearing agency is

[[Page 638]]

systemically important in multiple jurisdictions, the Commission may 
consider:
    (1) Whether the covered clearing agency is a designated clearing 
agency; and
    (2) Whether the clearing agency has been determined to be 
systemically important by one or more jurisdictions other than the 
United States through a process that includes consideration of whether 
the foreseeable effects of a failure or disruption of the designated 
clearing agency could threaten the stability of each relevant 
jurisdiction's financial system.
    (b) The Commission may, if it deems appropriate, determine whether 
any of the activities of a clearing agency providing central 
counterparty services, in addition to clearing agencies registered with 
the Commission for the purpose of clearing security-based swaps, have a 
more complex risk profile. In determining whether a clearing agency's 
activity has a more complex risk profile, the Commission may consider 
whether the clearing agency clears financial instruments that are 
characterized by discrete jump-to-default price changes or that are 
highly correlated with potential participant defaults.
    (c) The Commission may, if it deems appropriate, upon application by 
any clearing agency or member of a clearing agency, or on its own 
initiative, determine whether to rescind any determination made pursuant 
to paragraph (a) or (b) of this section. In determining whether to 
rescind any such determination, the Commission may consider a change in 
circumstances such that the covered clearing agency no longer meets the 
criteria supporting the determination in effect.
    (d) The Commission shall publish notice of its intention to consider 
making a determination under paragraph (a), (b), or (c) of this section, 
together with a brief statement of the grounds under consideration 
therefor, and provide at least a 30-day public comment period prior to 
any such determination, giving all interested persons an opportunity to 
submit written data, views, and arguments concerning such proposed 
determination. The Commission may provide the clearing agency subject to 
the proposed determination opportunity for hearing regarding the 
proposed determination.
    (e) Notice of determinations under paragraph (a), (b), or (c) of 
this section shall be given by prompt publication thereof, together with 
a statement of written reasons therefor.
    (f) For purposes of this rule, the terms covered clearing agency, 
designated clearing agency, and systemically important in multiple 
jurisdictions shall have the meanings set forth in Sec.240.17Ad-22(a).

[81 FR 70901, Oct. 13, 2016]



Sec.240.17Ac2-1  Application for registration of transfer agents.

    (a) An application for registration, pursuant to section 17A(c) of 
the Act, of a transfer agent for which the Commission is the appropriate 
regulatory agency, as defined in section 3(a)(34)(B) of the Act, shall 
be filed with the Commission on Form TA-1, in accordance with the 
instructions contained therein and shall become effective on the 
thirtieth day following the date on which the application is filed, 
unless the Commission takes affirmative action to accelerate, deny or 
postpone such registration in accord- ance with the provisions of 
section 17A(c) of the Act.
    (b) The filing of any amendment to an application for registration 
as a transfer agent pursuant to paragraph (a) of this section, which 
registration has not become effective, shall postpone the effective date 
of the registration until the thirtieth day following the date on which 
the amendment is filed, unless the Commission takes affirmative action 
to accelerate, deny or postpone the registration in accord- ance with 
the provisions of section 17A(c) of the Act.
    (c) If any of the information reported on Form TA-1 (Sec.249b.100 
of this chapter) becomes inaccurate, misleading, or incomplete, the 
registrant shall correct the information by filing an amendment within 
sixty days following the date on which the information becomes 
inaccurate, misleading, or incomplete.
    (d) Every registration and amendment filed pursuant to this section 
shall be filed with the Commission electronically in the Commission's 
EDGAR system. Transfer agents should

[[Page 639]]

refer to Form TA-1 and the instructions to the form (Sec.249b.100 of 
this chapter) and to the EDGAR Filer Manual (Sec.232.301 of this 
chapter) for the technical requirements and instructions for electronic 
filing. Transfer agents that have previously filed a Form TA-1 with the 
Commission must refile the information on their Form TA-1, as amended, 
in electronic format in EDGAR as an amended Form TA-1.
    (e) Every registration and amendment filed pursuant to this section 
shall constitute a ``report'' or ``application'' within the meaning of 
sections 17, 17A(c), and 32(a) of the Act.

[40 FR 51184, Nov. 4, 1975, as amended at 51 FR 12127, Apr. 9, 1986; 71 
FR 74708, Dec. 12, 2006]



Sec.240.17Ac2-2  Annual reporting requirement for registered transfer
agents.

    (a) Every transfer agent registered on December 31 must file a 
report covering the reporting period on Form TA-2 (Sec.249b.102 of 
this chapter) by March 31 following the end of the reporting period. 
Form TA-2 must be completed in accordance with the instructions 
contained in the Form. A transfer agent may file an amendment to Form 
TA-2 pursuant to the instructions on the form to correct information 
that has become inaccurate, incomplete, or misleading. A transfer agent 
may file an amendment at any time; however, in order to be timely filed, 
all required portions of the form must be completed and filed in 
accordance with this section and the instructions to the form by the 
date the form is required to be filed with the Commission.
    (1) A registered transfer agent that received fewer than 1,000 items 
for transfer in the reporting period and that did not maintain master 
securityholder files for more than 1,000 individual securityholder 
accounts as of December 31 of the reporting period must complete 
Questions 1 through 5, 11, and the signature section of Form TA-2.
    (2) A named transfer agent that engaged a service company to perform 
all of its transfer agent functions during the reporting period must 
complete Questions 1 through 3 and the signature section of Form TA-2.
    (3) A named transfer agent that engaged a service company to perform 
some but not all of its transfer agent functions during the reporting 
period must complete all of Form TA-2 but should enter zero (0) for 
those questions that relate to transfer agent functions performed by the 
service company on behalf of the named transfer agent.
    (b) For purposes of this section, the term reporting period shall 
mean the calendar year ending December 31 for which Form TA-2 is being 
filed. The term named transfer agent shall have the same meaning as 
defined in Sec.240.17Ad-9(j). The term service company shall have the 
same meaning as defined in Sec.240.17Ad-9(k).
    (c) Every annual report and amendment filed pursuant to this section 
shall be filed with the Commission electronically in the Commission's 
EDGAR system. Transfer agents should refer to Form TA-2 and the 
instructions to the form (Sec.249b.102 of this chapter) and the EDGAR 
Filer Manual (Sec.232.301 of this chapter) for further information 
regarding electronic filing. Every registered transfer agent must file 
an electronic Form TA-1 with the Commission, or an electronic amendment 
to its Form TA-1 if the transfer agent previously filed a paper Form TA-
1 with the Commission, before it may file an electronic Form TA-2 or 
Form TA-W with the Commission.

[65 FR 36610, June 9, 2000, as amended at 71 FR 74708, Dec. 12, 2006]



Sec.240.17Ac3-1  Withdrawal from registration with the Commission.

    (a) Notice of withdrawal from registration as a transfer agent with 
the Commission pursuant to section 17A(c)(4) of the Act shall be filed 
on Form TA-W in accordance with the instructions contained thereon.
    (b) Except as hereinafter provided, a notice to withdraw from 
registration filed by a transfer agent pursuant to section 17A(c)(4) of 
the Act shall become effective on the sixtieth day after the filing 
thereof with the Commission or within such shorter period of time as the 
Commission may determine. If a notice to withdraw from registration is

[[Page 640]]

filed with the Commission at any time subsequent to the date of issuance 
of a Commission order instituting proceedings pursuant to section 
17A(c)(3) of the Act, or if prior to the effective date of the notice of 
withdrawal the Commission institutes such a proceeding or a proceeding 
to impose terms and conditions upon such withdrawal, the notice of 
withdrawal shall not become effective except at such time and upon such 
terms and conditions as the Commission deems necessary or appropriate in 
the public interest, for the protection of investors, or in furtherance 
of the purposes of section 17A.
    (c) Every withdrawal from registration filed pursuant to this 
section shall be filed with the Commission electronically in the 
Commission's EDGAR system. Transfer agents should refer to Form TA-W and 
the instructions to the form (Sec.249b.101 of this chapter) and the 
EDGAR Filer Manual (Sec.232.301 of this chapter) for further 
information regarding electronic filing.
    (d) Every notice of withdrawal filed pursuant to this rule shall 
constitute a ``report'' within the meaning of sections 17 and 32(a) of 
the Act.

[42 FR 44984, Sept. 8, 1977, as amended at 71 FR 74709, Dec. 12, 2006]



Sec.240.17Ad-1  Definitions.

    As used in this section and Sec.Sec.240.17Ad-2, 240.17Ad-3, 
240.17Ad-4, 240.17Ad-5, 240.17Ad-6, and 240.17Ad-7:
    (a)(1) The term item means:
    (i) A certificate or certificates of the same issue of securities 
covered by one ticket (or, if there is no ticket, presented by one 
presentor) presented for transfer, or an instruction to a transfer agent 
which holds securities registered in the name of the presentor to 
transfer or to make available all or a portion of those securities;
    (ii) Each line on a ``deposit shipment control list'' or a 
``withdrawal shipment control list'' submitted by a registered clearing 
agency; or
    (iii) In the case of an outside registrar, each certificate to be 
countersigned.
    (2) If a ``deposit shipment control list'' or ``withdrawal shipment 
control list'' contains both routine and non-routine transfer 
instructions, a registered transfer agent shall at its option:
    (i) Retain all transfer instructions listed on the shipment control 
list and treat each line on the shipment control list as a routine item; 
or
    (ii) Return promptly to the registered clearing agency a shipment 
control list line containing non-routine transfer instructions (together 
with a copy of the shipment control list, an explanation for the return 
instructions and all routine transfer instructions reflected on the same 
line) and treat each line on the shipment control list that reflects 
retained transfer instructions as a routine item.
    (3) A deposit shipment control list means a list of transfer 
instructions that accompanies certificates to be cancelled and reissued 
in the nominee name of a registered clearing agency.
    (4) A withdrawal shipment control list means a list of instructions 
(either in paper or electronic medium) that:
    (i) Directs issuance of certificates in the names of persons or 
entities other than the registered clearing agency; and
    (ii) Accompanies certificates to be cancelled which are registered 
in the nominee name of a registered clearing agency, or directs the 
transfer agent to reduce certificate or position balances maintained by 
the transfer agent on behalf of a registered clearing agency under that 
clearing agency's transfer agent custody program
    (b) The term outside registrar with respect to a transfer item means 
a transfer agent which performs only the registrar function for the 
certificate or certificates presented for transfer and includes the 
persons performing similar functions with respect to debt issues.
    (c) An item is made available when
    (1) In the case of an item for which the services of an outside 
registrar are not required, or which has been received from an outside 
registrar after processing, the transfer agent dispatches or mails the 
item to, or the item is awaiting pick-up by, the presentor or a person 
designated by the presentor, or
    (2) In the case of an item for which the services of an outside 
registrar are required, the transfer agent dispatches

[[Page 641]]

or mails the item to, or the item is awaiting pick-up by, the outside 
registrar, or
    (3) In the case of an item for which an outside registrar has 
completed processing, the outside registrar dispatches or mails the item 
to, or the item is awaiting pick-up by, the presenting transfer agent.
    (d) The transfer of an item is accomplished when, in accordance with 
the presentor's instructions, all acts necessary to cancel the 
certificate or certificates presented for transfer and to issue a new 
certificate or certificates, including the performance of the registrar 
function, are completed and the item is made available to the presentor 
by the transfer agent, or when, in accordance with the presentor's 
instructions, a transfer agent which holds securities registered in the 
name of the presentor completes all acts necessary to issue a new 
certificate or certificates representing all or a portion of those 
securities and makes available the new certificate or certificates to 
the presentor or a person designated by the presentor or, with respect 
to those transfers of record ownership to be accomplished without the 
physical issuance of certificates, completes registration of change in 
ownership of all or a portion of those securities.
    (e) The turnaround of an item is completed when transfer is 
accomplished or, when an outside registrar is involved, the transfer 
agent in accordance with the presentor's instructions completes all acts 
necessary to cancel the certificate or certificates presented for 
transfer and to issue a new certificate or certificates, and the item is 
made available to an outside registrar.
    (f) The term process means the accomplishing by an outside registrar 
of all acts necessary to perform the registrar function and to make 
available to the presenting transfer agent the completed certificate or 
certificates or to advise the presenting transfer agent, orally or in 
writing, why performance of the registrar function is delayed or may not 
be completed.
    (g) The receipt of an item or a written inquiry or request occurs 
when the item or written inquiry or request arrives at the premises at 
which the transfer agent performs transfer agent functions, as defined 
in section 3(a)(25) of the Act.
    (h) A business day is any day during which the transfer agent is 
normally open for business and excludes Saturdays, Sundays, and legal 
holidays, or other holidays normally observed by the transfer agent.
    (i) An item is routine if it does not (1) require requisitioning 
certificates of an issue for which the transfer agent, under the terms 
of its agency, does not maintain a supply of certificates; (2) include a 
certificate as to which the transfer agent has received notice of a stop 
order, adverse claim, or any other restriction on transfer; (3) require 
any additional certificates, documentation, instructions, assignments, 
guarantees, endorsements, explanations, or opinions of counsel before 
transfer may be effected; (4) require review of supporting documentation 
other than assignments, endorsements or stock powers, certified 
corporate resolutions, signature, or other common and ordinary 
guarantees, or appropriate tax, or tax waivers; (5) involve a transfer 
in connection with a reorganization, tender offer, exchange, redemption, 
or liquidation; (6) include a warrant, right, or convertible security 
presented for transfer of record ownership within five business days 
before any day upon which exercise or conversion privileges lapse or 
change; (7) include a warrant, right, or convertible security presented 
for exercise or conversion; or (8) include a security of an issue which 
within the previous 15 business days was offered to the public, pursuant 
to a registration statement effective under the Securities Act of 1933, 
in an offering not of a continuing nature.
    (j) The term depository-eligible securities issue means an issue of 
securities that is eligible for deposit at any securities depository 
that is registered with the Commission under the Securities Exchange Act 
of 1934 as a clearing agency.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)); 
secs. 3, 17A and 23(a), 15 U.S.C. 78c, 78q-1 and 78w(a))

[42 FR 32411, June 24, 1977, as amended at 49 FR 40575, Oct. 17, 1984; 
51 FR 36551, Oct. 14, 1986]

[[Page 642]]



Sec.240.17Ad-2  Turnaround, processing, and forwarding of items.

    (a) Every registered transfer agent (except when acting as an 
outside registrar) shall turnaround within three business days of 
receipt at least 90 percent of all routine items received for transfer 
during a month. For the purposes of this paragraph, items received at or 
before noon on a business day shall be deemed to have been received at 
noon on that day, and items received after noon on a business day or 
received on a day not a business day shall be deemed to have been 
received at noon on the next business day.
    (b) Every registered transfer agent acting as an outside registrar 
shall process at least 90 percent of all items received during a month 
(1) by the opening of business on the next business day, in the case of 
items received at or before noon on a business day, and (2) by noon of 
the next business day, in the case of items received after noon on a 
business day. For the purposes of paragraphs (b) and (d) of this 
section, ``items received'' shall not include any item enumerated in 
Sec.240.17Ad-1(i) (5), (6), (7), or (8) or any item which is not 
accompanied by a debit or cancelled certificate. For the purposes of 
this paragraph, items received on a day not a business day shall be 
deemed to have been received before noon on the next business day.
    (c) Any registered transfer agent which fails to comply with 
paragraph (a) of this section with respect to any month shall, within 
ten business days following the end of such month, file with the 
Commission and the transfer agent's appropriate regulatory agency, if it 
is not the Commission, a written notice in accordance with paragraph (h) 
of this section. Such notice shall state the number of routine items and 
the number of non-routine items received for transfer during the month, 
the number of routine items which the registered transfer agent failed 
to turnaround in accordance with the requirements of paragraph (a) of 
this section, the percentage that such routine items represent of all 
routine items received during the month, the reasons for such failure, 
the steps which have been taken, are being taken or will be taken to 
prevent a future failure and the number of routine items, aged in 
increments of one business day, which as of the close of business on the 
last business day of the month have been in its possession for more than 
four business days and have not been turned around.
    (d) Any registered transfer agent which fails to comply with 
paragraph (b) of this section with respect to any month shall, within 
ten business days following the end of such month, file with the 
Commission and the transfer agent's appropriate regulatory agency, if it 
is not the Commission, a written notice in accordance with paragraph (h) 
of this section. Such notice shall state the number of items received 
for processing during the month, the number of items which the 
registered transfer agent failed to process in accordance with the 
requirements of paragraph (b) of this section, the percentage that such 
items represent of all items received during the month, the reasons for 
such failure and the steps which have been taken, are being taken or 
will be taken to prevent a future failure and the number of items which 
as of the close of business on the last business day of the month have 
been in the transfer agent's possession for more than the time allowed 
for processing and have not been processed.
    (e)(1) Except as provided in paragraph (e)(2) of this section, all 
routine items not turned around within three business days of receipt as 
required by paragraph (a) of this section and all items not processed 
within the periods required by paragraph (b) of this section shall be 
turned around promptly, and all nonroutine items shall receive diligent 
and continuous attention and shall be turned around as soon as possible.
    (2) A transfer agent that is exempt under Sec.240.17Ad-4(b) and 
that has received 30 days notice of depository-eligibility of an issue 
for which it performs transfer agent functions shall turnaround ninety 
percent of all routine items received during a month within five 
business days of receipt. Such transfer agent shall devote diligent and 
continuous attention to the remaining ten percent of routine items and 
shall turnaround these items as soon as possible.

[[Page 643]]

    (f) A registered transfer agent which receives items at locations 
other than the premises at which it performs transfer agent functions 
shall have appropriate procedures to assure, and shall assure, that 
items are forwarded to such premises promptly.
    (g) A registered transfer agent which receives processed items from 
an outside registrar shall have appropriate procedures to assure, and 
shall assure, that such items are made available promptly to the 
presentor.
    (h) Any notice required by this section or Sec.240.17Ad-4 shall be 
filed as follows:
    (1) Any notice required to be filed with the Commission shall be 
filed in triplicate with the principal office of the Commission in 
Washington, DC 20549 and, in the case of a registered transfer agent for 
which the Commission is the appropriate regulatory agency, an additional 
copy shall be filed with the regional office of the Commission for the 
region in which the registered transfer agent has its principal office 
for transfer agent activities.
    (2) Any notice required to be filed with the Comptroller of the 
Currency shall be filed with the Office of the Comptroller of the 
Currency, Administrator of National Banks, Washington, DC 20219.
    (3) Any notice required to be filed with the Board of Governors of 
the Federal Reserve System shall be filed with the Board of Governors of 
the Federal Reserve System, Washington, DC 20251 and with the Federal 
Reserve Bank of the district in which the registered transfer agent's 
principal banking operations are conducted.
    (4) Any notice required to be filed with the Federal Deposit 
Insurance Corporation shall be filed with the Federal Deposit Insurance 
Corporation, Washington, DC 20429.

[42 FR 32412, June 24, 1977, as amended at 49 FR 40575, Oct. 17, 1984; 
59 FR 5946, Feb. 9, 1994; 73 FR 32228, June 5, 2008]



Sec.240.17Ad-3  Limitations on expansion.

    (a) Any registered transfer agent which is required to file any 
notice pursuant to Sec.240.17Ad-2 (c) or (d) for each of three 
consecutive months shall not from the fifth business day after the end 
of the third such month until the end of the next following period of 
three successive months during which no such notices have been required:
    (1) Initiate the performance of any transfer agent function or 
activity for an issue for which the transfer agent does not perform, or 
is not under agreement to perform, transfer agent functions prior to 
such fifth business day; and
    (2) With respect to an issue for which transfer agent functions are 
being performed on such fifth business day, initiate for that issue the 
performance of an additional transfer agent function or activity which 
the transfer agent does not perform, or is not under agreement to 
perform, prior to such fifth business day.
    (b) Any registered transfer agent which for each of two consecutive 
months fails to turn around at least 75% of all routine items in 
accordance with the requirements of Sec.240.17Ad-2(a) or to process at 
least 75% of all items in accordance with the requirements of Sec.
240.17Ad-2(b) shall be subject to the limitations imposed by paragraph 
(a) of this section and further shall, within twenty business days after 
the close of the second such month, send to the chief executive officer 
of each issuer for which such registered transfer agent acts a copy of 
the written notice filed pursuant to Sec.240.17Ad-2 (c) or (d) with 
respect to the second such month.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)))

[42 FR 32412, June 24, 1977]



Sec.240.17Ad-4  Applicability of Sec.Sec.240.17Ad-2, 240.17Ad-3 
and 240.17Ad-6(a) (1) through (7) and (11).

    (a) Sections 240.17Ad-2, 240.17Ad-3 and 240.17Ad-6(a) (1) through 
(7) and (11) shall not apply to interests in limited partnerships, to 
redeemable securities of investment companies registered under section 8 
of the Investment Company Act of 1940, or to interests in dividend 
reinvestment programs.
    (b)(1) For purposes of this section, exempt transfer agent means a 
transfer agent that during any six consecutive months shall have 
received fewer than

[[Page 644]]

500 items for transfer and fewer than 500 items for processing.
    (2) Except as provided in paragraph (c) of this section, an exempt 
transfer agent that satisfies the requirements of paragraph (b)(3) shall 
be exempt from the provisions of Sec.Sec.240.17Ad-2 (a), (b), (c), 
(d) and (h), 240.17Ad-3 and 240.17Ad-6(a) (2) through (7) and (11).
    (3) Within ten business days following the close of the sixth 
consecutive month described in paragraph (b)(1) of this section, an 
exempt transfer agent shall:
    (i) If its appropriate regulatory agency is either the Commission or 
the Office of the Comptroller of the Currency, prepare and maintain in 
its possession a document certifying that the transfer agent qualifies 
as exempt under paragraph (b)(1) of this section; or
    (ii) If its appropriate regulatory agency is either the Board of 
Governors of the Federal Reserve System or the Federal Deposit Insurance 
Corporation, file with the appropriate regulatory agency a notice 
certifying that it qualifies as exempt under paragraph (b)(1) of this 
section.
    (c) Within five business days following the close of each month, 
every exempt transfer agent shall calculate the number of items which it 
received during the preceding six months. Whenever any exempt transfer 
agent no longer qualifies as such under paragraph (b)(1), within ten 
business days after the end of such month: (1) It shall prepare and 
maintain in its possession a document so stating, if subject to 
paragraph (b)(3)(i) of this section; or (2) it shall file with its 
appropriate regulatory agency a notice to that effect, if subject to 
paragraph (b)(3)(ii) of this section. Thereafter, beginning with the 
first month following the month in which such document is required to be 
prepared or such notice is required to be filed, the registered transfer 
agent no longer shall be exempt under paragraph (b) of this section. Any 
registered transfer agent which has ceased to be an exempt transfer 
agent under this paragraph shall not qualify again for exemption until 
it has conducted its transfer agent operations pursuant to the foregoing 
sections for six consecutive months following the month in which it was 
required to prepare the document or prepare and file the notice 
specified in this paragraph.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)))

[42 FR 32413, June 24, 1977, as amended at 48 FR 28246, June 21, 1983]



Sec.240.17Ad-5  Written inquiries and requests.

    (a) When any person makes a written inquiry to a registered transfer 
agent concerning the status of an item presented for transfer during the 
preceding six months by such person or anyone acting on his behalf, 
which inquiry identifies the issue, the number of shares (or principal 
amount of debt securities or number of units if relating to any other 
kind of security) presented, the approximate date of presentment and the 
name in which it is registered, the registered transfer agent shall, 
within five business days following receipt of the inquiry, respond, 
stating whether the item has been received; if received, whether it has 
been transferred; if received and not transferred, the reason for the 
delay and what additional matter, if any, is necessary before transfer 
may be effected; and, if received and transferred, the date and manner 
in which the completed item was made available, the addressee and 
address to which it was made available and the number of any new 
certificate which was registered and the name in which it was 
registered. If a new certificate is dispatched or mailed to the 
presentor within five business days following receipt of an inquiry 
pertaining to that certificate, no further response to the inquiry shall 
be required pursuant to this paragraph.
    (b) When any broker-dealer requests in writing that a registered 
transfer agent acknowledge the transfer instructions and the possession 
of a security presented for transfer by such broker-dealer or revalidate 
a window ticket with respect to such security and the request identifies 
the issue, the number of shares (or principal amount of debt securities 
or number of units if relating to any other kind of security), the 
approximate date of presentment, the certificate number and the name in 
which it is registered, every registered

[[Page 645]]

transfer agent shall, within five business days following receipt of the 
request, in writing, confirm or deny possession of the security, and, if 
the registered transfer agent has possession, (1) acknowledge the 
transfer instructions or (2) revalidate the window ticket. If a new 
certificate is dispatched or mailed to the presentor within five 
business days following receipt of a request pertaining to that 
certificate, no further response to the inquiry shall be required 
pursuant to this paragraph.
    (c) When any person, or anyone acting under his authority, requests 
in writing that a transfer agent confirm possession as of a given date 
of a certificate presented by such person during the 30 days before the 
date the inquiry is received and the request identifies the issue, the 
number of shares (or principal amount of debt securities or number of 
units if relating to any other kind of security), the approximate date 
of presentment, the certificate number and the name in which the 
certificate was registered, every registered transfer agent shall, 
within ten business days following receipt of the request and upon 
assurance of payment of a reasonable fee if required by such transfer 
agent, make available a written response to such person, or anyone 
acting under his authority, confirming or denying possession of such 
security as of such given date.
    (d) When any person requests in writing a transcript of such 
person's account with respect to a particular issue, either as the 
account appears currently or as it appeared on a specific date not more 
than six months prior to the date the registered transfer agent receives 
the request, every registered transfer agent shall, within twenty 
business days following receipt of the request and upon assurance of 
payment of a reasonable fee if required by such transfer agent, make 
available to such person a transcript, ledger or statement of account in 
sufficient detail to permit reconstruction of such account as of the 
date for which the transcript was requested.
    (e)(1) Response to written inquiries concerning dividend and 
interest payments. A registered transfer agent shall respond, within ten 
business days of receipt, to current claims that contain sufficient 
detail. A registered transfer agent shall respond, within twenty 
business days of receipt, to aged claims that contain sufficient detail. 
The response shall indicate in writing that the inquiry has been 
received, whether the claim requires further research and, if so, a 
reasonable estimate of how long that research may take. If no further 
research is required, the response shall indicate whether that claim is 
being or will be paid and, if not, the reason for not paying the claim. 
A registered transfer agent shall devote diligent attention to 
unresolved inquiries and shall resolve all inquiries as soon as 
possible.
    (2) Misdirected written inquiries concerning dividend and interest 
payments. In the event that a transfer agent is not the dividend 
disbursing or interest paying agent for an issue that is the subject of 
a claim under this section, but performed those or any transfer agent 
services for that issue within the preceding three years, the transfer 
agent shall provide in writing to the inquirer, within ten business days 
of receipt of the inquiry, the name and address of the current dividend 
disbursing or interest paying agent. If the transfer agent did not 
perform those or other transfer agent services for the issue within the 
preceding three years, the transfer agent must respond to the inquiry 
and may respond by returning the inquiry with a statement that the 
transfer agent is not the current dividend disbursing or interest paying 
agent and that it does not know the name and address of the current 
dividend disbursing or interest paying agent.
    (3) As used in this paragraph:
    (i) A current claim means a written inquiry concerning non-payment 
or incorrect payment of dividends or interest, the payment date for 
which occurred within the preceding six months.
    (ii) An aged claim means a written inquiry concerning non-payment or 
incorrect payment of dividends or interest, the payment date for which 
occurred more than six months before the inquiry.
    (iii) Sufficient detail means a written inquiry or request that 
identifies: The

[[Page 646]]

issue; the name(s) in which the securities are registered; the number of 
shares (or principal amount of debt securities or number of units for 
any other kind of security) involved; the approximate record date(s) or 
payment date(s) relating to the claim; and, with respect to registered 
broker-dealers, registered clearing agencies, or banks, certificate 
numbers.
    (f) Telephone response. (1) A transfer agent may satisfy the written 
response requirements of this section by a telephone response to the 
inquirer if:
    (i) The telephone response resolves that inquiry; and
    (ii) The inquirer does not request a written response.
    (2) When any person makes a written inquiry or request that would 
qualify under paragraph (e) of this section except that it fails to 
provide sufficient detail as specified in paragraph (e)(3)(iii) of this 
section, a registered transfer agent may telephone the inquirer to 
obtain the necessary additional detail within the time periods specified 
in paragraph (e)(1) of this section. If the transfer agent does not 
receive the additional detail within ten business days, the transfer 
agent immediately shall make a written request for the additional 
information.
    (g)(1) When any person makes a written inquiry or request which 
would qualify under paragraph (a), (b), (c), or (d) of this section 
except that it fails to provide all of the information specified in 
those paragraphs, or requests information which refers to a time earlier 
than the time periods specified in those paragraphs, a registered 
transfer agent shall confirm promptly receipt of the inquiry or request 
and respond to it as soon as possible.
    (2) When any person makes a written inquiry or request which would 
qualify under paragraph (e) of this section except that it fails to 
provide sufficient detail as specified in paragraph (e)(3)(iii) of this 
section, a registered transfer agent must respond to the inquiry within 
the time periods specified in paragraph (e)(1) of this section. A 
registered transfer agent may respond to such an inquiry in accordance 
with paragraph (e)(1) of this section as though sufficient detail had 
been provided, or may return it to the inquirer, requesting the 
additional necessary details.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)))

[42 FR 32413, June 24, 1977, as amended at 51 FR 5707, Feb. 18, 1986]



Sec.240.17Ad-6  Recordkeeping.

    (a) Every registered transfer agent shall make and keep current the 
following:
    (1) A receipt, ticket, schedule, log or other record showing the 
business day each routine item and each non-routine item is (i) received 
from the presentor and, if applicable, from the outside registrar and 
(ii) made available to the presentor and, if applicable, to the outside 
registrar;
    (2) A log, tally, journal, schedule or other record showing for each 
month:
    (i) The number of routine items received;
    (ii) The number of routine items received during the month that were 
turned around within three business days of receipt;
    (iii) The number of routine items received during the month that 
were not turned around within three business days of receipt;
    (iv) The number of non-routine items received during the month;
    (v) The number of non-routine items received during the month that 
were turned around;
    (vi) The number of routine items that, as of the close of business 
on the last business day of each month, have been in such registered 
transfer agent's possession for more than four business days, aged in 
increments of one business day (beginning on the fifth business day); 
and
    (vii) The number of non-routine items in such registered transfer 
agent's possession as of the close of business on the last business day 
of each month;
    (3) With respect to items for which the registered transfer agent 
acts as an outside registrar:
    (i) A receipt, ticket, schedule, log or other record showing the 
date and time:
    (A) Each item is (1) received from the presenting transfer agent and 
(2) made available to the presenting transfer agent;

[[Page 647]]

    (B) Each written or oral notice of refusal to perform the registrar 
function is made available to the presenting transfer agent (and the 
substance of the notice); and
    (ii) A log, tally, journal, schedule or other record showing for 
each month:
    (A) The number of items received;
    (B) The number of items processed within the time required by Sec.
240.17Ad-2(b); and
    (C) The number of items not processed within the time required by 
Sec.240.17Ad-2(b);
    (4) A record of calculations demonstrating the registered transfer 
agent's monitoring of its performance under Sec.240.17Ad-2 (a) and 
(b);
    (5) A copy of any written notice filed pursuant to Sec.240.17Ad-2;
    (6) Any written inquiry or request, including those not subject to 
the requirements of Sec.240.17Ad-5, concerning an item, showing the 
date received; a copy of any written response to an inquiry or request, 
showing the date dispatched or mailed to the presentor; if no response 
to an inquiry or request was made, the date the certificate involved was 
made available to the presentor; or, in the case of an inquiry or 
request under Sec.240.17Ad-5(a) responded to by telephone, a telephone 
log or memorandum showing the date and substance of any telephone 
response to the inquiry;
    (7) A log, journal, schedule or other record showing the number of 
inquiries subject to Sec.240.17Ad-5 (a), (b), (c) and (d) received 
during each month but not responded to within the required time frames 
and the number of such inquiries pending as of the close of business on 
the last business day of each month;
    (8) Any document, resolution, contract, appointment or other 
writing, any supporting document, concerning the appointment and the 
termination of such appointment of such registered transfer agent to act 
in any capacity for any issue on behalf of the issuer, on behalf of 
itself as the issuer or on behalf of any person who was engaged by the 
issuer to act on behalf of the issuer;
    (9) Any record of an active (i.e., unreleased) stop order, notice of 
adverse claim or any other restriction on transfer;
    (10) A copy of any transfer journal and registrar journal prepared 
by such registered transfer agent; and
    (11) Any document upon which the transfer agent bases its 
determination that an item received for transfer was received in 
connection with a reorganization, tender offer, exchange, redemption, 
liquidation, conversion or the sale of securities registered pursuant to 
the Securities Act of 1933 and, accordingly, was not routine under Sec.
240.17Ad-1(i) (5) or (8).
    (b) Every registered transfer agent which, under the terms of its 
agency, maintains securityholder records for an issue or which acts as a 
registrar for an issue shall, with respect to such issue, obtain from 
the issuer or its transfer agent and retain documentation setting forth 
the total number of shares or principal amount of debt securities or 
total number of units if relating to any other kind of security 
authorized and the total issued and outstanding pursuant to issuer 
authorization.
    (c) Every registered transfer agent which, under the terms of its 
agency, maintains securityholder records for an issue shall, with 
respect to such issue, retain each cancelled registered bond, debenture, 
share, warrant or right, other registered evidence of indebtedness, or 
other certificate of ownership and all accompanying documentation, 
except legal papers returned to the presentor.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)))

[42 FR 32413, June 24, 1977]



Sec.240.17Ad-7  Record retention.

    (a) The records required by Sec.240.17Ad-6(a)(1), (3)(i), (6) or 
(11) shall be maintained for a period of not less than two years, the 
first six months in an easily accessible place.
    (b) The records required by Sec.240.17Ad-6(a) (2), (3)(ii), (4), 
(5) or (7) shall be maintained for a period of not less than two years, 
the first year in an easily accessible place.
    (c) The records required by Sec.240.17Ad-6(a) (8), (9) and (10) 
and (b) shall be maintained in an easily accessible place during the 
continuance of the

[[Page 648]]

transfer agency and shall be maintained for one year after termination 
of the transfer agency.
    (d) The records required by Sec.240.17Ad-6(c) shall be maintained 
for a period of not less than six years, the first six months in an 
easily accessible place.
    (e) Every registered transfer agent shall maintain in an easily 
accessible place:
    (1) All records required under Sec.240.17f-2(d) until at least 
three years after the termination of employment of those persons 
required by Sec.240.17f-2 to be fingerprinted; and
    (2) All records required pursuant to Sec.240.17f-2(e).
    (f) Subject to the conditions set forth in this section, the records 
required to be maintained pursuant to Sec.240.17Ad-6 may be retained 
using electronic or micrographic media and may be preserved in those 
formats for the time required by Sec.240.17Ad-7. Records stored 
electronically or micrographically in accordance with this paragraph may 
serve as a substitute for the hard copy records required to be 
maintained pursuant to Sec.240.17Ad-6.
    (1) For purposes of this section:
    (i) The term micrographic media means microfilm or microfiche or any 
similar medium.
    (ii) The term electronic storage media means any digital storage 
medium or system.
    (iii) The term ARA means your appropriate regulatory agency as that 
term is defined in 15 U.S.C. 78c(a)(34).
    (2) If you as a registered transfer agent use electronic storage 
media or micrographic media to store your records, you must:
    (i) Have available at all times for examination by the staffs of the 
Commission and of your ARA facilities to project or produce immediately 
easily readable images of such records;
    (ii) Be ready at all times to provide such records that the staffs 
of the Commission and your ARA or their representatives may request;
    (iii) Create an accurate index of such records, store the index with 
those records, and have the index available at all times for examination 
by the staffs of the Commission and your ARA;
    (iv) Have quality assurance procedures to verify the quality and 
accuracy of the electronic or micrographic recording process; and
    (v) Maintain separately from the originals duplicates of the records 
and the index that you store on electronic storage media or micrographic 
media. You may store the duplicates of the indexed records on any medium 
permitted by this section. You must preserve the duplicate records and 
index for the same time that is required by this section for the indexed 
records, and you must have them available at all times for examination 
by the staffs of the Commission and your ARA.
    (3) Any electronic storage media that you use to store your records 
must:
    (i) Ensure the security and integrity of the records by means of 
manual and automated controls that assure the authenticity and quality 
of the electronic facsimile, detect attempts to alter or remove the 
records, and provide means to recover altered, damaged, or lost records 
resulting from any cause;
    (ii) Externally label all removable units of storage media using a 
unique identifier that allows the manual association of that removable 
storage unit with its place and order in the recordkeeping system; and
    (iii) Uniquely identify files and internally label each file with 
its unique name, the date and time of file creation, the date and time 
of last modification or extension, and a file sequence number when the 
file spans more than one volume.
    (4) If you use electronic storage media or micrographic media to 
store your records, you must establish an audit system that accounts for 
the inputting of and any changes to every record that is stored on 
electronic storage media or micrographic media. The results of such 
audit system must:
    (i) Be available at all times for examination by the staffs of the 
Commission and your ARA; and
    (ii) Be preserved for the same time that is required by this section 
for the underlying records.
    (5) If you use electronic storage media or micrographic media to 
store your records, you must:
    (i) Maintain, keep current, and provide promptly upon request by the

[[Page 649]]

staffs of the Commission and your ARA all information necessary to 
access the records and indexes stored on electronic storage media or 
micrographic media; and
    (ii) Place, or have a third party place on your behalf, in escrow 
with an independent third party and keep current a copy of the physical 
and logical format of the electronic storage or micrographic media, the 
field format of all different information types written on the 
electronic storage media and source code, and the appropriate 
documentation and information necessary to access records and indexes. 
The independent escrow agent must file an undertaking signed by a duly 
authorized person with the Commission and your ARA stating that:

    ``[Name of Third Party] hereby undertakes to furnish promptly upon 
request to the U.S. Securities and Exchange Commission, its designees, 
or representatives, upon reasonable request, a current copy of the 
physical and logical format of the electronic storage or micrographic 
media, the field format of all different information types written on 
the electronic storage media and source code, and the appropriate 
documentation and information necessary to access the records and 
indexes of [Name of Transfer Agent]'s electronic records management 
system.

    (6) (i) If you use a third party to maintain or preserve some or all 
of the required records using electronic storage media or micrographic 
media, such third party shall file a written undertaking signed by a 
duly authorized person with the Commission and your ARA stating that:

    ``With respect to any books and records maintained or preserved on 
behalf of [Name of Transfer Agent], [Name of Third Party] hereby 
undertakes to permit examination of such books and records at any time 
or from time to time during business hours by representatives or 
designees of the U.S. Securities and Exchange Commission, and to 
promptly furnish to said Commission or its designee true, correct, 
complete, and current hard copies of any or all or any part of such 
books and records.''

    (ii) Agreement with a third party to maintain your records shall not 
relieve you from the responsibility to prepare and maintain records as 
specified in this section or in Sec.240.17Ad-6.
    (g) If the records required to be maintained and preserved by a 
registered transfer agent pursuant to the requirements of Sec.Sec.
240.17Ad-6 and 240.17Ad-7 are maintained and preserved on behalf of the 
registered transfer agent by an outside service bureau, other 
recordkeeping service or the issuer, the registered transfer agent shall 
obtain, from such outside service bureau, other recordkeeping service or 
the issuer, an agreement, in writing, to the effect that:
    (1) Such records are subject at any time, or from time to time, to 
reasonable periodic, special, or other examinations by representatives 
of the Commission and the appropriate regulatory agency for such 
registered transfer agent if it is not the Commission; and
    (2) The outside service bureau, recordkeeping service, or issuer 
will furnish to the Commission and the appropriate regulatory agency, 
upon demand, at either the principal office or at any regional office, 
complete, correct and current hard copies of any and all such records.
    (h) When a registered transfer agent ceases to perform transfer 
agent functions for an issue, the responsibility of such transfer agent 
under Sec.240.17Ad-7 to retain the records required to be made and 
kept current under Sec.240.17Ad-6(a) (1), (6), (9), (10) and (11), (b) 
and (c) shall end upon the delivery of such records to the successor 
transfer agent.
    (i) The records required by Sec.Sec.240.17Ad-17(d) and 240.17Ad-
19(c) shall be maintained for a period of not less than three years, the 
first year in an easily accessible place.

[42 FR 32414, June 24, 1977, as amended at 47 FR 54063, Dec. 1, 1982; 62 
FR 52237, Oct. 7, 1997; 66 FR 21659, May 1, 2001; 68 FR 74401, Dec. 23, 
2003; 68 FR 75054, Dec. 29, 2003; 78 FR 4874, Jan. 23, 2013]



Sec.240.17Ad-8  Securities position listings.

    (a) For purposes of this section, the term securities position 
listing means, with respect to the securities of any issuer held by a 
registered clearing agency in the name of the clearing agency or its 
nominee, a list of those participants in the clearing agency on whose 
behalf the clearing agency holds

[[Page 650]]

the issuer's securities and of the participants' respective positions in 
such securities as of a specified date.
    (b) Upon request, a registered clearing agency shall furnish a 
securities position listing promptly to each issuer whose securities are 
held in the name of the clearing agency or its nominee. A registered 
clearing agency may charge issuers requesting securities position 
listings a fee designed to recover the reasonable costs of providing the 
securities position listing to the issuer.

(Secs. 2, 17A, and 23(a) (15 U.S.C. 78b, 78q-1, and 78w(a)))

[44 FR 76777, Dec. 28, 1979]



Sec.240.17Ad-9  Definitions.

    As used in this section and Sec.Sec.240.17Ad-10, 240.17Ad-11, 
240.17Ad-12 and 240.17Ad-13:
    (a) Certificate detail, with respect to certificated securities, 
includes, at a minimum, all of the following, and with respect to 
uncertificated securities, includes items (2) through (8):
    (1) The certificate number.
    (2) The number of shares for equity securities or the principal 
dollar amount for debt securities;
    (3) The securityholder's registration;
    (4) The address of the registered securityholder;
    (5) The issue date of the security;
    (6) The cancellation date of the security;
    (7) In the case of redeemable securities of investment companies, an 
appropriate description of each debit and credit (i.e., designation 
indicating purchase, redemption, or transfer); and
    (8) Any other identifying information about securities and 
securityholders the transfer agent reasonably deems essential to its 
recordkeeping system for the efficient and effective research of record 
differences.
    (b) Master securityholder file is the official list of individual 
securityholder accounts. With respect to uncertificated securities of 
companies registered under the Investment Company Act of 1940, the 
master securityholder file may consist of multiple, but linked, 
automated files.
    (c) A subsidiary file is any list or record of accounts, 
securityholders, or certificates that evidences debits or credits that 
have not been posted to the master securityholder file.
    (d) A control book is the record or other document that shows the 
total number of shares (in the case of equity securities) or the 
principal dollar amount (in the case of debt securities) authorized and 
issued by the issuer.
    (e) A credit is an addition of appropriate certificate detail to the 
master securityholder file.
    (f) A debit is a cancellation of appropriate certificate detail from 
the master securityholder file.
    (g) A record difference occurs when either:
    (1) The total number of shares or total principal dollar amount of 
securities in the master securityholder file does not equal the number 
of shares or principal dollar amount in the control book; or
    (2) The security transferred or redeemed contains certificate detail 
different from the certificate detail currently on the master 
securityholder file, which difference cannot be immediately resolved.
    (h) A recordkeeping transfer agent is the registered transfer agent 
that maintains and updates the master securityholder file.
    (i) A co-transfer agent is the registered transfer agent that 
transfers securities but does not maintain and update the master 
securityholder file.
    (j) A named transfer agent is the registered transfer agent that is 
engaged by an issuer to perform transfer agent functions for an issue of 
securities but has engaged a service company to perform some or all of 
those functions.
    (k) A service company is the registered transfer agent engaged by a 
named transfer agent to perform transfer agent functions for that named 
transfer agent.
    (l) A file includes automated and manual records.

(Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 U.S.C. 78b, 78q(a), 78q-
1(d) and 78w(a))

[48 FR 28246, June 21, 1983]

[[Page 651]]



Sec.240.17Ad-10  Prompt posting of certificate detail to master 
securityholder files, maintenance of accurate securityholder files,
communications between co-transfer agents and recordkeeping transfer
agents, maintenance of current control book, retention of certificate
detail and ``buy-in'' of physical over-issuance.
          

    (a)(1) Every recordkeeping transfer agent shall promptly and 
accurately post to the master securityholder file debits and credits 
containing minimum and appropriate certificate detail representing every 
security transferred, purchased, redeemed or issued; Provided, however, 
That if a security transferred or redeemed contains certificate detail 
different from that currently posted to the master securityholder file, 
the credit shall be posted to the master securityholder file and the 
debit and related certificate detail shall be maintained in a subsidiary 
file until resolved. The recordkeeping transfer agent shall exercise 
diligent and continuous attention to resolve the resulting record 
difference and, once resolved, shall post to the master securityholder 
file the debit maintained in the subsidiary file. Postings of 
certificate detail shall remain on the master securityholder file until 
a debit to a securityholder acount is appropriate.
    (2) As used in this paragraph, the term promptly means the following 
number of days after issuance, purchase, transfer, or redemption of a 
security:
    (i) With respect to recordkeeping transfer agents (other than 
transfer agents that perform transfer agent functions with respect to 
redeemable securities issued by investment companies registered under 
section 8 of the Investment Company Act of 1940) that are exempt 
transfer agents under Sec.240.17Ad-4(b), 30 calendar days;
    (ii) With respect to recordkeeping transfer agents (other than 
transfer agents that perform transfer agent functions with respect to 
redeemable securities issued by investment companies registered under 
section 8 of the Investment Company Act of 1940) that:
    (A) Perform transfer agent functions solely for their own or their 
affiliated companies' securities issues, and
    (B) Employ batch posting systems, ten business days; and
    (iii) With respect to all other recordkeeping transfer agents, five 
business days; Provided, however, That all securities transferred, 
purchased, redeemed or issued prior to record date, but posted 
subsequent thereto, shall be posted as of the record date.
    (3) With respect to posting certificate detail from transfer 
journals received by the recordkeeping transfer agent from a co-transfer 
agent, the time frames set forth in paragraph (a)(2) shall commence upon 
receipt of those journals by the recordkeeping transfer agent.
    (b) Every recordkeeping transfer agent shall maintain and keep 
current an accurate master securityholder file and subsidiary files. If 
such transfer agent has any record difference, its master securityholder 
file and subsidiary files must accurately represent all relevant debits 
and credits until the record difference is resolve. The recordkeeping 
transfer agent shall exercise diligent and continuous attention to 
resolve all record differences.
    (c)(1) Every co-transfer agent shall dispatch or mail promptly to 
the recordkeeping transfer agent a record of debits and credits for 
every security transferred or issued. For the purposes of this 
paragraph, ``promptly'' means within two business days following 
transfer of each security, and, with respect to transfers occurring 
within five business days of record date, daily.
    (2) Within three business days following the end of each month, 
every co-transfer agent shall mail to the recordkeeping transfer agent 
for each issue of securities for which it acts as a co-transfer agent, a 
report setting forth:
    (i) The principal dollar amount of debt securities or the number of 
shares and related market value of equity securities comprising any buy-
in executed by the co-transfer agent during the preceding month pursuant 
to paragraph (g) of this section; and
    (ii) The reason for the buy-in.
    (d) Every co-transfer agent shall respond promptly to all inquiries 
from the recordkeeping transfer agent regarding records required to be 
dispatched or mailed by the co-transfer

[[Page 652]]

agent pursuant to Sec.240.17Ad-10(c). For the purposes of this 
paragraph, ``promptly'' means within five business days of receipt of an 
inquiry from a recordkeeping transfer agent.
    (e) Every recordkeeping transfer agent shall maintain and keep 
current an accurate control book for each issue of securities. A change 
in the control book shall not be made except upon written authorization 
from a duly authorized agent of the issuer.
    (f) Every recordkeeping transfer agent shall retain a record of all 
certificate detail deleted from the master securityholder file for a 
period of six years from the date of deletion. In lieu of maintaining a 
hard copy, a recordkeeping transfer agent may comply with this paragraph 
by complying with Sec.240.17Ad-7(f) or Sec.240.17Ad-7(g).
    (g)(1) A registered transfer agent, in the event of any actual 
physical overissuance that such transfer agent caused and of which it 
has knowledge, shall, within 60 days of the discovery of such 
overissuance, buy in securities equal to the number of shares in the 
case of equity securities or the principal dollar amount in the case of 
debt securities. During the sixty-day period, the registered transfer 
agent shall devote diligent attention to resolving the overissuance and 
recovering the certificates. This paragraph requires a buy-in only by 
the transfer agent that erroneously issued the certificate(s) giving 
rise to the physical overissuance, and applies only to those physical 
overissuances created by transfers or issuances subsequent to September 
30, 1983.
    (2) If a transfer agent obtains a letter from the party holding the 
overissued certificates that confirms that the overissued certificate(s) 
will be returned to the transfer agent not later than thirty days after 
the expiration of the sixty-day period, the transfer agent need not buy 
in securities by the sixtieth day. If, however, the certificate(s) are 
not returned to the transfer agent within the additional thirty-day 
period, the transfer agent immediately must execute the buy-in in 
accordance with paragraph (g)(1) of this section.
    (3) If the certificates involved are covered by a surety bond 
indemnifying the transfer agent for all expenses incurred as a result of 
actual overissuance, the transfer agent need not buy in the securities. 
The transfer agent, however, shall devote diligent attention to 
resolving the overissuance and recovering the certificates.
    (4) For purposes of this paragraph, discovery of the overissuance 
occurs when the transfer agent identifies the erroneously issued 
certificate(s) and the registered securityholder(s).
    (h) Subsequent to the effective date of this section, registered 
transfer agents that:
    (1) Assume the maintenance and updating of master securityholder 
files from predecessor transfer agents,
    (2) Establish a new master securityholder file for a particular 
issue, or
    (3) Convert from manual to automated systems,

must carry over any existing certificate detail required by this section 
on the master securityholder file.

A recordkeeping transfer agent shall not be required to add certificate 
detail to the master securityholder file respecting certificates issued 
prior to the effective date of this section.

(Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 U.S.C. 78b, 78q(a), 78q-
1(d) and 78w(a))

[48 FR 28246, June 21, 1983, as amended at 51 FR 5708, Feb. 18, 1986]



Sec.240.17Ad-11  Reports regarding aged record differences, buy-ins 
and failure to post certificate detail to master securityholder 
and subsidiary files.

    (a) Definitions. (1) Issuer capitalization means the market value of 
the issuer's authorized and outstanding equity securities or, with 
respect to a municipal securities issuer, the market value of all debt 
issues for which the transfer agent performs recordkeeping functions on 
behalf of that issuer, determined by reference to the control book and 
current market prices.
    (2) An aged record difference is a record difference that has 
existed for more than thirty calendar days.
    (b) Reports to Issuers. (1) Within ten business days following the 
end of each month, every recordkeeping transfer agent shall report the 
information

[[Page 653]]

specified in paragraph (d)(1) of this section to the persons specified 
in paragraph (b)(3) of this section, when the aggregate market value of 
aged record differences in all equity securities issues or debt 
securities issues maintained on behalf of a particular issuer exceeds 
the thresholds set forth in the table below.

------------------------------------------------------------------------
                                                 Aggregate market value
                                                     of aged record
                                                   differences exceeds
             Issuer capitalization             -------------------------
                                                 For equity    For debt
                                                 securities   securities
------------------------------------------------------------------------
(1) $5 million or less........................      $50,000     $100,000
(2) Greater than $5 million but less than $50       250,000      500,000
 million......................................
(3) Greater than $50 million but less than          500,000    1,000,000
 $150 million.................................
(4) Greater than $150 million.................    1,000,000    2,000,000
------------------------------------------------------------------------

    (2) Within ten business days following the end of each month (or 
within ten days thereafter in the case of a named transfer agent that 
receives a report from a service company pursuant to paragraph 
(b)(3)(i)(C)), every recordkeeping transfer agent shall report the 
information specified in paragraph (d)(2) of this section to the persons 
specified in paragraph (b)(3) of this section, with respect to each 
issue of securities for which it acts as recordkeeping transfer agent, 
concerning any securities bought-in pursuant to Sec.240.17Ad-10(g) or 
reported as bought-in pursuant to Sec.240.17Ad-10(c) during the 
preceding month.
    (3) The report shall be sent:
    (i) By every recordkeeping transfer agent (other than a 
recordkeeping transfer agent that performs transfer agent functions 
solely for its own securities):
    (A) To the official performing corporate secretary functions for the 
issuer of the securities for which the aged record difference exists or 
for which the buy-in occurred;
    (B) With respect to an issue of municipal securities, to the chief 
financial officer of the issuer of the securities for which the aged 
record difference exists or for which the buy-in occurred; or
    (C) If it acts as a service company, to the named transfer agent; 
and
    (ii) By every named transfer agent that is engaged by an issuer to 
maintain and update the master securityholder file:
    (A) To the official performing corporate secretary functions for the 
issuer of the securities for which the aged record difference exists or 
for which the buy-in occurred; or
    (B) With respect to an issue of municipal securities, to the chief 
financial officer of the issuer of the securities for which the aged 
record difference exists or for which the buy-in occurred.
    (c) Reports to appropriate regulatory agencies (1) Within ten 
business days following the end of each calendar quarter, every 
recordkeeping transfer agent shall report the information specified in 
paragraph (d)(1) of this section to its appropriate regulatory agency in 
accordance with Sec.240.17Ad-2(h), when the aggregate market value of 
aged record differences for all issues for which it performs 
recordkeeping functions exceeds the thresholds specified below:
    (i) $300,000 if it is a recordkeeping transfer agent for 5 or fewer 
issues;
    (ii) $500,000 for 6-24 issues;
    (iii) $800,000 for 25-49 issues;
    (iv) $1 million for 50-74 issues;
    (v) $1.2 million for 75-99 issues;
    (vi) $1.4 million for 100-499 issues;
    (vii) $1.6 million for 500-999 issues;
    (viii) $2.6 million for 1,000-1,999 issues; and
    (ix) An additional $1 million for each additional 1,000 issues.
    (2) Within ten business days following the end of each calendar 
quarter, every recordkeeping transfer agent shall report the information 
specified in paragraph (d)(2) of this section to its appropriate 
regulatory agency in accordance with Sec.240.17Ad-2(h), concerning 
buy-ins of all issues for which it acts as recordkeeping transfer agent, 
when the aggregate market value of all buy-ins executed pursuant to 
Sec.240.17Ad-10(g) during that calendar quarter exceeds $100,000.
    (3) When the recordkeeping transfer agent has any debits or credits 
for securities transferred, purchased, redeemed or issued that are 
unposted to the master securityholder and/or subsidiary files for more 
than five business days after debits and credits are required to be 
posted to the master securityholder file or subsidiary files

[[Page 654]]

pursuant to Sec.240.17Ad-10, it shall immediately report such fact to 
its appropriate regulatory agency in accordance with Sec.240.17Ad-2(h) 
and shall state in that report what steps have been, and are being, 
taken to correct the situation.
    (d) Content of reports. (1) Each report pursuant to paragraphs 
(b)(1) and (c)(1) of this section shall set forth with respect to each 
issue of securities:
    (i) The principal dollar amount and related market value of debt 
securities or the number of shares and related market value of equity 
securities comprising the aged record difference (including information 
concerning aged record differences existing as of the effective date of 
this section);
    (ii) The reasons for the aged record difference; and
    (iii) The steps being taken or to be taken to resolve the aged 
record difference.
    (2) Each report pursuant to paragraphs (b)(2) and (c)(2) of this 
section shall set forth with respect to each issue of securities:
    (i) The principal dollar amount of debt securities and related 
market value or the number of shares and related market value of equity 
securities comprising any buy-in executed pursuant to Sec.240.17Ad-
10(g);
    (ii) The party that executed the buy-in; and
    (iii) The reason for the buy-in.
    (e) For purposes of this section, the market value of an issue shall 
be determined as of the last business day on which market value 
information is available during the reporting period.
    (f) A copy of any report required under this section shall be 
retained by the reporting transfer agent for a period of not less than 
three years, the first year in an easily accessible place.

(Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 U.S.C. 78b, 78q(a), 78q-
1(d) and 78w(a))

[48 FR 28247, June 21, 1983]



Sec.240.17Ad-12  Safeguarding of funds and securities.

    (a) Any registered transfer agent that has custody or possession of 
any funds or securities related to its transfer agent activities shall 
assure that:
    (1) All such securities are held in safekeeping and are handled, in 
light of all facts and circumstances, in a manner reasonably free from 
risk of theft, loss or destruction (other than by a transfer agent's 
certificate destruction procedures pursuant to Sec.240.17Ad-19); and
    (2) All such funds are protected, in light of all facts and 
circumstances, against misuse. In evaluating which particular safeguards 
and procedures must be employed, the cost of the various safeguards and 
procedures as well as the nature and degree of potential financial 
exposure are two relevant factors.
    (b) For purposes of this section, the term securities shall have the 
same meaning as the term securities certificate as defined in Sec.
240.17f-1(a)(6).

(Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 U.S.C. 78b, 78q(a), 78q-
1(d) and 78w(a))

[48 FR 28248, June 21, 1983, as amended at 68 FR 74401, Dec. 23, 2003]



Sec.240.17Ad-13  Annual study and evaluation of internal accounting 
control.

    (a) Accountant's report. Every registered transfer agent, except as 
provided in paragraph (d) of this section, shall file annually with the 
Commission and the transfer agent's appropriate regulatory agency in 
accordance with Sec.240.17Ad-2(h), a report specified in paragraph 
(a)(1) of this section prepared by an independent accountant concerning 
the transfer agent's system of internal accounting control and related 
procedures for the transfer of record ownership and the safeguarding of 
related securities and funds. That report shall be filed within 90 
calendar days of the date of the study and evaluation set forth in 
paragraph (a)(1).
    (1) The accountant's report shall:
    (i) State whether the study and evaluation was made in accordance 
with generally accepted auditing standards using the criteria set forth 
in paragraph (a)(3) of this section;
    (ii) Describe any material inadequacies found to exist as of the 
date of the study and evaluation and any corrective action taken, or if 
no material inadequacy existed, the report shall so state;
    (iii) Comment on the current status of any material inadequacy 
described

[[Page 655]]

in the immediately preceding report; and
    (iv) Indicate the date of the study and evaluation.
    (2) The study and evaluation of the transfer agent's system of 
internal accounting control for the transfer of record ownership and the 
safeguarding of related securities and funds shall cover the following:
    (i) Transferring securities related to changes of ownership (i.e., 
cancellation of certificates or other instruments evidencing prior 
ownership and issuance of certificates or instruments evidencing current 
ownership);
    (ii) Registering changes of ownership on the books and records of 
the issuer;
    (iii) Transferring record ownership as a result of corporate actions 
(e.g., issuance, retirement, redemption, liquidation, conversion, 
exchange, tender offer or other types of reorganization);
    (iv) Dividend disbursement or interest paying-agent activities;
    (v) Administering dividend reinvestment programs; and
    (vi) Distributing statements respecting initial offerings of 
securities.
    (3) For purposes of this report, the objectives of a transfer 
agent's system of internal accounting control for the transfer of record 
ownership and the safeguarding of related securities and funds should be 
to provide reasonable, but not absolute, assurance that securities and 
funds are safeguarded against loss from unauthorized use or disposition 
and that transfer agent activities are performed promptly and 
accurately. For purposes of this report, a material inadequacy is a 
condition for which the independent accountant believes that the 
prescribed procedures or the degree of compliance with them do not 
reduce to a relatively low level the risk that errors or irregularities, 
in amounts that would have a significant adverse effect on the transfer 
agent's ability promptly and accurately to transfer record ownership and 
safeguard related securities and funds, would occur or not be detected 
within a timely period by employees in the normal course of performing 
their assigned functions. Occurrence of errors or irregularities more 
frequently than in isolated instances may be evidence that the system 
has a material inadequacy. A significant adverse effect on a transfer 
agent's ability promptly and accurately to transfer record ownership and 
safeguard related securities and funds could result from any condition 
or conditions that individually, or taken as a whole, would reasonably 
be expected to:
    (i) Inhibit the transfer agent from promptly and accurately 
discharging its responsibilities under its contractual agreement with 
the issuer;
    (ii) Result in material financial loss to the transfer agent; or
    (iii) Result in a violation of Sec.240.17Ad-2, 17Ad-10 or 17Ad-
12(a).
    (b) Notice of corrective action. If the accountant's report 
describes any material inadequacy, the transfer agent shall, within 
sixty calendar days after receipt of the report, notify the Commission 
and its appropriate regulatory agency in writing regarding the 
corrective action taken or proposed to be taken.
    (c) Record retention. The accountant's report and any documents 
required by paragraph (b) of this section shall be maintained by the 
transfer agent for at least three years, the first year in an easily 
accessible place.
    (d) Exemptions. The requirements of Sec.240.17Ad-13 shall not 
apply to registered transfer agents that qualify for exemptions pursuant 
to this paragraph, 17Ad-13(d).
    (1) A registered transfer agent shall be exempt if it performs 
transfer agent functions solely for:
    (i) Its own securities;
    (ii) Securities issued by a subsidiary in which it owns 51% or more 
of the subsidiary's capital stock; and
    (iii) Securities issued by another corporation that owns 51% or more 
of the capital stock of the registered transfer agent.
    (2) A registered transfer agent shall be exempt if it:
    (i) Is an exempt transfer agent pursuant to Sec.240.17AD-4(b); and
    (ii) In the case of a transfer agent that performs transfer agent 
functions for redeemable securities issued by companies registered under 
section 8 of the Investment Company Act of 1940, maintains master 
securityholder files consisting of fewer than 1000 shareholder accounts, 
in the aggregate, for

[[Page 656]]

each of such issues for which it performs transfer agent functions.
    (3) A registered transfer agent shall be exempt if it is a bank or 
financial institution subject to regulation by the Board of Governors of 
the Federal Reserve System, the Office of the Comptroller of the 
Currency or the Federal Deposit Insurance Corporation, provided that it 
is not notified to the contrary by its appropriate regulatory agency and 
provided that a report similar in scope to the requirements of Sec.
240.17Ad-13(a) is prepared for either the bank's board of directors or 
an audit committee of the board of directors.

(Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 U.S.C. 78b, 78q(a), 78q-
1(d) and 78w(a))

[48 FR 28248, June 21, 1983]



Sec.240.17Ad-14  Tender agents.

    (a) Establishing book-entry depository accounts. When securities of 
a subject company have been declared eligible by one or more qualified 
registered securities depositories for the services of those 
depositories at the time a tender or exchange offer is commenced, no 
registered transfer agent shall act on behalf of the bidder as a 
depositary, in the case of a tender offer, or an exchange agent, in the 
case of an exchange offer, in connection with a tender or exchange 
offer, unless that transfer agent has established, within two business 
days after commencement of the offer, specially designated accounts. 
These accounts shall be maintained throughout the duration of the offer, 
including protection periods, with all qualified registered securities 
depositories holding the subject company's securities, for purposes of 
receiving from depository participants securities being tendered to the 
bidder by book-entry delivery pursuant to transmittal letters and other 
documentation and for purposes of allowing tender agents to return to 
depository participants by book-entry movement securities withdrawn from 
the offer.
    (b) Exclusions. The rule shall not apply to tender or exchange 
offers (1) that are made for a class of securities of a subject company 
that has fewer than (i) 500 security holders of record for that class, 
or (ii) 500,000 shares of that class outstanding; or (2) that are made 
exclusively to security holders of fewer than 100 shares of a class of 
securities.
    (c) Definitions. For purposes of this rule, (1) the terms subject 
company, business day, security holders, and transmittal letter shall be 
given the meanings provided in Sec.240.14d-1(b); (2) unless the 
context otherwise requires, a tender or exchange offer shall be deemed 
to have commenced as specified in Sec.240.14d-2; (3) the term bidder 
shall mean any person who makes a tender or exchange offer or on whose 
behalf a tender or exchange offer is made; (4) a qualified registered 
securities depository shall mean a registered clearing agency having 
rules and procedures approved by the Commission pursuant to section 19 
of the Securities Exchange Act of 1934 to enable book-entry delivery of 
the securities of the subject company to, and return of those securities 
from, the transfer agent through the facilities of that securities 
depository; and (5) the term depositary refers to that agent of the 
bidder receiving securities from tendering depository participants and 
paying those participants for shares tendered. The term exchange agent 
refers to the agent performing like functions in connection with an 
exchange offer.
    (d) Exemptions. The Commission may exempt from the provisions of 
this rule, either unconditionally or on specified terms and conditions, 
any registered transfer agent, tender or exchange offer, or class of 
tender or exchange offers, if the Commission determines that an 
exemption is consistent with the public interest, the protection of 
investors, the prompt and accurate clearance and settlement of 
securities transactions, the maintenance of fair and orderly markets, or 
the removal of impediments to a national clearance and settlement 
system.

(Secs. 2, 11A(a)(1)(B), 14(d)(4), 15(c)(3), 15(c)(6), 17A(a), 17A(d)(1), 
and 23(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78b, 78k-
1(a)(1)(B), 78n(d)(4), 78o(c)(3), 78o(c)(6), 78q-1(a), 78q-1(d)(1) and 
78w(a)))

[49 FR 3071, Jan. 25, 1984]

[[Page 657]]



Sec.240.17Ad-15  Signature guarantees.

    (a) Definitions. For purposes of this section, the following terms 
shall mean:
    (1) Act means the Securities Exchange Act of 1934;
    (2) Eligible Guarantor Institution means:
    (i) Banks (as that term is defined in section 3(a) of the Federal 
Deposit Insurance Act [12 U.S.C. 1813(a)]);
    (ii) Brokers, dealers municipal securities dealers, municipal 
securities brokers, government securities dealers, and government 
securities brokers, as those terms are defined under the Act;
    (iii) Credit unions (as that term is defined in Section 19 (b)(1)(A) 
of the Federal Reserve Act [12 U.S.C. 461(b)]);
    (iv) National securities exchanges, registered securities 
associations, clearing agencies, as those terms are used under the Act; 
and
    (v) Savings associations (as that term is defined in section 3(b) of 
the Federal Deposit Insurance Act [12 U.S.C. 1813(b)]).
    (3) Guarantee means a guarantee of the signature of the person 
endorsing a certificated security, or originating an instruction to 
transfer ownership of a security or instructions concerning transfer of 
securities.
    (b) Acceptance of signature guarantees. A registered transfer agent 
shall not, directly or indirectly, engage in any activity in connection 
with a guarantee, including the acceptance or rejection of such 
guarantee, that results in the inequitable treatment of any eligible 
guarantor institution or a class of institutions.
    (c) Transfer agent's standards and procedures. Every registered 
transfer agent shall establish:
    (1) Written standards for the acceptance of guarantees of securities 
transfers from eligible guarantor institutions; and
    (2) Procedures, including written guidelines where appropriate, to 
ensure that those standards are used in determining whether to accept or 
reject guarantees from eligible guarantor institutions. Such standards 
and procedures shall not establish terms and conditions (including those 
pertaining to financial condition) that, as written or applied, treat 
different classes of eligible guarantor institutions inequitably, or 
result in the rejection of a guarantee from an eligible guarantor 
institution solely because the guarantor institution is of a particular 
type specified in paragraphs (a)(2)(i)-(a)(2)(v) of this section.
    (d) Rejection of items presented for transfer. (1) No registered 
transfer agent shall reject a request for transfer of a certificated or 
uncertificated security because the certificate, instruction, or 
documents accompanying the certificate or instruction includes an 
unacceptable guarantee, unless the transfer agent determines that the 
guarantor, if it is an eligible guarantor institution, does not satisfy 
the transfer agent's written standards or procedures.
    (2) A registered transfer agent shall notify the guarantor and the 
presentor of the rejection and the reasons for the rejection within two 
business days after rejecting a transfer request because of a 
determination that the guarantor does not satisfy the transfer agent's 
written standards or procedures. Notification to the presentor may be 
accomplished by making the rejected item available to the presentor. 
Notification to the guarantor may be accomplished by telephone, 
facsimile, or ordinary mail.
    (e) Record retention. (1) Every registered transfer agent shall 
maintain a copy of the standards and procedures specified in paragraph 
(c) of this section in an easily accessible place.
    (2) Every registered transfer agent shall make available a copy of 
the standards and procedures specified in paragraph (c) of this section 
to any person requesting a copy of such standards and procedures. The 
registered transfer agent shall respond within three days of a request 
for such standards and procedures by sending the requesting party a copy 
of the requested transfer agent's standards and procedures.
    (3) Every registered transfer agent shall maintain, for a period of 
three years following the date of the rejection, a record of transfers 
rejected, including the reason for the rejection, who the guarantor was 
and whether the guarantor failed to meet the transfer agent's guarantee 
standards.

[[Page 658]]

    (f) Exclusions. Nothing in this section shall prohibit a transfer 
agent from rejecting a request for transfer of a certificated or 
uncertificated security:
    (1) For reasons unrelated to acceptance of the guarantor 
institution;
    (2) Because the person acting on behalf of the guarantor institution 
is not authorized by that institution to act on its behalf, provided 
that the transfer agent maintains a list of people authorized to act on 
behalf of that guarantor institution; or
    (3) Because the eligible guarantor institution of a type specified 
in paragraph (a)(2)(ii) of this section is neither a member of a 
clearing corporation nor maintains net capital of at least $100,000.
    (g) Signature guarantee program. (1) A registered transfer agent 
shall be deemed to comply with paragraph (c) of this section if its 
standards and procedures include:
    (i) Rejecting a request for transfer because the guarantor is 
neither a member of nor a participant in a signature guarantee program; 
or
    (ii) Accepting a guarantee from an eligible guarantor institution 
who, at the time of issuing the guarantee, is a member of or participant 
in a signature guarantee program.
    (2) Within the first six months after revising its standards and 
procedures to include a signature guarantee program, the transfer agent 
shall not reject a request for transfer because the guarantor is neither 
a member of nor participant in a signature guarantee program, unless the 
transfer agent has given that guarantor ninety days written notice of 
the transfer agent's intent to reject transfers with guarantees from 
non-participating or non-member guarantors.
    (3) For purposes of paragraph (g) of this section, the term 
``signature guarantee program,'' means a program, the terms and 
conditions of which the transfer agent reasonably determines:
    (i) To facilitate the equitable treatment of eligible guarantor 
institutions; and
    (ii) To promote the prompt, accurate and safe transfer of securities 
by providing:
    (A) Adequate protection to the transfer agent against risk of 
financial loss in the event persons have no recourse against the 
eligible guarantor institution; and
    (B) Adequate protection to the transfer agent against the issuance 
of unauthorized guarantees.

[57 FR 1095, Jan. 10, 1992]



Sec.240.17Ad-16  Notice of assumption or termination of transfer
agent services.

    (a) A registered transfer agent that ceases to perform transfer 
agent services on behalf of an issuer of securities, including a 
registered transfer agent that ceases to perform transfer agent services 
on behalf of an issuer of securities because of a merger or acquisition 
by another transfer agent, shall send written notice of such termination 
to the appropriate qualified registered securities depository on or 
before the later of ten calendar days prior to the effective date of 
such termination or the day the transfer agent is notified of the 
effective date of such termination. Such notice shall include the full 
name, address, telephone number, and Financial Industry Number Standard 
(``FINS'') number of the transfer agent ceasing to perform the transfer 
agent services for the issuer; the issuer's name; the issue or issues 
handled and their CUSIP number(s); and if known, the name, address, and 
telephone number of the transfer agent that thereafter will provide 
transfer services for the issuer. If no successor transfer agent is 
known, the notice shall include the name and address of a contact person 
at the issuer.
    (b) A registered transfer agent that changes its name or address or 
that assumes transfer agent services on behalf of an issuer of 
securities, including a transfer agent that assumes transfer agent 
services on behalf of an issuer of securities because of a merger or 
acquisition of another transfer agent, shall send written notice of such 
to the appropriate qualified registered securities depository on or 
before the later of ten calendar days prior to the effective date of 
such change in status or the day the transfer agent is notified of the 
effective date of such change in status. A notice regarding a change of 
name or address shall include the full name, address, telephone number, 
and FINS

[[Page 659]]

number of the transfer agent and the location where certificates are 
received for transfer. A notice regarding the assumption of transfer 
agent services on behalf of an issuer of securities, including 
assumption of transfer agent services resulting from the merger or 
acquisition of another transfer agent, shall include the full name, 
address, telephone number, and FINS number of the transfer agent 
assuming the transfer agent services for the issuer; the issuer's name; 
and the issue or issues handled and their CUSIP number(s).
    (c) The notice described in paragraphs (a) and (b) of this section 
shall be delivered by means of secure communication. For purposes of 
this section, secure communication shall include telegraph, overnight 
mail, facsimile, or any other form of secure communication.
    (d)(1) The appropriate qualified registered securities depository 
that receives notices pursuant to paragraphs (a) and (b) of this section 
shall deliver within 24 hours a copy of such notices to each qualified 
registered securities depository. A qualified registered securities 
depository that receives notice pursuant to this section shall deliver a 
copy of such notices to its own participants within 24 hours.
    (2) A qualified registered securities depository may comply with its 
notice requirements under paragraph (d)(1) of this section by making 
available the notice of all material information from the notice within 
24 hours in a manner set forth in the rules of the qualified registered 
securities depository.
    (3) A qualified registered securities depository shall maintain such 
notices for a period of not less than two years, the first six months in 
an easily accessible place. Such notice shall be made available to the 
Commission or other persons as the Commission may designate by order.
    (4) A registered transfer agent that provides notice pursuant to 
paragraphs (a) and (b) of this section shall maintain such notice for a 
period of not less than two years, the first six months in an easily 
accessible place.
    (e) For purposes of this section, a qualified registered securities 
depository shall mean a clearing agency registered under section 17A of 
the Act (15 U.S.C. 78q-1) that performs clearing agency functions as 
described in section 3(a)(23)(A)(i) of the Act (15 U.S.C. 
78c(a)(23)(A)(i)) and that has rules and procedures concerning its 
responsibility for maintaining, updating, and providing appropriate 
access to the information it receives pursuant to this section.
    (f) For purposes of this section, an appropriate qualified 
registered securities depository shall mean the qualified registered 
securities depository that the Commission so designates by order or, in 
the absence of such designation, the qualified registered securities 
depository that is the largest holder of record of all qualified 
registered securities depositories as of the most recent record date.

[59 FR 63661, Dec. 8, 1994]



Sec.240.17Ad-17  Lost securityholders and unresponsive payees.

    (a)(1) Every recordkeeping transfer agent whose master 
securityholder file includes accounts of lost securityholders and every 
broker or dealer that has customer security accounts that include 
accounts of lost securityholders shall exercise reasonable care to 
ascertain the correct addresses of such securityholders. In exercising 
reasonable care to ascertain such lost securityholders' correct 
addresses, each such recordkeeping transfer agent and each such broker 
or dealer shall conduct two database searches using at least one 
information database service. The transfer agent, broker, or dealer 
shall search by taxpayer identification number or by name if a search 
based on taxpayer identification number is not reasonably likely to 
locate the securityholder. Such database searches must be conducted 
without charge to a lost securityholder and with the following 
frequency:
    (i) Between three and twelve months of such securityholder becoming 
a lost securityholder; and
    (ii) Between six and twelve months after the first search for such 
lost securityholder by the transfer agent, broker, or dealer.
    (2) A transfer agent, broker, or dealer may not use a search method 
or service to establish contact with lost

[[Page 660]]

securityholders that results in a charge to a lost securityholder prior 
to completing the searches set forth in paragraph (a)(1) of this 
section.
    (3) A transfer agent, broker, or dealer need not conduct the 
searches set forth in paragraph (a)(1) of this section for a lost 
securityholder if:
    (i) It has received documentation that such securityholder is 
deceased; or
    (ii) The aggregate value of assets listed in the lost 
securityholder's account, including all dividend, interest, and other 
payments due to the lost securityholder and all securities owned by the 
lost securityholder as recorded in the master securityholder files of 
the transfer agent or in the customer security account records of the 
broker or dealer, is less than $25; or
    (iii) The securityholder is not a natural person.
    (b) For purposes of this section:
    (1) Information data base service means either:
    (i) Any automated data base service that contains addresses from the 
entire United States geographic area, contains the names of at least 50% 
of the United States adult population, is indexed by taxpayer 
identification number or name, and is updated at least four times a 
year; or
    (ii) Any service or combination of services which produces results 
comparable to those of the service described in paragraph (b)(1)(i) of 
this section in locating lost securityholders.
    (2) Lost securityholder means a securityholder:
    (i) To whom an item of correspondence that was sent to the 
securityholder at the address contained in the transfer agent's master 
securityholder file or customer security account records of the broker 
or dealer has been returned as undeliverable; provided, however, that if 
such item is re-sent within one month to the lost securityholder, the 
transfer agent, broker, or dealer may deem the securityholder to be a 
lost securityholder as of the day the resent item is returned as 
undeliverable; and
    (ii) For whom the transfer agent, broker, or dealer has not received 
information regarding the securityholder's new address.
    (c)(1) The paying agent, as defined in paragraph (c)(2) of this 
section, shall provide not less than one written notification to each 
unresponsive payee, as defined in paragraph (c)(3) of this section, 
stating that such unresponsive payee has been sent a check that has not 
yet been negotiated. Such notification may be sent with a check or other 
mailing subsequently sent to the unresponsive payee but must be provided 
no later than seven (7) months (or 210 days) after the sending of the 
not yet negotiated check. The paying agent shall not be required to send 
a written notice to an unresponsive payee if such unresponsive payee 
would be considered a lost securityholder by a transfer agent, broker, 
or dealer.
    (2) The term paying agent shall include any issuer, transfer agent, 
broker, dealer, investment adviser, indenture trustee, custodian, or any 
other person that accepts payments from the issuer of a security and 
distributes the payments to the holders of the security.
    (3) A securityholder shall be considered an unresponsive payee if a 
check is sent to the securityholder by the paying agent and the check is 
not negotiated before the earlier of the paying agent's sending the next 
regularly scheduled check or the elapsing of six (6) months (or 180 
days) after the sending of the not yet negotiated check. A 
securityholder shall no longer be considered an unresponsive payee when 
the securityholder negotiates the check or checks that caused the 
securityholder to be considered an unresponsive payee.
    (4) A paying agent shall be excluded from the requirements of 
paragraph (c)(1) of this section where the value of the not yet 
negotiated check is less than $25.
    (5) The requirements of paragraph (c)(1) of this section shall have 
no effect on state escheatment laws.
    (d) Every recordkeeping transfer agent, every broker or dealer that 
has customer security accounts, and every paying agent shall maintain 
records to demonstrate compliance with the requirements set forth in 
this section, which records shall include written procedures that 
describe the transfer agent's, broker's, dealer's, or paying agent's 
methodology for complying

[[Page 661]]

with this section, and shall retain such records in accordance with Rule 
17Ad-7(i) (Sec.240.17Ad-7(i)).

[62 FR 52237, Oct. 7, 1997; 63 FR 1884, Jan. 12, 1998, as amended at 68 
FR 14316, Mar. 25, 2003; 78 FR 4784, Jan. 23, 2013]



Sec.240.17Ad-18  Year 2000 Reports to be made by certain transfer agents.

    (a) Each registered non-bank transfer agent must file Part I of Form 
TA-Y2K (Sec.249.619 of this chapter) with the Commission describing 
the transfer agent's preparation for Year 2000 Problems. Part I of Form 
TA-Y2K shall be filed no later than August 31, 1998, and April 30, 1999. 
Part I of Form TA-Y2K shall reflect the transfer agent's preparation for 
the Year 2000 as of July 15, 1998, and March 15, 1999, respectively.
    (b) Each registered non-bank transfer agent, except for those 
transfer agents that qualify for the exemption in paragraph (d) of Sec.
240.17Ad-13, must file with the Commission Part II of Form TA-Y2K (Sec.
249.619 of this chapter) in addition to Part I of Form TA-Y2K. Part II 
of Form TA-Y2K report shall address the following topics:
    (1) Whether the board of directors (or similar body) of the transfer 
agent has approved and funded plans for preparing and testing its 
computer systems for Year 2000 Problems;
    (2) Whether the plans of the transfer agent exist in writing and 
address all mission critical computer systems of the transfer agent 
wherever located throughout the world;
    (3) Whether the transfer agent has assigned existing employees, has 
hired new employees, or has engaged third parties to provide assistance 
in addressing Year 2000 Problems; and if so, a description of the work 
that these groups of individuals have performed as of the date of each 
report;
    (4) The current progress on each stage of preparation for potential 
problems caused by Year 2000 Problems. These stages are:
    (i) Awareness of potential Year 2000 Problems;
    (ii) Assessment of what steps the transfer agent must take to 
address Year 2000 Problems;
    (iii) Implementation of the steps needed to address Year 2000 
Problems;
    (iv) Internal testing of software designed to address Year 2000 
Problems, including the number and description of the material 
exceptions resulting from such testing that are unresolved as of the 
reporting date;
    (v) Point-to point or industry-wide testing of software designed to 
address Year 2000 Problems (including testing with other transfer 
agents, other financial institutions, and customers), including the 
number and description of the material exceptions resulting from such 
testing that are unresolved as of the reporting date; and
    (vi) Implementation of tested software that will address Year 2000 
Problems;
    (5) Whether the transfer agent has written contingency plans in the 
event that, after December 31, 1999, it has computer problems caused by 
Year 2000 Problems; and
    (6) What levels of the transfer agent's management are responsible 
for addressing potential problems caused by Year 2000 Problems, 
including a description of the responsibilities for each level of 
management regarding the Year 2000 Problems;
    (7) Any additional material information in both reports concerning 
its management of Year 2000 Problems that could help the Commission 
assess the transfer agent's readiness for the Year 2000.
    (8) Part II of Form TA-Y2K (Sec.249.619 of this chapter) shall be 
filed no later than August 31, 1998, and April 30, 1999. Part II of Form 
TA-Y2K shall reflect the transfer agent's preparation for the Year 2000 
as of July 15, 1998, and March 15, 1999, respectively.
    (c) Any non-bank transfer agent that registers between the adoption 
of the final rule and December 31, 1999, must file with the Commission 
Part I of Form TA-Y2K (Sec.249.619 of this chapter) no later than 30 
days after their registration becomes effective. New transfer agents 
whose registration with the Commission becomes effective between January 
1, 1999, and April 30, 1999, would be required to file the second report 
due on April 30, 1999.
    (d) For purposes of this section, the term Year 2000 Problem shall 
include problems arising from:

[[Page 662]]

    (1) Computer software incorrectly reading the date ``01/01/00'' as 
being the year 1900 or another incorrect year;
    (2) Computer software incorrectly identifying a date in the Year 
1999 or any year thereafter;
    (3) Computer software failing to detect that the Year 2000 is a leap 
year; or
    (4) Any other computer software error that is directly or indirectly 
caused by paragraph (d)(1), (2), or (3) of this section.
    (e) For purposes of this section, the term non-bank transfer agent 
means a transfer agent whose:
    (1) Appropriate regulatory agency, as that term is defined by 15 
U.S.C. 78(c)(34)(B), is the Securities and Exchange Commission; and
    (2) Is not a savings association, as defined by Section 3 of the 
Federal Deposit Insurance Act, 12 U.S.C. 1813, which is regulated by the 
Office of Thrift Supervision.
    (f) Nature and form of reports. No later than April 30, 1999, every 
non-bank transfer agent required to file Part II of Form TA-Y2K (Sec.
249.619 of this chapter) pursuant to paragraph (b)(8) of this section 
shall file with its Form TA-Y2K an original and two copies of a report 
prepared by an independent public accountant regarding the non-bank 
transfer agent's process, as of March 15, 1999, for addressing Year 2000 
Problems with the Commission's principal office in Washington, DC. The 
independent public accountant's report shall be prepared in accordance 
with standards that have been reviewed by the Commission and that have 
been issued by a national organization that is responsible for 
promulgating authoritative accounting and auditing standards.

[63 FR 37693, July 13, 1998, as amended at 63 FR 58635, Nov. 2, 1998]



Sec.240.17Ad-19  Requirements for cancellation, processing, storage,
transportation, and destruction or other disposition of securities 
certificates.

    (a) Definitions. For purposes of this section:
    (1) The terms cancelled or cancellation means the process in which a 
securities certificate:
    (i) Is physically marked to clearly indicate that it no longer 
represents a claim against the issuer; and
    (ii) Is voided on the records of the transfer agent.
    (2) The term cancelled certificate facility means any location where 
securities certificates are cancelled and thereafter processed, stored, 
transported, destroyed or otherwise disposed of.
    (3) The term certificate number means a unique identification or 
serial number that is assigned and affixed by an issuer or transfer 
agent to each securities certificate.
    (4) The term controlled access means the practice of permitting the 
entry of only authorized personnel to areas where securities 
certificates are cancelled and thereafter processed, stored, 
transported, destroyed or otherwise disposed of.
    (5) The term CUSIP number means the unique identification number 
that is assigned to each securities issue.
    (6) The term destruction means the physical ruination of a 
securities certificate by a transfer agent as part of the certificate 
destruction procedures that make the reconstruction of the certificate 
impossible.
    (7) The term otherwise disposed of means any disposition other than 
by destruction.
    (8) The term securities certificate has the same meaning that it has 
in Sec.240.17f-1(a)(6).
    (b) Required procedures for the cancellation, storage, 
transportation, destruction, or other disposition of securities 
certificates. Every transfer agent involved in the handling, processing, 
or storage of securities certificates shall establish and implement 
written procedures for the cancellation, storage, transportation, 
destruction, or other disposition of securities certificates. This 
requirement applies to any agent that the transfer agent uses to perform 
any of these activities.
    (c) Written procedures. The written procedures required by paragraph 
(b) of this section at a minimum shall provide that:
    (1) There is controlled access to any cancelled certificate 
facility;
    (2) Each cancelled certificate be marked with the word ``CANCELLED'' 
by stamp or perforation on the face of

[[Page 663]]

the certificate unless the transfer agent has procedures adopted 
pursuant to this rule for the destruction of cancelled certificates 
within three business days of their cancellation;
    (3) A record that is indexed and retrievable by CUSIP and 
certificate number that contains the CUSIP number, certificate number 
with any prefix or suffix, denomination, registration, issue date, and 
cancellation date of each cancelled certificate;
    (4) A record that is indexed and retrievable by CUSIP and 
certificate number of each destroyed securities certificate or 
securities certificate otherwise disposed of, the records must contain 
for each destroyed or otherwise disposed of certificate the CUSIP 
number, certificate number with any prefix or suffix, denomination, 
registration, issue date, and cancellation date, and additionally for 
any certificate otherwise disposed of a record of how it was disposed 
of, the name and address of the party to whom it was disposed, and the 
date of disposition;
    (5) The physical transportation of cancelled certificates be made in 
a secure manner and that the transfer agent maintain separately a record 
of the CUSIP number and certificate number of each certificate in 
transit;
    (6) Authorized personnel of the transfer agent or its designee 
supervise and witness the intentional destruction of any cancelled 
certificate and retain copies of all records relating to certificates 
which were destroyed; and
    (7) Reports to the Lost and Stolen Securities Program be effected in 
a timely and complete manner, as provided in Sec.240.17f-1 of any 
cancelled certificate that is lost, stolen, missing, or counterfeit.
    (d) Recordkeeping. Every transfer agent subject to this section 
shall maintain records that demonstrate compliance with the requirements 
set forth in this section and that describe the transfer agent's 
methodology for complying with this section for three years, the first 
year in an easily accessible place.
    (e) Exemptive authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from any of the provisions 
of this section, either unconditionally or on specific terms and 
conditions, to any transfer agent or any class of transfer agents and to 
any securities certificate or any class of securities certificates.

[68 FR 74401, Dec. 23, 2003]



Sec.240.17Ad-20  Issuer restrictions or prohibitions on ownership
by securities intermediaries.

    (a) Except as provided in paragraph (c) of this section, no 
registered transfer agent shall transfer any equity security registered 
pursuant to section 12 or any equity security that subjects an issuer to 
reporting under section 15(d) of the Act (15 U.S.C. 78l or 15 U.S.C. 
78o(d)) if such security is subject to any restriction or prohibition on 
transfer to or from a securities intermediary in its capacity as such.
    (b) The term securities intermediary means a clearing agency 
registered under section 17A of the Act (15 U.S.C. 78q-1) or a person, 
including a bank, broker, or dealer, that in the ordinary course of its 
business maintains securities accounts for others in its capacity as 
such.
    (c) The provisions of this section shall not apply to any equity 
security issued by a partnership as defined in rule 901(b) of Regulation 
S-K (Sec.229.901(b) of this chapter).

[70 FR 70862, Dec. 7, 2004]



Sec.240.17Ad-21T  Operational capability in a Year 2000 environment.

    (a) This section applies to every registered non-bank transfer agent 
that uses computers in the conduct of its business as a transfer agent.
    (b)(1) You have a material Year 2000 problem if, at any time on or 
after August 31, 1999:
    (i) Any of your mission critical computer systems incorrectly 
identifies any date in the Year 1999 or the Year 2000, and
    (ii) The error impairs or, if uncorrected, is likely to impair, any 
of your mission critical systems under your control.
    (2) You will be presumed to have a material Year 2000 problem if, at 
any time on or after August 31, 1999, you:
    (i) Do not have written procedures reasonably designed to identify, 
assess, and remediate any material Year 2000

[[Page 664]]

problems in your mission critical systems under your control;
    (ii) Have not verified your Year 2000 remediation efforts through 
reasonable internal testing of your mission critical systems under your 
control and reasonable testing of your external links under your 
control; or
    (iii) Have not remediated all exceptions related to your mission 
critical systems contained in any independent public accountant's report 
prepared on your behalf pursuant to Sec.240.17Ad-18(f).
    (c) If you have or are presumed to have a material Year 2000 
problem, you must immediately notify the Commission and your issuers of 
the problem. You must send this notice to the Commission by overnight 
delivery to the Division of Market Regulation, U.S. Securities and 
Exchange Commission, 100 F Street, NE., Washington, DC 20549-6628 
Attention: Y2K Compliance.
    (d)(1) If you are a registered non-bank transfer agent that has or 
is presumed to have a material Year 2000 problem, you may not, on or 
after August 31, 1999, engage in any transfer agent function, including:
    (i) Countersigning such securities upon issuance;
    (ii) Monitoring the issuance of such securities with a view to 
preventing unauthorized issuance;
    (iii) Registering the transfer of such securities;
    (iv) Exchanging or converting such securities; or
    (v) Transferring record ownership of securities by bookkeeping entry 
without physical issuance of securities certificates.
    (2) Notwithstanding paragraph (d)(1) of this section, you may 
continue to engage in transfer agent functions:
    (i) Until December 1, 1999, if you have submitted a certificate to 
the Commission in compliance with paragraph (e) of this section; or
    (ii) Solely to the extent necessary to effect an orderly cessation 
or transfer of these functions.
    (e)(1)(i) If you are a registered non-bank transfer agent that has 
or is presumed to have a material Year 2000 problem, you may, in 
addition to providing the Commission the notice required by paragraph 
(c) of this section, provide the Commission and your issuers a 
certificate signed by your chief executive officer (or an individual 
with similar authority) stating:
    (A) You are in the process of remediating your material Year 2000 
problem;
    (B) You have scheduled testing of your affected mission critical 
systems to verify that the material Year 2000 problem has been 
remediated, and specify the testing dates;
    (C) The date by which you anticipate completing remediation of the 
material Year 2000 problem in your mission critical systems; and
    (D) Based on inquiries and to the best of the chief executive 
officer's knowledge, you do not anticipate that the existence of the 
material Year 2000 problem in your mission critical systems will impair 
your ability, depending on the nature of your business, to assure the 
prompt and accurate transfer and processing of securities, the 
maintenance of master securityholder files, or the production and 
retention of required records; and you anticipate that the steps 
referred to in paragraphs (e)(1)(i)(A) through (C) of this section will 
result in remedying the material Year 2000 problem on or before November 
15, 1999.
    (ii) If the information contained in any certificate provided to the 
Commission pursuant to paragraph (e) of this section is or becomes 
misleading or inaccurate for any reason, you must promptly file an 
updated certificate correcting such information. In addition to the 
information contained in the certificate, you may provide the Commission 
with any other information necessary to establish that your mission 
critical systems will not have material Year 2000 problems on or after 
November 15, 1999.
    (2) If you have submitted a certificate pursuant to paragraph (e)(1) 
of this section, you must submit a certificate to the Commission and 
your issuers signed by your chief executive officer (or an individual 
with similar authority) on or before November 15, 1999, stating that, 
based on inquiries and to the best of the chief executive officer's 
knowledge, you have remediated your Year 2000 problem or that you will 
cease operations. This certificate must be sent to the Commission by 
overnight delivery to the Division of

[[Page 665]]

Market Regulation, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-6628 Attention: Y2K Compliance.
    (f) Notwithstanding paragraph (d)(2) of this section, you must 
comply with the requirements of paragraph (d)(1) of this section if you 
have been so ordered by the Commission or by a court.
    (g) Beginning August 31, 1999, and ending March 31, 2000, you must 
make backup records for all master securityholder files at the close of 
each business day and must preserve these backup records for a rolling 
five business day period in a manner that will allow for the transfer 
and conversion of the records to a successor transfer agent. If you have 
a material Year 2000 problem, you must preserve for at least one year 
the five day backup records immediately preceding the day the problem 
was discovered. In addition, you must make at the close of business on 
December 27 through 31, 1999, a backup copy for all master 
securityholder files and preserve these records for at least one year. 
Such backup records must permit the timely restoration of such systems 
to their condition existing prior to experiencing the material Year 2000 
problem. Copies of the backup records must be kept in an easily 
accessible place but must not be located with or held in the same 
computer system as the primary records, and you must be able to 
immediately produce or reproduce them. You must furnish promptly to a 
representative of the Commission such legible, true, and complete copies 
of those records, as may be requested.
    (h) For the purposes of this section:
    (1) The term mission critical system means any system that is 
necessary, depending on the nature of your business, to assure the 
prompt and accurate transfer and processing of securities, the 
maintenance of master securityholder files, and the production and 
retention of required records as described in paragraph (d) of this 
section;
    (2) The term customer includes an issuer, transfer agent, or other 
person for which you provide transfer agent services;
    (3) The term registered non-bank transfer agent means a transfer 
agent, whose appropriate regulatory agency is the Commission and not the 
Office of the Comptroller of the Currency, the Board of Governors of the 
Federal Reserve System, or the Federal Deposit Insurance Corporation; 
and
    (4) The term master securityholder file has the same definition as 
defined in Sec.240.17Ad-9(b).
    (i) This temporary section will expire on July 1, 2001.

[64 FR 42029, Aug. 3, 1999, as amended at 73 FR 32228, June 5, 2008]



Sec.240.17Ad-22  Standards for clearing agencies.

    (a) Definitions. For purposes of this section:
    (1) Backtesting means an ex-post comparison of actual outcomes with 
expected outcomes derived from the use of margin models.
    (2) Central counterparty means a clearing agency that interposes 
itself between the counterparties to securities transactions, acting 
functionally as the buyer to every seller and the seller to every buyer.
    (3) Central securities depository services means services of a 
clearing agency that is a securities depository as described in Section 
3(a)(23)(A) of the Act (15 U.S.C. 78c(a)(23)(A)).
    (4) Clearing agency involved in activities with a more complex risk 
profile means a clearing agency registered with the Commission under 
Section 17A of the Act (15 U.S.C. 78q-1) that:
    (i) Provides central counterparty services for security-based swaps;
    (ii) Has been determined by the Commission to be involved in 
activities with a more complex risk profile at the time of its initial 
registration; or
    (iii) Is subsequently determined by the Commission to be involved in 
activities with a more complex risk profile pursuant to Sec.240.17Ab2-
2(b).
    (5) Covered clearing agency means a designated clearing agency or a 
clearing agency involved in activities with a more complex risk profile 
for which the Commodity Futures Trading Commission is not the 
Supervisory Agency as defined in Section 803(8) of the Payment, 
Clearing, and Settlement Supervision Act of 2010 (12 U.S.C. 5461 et 
seq.).
    (6) Designated clearing agency means a clearing agency registered 
with the Commission under Section 17A of the

[[Page 666]]

Exchange Act (15 U.S.C. 78q-1) that is designated systemically important 
by the Financial Stability Oversight Council pursuant to the Payment, 
Clearing, and Settlement Supervision Act of 2010 (12 U.S.C. 5461 et 
seq.) and for which the Commission is the supervisory agency as defined 
in Section 803(8) of the Payment, Clearing, and Settlement Supervision 
Act of 2010 (12 U.S.C. 5461 et seq.).
    (7) Financial market utility has the same meaning as defined in 
Section 803(6) of the Payment, Clearing, and Settlement Supervision Act 
of 2010 (12 U.S.C. 5462(6)).
    (8) Link means, for purposes of paragraph (e)(20) of this section, a 
set of contractual and operational arrangements between two or more 
clearing agencies, financial market utilities, or trading markets that 
connect them directly or indirectly for the purposes of participating in 
settlement, cross margining, expanding their services to additional 
instruments or participants, or for any other purposes material to their 
business.
    (9) Model validation means an evaluation of the performance of each 
material risk management model used by a covered clearing agency (and 
the related parameters and assumptions associated with such models), 
including initial margin models, liquidity risk models, and models used 
to generate clearing or guaranty fund requirements, performed by a 
qualified person who is free from influence from the persons responsible 
for the development or operation of the models or policies being 
validated.
    (10) Net capital as used in paragraph (b)(7) of this section means 
net capital as defined in Sec.240.15c3-1 for broker-dealers or any 
similar risk adjusted capital calculation for all other prospective 
clearing members.
    (11) Normal market conditions as used in paragraphs (b)(1) and (2) 
of this section means conditions in which the expected movement of the 
price of cleared securities would produce changes in a clearing agency's 
exposures to its participants that would be expected to breach margin 
requirements or other risk control mechanisms only one percent of the 
time.
    (12) Participant family means that if a participant directly, or 
indirectly through one or more intermediaries, controls, is controlled 
by, or is under common control with, another participant then the 
affiliated participants shall be collectively deemed to be a single 
participant family for purposes of paragraphs (b)(3), (d)(14), (e)(4), 
and (e)(7) of this section.
    (13) Potential future exposure means the maximum exposure estimated 
to occur at a future point in time with an established single-tailed 
confidence level of at least 99 percent with respect to the estimated 
distribution of future exposure.
    (14) Qualifying liquid resources means, for any covered clearing 
agency, the following, in each relevant currency:
    (i) Cash held either at the central bank of issue or at creditworthy 
commercial banks;
    (ii) Assets that are readily available and convertible into cash 
through prearranged funding arrangements, such as:
    (A) Committed arrangements without material adverse change 
provisions, including:
    (1) Lines of credit;
    (2) Foreign exchange swaps; and
    (3) Repurchase agreements; or
    (B) Other prearranged funding arrangements determined to be highly 
reliable even in extreme but plausible market conditions by the board of 
directors of the covered clearing agency following a review conducted 
for this purpose not less than annually; and
    (iii) Other assets that are readily available and eligible for 
pledging to (or conducting other appropriate forms of transactions with) 
a relevant central bank, if the covered clearing agency has access to 
routine credit at such central bank in a jurisdiction that permits said 
pledges or other transactions by the covered clearing agency.
    (15) Security-based swap means a security-based swap as defined in 
Section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)).
    (16) Sensitivity analysis means an analysis that involves analyzing 
the sensitivity of a model to its assumptions, parameters, and inputs 
that:
    (i) Considers the impact on the model of both moderate and extreme 
changes in a wide range of inputs, parameters,

[[Page 667]]

and assumptions, including correlations of price movements or returns if 
relevant, which reflect a variety of historical and hypothetical market 
conditions. Sensitivity analysis must use actual portfolios and, where 
applicable, hypothetical portfolios that reflect the characteristics of 
proprietary positions and customer positions;
    (ii) When performed by or on behalf of a covered clearing agency 
involved in activities with a more complex risk profile, considers the 
most volatile relevant periods, where practical, that have been 
experienced by the markets served by the clearing agency; and
    (iii) Tests the sensitivity of the model to stressed market 
conditions, including the market conditions that may ensue after the 
default of a member and other extreme but plausible conditions as 
defined in a covered clearing agency's risk policies.
    (17) Stress testing means the estimation of credit or liquidity 
exposures that would result from the realization of potential stress 
scenarios, such as extreme price changes, multiple defaults, or changes 
in other valuation inputs and assumptions.
    (18) Systemically important in multiple jurisdictions means, with 
respect to a covered clearing agency, a covered clearing agency that has 
been determined by the Commission to be systemically important in more 
than one jurisdiction pursuant to Sec.240.17Ab2-2.
    (19) Transparent means, for the purposes of paragraphs (e)(1), (2), 
and (10) of this section, to the extent consistent with other statutory 
and Commission requirements on confidentiality and disclosure, that 
documentation required under paragraphs (e)(1), (2), and (10) is 
disclosed to the Commission and, as appropriate, to other relevant 
authorities, to clearing members and to customers of clearing members, 
to the owners of the covered clearing agency, and to the public.
    (b) A registered clearing agency that performs central counterparty 
services shall establish, implement, maintain and enforce written 
policies and procedures reasonably designed to:
    (1) Measure its credit exposures to its participants at least once a 
day and limit its exposures to potential losses from defaults by its 
participants under normal market conditions so that the operations of 
the clearing agency would not be disrupted and non-defaulting 
participants would not be exposed to losses that they cannot anticipate 
or control.
    (2) Use margin requirements to limit its credit exposures to 
participants under normal market conditions and use risk-based models 
and parameters to set margin requirements and review such margin 
requirements and the related risk-based models and parameters at least 
monthly.
    (3) Maintain sufficient financial resources to withstand, at a 
minimum, a default by the participant family to which it has the largest 
exposure in extreme but plausible market conditions; provided that a 
registered clearing agency acting as a central counterparty for 
security-based swaps shall maintain additional financial resources 
sufficient to withstand, at a minimum, a default by the two participant 
families to which it has the largest exposures in extreme but plausible 
market conditions, in its capacity as a central counterparty for 
security-based swaps. Such policies and procedures may provide that the 
additional financial resources may be maintained by the security-based 
swap clearing agency generally or in separately maintained funds.
    (4) Provide for an annual model validation consisting of evaluating 
the performance of the clearing agency's margin models and the related 
parameters and assumptions associated with such models by a qualified 
person who is free from influence from the persons responsible for the 
development or operation of the models being validated.
    (5) Provide the opportunity for a person that does not perform any 
dealer or security-based swap dealer services to obtain membership on 
fair and reasonable terms at the clearing agency to clear securities for 
itself or on behalf of other persons.
    (6) Have membership standards that do not require that participants 
maintain a portfolio of any minimum size or that participants maintain a 
minimum transaction volume.
    (7) Provide a person that maintains net capital equal to or greater 
than $50 million with the ability to obtain

[[Page 668]]

membership at the clearing agency, provided that such persons are able 
to comply with other reasonable membership standards, with any net 
capital requirements being scalable so that they are proportional to the 
risks posed by the participant's activities to the clearing agency; 
provided, however, that the clearing agency may provide for a higher net 
capital requirement as a condition for membership at the clearing agency 
if the clearing agency demonstrates to the Commission that such a 
requirement is necessary to mitigate risks that could not otherwise be 
effectively managed by other measures and the Commission approves the 
higher net capital requirement as part of a rule filing or clearing 
agency registration application.
    (c) Record of financial resources and annual audited financial 
statements. (1) Each fiscal quarter (based on calculations made as of 
the last business day of the clearing agency's fiscal quarter), or at 
any time upon Commission request, a registered clearing agency that 
performs central counterparty services shall calculate and maintain a 
record, in accordance with Sec.240.17a-1 of this chapter, of the 
financial and qualifying liquid resources necessary to meet the 
requirements, as applicable, of paragraphs (b)(3), (e)(4), and (e)(7) of 
this section, and sufficient documentation to explain the methodology it 
uses to compute such financial resources or qualifying liquid resources 
requirement.
    (2) Within 60 days after the end of its fiscal year, each registered 
clearing agency shall post on its Web site its annual audited financial 
statements. Such financial statements shall:
    (i) Include, for the clearing agency and its subsidiaries, 
consolidated balance sheets as of the end of the two most recent fiscal 
years and statements of income, changes in stockholders' equity and 
other comprehensive income and cash flows for each of the two most 
recent fiscal years;
    (ii) Be prepared in accordance with U.S. generally accepted 
accounting principles, except that for a clearing agency that is a 
corporation or other organization incorporated or organized under the 
laws of any foreign country the consolidated financial statements may be 
prepared in accordance with U.S. generally accepted accounting 
principles or International Financial Reporting Standards as issued by 
the International Accounting Standards Board;
    (iii) Be audited in accordance with standards of the Public Company 
Accounting Oversight Board by a registered public accounting firm that 
is qualified and independent in accordance with 17 CFR 210.2-01; and
    (iv) Include a report of the registered public accounting firm that 
complies with paragraphs (a) through (d) of 17 CFR 210.2-02.
    (d) Each registered clearing agency that is not a covered clearing 
agency shall establish, implement, maintain and enforce written policies 
and procedures reasonably designed to, as applicable:
    (1) Provide for a well-founded, transparent, and enforceable legal 
framework for each aspect of its activities in all relevant 
jurisdictions.
    (2) Require participants to have sufficient financial resources and 
robust operational capacity to meet obligations arising from 
participation in the clearing agency; have procedures in place to 
monitor that participation requirements are met on an ongoing basis; and 
have participation requirements that are objective and publicly 
disclosed, and permit fair and open access.
    (3) Hold assets in a manner that minimizes risk of loss or of delay 
in its access to them; and invest assets in instruments with minimal 
credit, market and liquidity risks.
    (4) Identify sources of operational risk and minimize them through 
the development of appropriate systems, controls, and procedures; 
implement systems that are reliable, resilient and secure, and have 
adequate, scalable capacity; and have business continuity plans that 
allow for timely recovery of operations and fulfillment of a clearing 
agency's obligations.
    (5) Employ money settlement arrangements that eliminate or strictly 
limit the clearing agency's settlement bank risks, that is, its credit 
and liquidity risks from the use of banks to effect money settlements 
with its participants; and require funds transfers

[[Page 669]]

to the clearing agency to be final when effected.
    (6) Be cost-effective in meeting the requirements of participants 
while maintaining safe and secure operations.
    (7) Evaluate the potential sources of risks that can arise when the 
clearing agency establishes links either cross-border or domestically to 
clear or settle trades, and ensure that the risks are managed prudently 
on an ongoing basis.
    (8) Have governance arrangements that are clear and transparent to 
fulfill the public interest requirements in Section 17A of the Act (15 
U.S.C. 78q-1) applicable to clearing agencies, to support the objectives 
of owners and participants, and to promote the effectiveness of the 
clearing agency's risk management procedures.
    (9) Provide market participants with sufficient information for them 
to identify and evaluate the risks and costs associated with using its 
services.
    (10) Immobilize or dematerialize securities certificates and 
transfer them by book entry to the greatest extent possible when the 
clearing agency provides central securities depository services.
    (11) Make key aspects of the clearing agency's default procedures 
publicly available and establish default procedures that ensure that the 
clearing agency can take timely action to contain losses and liquidity 
pressures and to continue meeting its obligations in the event of a 
participant default.
    (12) Ensure that final settlement occurs no later than the end of 
the settlement day; and require that intraday or real-time finality be 
provided where necessary to reduce risks.
    (13) Eliminate principal risk by linking securities transfers to 
funds transfers in a way that achieves delivery versus payment.
    (14) Institute risk controls, including collateral requirements and 
limits to cover the clearing agency's credit exposure to each 
participant family exposure fully, that ensure timely settlement in the 
event that the participant with the largest payment obligation is unable 
to settle when the clearing agency provides central securities 
depository services and extends intraday credit to participants.
    (15) State to its participants the clearing agency's obligations 
with respect to physical deliveries and identify and manage the risks 
from these obligations.
    (e) Each covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably designed 
to, as applicable:
    (1) Provide for a well-founded, clear, transparent, and enforceable 
legal basis for each aspect of its activities in all relevant 
jurisdictions.
    (2) Provide for governance arrangements that:
    (i) Are clear and transparent;
    (ii) Clearly prioritize the safety and efficiency of the covered 
clearing agency;
    (iii) Support the public interest requirements in Section 17A of the 
Act (15 U.S.C. 78q-1) applicable to clearing agencies, and the 
objectives of owners and participants;
    (iv) Establish that the board of directors and senior management 
have appropriate experience and skills to discharge their duties and 
responsibilities;
    (v) Specify clear and direct lines of responsibility; and
    (vi) Consider the interests of participants' customers, securities 
issuers and holders, and other relevant stakeholders of the covered 
clearing agency.
    (3) Maintain a sound risk management framework for comprehensively 
managing legal, credit, liquidity, operational, general business, 
investment, custody, and other risks that arise in or are borne by the 
covered clearing agency, which:
    (i) Includes risk management policies, procedures, and systems 
designed to identify, measure, monitor, and manage the range of risks 
that arise in or are borne by the covered clearing agency, that are 
subject to review on a specified periodic basis and approved by the 
board of directors annually;
    (ii) Includes plans for the recovery and orderly wind-down of the 
covered clearing agency necessitated by credit losses, liquidity 
shortfalls, losses from general business risk, or any other losses;

[[Page 670]]

    (iii) Provides risk management and internal audit personnel with 
sufficient authority, resources, independence from management, and 
access to the board of directors;
    (iv) Provides risk management and internal audit personnel with a 
direct reporting line to, and oversight by, a risk management committee 
and an independent audit committee of the board of directors, 
respectively; and
    (v) Provides for an independent audit committee.
    (4) Effectively identify, measure, monitor, and manage its credit 
exposures to participants and those arising from its payment, clearing, 
and settlement processes, including by:
    (i) Maintaining sufficient financial resources to cover its credit 
exposure to each participant fully with a high degree of confidence;
    (ii) To the extent not already maintained pursuant to paragraph 
(e)(4)(i) of this section, for a covered clearing agency providing 
central counterparty services that is either systemically important in 
multiple jurisdictions or a clearing agency involved in activities with 
a more complex risk profile, maintaining additional financial resources 
at the minimum to enable it to cover a wide range of foreseeable stress 
scenarios that include, but are not limited to, the default of the two 
participant families that would potentially cause the largest aggregate 
credit exposure for the covered clearing agency in extreme but plausible 
market conditions;
    (iii) To the extent not already maintained pursuant to paragraph 
(e)(4)(i) of this section, for a covered clearing agency not subject to 
paragraph (e)(4)(ii) of this section, maintaining additional financial 
resources at the minimum to enable it to cover a wide range of 
foreseeable stress scenarios that include, but are not limited to, the 
default of the participant family that would potentially cause the 
largest aggregate credit exposure for the covered clearing agency in 
extreme but plausible market conditions;
    (iv) Including prefunded financial resources, exclusive of 
assessments for additional guaranty fund contributions or other 
resources that are not prefunded, when calculating the financial 
resources available to meet the standards under paragraphs (e)(4)(i) 
through (iii) of this section, as applicable;
    (v) Maintaining the financial resources required under paragraphs 
(e)(4)(ii) and (iii) of this section, as applicable, in combined or 
separately maintained clearing or guaranty funds;
    (vi) Testing the sufficiency of its total financial resources 
available to meet the minimum financial resource requirements under 
paragraphs (e)(4)(i) through (iii) of this section, as applicable, by:
    (A) Conducting stress testing of its total financial resources once 
each day using standard predetermined parameters and assumptions;
    (B) Conducting a comprehensive analysis on at least a monthly basis 
of the existing stress testing scenarios, models, and underlying 
parameters and assumptions, and considering modifications to ensure they 
are appropriate for determining the covered clearing agency's required 
level of default protection in light of current and evolving market 
conditions;
    (C) Conducting a comprehensive analysis of stress testing scenarios, 
models, and underlying parameters and assumptions more frequently than 
monthly when the products cleared or markets served display high 
volatility or become less liquid, or when the size or concentration of 
positions held by the covered clearing agency's participants increases 
significantly; and
    (D) Reporting the results of its analyses under paragraphs 
(e)(4)(vi)(B) and (C) of this section to appropriate decision makers at 
the covered clearing agency, including but not limited to, its risk 
management committee or board of directors, and using these results to 
evaluate the adequacy of and adjust its margin methodology, model 
parameters, models used to generate clearing or guaranty fund 
requirements, and any other relevant aspects of its credit risk 
management framework, in supporting compliance with the minimum 
financial resources requirements set forth in paragraphs (e)(4)(i) 
through (iii) of this section;
    (vii) Performing a model validation for its credit risk models not 
less than annually or more frequently as may be

[[Page 671]]

contemplated by the covered clearing agency's risk management framework 
established pursuant to paragraph (e)(3) of this section;
    (viii) Addressing allocation of credit losses the covered clearing 
agency may face if its collateral and other resources are insufficient 
to fully cover its credit exposures, including the repayment of any 
funds the covered clearing agency may borrow from liquidity providers; 
and
    (ix) Describing the covered clearing agency's process to replenish 
any financial resources it may use following a default or other event in 
which use of such resources is contemplated.
    (5) Limit the assets it accepts as collateral to those with low 
credit, liquidity, and market risks, and set and enforce appropriately 
conservative haircuts and concentration limits if the covered clearing 
agency requires collateral to manage its or its participants' credit 
exposure; and require a review of the sufficiency of its collateral 
haircuts and concentration limits to be performed not less than 
annually.
    (6) Cover, if the covered clearing agency provides central 
counterparty services, its credit exposures to its participants by 
establishing a risk-based margin system that, at a minimum:
    (i) Considers, and produces margin levels commensurate with, the 
risks and particular attributes of each relevant product, portfolio, and 
market;
    (ii) Marks participant positions to market and collects margin, 
including variation margin or equivalent charges if relevant, at least 
daily and includes the authority and operational capacity to make 
intraday margin calls in defined circumstances;
    (iii) Calculates margin sufficient to cover its potential future 
exposure to participants in the interval between the last margin 
collection and the close out of positions following a participant 
default;
    (iv) Uses reliable sources of timely price data and uses procedures 
and sound valuation models for addressing circumstances in which pricing 
data are not readily available or reliable;
    (v) Uses an appropriate method for measuring credit exposure that 
accounts for relevant product risk factors and portfolio effects across 
products;
    (vi) Is monitored by management on an ongoing basis and is regularly 
reviewed, tested, and verified by:
    (A) Conducting backtests of its margin model at least once each day 
using standard predetermined parameters and assumptions;
    (B) Conducting a sensitivity analysis of its margin model and a 
review of its parameters and assumptions for backtesting on at least a 
monthly basis, and considering modifications to ensure the backtesting 
practices are appropriate for determining the adequacy of the covered 
clearing agency's margin resources;
    (C) Conducting a sensitivity analysis of its margin model and a 
review of its parameters and assumptions for backtesting more frequently 
than monthly during periods of time when the products cleared or markets 
served display high volatility or become less liquid, or when the size 
or concentration of positions held by the covered clearing agency's 
participants increases or decreases significantly; and
    (D) Reporting the results of its analyses under paragraphs 
(e)(6)(vi)(B) and (C) of this section to appropriate decision makers at 
the covered clearing agency, including but not limited to, its risk 
management committee or board of directors, and using these results to 
evaluate the adequacy of and adjust its margin methodology, model 
parameters, and any other relevant aspects of its credit risk management 
framework; and
    (vii) Requires a model validation for the covered clearing agency's 
margin system and related models to be performed not less than annually, 
or more frequently as may be contemplated by the covered clearing 
agency's risk management framework established pursuant to paragraph 
(e)(3) of this section.
    (7) Effectively measure, monitor, and manage the liquidity risk that 
arises in or is borne by the covered clearing agency, including 
measuring, monitoring, and managing its settlement and funding flows on 
an ongoing and timely basis, and its use of intraday liquidity by, at a 
minimum, doing the following:
    (i) Maintaining sufficient liquid resources at the minimum in all 
relevant

[[Page 672]]

currencies to effect same-day and, where appropriate, intraday and 
multiday settlement of payment obligations with a high degree of 
confidence under a wide range of foreseeable stress scenarios that 
includes, but is not limited to, the default of the participant family 
that would generate the largest aggregate payment obligation for the 
covered clearing agency in extreme but plausible market conditions;
    (ii) Holding qualifying liquid resources sufficient to meet the 
minimum liquidity resource requirement under paragraph (e)(7)(i) of this 
section in each relevant currency for which the covered clearing agency 
has payment obligations owed to clearing members;
    (iii) Using the access to accounts and services at a Federal Reserve 
Bank, pursuant to Section 806(a) of the Payment, Clearing, and 
Settlement Supervision Act of 2010 (12 U.S.C. 5465(a)), or other 
relevant central bank, when available and where determined to be 
practical by the board of directors of the covered clearing agency, to 
enhance its management of liquidity risk;
    (iv) Undertaking due diligence to confirm that it has a reasonable 
basis to believe each of its liquidity providers, whether or not such 
liquidity provider is a clearing member, has:
    (A) Sufficient information to understand and manage the liquidity 
provider's liquidity risks; and
    (B) The capacity to perform as required under its commitments to 
provide liquidity to the covered clearing agency;
    (v) Maintaining and testing with each liquidity provider, to the 
extent practicable, the covered clearing agency's procedures and 
operational capacity for accessing each type of relevant liquidity 
resource under paragraph (e)(7)(i) of this section at least annually;
    (vi) Determining the amount and regularly testing the sufficiency of 
the liquid resources held for purposes of meeting the minimum liquid 
resource requirement under paragraph (e)(7)(i) of this section by, at a 
minimum:
    (A) Conducting stress testing of its liquidity resources at least 
once each day using standard and predetermined parameters and 
assumptions;
    (B) Conducting a comprehensive analysis on at least a monthly basis 
of the existing stress testing scenarios, models, and underlying 
parameters and assumptions used in evaluating liquidity needs and 
resources, and considering modifications to ensure they are appropriate 
for determining the clearing agency's identified liquidity needs and 
resources in light of current and evolving market conditions;
    (C) Conducting a comprehensive analysis of the scenarios, models, 
and underlying parameters and assumptions used in evaluating liquidity 
needs and resources more frequently than monthly when the products 
cleared or markets served display high volatility or become less liquid, 
when the size or concentration of positions held by the clearing 
agency's participants increases significantly, or in other appropriate 
circumstances described in such policies and procedures; and
    (D) Reporting the results of its analyses under paragraphs 
(e)(7)(vi)(B) and (C) of this section to appropriate decision makers at 
the covered clearing agency, including but not limited to, its risk 
management committee or board of directors, and using these results to 
evaluate the adequacy of and adjust its liquidity risk management 
methodology, model parameters, and any other relevant aspects of its 
liquidity risk management framework;
    (vii) Performing a model validation of its liquidity risk models not 
less than annually or more frequently as may be contemplated by the 
covered clearing agency's risk management framework established pursuant 
to paragraph (e)(3) of this section;
    (viii) Addressing foreseeable liquidity shortfalls that would not be 
covered by the covered clearing agency's liquid resources and seek to 
avoid unwinding, revoking, or delaying the same-day settlement of 
payment obligations;
    (ix) Describing the covered clearing agency's process to replenish 
any liquid resources that the clearing agency may employ during a stress 
event; and
    (x) Undertaking an analysis at least once a year that evaluates the 
feasibility of maintaining sufficient liquid resources at a minimum in 
all relevant

[[Page 673]]

currencies to effect same-day and, where appropriate, intraday and 
multiday settlement of payment obligations with a high degree of 
confidence under a wide range of foreseeable stress scenarios that 
includes, but is not limited to, the default of the two participant 
families that would potentially cause the largest aggregate payment 
obligation for the covered clearing agency in extreme but plausible 
market conditions if the covered clearing agency provides central 
counterparty services and is either systemically important in multiple 
jurisdictions or a clearing agency involved in activities with a more 
complex risk profile.
    (8) Define the point at which settlement is final to be no later 
than the end of the day on which the payment or obligation is due and, 
where necessary or appropriate, intraday or in real time.
    (9) Conduct its money settlements in central bank money, where 
available and determined to be practical by the board of directors of 
the covered clearing agency, and minimize and manage credit and 
liquidity risk arising from conducting its money settlements in 
commercial bank money if central bank money is not used by the covered 
clearing agency.
    (10) Establish and maintain transparent written standards that state 
its obligations with respect to the delivery of physical instruments, 
and establish and maintain operational practices that identify, monitor, 
and manage the risks associated with such physical deliveries.
    (11) When the covered clearing agency provides central securities 
depository services:
    (i) Maintain securities in an immobilized or dematerialized form for 
their transfer by book entry, ensure the integrity of securities issues, 
and minimize and manage the risks associated with the safekeeping and 
transfer of securities;
    (ii) Implement internal auditing and other controls to safeguard the 
rights of securities issuers and holders and prevent the unauthorized 
creation or deletion of securities, and conduct periodic and at least 
daily reconciliation of securities issues it maintains; and
    (iii) Protect assets against custody risk through appropriate rules 
and procedures consistent with relevant laws, rules, and regulations in 
jurisdictions where it operates.
    (12) Eliminate principal risk by conditioning the final settlement 
of one obligation upon the final settlement of the other, regardless of 
whether the covered clearing agency settles on a gross or net basis and 
when finality occurs if the covered clearing agency settles transactions 
that involve the settlement of two linked obligations.
    (13) Ensure the covered clearing agency has the authority and 
operational capacity to take timely action to contain losses and 
liquidity demands and continue to meet its obligations by, at a minimum, 
requiring the covered clearing agency's participants and, when 
practicable, other stakeholders to participate in the testing and review 
of its default procedures, including any close-out procedures, at least 
annually and following material changes thereto.
    (14) Enable, when the covered clearing agency provides central 
counterparty services for security-based swaps or engages in activities 
that the Commission has determined to have a more complex risk profile, 
the segregation and portability of positions of a participant's 
customers and the collateral provided to the covered clearing agency 
with respect to those positions and effectively protect such positions 
and related collateral from the default or insolvency of that 
participant.
    (15) Identify, monitor, and manage the covered clearing agency's 
general business risk and hold sufficient liquid net assets funded by 
equity to cover potential general business losses so that the covered 
clearing agency can continue operations and services as a going concern 
if those losses materialize, including by:
    (i) Determining the amount of liquid net assets funded by equity 
based upon its general business risk profile and the length of time 
required to achieve a recovery or orderly wind-down, as appropriate, of 
its critical operations and services if such action is taken;

[[Page 674]]

    (ii) Holding liquid net assets funded by equity equal to the greater 
of either (x) six months of the covered clearing agency's current 
operating expenses, or (y) the amount determined by the board of 
directors to be sufficient to ensure a recovery or orderly wind-down of 
critical operations and services of the covered clearing agency, as 
contemplated by the plans established under paragraph (e)(3)(ii) of this 
section, and which:
    (A) Shall be in addition to resources held to cover participant 
defaults or other risks covered under the credit risk standard in 
paragraph (b)(3) or paragraphs (e)(4)(i) through (iii) of this section, 
as applicable, and the liquidity risk standard in paragraphs (e)(7)(i) 
and (ii) of this section; and
    (B) Shall be of high quality and sufficiently liquid to allow the 
covered clearing agency to meet its current and projected operating 
expenses under a range of scenarios, including in adverse market 
conditions; and
    (iii) Maintaining a viable plan, approved by the board of directors 
and updated at least annually, for raising additional equity should its 
equity fall close to or below the amount required under paragraph 
(e)(15)(ii) of this section.
    (16) Safeguard the covered clearing agency's own and its 
participants' assets, minimize the risk of loss and delay in access to 
these assets, and invest such assets in instruments with minimal credit, 
market, and liquidity risks.
    (17) Manage the covered clearing agency's operational risks by:
    (i) Identifying the plausible sources of operational risk, both 
internal and external, and mitigating their impact through the use of 
appropriate systems, policies, procedures, and controls;
    (ii) Ensuring that systems have a high degree of security, 
resiliency, operational reliability, and adequate, scalable capacity; 
and
    (iii) Establishing and maintaining a business continuity plan that 
addresses events posing a significant risk of disrupting operations.
    (18) Establish objective, risk-based, and publicly disclosed 
criteria for participation, which permit fair and open access by direct 
and, where relevant, indirect participants and other financial market 
utilities, require participants to have sufficient financial resources 
and robust operational capacity to meet obligations arising from 
participation in the clearing agency, and monitor compliance with such 
participation requirements on an ongoing basis.
    (19) Identify, monitor, and manage the material risks to the covered 
clearing agency arising from arrangements in which firms that are 
indirect participants in the covered clearing agency rely on the 
services provided by direct participants to access the covered clearing 
agency's payment, clearing, or settlement facilities.
    (20) Identify, monitor, and manage risks related to any link the 
covered clearing agency establishes with one or more other clearing 
agencies, financial market utilities, or trading markets.
    (21) Be efficient and effective in meeting the requirements of its 
participants and the markets it serves, and have the covered clearing 
agency's management regularly review the efficiency and effectiveness of 
its:
    (i) Clearing and settlement arrangements;
    (ii) Operating structure, including risk management policies, 
procedures, and systems;
    (iii) Scope of products cleared or settled; and
    (iv) Use of technology and communication procedures.
    (22) Use, or at a minimum accommodate, relevant internationally 
accepted communication procedures and standards in order to facilitate 
efficient payment, clearing, and settlement.
    (23) Provide for the following:
    (i) Publicly disclosing all relevant rules and material procedures, 
including key aspects of its default rules and procedures;
    (ii) Providing sufficient information to enable participants to 
identify and evaluate the risks, fees, and other material costs they 
incur by participating in the covered clearing agency;
    (iii) Publicly disclosing relevant basic data on transaction volume 
and values;
    (iv) A comprehensive public disclosure that describes its material 
rules,

[[Page 675]]

policies, and procedures regarding its legal, governance, risk 
management, and operating framework, accurate in all material respects 
at the time of publication, that includes:
    (A) Executive summary. An executive summary of the key points from 
paragraphs (e)(23)(iv)(B), (C), and (D) of this section;
    (B) Summary of material changes since the last update of the 
disclosure. A summary of the material changes since the last update of 
paragraph (e)(23)(iv)(C) or (D) of this section;
    (C) General background on the covered clearing agency. A description 
of:
    (1) The covered clearing agency's function and the markets it 
serves;
    (2) Basic data and performance statistics on the covered clearing 
agency's services and operations, such as basic volume and value 
statistics by product type, average aggregate intraday exposures to its 
participants, and statistics on the covered clearing agency's 
operational reliability; and
    (3) The covered clearing agency's general organization, legal and 
regulatory framework, and system design and operations; and
    (D) Standard-by-standard summary narrative. A comprehensive 
narrative disclosure for each applicable standard set forth in 
paragraphs (e)(1) through (23) of this section with sufficient detail 
and context to enable a reader to understand the covered clearing 
agency's approach to controlling the risks and addressing the 
requirements in each standard; and
    (v) Updating the public disclosure under paragraph (e)(23)(iv) of 
this section every two years, or more frequently following changes to 
its system or the environment in which it operates to the extent 
necessary to ensure statements previously provided under paragraph 
(e)(23)(iv) of this section remain accurate in all material respects.
    (f) For purposes of enforcing the Payment, Clearing, and Settlement 
Supervision Act of 2010 (12 U.S.C. 5461 et seq.), a designated clearing 
agency for which the Commission acts as supervisory agency shall be 
subject to, and the Commission shall have the authority under, the 
provisions of paragraphs (b) through (n) of Section 8 of the Federal 
Deposit Insurance Act (12 U.S.C. 1818) in the same manner and to the 
same extent as if such designated clearing agency were an insured 
depository institution and the Commission were the appropriate Federal 
banking agency for such insured depository institution.

[77 FR 66285, Nov. 2, 2012, as amended at 81 FR 70901, Oct. 13, 2016]

  Capital, Margin and Segregation Requirements for Security-Based Swap 
           Dealers and Major Security-Based Swap Participants



Sec.240.18a-1  Net capital requirements for security-based swap 
dealers for which there is not a prudential regulator.

    Sections 240.18a-1, 240.18a-1a, 240.18a-1b, 240.18a-1c, and 240.18a-
1d apply to a security-based swap dealer registered under section 15F of 
the Act (15 U.S.C. 78o-10), including a security-based swap dealer that 
is an OTC derivatives dealer as that term is defined in Sec.240.3b-12. 
A security-based swap dealer registered under section 15F of the Act (15 
U.S.C. 78o-10) that is also a broker or dealer registered under section 
15 of the Act (15 U.S.C. 78o), other than an OTC derivatives dealer, is 
subject to the net capital requirements in Sec.240.15c3-1 and its 
appendices. A security-based swap dealer registered under section 15F of 
the Act that has a prudential regulator is not subject to Sec.240.18a-
1, 240.18a-1a, 240.18a-1b, 240.18a-1c, and 240.18a-1d.
    (a) Minimum requirements. Every registered security-based swap 
dealer must at all times have and maintain net capital no less than the 
greater of the highest minimum requirements applicable to its business 
under paragraph (a)(1) or (2) of this section, and tentative net capital 
no less than the minimum requirement under paragraph (a)(2) of this 
section.
    (1)(i) A security-based swap dealer must at all times maintain net 
capital of not less than the greater of $20 million or:
    (A) Two percent of the risk margin amount; or
    (B) Four percent or less of the risk margin amount if the Commission 
issues an order raising the requirement to four percent or less on or 
after the

[[Page 676]]

third anniversary of this section's compliance date; or
    (C) Eight percent or less of the risk margin amount if the 
Commission issues an order raising the requirement to eight percent or 
less on or after the fifth anniversary of this section's compliance date 
and the Commission had previously issued an order raising the 
requirement under paragraph (a)(1)(ii) of this section;
    (ii) If, after considering the capital and leverage levels of 
security-based swap dealers subject to this paragraph (a)(1), as well as 
the risks of their security-based swap positions, the Commission 
determines that it may be appropriate to change the percentage pursuant 
to paragraph (a)(1)(i)(B) or (C) of this section, the Commission will 
publish a notice of the potential change and subsequently will issue an 
order regarding any such change.
    (2) In accordance with paragraph (d) of this section, the Commission 
may approve, in whole or in part, an application or an amendment to an 
application by a security-based swap dealer to calculate net capital 
using the market risk standards of paragraph (d) to compute a deduction 
for market risk on some or all of its positions, instead of the 
provisions of paragraphs (c)(1)(iv), (vi), and (vii) of this section, 
and Sec.240.18a-1b, and using the credit risk standards of paragraph 
(d) to compute a deduction for credit risk on certain credit exposures 
arising from transactions in derivatives instruments, instead of the 
provisions of paragraphs (c)(1)(iii) and (c)(1)(ix)(A) and (B) of this 
section, subject to any conditions or limitations on the security-based 
swap dealer the Commission may require as necessary or appropriate in 
the public interest or for the protection of investors. A security-based 
swap dealer that has been approved to calculate its net capital under 
paragraph (d) of this section must at all times maintain tentative net 
capital of not less than $100 million and net capital of not less than 
the greater of $20 million or:
    (i)(A) Two percent of the risk margin amount;
    (B) Four percent or less of the risk margin amount if the Commission 
issues an order raising the requirement to four percent or less on or 
after the third anniversary of this section's compliance date; or
    (C) Eight percent or less of the risk margin amount if the 
Commission issues an order raising the requirement to eight percent or 
less on or after the fifth anniversary of this section's compliance date 
and the Commission had previously issued an order raising the 
requirement under paragraph (a)(2)(ii) of this section;
    (ii) If, after considering the capital and leverage levels of 
security-based swap dealers subject to this paragraph (a)(2), as well as 
the risks of their security-based swap positions, the Commission 
determines that it may be appropriate to change the percentage pursuant 
to paragraph (a)(2)(i)(B) or (C) of this section, the Commission will 
publish a notice of the potential change and subsequently will issue an 
order regarding any such change; and
    (b) A security-based swap dealer must at all times maintain net 
capital in addition to the amounts required under paragraph (a)(1) or 
(2) of this section, as applicable, in an amount equal to 10 percent of:
    (1) The excess of the market value of United States Treasury Bills, 
Bonds and Notes subject to reverse repurchase agreements with any one 
party over 105 percent of the contract prices (including accrued 
interest) for reverse repurchase agreements with that party;
    (2) The excess of the market value of securities issued or 
guaranteed as to principal or interest by an agency of the United States 
or mortgage related securities as defined in section 3(a)(41) of the Act 
subject to reverse repurchase agreements with any one party over 110 
percent of the contract prices (including accrued interest) for reverse 
repurchase agreements with that party; and
    (3) The excess of the market value of other securities subject to 
reverse repurchase agreements with any one party over 120 percent of the 
contract prices (including accrued interest) for reverse repurchase 
agreements with that party.
    (c) Definitions. For purpose of this section:

[[Page 677]]

    (1) Net capital. The term net capital shall be deemed to mean the 
net worth of a security-based swap dealer, adjusted by:
    (i) Adjustments to net worth related to unrealized profit or loss 
and deferred tax provisions.
    (A) Adding unrealized profits (or deducting unrealized losses) in 
the accounts of the security-based swap dealer;
    (B)(1) In determining net worth, all long and all short positions in 
listed options shall be marked to their market value and all long and 
all short securities and commodities positions shall be marked to their 
market value.
    (2) In determining net worth, the value attributed to any unlisted 
option shall be the difference between the option's exercise value and 
the market value of the underlying security. In the case of an unlisted 
call, if the market value of the underlying security is less than the 
exercise value of such call it shall be given no value and in the case 
of an unlisted put if the market value of the underlying security is 
more than the exercise value of the unlisted put it shall be given no 
value.
    (C) Adding to net worth the lesser of any deferred income tax 
liability related to the items in paragraphs (c)(1)(i)(C)(1) through (3) 
of this section, or the sum of paragraphs (c)(1)(i)(C)(1), (2), and (3) 
of this section;
    (1) The aggregate amount resulting from applying to the amount of 
the deductions computed in accordance with paragraphs (c)(1)(vi) and 
(vii) of this section and Appendices A and B, Sec.Sec.240.18a-1a and 
240.18a-1b, the appropriate Federal and State tax rate(s) applicable to 
any unrealized gain on the asset on which the deduction was computed;
    (2) Any deferred tax liability related to income accrued which is 
directly related to an asset otherwise deducted pursuant to this 
section;
    (3) Any deferred tax liability related to unrealized appreciation in 
value of any asset(s) which has been otherwise deducted from net worth 
in accordance with the provisions of this section; and
    (D) Adding, in the case of future income tax benefits arising as a 
result of unrealized losses, the amount of such benefits not to exceed 
the amount of income tax liabilities accrued on the books and records of 
the security-based swap dealer, but only to the extent such benefits 
could have been applied to reduce accrued tax liabilities on the date of 
the capital computation, had the related unrealized losses been realized 
on that date.
    (E) Adding to net worth any actual tax liability related to income 
accrued which is directly related to an asset otherwise deducted 
pursuant to this section.
    (ii) Subordinated liabilities. Excluding liabilities of the 
security-based swap dealer that are subordinated to the claims of 
creditors pursuant to a satisfactory subordinated loan agreement, as 
defined in Sec.240.18a-1d.
    (iii) Assets not readily convertible into cash. Deducting fixed 
assets and assets which cannot be readily converted into cash, 
including, among other things:
    (A) Fixed assets and prepaid items. Real estate; furniture and 
fixtures; exchange memberships; prepaid rent, insurance and other 
expenses; goodwill; organization expenses;
    (B) Certain unsecured and partly secured receivables. All unsecured 
advances and loans; deficits in customers' and non-customers' unsecured 
and partly secured notes; deficits in customers' and non-customers' 
unsecured and partly secured accounts after application of calls for 
margin, marks to the market or other required deposits that are 
outstanding for more than the required time frame to collect the margin, 
marks to the market, or other required deposits; and the market value of 
stock loaned in excess of the value of any collateral received 
therefore.
    (C) Insurance claims. Insurance claims that, after seven (7) 
business days from the date the loss giving rise to the claim is 
discovered, are not covered by an opinion of outside counsel that the 
claim is valid and is covered by insurance policies presently in effect; 
insurance claims that after twenty (20) business days from the date the 
loss giving rise to the claim is discovered and that are accompanied by 
an opinion of outside counsel described above, have not been 
acknowledged in writing by the insurance carrier as due and payable; and 
insurance claims acknowledged in

[[Page 678]]

writing by the carrier as due and payable outstanding longer than twenty 
(20) business days from the date they are so acknowledged by the 
carrier; and
    (D) Other deductions. All other unsecured receivables; all assets 
doubtful of collection less any reserves established therefore; the 
amount by which the market value of securities failed to receive 
outstanding longer than thirty (30) calendar days exceeds the contract 
value of such fails to receive, and the funds on deposit in a 
``segregated trust account'' in accordance with 17 CFR 270.27d-1 under 
the Investment Company Act of 1940, but only to the extent that the 
amount on deposit in such segregated trust account exceeds the amount of 
liability reserves established and maintained for refunds of charges 
required by sections 27(d) and 27(f) of the Investment Company Act of 
1940; Provided, That any amount deposited in the ``special reserve 
account for the exclusive benefit of the security-based swap customers'' 
established pursuant to Sec.240.18a-4 and clearing deposits shall not 
be so deducted.
    (E) Repurchase agreements. (1) For purposes of this paragraph:
    (i) The term reverse repurchase agreement deficit shall mean the 
difference between the contract price for resale of the securities under 
a reverse repurchase agreement and the market value of those securities 
(if less than the contract price).
    (ii) The term repurchase agreement deficit shall mean the difference 
between the market value of securities subject to the repurchase 
agreement and the contract price for repurchase of the securities (if 
less than the market value of the securities).
    (iii) As used in this paragraph (c)(1)(iii)(E)(1), the term contract 
price shall include accrued interest.
    (iv) Reverse repurchase agreement deficits and the repurchase 
agreement deficits where the counterparty is the Federal Reserve Bank of 
New York shall be disregarded.
    (2)(i) In the case of a reverse repurchase agreement, the deduction 
shall be equal to the reverse repurchase agreement deficit.
    (ii) In determining the required deductions under paragraph 
(c)(1)(iii)(E)(2)(i) of this section, the security-based swap dealer may 
reduce the reverse repurchase agreement deficit by: Any margin or other 
deposits held by the security-based swap dealer on account of the 
reverse repurchase agreement; any excess market value of the securities 
over the contract price for resale of those securities under any other 
reverse repurchase agreement with the same party; the difference between 
the contract price for resale and the market value of securities subject 
to repurchase agreements with the same party (if the market value of 
those securities is less than the contract price); and calls for margin, 
marks to the market, or other required deposits that are outstanding one 
business day or less.
    (3) In the case of repurchase agreements, the deduction shall be:
    (i) The excess of the repurchase agreement deficit over 5 percent of 
the contract price for resale of United States Treasury Bills, Notes and 
Bonds, 10 percent of the contract price for the resale of securities 
issued or guaranteed as to principal or interest by an agency of the 
United States or mortgage related securities as defined in section 
3(a)(41) of the Act and 20 percent of the contract price for the resale 
of other securities; and
    (ii) The excess of the aggregate repurchase agreement deficits with 
any one party over 25 percent of the security-based swap dealer's net 
capital before the application of paragraphs (c)(1)(vi) and (vii) of 
this section (less any deduction taken with respect to repurchase 
agreements with that party under paragraph (c)(1)(iii)(E)(3)(i) of this 
section) or, if greater; the excess of the aggregate repurchase 
agreement deficits over 300 percent of the security-based swap dealer's 
net capital before the application of paragraphs (c)(1)(vi) and (vii) of 
this section.
    (iii) In determining the required deduction under paragraphs 
(c)(1)(iii)(E)(3)(i) and (ii) of this section, the security-based swap 
dealer may reduce a repurchase agreement by any margin or other deposits 
held by the security-based swap dealer on account of a reverse 
repurchase agreement with

[[Page 679]]

the same party to the extent not otherwise used to reduce a reverse 
repurchase agreement deficit; the difference between the contract price 
and the market value of securities subject to other repurchase 
agreements with the same party (if the market value of those securities 
is less than the contract price) not otherwise used to reduce a reverse 
repurchase agreement deficit; and calls for margin, marks to the market, 
or other required deposits that are outstanding one business day or less 
to the extent not otherwise used to reduce a reverse repurchase 
agreement deficit.
    (F) Securities borrowed. One percent of the market value of 
securities borrowed collateralized by an irrevocable letter of credit.
    (G) Affiliate receivables and collateral. Any receivable from an 
affiliate of the security-based swap dealer (not otherwise deducted from 
net worth) and the market value of any collateral given to an affiliate 
(not otherwise deducted from net worth) to secure a liability over the 
amount of the liability of the security-based swap dealer unless the 
books and records of the affiliate are made available for examination 
when requested by the representatives of the Commission in order to 
demonstrate the validity of the receivable or payable. The provisions of 
this subsection shall not apply where the affiliate is a registered 
security-based swap dealer, registered broker or dealer, registered 
government securities broker or dealer, bank as defined in section 
3(a)(6) of the Act, insurance company as defined in section 3(a)(19) of 
the Act, investment company registered under the Investment Company Act 
of 1940, federally insured savings and loan association, or futures 
commission merchant or swap dealer registered pursuant to the Commodity 
Exchange Act.
    (iv) Non-marketable securities. Deducting 100 percent of the 
carrying value in the case of securities or evidence of indebtedness in 
the proprietary or other accounts of the security-based swap dealer, for 
which there is no ready market, as defined in paragraph (c)(4) of this 
section, and securities, in the proprietary or other accounts of the 
security-based swap dealer, that cannot be publicly offered or sold 
because of statutory, regulatory or contractual arrangements or other 
restrictions.
    (v) Deducting from the contract value of each failed to deliver 
contract that is outstanding five business days or longer (21 business 
days or longer in the case of municipal securities) the percentages of 
the market value of the underlying security that would be required by 
application of the deduction required by paragraph (c)(1)(vii) of this 
section. Such deduction, however, shall be increased by any excess of 
the contract price of the failed to deliver contract over the market 
value of the underlying security or reduced by any excess of the market 
value of the underlying security over the contract value of the failed 
to deliver contract, but not to exceed the amount of such deduction. The 
Commission may, upon application of the security-based swap dealer, 
extend for a period up to 5 business days, any period herein specified 
when it is satisfied that the extension is warranted. The Commission 
upon expiration of the extension may extend for one additional period of 
up to 5 business days, any period herein specified when it is satisfied 
that the extension is warranted.
    (vi)(A) Cleared security-based swaps. In the case of a cleared 
security-based swap held in a proprietary account of the security-based 
swap dealer, deducting the amount of the applicable margin requirement 
of the clearing agency or, if the security-based swap references an 
equity security, the security-based swap dealer may take a deduction 
using the method specified in Sec.240.18a-1a.
    (B) Non-cleared security-based swaps--(1) Credit default swaps--(i) 
Short positions (selling protection). In the case of a non-cleared 
security-based swap that is a short credit default swap, deducting the 
percentage of the notional amount based upon the current basis point 
spread of the credit default swap and the maturity of the credit default 
swap in accordance with table 1 to Sec.240.18a-1(c)(1)(vi)(B)(1)(i):

[[Page 680]]



                                                     Table 1 to Sec.240.18a-1(c)(1)(vi)(B)(1)(i)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Basis point spread
    Length of time to maturity of credit default swap    -----------------------------------------------------------------------------------------------
                        contract                            100 or less                                                                     700 or more
                                                                (%)        101-300  (%)    301-400  (%)    401-500  (%)    501-699  (%)         (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Less than 12 months.....................................            1.00            2.00            5.00            7.50           10.00           15.00
12 months but less than 24 months.......................            1.50            3.50            7.50           10.00           12.50           17.50
24 months but less than 36 months.......................            2.00            5.00           10.00           12.50           15.00           20.00
36 months but less than 48 months.......................            3.00            6.00           12.50           15.00           17.50           22.50
48 months but less than 60 months.......................            4.00            7.00           15.00           17.50           20.00           25.00
60 months but less than 72 months.......................            5.50            8.50           17.50           20.00           22.50           27.50
72 months but less than 84 months.......................            7.00           10.00           20.00           22.50           25.00           30.00
84 months but less than 120 months......................            8.50           15.00           22.50           25.00           27.50           40.00
120 months and longer...................................           10.00           20.00           25.00           27.50           30.00           50.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (ii) Long positions (purchasing protection). In the case of a non-
cleared security-based swap that is a long credit default swap, 
deducting 50 percent of the deduction that would be required by 
paragraph (c)(1)(vi)(B)(1)(i) of this section if the non-cleared 
security-based swap was a short credit default swap, each such deduction 
not to exceed the current market value of the long position.
    (iii) Long and short credit default swaps. In the case of non-
cleared security-based swaps that are long and short credit default 
swaps referencing the same entity (in the case of non-cleared credit 
default swap security-based swaps referencing a corporate entity) or 
obligation (in the case of non-cleared credit default swap security-
based swaps referencing an asset-backed security), that have the same 
credit events which would trigger payment by the seller of protection, 
that have the same basket of obligations which would determine the 
amount of payment by the seller of protection upon the occurrence of a 
credit event, that are in the same or adjacent spread category, and that 
are in the same or adjacent maturity category and have a maturity date 
within three months of the other maturity category, deducting the 
percentage of the notional amount specified in the higher maturity 
category under paragraph (c)(1)(vi)(B)(1)(i) or (ii) on the excess of 
the long or short position. In the case of non-cleared security-based 
swaps that are long and short credit default swaps referencing corporate 
entities in the same industry sector and the same spread and maturity 
categories prescribed in paragraph (c)(1)(vi)(B)(1)(i) of this section, 
deducting 50 percent of the amount required by paragraph 
(c)(1)(vi)(B)(1)(i) of this section on the short position plus the 
deduction required by paragraph (c)(1)(vi)(B)(1)(ii) of this section on 
the excess long position, if any. For the purposes of this section, the 
security-based swap dealer must use an industry sector classification 
system that is reasonable in terms of grouping types of companies with 
similar business activities and risk characteristics and the security-
based swap dealer must document the industry sector classification 
system used pursuant to this section.
    (iv) Long security and long credit default swap. In the case of a 
non-cleared security-based swap that is a long credit default swap 
referencing a debt security and the security-based swap dealer is long 
the same debt security, deducting 50 percent of the amount specified in 
Sec.240.15c3-1(c)(2)(vi) or (vii) for the debt security, provided that 
the security-based swap dealer can deliver the debt security to satisfy 
the obligation of the security-based swap dealer on the credit default 
swap.
    (v) Short security and short credit default swap. In the case of a 
non-cleared security-based swap that is a short credit default swap 
referencing a debt security or a corporate entity, and the security-
based swap dealer is short the

[[Page 681]]

debt security or a debt security issued by the corporate entity, 
deducting the amount specified in Sec.240.15c3-1(c)(2)(vi) or (vii) 
for the debt security. In the case of a non-cleared security-based swap 
that is a short credit default swap referencing an asset-backed security 
and the security-based swap dealer is short the asset-backed security, 
deducting the amount specified in Sec.240.15c3-1(c)(2)(vi) or (vii) 
for the asset-backed security.
    (2) All other security-based swaps. In the case of a non-cleared 
security-based swap that is not a credit default swap, deducting the 
amount calculated by multiplying the notional amount of the security-
based swap and the percentage specified in Sec.240.15c3-1(c)(2)(vi) 
applicable to the reference security. A security-based swap dealer may 
reduce the deduction under this paragraph (c)(1)(vi)(B)(2) by an amount 
equal to any reduction recognized for a comparable long or short 
position in the reference security under Sec.240.15c3-1(c)(2)(vi) and, 
in the case of a security-based swap referencing an equity security, the 
method specified in Sec.240.18a-1a.
    (vii) All other securities, money market instruments or options. 
Deducting the percentages specified in Sec.240.15c3-1(c)(2)(vi) of the 
market value of all securities, money market instruments, and options in 
the proprietary accounts of the security-based swap dealer.
    (viii) Deduction from net worth for certain undermargined accounts. 
Deducting the amount of cash required in the account of each security-
based swap and swap customer to meet the margin requirements of a 
clearing agency, the Commission, derivatives clearing organization, or 
the Commodity Futures Trading Commission, as applicable, after 
application of calls for margin, marks to the market, or other required 
deposits which are outstanding within the required time frame to collect 
the margin, mark to the market, or other required deposits.
    (ix) Deduction from net worth in lieu of collecting collateral for 
non-cleared security-based swap and swap transactions--(A) Security-
based swaps. Deducting the initial margin amount calculated pursuant to 
Sec.240.18a-3(c)(1)(i)(B) for the account of a counterparty at the 
security-based swap dealer that is subject to a margin exception set 
forth in Sec.240.18a-3(c)(1)(iii), less the margin value of collateral 
held in the account.
    (B) Swaps. Deducting the initial margin amount calculated pursuant 
to the margin rules of the Commodity Futures Trading Commission in the 
account of a counterparty at the security-based swap dealer that is 
subject to a margin exception in those rules, less the margin value of 
collateral held in the account.
    (C) Treatment of collateral held at a third-party custodian. For the 
purposes of the deductions required pursuant to paragraphs (c)(1)(ix)(A) 
and (B) of this section, collateral held by an independent third-party 
custodian as initial margin may be treated as collateral held in the 
account of the counterparty at the security-based swap dealer if:
    (1) The independent third-party custodian is a bank as defined in 
section 3(a)(6) of the Act or a registered U.S. clearing organization or 
depository that is not affiliated with the counterparty or, if the 
collateral consists of foreign securities or currencies, a supervised 
foreign bank, clearing organization, or depository that is not 
affiliated with the counterparty and that customarily maintains custody 
of such foreign securities or currencies;
    (2) The security-based swap dealer, the independent third-party 
custodian, and the counterparty that delivered the collateral to the 
custodian have executed an account control agreement governing the terms 
under which the custodian holds and releases collateral pledged by the 
counterparty as initial margin that is a legal, valid, binding, and 
enforceable agreement under the laws of all relevant jurisdictions, 
including in the event of bankruptcy, insolvency, or a similar 
proceeding of any of the parties to the agreement, and that provides the 
security-based swap dealer with the right to access the collateral to 
satisfy the counterparty's obligations to the security-based swap dealer 
arising from transactions in the account of the counterparty; and
    (3) The security-based swap dealer maintains written documentation 
of

[[Page 682]]

its analysis that in the event of a legal challenge the relevant court 
or administrative authorities would find the account control agreement 
to be legal, valid, binding, and enforceable under the applicable law, 
including in the event of the receivership, conservatorship, insolvency, 
liquidation, or a similar proceeding of any of the parties to the 
agreement.
    (x)(A) Deducting the market value of all short securities 
differences (which shall include securities positions reflected on the 
securities record which are not susceptible to either count or 
confirmation) unresolved after discovery in accordance with the schedule 
in table 2 to Sec.240.18a-1(c)(1)(x)(A):

                 Table 2 to Sec.240.18a-1(c)(1)(x)(A)
------------------------------------------------------------------------
                                                             Number of
                                                           business days
                     Differences \1\                           after
                                                             discovery
------------------------------------------------------------------------
25 percent..............................................               7
50 percent..............................................              14
75 percent..............................................              21
100 percent.............................................              28
------------------------------------------------------------------------
\1\ Percentage of market value of short securities differences.

    (B) Deducting the market value of any long securities differences, 
where such securities have been sold by the security-based swap dealer 
before they are adequately resolved, less any reserves established 
therefor;
    (C) The Commission may extend the periods in paragraph (c)(1)(x)(A) 
of this section for up to 10 business days if it finds that exceptional 
circumstances warrant an extension.
    (2) The term exempted securities shall mean those securities deemed 
exempted securities by section 3(a)(12) of the Act (15 U.S.C. 
78c(a)(12)) and the rules thereunder.
    (3) Customer. The term customer shall mean any person from whom, or 
on whose behalf, a security-based swap dealer has received, acquired or 
holds funds or securities for the account of such person, but shall not 
include a security-based swap dealer, a broker or dealer, a registered 
municipal securities dealer, or a general, special or limited partner or 
director or officer of the security-based swap dealer, or any person to 
the extent that such person has a claim for property or funds which by 
contract, agreement, or understanding, or by operation of law, is part 
of the capital of the security-based swap dealer.
    (4) Ready market. The term ready market shall include a recognized 
established securities market in which there exist independent bona fide 
offers to buy and sell so that a price reasonably related to the last 
sales price or current bona fide competitive bid and offer quotations 
can be determined for a particular security almost instantaneously and 
where payment will be received in settlement of a sale at such price 
within a relatively short time conforming to trade custom.
    (5) The term tentative net capital means the net capital of the 
security-based swap dealer before deducting the haircuts computed 
pursuant to paragraphs (c)(1)(vi) and (vii) of this section and the 
charges on inventory computed pursuant to Sec.240.18a-1b. However, for 
purposes of paragraph (a)(2) of this section, the term tentative net 
capital means the net capital of the security-based swap dealer before 
deductions for market and credit risk computed pursuant to paragraph (d) 
of this section or paragraphs (c)(1)(vi) and (vii) of this section, if 
applicable, and increased by the balance sheet value (including 
counterparty net exposure) resulting from transactions in derivative 
instruments which would otherwise be deducted pursuant to paragraph 
(c)(1)(iii) of this section. Tentative net capital shall include 
securities for which there is no ready market, as defined in paragraph 
(c)(4) of this section, if the use of mathematical models has been 
approved for purposes of calculating deductions from net capital for 
those securities pursuant to paragraph (d) of this section.
    (6) The term risk margin amount means the sum of:
    (i) The total initial margin required to be maintained by the 
security-based swap dealer at each clearing agency with respect to 
security-based swap transactions cleared for security-based swap 
customers; and
    (ii) The total initial margin amount calculated by the security-
based swap dealer with respect to non-cleared security-based swaps 
pursuant to Sec.240.18a-3(c)(1)(i)(B).
    (d) Application to use models to compute deductions for market and 
credit

[[Page 683]]

risk. (1) A security-based swap dealer may apply to the Commission for 
authorization to compute deductions for market risk under this paragraph 
(d) in lieu of computing deductions pursuant to paragraphs (c)(1)(iv), 
(vi), and (vii) of this section, and Sec.240.18a-1b, and to compute 
deductions for credit risk pursuant to this paragraph (d) on credit 
exposures arising from transactions in derivatives instruments (if this 
paragraph (d) is used to calculate deductions for market risk on these 
instruments) in lieu of computing deductions pursuant to paragraphs 
(c)(1)(iii) and (c)(1)(ix)(A) and (B) of this section:
    (i) A security-based swap dealer shall submit the following 
information to the Commission with its application:
    (A) An executive summary of the information provided to the 
Commission with its application and an identification of the ultimate 
holding company of the security-based swap dealer;
    (B) A comprehensive description of the internal risk management 
control system of the security-based swap dealer and how that system 
satisfies the requirements set forth in Sec.240.15c3-4;
    (C) A list of the categories of positions that the security-based 
swap dealer holds in its proprietary accounts and a brief description of 
the methods that the security-based swap dealer will use to calculate 
deductions for market and credit risk on those categories of positions;
    (D) A description of the mathematical models to be used to price 
positions and to compute deductions for market risk, including those 
portions of the deductions attributable to specific risk, if applicable, 
and deductions for credit risk; a description of the creation, use, and 
maintenance of the mathematical models; a description of the security-
based swap dealer's internal risk management controls over those models, 
including a description of each category of persons who may input data 
into the models; if a mathematical model incorporates empirical 
correlations across risk categories, a description of the process for 
measuring correlations; a description of the backtesting procedures the 
security-based swap dealer will use to backtest the mathematical models 
used to calculate maximum potential exposure; a description of how each 
mathematical model satisfies the applicable qualitative and quantitative 
requirements set forth in this paragraph (d); and a statement describing 
the extent to which each mathematical model used to compute deductions 
for market risk and credit risk will be used as part of the risk 
analyses and reports presented to senior management;
    (E) If the security-based swap dealer is applying to the Commission 
for approval to use scenario analysis to calculate deductions for market 
risk for certain positions, a list of those types of positions, a 
description of how those deductions will be calculated using scenario 
analysis, and an explanation of why each scenario analysis is 
appropriate to calculate deductions for market risk on those types of 
positions;
    (F) A description of how the security-based swap dealer will 
calculate current exposure;
    (G) A description of how the security-based swap dealer will 
determine internal credit ratings of counterparties and internal credit 
risk weights of counterparties, if applicable;
    (H) For each instance in which a mathematical model to be used by 
the security-based swap dealer to calculate a deduction for market risk 
or to calculate maximum potential exposure for a particular product or 
counterparty differs from the mathematical model used by the ultimate 
holding company to calculate an allowance for market risk or to 
calculate maximum potential exposure for that same product or 
counterparty, a description of the difference(s) between the 
mathematical models; and
    (I) Sample risk reports that are provided to management at the 
security-based swap dealer who are responsible for managing the 
security-based swap dealer's risk.
    (ii) [Reserved].
    (2) The application of the security-based swap dealer shall be 
supplemented by other information relating to the internal risk 
management control system, mathematical models, and financial position 
of the security-based swap dealer that the Commission may request to 
complete its review of the application;

[[Page 684]]

    (3) The application shall be considered filed when received at the 
Commission's principal office in Washington, DC. A person who files an 
application pursuant to this section for which it seeks confidential 
treatment may clearly mark each page or segregable portion of each page 
with the words ``Confidential Treatment Requested.'' All information 
submitted in connection with the application will be accorded 
confidential treatment, to the extent permitted by law;
    (4) If any of the information filed with the Commission as part of 
the application of the security-based swap dealer is found to be or 
becomes inaccurate before the Commission approves the application, the 
security-based swap dealer must notify the Commission promptly and 
provide the Commission with a description of the circumstances in which 
the information was found to be or has become inaccurate along with 
updated, accurate information;
    (5)(i) The Commission may approve the application or an amendment to 
the application, in whole or in part, subject to any conditions or 
limitations the Commission may require if the Commission finds the 
approval to be necessary or appropriate in the public interest or for 
the protection of investors, after determining, among other things, 
whether the security-based swap dealer has met the requirements of this 
paragraph (d) and is in compliance with other applicable rules 
promulgated under the Act;
    (ii) The Commission may approve the temporary use of a provisional 
model in whole or in part, subject to any conditions or limitations the 
Commission may require, if:
    (A) The security-based swap dealer has a complete application 
pending under this section;
    (B) The use of the provisional model has been approved by:
    (1) A prudential regulator;
    (2) The Commodity Futures Trading Commission or a futures 
association registered with the Commodity Futures Trading Commission 
under section 17 of the Commodity Exchange Act;
    (3) A foreign financial regulatory authority that administers a 
foreign financial regulatory system with capital requirements that the 
Commission has found are eligible for substituted compliance under Sec.
240.3a71-6 if the provisional model is used for the purposes of 
calculating net capital;
    (4) A foreign financial regulatory authority that administers a 
foreign financial regulatory system with margin requirements that the 
Commission has found are eligible for substituted compliance under Sec.
240.3a71-6 if the provisional model is used for the purposes of 
calculating initial margin pursuant to Sec.240.18a-3; or
    (5) Any other foreign supervisory authority that the Commission 
finds has approved and monitored the use of the provisional model 
through a process comparable to the process set forth in this section.
    (6) A security-based swap dealer shall amend its application to 
calculate certain deductions for market and credit risk under this 
paragraph (d) and submit the amendment to the Commission for approval 
before it may change materially a mathematical model used to calculate 
market or credit risk or before it may change materially its internal 
risk management control system;
    (7) As a condition for the security-based swap dealer to compute 
deductions for market and credit risk under this paragraph (d), the 
security-based swap dealer agrees that:
    (i) It will notify the Commission 45 days before it ceases to 
compute deductions for market and credit risk under this paragraph (d); 
and
    (ii) The Commission may determine by order that the notice will 
become effective after a shorter or longer period of time if the 
security-based swap dealer consents or if the Commission determines that 
a shorter or longer period of time is necessary or appropriate in the 
public interest or for the protection of investors; and
    (8) Notwithstanding paragraph (d)(7) of this section, the 
Commission, by order, may revoke a security-based swap dealer's 
exemption that allows it to use the market risk standards of this 
paragraph (d) to calculate deductions for market risk, and the exemption 
to use the credit risk standards of this paragraph (d) to calculate 
deductions for credit risk on certain credit

[[Page 685]]

exposures arising from transactions in derivatives instruments if the 
Commission finds that such exemption is no longer necessary or 
appropriate in the public interest or for the protection of investors. 
In making its finding, the Commission will consider the compliance 
history of the security-based swap dealer related to its use of models, 
the financial and operational strength of the security-based swap dealer 
and its ultimate holding company, and the security-based swap dealer's 
compliance with its internal risk management controls.
    (9) To be approved, each value-at-risk (``VaR'') model must meet the 
following minimum qualitative and quantitative requirements:
    (i) Qualitative requirements. (A) The VaR model used to calculate 
market or credit risk for a position must be integrated into the daily 
internal risk management system of the security-based swap dealer;
    (B) The VaR model must be reviewed both periodically and annually. 
The periodic review may be conducted by the security-based swap dealer's 
internal audit staff, but the annual review must be conducted by a 
registered public accounting firm, as that term is defined in section 
2(a)(12) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.); and
    (C) For purposes of computing market risk, the security-based swap 
dealer must determine the appropriate multiplication factor as follows:
    (1) Beginning three months after the security-based swap dealer 
begins using the VaR model to calculate market risk, the security-based 
swap dealer must conduct backtesting of the model by comparing its 
actual daily net trading profit or loss with the corresponding VaR 
measure generated by the VaR model, using a 99 percent, one-tailed 
confidence level with price changes equivalent to a one business-day 
movement in rates and prices, for each of the past 250 business days, or 
other period as may be appropriate for the first year of its use;
    (2) On the last business day of each quarter, the security-based 
swap dealer must identify the number of backtesting exceptions of the 
VaR model, that is, the number of business days in the past 250 business 
days, or other period as may be appropriate for the first year of its 
use, for which the actual net trading loss, if any, exceeds the 
corresponding VaR measure; and
    (3) The security-based swap dealer must use the multiplication 
factor indicated in table 3 to Sec.240.18a-1(d)(9)(i)(C)(3) in 
determining its market risk until it obtains the next quarter's 
backtesting results;

 Table 3 to Sec.240.18a-1(d)(9)(i)(C)(3)--Multiplication Factor Based
        on the Number of Backtesting Exceptions of the VaR model
------------------------------------------------------------------------
                                                          Multiplication
                  Number of exceptions                        factor
------------------------------------------------------------------------
4 or fewer..............................................            3.00
5.......................................................            3.40
6.......................................................            3.50
7.......................................................            3.65
8.......................................................            3.75
9.......................................................            3.85
10 or more..............................................            4.00
------------------------------------------------------------------------

    (4) For purposes of incorporating specific risk into a VaR model, a 
security-based swap dealer must demonstrate that it has methodologies in 
place to capture liquidity, event, and default risk adequately for each 
position. Furthermore, the models used to calculate deductions for 
specific risk must:
    (i) Explain the historical price variation in the portfolio;
    (ii) Capture concentration (magnitude and changes in composition);
    (iii) Be robust to an adverse environment;
    (iv) Capture name-related basis risk;
    (v) Capture event risk; and
    (vi) Be validated through backtesting.
    (5) For purposes of computing the credit equivalent amount of the 
security-based swap dealer's exposures to a counterparty, the security-
based swap dealer must determine the appropriate multiplication factor 
as follows:
    (i) Beginning three months after it begins using the VaR model to 
calculate maximum potential exposure, the security-based swap dealer 
must conduct backtesting of the model by comparing, for at least 80 
counterparties with widely varying types and sizes of positions with the 
firm, the ten-business day change in its current exposure to the 
counterparty based on

[[Page 686]]

its positions held at the beginning of the ten-business day period with 
the corresponding ten-business day maximum potential exposure for the 
counterparty generated by the VaR model;
    (ii) As of the last business day of each quarter, the security-based 
swap dealer must identify the number of backtesting exceptions of the 
VaR model, that is, the number of ten-business day periods in the past 
250 business days, or other period as may be appropriate for the first 
year of its use, for which the change in current exposure to a 
counterparty exceeds the corresponding maximum potential exposure; and
    (iii) The security-based swap dealer will propose, as part of its 
application, a schedule of multiplication factors, which must be 
approved by the Commission based on the number of backtesting exceptions 
of the VaR model. The security-based swap dealer must use the 
multiplication factor indicated in the approved schedule in determining 
the credit equivalent amount of its exposures to a counterparty until it 
obtains the next quarter's backtesting results, unless the Commission 
determines, based on, among other relevant factors, a review of the 
security-based swap dealer's internal risk management control system, 
including a review of the VaR model, that a different adjustment or 
other action is appropriate.
    (ii) Quantitative requirements. (A) For purposes of determining 
market risk, the VaR model must use a 99 percent, one-tailed confidence 
level with price changes equivalent to a ten business-day movement in 
rates and prices;
    (B) For purposes of determining maximum potential exposure, the VaR 
model must use a 99 percent, one-tailed confidence level with price 
changes equivalent to a one-year movement in rates and prices; or based 
on a review of the security-based swap dealer's procedures for managing 
collateral and if the collateral is marked to market daily and the 
security-based swap dealer has the ability to call for additional 
collateral daily, the Commission may approve a time horizon of not less 
than ten business days;
    (C) The VaR model must use an effective historical observation 
period of at least one year. The security-based swap dealer must 
consider the effects of market stress in its construction of the model. 
Historical data sets must be updated at least monthly and reassessed 
whenever market prices or volatilities change significantly; and
    (D) The VaR model must take into account and incorporate all 
significant, identifiable market risk factors applicable to positions in 
the accounts of the security-based swap dealer, including:
    (1) Risks arising from the non-linear price characteristics of 
derivatives and the sensitivity of the market value of those positions 
to changes in the volatility of the derivatives' underlying rates and 
prices;
    (2) Empirical correlations with and across risk factors or, 
alternatively, risk factors sufficient to cover all the market risk 
inherent in the positions in the proprietary or other trading accounts 
of the security-based swap dealer, including interest rate risk, equity 
price risk, foreign exchange risk, and commodity price risk;
    (3) Spread risk, where applicable, and segments of the yield curve 
sufficient to capture differences in volatility and imperfect 
correlation of rates along the yield curve for securities and 
derivatives that are sensitive to different interest rates; and
    (4) Specific risk for individual positions:
    (iii) Additional conditions. As a condition for the security-based 
swap dealer to use this paragraph (d) to calculate certain of its 
capital charges, the Commission may impose additional conditions on the 
security-based swap dealer, which may include, but are not limited to 
restricting the security-based swap dealer's business on a product-
specific, category-specific, or general basis; submitting to the 
Commission a plan to increase the security-based swap dealer's net 
capital or tentative net capital; filing more frequent reports with the 
Commission; modifying the security-based swap dealer's internal risk 
management control procedures; or computing the security-based swap 
dealer's deductions for market and credit risk in accordance with

[[Page 687]]

paragraphs (c)(1)(iii), (iv), (vi), (vii), and (c)(1)(ix)(A) and (B), as 
appropriate, and Sec.240.18a-1b, as appropriate. If the Commission 
finds it is necessary or appropriate in the public interest or for the 
protection of investors, the Commission may impose additional conditions 
on the security-based swap dealer, if:
    (A) The security-based swap dealer fails to meet the reporting 
requirements set forth in Sec.240.18a-7;
    (B) Any event specified in Sec.240.18a-8 occurs;
    (C) There is a material deficiency in the internal risk management 
control system or in the mathematical models used to price securities or 
to calculate deductions for market and credit risk or allowances for 
market and credit risk, as applicable, of the security-based swap 
dealer;
    (D) The security-based swap dealer fails to comply with this 
paragraph (d); or
    (E) The Commission finds that imposition of other conditions is 
necessary or appropriate in the public interest or for the protection of 
investors.
    (e) Models to compute deductions for market risk and credit risk--
(1) Market risk. A security-based swap dealer whose application, 
including amendments, has been approved under paragraph (d) of this 
section, shall compute a deduction for market risk in an amount equal to 
the sum of the following:
    (i) For positions for which the Commission has approved the 
security-based swap dealer's use of VaR models, the VaR of the positions 
multiplied by the appropriate multiplication factor determined according 
to paragraph (d) of this section, except that the initial multiplication 
factor shall be three, unless the Commission determines, based on a 
review of the security-based swap dealer's application or an amendment 
to the application under paragraph (d) of this section, including a 
review of its internal risk management control system and practices and 
VaR models, that another multiplication factor is appropriate;
    (ii) For positions for which the VaR model does not incorporate 
specific risk, a deduction for specific risk to be determined by the 
Commission based on a review of the security-based swap dealer's 
application or an amendment to the application under paragraph (d) of 
this section and the positions involved;
    (iii) For positions for which the Commission has approved the 
security-based swap dealer's application to use scenario analysis, the 
greatest loss resulting from a range of adverse movements in relevant 
risk factors, prices, or spreads designed to represent a negative 
movement greater than, or equal to, the worst ten-day movement of the 
four years preceding calculation of the greatest loss, or some multiple 
of the greatest loss based on the liquidity of the positions subject to 
scenario analysis. If historical data is insufficient, the deduction 
shall be the largest loss within a three standard deviation movement in 
those risk factors, prices, or spreads over a ten-day period, multiplied 
by an appropriate liquidity adjustment factor. Irrespective of the 
deduction otherwise indicated under scenario analysis, the resulting 
deduction for market risk must be at least $25 per 100 share equivalent 
contract for equity positions, or one-half of one percent of the face 
value of the contract for all other types of contracts, even if the 
scenario analysis indicates a lower amount. A qualifying scenario must 
include the following:
    (A) A set of pricing equations for the positions based on, for 
example, arbitrage relations, statistical analysis, historic 
relationships, merger evaluations, or fundamental valuation of an 
offering of securities;
    (B) Auxiliary relationships mapping risk factors to prices; and
    (C) Data demonstrating the effectiveness of the scenario in 
capturing market risk, including specific risk; and
    (iv) For all remaining positions, the deductions specified in Sec.
240.15c3-1(c)(2)(vi), Sec.240.15c3-1(c)(2)(vii), and applicable 
appendices to Sec.240.15c3-1.
    (2) Credit risk. A security-based swap dealer whose application, 
including amendments, has been approved under paragraph (d) of this 
section may compute a deduction for credit risk on transactions in 
derivatives instruments (if this paragraph (e) is used to calculate a 
deduction for market risk

[[Page 688]]

on those positions) in an amount equal to the sum of the following:
    (i) Counterparty exposure charge. A counterparty exposure charge in 
an amount equal to the sum of the following:
    (A) The net replacement value in the account of each counterparty 
that is insolvent, or in bankruptcy, or that has senior unsecured long-
term debt in default; and
    (B) For a counterparty not otherwise described in paragraph 
(e)(2)(i)(A) of this section, the credit equivalent amount of the 
security-based swap dealer's exposure to the counterparty, as defined in 
paragraph (e)(2)(iii)(A) of this section, multiplied by the credit risk 
weight of the counterparty, as determined in accordance with paragraph 
(e)(2)(iii)(F) of this section, multiplied by eight percent; and
    (ii) Counterparty concentration charge. A concentration charge by 
counterparty in an amount equal to the sum of the following:
    (A) For each counterparty with a credit risk weight of 20 percent or 
less, 5 percent of the amount of the current exposure to the 
counterparty in excess of 5 percent of the tentative net capital of the 
security-based swap dealer;
    (B) For each counterparty with a credit risk weight of greater than 
20 percent but less than 50 percent, 20 percent of the amount of the 
current exposure to the counterparty in excess of 5 percent of the 
tentative net capital of the security-based swap dealer; and
    (C) For each counterparty with a credit risk weight of greater than 
50 percent, 50 percent of the amount of the current exposure to the 
counterparty in excess of 5 percent of the tentative net capital of the 
security-based swap dealer;
    (iii) Terms. (A) The credit equivalent amount of the security-based 
swap dealer's exposure to a counterparty is the sum of the security-
based swap dealer's maximum potential exposure to the counterparty, as 
defined in paragraph (e)(2)(iii)(B) of this section, multiplied by the 
appropriate multiplication factor, and the security-based swap dealer's 
current exposure to the counterparty, as defined in paragraph 
(e)(2)(iii)(C) of this section. The security-based swap dealer must use 
the multiplication factor determined according to paragraph 
(d)(9)(i)(C)(5) of this section, except that the initial multiplication 
factor shall be one, unless the Commission determines, based on a review 
of the security-based swap dealer's application or an amendment to the 
application approved under paragraph (d) of this section, including a 
review of its internal risk management control system and practices and 
VaR models, that another multiplication factor is appropriate;
    (B) The maximum potential exposure is the VaR of the counterparty's 
positions with the security-based swap dealer, after applying netting 
agreements with the counterparty meeting the requirements of paragraph 
(e)(2)(iii)(D) of this section, taking into account the value of 
collateral from the counterparty held by the security-based swap dealer 
in accordance with paragraph (e)(2)(iii)(E) of this section, and taking 
into account the current replacement value of the counterparty's 
positions with the security-based swap dealer;
    (C) The current exposure of the security-based swap dealer to a 
counterparty is the current replacement value of the counterparty's 
positions with the security-based swap dealer, after applying netting 
agreements with the counterparty meeting the requirements of paragraph 
(e)(2)(iii)(D) of this section and taking into account the value of 
collateral from the counterparty held by the security-based swap dealer 
in accordance with paragraph (e)(2)(iii)(E) of this section;
    (D) Netting agreements. A security-based swap dealer may include the 
effect of a netting agreement that allows the security-based swap dealer 
to net gross receivables from and gross payables to a counterparty upon 
default of the counterparty if:
    (1) The netting agreement is legally enforceable in each relevant 
jurisdiction, including in insolvency proceedings;
    (2) The gross receivables and gross payables that are subject to the 
netting agreement with a counterparty can be determined at any time; and

[[Page 689]]

    (3) For internal risk management purposes, the security-based swap 
dealer monitors and controls its exposure to the counterparty on a net 
basis;
    (E) Collateral. When calculating maximum potential exposure and 
current exposure to a counterparty, the fair market value of collateral 
pledged and held may be taken into account provided:
    (1) The collateral is marked to market each day and is subject to a 
daily margin maintenance requirement;
    (2)(i) The collateral is subject to the security-based swap dealer's 
physical possession or control and may be liquidated promptly by the 
firm without intervention by any other party; or
    (ii) The collateral is held by an independent third-party custodian 
that is a bank as defined in section 3(a)(6) of the Act or a registered 
U.S. clearing organization or depository that is not affiliated with the 
counterparty or, if the collateral consists of foreign securities or 
currencies, a supervised foreign bank, clearing organization, or 
depository that is not affiliated with the counterparty and that 
customarily maintains custody of such foreign securities or currencies;
    (3) The collateral is liquid and transferable;
    (4) The collateral agreement is legally enforceable by the security-
based swap dealer against the counterparty and any other parties to the 
agreement;
    (5) The collateral does not consist of securities issued by the 
counterparty or a party related to the security-based swap dealer or to 
the counterparty;
    (6) The Commission has approved the security-based swap dealer's use 
of a VaR model to calculate deductions for market risk for the type of 
collateral in accordance with paragraph (d) of this section; and
    (7) The collateral is not used in determining the credit rating of 
the counterparty;
    (F) Credit risk weights of counterparties. A security-based swap 
dealer that computes its deductions for credit risk pursuant to this 
paragraph (e)(2) shall apply a credit risk weight for transactions with 
a counterparty of either 20 percent, 50 percent, or 150 percent based on 
an internal credit rating the security-based swap dealer determines for 
the counterparty.
    (1) As part of its initial application or in an amendment, the 
security-based swap dealer may request Commission approval to apply a 
credit risk weight of either 20 percent, 50 percent, or 150 percent 
based on internal calculations of credit ratings, including internal 
estimates of the maturity adjustment. Based on the strength of the 
security-based swap dealer's internal credit risk management system, the 
Commission may approve the application. The security-based swap dealer 
must make and keep current a record of the basis for the credit risk 
weight of each counterparty;
    (2) As part of its initial application or in an amendment, the 
security-based swap dealer may request Commission approval to determine 
credit risk weights based on internal calculations, including internal 
estimates of the maturity adjustment. Based on the strength of the 
security-based swap dealer's internal credit risk management system, the 
Commission may approve the application. The security-based swap dealer 
must make and keep current a record of the basis for the credit risk 
weight of each counterparty; and
    (3) As part of its initial application or in an amendment, the 
security-based swap dealer may request Commission approval to reduce 
deductions for credit risk through the use of credit derivatives.
    (f) Internal risk management control systems. A security-based swap 
dealer must comply with Sec.240.15c3-4 as if it were an OTC 
derivatives dealer with respect to all of its business activities, 
except that Sec.240.15c3-4(c)(5)(xiii) and (xiv) and (d)(8) and (9) 
shall not apply.
    (g) Debt-equity requirements. No security-based swap dealer shall 
permit the total of outstanding principal amounts of its satisfactory 
subordination agreements (other than such agreements which qualify under 
this paragraph (g) as equity capital) to exceed 70 percent of its debt-
equity total, as hereinafter defined, for a period in excess of 90 days 
or for such longer period which the Commission may, upon application of 
the security-based swap dealer, grant

[[Page 690]]

in the public interest or for the protection of investors. In the case 
of a corporation, the debt-equity total shall be the sum of its 
outstanding principal amounts of satisfactory subordination agreements, 
par or stated value of capital stock, paid in capital in excess of par, 
retained earnings, unrealized profit and loss or other capital accounts. 
In the case of a partnership, the debt-equity total shall be the sum of 
its outstanding principal amounts of satisfactory subordination 
agreements, capital accounts of partners (exclusive of such partners' 
securities accounts) subject to the provisions of paragraph (h) of this 
section, and unrealized profit and loss. Provided, however, that a 
satisfactory subordinated loan agreement entered into by a partner or 
stockholder which has an initial term of at least three years and has a 
remaining term of not less than 12 months shall be considered equity for 
the purposes of this paragraph (g) if:
    (1) It does not have any of the provisions for accelerated maturity 
provided for by paragraph (b)(8)(i) or (b)(9)(i) or (ii) of Sec.
240.18a-1d and is maintained as capital subject to the provisions 
restricting the withdrawal thereof required by paragraph (h) of this 
section; or
    (2) The partnership agreement provides that capital contributed 
pursuant to a satisfactory subordination agreement as defined in Sec.
240.18a-1d shall in all respects be partnership capital subject to the 
provisions restricting the withdrawal thereof required by paragraph (h) 
of this section.
    (h) Provisions relating to the withdrawal of equity capital--(1) 
Notice provisions relating to limitations on the withdrawal of equity 
capital. No equity capital of the security-based swap dealer or a 
subsidiary or affiliate consolidated pursuant to Sec.240.18a-1c may be 
withdrawn by action of a stockholder or a partner or by redemption or 
repurchase of shares of stock by any of the consolidated entities or 
through the payment of dividends or any similar distribution, nor may 
any unsecured advance or loan be made to a stockholder, partner, 
employee or affiliate without written notice given in accordance with 
paragraph (h)(1)(iv) of this section:
    (i) Two business days prior to any withdrawals, advances or loans if 
those withdrawals, advances or loans on a net basis exceed in the 
aggregate in any 30 calendar day period, 30 percent of the security-
based swap dealer's excess net capital. A security-based swap dealer, in 
an emergency situation, may make withdrawals, advances or loans that on 
a net basis exceed 30 percent of the security-based swap dealer's excess 
net capital in any 30 calendar day period without giving the advance 
notice required by this paragraph, with the prior approval of the 
Commission. Where a security-based swap dealer makes a withdrawal with 
the consent of the Commission, it shall in any event comply with 
paragraph (h)(1)(ii) of this section; or
    (ii) Two business days after any withdrawals, advances or loans if 
those withdrawals, advances or loans on a net basis exceed in the 
aggregate in any 30 calendar day period, 20 percent of the security-
based swap dealer's excess net capital.
    (iii) This paragraph (h)(1) does not apply to:
    (A) Securities or commodities transactions in the ordinary course of 
business between a security-based swap dealer and an affiliate where the 
security-based swap dealer makes payment to or on behalf of such 
affiliate for such transaction and then receives payment from such 
affiliate for the securities or commodities transaction within two 
business days from the date of the transaction; or
    (B) Withdrawals, advances or loans which in the aggregate in any 
thirty calendar day period, on a net basis, equal $500,000 or less.
    (iv) Each required notice shall be effective when received by the 
Commission in Washington, DC, the regional office of the Commission for 
the region in which the security-based swap dealer has its principal 
place of business, and the Commodity Futures Trading Commission if such 
security-based swap dealer is registered with that Commission.
    (2) Limitations on withdrawal of equity capital. No equity capital 
of the security-based swap dealer or a subsidiary or affiliate 
consolidated pursuant to

[[Page 691]]

Sec.240.18a-1c may be withdrawn by action of a stockholder or a 
partner or by redemption or repurchase of shares of stock by any of the 
consolidated entities or through the payment of dividends or any similar 
distribution, nor may any unsecured advance or loan be made to a 
stockholder, partner, employee or affiliate, if after giving effect 
thereto and to any other such withdrawals, advances or loans and any 
Payments of Payments Obligations (as defined in Sec.240.18a-1d) under 
satisfactory subordinated loan agreements which are scheduled to occur 
within 180 days following such withdrawal, advance or loan if:
    (i) The security-based swap dealer's net capital would be less than 
120 percent of the minimum dollar amount required by paragraph (a) of 
this section; or
    (ii) The total outstanding principal amounts of satisfactory 
subordinated loan agreements of the security-based swap dealer and any 
subsidiaries or affiliates consolidated pursuant to Sec.240.18a-1c 
(other than such agreements which qualify as equity under paragraph (g) 
of this section) would exceed 70 percent of the debt-equity total as 
defined in paragraph (g) of this section.
    (3) Temporary restrictions on withdrawal of net capital. (i) The 
Commission may by order restrict, for a period up to twenty business 
days, any withdrawal by the security-based swap dealer of equity capital 
or unsecured loan or advance to a stockholder, partner, member, employee 
or affiliate under such terms and conditions as the Commission deems 
necessary or appropriate in the public interest or consistent with the 
protection of investors if the Commission, based on the information 
available, concludes that such withdrawal, advance or loan may be 
detrimental to the financial integrity of the security-based swap 
dealer, or may unduly jeopardize the security-based swap dealer's 
ability to repay its customer claims or other liabilities which may 
cause a significant impact on the markets or expose the customers or 
creditors of the security-based swap dealer to loss.
    (ii) An order temporarily prohibiting the withdrawal of capital 
shall be rescinded if the Commission determines that the restriction on 
capital withdrawal should not remain in effect. A hearing on an order 
temporarily prohibiting withdrawal of capital will be held within two 
business days from the date of the request in writing by the security-
based swap dealer.
    (4) Miscellaneous provisions. (i) Excess net capital is that amount 
in excess of the amount required under paragraph (a) of this section. 
For the purposes of paragraphs (h)(1) and (2) of this section, a 
security-based swap dealer may use the amount of excess net capital and 
deductions required under paragraphs (c)(1)(vi) and (vii) and Sec.
240.18a-1a reported in its most recently required filed Part II of Form 
X-17A-5 for the purposes of calculating the effect of a projected 
withdrawal, advance or loan relative to excess net capital or 
deductions. The security-based swap dealer must assure itself that the 
excess net capital or the deductions reported on the most recently 
required filed Part II of Form X-17A-5 have not materially changed since 
the time such report was filed.
    (ii) The term equity capital includes capital contributions by 
partners, par or stated value of capital stock, paid-in capital in 
excess of par, retained earnings or other capital accounts. The term 
equity capital does not include securities in the securities accounts of 
partners and balances in limited partners' capital accounts in excess of 
their stated capital contributions.
    (iii) Paragraphs (h)(1) and (2) of this section shall not preclude a 
security-based swap dealer from making required tax payments or preclude 
the payment to partners of reasonable compensation, and such payments 
shall not be included in the calculation of withdrawals, advances, or 
loans for purposes of paragraphs (h)(1) and (2) of this section.
    (iv) For the purpose of this paragraph (h), any transactions between 
a security-based swap dealer and a stockholder, partner, employee or 
affiliate that results in a diminution of the security-based swap 
dealer's net capital shall be deemed to be an advance or loan of net 
capital.

[84 FR 44052, Aug. 22, 2019, as amended at 85 FR 68656, Dec. 16, 2019]

[[Page 692]]



Sec.240.18a-1a  Options.

    (a)(1) Definitions. The term unlisted option means any option not 
included in the definition of listed option provided in Sec.240.15c3-
1(c)(2)(x).
    (2) The term option series refers to listed option contracts of the 
same type (either a call or a put) and exercise style, covering the same 
underlying security with the same exercise price, expiration date, and 
number of underlying units.
    (3) The term related instrument within an option class or product 
group refers to futures contracts, options on futures contracts, 
security-based swaps on a narrow-based security index, and swaps 
covering the same underlying instrument. In relation to options on 
foreign currencies, a related instrument within an option class also 
shall include forward contracts on the same underlying currency.
    (4) The term underlying instrument refers to long and short 
positions, as appropriate, covering the same foreign currency, the same 
security, security future, or security-based swap other than a security-
based swap on a narrow-based security index, or a security which is 
exchangeable for or convertible into the underlying security within a 
period of 90 days. If the exchange or conversion requires the payment of 
money or results in a loss upon conversion at the time when the security 
is deemed an underlying instrument for purposes of this Appendix A, the 
broker or dealer will deduct from net worth the full amount of the 
conversion loss. The term underlying instrument shall not be deemed to 
include securities options, futures contracts, options on futures 
contracts, security-based swaps on a narrow-based security index, 
qualified stock baskets, unlisted instruments, or swaps.
    (5) The term options class refers to all options contracts covering 
the same underlying instrument.
    (6) The term product group refers to two or more option classes, 
related instruments, underlying instruments, and qualified stock baskets 
in the same portfolio type (see paragraph (b)(1)(ii) of this section) 
for which it has been determined that a percentage of offsetting profits 
may be applied to losses at the same valuation point.
    (b) The deduction under this Appendix A must equal the sum of the 
deductions specified in paragraph (b)(1)(iv)(C) of this section.
    (1)(i) Definitions. (A) The terms theoretical gains and losses mean 
the gain and loss in the value of individual option series, the value of 
underlying instruments, related instruments, and qualified stock baskets 
within that option's class, at 10 equidistant intervals (valuation 
points) ranging from an assumed movement (both up and down) in the 
current market value of the underlying instrument equal to the 
percentage corresponding to the deductions otherwise required under 
Sec.240.15c3-1 for the underlying instrument (see paragraph 
(b)(1)(iii) of this section). Theoretical gains and losses shall be 
calculated using a theoretical options pricing model that satisfies the 
criteria set forth in paragraph (b)(1)(i)(B) of this section.
    (B) The term theoretical options pricing model means any 
mathematical model, other than a security-based swap dealer's 
proprietary model, the use of which has been approved by the Commission. 
Any such model shall calculate theoretical gains and losses as described 
in paragraph (b)(1)(i)(A) of this section for all series and issues of 
equity, index and foreign currency options and related instruments, and 
shall be made available equally and on the same terms to all security-
based swap dealers. Its procedures shall include the arrangement of the 
vendor to supply accurate and timely data to each security-based swap 
dealer with respect to its services, and the fees for distribution of 
the services. The data provided to security-based swap dealers shall 
also contain the minimum requirements set forth in paragraphs 
(b)(1)(iv)(C) of this section and the product group offsets set forth in 
paragraphs (b)(1)(iv)(B) of this section. At a minimum, the model shall 
consider the following factors in pricing the option:
    (1) The current spot price of the underlying asset;
    (2) The exercise price of the option;
    (3) The remaining time until the option's expiration;
    (4) The volatility of the underlying asset;

[[Page 693]]

    (5) Any cash flows associated with ownership of the underlying asset 
that can reasonably be expected to occur during the remaining life of 
the option; and
    (6) The current term structure of interest rates.
    (C) The term major market foreign currency means the currency of a 
sovereign nation for which there is a substantial inter-bank forward 
currency market.
    (D) The term qualified stock basket means a set or basket of stock 
positions which represents no less than 50 percent of the capitalization 
for a high-capitalization or non-high-capitalization diversified market 
index, or, in the case of a narrow-based index, no less than 95 percent 
of the capitalization for such narrow-based index.
    (ii) With respect to positions involving listed options in its 
proprietary or other account, the security-based swap dealer shall group 
long and short positions into the following portfolio types:
    (A) Equity options on the same underlying instrument and positions 
in that underlying instrument;
    (B) Options on the same major market foreign currency, positions in 
that major market foreign currency, and related instruments within those 
options' classes;
    (C) High-capitalization diversified market index options, related 
instruments within the option's class, and qualified stock baskets in 
the same index;
    (D) Non-high-capitalization diversified index options, related 
instruments within the index option's class, and qualified stock baskets 
in the same index; and
    (E) Narrow-based index options, related instruments within the index 
option's class, and qualified stock baskets in the same index.
    (iii) Before making the computation, each security-based swap dealer 
shall obtain the theoretical gains and losses for each option series and 
for the related and underlying instruments within those options' class 
in the proprietary or other accounts of that security-based swap dealer. 
For each option series, the theoretical options pricing model shall 
calculate theoretical prices at 10 equidistant valuation points within a 
range consisting of an increase or a decrease of the following 
percentages of the daily market price of the underlying instrument:
    (A) +(-) 15 percent for equity securities with a ready market, 
narrow-based indexes, and non-high-capitalization diversified indexes;
    (B) +(-) 6 percent for major market foreign currencies;
    (C) +(-) 20 percent for all other currencies; and
    (D) +(-)10 percent for high-capitalization diversified indexes.
    (iv)(A) The security-based swap dealer shall multiply the 
corresponding theoretical gains and losses at each of the 10 equidistant 
valuation points by the number of positions held in a particular option 
series, the related instruments and qualified stock baskets within the 
option's class, and the positions in the same underlying instrument.
    (B) In determining the aggregate profit or loss for each portfolio 
type, the security-based swap dealer will be allowed the following 
offsets in the following order, provided, that in the case of qualified 
stock baskets, the security-based swap dealer may elect to net 
individual stocks between qualified stock baskets and take the 
appropriate deduction on the remaining, if any, securities:
    (1) First, a security-based swap dealer is allowed the following 
offsets within an option's class:
    (i) Between options on the same underlying instrument, positions 
covering the same underlying instrument, and related instruments within 
the option's class, 100 percent of a position's gain shall offset 
another position's loss at the same valuation point;
    (ii) Between index options, related instruments within the option's 
class, and qualified stock baskets on the same index, 95 percent, or 
such other amount as designated by the Commission, of gains shall offset 
losses at the same valuation point;
    (2) Second, a security-based swap dealer is allowed the following 
offsets within an index product group:
    (i) Among positions involving different high-capitalization 
diversified index option classes within the same product group, 90 
percent of the gain in

[[Page 694]]

a high-capitalization diversified market index option, related 
instruments, and qualified stock baskets within that index option's 
class shall offset the loss at the same valuation point in a different 
high-capitalization diversified market index option, related 
instruments, and qualified stock baskets within that index option's 
class;
    (ii) Among positions involving different non-high-capitalization 
diversified index option classes within the same product group, 75 
percent of the gain in a non-high-capitalization diversified market 
index option, related instruments, and qualified stock baskets within 
that index option's class shall offset the loss at the same valuation 
point in another non-high-capitalization diversified market index 
option, related instruments, and qualified stock baskets within that 
index option's class or product group;
    (iii) Among positions involving different narrow-based index option 
classes within the same product group, 90 percent of the gain in a 
narrow-based market index option, related instruments, and qualified 
stock baskets within that index option's class shall offset the loss at 
the same valuation point in another narrow-based market index option, 
related instruments, and qualified stock baskets within that index 
option's class or product group;
    (iv) No qualified stock basket should offset another qualified stock 
basket; and
    (3) Third, a security-based swap dealer is allowed the following 
offsets between product groups: Among positions involving different 
diversified index product groups within the same market group, 50 
percent of the gain in a diversified market index option, a related 
instrument, or a qualified stock basket within that index option's 
product group shall offset the loss at the same valuation point in 
another product group;
    (C) For each portfolio type, the total deduction shall be the larger 
of:
    (1) The amount for any of the 10 equidistant valuation points 
representing the largest theoretical loss after applying the offsets 
provided in paragraph (b)(1)(iv)(B) if this section; or
    (2) A minimum charge equal to 25 percent times the multiplier for 
each equity and index option contract and each related instrument within 
the option's class or product group, or $25 for each option on a major 
market foreign currency with the minimum charge for futures contracts 
and options on futures contracts adjusted for contract size 
differentials, not to exceed market value in the case of long positions 
in options and options on futures contracts; plus
    (3) In the case of portfolio types involving index options and 
related instruments offset by a qualified stock basket, there will be a 
minimum charge of 5 percent of the market value of the qualified stock 
basket for high-capitalization diversified and narrow-based indexes;
    (4) In the case of portfolio types involving index options and 
related instruments offset by a qualified stock basket, there will be a 
minimum charge of 7\1/2\ percent of the market value of the qualified 
stock basket for non-high-capitalization diversified indexes; and
    (5) In the case of portfolio types involving security futures and 
equity options on the same underlying instrument and positions in that 
underlying instrument, there will be a minimum charge of 25 percent 
times the multiplier for each security-future and equity option.

[84 FR 44061, Aug. 22, 2019]



Sec.240.18a-1b  Adjustments to net worth for certain commodities 
transactions.

    (a) Every registered security-based swap dealer in computing net 
capital pursuant to Sec.240.18a-1 shall comply with the following:
    (1) Where a security-based swap dealer has an asset or liability 
which is treated or defined in paragraph (c) of Sec.240.18a-1, the 
inclusion or exclusion of all or part of such asset or liability for net 
capital shall be in accordance with Sec.240.18a-1, except as 
specifically provided otherwise in this section. Where a commodity 
related asset or liability, including a swap-related asset or liability, 
is specifically treated or defined in 17 CFR 1.17 and is not generally 
or specifically treated or defined in Sec.240.18a-

[[Page 695]]

1 or this section, the inclusion or exclusion of all or part of such 
asset or liability for net capital shall be in accordance with 17 CFR 
1.17.
    (2) In computing net capital as defined in Sec.240.18a-1(c)(1), 
the net worth of a security-based swap dealer shall be adjusted as 
follows with respect to commodity-related transactions:
    (i)(A) Unrealized profits shall be added and unrealized losses shall 
be deducted in the commodities accounts of the security-based swap 
dealer, including unrealized profits and losses on fixed price 
commitments and forward contracts; and
    (B) The value attributed to any commodity option which is not traded 
on a contract market shall be the difference between the option's strike 
price and the market value for the physical or futures contract which is 
the subject of the option. In the case of a long call commodity option, 
if the market value for the physical or futures contract which is the 
subject of the option is less than the strike price of the option, it 
shall be given no value. In the case of a long put commodity option, if 
the market value for the physical commodity or futures contract which is 
the subject of the option is more than the striking price of the option, 
it shall be given no value.
    (ii) Deduct any unsecured commodity futures or option account 
containing a ledger balance and open trades, the combination of which 
liquidates to a deficit or containing a debit ledger balance only: 
Provided, however, Deficits or debit ledger balances in unsecured 
customers', non-customers' and proprietary accounts, which are the 
subject of calls for margin or other required deposits need not be 
deducted until the close of business on the business day following the 
date on which such deficit or debit ledger balance originated;
    (iii) Deduct all unsecured receivables, advances and loans except 
for:
    (A) Management fees receivable from commodity pools outstanding no 
longer than thirty (30) days from the date they are due;
    (B) Receivables from foreign clearing organizations;
    (C) Receivables from registered futures commission merchants or 
brokers, resulting from cleared swap transactions or, commodity futures 
or option transactions, except those specifically excluded under 
paragraph (a)(2)(ii) of this section.
    (iv) Deduct all inventories (including work in process, finished 
goods, raw materials and inventories held for resale) except for readily 
marketable spot commodities; or spot commodities which adequately 
collateralize indebtedness under 17 CFR 1.17(c)(7);
    (v) Guarantee deposits with commodities clearing organizations are 
not required to be deducted from net worth;
    (vi) Stock in commodities clearing organizations to the extent of 
its margin value is not required to be deducted from net worth;
    (vii) Deduct from net worth the amount by which any advances paid by 
the security-based swap dealer on cash commodity contracts and used in 
computing net capital exceeds 95 percent of the market value of the 
commodities covered by such contracts.
    (viii) Do not include equity in the commodity accounts of partners 
in net worth.
    (ix) In the case of all inventory, fixed price commitments and 
forward contracts, except for inventory and forward contracts in the 
inter-bank market in those foreign currencies which are purchased or 
sold for further delivery on or subject to the rules of a contract 
market and covered by an open futures contract for which there will be 
no charge, deduct the applicable percentage of the net position 
specified below:
    (A) Inventory which is currently registered as deliverable on a 
contract market and covered by an open futures contract or by a 
commodity option on a physical--No charge.
    (B) Inventory which is covered by an open futures contract or 
commodity option--5 percent of the market value.
    (C) Inventory which is not covered--20 percent of the market value.
    (D) Fixed price commitments (open purchases and sales) and forward 
contracts which are covered by an open futures contract or commodity 
option--10 percent of the market value.
    (E) Fixed price commitments (open purchases and sales) and forward 
contracts which are not covered by an

[[Page 696]]

open futures contract or commodity option--20 percent of the market 
value.
    (x) Deduct for undermargined customer commodity futures accounts the 
amount of funds required in each such account to meet maintenance margin 
requirements of the applicable board of trade or, if there are no such 
maintenance margin requirements, clearing organization margin 
requirements applicable to such positions, after application of calls 
for margin, or other required deposits which are outstanding three 
business days or less. If there are no such maintenance margin 
requirements or clearing organization margin requirements on such 
accounts, then deduct the amount of funds required to provide margin 
equal to the amount necessary after application of calls for margin, or 
other required deposits outstanding three days or less to restore 
original margin when the original margin has been depleted by 50 percent 
or more. Provided, To the extent a deficit is deducted from net worth in 
accordance with paragraph (a)(2)(ii) of this section, such amount shall 
not also be deducted under this paragraph (a)(2)(x). In the event that 
an owner of a customer account has deposited an asset other than cash to 
margin, guarantee or secure his account, the value attributable to such 
asset for purposes of this paragraph shall be the lesser of the value 
attributable to such asset pursuant to the margin rules of the 
applicable board of trade, or the market value of such asset after 
application of the percentage deductions specified in paragraph 
(a)(2)(ix) of this section or, where appropriate, specified in Sec.
240.18a-1(c)(1)(iv), (vi), or (vii) of this part;
    (xi) Deduct for undermargined non-customer and omnibus commodity 
futures accounts the amount of funds required in each such account to 
meet maintenance margin requirements of the applicable board of trade 
or, if there are no such maintenance margin requirements, clearing 
organization margin requirements applicable to such positions, after 
application of calls for margin, or other required deposits which are 
outstanding two business days or less. If there are no such maintenance 
margin requirements or clearing organization margin requirements, then 
deduct the amount of funds required to provide margin equal to the 
amount necessary after application of calls for margin, or other 
required deposits outstanding two days or less to restore original 
margin when the original margin has been depleted by 50 percent or more. 
Provided, To the extent a deficit is deducted from net worth in 
accordance with paragraph (a)(2)(ii) of this section such amount shall 
not also be deducted under this paragraph (a)(2)(xi). In the event that 
an owner of a non-customer or omnibus account has deposited an asset 
other than cash to margin, guarantee or secure the account, the value 
attributable to such asset for purposes of this paragraph shall be the 
lesser of the value attributable to such asset pursuant to the margin 
rules of the applicable board of trade, or the market value of such 
asset after application of the percentage deductions specified in 
paragraph (a)(2)(ix) of this section or, where appropriate, specified in 
Sec.240.18a-1(c)(1)(iv), (vi), or (vii) of this part;
    (xii) In the case of open futures contracts and granted (sold) 
commodity options held in proprietary accounts carried by the security-
based swap dealer which are not covered by a position held by the 
security-based swap dealer or which are not the result of a ``changer 
trade'' made in accordance with the rules of a contract market, deduct:
    (A) For a security-based swap dealer which is a clearing member of a 
contract market for the positions on such contract market cleared by 
such member, the applicable margin requirement of the applicable 
clearing organization;
    (B) For a security-based swap dealer which is a member of a self-
regulatory organization, 150 percent of the applicable maintenance 
margin requirement of the applicable board of trade or clearing 
organization, whichever is greater; or
    (C) For all other security-based swap dealers, 200 percent of the 
applicable maintenance margin requirement of the applicable board of 
trade or clearing organization, whichever is greater; or
    (D) For open contracts or granted (sold) commodity options for which

[[Page 697]]

there are no applicable maintenance margin requirements, 200 percent of 
the applicable initial margin requirement; Provided, the equity in any 
such proprietary account shall reduce the deduction required by this 
paragraph (a)(2)(xii) if such equity is not otherwise includable in net 
capital.
    (xiii) In the case of a security-based swap dealer which is a 
purchaser of a commodity option which is traded on a contract market, 
the deduction shall be the same safety factor as if the security-based 
swap dealer were the grantor of such option in accordance with paragraph 
(a)(2)(xii) of this section, but in no event shall the safety factor be 
greater than the market value attributed to such option.
    (xiv) In the case of a security-based swap dealer which is a 
purchaser of a commodity option not traded on a contract market which 
has value and such value is used to increase net capital, the deduction 
is ten percent of the market value of the physical or futures contract 
which is the subject of such option but in no event more than the value 
attributed to such option.
    (xv) A loan or advance or any other form of receivable shall not be 
considered ``secured'' for the purposes of paragraph (a)(2) of this 
section unless the following conditions exist:
    (A) The receivable is secured by readily marketable collateral which 
is otherwise unencumbered and which can be readily converted into cash: 
Provided, however, That the receivable will be considered secured only 
to the extent of the market value of such collateral after application 
of the percentage deductions specified in paragraph (a)(2)(ix) of this 
section; and
    (B)(1) The readily marketable collateral is in the possession or 
control of the security-based swap dealer; or
    (2) The security-based swap dealer has a legally enforceable, 
written security agreement, signed by the debtor, and has a perfected 
security interest in the readily marketable collateral within the 
meaning of the laws of the State in which the readily marketable 
collateral is located.
    (xvi) The term cover for purposes of this section shall mean cover 
as defined in 17 CFR 1.17(j).
    (xvii) The term customer for purposes of this section shall mean 
customer as defined in 17 CFR 1.17(b)(2). The term non-customer for 
purposes of this section shall mean non-customer as defined in 17 CFR 
1.17(b)(4).
    (b) Every registered security-based swap dealer in computing net 
capital pursuant to Sec.240.18a-1 shall comply with the following:
    (1) Cleared swaps. In the case of a cleared swap held in a 
proprietary account of the security-based swap dealer, deducting the 
amount of the applicable margin requirement of the derivatives clearing 
organization or, if the swap references an equity security index, the 
security-based swap dealer may take a deduction using the method 
specified in Sec.240.18a-1a.
    (2) Non-cleared swaps--(i) Credit default swaps referencing broad-
based security indices. In the case of a non-cleared credit default swap 
for which the deductions in Sec.240.18a-1(e) do not apply:
    (A) Short positions (selling protection). In the case of a non-
cleared swap that is a short credit default swap referencing a broad-
based security index, deducting the percentage of the notional amount 
based upon the current basis point spread of the credit default swap and 
the maturity of the credit default swap in accordance with table 1 to 
Sec.240.18a-1b(b)(2)(i)(A):

                                                        Table 1 to Sec.240.18a-1b(b)(2)(i)(A)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Basis point spread
   Length of time to maturity of credit  default swap    -----------------------------------------------------------------------------------------------
                        contract                            100 or less                                                                     700 or more
                                                                (%)        101-300  (%)    301-400  (%)    401-500  (%)    501-699  (%)         (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Less than 12 months.....................................            0.67            1.33            3.33            5.00            6.67           10.00
12 months but less than 24 months.......................            1.00            2.33            5.00            6.67            8.33           11.67
24 months but less than 36 months.......................            1.33            3.33            6.67            8.33           10.00           13.33
36 months but less than 48 months.......................            2.00            4.00            8.33           10.00           11.67           15.00

[[Page 698]]

 
48 months but less than 60 months.......................            2.67            4.67           10.00           11.67           13.33           16.67
60 months but less than 72 months.......................            3.67            5.67           11.67           13.33           15.00           18.33
72 months but less than 84 months.......................            4.67            6.67           13.33           15.00           16.67           20.00
84 months but less than 120 months......................            5.67           10.00           15.00           16.67           18.33           26.67
120 months and longer...................................            6.67           13.33           16.67           18.33           20.00           33.33
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (B) Long positions (purchasing protection). In the case of a non-
cleared swap that is a long credit default swap referencing a broad-
based security index, deducting 50 percent of the deduction that would 
be required by paragraph (b)(2)(i)(A) of this section if the non-cleared 
swap was a short credit default swap, each such deduction not to exceed 
the current market value of the long position.
    (C) Long and short credit default swaps. In the case of non-cleared 
swaps that are long and short credit default swaps referencing the same 
broad-based security index, have the same credit events which would 
trigger payment by the seller of protection, have the same basket of 
obligations which would determine the amount of payment by the seller of 
protection upon the occurrence of a credit event, that are in the same 
or adjacent spread category, and that are in the same or adjacent 
maturity category and have a maturity date within three months of the 
other maturity category, deducting the percentage of the notional amount 
specified in the higher maturity category under paragraph (b)(2)(i)(A) 
or (B) of this section on the excess of the long or short position.
    (D) Long basket of obligors and long credit default swap. In the 
case of a non-cleared swap that is a long credit default swap 
referencing a broad-based security index and the security-based swap 
dealer is long a basket of debt securities comprising all of the 
components of the security index, deducting 50 percent of the amount 
specified in Sec.240.15c3-1(c)(2)(vi) for the component securities, 
provided the security-based swap dealer can deliver the component 
securities to satisfy the obligation of the security-based swap dealer 
on the credit default swap.
    (E) Short basket of obligors and short credit default swap. In the 
case of a non-cleared swap that is a short credit default swap 
referencing a broad-based security index and the security-based swap 
dealer is short a basket of debt securities comprising all of the 
components of the security index, deducting the amount specified in 
Sec.240.15c3-1(c)(2)(vi) for the component securities.
    (ii) All other swaps. (A) In the case of any non-cleared swap that 
is not a credit default swap for which the deductions in Sec.240.18a-
1(e) do not apply, deducting the amount calculated by multiplying the 
notional value of the swap by the percentage specified in:
    (1) Section 240.15c3-1 applicable to the reference asset if Sec.
240.15c3-1 specifies a percentage deduction for the type of asset;
    (2) 17 CFR 1.17 applicable to the reference asset if 17 CFR 1.17 
specifies a percentage deduction for the type of asset and Sec.
240.15c3-1 does not specify a percentage deduction for the type of 
asset; or
    (3) In the case of a non-cleared interest rate swap, Sec.240.15c3-
1(c)(2)(vi)(A) based on the maturity of the swap, provided that the 
percentage deduction must be no less than one eighth of 1 percent of the 
amount of a long position that is netted against a short position in the 
case of a non-cleared swap with a maturity of three months or more.
    (B) A security-based swap dealer may reduce the deduction under 
paragraph (b)(2)(ii) of this section by an amount equal to any reduction 
recognized for a

[[Page 699]]

comparable long or short position in the reference asset or interest 
rate under 17 CFR 1.17 or Sec.240.15c3-1.

[84 FR 44063, Aug. 22, 2019]



Sec.240.18a-1c  Consolidated Computations of Net Capital for Certain
Subsidiaries and Affiliates of Security-Based Swap Dealers.

    Every security-based swap dealer in computing its net capital 
pursuant to Sec.240.18a-1 shall include in its computation all 
liabilities or obligations of a subsidiary or affiliate that the 
security-based swap dealer guarantees, endorses, or assumes either 
directly or indirectly.

[84 FR 44065, Aug. 22, 2019]



Sec.240.18a-1d  Satisfactory Subordinated Loan Agreements.

    (a) Introduction--(1) Minimum requirements. This section sets forth 
minimum and non-exclusive requirements for satisfactory subordinated 
loan agreements. The Commission may require or the security-based swap 
dealer may include such other provisions as deemed necessary or 
appropriate to the extent such provisions do not cause the subordinated 
loan agreement to fail to meet the minimum requirements of this section.
    (2) Certain definitions. For purposes of Sec.240.18a-1 and this 
section:
    (i) The term ``subordinated loan agreement'' shall mean the 
agreement or agreements evidencing or governing a subordinated borrowing 
of cash.
    (ii) The term ``Payment Obligation'' shall mean the obligation of a 
security-based swap dealer to repay cash loaned to the security-based 
swap dealer pursuant to a subordinated loan agreement and ``Payment'' 
shall mean the performance by a security-based swap dealer of a Payment 
Obligation.
    (iii) The term ``lender'' shall mean the person who lends cash to a 
security-based swap dealer pursuant to a subordinated loan agreement.
    (b) Minimum requirements for subordinated loan agreements--(1) 
Subordinated loan agreement. Subject to paragraph (a) of this section, a 
subordinated loan agreement shall mean a written agreement between the 
security-based swap dealer and the lender, which has a minimum term of 
one year, and is a valid and binding obligation enforceable in 
accordance with its terms (subject as to enforcement to applicable 
bankruptcy, insolvency, reorganization, moratorium and other similar 
laws) against the security-based swap dealer and the lender and their 
respective heirs, executors, administrators, successors and assigns.
    (2) Specific amount. All subordinated loan agreements shall be for a 
specific dollar amount which shall not be reduced for the duration of 
the agreement except by installments as specifically provided for 
therein and except as otherwise provided in this section.
    (3) Effective subordination. The subordinated loan agreement shall 
effectively subordinate any right of the lender to receive any Payment 
with respect thereto, together with accrued interest or compensation, to 
the prior payment or provision for payment in full of all claims of all 
present and future creditors of the security-based swap dealer arising 
out of any matter occurring prior to the date on which the related 
Payment Obligation matures consistent with the provisions of Sec.Sec.
240.18a-1 and 240.18a-1d, except for claims which are the subject of 
subordinated loan agreements that rank on the same priority as or junior 
to the claim of the lender under such subordinated loan agreements.
    (4) Proceeds of subordinated loan agreements. The subordinated loan 
agreement shall provide that the cash proceeds thereof shall be used and 
dealt with by the security-based swap dealer as part of its capital and 
shall be subject to the risks of the business.
    (5) Certain rights of the security-based swap dealer. The 
subordinated loan agreement shall provide that the security-based swap 
dealer shall have the right to deposit any cash proceeds of a 
subordinated loan agreement in an account or accounts in its own name in 
any bank or trust company.
    (6) Permissive prepayments. A security-based swap dealer at its 
option but not at the option of the lender may, if the subordinated loan 
agreement so provides, make a Payment of all or any portion of the 
Payment Obligation thereunder prior to the scheduled maturity date of 
such Payment Obligation

[[Page 700]]

(hereinafter referred to as a ``Prepayment''), but in no event may any 
Prepayment be made before the expiration of one year from the date such 
subordinated loan agreement became effective. No Prepayment shall be 
made, if, after giving effect thereto (and to all Payments of Payment 
Obligations under any other subordinated loan agreements then 
outstanding the maturity or accelerated maturities of which are 
scheduled to fall due within six months after the date such Prepayment 
is to occur pursuant to this provision or on or prior to the date on 
which the Payment Obligation in respect of such Prepayment is scheduled 
to mature disregarding this provision, whichever date is earlier) 
without reference to any projected profit or loss of the security-based 
swap dealer, either its net capital would fall below 120 percent of its 
minimum requirement under Sec.240.18a-1, or, if the security-based 
swap dealer is approved to calculate net capital under Sec.240.18a-
1(d), its tentative net capital would fall to an amount below 120 
percent of the minimum requirement. Notwithstanding the above, no 
Prepayment shall occur without the prior written approval of the 
Commission.
    (7) Suspended repayment. The Payment Obligation of the security-
based swap dealer in respect of any subordinated loan agreement shall be 
suspended and shall not mature if, after giving effect to Payment of 
such Payment Obligation (and to all Payments of Payment Obligations of 
such security-based swap dealer under any other subordinated loan 
agreement(s) then outstanding that are scheduled to mature on or before 
such Payment Obligation) either its net capital would fall below 120 
percent of its minimum requirement under Sec.240.18a-1, or, if the 
security-based swap dealer is approved to calculate net capital under 
Sec.240.18a-1(d), its tentative net capital would fall to an amount 
below 120 percent of the minimum requirement. The subordinated loan 
agreement may provide that if the Payment Obligation of the security-
based swap dealer thereunder does not mature and is suspended as a 
result of the requirement of this paragraph (b)(7) for a period of not 
less than six months, the security-based swap dealer shall thereupon 
commence the rapid and orderly liquidation of its business, but the 
right of the lender to receive Payment, together with accrued interest 
or compensation, shall remain subordinate as required by the provisions 
of Sec.Sec.240.18a-1 and 240.18a-1d.
    (8) Accelerated maturity--obligation to repay to remain subordinate. 
(i) Subject to the provisions of paragraph (b)(7) of this section, a 
subordinated loan agreement may provide that the lender may, upon prior 
written notice to the security-based swap dealer and the Commission 
given not earlier than six months after the effective date of such 
subordinated loan agreement, accelerate the date on which the Payment 
Obligation of the security-based swap dealer, together with accrued 
interest or compensation, is scheduled to mature to a date not earlier 
than six months after the giving of such notice, but the right of the 
lender to receive Payment, together with accrued interest or 
compensation, shall remain subordinate as required by the provisions of 
Sec.Sec.240.18a-1 and 240.18a-1d.
    (ii) Notwithstanding the provisions of paragraph (b)(7) of this 
section, the Payment Obligation of the security-based swap dealer with 
respect to a subordinated loan agreement, together with accrued interest 
and compensation, shall mature in the event of any receivership, 
insolvency, liquidation, bankruptcy, assignment for the benefit of 
creditors, reorganization whether or not pursuant to the bankruptcy 
laws, or any other marshalling of the assets and liabilities of the 
security-based swap dealer but the right of the lender to receive 
Payment, together with accrued interest or compensation, shall remain 
subordinate as required by the provisions of Sec.Sec.240.18a-1 and 
240.18a-1d.
    (9) Accelerated maturity of subordinated loan agreements on event of 
default and event of acceleration--obligation to repay to remain 
subordinate. (i) A subordinated loan agreement may provide that the 
lender may, upon prior written notice to the security-based swap dealer 
and the Commission of the occurrence of any Event of Acceleration (as 
hereinafter defined) given no sooner than six months after the effective 
date of

[[Page 701]]

such subordinated loan agreement, accelerate the date on which the 
Payment Obligation of the security-based swap dealer, together with 
accrued interest or compensation, is scheduled to mature, to the last 
business day of a calendar month which is not less than six months after 
notice of acceleration is received by the security-based swap dealer and 
the Commission. Any subordinated loan agreement containing such Events 
of Acceleration may also provide, that if upon such accelerated maturity 
date the Payment Obligation of the security-based swap dealer is 
suspended as required by paragraph (b)(7) of this section and 
liquidation of the security-based swap dealer has not commenced on or 
prior to such accelerated maturity date, then notwithstanding paragraph 
(b)(7) the Payment Obligation of the security-based swap dealer with 
respect to such subordinated loan agreement shall mature on the day 
immediately following such accelerated maturity date and in any such 
event the Payment Obligations of the security-based swap dealer with 
respect to all other subordinated loan agreements then outstanding shall 
also mature at the same time but the rights of the respective lenders to 
receive Payment, together with accrued interest or compensation, shall 
remain subordinate as required by the provisions of this section. Events 
of Acceleration which may be included in a subordinated loan agreement 
complying with this paragraph (b)(9) shall be limited to:
    (A) Failure to pay interest or any installment of principal on a 
subordinated loan agreement as scheduled;
    (B) Failure to pay when due other money obligations of a specified 
material amount;
    (C) Discovery that any material, specified representation or 
warranty of the security-based swap dealer which is included in the 
subordinated loan agreement and on which the subordinated loan agreement 
was based or continued was inaccurate in a material respect at the time 
made;
    (D) Any specified and clearly measurable event which is included in 
the subordinated loan agreement and which the lender and the security-
based swap dealer agree:
    (1) Is a significant indication that the financial position of the 
security-based swap dealer has changed materially and adversely from 
agreed upon specified norms; or
    (2) Could materially and adversely affect the ability of the 
security-based swap dealer to conduct its business as conducted on the 
date the subordinated loan agreement was made; or
    (3) Is a significant change in the senior management of the 
security-based swap dealer or in the general business conducted by the 
security-based swap dealer from that which obtained on the date the 
subordinated loan agreement became effective;
    (E) Any continued failure to perform agreed covenants included in 
the subordinated loan agreement relating to the conduct of the business 
of the security-based swap dealer or relating to the maintenance and 
reporting of its financial position; and
    (ii) Notwithstanding the provisions of paragraph (b)(7) of this 
section, a subordinated loan agreement may provide that, if liquidation 
of the business of the security-based swap dealer has not already 
commenced, the Payment Obligation of the security-based swap dealer 
shall mature, together with accrued interest or compensation, upon the 
occurrence of an Event of Default (as hereinafter defined). Such 
agreement may also provide that, if liquidation of the business of the 
security-based swap dealer has not already commenced, the rapid and 
orderly liquidation of the business of the security-based swap dealer 
shall then commence upon the happening of an Event of Default. Any 
subordinated loan agreement which so provides for maturity of the 
Payment Obligation upon the occurrence of an Event of Default shall also 
provide that the date on which such Event of Default occurs shall, if 
liquidation of the security-based swap dealer has not already commenced, 
be the date on which the Payment Obligations of the security-based swap 
dealer with respect to all other subordinated loan agreements then 
outstanding shall mature but the rights of the respective lenders to 
receive Payment, together with accrued interest or compensation, shall 
remain subordinate as required by the provisions of this section. Events 
of

[[Page 702]]

Default which may be included in a subordinated loan agreement shall be 
limited to:
    (A) The net capital of the security-based swap dealer falling to an 
amount below its minimum requirement under Sec.240.18a-1, or, if the 
security-based swap dealer is approved to calculate net capital under 
Sec.240.18a-1(d), its tentative net capital falling below the minimum 
requirement, throughout a period of 15 consecutive business days, 
commencing on the day the security-based swap dealer first determines 
and notifies the Commission, or the Commission first determines and 
notifies the security-based swap dealer of such fact;
    (B) The Commission revoking the registration of the security-based 
swap dealer;
    (C) The Commission suspending (and not reinstating within 10 days) 
the registration of the security-based swap dealer;
    (D) Any receivership, insolvency, liquidation, bankruptcy, 
assignment for the benefit of creditors, reorganization whether or not 
pursuant to bankruptcy laws, or any other marshalling of the assets and 
liabilities of the security-based swap dealer. A subordinated loan 
agreement that contains any of the provisions permitted by this 
paragraph (b)(9) shall not contain the provision otherwise permitted by 
paragraph (b)(8)(i) of this section.
    (c) Miscellaneous provisions--(1) Prohibited cancellation. The 
subordinated loan agreement shall not be subject to cancellation by 
either party; no Payment shall be made with respect thereto and the 
agreement shall not be terminated, rescinded or modified by mutual 
consent or otherwise if the effect thereof would be inconsistent with 
the requirements of Sec.Sec.240.18a-1 and 240.18a-1d.
    (2) Notification. Every security-based swap dealer shall immediately 
notify the Commission if, after giving effect to all Payments of Payment 
Obligations under subordinated loan agreements then outstanding that are 
then due or mature within the following six months without reference to 
any projected profit or loss of the security-based swap dealer, either 
its net capital would fall below 120 percent of its minimum requirement 
under Sec.240.18a-1, or, if the security-based swap dealer is approved 
to calculate net capital under Sec.240.18a-1(d), its tentative net 
capital would fall to an amount below 120 percent of the minimum 
requirement.
    (3) Certain legends. If all the provisions of a satisfactory 
subordinated loan agreement do not appear in a single instrument, then 
the debenture or other evidence of indebtedness shall bear on its face 
an appropriate legend stating that it is issued subject to the 
provisions of a satisfactory subordinated loan agreement which shall be 
adequately referred to and incorporated by reference.
    (4) Revolving subordinated loan agreements. A security-based swap 
dealer shall be permitted to enter into a revolving subordinated loan 
agreement that provides for prepayment within less than one year of all 
or any portion of the Payment Obligation thereunder at the option of the 
security-based swap dealer upon the prior written approval of the 
Commission. The Commission, however, shall not approve any prepayment 
if:
    (i) After giving effect thereto (and to all Payments of Payment 
Obligations under any other subordinated loan agreements then 
outstanding, the maturity or accelerated maturities of which are 
scheduled to fall due within six months after the date such prepayment 
is to occur pursuant to this provision or on or prior to the date on 
which the Payment Obligation in respect of such prepayment is scheduled 
to mature disregarding this provision, whichever date is earlier) 
without reference to any projected profit or loss of the security-based 
swap dealer, either its net capital would fall below 120 percent of its 
minimum requirement under Sec.240.18a-1, or, if the security-based 
swap dealer is approved to calculate net capital under Sec.240.18a-
1(d), its tentative net capital would fall to an amount below 120 
percent of the minimum requirement; or
    (ii) Pre-tax losses during the latest three-month period equaled 
more than 15 percent of current excess net capital. Any subordinated 
loan agreement entered into pursuant to this paragraph (c)(4) shall be 
subject to all the other

[[Page 703]]

provisions of this section. Any such subordinated loan agreement shall 
not be considered equity for purposes of Sec.240.18a-1(g), despite the 
length of the initial term of the loan.
    (5) Filing. Two copies of any proposed subordinated loan agreement 
(including nonconforming subordinated loan agreements) shall be filed at 
least 30 days prior to the proposed execution date of the agreement with 
the Commission. The security-based swap dealer shall also file with the 
Commission a statement setting forth the name and address of the lender, 
the business relationship of the lender to the security-based swap 
dealer, and whether the security-based swap dealer carried an account 
for the lender for effecting transactions in security-based swaps at or 
about the time the proposed agreement was so filed. All agreements shall 
be examined by the Commission prior to their becoming effective. No 
proposed agreement shall be a satisfactory subordinated loan agreement 
for the purposes of this section unless and until the Commission has 
found the agreement acceptable and such agreement has become effective 
in the form found acceptable.

[84 FR 44065, Aug. 22, 2019]



Sec.240.18a-2  Capital requirements for major security-based swap 
participants for which there is not a prudential regulator.

    (a) Every major security-based swap participant for which there is 
not a prudential regulator and is not registered as a broker or dealer 
pursuant to section 15(b) of the Act (15 U.S.C. 78o(b)) must at all 
times have and maintain positive tangible net worth.
    (b) The term tangible net worth means the net worth of the major 
security-based swap participant as determined in accordance with 
generally accepted accounting principles in the United States, excluding 
goodwill and other intangible assets. In determining net worth, all long 
and short positions in security-based swaps, swaps, and related 
positions must be marked to their market value. A major security-based 
swap participant must include in its computation of tangible net worth 
all liabilities or obligations of a subsidiary or affiliate that the 
participant guarantees, endorses, or assumes either directly or 
indirectly.
    (c) Every major security-based swap participant must comply with 
Sec.240.15c3-4 as though it were an OTC derivatives dealer with 
respect to its security-based swap and swap activities, except that 
Sec.240.15c3-4(c)(5)(xiii) and (xiv) and (d)(8) and (9) shall not 
apply.

[84 FR 44068, Aug. 22, 2019]



Sec.240.18a-3  Non-cleared security-based swap margin requirements
for security-based swap dealers and major security-based swap 
participants for which there is not a prudential regulator.
          

    (a) Every security-based swap dealer and major security-based swap 
participant for which there is not a prudential regulator must comply 
with this section.
    (b) Definitions. For the purposes of this section:
    (1) The term account means an account carried by a security-based 
swap dealer or major security-based swap participant that holds one or 
more non-cleared security-based swaps for a counterparty.
    (2) The term commercial end user means a counterparty that qualifies 
for an exception from clearing under section 3C(g)(1) of the Act (15 
U.S.C. 78o-3(g)(1)) and implementing regulations or satisfies the 
criteria in section 3C(g)(4) of the Act (15 U.S.C. 78o-3(g)(4)) and 
implementing regulations.
    (3) The term counterparty means a person with whom the security-
based swap dealer or major security-based swap participant has entered 
into a non-cleared security-based swap transaction.
    (4) The term initial margin amount means the amount calculated 
pursuant to paragraph (d) of this section.
    (5) The term non-cleared security-based swap means a security-based 
swap that is not, directly or indirectly, submitted to and cleared by a 
clearing agency registered pursuant to section 17A of the Act (15 U.S.C. 
78q-1) or by a clearing agency that the Commission has exempted from 
registration by rule or order pursuant to section 17A of the Act (15 
U.S.C. 78q-1).

[[Page 704]]

    (6) The term security-based swap legacy account means an account 
that holds no security-based swaps entered into after the compliance 
date of this section and that only is used to hold one or more security-
based swaps entered into prior to the compliance date of this section 
and collateral for those security-based swaps.
    (c) Margin requirements--(1) Security-based swap dealers--(i) 
Calculation required. A security-based swap dealer must calculate with 
respect to each account of a counterparty as of the close of each 
business day:
    (A) The amount of the current exposure in the account of the 
counterparty; and
    (B) The initial margin amount for the account of the counterparty.
    (ii) Account equity requirements. Except as provided in paragraph 
(c)(1)(iii) of this section, a security-based swap dealer must take an 
action required in paragraph (c)(1)(ii)(A) or (B) of this section by no 
later than the close of business of the first business day following the 
day of the calculation required under paragraph (c)(1)(i) of this 
section or, if the counterparty is located in another country and more 
than four time zones away, the second business day following the day of 
the calculation required under paragraph (c)(1)(i) of this section:
    (A)(1) Collect from the counterparty collateral in an amount equal 
to the current exposure that the security-based swap dealer has to the 
counterparty; or
    (2) Deliver to the counterparty collateral in an amount equal to the 
current exposure that the counterparty has to the security-based swap 
dealer, provided that such amount does not include the initial margin 
amount collected from the counterparty under paragraph (c)(1)(ii)(B) of 
this section; and
    (B) Collect from the counterparty collateral in an amount equal to 
the initial margin amount.
    (iii) Exceptions--(A) Commercial end users. The requirements of 
paragraph (c)(1)(ii) of this section do not apply to an account of a 
counterparty that is a commercial end user.
    (B) Counterparties that are financial market intermediaries. The 
requirements of paragraph (c)(1)(ii)(B) of this section do not apply to 
an account of a counterparty that is a security-based swap dealer, swap 
dealer, broker or dealer, futures commission merchant, bank, foreign 
bank, or foreign broker or dealer.
    (C) Counterparties that use third-party custodians. The requirements 
of paragraph (c)(1)(ii)(B) of this section do not apply to an account of 
a counterparty that delivers the collateral to meet the initial margin 
amount to an independent third-party custodian.
    (D) Security-based swap legacy accounts. The requirements of 
paragraph (c)(1)(ii) of this section do not apply to a security-based 
swap legacy account.
    (E) Bank for International Settlements, European Stability 
Mechanism, and Multilateral development banks. The requirements of 
paragraph (c)(1)(ii) of this section do not apply to an account of a 
counterparty that is the Bank for International Settlements or the 
European Stability Mechanism, or is the International Bank for 
Reconstruction and Development, the Multilateral Investment Guarantee 
Agency, the International Finance Corporation, the Inter-American 
Development Bank, the Asian Development Bank, the African Development 
Bank, the European Bank for Reconstruction and Development, the European 
Investment Bank, the European Investment Fund, the Nordic Investment 
Bank, the Caribbean Development Bank, the Islamic Development Bank, the 
Council of Europe Development Bank, or any other multilateral 
development bank that provides financing for national or regional 
development in which the U.S. government is a shareholder or 
contributing member.
    (F) Sovereign entities. The requirements of paragraph (c)(1)(ii)(B) 
of this section do not apply to an account of a counterparty that is a 
central government (including the U.S. government) or an agency, 
department, ministry, or central bank of a central government if the 
security-based swap dealer has determined that the counterparty has only 
a minimal amount of credit risk pursuant to policies and procedures or 
credit risk models established pursuant to Sec.240.15c3-1 or Sec.
240.18a-1 (as applicable).

[[Page 705]]

    (G) Affiliates. The requirements of paragraph (c)(1)(ii)(B) of this 
section do not apply to an account of a counterparty that is an 
affiliate of the security-based swap dealer.
    (H) Threshold amount. (1) A security-based swap dealer may elect not 
to collect the initial margin amount required under paragraph 
(c)(1)(ii)(B) of this section to the extent that the sum of that amount 
plus all other credit exposures resulting from non-cleared swaps and 
non-cleared security-based swaps of the security-based swap dealer and 
its affiliates with the counterparty and its affiliates does not exceed 
$50 million. For purposes of this calculation, a security-based swap 
dealer need not include any exposures arising from non-cleared security 
based swap transactions with a counterparty that is a commercial end 
user, and non-cleared swap transactions with a counterparty that 
qualifies for an exception from margin requirements pursuant to section 
4s(e)(4) of the Commodity Exchange Act (7 U.S.C. 6s(e)(4)).
    (2) One-time deferral. Notwithstanding paragraph (c)(1)(iii)(H)(1) 
of this section, a security-based swap dealer may defer collecting the 
initial margin amount required under paragraph (c)(1)(ii)(B) of this 
section for up to two months following the month in which a counterparty 
no longer qualifies for this threshold exception for the first time.
    (I) Minimum transfer amount. Notwithstanding any other provision of 
this rule, a security-based swap dealer is not required to collect or 
deliver collateral pursuant to this section with respect to a particular 
counterparty unless and until the total amount of collateral that is 
required to be collected or delivered, and has not yet been collected or 
delivered, with respect to the counterparty is greater than $500,000.
    (2) Major security-based swap participants--(i) Calculation 
required. A major security-based swap participant must with respect to 
each account of a counterparty calculate as of the close of each 
business day the amount of the current exposure in the account of the 
counterparty.
    (ii) Account equity requirements. Except as provided in paragraph 
(c)(2)(iii) of this section, a major security-based swap participant 
must take an action required in paragraph (c)(2)(ii)(A) or (B) of this 
section by no later than the close of business of the first business day 
following the day of the calculation required under paragraph (c)(2)(i) 
or, if the counterparty is located in another country and more than four 
time zones away, the second business day following the day of the 
calculation required under paragraph (c)(2)(i) of this section:
    (A) Collect from the counterparty collateral in an amount equal to 
the current exposure that the major security-based swap participant has 
to the counterparty; or
    (B) Deliver to the counterparty collateral in an amount equal to the 
current exposure that the counterparty has to the major security-based 
swap participant.
    (iii) Exceptions--(A) Commercial end users. The requirements of 
paragraph (c)(2)(ii)(A) of this section do not apply to an account of a 
counterparty that is a commercial end user.
    (B) Security-based swap legacy accounts. The requirements of 
paragraph (c)(2)(ii) of this section do not apply to a security-based 
swap legacy account.
    (C) Bank for International Settlements, European Stability 
Mechanism, and Multilateral development banks. The requirements of 
paragraph (c)(2)(ii)(A) of this section do not apply to an account of a 
counterparty that is the Bank for International Settlements or the 
European Stability Mechanism, or is the International Bank for 
Reconstruction and Development, the Multilateral Investment Guarantee 
Agency, the International Finance Corporation, the Inter-American 
Development Bank, the Asian Development Bank, the African Development 
Bank, the European Bank for Reconstruction and Development, the European 
Investment Bank, the European Investment Fund, the Nordic Investment 
Bank, the Caribbean Development Bank, the Islamic Development Bank, the 
Council of Europe Development Bank, or any other multilateral 
development bank that provides financing for national or regional 
development in which the U.S. government is a shareholder or 
contributing member.

[[Page 706]]

    (D) Minimum transfer amount. Notwithstanding any other provision of 
this rule, a major security-based swap participant is not required to 
collect or deliver collateral pursuant to this section with respect to a 
particular counterparty unless and until the total amount of collateral 
that is required to be collected or delivered, and has not yet been 
collected or delivered, with respect to the counterparty is greater than 
$500,000.
    (3) Deductions for collateral. (i) The fair market value of 
collateral delivered by a counterparty or the security-based swap dealer 
must be reduced by the amount of the standardized deductions the 
security-based swap dealer would apply to the collateral pursuant to 
Sec.240.15c3-1 or Sec.240.18a-1, as applicable, for the purpose of 
paragraph (c)(1)(ii) of this section.
    (ii) Notwithstanding paragraph (c)(3)(i) of this section, the fair 
market value of assets delivered as collateral by a counterparty or the 
security-based swap dealer may be reduced by the amount of the 
standardized deductions prescribed in 17 CFR 23.156 if the security-
based swap dealer applies these standardized deductions consistently 
with respect to the particular counterparty.
    (4) Collateral requirements. A security-based swap dealer or a major 
security-based swap participant when calculating the amounts under 
paragraphs (c)(1) and (2) of this section may take into account the fair 
market value of collateral delivered by a counterparty provided:
    (i) The collateral:
    (A) Has a ready market;
    (B) Is readily transferable;
    (C) Consists of cash, securities, money market instruments, a major 
foreign currency, the settlement currency of the non-cleared security-
based swap, or gold;
    (D) Does not consist of securities and/or money market instruments 
issued by the counterparty or a party related to the security-based swap 
dealer, the major security-based swap participant, or the counterparty; 
and
    (E) Is subject to an agreement between the security-based swap 
dealer or the major security-based swap participant and the counterparty 
that is legally enforceable by the security-based swap dealer or the 
major security-based swap participant against the counterparty and any 
other parties to the agreement; and
    (ii) The collateral is either:
    (A) Subject to the physical possession or control of the security-
based swap dealer or the major security-based swap participant and may 
be liquidated promptly by the security-based swap dealer or the major 
security-based swap participant without intervention by any other party; 
or
    (B) The collateral is carried by an independent third-party 
custodian that is a bank as defined in section 3(a)(6) of the Act or a 
registered U.S. clearing organization or depository that is not 
affiliated with the counterparty or, if the collateral consists of 
foreign securities or currencies, a supervised foreign bank, clearing 
organization, or depository that is not affiliated with the counterparty 
and that customarily maintains custody of such foreign securities or 
currencies.
    (5) Qualified netting agreements. A security-based swap dealer or 
major security-based swap participant may include the effect of a 
netting agreement that allows the security-based swap dealer or major 
security-based swap participant to net gross receivables from and gross 
payables to a counterparty upon the default of the counterparty, for the 
purposes of the calculations required pursuant to paragraphs (c)(1)(i) 
and (c)(2)(i) of this section, if:
    (i) The netting agreement is legally enforceable in each relevant 
jurisdiction, including in insolvency proceedings;
    (ii) The gross receivables and gross payables that are subject to 
the netting agreement with a counterparty can be determined at any time; 
and
    (iii) For internal risk management purposes, the security-based swap 
dealer or major security-based swap participant monitors and controls 
its exposure to the counterparty on a net basis.
    (6) Frequency of calculations increased. The calculations required 
pursuant to paragraphs (c)(1)(i) and (c)(2)(i) of this section must be 
made more frequently than the close of each business day during periods 
of extreme volatility

[[Page 707]]

and for accounts with concentrated positions.
    (7) Liquidation. A security-based swap dealer or major security-
based swap participant must take prompt steps to liquidate positions in 
an account that does not meet the margin requirements of this section to 
the extent necessary to eliminate the margin deficiency.
    (d) Calculating initial margin amount. A security-based swap dealer 
must calculate the initial margin amount required by paragraph 
(c)(1)(i)(B) of this section for non-cleared security-based swaps as 
follows:
    (1) Standardized approach--(i) Credit default swaps. For credit 
default swaps, the security-based swap dealer must use the method 
specified in Sec.240.18a-1(c)(1)(vi)(B)(1) or, if the security-based 
swap dealer is registered with the Commission as a broker or dealer, the 
method specified in Sec.240.15c3-1(c)(2)(vi)(P)(1).
    (ii) All other security-based swaps. For security-based swaps other 
than credit default swaps, the security-based swap dealer must use the 
method specified in Sec.240.18a-1(c)(1)(vi)(B)(2) or, if the security-
based swap dealer is registered with the Commission as a broker or 
dealer, the method specified in Sec.240.15c3-1(c)(2)(vi)(P)(2).
    (2) Model approach. (i) For security-based swaps other than equity 
security-based swaps, a security-based swap dealer may apply to the 
Commission for authorization to use and be responsible for a model to 
calculate the initial margin amount required by paragraph (c)(1)(i)(B) 
of this section subject to the application process in Sec.240.15c3-1e 
or Sec.240.18a-1(d), as applicable. The model must use a 99 percent, 
one-tailed confidence level with price changes equivalent to a ten 
business-day movement in rates and prices, and must use risk factors 
sufficient to cover all the material price risks inherent in the 
positions for which the initial margin amount is being calculated, 
including foreign exchange or interest rate risk, credit risk, equity 
risk, and commodity risk, as appropriate. Empirical correlations may be 
recognized by the model within each broad risk category, but not across 
broad risk categories.
    (ii) Notwithstanding paragraph (d)(2)(i) of this section, a 
security-based swap dealer that is not registered as a broker or dealer 
pursuant to Section 15(b) of the Act (15 U.S.C. 78o(b)), other than as 
an OTC derivatives dealer, may apply to the Commission for authorization 
to use a model to calculate the initial margin amount required by 
paragraph (c)(1)(i)(B) of this section for equity security-based swaps, 
subject to the application process and model requirements of paragraph 
(d)(2)(i) of this section; provided, however, the account of the 
counterparty subject to the requirements of this paragraph may not hold 
equity security positions other than equity security-based swaps and 
equity swaps.
    (e) Risk monitoring and procedures. A security-based swap dealer 
must monitor the risk of each account and establish, maintain, and 
document procedures and guidelines for monitoring the risk of accounts 
as part of the risk management control system required by Sec.
240.15c3-4. The security-based swap dealer must review, in accordance 
with written procedures, at reasonable periodic intervals, its non-
cleared security-based swap activities for consistency with the risk 
monitoring procedures and guidelines required by this section. The 
security-based swap dealer also must determine whether information and 
data necessary to apply the risk monitoring procedures and guidelines 
required by this section are accessible on a timely basis and whether 
information systems are available to adequately capture, monitor, 
analyze, and report relevant data and information. The risk monitoring 
procedures and guidelines must include, at a minimum, procedures and 
guidelines for:
    (1) Obtaining and reviewing account documentation and financial 
information necessary for assessing the amount of current and potential 
future exposure to a given counterparty permitted by the security-based 
swap dealer;
    (2) Determining, approving, and periodically reviewing credit limits 
for each counterparty, and across all counterparties;
    (3) Monitoring credit risk exposure to the security-based swap 
dealer from

[[Page 708]]

non-cleared security-based swaps, including the type, scope, and 
frequency of reporting to senior management;
    (4) Using stress tests to monitor potential future exposure to a 
single counterparty and across all counterparties over a specified range 
of possible market movements over a specified time period;
    (5) Managing the impact of credit exposure related to non-cleared 
security-based swaps on the security-based swap dealer's overall risk 
exposure;
    (6) Determining the need to collect collateral from a particular 
counterparty, including whether that determination was based upon the 
creditworthiness of the counterparty and/or the risk of the specific 
non-cleared security-based swap contracts with the counterparty;
    (7) Monitoring the credit exposure resulting from concentrated 
positions with a single counterparty and across all counterparties, and 
during periods of extreme volatility; and
    (8) Maintaining sufficient equity in the account of each 
counterparty to protect against the largest individual potential future 
exposure of a non-cleared security-based swap carried in the account of 
the counterparty as measured by computing the largest maximum possible 
loss that could result from the exposure.

[85 FR 44068, Aug. 22, 2020]



Sec.240.18a-4  Segregation requirements for security-based swap
dealers and major security-based swap participants.

    Section 240.18a-4 applies to a security-based swap dealer or major 
security-based swap participant registered under section 15F(b) of the 
Act (15 U.S.C. 78o-10(b)), including a security-based swap dealer that 
is an OTC derivatives dealer as that term is defined in Sec.240.3b-12. 
A security-based swap dealer registered under section 15F of the Act (15 
U.S.C. 78o-10) that is also a broker or dealer registered under section 
15 of the Act (15 U.S.C. 78o), other than an OTC derivatives dealer, is 
subject to the customer protection requirements under Sec.240.15c3-3, 
including paragraph (p) of that rule with respect to its security-based 
swap activity.
    (a) Definitions. For the purposes of this section:
    (1) The term cleared security-based swap means a security-based swap 
that is, directly or indirectly, submitted to and cleared by a clearing 
agency registered with the Commission pursuant to section 17A of the Act 
(15 U.S.C. 78q-1);
    (2) The term excess securities collateral means securities and money 
market instruments carried for the account of a security-based swap 
customer that have a market value in excess of the current exposure of 
the security-based swap dealer (after reducing the current exposure by 
the amount of cash in the account) to the security-based swap customer, 
excluding:
    (i) Securities and money market instruments held in a qualified 
clearing agency account but only to the extent the securities and money 
market instruments are being used to meet a margin requirement of the 
clearing agency resulting from a security-based swap transaction of the 
security-based swap customer; and
    (ii) Securities and money market instruments held in a qualified 
registered security-based swap dealer account or in a third-party 
custodial account but only to the extent the securities and money market 
instruments are being used to meet a regulatory margin requirement of 
another security-based swap dealer resulting from the security-based 
swap dealer entering into a non-cleared security-based swap transaction 
with the other security-based swap dealer to offset the risk of a non-
cleared security-based swap transaction between the security-based swap 
dealer and the security-based swap customer.
    (3) The term foreign major security-based swap participant has the 
meaning set forth in Sec.240.3a67-10(a)(6).
    (4) The term foreign security-based swap dealer has the meaning set 
forth in Sec.240.3a71-3(a)(7).
    (5) The term qualified clearing agency account means an account of a 
security-based swap dealer at a clearing agency registered with the 
Commission pursuant to section 17A of the Act (15 U.S.C. 78q-1) that 
holds funds and other property in order to margin, guarantee, or secure 
cleared security-based swap

[[Page 709]]

transactions for the security-based swap customers of the security-based 
swap dealer that meets the following conditions:
    (i) The account is designated ``Special Clearing Account for the 
Exclusive Benefit of the Cleared Security-Based Swap Customers of [name 
of security-based swap dealer]'';
    (ii) The clearing agency has acknowledged in a written notice 
provided to and retained by the security-based swap dealer that the 
funds and other property in the account are being held by the clearing 
agency for the exclusive benefit of the security-based swap customers of 
the security-based swap dealer in accordance with the regulations of the 
Commission and are being kept separate from any other accounts 
maintained by the security-based swap dealer with the clearing agency; 
and
    (iii) The account is subject to a written contract between the 
security-based swap dealer and the clearing agency which provides that 
the funds and other property in the account shall be subject to no 
right, charge, security interest, lien, or claim of any kind in favor of 
the clearing agency or any person claiming through the clearing agency, 
except a right, charge, security interest, lien, or claim resulting from 
a cleared security-based swap transaction effected in the account.
    (6) The term qualified registered security-based swap dealer account 
means an account at another security-based swap dealer registered with 
the Commission pursuant to section 15F of the Act that meets the 
following conditions:
    (i) The account is designated ``Special Reserve Account for the 
Exclusive Benefit of the Security-Based Swap Customers of [name of 
security-based swap dealer]'';
    (ii) The other security-based swap dealer has acknowledged in a 
written notice provided to and retained by the security-based swap 
dealer that the funds and other property held in the account are being 
held by the other security-based swap dealer for the exclusive benefit 
of the security-based swap customers of the security-based swap dealer 
in accordance with the regulations of the Commission and are being kept 
separate from any other accounts maintained by the security-based swap 
dealer with the other security-based swap dealer;
    (iii) The account is subject to a written contract between the 
security-based swap dealer and the other security-based swap dealer 
which provides that the funds and other property in the account shall be 
subject to no right, charge, security interest, lien, or claim of any 
kind in favor of the other security-based swap dealer or any person 
claiming through the other security-based swap dealer, except a right, 
charge, security interest, lien, or claim resulting from a non-cleared 
security-based swap transaction effected in the account; and
    (iv) The account and the assets in the account are not subject to 
any type of subordination agreement between the security-based swap 
dealer and the other security-based swap dealer.
    (7) The term qualified security means:
    (i) Obligations of the United States;
    (ii) Obligations fully guaranteed as to principal and interest by 
the United States; and
    (iii) General obligations of any State or a political subdivision of 
a State that:
    (A) Are not traded flat and are not in default;
    (B) Were part of an initial offering of $500 million or greater; and
    (C) Were issued by an issuer that has published audited financial 
statements within 120 days of its most recent fiscal year end.
    (8) The term security-based swap customer means any person from whom 
or on whose behalf the security-based swap dealer has received or 
acquired or holds funds or other property for the account of the person 
with respect to a cleared or non-cleared security-based swap 
transaction. The term does not include a person to the extent that 
person has a claim for funds or other property which by contract, 
agreement or understanding, or by operation of law, is part of the 
capital of the security-based swap dealer or is subordinated to all 
claims of security-based swap customers of the security-based swap 
dealer.
    (9) The term special reserve account for the exclusive benefit of 
security-based swap customers means an account at a

[[Page 710]]

bank that meets the following conditions:
    (i) The account is designated ``Special Reserve Account for the 
Exclusive Benefit of the Security-Based Swap Customers of [name of 
security-based swap dealer]'';
    (ii) The account is subject to a written acknowledgement by the bank 
provided to and retained by the security-based swap dealer that the 
funds and other property held in the account are being held by the bank 
for the exclusive benefit of the security-based swap customers of the 
security-based swap dealer in accordance with the regulations of the 
Commission and are being kept separate from any other accounts 
maintained by the security-based swap dealer with the bank; and
    (iii) The account is subject to a written contract between the 
security-based swap dealer and the bank which provides that the funds 
and other property in the account shall at no time be used directly or 
indirectly as security for a loan or other extension of credit to the 
security-based swap dealer by the bank and, shall be subject to no 
right, charge, security interest, lien, or claim of any kind in favor of 
the bank or any person claiming through the bank.
    (10) The term third-party custodial account means an account carried 
by an independent third-party custodian that meets the following 
conditions:
    (i) The account is established for the purposes of meeting 
regulatory margin requirements of another security-based swap dealer;
    (ii) The account is carried by a bank as defined in section 3(a)(6) 
of the Act or a registered U.S. clearing organization or depository or, 
if the collateral to be held in the account consists of foreign 
securities or currencies, a supervised foreign bank, clearing 
organization, or depository that customarily maintains custody of such 
foreign securities or currencies;
    (iii) The account is designated for and on behalf of the security-
based swap dealer for the benefit of its security-based swap customers 
and the account is subject to a written acknowledgement by the bank, 
clearing organization, or depository provided to and retained by the 
security-based swap dealer that the funds and other property held in the 
account are being held by the bank, clearing organization, or depository 
for the exclusive benefit of the security-based swap customers of the 
security-based swap dealer and are being kept separate from any other 
accounts maintained by the security-based swap dealer with the bank, 
clearing organization, or depository; and
    (iv) The account is subject to a written contract between the 
security-based swap dealer and the bank, clearing organization, or 
depository which provides that the funds and other property in the 
account shall at no time be used directly or indirectly as security for 
a loan or other extension of credit to the security-based swap dealer by 
the bank, clearing organization, or depository and, shall be subject to 
no right, charge, security interest, lien, or claim of any kind in favor 
of the bank, clearing organization, or depository or any person claiming 
through the bank, clearing organization, or depository.
    (11) The term U.S. person has the meaning set forth in Sec.
240.3a71-3(a)(4).
    (b) Physical possession or control of excess securities collateral. 
(1) A security-based swap dealer must promptly obtain and thereafter 
maintain physical possession or control of all excess securities 
collateral carried for the security-based swap accounts of security-
based swap customers.
    (2) A security-based swap dealer has control of excess securities 
collateral only if the securities and money market instruments:
    (i) Are represented by one or more certificates in the custody or 
control of a clearing corporation or other subsidiary organization of 
either national securities exchanges, or of a custodian bank in 
accordance with a system for the central handling of securities 
complying with the provisions of Sec.Sec.240.8c-1(g) and 240.15c2-
1(g) the delivery of which certificates to the security-based swap 
dealer does not require the payment of money or value, and if the books 
or records of the security-based swap dealer identify the security-based 
swap customers entitled to receive specified quantities or units of the 
securities so held for such security-based swap customers collectively;

[[Page 711]]

    (ii) Are the subject of bona fide items of transfer; provided that 
securities and money market instruments shall be deemed not to be the 
subject of bona fide items of transfer if, within 40 calendar days after 
they have been transmitted for transfer by the security-based swap 
dealer to the issuer or its transfer agent, new certificates conforming 
to the instructions of the security-based swap dealer have not been 
received by the security-based swap dealer, the security-based swap 
dealer has not received a written statement by the issuer or its 
transfer agent acknowledging the transfer instructions and the 
possession of the securities or money market instruments, or the 
security-based swap dealer has not obtained a revalidation of a window 
ticket from a transfer agent with respect to the certificate delivered 
for transfer;
    (iii) Are in the custody or control of a bank as defined in section 
3(a)(6) of the Act, the delivery of which securities or money market 
instruments to the security-based swap dealer does not require the 
payment of money or value and the bank having acknowledged in writing 
that the securities and money market instruments in its custody or 
control are not subject to any right, charge, security interest, lien or 
claim of any kind in favor of a bank or any person claiming through the 
bank;
    (iv)(A) Are held in or are in transit between offices of the 
security-based swap dealer; or (B) Are held by a corporate subsidiary if 
the security-based swap dealer owns and exercises a majority of the 
voting rights of all of the voting securities of such subsidiary, 
assumes or guarantees all of the subsidiary's obligations and 
liabilities, operates the subsidiary as a branch office of the security-
based swap dealer, and assumes full responsibility for compliance by the 
subsidiary and all of its associated persons with the provisions of the 
Federal securities laws as well as for all of the other acts of the 
subsidiary and such associated persons; or
    (v) Are held in such other locations as the Commission shall upon 
application from a security-based swap dealer find and designate to be 
adequate for the protection of security-based swap customer securities.
    (3) Each business day the security-based swap dealer must determine 
from its books and records the quantity of excess securities collateral 
in its possession or control as of the close of the previous business 
day and the quantity of excess securities collateral not in its 
possession or control as of the previous business day. If the security-
based swap dealer did not obtain possession or control of all excess 
securities collateral on the previous business day as required by this 
section and there are securities or money market instruments of the same 
issue and class in any of the following non-control locations:
    (i) Securities or money market instruments subject to a lien 
securing an obligation of the security-based swap dealer, then the 
security-based swap dealer, not later than the next business day on 
which the determination is made, must issue instructions for the release 
of the securities or money market instruments from the lien and must 
obtain physical possession or control of the securities or money market 
instruments within two business days following the date of the 
instructions;
    (ii) Securities or money market instruments held in a qualified 
clearing agency account, then the security-based swap dealer, not later 
than the next business day on which the determination is made, must 
issue instructions for the release of the securities or money market 
instruments by the clearing agency and must obtain physical possession 
or control of the securities or money market instruments within two 
business days following the date of the instructions;
    (iii) Securities or money market instruments held in a qualified 
registered security-based swap dealer account maintained by another 
security-based swap dealer or in a third-party custodial account, then 
the security-based swap dealer, not later than the next business day on 
which the determination is made, must issue instructions for the release 
of the securities or money market instruments by the other security-
based swap dealer or by the third-party custodian and must obtain 
physical possession or control of

[[Page 712]]

the securities or money market instruments within two business days 
following the date of the instructions;
    (iv) Securities or money market instruments loaned by the security-
based swap dealer, then the security-based swap dealer, not later than 
the next business day on which the determination is made, must issue 
instructions for the return of the loaned securities or money market 
instruments and must obtain physical possession or control of the 
securities or money market instruments within five business days 
following the date of the instructions;
    (v) Securities or money market instruments failed to receive for 
more than 30 calendar days, then the security-based swap dealer, not 
later than the next business day on which the determination is made, 
must take prompt steps to obtain physical possession or control of the 
securities or money market instruments through a buy-in procedure or 
otherwise;
    (vi) Securities or money market instruments receivable by the 
security-based swap dealer as a security dividend, stock split or 
similar distribution for more than 45 calendar days, then the security-
based swap dealer, not later than the next business day on which the 
determination is made, must take prompt steps to obtain physical 
possession or control of the securities or money market instruments 
through a buy-in procedure or otherwise; or
    (vii) Securities or money market instruments included on the 
security-based swap dealer's books or records that allocate to a short 
position of the security-based swap dealer or a short position for 
another person, for more than 30 calendar days, then the security-based 
swap dealer must, not later than the business day following the day on 
which the determination is made, take prompt steps to obtain physical 
possession or control of such securities or money market instruments.
    (c) Deposit requirement for special reserve account for the 
exclusive benefit of security-based swap customers. (1) A security-based 
swap dealer must maintain a special reserve account for the exclusive 
benefit of security-based swap customers that is separate from any other 
bank account of the security-based swap dealer. The security-based swap 
dealer must at all times maintain in the special reserve account for the 
exclusive benefit of security-based swap customers, through deposits 
into the account, cash and/or qualified securities in amounts computed 
in accordance with the formula set forth in Sec.240.18a-4a.
    (i) In determining the amount maintained in a special reserve 
account for the exclusive benefit of security-based swap customers, the 
security-based swap dealer must deduct:
    (A) The percentage of the value of a general obligation of a State 
or a political subdivision of a State specified in Sec.240.15c3-
1(c)(2)(vi);
    (B) The aggregate value of general obligations of a State or a 
political subdivision of a State to the extent the amount of the 
obligations of a single issuer (after applying the deduction in 
paragraph (c)(1)(i)(A) of this section) exceeds two percent of the 
amount required to be maintained in the special reserve account for the 
exclusive benefit of security-based swap customers;
    (C) The aggregate value of all general obligations of States or 
political subdivisions of States to the extent the amount of the 
obligations (after applying the deduction in paragraph (c)(1)(i)(A) of 
this section) exceeds 10 percent of the amount required to be maintained 
in the special reserve account for the exclusive benefit of security-
based swap customers;
    (D) The amount of cash deposited with a single non-affiliated bank 
to the extent the amount exceeds 15 percent of the equity capital of the 
bank as reported by the bank in its most recent Call Report or any 
successor form the bank is required to file by its appropriate federal 
banking agency (as defined by section 3 of the Federal Deposit Insurance 
Act (12 U.S.C. 1813)); and
    (E) The total amount of cash deposited with an affiliated bank.
    (ii) Exception. A security-based swap dealer for which there is a 
prudential regulator need not take the deduction specified in paragraph 
(c)(1)(i)(D) of this section if it maintains the special reserve account 
for the exclusive benefit of security-based swap customers

[[Page 713]]

itself rather than at an affiliated or non-affiliated bank.
    (2) A security-based swap dealer must not accept or use credits 
identified in the items of the formula set forth in Sec.240.18a-4a 
except for the specified purposes indicated under items comprising Total 
Debits under the formula, and, to the extent Total Credits exceed Total 
Debits, at least the net amount thereof must be maintained in the 
Special Reserve Account pursuant to paragraph (c)(1) of this section.
    (3)(i) The computations necessary to determine the amount required 
to be maintained in the special reserve account for the exclusive 
benefit of security-based swap customers must be made weekly as of the 
close of the last business day of the week and any deposit required to 
be made into the account must be made no later than one hour after the 
opening of banking business on the second following business day. The 
security-based swap dealer may make a withdrawal from the special 
reserve account for the exclusive benefit of security-based swap 
customers only if the amount remaining in the account after the 
withdrawal is equal to or exceeds the amount required to be maintained 
in the account pursuant to paragraph (c)(1) of this section.
    (ii) Computations in addition to the computations required pursuant 
to paragraph (c)(3)(i) of this section may be made as of the close of 
any business day, and deposits so computed must be made no later than 
one hour after the open of banking business on the second following 
business day.
    (4) A security-based swap dealer must promptly deposit into a 
special reserve account for the exclusive benefit of security-based swap 
customers cash and/or qualified securities of the security-based swap 
dealer if the amount of cash and/or qualified securities in one or more 
special reserve accounts for the exclusive benefit of security-based 
swap customers falls below the amount required to be maintained pursuant 
to this section.
    (d) Requirements for non-cleared security-based swaps--(1) Notice. A 
security-based swap dealer and a major security-based swap participant 
must provide the notice required pursuant to section 3E(f)(1)(A) of the 
Act (15 U.S.C. 78c-5(f)) in writing to a duly authorized individual 
prior to the execution of the first non-cleared security-based swap 
transaction with the counterparty occurring after the compliance date of 
this section.
    (2) Subordination--(i) Counterparty that elects to have individual 
segregation at an independent third-party custodian. A security-based 
swap dealer must obtain an agreement from a counterparty whose funds or 
other property to meet a margin requirement of the security-based swap 
dealer are held at a third-party custodian in which the counterparty 
agrees to subordinate its claims against the security-based swap dealer 
for the funds or other property held at the third-party custodian to the 
claims of security-based swap customers of the security-based swap 
dealer but only to the extent that funds or other property provided by 
the counterparty to the third-party custodian are not treated as 
customer property as that term is defined in 11 U.S.C. 741 in a 
liquidation of the security-based swap dealer.
    (ii) Counterparty that elects to have no segregation. A security-
based swap dealer must obtain an agreement from a counterparty that 
affirmatively chooses not to require segregation of funds or other 
property pursuant to section 3E(f) of the Act (15 U.S.C. 78c-5(f)) in 
which the counterparty agrees to subordinate all of its claims against 
the security-based swap dealer to the claims of security-based swap 
customers of the security-based swap dealer.
    (e) Segregation and disclosure requirements for foreign security-
based swap dealers and foreign major security-based swap participants--
(1) Segregation requirements for foreign security-based swap dealers--
(i) Foreign bank. Section 3E of the Act (15 U.S.C. 78c-5) and this 
section thereunder apply to a foreign security-based swap dealer 
registered under section 15F of the Act (15 U.S.C. 78o-10) that is a 
foreign bank, foreign savings bank, foreign cooperative bank, foreign 
savings and loan association, foreign building and loan association, or 
foreign credit union:

[[Page 714]]

    (A) With respect to a security-based swap customer that is a U.S. 
person, and
    (B) With respect to a security-based swap customer that is not a 
U.S. person if the foreign security-based swap dealer holds funds or 
other property arising out of a transaction had by such person with a 
branch or agency (as defined in section 1(b) of the International 
Banking Act of 1978) in the United States of such foreign security-based 
swap dealer.
    (ii) Not a foreign bank. Section 3E of the Act (15 U.S.C. 78c-5) and 
this section thereunder apply to a foreign security-based swap dealer 
registered under section 15F of the Act (15 U.S.C. 78o-10) that is not a 
foreign bank, foreign savings bank, foreign cooperative bank, foreign 
savings and loan association, foreign building and loan association, or 
foreign credit union:
    (A) Cleared security-based swaps. With respect to all cleared 
security-based swap transactions, if such foreign security-based swap 
dealer has received or acquired or holds funds or other property for at 
least one security-based swap customer that is a U.S. person with 
respect to a cleared security-based swap transaction with such U.S. 
person, and
    (B) Non-cleared security-based swaps. With respect to funds or other 
property such foreign security-based swap dealer has received or 
acquired or holds for a security-based swap customer that is a U.S. 
person with respect to a non-cleared security-based swap transaction 
with such U.S. person.
    (2) Segregation requirements for foreign major security-based swap 
participants. Section 3E of the Act (15 U.S.C. 78c-5) and this section 
thereunder apply to a foreign major security-based swap participant 
registered under section 15F of the Act (15 U.S.C. 78o-10), with respect 
to a counterparty that is a U.S. person.
    (3) Disclosure requirements for foreign security-based swap dealers. 
A foreign security-based swap dealer registered under section 15F of the 
Act (15 U.S.C. 78o-10) must disclose in writing to a security-based swap 
customer that is a U.S. person, prior to receiving, acquiring, or 
holding funds or other property for such security-based swap customer 
with respect to a security-based swap transaction, the potential 
treatment of the funds or other property segregated by such foreign 
security-based swap dealer pursuant to section 3E of the Act (15 U.S.C. 
78c-5), and the rules and regulations thereunder, in insolvency 
proceedings under U.S. bankruptcy law and any applicable foreign 
insolvency laws. Such disclosure must include whether the foreign 
security-based swap dealer is subject to the segregation requirement set 
forth in section 3E of the Act (15 U.S.C. 78c-5), and the rules and 
regulations thereunder, with respect to the funds or other property 
received, acquired, or held for the security-based swap customer that 
will receive the disclosure, whether the foreign security-based swap 
dealer could be subject to the stockbroker liquidation provisions in the 
U.S. Bankruptcy Code, whether the segregated funds or other property 
could be afforded customer property treatment under U.S. bankruptcy law, 
and any other relevant considerations that may affect the treatment of 
the funds or other property segregated under section 3E of the Act (15 
U.S.C. 78c-5), and the rules and regulations thereunder, in insolvency 
proceedings of the foreign security-based swap dealer.
    (f) Exemption. The requirements of this section do not apply if the 
following conditions are met:
    (1) The security-based swap dealer does not:
    (i) Effect transactions in cleared security-based swaps for or on 
behalf of another person;
    (ii) Have any open transactions in cleared security-based swaps 
executed for or on behalf of another person; and
    (iii) Hold or control any money, securities, or other property to 
margin, guarantee, or secure a cleared security-based swap transaction 
executed for or on behalf of another person (including money, 
securities, or other property accruing to another person as a result of 
a cleared security-based swap transaction);
    (2) The security-based swap dealer provides the notice required 
pursuant to section 3E(f)(1)(A) of the Act (15 U.S.C. 78c-5(f)(1)(A)) in 
writing to a duly authorized individual prior to the execution of the 
first non-cleared security-based swap transaction with the

[[Page 715]]

counterparty occurring after the compliance date of this section; and
    (3) The security-based swap dealer discloses in writing to a 
counterparty before engaging in the first non-cleared security-based 
swap transaction with the counterparty that any margin collateral 
received and held by the security-based swap dealer will not be subject 
to a segregation requirement and how a claim of a counterparty for the 
collateral would be treated in a bankruptcy or other formal liquidation 
proceeding of the security-based swap dealer.

[84 FR 44071, Aug. 22, 2019]



Sec.240.18a-4a  Exhibit A--Formula for determination of security-based
swap customer reserve requirements under Sec.240.18a-4.

------------------------------------------------------------------------
                                              Credits         Debits
------------------------------------------------------------------------
1. Free credit balances and other credit            $___
 balances in the accounts carried for
 security-based swap customers (See Note
 A).....................................
2. Monies borrowed collateralized by                $___
 securities in accounts carried for
 security-based swap customers (See Note
 B).....................................
3. Security-based swap customers'                   $___
 securities failed to receive (See Note
 C).....................................
4. Credit balances in firm accounts                 $___
 which are attributable to principal
 sales to security-based swap customers.
5. Market value of stock dividends,                 $___
 stock splits and similar distributions
 receivable outstanding over 30 calendar
 days...................................
6. Market value of short security count             $___
 differences over 30 calendar days old..
7. Market value of short securities and             $___
 credits (not to be offset by longs or
 by debits) in all suspense accounts
 over 30 calendar days..................
8. Market value of securities which are   ..............            $___
 in transfer in excess of 40 calendar
 days and have not been confirmed to be
 in transfer by the transfer agent or
 the issuer during the 40 days..........
9. Securities borrowed to effectuate      ..............            $___
 short sales by security-based swap
 customers and securities borrowed to
 make delivery on security-based swap
 customers' securities failed to deliver
10. Failed to deliver of security-based   ..............            $___
 swap customers' securities not older
 than 30 calendar days..................
11. Margin required and on deposit with   ..............            $___
 the Options Clearing Corporation for
 all option contracts written or
 purchased in accounts carried for
 security-based swap customers (See Note
 D).....................................
12. Margin related to security futures    ..............            $___
 products written, purchased or sold in
 accounts carried for security-based
 swap customers required and on deposit
 in a qualified clearing agency account
 at a clearing agency registered with
 the Commission under section 17A of the
 Act (15 U.S.C. 78q-1) or a derivatives
 clearing organization registered with
 the Commodity Futures Trading
 Commission under section 5b of the
 Commodity Exchange Act (7 U.S.C. 7a-1)
 (See Note E)...........................
13. Margin related to cleared security-   ..............            $___
 based swap transactions in accounts
 carried for security-based swap
 customers required and on deposit in a
 qualified clearing agency account at a
 clearing agency registered with the
 Commission pursuant to section 17A of
 the Act (15 U.S.C. 78q-1)..............
14. Margin related to non-cleared         ..............            $___
 security-based swap transactions in
 accounts carried for security-based
 swap customers required and held in a
 qualified registered security-based
 swap dealer account at another security-
 based swap dealer or at a third-party
 custodial account......................
                                         -------------------------------
    Total Credits.......................            $___
                                         -------------------------------
    Total Debits........................  ..............            $___
                                         -------------------------------
    Excess of Credits over Debits.......            $___
------------------------------------------------------------------------
Note A. Item 1 must include all outstanding drafts payable to security-
  based swap customers which have been applied against free credit
  balances or other credit balances and must also include checks drawn
  in excess of bank balances per the records of the security-based swap
  dealer.
Note B. Item 2 shall include the amount of options-related or security
  futures product-related Letters of Credit obtained by a member of a
  registered clearing agency or a derivatives clearing organization
  which are collateralized by security-based swap customers' securities,
  to the extent of the member's margin requirement at the registered
  clearing agency or derivatives clearing organization.
Note C. Item 3 must include in addition to security-based swap
  customers' securities failed to receive the amount by which the market
  value of securities failed to receive and outstanding more than thirty
  (30) calendar days exceeds their contract value.
Note D. Item 11 must include the amount of margin required and on
  deposit with Options Clearing Corporation to the extent such margin is
  represented by cash, proprietary qualified securities, and letters of
  credit collateralized by security-based swap customers' securities.
Note E. (a) Item 12 must include the amount of margin required and on
  deposit with a clearing agency registered with the Commission under
  section 17A of the Act (15 U.S.C. 78q-1) or a derivatives clearing
  organization registered with the Commodity Futures Trading Commission
  under section 5b of the Commodity Exchange Act (7 U.S.C. 7a-1) for
  security-based swap customer accounts to the extent that the margin is
  represented by cash, proprietary qualified securities, and letters of
  credit collateralized by security-based swap customers' securities.
(b) Item 12 will apply only if the security-based swap dealer has the
  margin related to security futures products on deposit with:

[[Page 716]]

 
(1) A registered clearing agency or derivatives clearing organization
  that:
(i) Maintains security deposits from clearing members in connection with
  regulated options or futures transactions and assessment power over
  member firms that equal a combined total of at least $2 billion, at
  least $500 million of which must be in the form of security deposits.
  For purposes of this Note E the term ``security deposits'' refers to a
  general fund, other than margin deposits or their equivalent, that
  consists of cash or securities held by a registered clearing agency or
  derivative clearing organization;
(ii) Maintains at least $3 billion in margin deposits; or
(iii) Does not meet the requirements of paragraphs (b)(1)(i) through
  (b)(1)(ii) of this Note E, if the Commission has determined, upon a
  written request for exemption by or for the benefit of the security-
  based swap dealer, that the security-based swap dealer may utilize
  such a registered clearing agency or derivatives clearing
  organization. The Commission may, in its sole discretion, grant such
  an exemption subject to such conditions as are appropriate under the
  circumstances, if the Commission determines that such conditional or
  unconditional exemption is necessary or appropriate in the public
  interest, and is consistent with the protection of investors; and
(2) A registered clearing agency or derivatives clearing organization
  that, if it holds funds or securities deposited as margin for security
  futures products in a bank, as defined in section 3(a)(6) of the Act
  (15 U.S.C. 78c(a)(6)), obtains and preserves written notification from
  the bank at which it holds such funds and securities or at which such
  funds and securities are held on its behalf. The written notification
  will state that all funds and/or securities deposited with the bank as
  margin (including security-based swap customer security futures
  products margin), or held by the bank and pledged to such registered
  clearing agency or derivatives clearing agency as margin, are being
  held by the bank for the exclusive benefit of clearing members of the
  registered clearing agency or derivatives clearing organization
  (subject to the interest of such registered clearing agency or
  derivatives clearing organization therein), and are being kept
  separate from any other accounts maintained by the registered clearing
  agency or derivatives clearing organization with the bank. The written
  notification also will provide that such funds and/or securities will
  at no time be used directly or indirectly as security for a loan to
  the registered clearing agency or derivatives clearing organization by
  the bank, and will be subject to no right, charge, security interest,
  lien, or claim of any kind in favor of the bank or any person claiming
  through the bank. This provision, however, will not prohibit a
  registered clearing agency or derivatives clearing organization from
  pledging security-based swap customer funds or securities as
  collateral to a bank for any purpose that the rules of the Commission
  or the registered clearing agency or derivatives clearing organization
  otherwise permit; and
(3) A registered clearing agency or derivatives clearing organization
  that establishes, documents, and maintains:
(i) Safeguards in the handling, transfer, and delivery of cash and
  securities;
(ii) Fidelity bond coverage for its employees and agents who handle
  security-based swap customer funds or securities. In the case of
  agents of a registered clearing agency or derivatives clearing
  organization, the agent may provide the fidelity bond coverage; and
(iii) Provisions for periodic examination by independent public
  accountants; and
(4) A derivatives clearing organization that, if it is not otherwise
  registered with the Commission, has provided the Commission with a
  written undertaking, in a form acceptable to the Commission, executed
  by a duly authorized person at the derivatives clearing organization,
  to the effect that, with respect to the clearance and settlement of
  the security-based swap customer security futures products of the
  security-based swap dealer, the derivatives clearing organization will
  permit the Commission to examine the books and records of the
  derivatives clearing organization for compliance with the requirements
  set forth in Sec.240.15c3-3a, Note E. (b)(1) through (3).
(c) Item 12 will apply only if a security-based swap dealer determines,
  at least annually, that the registered clearing agency or derivatives
  clearing organization with which the security-based swap dealer has on
  deposit margin related to security futures products meets the
  conditions of this Note E.


[84 FR 44075, Aug. 22, 2019]



Sec.240.18a-5  Records to be made by certain security-based swap
dealers and major security-based swap participants.

    This section applies to the following types of entities: A security-
based swap dealer registered pursuant to section 15F of the Act (15 
U.S.C. 78o-10) that is not also a broker or dealer, including an OTC 
derivatives dealer as that term is defined in Sec.240.3b-12, 
registered pursuant to section 15 of the Act (15 U.S.C. 78o); and a 
major security-based swap participant registered pursuant to section 15F 
of the Act that is not also a broker or dealer, including an OTC 
derivatives dealer, registered pursuant to section 15 of the Act. 
Section 240.17a-3 (rather than this section) applies to the following 
types of entities: A member of a national securities exchange who 
transacts a business in securities directly with others than members of 
a national securities exchange; a broker or dealer who transacts a 
business in securities through the medium of a member of a national 
securities exchange; a broker or dealer, including an OTC derivatives 
dealer, registered pursuant to section 15 of the Act; a security-based 
swap dealer registered pursuant to section 15F of the Act that is also a 
broker or dealer, including an OTC derivatives dealer, registered 
pursuant to section 15 of the Act; and a major security-based swap 
participant registered pursuant to section 15F of the Act that is also a 
broker or dealer, including an OTC derivatives dealer, registered 
pursuant to section 15 of the Act.
    (a) This paragraph (a) applies only to security-based swap dealers 
and major security-based swap participants registered under section 15F 
of the Act for which there is no prudential regulator. Each security-
based swap dealer and major security-based swap participant subject to 
this paragraph (a) must make and keep current the following books and 
records:
    (1) Blotters (or other records of original entry) containing an 
itemized daily record of all purchases and sales of securities 
(including security-based

[[Page 717]]

swaps), all receipts and deliveries of securities (including certificate 
numbers), all receipts and disbursements of cash and all other debits 
and credits. Such records must show the account for which each such 
purchase or sale was effected, the name and amount of securities, the 
unit and aggregate purchase or sale price, if any (including the 
financial terms for security-based swaps), the trade date, and the name 
or other designation of the person from whom such securities were 
purchased or received or to whom sold or delivered. For security-based 
swaps, such records must also show, for each transaction, the type of 
security-based swap, the reference security, index, or obligor, the date 
and time of execution, the effective date, the scheduled termination 
date, the notional amount(s) and the currenc(ies) in which the notional 
amount(s) is expressed, the unique transaction identifier, and the 
counterparty's unique identification code.
    (2) Ledgers (or other records) reflecting all assets and 
liabilities, income and expense and capital accounts.
    (3) Ledger accounts (or other records) itemizing separately as to 
each account for every customer or non-customer of such security-based 
swap dealer or major security-based swap participant, all purchases and 
sales, receipts and deliveries of securities (including security-based 
swaps) and commodities for such account and all other debits and credits 
to such account; and in addition, for a security-based swap, the type of 
security-based swap, the reference security, index, or obligor, the date 
and time of execution, the effective date, the scheduled termination 
date, the notional amount(s) and the currenc(ies) in which the notional 
amount(s) is expressed, the unique transaction identifier, and the 
counterparty's unique identification code.
    (4) A securities record or ledger reflecting separately for each:
    (i) Security, other than a security-based swap, as of the clearance 
dates all ``long'' or ``short'' positions (including securities in 
safekeeping and securities that are the subjects of repurchase or 
reverse repurchase agreements) carried by such security-based swap 
dealer or major security-based swap participant for its account or for 
the account of its customers and showing the location of all securities 
long and the offsetting position to all securities short, including long 
security count differences and short security count differences 
classified by the date of the physical count and verification in which 
they were discovered, and, in all cases the name or designation of the 
account in which each position is carried.
    (ii) Security-based swap, the reference security, index, or obligor, 
the unique transaction identifier, the counterparty's unique 
identification code, whether it is a ``bought'' or ``sold'' position in 
the security-based swap, whether the security-based swap is cleared or 
not cleared, and if cleared, identification of the clearing agency where 
the security-based swap is cleared.
    (5) A memorandum of each purchase or sale of a security-based swap 
for the account of the security-based swap dealer or major security-
based swap participant showing the price. The memorandum must also 
include the type of security-based swap, the reference security, index, 
or obligor, the date and time of execution, the effective date, the 
scheduled termination date, the notional amount(s) and the currenc(ies) 
in which the notional amount(s) is expressed, the unique transaction 
identifier, and the counterparty's unique identification code. An order 
entered pursuant to the exercise of discretionary authority must be so 
designated.
    (6) With respect to a security other than a security-based swap, 
copies of confirmations of all purchases and sales of securities. With 
respect to a security-based swap, copies of the security-based swap 
trade acknowledgment and verification made in compliance with Sec.
240.15Fi-2.
    (7) For each security-based swap account, a record of the unique 
identification code of such counterparty, the name and address of such 
counterparty, and a record of the authorization of each person the 
counterparty has granted authority to transact business in the security-
based swap account.

[[Page 718]]

    (8) A record of all puts, calls, spreads, straddles and other 
options in which such security-based swap dealer or major security-based 
swap participant has any direct or indirect interest or which such 
security-based swap dealer or major security-based swap participant has 
granted or guaranteed, containing, at least, an identification of the 
security, and the number of units involved.
    (9) A record of the proof of money balances of all ledger accounts 
in the form of trial balances, and a record of the computation of net 
capital or tangible net worth, as applicable, as of the trial balance 
date, pursuant to Sec.240.18a-1 or Sec.240.18a-2, respectively. Such 
trial balances and computations must be prepared currently at least once 
per month.
    (10)(i) A questionnaire or application for employment executed by 
each ``associated person'' (as defined in paragraph (d) of this section) 
of the security-based swap dealer or major security-based swap 
participant who effects or is involved in effecting security-based swaps 
on the security-based swap dealer's or major security-based swap 
participant's behalf, which questionnaire or application must be 
approved in writing by an authorized representative of the security-
based swap dealer or major security-based swap participant and must 
contain at least the following information with respect to the 
associated person:
    (A) The associated person's name, address, social security number, 
and the starting date of the associated person's employment or other 
association with the security-based swap dealer or major security-based 
swap participant;
    (B) The associated person's date of birth;
    (C) A complete, consecutive statement of all the associated person's 
business connections for at least the preceding ten years, including 
whether the employment was part-time or full-time;
    (D) A record of any denial of membership or registration, and of any 
disciplinary action taken, or sanction imposed, upon the associated 
person by any Federal or state agency, or by any national securities 
exchange or national securities association, including any finding that 
the associated person was a cause of any disciplinary action or had 
violated any law;
    (E) A record of any denial, suspension, expulsion or revocation of 
membership or registration of any broker, dealer, security-based swap 
dealer or major security-based swap participant with which the 
associated person was associated in any capacity at the time such action 
was taken;
    (F) A record of any permanent or temporary injunction entered 
against the associated person, or any broker, dealer, security-based 
swap dealer or major security-based swap participant with which the 
associated person was associated in any capacity at the time such 
injunction was entered;
    (G) A record of any arrest or indictment for any felony, or any 
misdemeanor pertaining to securities, commodities, banking, insurance or 
real estate (including, but not limited to, acting or being associated 
with a broker or dealer, security-based swap dealer, major security-
based swap participant, investment company, investment adviser, futures 
sponsor, bank, or savings and loan association), fraud, false statements 
or omissions, wrongful taking of property or bribery, forgery, 
counterfeiting or extortion, and the disposition of the foregoing; and
    (H) A record of any other name or names by which the associated 
person has been known or which the associated person has used.
    (ii) A record listing every associated person of the security-based 
swap dealer or major security-based swap participant which shows, for 
each associated person, every office of the security-based swap dealer 
or major security-based swap participant where the associated person 
regularly conducts the business of handling funds or securities or 
effecting any transactions in, or inducing or attempting to induce the 
purchase or sale of any security, for the security-based swap dealer or 
major security-based swap participant and the Central Registration 
Depository number, if any, and every internal identification number or 
code assigned to that person by the security-based swap dealer or major 
security-based swap participant.
    (11) [Reserved]

[[Page 719]]

    (12) A record of the daily calculation of the current exposure and, 
if applicable, the initial margin amount for each account of a 
counterparty required under Sec.240.18a-3(c).
    (13) A record of compliance with possession or control requirements 
under Sec.240.18a-4(b).
    (14) A record of the reserve computation required under Sec.
240.18a-4(c).
    (15) A record of each security-based swap transaction that is not 
verified under Sec.240.15Fi-2 within five business days of execution 
that includes, at a minimum, the unique transaction identifier and the 
counterparty's unique identification code.
    (16) A record documenting that the security-based swap dealer has 
complied with the business conduct standards as required under Sec.
240.15Fh-6.
    (17) A record documenting that the security-based swap dealer or 
major security-based swap participant has complied with the business 
conduct standards as required under Sec.Sec.240.15Fh-1 through 
240.15Fh-5 and 240.15Fk-1.
    (18) [Reserved]
    (b) This paragraph (b) applies only to security-based swap dealers 
and major security-based swap participants registered under section 15F 
of the Act for which there is a prudential regulator. Each security-
based swap dealer and major security-based swap participant subject to 
this paragraph (b) must make and keep current the following books and 
records:
    (1) For security-based swaps and any other positions related to the 
firm's business as such, blotters (or other records of original entry) 
containing an itemized daily record of all purchases and sales of 
securities (including security-based swaps), all receipts and deliveries 
of securities (including certificate numbers), all receipts and 
disbursements of cash and all other debits and credits. Such records 
must show, the account for which each such purchase and sale was 
effected, the name and amount of securities, the unit and aggregate 
purchase or sale price (if any, including the financial terms for 
security-based swaps), the trade date, and the name or other designation 
of the person from whom such securities were purchased or received or to 
whom sold or delivered. For security-based swaps, such records must also 
show, for each transaction, the type of security-based swap, the 
reference security, index, or obligor, the date and time of execution, 
the effective date, the scheduled termination date, the notional 
amount(s) and the currenc(ies) in which the notional amount(s) is 
expressed, the unique transaction identifier, and the counterparty's 
unique identification code.
    (2) Ledger accounts (or other records) itemizing separately as to 
each account for every security-based swap customer or non-customer of 
such security-based swap dealer or major security-based swap 
participant, all purchases, sales, receipts and deliveries of securities 
(including security-based swaps) and commodities for such account and 
all other debits and credits to such account; and in addition, for a 
security-based swap, the type of security-based swap, the reference 
security, index, or obligor, the date and time of execution, the 
effective date, the scheduled termination date, the notional amount(s) 
and the currenc(ies) in which the notional amount(s) is expressed, the 
unique transaction identifier, and the counterparty's unique 
identification code.
    (3) For security-based swaps and any securities positions related to 
the firm's business as a security-based swap dealer or a major security-
based swap participant, a securities record or ledger reflecting 
separately for each:
    (i) Security, other than a security-based swap, as of the clearance 
dates all ``long'' or ``short'' positions (including securities in 
safekeeping and securities that are the subjects of repurchase or 
reverse repurchase agreements) carried by such security-based swap 
dealer or major security-based swap participant for its account or for 
the account of its customers and showing the location of all securities 
long and the offsetting position to all securities short, including long 
security count differences and short security count differences 
classified by the date of the physical count and verification in which 
they were discovered, and in all cases the name or designation of the 
account in which each position is carried.

[[Page 720]]

    (ii) Security-based swap, the reference security, index, or obligor, 
the unique transaction identifier, the counterparty's unique 
identification code, whether it is a ``bought'' or ``sold'' position in 
the security-based swap, whether the security-based swap is cleared or 
not cleared, and if cleared, identification of the clearing agency where 
the security-based swap is cleared.
    (4) A memorandum of each brokerage order, and of any other 
instruction, given or received for the purchase or sale of a security-
based swap, whether executed or unexecuted. The memorandum must show the 
terms and conditions of the order or instructions and of any 
modification or cancellation thereof; the account for which entered; the 
time the order was received; the time of entry; the price at which 
executed; the identity of each associated person, if any, responsible 
for the account; the identity of any other person who entered or 
accepted the order on behalf of the customer, or, if a customer entered 
the order on an electronic system, a notation of that entry; and, to the 
extent feasible, the time of execution or cancellation. The memorandum 
also must include the type of the security-based swap, the reference 
security, index, or obligor, the date and time of execution, the 
effective date, the scheduled termination date, the notional amount(s) 
and the currenc(ies) in which the notional amount(s) is expressed, the 
unique transaction identifier, and the counterparty's unique 
identification code. An order entered pursuant to the exercise of 
discretionary authority by the security-based swap dealer or major 
security-based swap participant, or associated person thereof, must be 
so designated. The term instruction must include instructions between 
partners and employees of a security-based swap dealer or major 
security-based swap participant. The term time of entry means the time 
when the security-based swap dealer or major security-based swap 
participant transmits the order or instruction for execution.
    (5) A memorandum of each purchase or sale of a security-based swap 
for the account of the security-based swap dealer or major security-
based swap participant showing the price. The memorandum must also 
include the type of security-based swap, the reference security, index, 
or obligor, the date and time of execution, the effective date, the 
scheduled termination date, the notional amount(s) and the currenc(ies) 
in which the notional amount(s) is expressed, the unique transaction 
identifier, and the counterparty's unique identification code. An order 
entered pursuant to the exercise of discretionary authority must be so 
designated.
    (6) With respect to a security other than a security-based swap, 
copies of confirmations of all purchases and sales of securities related 
to the business of a security-based swap dealer or major security-based 
swap participant. With respect to a security-based swap, copies of the 
security-based swap trade acknowledgment and verification made in 
compliance with Sec.240.15Fi-2.
    (7) For each security-based swap account, a record of the 
counterparty's unique identification code, the name and address of such 
counterparty, and a record of the authorization of each person the 
counterparty has granted authority to transact business in the security-
based swap account.
    (8)(i) A questionnaire or application for employment executed by 
each ``associated person'' (as defined in paragraph (c) of this section) 
of the security-based swap dealer or major security-based swap 
participant who effects or is involved in effecting security-based swaps 
on the security-based swap dealer's or major security-based swap 
participant's behalf, which questionnaire or application must be 
approved in writing by an authorized representative of the security-
based swap dealer or major security-based swap participant and must 
contain at least the following information with respect to the 
associated person:
    (A) The associated person's name, address, social security number, 
and the starting date of the associated person's employment or other 
association with the security-based swap dealer or major security-based 
swap participant;
    (B) The associated person's date of birth;
    (C) A complete, consecutive statement of all the associated person's

[[Page 721]]

business connections for at least the preceding ten years, including 
whether the employment was part-time or full-time;
    (D) A record of any denial of membership or registration, and of any 
disciplinary action taken, or sanction imposed, upon the associated 
person by any Federal or state agency, or by any national securities 
exchange or national securities association, including any finding that 
the associated person was a cause of any disciplinary action or had 
violated any law;
    (E) A record of any denial, suspension, expulsion or revocation of 
membership or registration of any broker, dealer, security-based swap 
dealer or major security-based swap participant with which the 
associated person was associated in any capacity at the time such action 
was taken;
    (F) A record of any permanent or temporary injunction entered 
against the associated person, or any broker, dealer, security-based 
swap dealer or major security-based swap participant with which the 
associated person was associated in any capacity at the time such 
injunction was entered;
    (G) A record of any arrest or indictment for any felony, or any 
misdemeanor pertaining to securities, commodities, banking, insurance or 
real estate (including, but not limited to, acting or being associated 
with a broker or dealer, security-based swap dealer, major security-
based swap participant, investment company, investment adviser, futures 
sponsor, bank, or savings and loan association), fraud, false statements 
or omissions, wrongful taking of property or bribery, forgery, 
counterfeiting or extortion, and the disposition of the foregoing; and
    (H) A record of any other name or names by which the associated 
person has been known or which the associated person has used.
    (ii) A record listing every associated person of the security-based 
swap dealer or major security-based swap participant which shows, for 
each associated person, every office of the security-based swap dealer 
or major security-based swap participant where the associated person 
regularly conducts the business of handling funds or securities or 
effecting any transactions in, or inducing or attempting to induce the 
purchase or sale of any security, for the security-based swap dealer or 
major security-based swap participant and every internal identification 
number or code assigned to that person by the security-based swap dealer 
or major security-based swap participant.
    (9) A record of compliance with possession or control requirements 
under Sec.240.18a-4(b).
    (10) A record of the reserve computation required under Sec.
240.18a-4(c).
    (11) A record of each security-based swap transaction that is not 
verified under Sec.240.15Fi-2 within five business days of execution 
that includes, at a minimum, the unique transaction identifier and the 
counterparty's unique identification code.
    (12) A record documenting that the security-based swap dealer has 
complied with the business conduct standards as required under Sec.
240.15Fh-6.
    (13) A record documenting that the security-based swap dealer or 
major security-based swap participant has complied with the business 
conduct standards as required under Sec.240.15Fh-1 through Sec.
240.15Fh-5 and Sec.240.15Fk-1.
    (14) [Reserved]
    (c) A security-based swap dealer or major security-based swap 
participant may comply with the recordkeeping requirements of the 
Commodity Exchange Act and chapter I of this title applicable to swap 
dealers and major swap participants in lieu of complying with paragraphs 
(a)(1), (3), and (4) or paragraphs (b)(1) through (3) of this section, 
as applicable, solely with respect to required information regarding 
security-based swap transactions and positions if:
    (1) The security-based swap dealer or major security-based swap 
participant is registered as a security-based swap dealer or major 
security-based swap participant pursuant to section 15F of the Act;
    (2) The security-based swap dealer or major security-based swap 
participant is registered as a swap dealer or major swap participant 
pursuant to section 4s of the Commodity Exchange Act and chapter I of 
this title;
    (3) The security-based swap dealer or major security-based swap 
participant is subject to 17 CFR 23.201, 23.202, 23.402,

[[Page 722]]

and 23.501 with respect to its swap-related books and records;
    (4) The security-based swap dealer or major security-based swap 
participant preserves all of the data elements necessary to create the 
records required by paragraphs (a)(1), (3), and (4) or paragraphs (b)(1) 
through (3) of this section, as applicable, as they pertain to security-
based swap and swap transactions and positions;
    (5) The security-based swap dealer or major security-based swap 
participant upon request furnishes promptly to representatives of the 
Commission the records required by paragraphs (a)(1), (3), and (4) or 
paragraphs (b)(1) through (3) of this section, as applicable, as well as 
the records required by 17 CFR 23.201, 23.202, 23.402, and 23.501 as 
they pertain to security-based swap and swap transactions and positions 
in the format applicable to that category of record as set forth in this 
section; and
    (6) The security-based swap dealer or major security-based swap 
participant provides notice of its intent to utilize this paragraph (c) 
by notifying in writing the Commission, both at the principal office of 
the Commission in Washington, DC and at the regional office of the 
Commission for the region in which the registrant has its principal 
place of business.
    (d)(1) The term associated person means for purposes of this section 
a person associated with a security-based swap dealer or major security-
based swap participant as that term is defined in section 3(a)(70) of 
the Act (15 U.S.C. 78c(a)(70)).
    (2) The term associated person, as to an entity supervised by a 
prudential regulator, includes only those persons whose activities 
relate to its business as a security-based swap dealer or major 
security-based swap participant.

[84 FR 68656, Dec. 16, 2019]

    Effective Date Notes: 1. At 85 FR 6353, Feb. 4, 2020, Sec.240.18a-
5 was amended by adding paragraphs (a)(10)(iii) and (b)(8)(iii), 
effective Apr. 6, 2020. For the convenience of the user, the added text 
is set forth as follows:



Sec.240.18a-5  Records to be made by certain security-based swap 
          dealers and major security-based swap participants

                                * * * * *

    (a) * * *
    (10) * * *
    (iii) Notwithstanding paragraph (a)(10)(i) of this section:
    (A) A security-based swap dealer or major security-based swap 
participant is not required to make and keep current a questionnaire or 
application for employment executed by an associated person if the 
security-based swap dealer or major security-based swap participant is 
excluded from the prohibition in section 15F(b)(6) of the Exchange Act 
(15 U.S.C. 78o-10(b)(6)) with respect to such associated person; and
    (B) A questionnaire or application for employment executed by an 
associated person who is not a U.S. person (as that term is defined in 
Sec.240.3a71-3(a)(4)(i)(A)) need not include the information described 
in paragraphs (a)(10)(i)(A) through (H) of this section, unless the 
security-based swap dealer or major security-based swap participant is 
required to obtain such information under applicable law in the 
jurisdiction in which the associated person is employed or located or 
obtains such information in conducting a background check that is 
customary for such firms in that jurisdiction and the creation or 
maintenance of records reflecting that information, would not result in 
a violation of applicable law in the jurisdiction in which the 
associated person is employed or located; provided, however, the 
security-based swap dealer or major security-based swap participant must 
comply with section 15F(b)(6) of the Exchange Act (15 U.S.C. 78o-
10(b)(6)).

                                * * * * *

    (b) * * *
    (8) * * *
    (iii) Notwithstanding paragraph (b)(8)(i) of this section;
    (A) A security-based swap dealer or major security-based swap 
participant is not required to make and keep current a questionnaire or 
application for employment executed by an associated person if the 
security-based swap dealer or major security-based swap participant is 
excluded from the prohibition in section 15F(b)(6) of the Exchange Act 
(15 U.S.C. 78o-10(b)(6)) with respect to such associated person; and
    (B) A questionnaire or application for employment executed by an 
associated person who is not a U.S. person (as that term is defined in 
Sec.240.3a71-3(a)(4)(i)(A)) need not include the information described 
in paragraphs (b)(8)(i)(A) through (H) of this section, unless the 
security-based swap dealer or major security-based swap participant is 
required to obtain such information under applicable law in the 
jurisdiction in which the associated person is employed or located or 
obtains such information in conducting a background check that is 
customary for such firms in that jurisdiction and the creation or

[[Page 723]]

maintenance of records reflecting that information would not result in a 
violation of applicable law in the jurisdiction in which the associated 
person is employed or located; provided, however, the security-based 
swap dealer or major security-based swap participant must comply with 
Section 15F(b)(6) of the Exchange Act (15 U.S.C. 78o-10(b)(6)).

                                * * * * *

    2. At 85 FR 6416, Feb. 4, 2020, Sec.240.18a-6 was amended by 
adding paragraphs (a)(18) and (b)(14), effective Apr. 6, 2020. For the 
convenience of the user, the added text is set forth as follows:



Sec.240.18a-5  Records to be made by certain security-based swap 
          dealers and major security-based swap participants.

                                * * * * *

    (a) * * *
    (18)(i) A record of each security-based swap portfolio 
reconciliation, whether conducted pursuant to Sec.240.15Fi-3 or 
otherwise, including the dates of the security-based swap portfolio 
reconciliation, the number of portfolio reconciliation discrepancies, 
the number of security-based swap valuation disputes (including the 
time-to-resolution of each valuation dispute and the age of outstanding 
valuation disputes, categorized by transaction and counterparty), and 
the name of the third-party entity performing the security-based swap 
portfolio reconciliation, if any.
    (ii) A copy of each notification required to be provided to the 
Commission pursuant to Sec.240.15Fi-3(c).
    (iii) A record of each bilateral offset and each bilateral portfolio 
compression exercise or multilateral portfolio compression exercise in 
which it participates, whether conducted pursuant to Sec.240.15Fi-4 or 
otherwise, including the dates of the offset or compression, the 
security-based swaps included in the offset or compression, the identity 
of the counterparties participating in the offset or compression, the 
results of the compression, and the name of the third-party entity 
performing the offset or compression, if any.
    (b) * * *
    (14)(i) A record of each security-based swap portfolio 
reconciliation, whether conducted pursuant to Sec.240.15Fi-3 or 
otherwise, including the dates of the security-based swap portfolio 
reconciliation, the number of portfolio reconciliation discrepancies, 
the number of security-based swap valuation disputes (including the 
time-to-resolution of each valuation dispute and the age of outstanding 
valuation disputes, categorized by transaction and counterparty), and 
the name of the third-party entity performing the security-based swap 
portfolio reconciliation, if any.
    (ii) A copy of each notification required to be provided to the 
Commission pursuant to Sec.240.15Fi-3(c).
    (iii) A record of each bilateral offset and each bilateral portfolio 
compression exercise or multilateral portfolio compression exercise in 
which it participates, whether conducted pursuant to Sec.240.15Fi-4 or 
otherwise, including the dates of the offset or compression, the 
security-based swaps included in the offset or compression, the identity 
of the counterparties participating in the offset or compression, the 
results of the compression, and the name of the third-party entity 
performing the offset or compression, if any.

                                * * * * *



Sec.240.18a-6  Records to be preserved by certain security-based swap 
dealers and major security-based swap participants.

    This section applies to the following types of entities: A security-
based swap dealer registered pursuant to section 15F of the Act (15 
U.S.C. 78o-10) that is not also a broker or dealer, including an OTC 
derivatives dealer as that term is defined in Sec.240.3b-12, 
registered pursuant to section 15 of the Act (15 U.S.C. 78o); and a 
major security-based swap participant registered pursuant to section 15F 
of the Act that is not also a broker or dealer, including an OTC 
derivatives dealer, registered pursuant to section 15 of the Act. 
Section 240.17a-4 (rather than this section) applies to the following 
types of entities: A member of a national securities exchange who 
transacts a business in securities directly with others than members of 
a national securities exchange; a broker or dealer who transacts a 
business in securities through the medium of a member of a national 
securities exchange; a broker or dealer, including an OTC derivatives 
dealer, registered pursuant to section 15 of the Act; a security-based 
swap dealer registered pursuant to section 15F of the Act that is also a 
broker or dealer, including an OTC derivatives dealer, registered 
pursuant to section 15 of the Act; and a major security-based swap 
participant registered pursuant to section 15F of the Act that is also a 
broker or dealer, including an OTC derivatives dealer, registered 
pursuant to section 15 of the Act.

[[Page 724]]

    (a)(1) Every security-based swap dealer and major security-based 
swap participant for which there is no prudential regulator must 
preserve for a period not less than six years, the first two years in an 
easily accessible place, all records required to be made pursuant to 
Sec.240.18a-5(a)(1) through (4).
    (2) Every security-based swap dealer and major security-based swap 
participant for which there is a prudential regulator must preserve for 
a period not less than six years, the first two years in an easily 
accessible place, all records required to be made pursuant to Sec.
240.18a-5(b)(1) through (3).
    (b)(1) Every security-based swap dealer and major security-based 
swap participant for which there is no prudential regulator must 
preserve for a period of not less than three years, the first two years 
in an easily accessible place:
    (i) All records required to be made pursuant to Sec.240.18a-
5(a)(5) through (9) and (12) through (17).
    (ii) All check books, bank statements, cancelled checks, and cash 
reconciliations.
    (iii) All bills receivable or payable (or copies thereof), paid or 
unpaid, relating to the business of such security-based swap dealer or 
major security-based swap participant, as such.
    (iv) Originals of all communications received and copies of all 
communications sent (and any approvals thereof) by the security-based 
swap dealer or major security-based swap participant (including inter-
office memoranda and communications) relating to its business as such. 
As used in this paragraph (b)(1)(iv), the term ``communications'' 
includes sales scripts and recordings of telephone calls required to be 
maintained pursuant to section 15F(g)(1) of the Act (15 U.S.C. 78o-
10(g)(1)).
    (v) All trial balances and computations of net capital or tangible 
net worth requirements (and working papers in connection therewith), as 
applicable, financial statements, branch office reconciliations, and 
internal audit working papers, relating to the business of such 
security-based swap dealer or major security-based swap participant as 
such.
    (vi) All guarantees of security-based swap accounts and all powers 
of attorney and other evidence of the granting of any discretionary 
authority given in respect of any security-based swap account, and 
copies of resolutions empowering an agent to act on behalf of a 
corporation.
    (vii) All written agreements (or copies thereof) entered into by 
such security-based swap dealer or major security-based swap participant 
relating to its business as such, including agreements with respect to 
any account. Written agreements with respect to a security-based swap 
customer or non-customer, including governing documents or any document 
establishing the terms and conditions of the customer's or non-
customer's security-based swaps must be maintained with the customer's 
or non-customer's account records.
    (viii) Records which contain the following information in support of 
amounts included in the report prepared as of the audit date on Part II 
of Form X-17A-5 (Sec.249.617 of this chapter) and in annual financial 
statements required by Sec.240.18a-7(d):
    (A) Money balance and position, long or short, including 
description, quantity, price, and valuation of each security, including 
contractual commitments, in security-based swap customers' accounts, in 
fully secured accounts, partly secured accounts, unsecured accounts, and 
in securities accounts payable to security-based swap customers;
    (B) Money balance and position, long or short, including 
description, quantity, price, and valuation of each security, including 
contractual commitments, in security-based swap non-customers' accounts, 
in fully secured accounts, partly secured accounts, unsecured accounts, 
and in security-based swap accounts payable to non-security-based swap 
customers;
    (C) Position, long or short, including description, quantity, price, 
and valuation of each security, including contractual commitments, 
included in the Computation of Net Capital as commitments, securities 
owned, securities owned not readily marketable, and other investments 
owned not readily marketable;
    (D) Description of futures commodity contracts or swaps, contract 
value on

[[Page 725]]

trade date, market value, gain or loss, and liquidating equity or 
deficit in customers' and non-customers' accounts;
    (E) Description of futures commodity contracts or swaps, contract 
value on trade date, market value, gain or loss and liquidating equity 
or deficit in trading and investment accounts;
    (F) Description, money balance, quantity, price, and valuation of 
each spot commodity and swap position or commitments in customers' and 
non-customers' accounts;
    (G) Description, money balance, quantity, price, and valuation of 
each spot commodity and swap position or commitments in trading and 
investment accounts;
    (H) Number of shares, description of security, exercise price, cost, 
and market value of put and call options, including short out of the 
money options having no market or exercise value, showing listed and 
unlisted put and call options separately;
    (I) Quantity, price, and valuation of each security underlying the 
haircut for undue concentration made in the Computation of Net Capital 
pursuant to Sec.240.18a-1;
    (J) Description, quantity, price, and valuation of each security and 
commodity position or contractual commitment, long or short, in each 
joint account in which the security-based swap dealer or major security-
based swap participant has an interest, including each participant's 
interest and margin deposit;
    (K) Description, settlement date, contract amount, quantity, market 
price, and valuation for each aged failed to deliver requiring a charge 
in the Computation of Net Capital pursuant to Sec.240.18a-1;
    (L) Detail relating to information for possession or control 
requirements under Sec.240.18a-4 and reported on Part II of Form X-
17A-5 (Sec.249.617 of this chapter);
    (M) Detail of all items, not otherwise substantiated, which are 
charged or credited in the Computation of Net Capital pursuant to 
Sec.Sec.240.18a-1 and 240.18a-2, such as cash margin deficiencies, 
deductions related to securities values and undue concentration, aged 
securities differences, and insurance claims receivable;
    (N) Detail relating to the calculation of the risk margin amount 
pursuant to Sec.240.18a-1(c)(6); and
    (O) Other schedules which are specifically prescribed by the 
Commission as necessary to support information reported as required by 
Sec.240.18a-7.
    (ix) The records required to be made pursuant to Sec.240.15c3-4 
and the results of the periodic reviews conducted pursuant to Sec.
240.15c3-4(d).
    (x) The records required to be made pursuant to Sec.240.18a-
1(e)(2)(iv)(F)(1) and (2).
    (xi) A copy of information required to be reported under Sec.Sec.
242.901 through 242.909 of this chapter (Regulation SBSR).
    (xii) Copies of documents, communications, disclosures, and notices 
related to business conduct standards as required under Sec.Sec.
240.15Fh-1 through 240.15Fh-6 and 240.15Fk-1.
    (xiii) Copies of documents used to make a reasonable determination 
with respect to special entities, including information relating to the 
financial status, the tax status, and the investment or financing 
objectives of the special entity as required under sections 15F(h)(4)(C) 
and (5)(A) of the Act (15 U.S.C. 78o-10(h)(4)(C) and (5)(A)).
    (2) Every security-based swap dealer and major security-based swap 
participant for which there is a prudential regulator must preserve for 
a period of not less than three years, the first two years in an easily 
accessible place:
    (i) All records required to be made pursuant to Sec.240.18a-
5(b)(4) through (7) and (9) through (13).
    (ii) Originals of all communications received and copies of all 
communications sent (and any approvals thereof) by the security-based 
swap dealer or major security-based swap participant (including inter-
office memoranda and communications) relating to its business as a 
security-based swap dealer or major security-based swap participant. As 
used in this paragraph (b)(2)(ii), the term ``communications'' includes 
sales scripts and recordings of telephone calls required to be 
maintained pursuant to section 15F(g)(1) of the Act (15 U.S.C. 78o-
10(g)(1)).
    (iii) All guarantees of security-based swap accounts and all powers 
of attorney and other evidence of the granting

[[Page 726]]

of any discretionary authority given in respect of any security-based 
swap account, and copies of resolutions empowering an agent to act on 
behalf of a corporation.
    (iv) All written agreements (or copies thereof) entered into by such 
security-based swap dealer or major security-based swap participant 
relating to its business as a security-based swap dealer or major 
security-based swap participant, including agreements with respect to 
any account. Written agreements with respect to a security-based swap 
customer or non-customer, including governing documents or any document 
establishing the terms and conditions of the customer's or non-
customer's security-based swaps, must be maintained with the customer's 
or non-customer's account records.
    (v) Detail relating to information for possession or control 
requirements under Sec.240.18a-4 and reported on Part IIC of Form X-
17A-5 (Sec.249.617 of this chapter) that is in support of amounts 
included in the report prepared as of the audit date on Part IIC of Form 
X-17A-5 (Sec.249.617 of this chapter) and in the registrant's annual 
reports required by Sec.240.18a-7(c).
    (vi) A copy of information required to be reported under Regulation 
SBSR (Sec.Sec.242.901 through 242.909 of this chapter).
    (vii) Copies of documents, communications, disclosures, and notices 
related to business conduct standards as required under Sec.Sec.
240.15Fh-1 through 240.15Fh-6 and 240.15Fk-1.
    (viii) Copies of documents used to make a reasonable determination 
with respect to special entities, including information relating to the 
financial status, the tax status, and the investment or financing 
objectives of the special entity as required under sections 15F(h)(4)(C) 
and (5)(A) of the Act.
    (c) Every security-based swap dealer and major security-based swap 
participant subject to this section must preserve during the life of the 
enterprise and of any successor enterprise all partnership articles or, 
in the case of a corporation, all articles of incorporation or charter, 
minute books, and stock certificate books (or, in the case of any other 
form of legal entity, all records such as articles of organization or 
formation and minute books used for a purpose similar to those records 
required for corporations or partnerships), all Forms SBSE (Sec.
249.1600 of this chapter), all Forms SBSE-A (Sec.249.1600a of this 
chapter), all Forms SBSE-C (Sec.249.1600c of this chapter), all Forms 
SBSE-W (Sec.249.1601 of this chapter), all amendments to these forms, 
and all licenses or other documentation showing the registration of the 
security-based swap dealer or major security-based swap participant with 
any securities regulatory authority or the Commodity Futures Trading 
Commission.
    (d) Every security-based swap dealer and major security-based swap 
participant subject to this section must maintain and preserve in an 
easily accessible place:
    (1) All records required under Sec.240.18a-5(a)(10) or (b)(8) 
until at least three years after the associated person's employment and 
any other connection with the security-based swap dealer or major 
security-based swap participant has terminated.
    (2)(i) For security-based swap dealers and major security-based swap 
participants for which there is not a prudential regulator, each report 
which a securities regulatory authority or the Commodity Futures Trading 
Commission has requested or required the security-based swap dealer or 
major security-based swap participant to make and furnish to it pursuant 
to an order or settlement, and each securities regulatory authority or 
Commodity Futures Trading Commission examination report until three 
years after the date of the report.
    (ii) For security-based swap dealers and major security-based swap 
participants for which there is a prudential regulator, each report 
related to security-based swap activities which a securities regulatory 
authority, the Commodity Futures Trading Commission, or a prudential 
regulator has requested or required the security-based swap dealer or 
major security-based swap participant to make and furnish to it pursuant 
to an order or settlement,

[[Page 727]]

and each securities regulatory authority, Commodity Futures Trading 
Commission, or prudential regulator examination report until three years 
after the date of the report.
    (3)(i) For security-based swap dealers and major security-based swap 
participants for which there is not a prudential regulator, each 
compliance, supervisory, and procedures manual, including any updates, 
modifications, and revisions to the manual, describing the policies and 
practices of the security-based swap dealer or major security-based swap 
participant with respect to compliance with applicable laws and rules, 
and supervision of the activities of each natural person associated with 
the security-based swap dealer or major security-based swap participant 
until three years after the termination of the use of the manual.
    (ii) For security-based swap dealers and major security-based swap 
participants for which there is a prudential regulator, each compliance, 
supervisory, and procedures manual, including any updates, 
modifications, and revisions to the manual, describing the policies and 
practices of the security-based swap dealer or major security-based swap 
participant with respect to compliance with applicable laws and rules 
relating to security-based swap activities, and supervision of the 
activities of each natural person associated with the security-based 
swap dealer or major security-based swap participant until three years 
after the termination of the use of the manual.
    (e) The records required to be maintained and preserved pursuant to 
Sec.Sec.240.18a-5 and 240.18a-6 may be immediately produced or 
reproduced by means of an electronic storage system (as defined in this 
paragraph (e)) that meets the conditions set forth in this paragraph (e) 
and be maintained and preserved for the required time in that form.
    (1) For purposes of this section, the term electronic storage system 
means any digital storage system that meets the applicable conditions 
set forth in this paragraph (e).
    (2) If an electronic storage system is used by a security-based swap 
dealer or major security-based swap participant, it must:
    (i) Verify automatically the quality and accuracy of the electronic 
storage system recording process;
    (ii) If applicable, serialize the original and duplicate units of 
the storage media, and time-date for the required period of retention 
the information placed in such electronic storage system; and
    (iii) Have the capacity to readily download into a readable format 
indexes and records preserved in the electronic storage system.
    (3) If a security-based swap dealer or major security-based swap 
participant uses an electronic storage system, it must:
    (i) At all times have available, for examination by the staff of the 
Commission, facilities for immediate, easily readable projection or 
production of records or images maintained on the electronic storage 
system and for producing easily readable representations of those 
records or images.
    (ii) Be ready at all times to immediately provide in a readable 
format any record or index stored on the electronic storage system which 
the staff of the Commission may request.
    (iii) Store separately from the original a duplicate copy of a 
record stored on the electronic storage system for the time required.
    (iv) Organize and index accurately all information maintained on 
both original and any duplicate storage system.
    (A) At all times, a security-based swap dealer or major security-
based swap participant must be able to have such indexes available for 
examination by the staff of the Commission.
    (B) Each index must be duplicated and the duplicate copies must be 
stored separately from the original copy of each index.
    (C) Original and duplicate indexes must be preserved for the time 
required for the indexed records.
    (v) Have in place an audit system providing for accountability 
regarding inputting of records required to be maintained and preserved 
pursuant to Sec.Sec.240.18a-5 and 240.18a-6 to the electronic storage 
system and inputting of any changes made to every original and duplicate 
record maintained and preserved thereby.

[[Page 728]]

    (A) At all times the security-based swap dealer or major security-
based swap participant must be able to have the results of such audit 
system available for examination by the staff of the Commission.
    (B) The audit results must be preserved for the time required for 
the audited records.
    (vi) The security-based swap dealer or major security-based swap 
participant must maintain, keep current, and provide promptly upon 
request by the staff of the Commission all information necessary to 
access records and indexes stored in the electronic storage system; or 
place in escrow and keep current a copy of the physical and logical file 
format of the electronic storage system, the field format of all 
different information types written on the electronic storage system and 
the source code, together with the appropriate documentation and 
information necessary to access records and indexes.
    (f)(1) If the records required to be maintained and preserved 
pursuant to the provisions of Sec.Sec.240.18a-5 and 240.18a-6 are 
prepared or maintained by a third party on behalf of the security-based 
swap dealer or major security-based swap participant, the third party 
must file with the Commission a written undertaking in a form acceptable 
to the Commission, signed by a duly authorized person, to the effect 
that such records are the property of the security-based swap dealer or 
major security-based swap participant and will be surrendered promptly 
on request of the security-based swap dealer or major security-based 
swap participant and including the following provision:

    With respect to any books and records maintained or preserved on 
behalf of [SBSD or MSBSP], the undersigned hereby undertakes to permit 
examination of such books and records at any time or from time to time 
during business hours by representatives or designees of the Securities 
and Exchange Commission, and to promptly furnish to said Commission or 
its designee true, correct, complete, and current hard copies of any or 
all or any part of such books and records.

    (2) Agreement with an outside entity will not relieve such security-
based swap dealer or major security-based swap participant from the 
responsibility to prepare and maintain records as specified in this 
section or in Sec.240.18a-5.
    (g) Every security-based swap dealer and major security-based swap 
participant subject to this section must furnish promptly to a 
representative of the Commission legible, true, complete, and current 
copies of those records of the security-based swap dealer or major 
security-based swap participant that are required to be preserved under 
this section, or any other records of the security-based swap dealer or 
major security-based swap participant subject to examination or required 
to be made or maintained pursuant to section 15F of the Act that are 
requested by a representative of the Commission.
    (h) When used in this section:
    (1) The term securities regulatory authority means the Commission, 
any self-regulatory organization, or any securities commission (or any 
agency or office performing like functions) of the States.
    (2) The term associated person has the meaning set forth in Sec.
240.18a-5(d).

[84 FR 68659, Dec. 16, 2019]

    Effective Date Note: At 85 FR 6416, Feb. 4, 2020, Sec.6240.18a-6 
was amended by revising paragraphs (b)(1)(i) and (b)(2)(i) and adding 
paragraphs (d)(4) and (5), effective Apr. 6, 2020. For the convenience 
of the user, the added and revised text is set forth as follows:



Sec.240.18a-6  Records to be preserved by certain security-based swap 
          dealers and major security-based swap participants.

                                * * * * *

    (b) * * *
    (1) * * *
    (i) All records required to be made pursuant to Sec.240.18a-
5(a)(5) through (9) and (12) through (18).

                                * * * * *

    (2) * * *
    (i) All records required to be made pursuant to Sec.240.18a-
5(b)(4) through (7) and (9) through (14).

                                * * * * *

    (d) * * *
    (4) The written policies and procedures required pursuant to 
Sec.Sec.240.15Fi-3, 240.15Fi-4,

[[Page 729]]

and 240.15Fi-5 until three years after termination of the use of the 
policies and procedures.
    (5)(i) Each written agreement with counterparties on the terms of 
portfolio reconciliation with those counterparties as required to be 
created under Sec.240.15Fi-3(a)(1) and (b)(1) until three years after 
the termination of the agreement and all transactions governed thereby.
    (ii) Security-based swap trading relationship documentation with 
counterparties required to be created under Sec.240.15Fi-5 until three 
years after the termination of such documentation and all transactions 
governed thereby.
    (iii) A record of the results of each audit required to be performed 
pursuant to Sec.240.15Fi-5(c) until three years after the conclusion 
of the audit.

                                * * * * *



Sec.240.18a-7  Reports to be made by certain security-based swap 
dealers and major security-based swap participants.

    This section applies to the following types of entities: A security-
based swap dealer registered pursuant to section 15F of the Act (15 
U.S.C. 78o-10) that is not also a broker or dealer, other than an OTC 
derivatives dealer as that term is defined in Sec.240.3b-12, 
registered pursuant to section 15 of the Act (15 U.S.C. 78o); a 
security-based swap dealer registered pursuant to section 15F of the Act 
that is also an OTC derivatives dealer registered pursuant to section 15 
of the Act; and a major security-based swap participant registered 
pursuant to section 15F of the Act that is not also a broker or dealer, 
including an OTC derivatives dealer, registered pursuant to section 15 
of the Act. Section 240.17a-5 (rather than this section) applies to the 
following types of entities: Except as provided above, a broker or 
dealer, including an OTC derivatives dealer, registered pursuant to 
section 15 of the Act; a broker or dealer, other than an OTC derivatives 
dealer, registered pursuant to section 15 of the Act that is also a 
security-based swap dealer registered pursuant to section 15F of the 
Act; and a broker or dealer, including an OTC derivatives dealer, 
registered pursuant to section 15 of the Act that is also a major-
security-based swap participant registered pursuant to section 15F of 
the Act.
    (a) Filing of reports. (1) Every security-based swap dealer or major 
security-based swap participant for which there is no prudential 
regulator must file with the Commission or its designee Part II of Form 
X-17A-5 (Sec.249.617 of this chapter) within 17 business days after 
the end of each month.
    (2) Every security-based swap dealer or major security-based swap 
participant for which there is a prudential regulator must file with the 
Commission or its designee Part IIC of Form X-17A-5 (Sec.249.617 of 
this chapter) within 30 calendar days after the end of each calendar 
quarter.
    (3) Security-based swap dealers that have been authorized by the 
Commission to compute net capital pursuant to Sec.240.18a-1(d), must 
file the following additional reports with the Commission:
    (i) For each product for which the security-based swap dealer 
calculates a deduction for market risk other than in accordance with 
Sec.240.18a-1(e)(1)(i) and (iii), the product category and the amount 
of the deduction for market risk within 17 business days after the end 
of the month;
    (ii) A graph reflecting, for each business line, the daily intra-
month value at risk within 17 business days after the end of the month;
    (iii) The aggregate value at risk for the security-based swap dealer 
within 17 business days after end of the month;
    (iv) For each product for which the security-based swap dealer uses 
scenario analysis, the product category and the deduction for market 
risk within 17 business days after the end of the month;
    (v) Credit risk information on security-based swap, mixed swap and 
swap exposures, within 17 business days after the end of the month, 
including:
    (A) Overall current exposure;
    (B) Current exposure (including commitments) listed by counterparty 
for the 15 largest exposures;
    (C) The ten largest commitments listed by counterparty;
    (D) The broker's or dealer's maximum potential exposure listed by 
counterparty for the 15 largest exposures;

[[Page 730]]

    (E) The broker's or dealer's aggregate maximum potential exposure;
    (F) A summary report reflecting the broker's or dealer's current and 
maximum potential exposures by credit rating category; and
    (G) A summary report reflecting the broker's or dealer's current 
exposure for each of the top ten countries to which the broker or dealer 
is exposed (by residence of the main operating group of the 
counterparty);
    (vi) Regular risk reports supplied to the security-based swap 
dealer's senior management in the format described in the application, 
within 17 business days after the end of the month;
    (vii) [Reserved]
    (viii) A report identifying the number of business days for which 
the actual daily net trading loss exceeded the corresponding daily VaR 
within 17 business days after the end of each calendar quarter; and
    (ix) The results of backtesting of all internal models used to 
compute allowable capital, including VaR and credit risk models, 
indicating the number of backtesting exceptions within 17 business days 
after the end of each calendar quarter.
    (b) Customer disclosures. (1) Every security-based swap dealer or 
major security-based swap participant for which there is no prudential 
regulator must make publicly available on its website within 10 business 
days after the date the firm is required to file with the Commission the 
annual reports pursuant to paragraph (c) of this section:
    (i) A Statement of Financial Condition with appropriate notes 
prepared in accordance with U.S. generally accepted accounting 
principles which must be audited;
    (ii) A statement of the amount of the security-based swap dealer's 
net capital and its required net capital, computed in accordance with 
Sec.240.18a-1. Such statement must include summary financial 
statements of subsidiaries consolidated pursuant to Sec.240.18a-1c 
(appendix C to Sec.240.18a-1 (Rule 18a-1)), where material, and the 
effect thereof on the net capital and required net capital of the 
security-based swap dealer; and
    (iii) If, in connection with the most recent annual reports required 
under paragraph (c) of this section, the report of the independent 
public accountant required under paragraph (c)(1)(i)(C) of this section 
covering the report of the security-based swap dealer required under 
paragraph (c)(1)(i)(B)(1) of this section identifies one or more 
material weaknesses, a copy of the report.
    (2) Every security-based swap dealer or major security-based swap 
participant for which there is no prudential regulator must make 
publicly available on its website unaudited statements as of the date 
that is 6 months after the date of the most recent audited statements 
filed with the Commission under paragraph (c)(1) of this section. These 
reports must be made publicly available within 30 calendar days of the 
date of the statements.
    (3) The information that is made publicly available pursuant to 
paragraphs (b)(1) and (2) of this section must also be made available in 
writing, upon request, to any person that has a security-based swap 
account. The security-based swap dealer or major security-based swap 
participant must maintain a toll-free telephone number to receive such 
requests.
    (c) Annual reports--(1) Reports required to be filed. (i) Except as 
provided in paragraph (c)(1)(iii) of this section, every security-based 
swap dealer or major security-based swap participant registered pursuant 
to section 15F of the Act for which there is no prudential regulator 
must file annually, as applicable:
    (A) A financial report as described in paragraph (c)(2) of this 
section;
    (B)(1) If the security-based swap dealer did not claim it was exempt 
from Sec.240.18a-4 throughout the most recent fiscal year, a 
compliance report as described in paragraph (c)(3) of this section 
executed by the person who makes the oath or affirmation under paragraph 
(d)(1) of this section; or
    (2) If the security-based swap dealer did claim it was exempt from 
Sec.240.18a-4 throughout the most recent fiscal year, an exemption 
report as described in paragraph (c)(4) of this section executed by the 
person who makes the oath or affirmation under paragraph (d)(1) of this 
section; and
    (C) A report prepared by an independent public accountant, under the

[[Page 731]]

engagement provisions in paragraph (e) of this section, covering each 
report required to be filed under paragraphs (c)(1)(i)(A) and (B) of 
this section, as applicable.
    (ii) The reports required to be filed under this paragraph (c) must 
be as of the same fiscal year end each year, unless a change is approved 
in writing by the Commission. The original request for a change must be 
filed at the Commission's principal office in Washington, DC. A copy of 
the written approval must be sent to the regional office of the 
Commission for the region in which the security-based swap dealer or 
major security-based swap participant has its principal place of 
business.
    (iii) A security-based swap dealer or major security-based swap 
participant succeeding to and continuing the business of another 
security-based swap dealer or major security-based swap participant need 
not file reports under this paragraph (c) as of a date in the fiscal 
year in which the succession occurs if the predecessor security-based 
swap dealer or major security-based swap participant has filed the 
reports in compliance with this paragraph (c) as of a date in such 
fiscal year.
    (2) Financial report. The financial report must contain:
    (i)(A) A Statement of Financial Condition, a Statement of Income, a 
Statement of Cash Flows, a Statement of Changes in Stockholders' or 
Partners' or Sole Proprietor's Equity, and Statement of Changes in 
Liabilities Subordinated to Claims of General Creditors. The statements 
must be prepared in accordance with U.S. generally accepted accounting 
principles and must be in a format that is consistent with the 
statements contained in Part II of Form X-17A-5 (Sec.249.617 of this 
chapter).
    (B) If there is other comprehensive income in the period(s) 
presented, the financial report must contain a Statement of 
Comprehensive Income (as defined in Sec.210.1-02 of this chapter) in 
place of a Statement of Income.
    (ii) Supporting schedules that include, from Part II of Form X-17A-5 
(Sec.249.617 of this chapter), a Computation of Net Capital under 
Sec.240.18a-1, a Computation of Tangible Net Worth under Sec.
240.18a-2, a Computation for Determination of Security-Based Swap 
Customer Reserve Requirements under Sec.240.18a-4a (Exhibit A of Sec.
240.18a-4), and Information Relating to the Possession or Control 
Requirements for Security-Based Swap Customers under Sec.240.18a-4, as 
applicable.
    (iii) If any of the Computation of Net Capital under Sec.240.18a-
1, the Computation of Tangible Net Worth under Sec.240.18a-2, or the 
Computation for Determination of Security-Based Swap Customer Reserve 
Requirements under Exhibit A of Sec.240.18a-4 in the financial report 
is materially different from the corresponding computation in the most 
recent Part II of Form X-17A-5 (Sec.249.617 of this chapter) filed by 
the registrant pursuant to paragraph (a) of this section, a 
reconciliation, including appropriate explanations, between the 
computation in the financial report and the computation in the most 
recent Part II of Form X-17A-5 filed by the registrant. If no material 
differences exist, a statement so indicating must be included in the 
financial report.
    (3) Compliance report. (i) The compliance report must contain:
    (A) Statements as to whether:
    (1) The security-based swap dealer has established and maintained 
Internal Control Over Compliance as that term is defined in paragraph 
(c)(3)(ii) of this section;
    (2) The Internal Control Over Compliance of the security-based swap 
dealer was effective during the most recent fiscal year;
    (3) The Internal Control Over Compliance of the security-based swap 
dealer was effective as of the end of the most recent fiscal year;
    (4) The security-based swap dealer was in compliance with Sec.Sec.
240.18a-1 and 240.18a-4(c) as of the end of the most recent fiscal year; 
and
    (5) The information the security-based swap dealer used to state 
whether it was in compliance with Sec.Sec.240.18a-1 and 240.18a-4(c) 
was derived from the books and records of the security-based swap 
dealer.
    (B) If applicable, a description of each identified material 
weakness in the Internal Control Over Compliance of the security-based 
swap dealer during the most recent fiscal year.

[[Page 732]]

    (C) If applicable, a description of an instance of non-compliance 
with Sec.240.18a-1 or Sec.240.18a-4(c) as of the end of the most 
recent fiscal year.
    (ii) The term Internal Control Over Compliance means internal 
controls that have the objective of providing the security-based swap 
dealer with reasonable assurance that non-compliance with Sec.240.18a-
1, Sec.240.18a-4(c), Sec.240.18a-9, or Sec.240.17a-13, as 
applicable, will be prevented or detected on a timely basis.
    (iii) The security-based swap dealer is not permitted to conclude 
that its Internal Control Over Compliance was effective during the most 
recent fiscal year if there were one or more material weaknesses in its 
Internal Control Over Compliance during the most recent fiscal year. The 
security-based swap dealer is not permitted to conclude that its 
Internal Control Over Compliance was effective as of the end of the most 
recent fiscal year if there were one or more material weaknesses in its 
internal control as of the end of the most recent fiscal year. A 
material weakness is a deficiency, or a combination of deficiencies, in 
Internal Control Over Compliance such that there is a reasonable 
possibility that non-compliance with Sec.240.18a-1 or Sec.240.18a-
4(c) will not be prevented, or detected on a timely basis or that non-
compliance to a material extent with Sec.240.18a-4, except for 
paragraph (c), or Sec.240.18a-9 or Sec.240.17a-13, as applicable, 
will not be prevented or detected on a timely basis. A deficiency in 
Internal Control Over Compliance exists when the design or operation of 
a control does not allow the management or employees of the security-
based swap dealer in the normal course of performing their assigned 
functions, to prevent or detect on a timely basis non-compliance with 
Sec.240.18a-1, Sec.240.18a-4, Sec.240.18a-9, or Sec.240.17a-13, 
as applicable.
    (4) Exemption report. The exemption report must contain the 
following statements made to the best knowledge and belief of the 
security-based swap dealer:
    (i) A statement that the security-based swap dealer met the 
exemption provisions in Sec.240.18a-4(f) throughout the most recent 
fiscal year without exception or that it met the exemption provisions in 
Sec.240.18a-4(f) throughout the most recent fiscal year except as 
described under paragraph (c)(4)(ii) of this section; and
    (ii) If applicable, a statement that identifies each exception 
during the most recent fiscal year in meeting the exemption provisions 
in Sec.240.18a-4(f) and that briefly describes the nature of each 
exception and the approximate date(s) on which the exception existed.
    (5) Timing of filing. The annual reports must be filed not more than 
sixty (60) calendar days after the end of the fiscal year of the 
security-based swap dealer or major security-based swap participant.
    (6) Location of filing. The annual reports must be filed with the 
Commission at the regional office of the Commission for the region in 
which the security-based swap dealer or major security-based swap 
participant has its principal place of business and the Commission's 
principal office in Washington, DC, or the annual reports may be filed 
with the Commission electronically in accordance with directions 
provided on the Commission's website.
    (d) Nature and form of reports. The annual reports filed pursuant to 
paragraph (c) of this section must be prepared and filed in accordance 
with the following requirements:
    (1)(i) The security-based swap dealer or major security-based swap 
participant must attach to each of the confidential and non-confidential 
portions of the annual reports separately bound under paragraph (d)(2) 
of this section a complete and executed Part III of Form X-17A-5 (Sec.
249.617 of this chapter). The security-based swap dealer or major 
security-based swap participant must attach to the financial report an 
oath or affirmation that, to the best knowledge and belief of the person 
making the oath or affirmation:
    (A) The financial report is true and correct; and
    (B) Neither the registrant, nor any partner, officer, director, or 
equivalent person, as the case may be, has any proprietary interest in 
any account classified solely as that of a customer.
    (ii) The oath or affirmation must be made before a person duly 
authorized to administer such oaths or affirmations. If the security-
based swap dealer

[[Page 733]]

or major security-based swap participant is a sole proprietorship, the 
oath or affirmation must be made by the proprietor; if a partnership, by 
a general partner; if a corporation, by a duly authorized officer; or if 
a limited liability company or limited liability partnership, by the 
chief executive officer, chief financial officer, manager, managing 
member, or those members vested with management authority for the 
limited liability company or limited liability partnership.
    (2) The annual reports filed under paragraph (c) of this section are 
not confidential, except that, if the Statement of Financial Condition 
is in a format that is consistent with Part II of Form X-17A-5 (Sec.
249.617 of this chapter), and is bound separately from the balance of 
the annual reports filed under paragraph (c) of this section, and each 
page of the balance of the annual report is stamped ``confidential,'' 
then the balance of the annual reports will be deemed confidential to 
the extent permitted by law. However, the annual reports, including the 
confidential portions, will be available for official use by any 
official or employee of the U.S. or any State, and by any other person 
if the Commission authorizes disclosure of the annual reports to that 
person as being in the public interest. Nothing contained in this 
paragraph (d)(2) may be construed to be in derogation of the right of 
customers of a security-based swap dealer or major security-based swap 
participant, upon request to the security-based swap dealer or major 
security-based swap participant, to obtain information relative to its 
financial condition.
    (e) Independent public accountant--(1) Qualifications of independent 
public accountant. The independent public accountant must be qualified 
and independent in accordance with Sec.210.2-01 of this chapter.
    (2) Statement regarding independent public accountant. (i) Every 
security-based swap dealer or major security-based swap participant that 
is required to file annual reports under paragraph (c) of this section 
must file no later than December 10 of each year (or 30 days after 
effective date of its registration as a security-based swap dealer or 
major security-based swap participant if earlier) a statement as 
prescribed in paragraph (e)(2)(ii) of this section with the Commission's 
principal office in Washington, DC and the regional office of the 
Commission for the region in which its principal place of business is 
located. The statement must be dated no later than December 1 (or 20 
calendar days after the effective date of its registration as a 
security-based swap dealer or major security-based swap participant, if 
earlier). If the engagement of an independent public accountant is of a 
continuing nature, providing for successive engagements, no further 
filing is required. If the engagement is for a single year, or if the 
most recent engagement has been terminated or amended, a new statement 
must be filed by the required date.
    (ii) The statement must be headed ``Statement regarding independent 
public accountant under Rule 18a-7(e)(2)'' and must contain the 
following information and representations:
    (A) Name, address, telephone number and registration number of the 
security-based swap dealer or major security-based swap participant.
    (B) Name, address, and telephone number of the independent public 
accountant.
    (C) The date of the fiscal year of the annual reports of the 
security-based swap dealer or major security-based swap participant 
covered by the engagement.
    (D) Whether the engagement is for a single year or is of a 
continuing nature.
    (E) A representation that the independent public accountant has 
undertaken the items enumerated in paragraphs (f)(1) and (2) of this 
section.
    (3) Replacement of accountant. A security-based swap dealer or major 
security-based swap participant must file a notice that must be received 
by the Commission's principal office in Washington, DC and the regional 
office of the Commission for the region in which its principal place of 
business is located not more than 15 business days after:
    (i) The security-based swap dealer or major security-based swap 
participant has notified the independent public accountant that provided 
the reports the

[[Page 734]]

security-based swap dealer or major security-based swap participant 
filed under paragraph (c)(1)(i)(C) of this section for the most recent 
fiscal year that the independent public accountant's services will not 
be used in future engagements; or
    (ii) The security-based swap dealer or major security-based swap 
participant has notified an independent public accountant that was 
engaged to provide the reports required under paragraph (c)(1)(i)(C) of 
this section that the engagement has been terminated; or
    (iii) An independent public accountant has notified the security-
based swap dealer or major security-based swap participant that the 
independent public accountant would not continue under an engagement to 
provide the reports required under paragraph (c)(1)(i)(C) of this 
section; or
    (iv) A new independent public accountant has been engaged to provide 
the reports required under paragraph (c)(1)(i)(C) of this section 
without any notice of termination having been given to or by the 
previously engaged independent public accountant.
    (v) The notice must include:
    (A) The date of notification of the termination of the engagement or 
of the engagement of the new independent public accountant, as 
applicable; and
    (B) The details of any issues arising during the 24 months (or the 
period of the engagement, if less than 24 months) preceding the 
termination or new engagement relating to any matter of accounting 
principles or practices, financial statement disclosure, auditing scope 
or procedure, or compliance with applicable rules of the Commission, 
which issues, if not resolved to the satisfaction of the former 
independent public accountant, would have caused the independent public 
accountant to make reference to them in the report of the independent 
public accountant. The issues required to be reported include both those 
resolved to the former independent public accountant's satisfaction and 
those not resolved to the former accountant's satisfaction. Issues 
contemplated by this section are those which occur at the decision-
making level--that is, between principal financial officers of the 
security-based swap dealer or major security-based swap participant and 
personnel of the accounting firm responsible for rendering its report. 
The notice must also state whether the accountant's report filed under 
paragraph (c)(1)(i)(C) of this section for any of the past two fiscal 
years contained an adverse opinion or a disclaimer of opinion or was 
qualified as to uncertainties, audit scope, or accounting principles, 
and must describe the nature of each such adverse opinion, disclaimer of 
opinion, or qualification. The security-based swap dealer or major 
security-based swap participant must also request the former independent 
public accountant to furnish the security-based swap dealer or major 
security-based swap participant with a letter addressed to the 
Commission stating whether the independent public accountant agrees with 
the statements contained in the notice of the security-based swap dealer 
or major security-based swap participant and, if not, stating the 
respects in which the independent public accountant does not agree. The 
security-based swap dealer or major security-based swap participant must 
file three copies of the notice and the accountant's letter, one copy of 
which must be manually signed by the sole proprietor, or a general 
partner or a duly authorized corporate, limited liability company, or 
limited liability partnership officer or member, as appropriate, and by 
the independent public accountant, respectively.
    (f) Engagement of the independent public accountant. The independent 
public accountant engaged by the security-based swap dealer or major 
security-based swap participant to provide the reports required under 
paragraph (c)(1)(i)(C) of this section must, as part of the engagement, 
undertake the following, as applicable:
    (1) To prepare an independent public accountant's report based on an 
examination of the financial report required to be filed by the 
security-based swap dealer or major security-based swap participant 
under paragraph (c)(1)(i)(A) of this section in accordance with 
generally accepted auditing standards in the United States or the 
standards of the Public Company Accounting Oversight Board; and

[[Page 735]]

    (2)(i) To prepare an independent public accountant's report based on 
an examination of the statements required under paragraphs 
(c)(3)(i)(A)(2) through (5) of this section in the compliance report 
required to be filed by the security-based swap dealer under paragraph 
(c)(1)(i)(B)(1) of this section in accordance with generally accepted 
auditing standards in the United States or the standards of the Public 
Company Accounting Oversight Board; or
    (ii) To prepare an independent public accountant's report based on a 
review of the statements required under paragraphs (c)(4)(i) through 
(ii) of this section in the exemption report required to be filed by the 
security-based swap dealer under paragraph (c)(1)(i)(B)(2) of this 
section in accordance with generally accepted auditing standards in the 
United States or the standards of the Public Company Accounting 
Oversight Board.
    (g) Notification of non-compliance or material weakness. If, during 
the course of preparing the independent public accountant's reports 
required under paragraph (c)(1)(i)(C) of this section, the independent 
public accountant determines that:
    (1) A security-based swap dealer is not in compliance with Sec.
240.18a-1, Sec.240.18a-4, Sec.240.18a-9, or Sec.240.17a-13, as 
applicable, or the independent public accountant determines that any 
material weaknesses (as defined in paragraph (c)(3)(iii) of this 
section) exist, the independent public accountant must immediately 
notify the chief financial officer of the security-based swap dealer of 
the nature of the non-compliance or material weakness. If the notice 
from the accountant concerns an instance of non-compliance that would 
require a security-based swap dealer to provide a notification under 
Sec.240.18a-8, or if the notice concerns a material weakness, the 
security-based swap dealer must provide a notification in accordance 
with Sec.240.18a-8, as applicable, and provide a copy of the 
notification to the independent public accountant. If the independent 
public accountant does not receive the notification within one business 
day, or if the independent public accountant does not agree with the 
statements in the notification, then the independent public accountant 
must notify the Commission within one business day. The report from the 
accountant must, if the security-based swap dealer failed to file a 
notification, describe any instances of non-compliance that required a 
notification under Sec.240.18a-8 or any material weakness. If the 
security-based swap dealer filed a notification, the report from the 
accountant must detail the aspects of the notification of the security-
based swap dealer with which the accountant does not agree; or
    (2) A major security-based swap participant is not in compliance 
with Sec.240.18a-2, the independent public accountant must immediately 
notify the chief financial officer of the major security-based swap 
participant of the nature of the non-compliance. If the notice from the 
accountant concerns an instance of non-compliance that would require a 
major security-based swap participant to provide a notification under 
Sec.240.18a-8, the major security-based swap participant must provide 
a notification in accordance with Sec.240.18a-8 and provide a copy of 
the notification to the independent public accountant. If the 
independent public accountant does not receive the notification within 
one business day, or if the independent public accountant does not agree 
with the statements in the notification, then the independent public 
accountant must notify the Commission within one business day. The 
report from the accountant must, if the major security-based swap 
participant failed to file a notification, describe any instances of 
non-compliance that required a notification under Sec.240.18a-8. If 
the major security-based swap participant filed a notification, the 
report from the accountant must detail the aspects of the notification 
of the major security-based swap participant with which the accountant 
does not agree.
    Note 1 to paragraph (g): The attention of the security-based swap 
dealer, major security-based swap participant, and the independent 
public accountant is called to the fact that under Sec.240.18a-8(a), 
among other things, a security-based swap dealer or major security-based 
swap participant whose net capital or tangible net worth, as applicable, 
declines below the minimum required pursuant to Sec.240.18a-1 or Sec.
240.18a-2, as applicable,

[[Page 736]]

must give notice of such deficiency that same day in accordance with 
Sec.240.18a-8(h) and the notice must specify the security-based swap 
dealer's net capital requirement and its current amount of net capital, 
or the extent of the major security-based swap participant's failure to 
maintain positive tangible net worth, as applicable.
    (h) Reports of the independent public accountant required under 
paragraph (c)(1)(i)(C) of this section--(1) Technical requirements. The 
independent public accountant's reports must:
    (i) Be dated;
    (ii) Be signed manually;
    (iii) Indicate the city and state where issued; and
    (iv) Identify without detailed enumeration the items covered by the 
reports.
    (2) Representations. The independent public accountant's reports 
must:
    (i) State whether the examinations were made in accordance with 
generally accepted auditing standards in the United States or the 
standards of the Public Company Accounting Oversight Board; and
    (ii) Identify any examination procedures deemed necessary by the 
independent public accountant under the circumstances of the particular 
case which have been omitted and the reason for their omission.
    (iii) Nothing in this section may be construed to imply authority 
for the omission of any procedure that independent public accountants 
would ordinarily employ in the course of an examination for the purpose 
of expressing the opinions required under this section.
    (3) Opinion to be expressed. The independent public accountant's 
reports must state clearly:
    (i) The opinion of the independent public accountant with respect to 
the financial report required under paragraph (c)(1)(i)(C) of this 
section and the accounting principles and practices reflected in that 
report;
    (ii) The opinion of the independent public accountant with respect 
to the financial report required under paragraph (c)(1)(i)(C) of this 
section, as to the consistency of the application of the accounting 
principles, or as to any changes in those principles which have a 
material effect on the financial statements; and
    (iii)(A) The opinion of the independent public accountant with 
respect to the statements required under paragraphs (c)(3)(i)(A)(2) 
through (5) of this section in the compliance report required under 
paragraph (c)(1)(i)(B)(1) of this section; or
    (B) The conclusion of the independent public accountant with respect 
to the statements required under paragraphs (c)(4)(i) and (ii) of this 
section in the exemption report required under paragraph (c)(1)(i)(B)(2) 
of this section.
    (4) Exceptions. Any matters to which the independent public 
accountant takes exception must be clearly identified, the exceptions 
must be specifically and clearly stated, and, to the extent practicable, 
the effect of each such exception on any related items contained in the 
annual reports required under paragraph (c) of this section must be 
given.
    (i) Notification of change of fiscal year. (1) In the event any 
security-based swap dealer or major security-based swap participant for 
which there is no prudential regulator finds it necessary to change its 
fiscal year, it must file, with the Commission's principal office in 
Washington, DC and the regional office of the Commission for the region 
in which the security-based swap dealer or major security-based swap 
participant has its principal place of business, a notice of such 
change.
    (2) Such notice must contain a detailed explanation of the reasons 
for the change. Any change in the filing period for the annual reports 
must be approved by the Commission.
    (j) Filing requirements. For purposes of filing requirements as 
described in this section, filing will be deemed to have been 
accomplished upon receipt at the Commission's principal office in 
Washington, DC, with duplicate originals simultaneously filed at the 
locations prescribed in the particular paragraph of this section which 
is applicable.

[84 FR 68662, Dec. 16, 2019]



Sec.240.18a-8  Notification provisions for security-based swap 
dealers and major security-based swap participants.

    This section applies to the following types of entities: A security-
based swap dealer registered pursuant to section

[[Page 737]]

15F of the Act (15 U.S.C. 78o-10) that is not also a broker or dealer, 
other than an OTC derivatives dealer as that term is defined in Sec.
240.3b-12, registered pursuant to section 15 of the Act (15 U.S.C. 78o); 
a security-based swap dealer registered pursuant to section 15F of the 
Act that is also an OTC derivatives dealer; and a major security-based 
swap participant registered pursuant to section 15F of the Act that is 
not also a broker or dealer, including an OTC derivatives dealer, 
registered pursuant to section 15 of the Act. Section 240.17a-11 (rather 
than this section) applies to the following types of entities: Except as 
provided above, a broker or dealer, including an OTC derivatives dealer, 
registered pursuant to section 15 of the Act; a broker or dealer, other 
than an OTC derivatives dealer, registered pursuant to section 15 of the 
Act that is also a security-based swap dealer registered pursuant to 
section 15F of the Act; and a broker or dealer, including an OTC 
derivatives dealer, registered pursuant to section 15 of the Act that is 
also a major-security-based swap participant registered pursuant to 
section 15F of the Act.
    (a)(1)(i) Every security-based swap dealer for which there is no 
prudential regulator whose net capital declines below the minimum amount 
required pursuant to Sec.240.18a-1 must give notice of such deficiency 
that same day in accordance with paragraph (h) of this section. The 
notice must specify the security-based swap dealer's net capital 
requirement and its current amount of net capital. If a security-based 
swap dealer is informed by the Commission that it is, or has been, in 
violation of Sec.240.18a-1 and the security-based swap dealer has not 
given notice of the capital deficiency under this section, the security-
based swap dealer, even if it does not agree that it is, or has been, in 
violation of Sec.240.18a-1, must give notice of the claimed 
deficiency, which notice may specify the security-based swap dealer's 
reasons for its disagreement.
    (ii) Every security-based swap dealer for which there is no 
prudential regulator whose tentative net capital declines below the 
minimum amount required pursuant to Sec.240.18a-1 must give notice of 
such deficiency that same day in accordance with paragraph (h) of this 
section. The notice must specify the security-based swap dealer's 
tentative net capital requirement and its current amount of tentative 
net capital. If a security-based swap is informed by the Commission that 
it is, or has been, in violation of Sec.240.18a-1 and the security-
based swap dealer has not given notice of the capital deficiency under 
this section, the security-based swap dealer, even if it does not agree 
that it is, or has been, in violation of Sec.240.18a-1, must give 
notice of the claimed deficiency, which notice may specify the security-
based swap dealer's reasons for its disagreement.
    (2) Every major security-based swap participant for which there is 
no prudential regulator who fails to maintain a positive tangible net 
worth pursuant to Sec.240.18a-2 must give notice of such deficiency 
that same day in accordance with paragraph (h) of this section. The 
notice must specify the extent to which the firm has failed to maintain 
positive tangible net worth. If a major security-based swap participant 
is informed by the Commission that it is, or has been, in violation of 
Sec.240.18a-2 and the major security-based swap participant has not 
given notice of the capital deficiency under this section, the major 
security-based swap participant, even if it does not agree that it is, 
or has been, in violation of Sec.240.18a-2, must give notice of the 
claimed deficiency, which notice may specify the major security-based 
swap participant's reasons for its disagreement.
    (b) Every security-based swap dealer or major security-based swap 
participant for which there is no prudential regulator must send notice 
promptly (but within 24 hours) after the occurrence of the events 
specified in paragraphs (b)(1) through (3) or paragraph (b)(4) of this 
section, as applicable, in accordance with paragraph (h) of this 
section:
    (1) If a computation made by a security-based swap dealer pursuant 
to Sec.240.18a-1 shows that its total net capital is less than 120 
percent of the security-based swap dealer's required minimum net 
capital;
    (2) If a computation made by a security-based swap dealer authorized 
by the Commission to compute net capital

[[Page 738]]

pursuant to Sec.240.18a-1(d) shows that its total tentative net 
capital is less than 120 percent of the security-based swap dealer's 
required minimum tentative net capital;
    (3) If the level of tangible net worth of a major security-based 
swap participant falls below $20 million; and
    (4) The occurrence of the fourth and each subsequent backtesting 
exception under Sec.240.18a-1(d)(9) during any 250 business day 
measurement period.
    (c) Every security-based swap dealer that files a notice of 
adjustment of its reported capital category with the Federal Reserve 
Board, the Office of the Comptroller of the Currency or the Federal 
Deposit Insurance Corporation must give notice of this fact that same 
day by transmitting a copy notice of the adjustment of reported capital 
category in accordance with paragraph (h) of this section.
    (d) Every security-based swap dealer or major security-based swap 
participant that fails to make and keep current the books and records 
required by Sec.240.18a-5 or Sec.240.17a-3, as applicable, must give 
notice of this fact that same day in accordance with paragraph (h) of 
this section, specifying the books and records which have not been made 
or which are not current. The security-based swap dealer or major 
security-based swap participant must also transmit a report in 
accordance with paragraph (h) of this section within 48 hours of the 
notice stating what the security-based swap dealer or major security-
based swap participant has done or is doing to correct the situation.
    (e) Whenever any security-based swap dealer for which there is no 
prudential regulator discovers, or is notified by an independent public 
accountant under Sec.240.18a-7(g), of the existence of any material 
weakness, as defined in Sec.240.18a-7(c)(3)(iii), the security-based 
swap dealer must:
    (1) Give notice, in accordance with paragraph (h) of this section, 
of the material weakness within 24 hours of the discovery or 
notification of the material weakness; and
    (2) Transmit a report in accordance with paragraph (h) of this 
section, within 48 hours of the notice stating what the security-based 
swap dealer has done or is doing to correct the situation.
    (f) [Reserved]
    (g) If a security-based swap dealer fails to make in its special 
reserve account for the exclusive benefit of security-based swap 
customers a deposit, as required by Sec.240.18a-4(c), the security-
based swap dealer must give immediate notice in writing in accordance 
with paragraph (h) of this section.
    (h) Every notice or report required to be given or transmitted by 
this section must be given or transmitted to the principal office of the 
Commission in Washington, DC and the regional office of the Commission 
for the region in which the security-based swap dealer or major 
security-based swap participant has its principal place of business, or 
to an email address provided on the Commission's website, and to the 
Commodity Futures Trading Commission (CFTC) if the security-based swap 
dealer or major security-based swap participant is registered as a 
futures commission merchant with the CFTC. The report required by 
paragraph (d) or (e)(2) of this section may be transmitted by overnight 
delivery.

[84 FR 68667, Dec. 16, 2019]



Sec.240.18a-9  Quarterly security counts to be made by certain 
security-based swap dealers.

    This section applies to a security-based swap dealer registered 
pursuant to section 15F of the Act (15 U.S.C. 78o-10) that does not have 
a prudential regulator and that is not also a broker or dealer, 
including an OTC derivatives dealer as that term is defined in Sec.
240.3b-12, registered pursuant to section 15 of the Act (15 U.S.C. 78o). 
Section 240.17a-13 (rather than this section) applies to the following 
entities (if not exempt under the provisions of Sec.240.17a-13): A 
member of a national securities exchange who transacts a business in 
securities directly with others than members of a national securities 
exchange; a broker or dealer who transacts a business in securities 
through the medium of a member of a national securities exchange; a 
broker or dealer, including an OTC derivatives dealer, registered 
pursuant to section 15 of the Act; a security-based swap dealer 
registered pursuant to section 15F of the

[[Page 739]]

Act that is also a broker or dealer, including an OTC derivatives 
dealer, registered pursuant to section 15 of the Act; and a major 
security-based swap participant that is also a broker or dealer, 
including an OTC derivatives dealer, registered pursuant to section 15 
of the Act.
    (a) Any security-based swap dealer that is subject to the provisions 
of this section must at least once in each calendar quarter-year:
    (1) Physically examine and count all securities held including 
securities that are the subjects of repurchase or reverse repurchase 
agreements;
    (2) Account for all securities in transfer, in transit, pledged, 
loaned, borrowed, deposited, failed to receive, failed to deliver, 
subject to repurchase or reverse repurchase agreements or otherwise 
subject to its control or direction but not in its physical possession 
by examination and comparison of the supporting detailed records with 
the appropriate ledger control accounts;
    (3) Verify all securities in transfer, in transit, pledged, loaned, 
borrowed, deposited, failed to receive, failed to deliver, subject to 
repurchase or reverse repurchase agreements or otherwise subject to its 
control or direction but not in its physical possession, where such 
securities have been in said status for longer than thirty days;
    (4) Compare the results of the count and verification with its 
records; and
    (5) Record on the books and records of the security-based swap 
dealer all unresolved differences setting forth the security involved 
and date of comparison in a security count difference account no later 
than 7 business days after the date of each required quarterly security 
examination, count, and verification in accordance with the requirements 
provided in paragraph (b) of this section. Provided, however, that no 
examination, count, verification, and comparison for the purpose of this 
section is within 2 months of or more than 4 months following a prior 
examination, count, verification, and comparison made under this 
paragraph (a)(5).
    (b) The examination, count, verification, and comparison may be made 
either as of a date certain or on a cyclical basis covering the entire 
list of securities. In either case the recordation must be effected 
within 7 business days subsequent to the examination, count, 
verification, and comparison of a particular security. In the event that 
an examination, count, verification, and comparison is made on a 
cyclical basis, it may not extend over more than 1 calendar quarter-
year, and no security may be examined, counted, verified, or compared 
for the purpose of this section within 2 months of or more than 4 months 
after a prior examination, count, verification, and comparison.
    (c) The examination, count, verification, and comparison must be 
made or supervised by persons whose regular duties do not require them 
to have direct responsibility for the proper care and protection of the 
securities or the making or preservation of the subject records.

[84 FR 68668, Dec. 16, 2019]



Sec.240.18a-10  Alternative compliance mechanism for security-based
swap dealers that are registered as swap dealers and have limited
security-based swap activities.
          

    (a) A security-based swap dealer may comply with capital, margin, 
segregation, recordkeeping, and reporting requirements of the Commodity 
Exchange Act and chapter I of this title applicable to swap dealers in 
lieu of complying with Sec.Sec.240.18a-1 and 240.18a-3 through 
240.18a-9 if:
    (1) The security-based swap dealer is registered as such pursuant to 
section 15F(b) of the Act and the rules thereunder;
    (2) The security-based swap dealer is registered as a swap dealer 
pursuant to section 4s of the Commodity Exchange Act and the rules 
thereunder;
    (3) The security-based swap dealer is not registered as a broker or 
dealer pursuant to section 15 of the Act or the rules thereunder;
    (4) The security-based swap dealer meets the conditions to be exempt 
from Sec.240.18a-4 specified in paragraph (f) of that section; and
    (5) As of the most recently ended quarter of the fiscal year of the 
security-based swap dealer, the aggregate gross notional amount of the 
outstanding security-based swap positions

[[Page 740]]

of the security-based swap dealer did not exceed the lesser of the 
maximum fixed-dollar amount specified in paragraph (f) of this section 
or 10 percent of the combined aggregate gross notional amount of the 
security-based swap and swap positions of the security-based swap 
dealer.
    (b) A security-based swap dealer operating under this section must:
    (1) Comply with capital, margin, segregation, recordkeeping, and 
reporting requirements of the Commodity Exchange Act and chapter I of 
this title applicable to swap dealers and treat security-based swaps or 
collateral related to security-based swaps as swaps or collateral 
related to swaps, as applicable, pursuant to those requirements to the 
extent the requirements do not specifically address security-based swaps 
or collateral related to security-based swaps;
    (2) Disclose in writing to each counterparty to a security-based 
swap before entering into the first transaction with the counterparty 
after the date the security-based swap dealer begins operating under 
this section that the security-based swap dealer is operating under this 
section and is therefore complying with the applicable capital, margin, 
segregation, recordkeeping, and reporting requirements of the Commodity 
Exchange Act and the rules promulgated by the Commodity Futures Trading 
Commission thereunder in lieu of complying with the capital, margin, 
segregation, recordkeeping, and reporting requirements promulgated by 
the Commission in Sec.Sec.240.18a-1 and 240.18a-3 through 240.18a-9;
    (3) Immediately notify the Commission and the Commodity Futures 
Trading Commission in writing if the security-based swap dealer fails to 
meet a condition specified in paragraph (a) of this section;
    (4) Simultaneously notify the Commission if the security-based swap 
dealer is required to send a notice concerning its capital, books and 
records, liquidity, margin operations, or segregation operations to the 
Commodity Futures Trading Commission by transmitting to the Commission a 
copy of the notice being sent to the Commodity Futures Trading 
Commission; and
    (5) Furnish promptly to a representative of the Commission legible, 
true, complete, and current copies of those records of the security-
based swap dealer that are required to be preserved under the Commodity 
Exchange Act and chapter I of this title applicable to swap dealers, or 
any other records of the security-based swap dealer subject to 
examination pursuant to section 15F of the Act (15 U.S.C. 78o-10) that 
are requested by a representative of the Commission.
    (c) A security-based swap dealer that fails to meet one or more of 
the conditions specified in paragraph (a) of this section must begin 
complying with Sec.Sec.240.18a-1 and 240.18a-3 through 240.18a-9 no 
later than:
    (1) Two months after the end of the month in which the security-
based swap dealer fails to meet a condition in paragraph (a) of this 
section; or
    (2) A longer period of time as granted by the Commission by order 
subject to any conditions imposed by the Commission.
    (d)(1) A person applying to register as a security-based swap dealer 
that intends to operate under this section beginning on the date of its 
registration must provide prior written notice to the Commission and the 
Commodity Futures Trading Commission of its intent to operate under the 
conditions of this section.
    (2) A security-based swap dealer that elects to operate under this 
section beginning on a date after the date of its registration as a 
security-based swap dealer must:
    (i) Provide prior written notice to the Commission and the Commodity 
Futures Trading Commission of its intent to operate under the conditions 
of this section; and
    (ii) Continue to comply with Sec.Sec.240.18a-1 and 240.18a-3 
through 240.18a-9 for at least:
    (A) Two months after the end of the month in which the security-
based swap dealer provides the notice; or
    (B) A shorter period of time as granted by the Commission by order 
subject to any conditions imposed by the Commission.

[[Page 741]]

    (e) The notices required by this section must be sent by facsimile 
transmission to the principal office of the Commission and the regional 
office of the Commission for the region in which the security-based swap 
dealer has its principal place of business or to an email address 
provided on the Commission's website, and to the principal office of the 
Commodity Futures Trading Commission in a manner consistent with the 
notification requirements of the Commodity Futures Trading Commission. 
The notice must include a brief summary of the reason for the notice and 
the contact information of an individual who can provide further 
information about the matter that is the subject of the notice.
    (f)(1) The maximum fixed-dollar amount is $250 billion until the 
three-year anniversary of the compliance date of this section at which 
time the maximum fixed-dollar amount is $50 billion unless the 
Commission issues an order to:
    (i) Maintain the maximum fixed-dollar amount at $250 billion for an 
additional period of time or indefinitely; or
    (ii) Lower the maximum fixed-dollar amount to an amount that is less 
than $250 billion but greater than $50 billion.
    (2) If, after considering the levels of security-based swap activity 
of security-based swap dealers operating under this section, the 
Commission determines that it may be appropriate to change the maximum 
fixed-dollar amount pursuant paragraph (f)(1)(i) or (ii) of this 
section, the Commission will publish a notice of the potential change 
and subsequently will issue an order regarding any such change.

[84 FR 44076, Aug. 22, 2019, as amended at 84 FR 68668, Dec. 16, 2019]

              Suspension and Expulsion of Exchange Members



Sec.240.19a3-1  [Reserved]



Sec.240.19b-3  [Reserved]



Sec.240.19b-4  Filings with respect to proposed rule changes by
self-regulatory organizations.

    (a) Definitions. As used in this section:
    (1) The term advance notice means a notice required to be made by a 
designated clearing agency pursuant to Section 806(e) of the Payment, 
Clearing and Settlement Supervision Act (12 U.S.C. 5465(e));
    (2) The term designated clearing agency means a clearing agency that 
is registered with the Commission, and for which the Commission is the 
Supervisory Agency (as determined in accordance with section 803(8) of 
the Payment, Clearing and Settlement Supervision Act (12 U.S.C. 
5462(8)), that has been designated by the Financial Stability Oversight 
Council pursuant to section 804 of the Payment, Clearing and Settlement 
Supervision Act (12 U.S.C. 5463) as systemically important or likely to 
become systemically important;
    (3) The term Payment, Clearing and Settlement Supervision Act means 
Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (124 Stat. 1802, 1803, 1807, 1809, 1811, 1814, 1816, 1818, 1820, 
1821; 12 U.S.C. 5461 et seq.);
    (4) The term proposed rule change has the meaning set forth in 
Section 19(b)(1) of the Act (15 U.S.C. 78s(b)(1));
    (5) The term security-based swap submission means a submission of 
identifying information required to be made by a clearing agency 
pursuant to section 3C(b)(2) of the Act (15 U.S.C. 78c-3(b)(2)) for each 
security-based swap, or any group, category, type or class of security-
based swaps, that such clearing agency plans to accept for clearing;
    (6) The term stated policy, practice, or interpretation means:
    (i) Any material aspect of the operation of the facilities of the 
self-regulatory organization; or
    (ii) Any statement made generally available to the membership of, to 
all participants in, or to persons having or seeking access (including, 
in the case of national securities exchanges or registered securities 
associations, through a member) to facilities of, the self-regulatory 
organization (``specified persons''), or to a group or category of 
specified persons, that establishes or changes any standard, limit, or 
guideline with respect to:
    (A) The rights, obligations, or privileges of specified persons or, 
in the case

[[Page 742]]

of national securities exchanges or registered securities associations, 
persons associated with specified persons; or
    (B) The meaning, administration, or enforcement of an existing rule.
    (b)(1) Filings with respect to proposed rule changes by a self-
regulatory organization, except filings with respect to proposed rules 
changes by self-regulatory organizations submitted pursuant to section 
19(b)(7) of the Act (15 U.S.C. 78s(b)(7)), shall be made electronically 
on Form 19b-4 (17 CFR 249.819).
    (2) For purposes of Section 19(b) of the Act and this rule, a 
``business day'' is any day other than a Saturday, Sunday, Federal 
holiday, a day that the Office of Personnel Management has announced 
that Federal agencies in the Washington, DC area are closed to the 
public, a day on which the Commission is subject to a Federal government 
shutdown or a day on which the Commission's Washington, DC office is 
otherwise not open for regular business.
    (c) A stated policy, practice, or interpretation of the self-
regulatory organization shall be deemed to be a proposed rule change 
unless (1) it is reasonably and fairly implied by an existing rule of 
the self-regulatory organization or (2) it is concerned solely with the 
administration of the self-regulatory organization and is not a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule of the self-
regulatory organization.
    (d) Regardless of whether it is made generally available, an 
interpretation of an existing rule of the self-regulatory organization 
shall be deemed to be a proposed rule change if (1) it is approved or 
ratified by the governing body of the self-regulatory organization and 
(2) it is not reasonably and fairly implied by that rule.
    (e) For the purposes of this paragraph, new derivative securities 
product means any type of option, warrant, hybrid securities product or 
any other security, other than a single equity option or a security 
futures product, whose value is based, in whole or in part, upon the 
performance of, or interest in, an underlying instrument.
    (1) The listing and trading of a new derivative securities product 
by a self-regulatory organization shall not be deemed a proposed rule 
change, pursuant to paragraph (c)(1) of this section, if the Commission 
has approved, pursuant to section 19(b) of the Act (15 U.S.C. 78s(b)), 
the self-regulatory organization's trading rules, procedures and listing 
standards for the product class that would include the new derivative 
securities product and the self-regulatory organization has a 
surveillance program for the product class.
    (2) Recordkeeping and reporting:
    (i) Self-regulatory organizations shall retain at their principal 
place of business a file, available to Commission staff for inspection, 
of all relevant records and information pertaining to each new 
derivative securities product traded pursuant to this paragraph (e) for 
a period of not less than five years, the first two years in an easily 
accessible place, as prescribed in Sec.240.17a-1.
    (ii) When relying on this paragraph (e), a self-regulatory 
organization shall submit Form 19b-4(e) (17 CFR 249.820) to the 
Commission within five business days after commencement of trading a new 
derivative securities product.
    (f) A proposed rule change may take effect upon filing with the 
Commission pursuant to Section 19(b)(3)(A) of the Act, 15 U.S.C. 
78s(b)(3)(A), if properly designated by the self-regulatory organization 
as:
    (1) Constituting a stated policy, practice, or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule;
    (2) Establishing or changing a due, fee, or other charge applicable 
only to a member;
    (3) Concerned solely with the administration of the self-regulatory 
organization;
    (4) Effecting a change in an existing service of a registered 
clearing agency that either:
    (i)(A) Does not adversely affect the safeguarding of securities or 
funds in the custody or control of the clearing agency or for which it 
is responsible; and
    (B) Does not significantly affect the respective rights or 
obligations of the clearing agency or persons using the service; or
    (ii)(A) Primarily affects the clearing operations of the clearing 
agency with

[[Page 743]]

respect to products that are not securities, including futures that are 
not security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards; and
    (B) Either
    (1) Does not significantly affect any securities clearing operations 
of the clearing agency or any rights or obligations of the clearing 
agency with respect to securities clearing or persons using such 
securities-clearing service, or
    (2) Does significantly affect any securities clearing operations of 
the clearing agency or the rights or obligations of the clearing agency 
with respect to securities clearing or persons using such securities-
clearing service, but is necessary to maintain fair and orderly markets 
for products that are not securities, including futures that are not 
security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards. Proposed rule 
changes filed pursuant to this subparagraph II must also be filed in 
accordance with the procedures of Section 19(b)(1) for approval pursuant 
to Section 19(b)(2) and the regulations thereunder within fifteen days 
of being filed under Section 19(b)(3)(A).
    (5) Effecting a change in an existing order-entry or trading system 
of a self-regulatory organization that:
    (i) Does not significantly affect the protection of investors or the 
public interest;
    (ii) Does not impose any significant burden on competition; and
    (iii) Does not have the effect of limiting the access to or 
availability of the system; or
    (6) Effecting a change that:
    (i) Does not significantly affect the protection of investors or the 
public interest;
    (ii) Does not impose any significant burden on competition; and
    (iii) By its terms, does not become operative for 30 days after the 
date of the filing, or such shorter time as the Commission may designate 
if consistent with the protection of investors and the public interest; 
provided that the self-regulatory organization has given the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
    (g) Proceedings to determine whether a proposed rule change should 
be disapproved will be conducted pursuant to 17 CFR 201.700-701 
(Initiation of Proceedings for SRO Proposed Rule Changes).
    (h) Notice of orders issued pursuant to section 19(b) of the Act 
will be given by prompt publication thereof, together with a statement 
of written reasons therefor.
    (i) Self-regulatory organizations shall retain at their principal 
place of business a file, available to interested persons for public 
inspection and copying, of all filings, notices and submissions made 
pursuant to this section and all correspondence and other communications 
reduced to writing (including comment letters) to and from such self-
regulatory organization concerning any such filing, notice or 
submission, whether such correspondence and communications are received 
or prepared before or after the filing, notice or submission of the 
proposed rule change, advance notice or security-based swap submission, 
as applicable.
    (j) Filings by a self-regulatory organization submitted on Form 19b-
4 (17 CFR 249.819) electronically shall contain an electronic signature. 
For the purposes of this section, the term electronic signature means an 
electronic entry in the form of a magnetic impulse or other form of 
computer data compilation of any letter or series of letters or 
characters comprising a name, executed, adopted or authorized as a 
signature. The signatory to an electronically submitted rule filing 
shall manually sign a signature page or other document, in the manner 
prescribed by Form 19b-4, authenticating, acknowledging or otherwise 
adopting his or her signature that appears in typed form within the 
electronic filing. Such document shall be executed before or at the time 
the rule filing is electronically submitted and shall be retained by the 
filer in accordance with Sec.240.17a-1.

[[Page 744]]

    (k) If the conditions of this section and Form 19b-4 (17 CFR 
249.819) are otherwise satisfied, all filings submitted electronically 
on or before 5:30 p.m. Eastern Standard Time or Eastern Daylight Saving 
Time, whichever is currently in effect, on a business day, shall be 
deemed filed on that business day, and all filings submitted after 5:30 
p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever is 
currently in effect, shall be deemed filed on the next business day.
    (l) The self-regulatory organization shall post each proposed rule 
change, and any amendments thereto, on its Web site within two business 
days after the filing of the proposed rule change, and any amendments 
thereto, with the Commission. If a self-regulatory organization does not 
post a proposed rule change on its Web site on the same day that it 
filed the proposal with the Commission, then the self-regulatory 
organization shall inform the Commission of the date on which it posted 
such proposal on its Web site. Such proposed rule change and amendments 
shall be maintained on the self-regulatory organization's Web site 
until:
    (1) In the case of a proposed rule change filed under section 
19(b)(2) of the Act (15 U.S.C. 78s(b)(2)), the Commission approves or 
disapproves the proposed rule change or the self-regulatory organization 
withdraws the proposed rule change, or any amendments, or is notified 
that the proposed rule change is not properly filed; or
    (2) In the case of a proposed rule change filed under section 
19(b)(3)(A) of the Act (15 U.S.C. 78s(b)(3)(A)), or any amendment 
thereto, 60 days after the date of filing, unless the self-regulatory 
organization withdraws the proposed rule change or is notified that the 
proposed rule change is not properly filed; and
    (3) In the case of proposed rule changes approved by the Commission 
pursuant to section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) or noticed 
by the Commission pursuant to section 19(b)(3)(A) of the Act (15 U.S.C. 
78s(b)(3)(A)), the self-regulatory organization updates its rule text as 
required by paragraph (m) of this section; and
    (4) In the case of a proposed rule change, or any amendment thereto, 
that has been disapproved, withdrawn or not properly filed, the self-
regulatory organization shall remove the proposed rule change, or any 
amendment, from its Web site within two business days of notification of 
disapproval, improper filing, or withdrawal by the SRO of the proposed 
rule change.
    (m)(1) Each self-regulatory organization shall post and maintain a 
current and complete version of its rules on its Web site.
    (2) A self-regulatory organization, other than a self-regulatory 
organization that is registered with the Commission under section 6(g) 
of the Act (15 U.S.C. 78f(g)) or pursuant to section 15A(k) of the Act 
(15 U.S.C. 78o-1(k)), shall update its Web site to reflect rule changes 
filed pursuant to section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) 
within two business days after it has been notified of the Commission's 
approval of a proposed rule change, and to reflect rule changes filed 
pursuant to section 19(b)(3)(A) of the Act (15 U.S.C. 78s(b)(3)(A)) 
within two business days of the Commission's notice of such proposed 
rule change.
    (3) A self-regulatory organization that is registered with the 
Commission under section 6(g) of the Act (15 U.S.C. 78f(g)) or pursuant 
to section 15A(k) of the Act (15 U.S.C. 78o-1(k)), shall update its Web 
site to reflect rule changes filed pursuant to section 19(b)(2) of the 
Act by two business days after the later of:
    (A) Notification that the Commission has approved a proposed rule 
change; and
    (B)(i) The filing of a written certification with the Commodity 
Futures Trading Commission under section 5c(c) of the Commodity Exchange 
Act (7 U.S.C. 7a-2(c));
    (ii) Receipt of notice from the Commodity Futures Trading Commission 
that it has determined that review of the proposed rule change is not 
necessary; or
    (iii) Receipt of notice from the Commodity Futures Trading 
Commission that it has approved the proposed rule change.

[[Page 745]]

    (4) If a rule change is not effective for a certain period, the 
self-regulatory organization shall clearly indicate the effective date 
in the relevant rule text.
    (n)(1)(i) A designated clearing agency shall provide an advance 
notice to the Commission of any proposed change to its rules, 
procedures, or operations that could materially affect the nature or 
level of risks presented by such designated clearing agency. Except as 
provided in paragraph (n)(1)(ii) of this section, such advance notice 
shall be submitted to the Commission electronically on Form 19b-4 
(referenced in 17 CFR 249.819). The Commission shall, upon the filing of 
any advance notice, provide for prompt publication thereof.
    (ii) Any designated clearing agency that files an advance notice 
with the Commission prior to December 10, 2013, shall file such advance 
notice in electronic format to a dedicated email address to be 
established by the Commission. The contents of an advance notice filed 
pursuant to this paragraph (n)(1)(ii) shall contain the information 
required to be included for advance notices in the General Instructions 
for Form 19b-4 (referenced in 17 CFR 249.819).
    (2)(i) For purposes of this paragraph (n), the phrase materially 
affect the nature or level of risks presented, when used to qualify 
determinations on a change to rules, procedures, or operations at the 
designated clearing agency, means matters as to which there is a 
reasonable possibility that the change could affect the performance of 
essential clearing and settlement functions or the overall nature or 
level of risk presented by the designated clearing agency.
    (ii) Changes to rules, procedures, or operations that could 
materially affect the nature or level of risks presented by a designated 
clearing agency may include, but are not limited to, changes that 
materially affect participant and product eligibility, risk management, 
daily or intraday settlement procedures, default procedures, system 
safeguards, governance or financial resources of the designated clearing 
agency.
    (iii) Changes to rules, procedures, or operations that may not 
materially affect the nature or level of risks presented by a designated 
clearing agency include, but are not limited to:
    (A) Changes to an existing procedure, control, or service that do 
not modify the rights or obligations of the designated clearing agency 
or persons using its payment, clearing, or settlement services and that 
do not adversely affect the safeguarding of securities, collateral, or 
funds in the custody or control of the designated clearing agency or for 
which it is responsible; or
    (B) Changes concerned solely with the administration of the 
designated clearing agency or related to the routine, daily 
administration, direction, and control of employees;
    (3) The designated clearing agency shall post the advance notice, 
and any amendments thereto, on its Web site within two business days 
after the filing of the advance notice, and any amendments thereto, with 
the Commission. Such advance notice and amendments shall be maintained 
on the designated clearing agency's Web site until the earlier of:
    (i) The date the designated clearing agency withdraws the advance 
notice or is notified that the advance notice is not properly filed; or
    (ii) The date the designated clearing agency posts a notice of 
effectiveness as required by paragraph (n)(4)(ii) of this section.
    (4)(i) The designated clearing agency shall post a notice on its Web 
site within two business days of the date that any change to its rules, 
procedures, or operations referred to in an advance notice has been 
permitted to take effect as such date is determined in accordance with 
Section 806(e) of the Payment, Clearing and Settlement Supervision Act 
(12 U.S.C. 5465).
    (ii) The designated clearing agency shall post a notice on its Web 
site within two business days of the effectiveness of any change to its 
rules, procedures, or operations referred to in an advance notice.
    (5) A designated clearing agency shall provide copies of all 
materials submitted to the Commission relating to an advance notice with 
the Board of Governors of the Federal Reserve System contemporaneously 
with such submission to the Commission.

[[Page 746]]

    (6) The publication and Web site posting requirements contained in 
paragraphs (n)(1), (n)(3), and (n)(4) of this section do not apply to 
any information contained in an advance notice for which a designated 
clearing agency has requested confidential treatment following the 
procedures set forth in Sec.240.24b-2.
    (o)(1) Every clearing agency that is registered with the Commission 
that plans to accept a security-based swap, or any group, category, 
type, or class of security-based swaps for clearing shall submit to the 
Commission a security-based swap submission and provide notice to its 
members of such security-based swap submission.
    (2)(i) Except as provided in paragraph (o)(2)(ii) of this section, a 
clearing agency shall submit each security-based swap submission to the 
Commission electronically on Form 19b-4 (referenced in 17 CFR 249.819) 
with the information required to be submitted for a security-based swap 
submission, as provided in Sec.240.19b-4 and Form 19b-4. Any 
information submitted to the Commission electronically on Form 19b-4 
that is not complete or otherwise in compliance with this section and 
Form 19b-4 shall not be considered a security-based swap submission and 
the Commission shall so inform the clearing agency within twenty-one 
business days of the submission on Form 19b-4 (referenced in 17 CFR 
249.819).
    (ii) Any clearing agency that files a security-based swap submission 
with the Commission prior to December 10, 2013, shall file such 
security-based swap submission in electronic format to a dedicated email 
address to be established by the Commission. The contents of a security-
based swap submission filed pursuant to this paragraph (o)(2)(ii) shall 
contain the information required to be included for security-based swap 
submissions in the General Instructions for Form 19b-4.
    (3) A security-based swap submission submitted by a clearing agency 
to the Commission shall include a statement that includes, but is not 
limited to:
    (i) How the security-based swap submission is consistent with 
Section 17A of the Act (15 U.S.C. 78q-1);
    (ii) Information that will assist the Commission in the quantitative 
and qualitative assessment of the factors specified in Section 3C of the 
Act (15 U.S.C. 78c-3), including, but not limited to:
    (A) The existence of significant outstanding notional exposures, 
trading liquidity, and adequate pricing data;
    (B) The availability of a rule framework, capacity, operational 
expertise and resources, and credit support infrastructure to clear the 
contract on terms that are consistent with the material terms and 
trading conventions on which the contract is then traded;
    (C) The effect on the mitigation of systemic risk, taking into 
account the size of the market for such contract and the resources of 
the clearing agency available to clear the contract;
    (D) The effect on competition, including appropriate fees and 
charges applied to clearing; and
    (E) The existence of reasonable legal certainty in the event of the 
insolvency of the relevant clearing agency or one or more of its 
clearing members with regard to the treatment of customer and security-
based swap counterparty positions, funds, and property;
    (iii) A description of how the rules of the clearing agency 
prescribe that all security-based swaps submitted to the clearing agency 
with the same terms and conditions are economically equivalent within 
the clearing agency and may be offset with each other within the 
clearing agency, as applicable to the security-based swaps described in 
the security-based swap submission; and
    (iv) A description of how the rules of the clearing agency provide 
for non-discriminatory clearing of a security-based swap executed 
bilaterally or on or through the rules of an unaffiliated national 
securities exchange or security-based swap execution facility, as 
applicable to the security-based swaps described in the security-based 
swap submission.
    (4) A clearing agency shall submit security-based swaps to the 
Commission for review by group, category, type or class of security-
based swaps, to the extent reasonable and practicable to do so.

[[Page 747]]

    (5) A clearing agency shall post each security-based swap 
submission, and any amendments thereto, on its Web site within two 
business days after the submission of the security-based swap 
submission, and any amendments thereto, with the Commission. Such 
security-based swap submission and amendments shall be maintained on the 
clearing agency's Web site until the Commission makes a determination 
regarding the security-based swap submission or the clearing agency 
withdraws the security-based swap submission, or is notified that the 
security-based swap submission is not properly filed.
    (6) In connection with any security-based swap submission that is 
submitted by a clearing agency to the Commission, the clearing agency 
shall provide any additional information requested by the Commission as 
necessary to assess any of the factors it determines to be appropriate 
in order to make the determination of whether the clearing requirement 
applies.
    (7) Notices of orders issued pursuant to Section 3C of the Act (15 
U.S.C. 78c-3), regarding security-based swap submissions will be given 
by prompt publication thereof, together with a statement of written 
reasons therefor.

[45 FR 73914, Nov. 7, 1980, as amended at 59 FR 66701, Dec. 28, 1994; 63 
FR 70967, Dec. 22, 1998; 66 FR 43742, Aug. 20, 2001; 69 FR 60300, Oct. 
8, 2004; 73 FR 16189, Mar. 27, 2008; 76 FR 4072, Jan. 24, 2011; 76 FR 
20509, Apr. 13, 2011; 76 FR 41092, July 13, 2011; 77 FR 41648, July 13, 
2012; 77 FR 73305, Dec. 10, 2012; 78 FR 21057, Apr. 9, 2013]



Sec.240.19b-5  Temporary exemption from the filing requirements of 
Section 19(b) of the Act.

                            Preliminary Notes

    1. The following section provides for a temporary exemption from the 
rule filing requirement for self-regulatory organizations that file 
proposed rule changes concerning the operation of a pilot trading system 
pursuant to section 19(b) of the Act (15 U.S.C. 78s(b), as amended). All 
other requirements under the Act that are applicable to self-regulatory 
organizations continue to apply.
    2. The disclosures made pursuant to the provisions of this section 
are in addition to any other applicable disclosure requirements under 
the federal securities laws.
    (a) For purposes of this section, the term specialist means any 
member subject to a requirement of a self-regulatory organization that 
such member regularly maintain a market in a particular security.
    (b) For purposes of this section, the term trading system means the 
rules of a self-regulatory organization that:
    (1) Determine how the orders of multiple buyers and sellers are 
brought together; and
    (2) Establish non-discretionary methods under which such orders 
interact with each other and under which the buyers and sellers entering 
such orders agree to the terms of trade.
    (c) For purposes of this section, the term pilot trading system 
shall mean a trading system operated by a self-regulatory organization 
that is not substantially similar to any trading system or pilot trading 
system operated by such self-regulatory organization at any time during 
the preceding year, and that:
    (1)(i) Has been in operation for less than two years;
    (ii) Is independent of any other trading system operated by such 
self-regulatory organization that has been approved by the Commission 
pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b));
    (iii) With respect to each security traded on such pilot trading 
system, during at least two of the last four consecutive calendar 
months, has traded no more than 5 percent of the average daily trading 
volume of such security in the United States; and
    (iv) With respect to all securities traded on such pilot trading 
system, during at least two of the last four consecutive calendar 
months, has traded no more than 20 percent of the average daily trading 
volume of all trading systems operated by such self-regulatory 
organization; or
    (2)(i) Has been in operation for less than two years;
    (ii) With respect to each security traded on such pilot trading 
system, during at least two of the last four consecutive calendar 
months, has traded no more than 1 percent of the average

[[Page 748]]

daily trading volume of such security in the United States; and
    (iii) With respect to all securities traded on such pilot trading 
system, during at least two of the last four consecutive calendar 
months, has traded no more than 20 percent of the average daily trading 
volume of all trading systems operated by such self-regulatory 
organization; or
    (3)(i) Has been in operation for less than two years; and
    (ii)(A) Satisfied the definition of pilot trading system under 
paragraph (c)(1) of this section no more than 60 days ago, and continues 
to be independent of any other trading system operated by such self-
regulatory organization that has been approved by the Commission 
pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b)); or
    (B) Satisfied the definition of pilot trading system under paragraph 
(c)(2) of this section no more than 60 days ago.
    (d) A pilot trading system shall be deemed independent of any other 
trading system operated by a self-regulatory organization if:
    (1) Such pilot trading system trades securities other than the 
issues of securities that trade on any other trading system operated by 
such self-regulatory organization that has been approved by the 
Commission pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b));
    (2) Such pilot trading system does not operate during the same 
trading hours as any other trading system operated by such self-
regulatory organization that has been approved by the Commission 
pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b)); or
    (3) No specialist or market maker on any other trading system 
operated by such self-regulatory organization that has been approved by 
the Commission pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b)), 
is permitted to effect transactions on the pilot trading system in 
securities in which they are a specialist or market maker.
    (e) A self-regulatory organization shall be exempt temporarily from 
the requirement under section 19(b) of the Act, (15 U.S.C. 78s(b)), to 
submit on Form 19b-4, 17 CFR 249.819, proposed rule changes for 
establishing a pilot trading system, if the self-regulatory organization 
complies with the following requirements:
    (1) Form PILOT. The self-regulatory organization:
    (i) Files Part I of Form PILOT, 17 CFR 249.821, in accordance with 
the instructions therein, at least 20 days prior to commencing operation 
of the pilot trading system;
    (ii) Files an amendment on Part I of Form PILOT at least 20 days 
prior to implementing a material change to the operation of the pilot 
trading system; and
    (iii) Files a quarterly report on Part II of Form PILOT within 30 
calendar days after the end of each calendar quarter in which the market 
has operated after the effective date of this section.
    (2) Fair access. (i) The self-regulatory organization has in place 
written rules to ensure that all members of the self-regulatory 
organization have fair access to the pilot trading system, and that 
information regarding orders on the pilot trading system is equally 
available to all members of the self-regulatory organization with access 
to such pilot trading system.
    (ii) Notwithstanding the requirement in paragraph (e)(2)(i) of this 
section, a specialist on the pilot trading system may have preferred 
access to information regarding orders that it represents in its 
capacity as specialist.
    (iii) The rules established by a self-regulatory organization 
pursuant to paragraph (e)(2)(i) of this section will be considered rules 
governing the pilot trading system for purposes of the temporary 
exemption under this section.
    (3) Trading rules and procedures and listing standards. (i) The 
self-regulatory organization has in place written trading rules and 
procedures and listing standards necessary to operate the pilot trading 
system.
    (ii) The rules established by a self-regulatory organization 
pursuant to paragraph (e)(3)(i) of this section will be considered rules 
governing the pilot trading system for purposes of the temporary 
exemption under this section.
    (4) Surveillance. The self-regulatory organization establishes 
internal procedures for the effective surveillance of trading activity 
on the self-regulatory organization's pilot trading system.

[[Page 749]]

    (5) Clearance and settlement. The self-regulatory organization 
establishes reasonable clearance and settlement procedures for 
transactions effected on the self-regulatory organizations pilot trading 
system.
    (6) Types of securities. The self-regulatory organization permits to 
trade on the pilot trading system only securities registered under 
section 12 of the Act, (15 U.S.C. 78l).
    (7) Activities of specialists. (i) The self-regulatory organization 
does not permit any member to be a specialist in a security on the pilot 
trading system and a specialist in a security on a trading system 
operated by such self-regulatory organization that has been approved by 
the Commission pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b)), 
or on another pilot trading system operated by such self-regulatory 
organization, if such securities are related securities, except that a 
member may be a specialist in related securities that the Commission, 
upon application by the self-regulatory organization, later determines 
is necessary or appropriate in the public interest and consistent with 
the protection of investors;
    (ii) Notwithstanding paragraph (e)(7)(i) of this section, a self-
regulatory organization may permit a member to be a specialist in any 
security on a pilot trading system, if the pilot trading system is 
operated during trading hours different from the trading hours of the 
trading system in which such member is a specialist.
    (iii) For purposes of paragraph (e)(7) of this section, the term 
related securities means any two securities in which:
    (A) The value of one security is determined, in whole or significant 
part, by the performance of the other security; or
    (B) The value of both securities is determined, in whole or 
significant part, by the performance of a third security, combination of 
securities, index, indicator, interest rate or other common factor.
    (8) Examinations, inspections, and investigations. The self-
regulatory organization cooperates with the examination, inspection, or 
investigation by the Commission of transactions effected on the pilot 
trading system.
    (9) Recordkeeping. The self-regulatory organization shall retain at 
its principal place of business and make available to Commission staff 
for inspection, all the rules and procedures relating to each pilot 
trading system operating pursuant to this section for a period of not 
less than five years, the first two years in an easily accessible place, 
as prescribed in Sec.240.17a-1.
    (10) Public availability of pilot trading system rules. The self-
regulatory organization makes publicly available all trading rules and 
procedures, including those established under paragraphs (e)(2) and 
(e)(3) of this section.
    (11) Every notice or amendment filed pursuant to this paragraph (e) 
shall constitute a ``report'' within the meaning of sections 11A, 17(a), 
18(a), and 32(a), (15 U.S.C. 78k-1, 78q(a), 78r(a), and 78ff(a)), and 
any other applicable provisions of the Act. All notices or reports filed 
pursuant to this paragraph (e) shall be deemed to be confidential until 
the pilot trading system commences operation.
    (f)(1) A self-regulatory organization shall request Commission 
approval, pursuant to section 19(b)(2) of the Act, (15 U.S.C. 
78s(b)(2)), for any rule change relating to the operation of a pilot 
trading system by submitting Form 19b-4, 17 CFR 249.819, no later than 
two years after the commencement of operation of such pilot trading 
system, or shall cease operation of the pilot trading system.
    (2) Simultaneous with a request for Commission approval pursuant to 
section 19(b)(2) of the Act, (15 U.S.C. 78s(b)(2)), a self-regulatory 
organization may request Commission approval pursuant to section 
19(b)(3)(A) of the Act, (15 U.S.C. 78s(b)(3)(A)), for any rule change 
relating to the operation of a pilot trading system by submitting Form 
19b-4, 17 CFR 249.819, effective immediate upon filing, to continue 
operations of such trading system for a period not to exceed six months.
    (g) Notwithstanding paragraph (e) of this section, rule changes with 
respect to pilot trading systems operated by a self-regulatory 
organization shall not be exempt from the rule filing requirements of 
section 19(b)(2) of the Act, (15 U.S.C. 78s(b)(2)), if the Commission 
determines, after notice to the SRO and

[[Page 750]]

opportunity for the SRO to respond, that exemption of such rule changes 
is not necessary or appropriate in the public interest or consistent 
with the protection of investors.

[63 FR 70920, Dec. 22, 1998]



Sec.240.19b-7  Filings with respect to proposed rule changes submitted
pursuant to Section 19(b)(7) of the Act.

    Preliminary Note: A self-regulatory organization also must refer to 
Form 19b-7 (17 CFR 249.822) for further requirements with respect to the 
filing of proposed rule changes.

    (a) Filings with respect to proposed rule changes by a self-
regulatory organization submitted pursuant to section 19(b)(7) of the 
Act (15 U.S.C. 78s(b)(7)) shall be made electronically on Form 19b-7 (17 
CFR 249.822).
    (b) A proposed rule change will not be deemed filed on the date it 
is received by the Commission unless:
    (1) A completed Form 19b-7 (17 CFR 249.822) is submitted 
electronically; and
    (2) In order to elicit meaningful comment, it is accompanied by:
    (i) A clear and accurate statement of the basis and purpose of such 
rule change, including the impact on competition or efficiency, if any; 
and
    (ii) A summary of any written comments (including e-mail) received 
by the self-regulatory organization on the proposed rule change.
    (c) Self-regulatory organizations shall retain at their principle 
place of business a file, available to interested persons for public 
inspection and copying, of all filings made pursuant to this section and 
all correspondence and other communications reduced to writing 
(including comment letters) to and from such self-regulatory 
organization concerning such filing, whether such correspondence and 
communications are received or prepared before or after the filing of 
the proposed rule change.
    (d) Filings with respect to proposed rule changes by a self-
regulatory organization submitted on Form 19b-7 (17 CFR 249.822) 
electronically shall contain an electronic signature. For the purposes 
of this section, the term electronic signature means an electronic entry 
in the form of a magnetic impulse or other form of computer data 
compilation of any letter or series of letters or characters comprising 
a name, executed, adopted or authorized as a signature. The signatory to 
an electronically submitted rule filing shall manually sign a signature 
page or other document, in the manner prescribed by Form 19b-7, 
authenticating, acknowledging or otherwise adopting his or her signature 
that appears in typed form within the electronic filing. Such document 
shall be executed before or at the time the rule filing is 
electronically submitted and shall be retained by the filer in 
accordance with 17 CFR 240.17a-1.
    (e) If the conditions of this section and Form 19b-7 (17 CFR 
249.822) are otherwise satisfied, all filings submitted electronically 
on or before 5:30 p.m. Eastern Standard Time or Eastern Daylight Saving 
Time, whichever is currently in effect, on a business day, shall be 
deemed filed on that business day, and all filings submitted after 5:30 
p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever is 
currently in effect, shall be deemed filed on the next business day.
    (f) The self-regulatory organization shall post the proposed rule 
change, and any amendments thereto, submitted on Form 19b-7 (17 CFR 
249.822), on its Web site within two business days after the filing of 
the proposed rule change, and any amendments thereto, with the 
Commission. Unless the self-regulatory organization withdraws the 
proposed rule change or is notified that the proposed rule change is not 
properly filed, such proposed rule change and amendments shall be 
maintained on the self-regulatory organization's Web site until 60 days 
after:
    (1) The filing of a written certification with the Commodity Futures 
Trading Commission under section 5c(c) of the Commodity Exchange Act (7 
U.S.C. 7a-2(c));
    (2) The Commodity Futures Trading Commission determines that review 
of the proposed rule change is not necessary; or
    (3) The Commodity Futures Trading Commission approves the proposed 
rule change; and
    (4) In the case of a proposed rule change, or any amendment thereto,

[[Page 751]]

that has been withdrawn or not properly filed, the self-regulatory 
organization shall remove the proposed rule change, or any amendment, 
from its Web site within two business days of notification of improper 
filing or withdrawal by the self-regulatory organization of the proposed 
rule change.
    (g)(1) Each self-regulatory organization shall post and maintain a 
current and complete version of its rules on its Web site.
    (2) The self-regulatory organization shall update its Web site to 
reflect rule changes filed pursuant to section 19(b)(7) of the Act (15 
U.S.C. 78s(b)(7)), by two business days after the later of:
    (A) The Commission's notice of such proposed rule change; and
    (B)(i) The filing of a written certification with the Commodity 
Futures Trading Commission under section 5c(c) of the Commodity Exchange 
Act (7 U.S.C. 7a-2(c));
    (ii) Receipt of notice from the Commodity Futures Trading Commission 
that it has determined that review of the proposed rule change is not 
necessary; or
    (iii) Receipt of notice from the Commodity Futures Trading 
Commission that it has approved the proposed rule change.
    (3) If a rule change is not effective for a certain period, the 
self-regulatory organization shall clearly indicate the effective date 
in the relevant rule text.

[66 FR 43743, Aug. 20, 2001, as amended at 73 FR 16189, Mar. 27, 2008]



Sec.240.19c-1  Governing certain off-board agency transactions by 
members of national securities exchanges.

    The rules of each national securities exchange shall provide as 
follows:
    No rule, stated policy, or practice of this exchange shall prohibit 
or condition, or be construed to prohibit or condition or otherwise 
limit, directly or indirectly, the ability of any member acting as agent 
to effect any transaction otherwise than on this exchange with another 
person (except when such member also is acting as agent for such other 
person in such transaction), in any equity security listed on this 
exchange or to which unlisted trading privileges on this exchange have 
been extended.

(Secs. 2, 3, 6, 11, 17, 19, 23, Pub. L. 78-291, 48 Stat. 881, 882, 885, 
891, 897, 898, 901, as amended by secs. 2, 3, 6, 14, 16, 18, Pub. L. 94-
29, 89 Stat. 97, 104, 110, 137, 146, 155 (15 U.S.C. 78b, 78c, 78f, 78k, 
78q, 78s, 78w, as amended by Pub. L. 94-29 (June 4, 1975)); Sec.7 Pub. 
L. 94-29, 89 Stat. 111 (15 U.S.C. 78k-1))

[43 FR 1328, Jan. 9, 1978]



Sec.240.19c-3  Governing off-board trading by members of national 
securities exchanges.

    The rules of each national securities exchange shall provide as 
follows:
    (a) No rule, stated policy or practice of this exchange shall 
prohibit or condition, or be construed to prohibit, condition or 
otherwise limit, directly or indirectly, the ability of any member to 
effect any transaction otherwise than on this exchange in any reported 
security listed and registered on this exchange or as to which unlisted 
trading privileges on this exchange have been extended (other than a put 
option or call option issued by the Options Clearing Corporation) which 
is not a covered security.
    (b) For purposes of this rule,
    (1) The term Act shall mean the Securities Exchange Act of 1934, as 
amended.
    (2) The term exchange shall mean a national securities exchange 
registered as such with the Securities and Exchange Commission pursuant 
to section 6 of the Act.
    (3) The term covered security shall mean (i) Any equity security or 
class of equity securities which
    (A) Was listed and registered on an exchange on April 26, 1979, and
    (B) Remains listed and registered on at least one exchange 
continuously thereafter;
    (ii) Any equity security or class of equity securities which
    (A) Was traded on one or more exchanges on April 26, 1979, pursuant 
to unlisted trading privileges permitted by section 12(f)(1)(A) of the 
Act, and
    (B) Remains traded on any such exchange pursuant to such unlisted 
trading privileges continuously thereafter; and
    (iii) Any equity security or class of equity securities which

[[Page 752]]

    (A) Is issued in connection with a statutory merger, consolidation 
or similar plan or reorganization (including a reincorporation or change 
of domicile) in exchange for an equity security or class of equity 
securities described in paragraph (b)(3)(i) or (ii) of this rule,
    (B) Is listed and registered on an exchange after April 26, 1979, 
and
    (C) Remains listed and registered on at least one exchange 
continuously thereafter.
    (4) The term reported security shall mean any security or class of 
securities for which transaction reports are collected, processed and 
made available pursuant to an effective transaction reporting plan.
    (5) The term transaction report shall mean a report containing the 
price and volume associated with a completed transaction involving the 
purchase or sale of a security.
    (6) The term effective transaction reporting plan shall mean any 
plan approved by the Commission pursuant to Sec.242.601 of this 
chapter for collecting, processing, and making available transaction 
reports with respect to transactions in an equity security or class of 
equity securities.

[45 FR 41134, June 18, 1980, as amended at 70 FR 37618, June 29, 2005]



Sec.240.19c-4  Governing certain listing or authorization 
determinations by national securities exchanges and associations.

    (a) The rules of each exchange shall provide as follows: No rule, 
stated policy, practice, or interpretation of this exchange shall permit 
the listing, or the continuance of the listing, of any common stock or 
other equity security of a domestic issuer, if the issuer of such 
security issues any class of security, or takes other corporate action, 
with the effect of nullifying, restricting or disparately reducing the 
per share voting rights of holders of an outstanding class or classes of 
common stock of such issuer registered pursuant to section 12 of the 
Act.
    (b) The rules of each association shall provide as follows: No rule, 
stated policy, practice, or interpretation of this association shall 
permit the authorization for quotation and/or transaction reporting 
through an automated inter-dealer quotation system (``authorization''), 
or the continuance of authorization, of any common stock or other equity 
security of a domestic issuer, if the issuer of such security issues any 
class of security, or takes other corporate action, with the effect of 
nullifying, restricting, or disparately reducing the per share voting 
rights of holders of an outstanding class or classes of common stock of 
such issuer registered pursuant to section 12 of the Act.
    (c) For the purposes of paragraphs (a) and (b) of this section, the 
following shall be presumed to have the effect of nullifying, 
restricting, or disparately reducing the per share voting rights of an 
outstanding class or classes of common stock:
    (1) Corporate action to impose any restriction on the voting power 
of shares of the common stock of the issuer held by a beneficial or 
record holder based on the number of shares held by such beneficial or 
record holder;
    (2) Corporate action to impose any restriction on the voting power 
of shares of the common stock of the issuer held by a beneficial or 
record holder based on the length of time such shares have been held by 
such beneficial or record holder;
    (3) Any issuance of securities through an exchange offer by the 
issuer for shares of an outstanding class of the common stock of the 
issuer, in which the securities issued have voting rights greater than 
or less than the per share voting rights of any outstanding class of the 
common stock of the issuer.
    (4) Any issuance of securities pursuant to a stock dividend, or any 
other type of distribution of stock, in which the securities issued have 
voting rights greater than the per share voting rights of any 
outstanding class of the common stock of the issuer.
    (d) For the purpose of paragraphs (a) and (b) of this section, the 
following, standing alone, shall be presumed not to have the effect of 
nullifying, restricting, or disparately reducing the per share voting 
rights of holders of an outstanding class or classes of common stock:

[[Page 753]]

    (1) The issuance of securities pursuant to an initial registered 
public offering;
    (2) The issuance of any class of securities, through a registered 
public offering, with voting rights not greater than the per share 
voting rights of any outstanding class of the common stock of the 
issuer;
    (3) The issuance of any class of securities to effect a bona fide 
merger or acquisition, with voting rights not greater than the per share 
voting rights of any outstanding class of the common stock of the 
issuer.
    (4) Corporate action taken pursuant to state law requiring a state's 
domestic corporation to condition the voting rights of a beneficial or 
record holder of a specified threshold percentage of the corporation's 
voting stock on the approval of the corporation's independent 
shareholders.
    (e) Definitions. The following terms shall have the following 
meanings for purposes of this section, and the rules of each exchange 
and association shall include such definitions for the purposes of the 
prohibition in paragraphs (a) and (b), respectively, of this section:
    (1) The term Act shall mean the Securities Exchange Act of 1934, as 
amended.
    (2) The term common stock shall include any security of an issuer 
designated as common stock and any security of an issuer, however 
designated, which, by statute or by its terms, is a common stock (e.g., 
a security which entitles the holders thereof to vote generally on 
matters submitted to the issuer's security holders for a vote).
    (3) The term equity security shall include any equity security 
defined as such pursuant to Rule 3a11-1 under the Act (17 CFR 240.3a11-
1).
    (4) The term domestic issuer shall mean an issuer that is not a 
``foreign private issuer'' as defined in Rule 3b-4 under the Act (17 CFR 
240.3b-4).
    (5) The term security shall include any security defined as such 
pursuant to section 3(a)(10) of the Act, but shall exclude any class of 
security having a preference or priority over the issuer's common stock 
as to dividends, interest payments, redemption or payments in 
liquidation, if the voting rights of such securities only become 
effective as a result of specified events, not relating to an 
acquisition of the common stock of the issuer, which reasonably can be 
expected to jeopardize the issuer's financial ability to meet its 
payment obligations to the holders of that class of securities.
    (6) The term exchange shall mean a national securities exchange, 
registered as such with the Securities and Exchange Commission pursuant 
to section 6 of the Act (15 U.S.C. 78f), which makes transaction reports 
available pursuant to Sec.242.601 of this chapter; and
    (7) The term association shall mean a national securities 
association registered as such with the Securities and Exchange 
Commission pursuant to section 15A of the Act.
    (f) An exchange or association may adopt a rule, stated policy, 
practice, or interpretation, subject to the procedures specified by 
section 19(b) of the Act, specifying what types of securities issuances 
and other corporate actions are covered by, or excluded from, the 
prohibition in paragraphs (a) and (b) of this section, respectively, if 
such rule, stated policy, practice, or interpretation is consistent with 
the protection of investors and the public interest, and otherwise in 
furtherance of the purposes of the Act and this section.

[53 FR 26394, July 12, 1988, as amended at 70 FR 37618, June 29, 2005]



Sec.240.19c-5  Governing the multiple listing of options on national
securities exchanges.

    (a) The rules of each national securities exchange that provides a 
trading market in standardized put or call options shall provide as 
follows:
    (1) On and after January 22, 1990, but not before, no rule, stated 
policy, practice, or interpretation of this exchange shall prohibit or 
condition, or be construed to prohibit or condition or otherwise limit, 
directly or indirectly, the ability of this exchange to list any stock 
options class first listed on an exchange on or after January 22, 1990, 
because that options class is listed on another options exchange.
    (2) During the period from January 22, 1990, to January 21, 1991, 
but not before, no rule, stated policy, practice, or interpretation of 
this exchange shall

[[Page 754]]

prohibit or condition, or be construed to prohibit or condition or 
otherwise limit, directly or indirectly, the ability of this exchange to 
list up to ten classes of standardized stock options overlying exchange-
listed stocks that were listed on another options exchange before 
January 22, 1990. These ten classes shall be in addition to any option 
on an exchange-listed stock trading on this exchange that was traded on 
more than one options exchange before January 22, 1990.
    (3) On and after January 21, 1991, but not before, no rule, stated 
policy, practice, or interpretation of this exchange shall prohibit or 
condition, or be construed to prohibit or condition or otherwise limit, 
directly or indirectly, the ability of this exchange to list any stock 
options class because that options class is listed on another options 
exchange.
    (b) For purposes of paragraph (a)(2) of this Rule, if any options 
class is delisted from an options exchange as a result of a merger of 
the equity security underlying the option or a failure of the underlying 
security to satisfy that exchange's options listing standards, then the 
exchange is permitted to select a replacement option from among those 
standardized options overlying exchange-listed stocks that were listed 
on another options exchange before January 22, 1990.
    (c) For purposes of this Rule, the term exchange shall mean a 
national securities exchange, registered as such with the Commission 
pursuant to Section 6 of the Securities Exchange Act of 1934, as 
amended.
    (d) For purposes of this Rule, the term standardized option shall 
have the same meaning as that term is defined in Rule 9b-1 under the 
Securities Exchange Act of 1934, as amended, 17 CFR 240.9b-1.
    (e) For purposes of this Rule, the term options class shall have the 
same meaning as that term is defined in Rule 9b-1 under the Securities 
Exchange Act of 1934, as amended, 17 CFR 240.9b-1.

[54 FR 23976, June 5, 1989]



Sec.240.19d-1  Notices by self-regulatory organizations of final 
disciplinary actions, denials, bars, or limitations respecting 
membership, association, participation, or access to services, 
and summary suspensions.

          
    (a) General. If any self-regulatory organization for which the 
Commission is the appropriate regulatory agency takes any action 
described in this rule to which the person affected thereby has 
consented and such action:
    (1) Conditions or limits membership or participation in, association 
with a member of, or access to services offered by, such organization or 
a member thereof and
    (2) Is based upon a statutory disqualification defined in section 
3(a)(39) of the Act, notice thereof shall be filed under Rule 19h-1 and 
not under this rule.
    (b) The notice requirement of section 19(d)(1) of the Act, 
concerning an action subject to such section taken by a self-regulatory 
organization for which the Commission is the appropriate regulatory 
agency, shall be satisfied by any notice with respect to such action 
(including a notice filed pursuant to this rule) which contains the 
information required in the statement supporting the organization's 
determination required by section 6(d) (1) or (2), section 15A(h) (1) or 
(2), or section 17A(b)(5) (A) or (B) of the Act, as appropriate.
    (c)(1) Any self-regulatory organization for which the Commission is 
the appropriate regulatory agency that takes any final disciplinary 
action with respect to any person shall promptly file a notice thereof 
with the Commission in accordance with paragraph (d) of this section. 
For the purposes of this rule, a ``final disciplinary action'' shall 
mean the imposition of any final disciplinary sanction pursuant to 
section 6(b)(6), 15A(b)(7), or 17A(b)(3)(G) of the Act or other action 
of a self-regulatory organization which, after notice and opportunity 
for hearing, results in any final disposition of charges of:
    (i) One or more violations of--
    (A) The rules of such organization;
    (B) The provisions of the Act or rules thereunder; or

[[Page 755]]

    (C) In the case of a municipal securities broker or dealer, the 
rules of the Municipal Securities Rulemaking Board;
    (ii) Acts or practices constituting a statutory disqualification of 
a type defined in subparagraph (D) or (E) (except prior convictions) of 
section 3(a)(39) of the Act; or
    (iii) In the case of a proceeding by a national securities exhange 
or registered securities association based on section 6(c)(3)(A)(ii), 
6(c)(3)(B)(ii), 15A(g)(3)(A)(ii), or 15A(g)(3)(B)(ii) of the Act, acts 
or practices inconsistent with just and equitable principles of trade.

Provided, however, That in the case of a disciplinary action in which a 
national securities exchange imposes a fine not exceeding $1000 or 
suspends floor privileges of a clerical employee for not more than five 
days for violation of any of its regulations concerning personal decorum 
on a trading floor, the disposition shall not be considered ``final'' 
for purposes of this paragraph if the sanctioned person has not sought 
an adjudication, including a hearing, or otherwise exhausted his 
administrative remedies at the exchange with respect to the matter. 
Provided further, That this exemption from the notice requirement of 
this paragraph shall not be available where a decorum sanction is 
imposed at, or results from, a hearing on the matter.
    (2) Any disciplinary action, other than a decorum sanction not 
deemed ``final'' under paragraph (c)(1) of this section, taken by a 
self-regulatory organization for which the Commission is the appropriate 
regulatory agency against any person for violation of a rule of the 
self-regulatory organization which has been designated as a minor rule 
violation pursuant to a plan or any amendment thereto filed with and 
declared effective by the Commission under this paragraph, shall not be 
considered ``final'' for purposes of paragraph (c)(1) of this section if 
the sanction imposed consists of a fine not exceeding $2500 and the 
sanctioned person has not sought an adjudication, including a hearing, 
or otherwise exhausted his administrative remedies at the self-
regulatory organization with resepect to the matter. After appropriate 
notice of the terms of substance of the filing or a description of the 
subjects and issues involved and opportunity for interested persons to 
submit written comment, the Commission may, by order, declare such plan 
or amendment effective if it finds that such plan or amendment is 
consistent with the public interest, the protection of investors, or 
otherwise in furtherance of the purposes of the Act. The Commission in 
its order may restrict the categories of violations to be designated as 
minor rule violations and may impose any other terms or conditions to 
the plan (including abbreviated reporting of selected minor rule 
violations) and to the period of its effectiveness which it deems 
necessary or appropriate in the public interest, for the protection of 
investors or otherwise in furtherance of the purposes of the Act.
    (d) Contents of notice required by paragraph (c)(1). Any notice 
filed pursuant to paragraph (c)(1) of this section, shall consist of the 
following, as appropriate:
    (1) The name of the respondent concerned together with his last 
known place of residence or business as reflected on the records of the 
self-regulatory organization and the name of the person, committee, or 
other organizational unit which brought the charges involved; except 
that, as to any respondent who has been found not to have violated a 
provision covered by a charge, identifying information with respect to 
such person may be deleted insofar as the notice reports the disposition 
of that charge, unless, prior to the filing of the notice, the 
respondent requests otherwise;
    (2) A statement describing the investigative or other origin of the 
action;
    (3) As charged in the proceeding, the specific provisions of the 
Act, the rules or regulations thereunder, the rules of the organization, 
and, in the case of a registered securities association, the rules of 
the Municipal Securities Rulemaking Board, and, in the event a violation 
of other statutes or rules constitutes a violation of any rule of the 
organization, such other statutes or rules; and a statement describing 
the answer of the respondent to the charges;
    (4) A statement setting forth findings of fact with respect to any 
act or practice which such respondent was

[[Page 756]]

charged with having engaged in or omitted; the conclusion of the 
organization as to whether such respondent is deemed to have violated 
any provision covered by the charges; and a statement of the 
organization in support of the resolution of the principal issues raised 
in the proceedings;
    (5) A statement describing any sanction imposed, the reasons 
therefor, and the date upon which such sanction has or will become 
effective, together with a finding if appropriate, as to whether such 
respondent was a cause of any sanction imposed upon any other person; 
and
    (6) Such other matters as the organization may deem relevant.
    (e) Notice of final denial, bar, prohibition, termination or 
limitation based on qualification or administrative rules. Any final 
action of a self-regulatory organization for which the Commission is the 
appropriate regulatory agency that is taken with respect to any person 
constituting a denial, bar, prohibition, or limitation of membership, 
participation or association with a member, or of access to services 
offered by a self-regulatory organization or a member thereof, and which 
is based on an alleged failure of any person to:
    (1) Pass any test or examination required by the rules of the 
Commission or such organization;
    (2) Comply with other qualification standards established by rules 
of the Commission or such organization; or
    (3) Comply with any administrative requirements of such organization 
(including failure to pay entry or other dues or fees or to file 
prescribed forms or reports) not involving charges of violations which 
may lead to a disciplinary sanction shall not be considered a 
``disciplinary action'' for purposes of paragraph (c) of this rule; but 
notice thereof shall be promptly filed with the Commission in accordance 
with paragraph (f) of this section, Provided, however, That no 
disposition of a matter shall be considered ``final'' pursuant to this 
paragraph which results merely from a notice of such failure to the 
person affected, if such person has not sought an adjudication, 
including a hearing, or otherwise exhausted his administrative remedies 
within such organization with respect to such a matter.
    (f) Contents of notice required by paragraph (e). Any notice filed 
pursuant to paragraph (e) of this section shall consist of the 
following, as appropriate:
    (1) The name of each person concerned together with his last known 
place of residence or business as reflected on the records of the 
organization;
    (2) The specific provisions of the Act, the rules or regulations 
thereunder, the rules of the organization, and, in the case of a 
registered securities association, the rules of the Municipal Securities 
Rulemaking Board, upon which the action of the organization was based, 
and a statement describing the answer of the person concerned;
    (3) A statement setting forth findings of fact and conclusions as to 
each alleged failure of the person to pass any required examination, 
comply with other qualification standards, or comply with administrative 
obligations, and a statement of the organization in support of the 
resolution of the principal issues raised in the proceeding;
    (4) The date upon which such action has or will become effective; 
and
    (5) Such other matters as the organization may deem relevant.
    (g) Notice of final action based upon prior adjudicated statutory 
disqualifications. Any self-regulatory organization for which the 
Commission is the appropriate regulatory agency that takes any final 
action with respect to any person which:
    (1) Denies or conditions membership or participation in, or 
association with a member of, such organization or prohibits or limits 
access to services offered by such organization or a member thereof; and
    (2) Is based upon a statutory disqualification of a type defined in 
subparagraph (A), (B), or (C) of section 3(a)(39) of the Act or 
consisting of a prior conviction, as described in subparagraph (E) of 
said section 3(a)(39), shall promptly file a notice of such action with 
the Commission in accordance with paragraph (h) of this section, 
provided, however, That no disposition of a matter shall be considered 
``final'' pursuant to this paragraph where such person has not sought an 
adjudication,

[[Page 757]]

including a hearing, or otherwise exhausted his administrative remedies 
within such organization with respect to such a matter.
    (h) Contents of notice required by paragraph (g). Any notice filed 
pursuant to paragraph (g) of this section shall consist of the 
following, as appropriate:
    (1) The name of the person concerned together with his last known 
place of residence or business as reflected on the record of the 
organization;
    (2) A statement setting forth the principal issues raised, the 
answer of any person concerned, and a statement of the organization in 
support of the resolution of the principal issues raised in the 
proceeding;
    (3) Any description furnished by or on behalf of the person 
concerned of the activities engaged in by the person since the 
adjudication upon which the disqualification is based;
    (4) Any description furnished by or on behalf of the person 
concerned of the prospective business or employment in which the person 
plans to engage and the manner and extent of supervision to be exercised 
over and by such person;
    (5) A copy of the order or decision of the court, the Commission or 
the self-regulatory organization which adjudicated the matter giving 
rise to such statutory disqualification;
    (6) The nature of the action taken and the date upon which such 
action is to be made effective; and
    (7) Such other matters as the organization deems relevant.
    (i) Notice of summary suspension of membership, participation, or 
association, or summary limitation or prohibition of access to services. 
If any self-regulatory organization for which the Commission is the 
appropriate regulatory agency summarily suspends a member, participant, 
or person associated with a member, or summarily limits or prohibits any 
person with respect to access to or services offered by the organization 
or (in the case of a national securities exchange or a registered 
securities association) a member thereof pursuant to the provisions of 
section 6(d)(3), 15A(h)(3) or 17A(b)(5) (C) of the Act, such 
organization shall, within 24 hours of the effectiveness of such summary 
suspension, limitation or prohibition notify the Commission of such 
action, which notice shall contain at least the following information:
    (1) The name of the person concerned together with his last known 
place of residence or business as reflected on the records of the 
organization;
    (2) The date upon which such summary action has or will become 
effective;
    (3) If such summary action is based upon the provisions of section 
6(d)(3)(A), 15A(h)(3)(A), or 17A(b)(5) (C)(i) of the Act, a copy of the 
relevant order or decision of the self-regulatory organization;
    (4) If such summary action is based upon the provisions of section 
6(d)(3) (B) or (C), 15A(h)(3) (B) or (C), or 17A(b)(5)(C) (ii) or (iii) 
of the Act, a statement describing, as appropriate:
    (i) The financial or operating difficulty of the member or 
participant upon which such organization determined the member or 
particpant could not be permitted to continue to do business with safety 
to investors, creditors, other members or participants, or the 
organization;
    (ii) The pertinent failure to meet qualification requirements or 
other prerequisites for access and the basis upon which such 
organization determined that the person concerned could not be permitted 
to have access with safety to investors, creditors, other members, or 
the organization; or
    (iii) The default of any delivery of funds or securities to a 
clearing agency by a participant.
    (5) The nature and effective date of the suspension, limitation or 
prohibition; and
    (6) Such other matters as the organization deems relevant.
    (j) Notice of limitation or prohibition of access to services by 
delisting of security. Any national securities exchange for which the 
Commission is the appropriate regulatory agency that delists a security 
pursuant to section 12(d) of the Act (15 U.S.C. 78l(d)), and Sec.
240.12d2-2 must file a notice with the Commission in accordance with 
paragraph (k) of this section.
    (k) Contents of notice required by paragraph (j) of this section. 
The national securities exchange shall file notice pursuant to paragraph 
(j) of this

[[Page 758]]

section on Form 25 (Sec.249.25 of this chapter). Form 25 shall serve 
as notification to the Commission of such limitation or prohibition of 
access to services. The national securities exchange must attach a copy 
of its delisting determination to Form 25 and file Form 25 with the 
attachment on EDGAR.

[42 FR 36415, July 14, 1977, as amended at 49 FR 23831, June 8, 1984; 71 
FR 42469, July 22, 2005]



Sec.240.19d-2  Applications for stays of disciplinary sanctions or 
summary suspensions by a self-regulatory organization.

    If any self-regulatory organization imposes any final disciplinary 
sanction as to which a notice is required to be filed with the 
Commission pursuant to Section 19(d)(1) of the Exchange Act, 15 U.S.C. 
78s(d)(1), pursuant to Section 6(b)(6), 15A(b)(7) or 17A(b)(3)(G) of the 
Act (15 U.S.C. 78f(b)(6), 78o-3(b)(7) or 78q-1(b)(3)(G)), or summarily 
suspends or limits or prohibits access pursuant to Section 6(d)(3), 
15A(h)(3) or 17A(b)(5)(C) of the Act (15 U.S.C. 78f(d)(3), 78o-3(h)(3) 
or 78q-1(b)(5)(C)), any person aggrieved thereby for which the 
Commission is the appropriate regulatory agency may file with the 
Commission a written motion for a stay of imposition of such action 
pursuant to Rule 401 of the Commission's Rules of Practice, Sec.
201.401 of this chapter.

[60 FR 32825, June 23, 1995]



Sec.240.19d-3  Applications for review of final disciplinary sanctions,
denials of membership, participation or association, or prohibitions 
or limitations of access to services imposed by self-regulatory 
organizations.

          
    Applications to the Commission for review of any final disciplinary 
sanction, denial or conditioning of membership, participation, bar from 
association, or prohibition or limitation with respect to access to 
services offered by a self-regulatory organization or a member thereof 
by any such organization shall be made pursuant to Rule 420 of the 
Commission's Rules of Practice, Sec.201.420 of this chapter.

[60 FR 32825, June 23, 1995]



Sec.240.19d-4  Notice by the Public Company Accounting Oversight Board
of disapproval of registration or of disciplinary action.

    (a) Definitions--(1) Board means the Public Company Accounting 
Oversight Board.
    (2) Public accounting firm shall have the meaning set forth in 15 
U.S.C. 7201(a)(11).
    (3) Registered public accounting firm shall have the meaning set 
forth in 15 U.S.C. 7201(a)(12).
    (4) Associated person shall mean a person associated with a 
registered public accounting firm as defined in 15 U.S.C. 7201(a)(9).
    (b)(1) Notice of disapproval of registration. If the Board 
disapproves a completed application for registration by a public 
accounting firm, the Board shall file a notice of its disapproval with 
the Commission within 30 days and serve a copy on the public accounting 
firm.
    (2) Contents of the notice. The notice required by paragraph (b)(1) 
of this section shall provide the following information:
    (i) The name of the public accounting firm and the public accounting 
firm's last known address as reflected in the Board's records;
    (ii) The basis for the Board's disapproval, and a copy of the 
Board's written notice of disapproval; and
    (iii) Such other information as the Board may deem relevant.
    (c)(1) Notice of disciplinary action. If the Board imposes any final 
disciplinary sanction on any registered public accounting firm or any 
associated person of a registered public accounting firm under 15 U.S.C. 
7215(b)(3) or 7215(c), the Board shall file a notice of the disciplinary 
sanction with the Commission within 30 days and serve a copy on the 
person sanctioned.
    (2) Contents of the notice. The notice required by paragraph (c)(1) 
of this section shall provide the following information:
    (i) The name of the registered public accounting firm or the 
associated person, together with the firm's or the person's last known 
address as reflected in the Board's records;
    (ii) A description of the acts or practices, or omissions to act, 
upon which the sanction is based;

[[Page 759]]

    (iii) A statement of the sanction imposed, the reasons therefor, or 
a copy of the Board's statement justifying the sanction, and the 
effective date of such sanction; and
    (iv) Such other information as the Board may deem relevant.

[69 FR 13182, Mar. 19, 2004]



Sec.240.19g2-1  Enforcement of compliance by national securities 
exchanges and registered securities associations with the Act and
rules and regulations thereunder.
          

    (a) In enforcing compliance, within the meaning of section 19(g) of 
the Act, with the Act and the rules and regulations thereunder by its 
members and persons associated with its members, a national securities 
exchange or registered securities association is not required:
    (1) To enforce compliance with sections 12 (other than sections 
12(j) and 12(k)), 13, 14 (other than section 14(b)), 15(d) and 16 and 
the rules thereunder except to the extent of any action normally taken 
with respect to any person which is not a member or a person associated 
with a member;
    (2) To enforce compliance with respect to persons associated with a 
member, other than securities persons or persons who control a member; 
and
    (3) To conduct examinations as to qualifications of, require filing 
of periodic reports by, or conduct regular inspections (including 
examinations of books and records) of, persons associated with a member, 
other than securities persons whose functions are not solely clerical or 
ministerial.
    (b) For the purpose of this rule:
    (1) A securities person is a person who is a general partner or 
officer (or person occupying a similar status or performing similar 
functions) or employee of a member; Provided, however, That a registered 
broker or dealer which controls, is controlled by, or is under common 
control with, the member and the general partners and officers (and 
persons occupying similar status or performing similar functions) and 
employees of such a registered broker or dealer shall be securities 
persons if they effect, directly or indirectly, transactions in 
securities through the member by use of facilities maintained or 
supervised by such exchange or association; and
    (2) Control means the power to direct or cause the direction of the 
management or policies of a company whether through ownership of 
securities, by contract or otherwise; Provided, however, That:
    (i) Any person who, directly or indirectly, (A) has the right to 
vote 25 percent or more of the voting securities, (B) is entitled to 
receive 25 percent or more of the net profits, or (C) is a director (or 
person occupying a similar status or performing similar functions) of a 
company shall be presumed to be a person who controls such company;
    (ii) Any person not covered by paragraph (b)(2)(i) of this section 
shall be presumed not to be a person who controls such company; and
    (iii) Any presumption may be rebutted on an appropriate showing.

(Secs. 3, 6, 19, 23, 48 Stat. 882, 885, 898, as amended (15 U.S.C. 78c, 
78f, 78s, 78w); Sec.15A, 52 Stat. 1070, as amended (15 U.S.C. 78o-3))

[41 FR 51808, Nov. 24, 1976]



Sec.240.19h-1  Notice by a self-regulatory organization of proposed 
admission to or continuance in membership or participation or 
association with a member of any person subject to a statutory 
disqualification, and applications to the Commission for relief 
therefrom.
          

    (a) Notice of admission or continuance notwithstanding a statutory 
disqualification. (1) Any self-regulatory organization proposing, 
conditionally or unconditionally, to admit to, or continue any person 
in, membership or participation or (in the case of a national securities 
exchange or registered securities association) association with a 
member, notwithstanding a statutory disqualification, as defined in 
section 3(a)(39) of the Act, with respect to such person, shall file a 
notice with the Commission of such proposed admission or continuance. If 
such disqualified person has not consented to the terms of such 
proposal, notice of the organization's action shall be filed pursuant to 
rule 19d-1 under the Act and not this rule.
    (2) With respect to a person associated with a member of a national 
securities exchange or registered securities

[[Page 760]]

association, notices need be filed with the Commission pursuant to this 
rule only if such person:
    (i) Controls such member, is a general partner or officer (or person 
occupying a similar status or performing similar functions) of such 
member, is an employee who, on behalf of such member, is engaged in 
securities advertising, public relations, research, sales, trading, or 
training or supervision of other employees who engage or propose to 
engage in such activities, except clerical and ministerial persons 
engaged in such activities, or is an employee with access to funds, 
securities or books and records, or
    (ii) Is a broker or dealer not registered with the Commission, or 
controls such (unregistered) broker or dealer or is a general partner or 
officer (or person occupying a similar status or performing similar 
functions) of such broker or dealer.
    (3) A notice need not be filed with the Commission pursuant to this 
rule if:
    (i) The person subject to the statutory disqualification is already 
a participant in, a member of, or a person associated with a member of, 
a self-regulatory organization, and the terms and conditions of the 
proposed admission by another self-regulatory organization are the same 
in all material respects as those imposed or not disapproved in 
connection with such person's prior admission or continuance pursuant to 
an order of the Commission under paragraph (d) of this section or other 
substantially equivalent written communication.
    (ii) The self-regulatory organization finds, after reasonable 
inquiry, that except for the identity of the employer concerned, the 
terms and conditions of the proposed admission or continuance are the 
same in all material respects as those imposed or not disapproved in 
connection with a prior admission or continuance of the person subject 
to the statutory disqualification pursuant to an order of the Commission 
under paragraph (d) of this section or other substantially equivalent 
written communication and that there is no intervening conduct or other 
circumstance that would cause the employment to be inconsistent with the 
public interest or the protection of investors;
    (iii) The disqualification consists of (A) an injunction from 
engaging in any action, conduct, or practice specified in section 
15(b)(4)(C) of the Act, which injunction was entered 10 or more years 
prior to the proposed admission or continuance--Provided, however, That 
in the case of a final or permanent injunction which was preceded by a 
preliminary injunction against the same person in the same court 
proceeding, such ten-year period shall begin to run from the date of 
such preliminary injunction--and/or (B) a finding by the Commission or a 
self-regulatory organization of a willful violation of the Act, the 
Securities Act of 1933, the Investment Advisers Act of 1940, the 
Investment Company Act of 1940, or a rule or regulation under one or 
more of such Acts and the sanction for such violation is no longer in 
effect;
    (iv) The disqualification previously (A) was a basis for the 
institution of an administrative proceeding pursuant to a provision of 
the federal securities laws, and (B) was considered by the Commission in 
determining a sanction against such person in the proceeding; and the 
Commission concluded in such proceeding that it would not restrict or 
limit the future securities activities of such person in the capacity 
now proposed or, if it imposed any such restrictions or limitations for 
a specified time period, such time period has elapsed;
    (v) The disqualification consists of a court order or judgment of 
injunction or conviction, and such order or judgment (A) expressly 
includes a provision that, on the basis of such order or judgment, the 
Commission will not institute a proceeding against such person pursuant 
to section 15(b) or 15B of the Act or that the future securities 
activities of such persons in the capacity now proposed will not be 
restricted or limited or (B) includes such restrictions or limitations 
for a specified time period and such time period has elapsed; or
    (vi) In the case of a person seeking to become associated with a 
broker or dealer or municipal securities dealer, the Commission has 
previously consented to such proposed association pursuant to section 
15(b)(6) or 15B(c)(4) of the Act.

[[Page 761]]


In the case of an admission to membership, participation, or 
association, if an exception provided for in this paragraph (a)(3) is 
applicable, the self-regulatory organization shall, pursuant to its 
rules, determine when the admission to membership, participation, or 
association shall become effective.
    (4) If a self-regulatory organization determines to admit to, or 
continue any person in, membership, participation, or association with a 
member pursuant to an exception from the notice requirements provided in 
paragraph (a)(3)(ii), (iv) or (v) of this section, such organization 
shall, within 14 calendar days of its making of such determination, 
furnish to the Commission, by letter, a notification setting forth, as 
appropriate:
    (i) The name of the person subject to the statutory 
disqualification;
    (ii) The name of the person's prospective and immediately preceding 
employers who are (were) brokers or dealers or municipal securities 
dealers;
    (iii) The name of the person's prospective supervisor(s);
    (iv) The respective places of such employments as reflected on the 
records of the self-regulatory organization;
    (v) If applicable, the findings of the self-regulatory organization 
referred to in paragraph (a)(3)(ii) of this section and the nature 
(including relevant dates) of the previous Commission or court 
determination referred to in paragraph (a)(3)(iv) or (v) of this 
section; and
    (vi) An identification of any other self-regulatory organization 
which has indicated its agreement with the terms and conditions of the 
proposed admission or continuance;
    (5) If a notice or notification has been previously filed or 
furnished pursuant to this rule by a self-regulatory organization, any 
other such organization need not file or furnish a separate notice or 
notification pursuant to this rule with respect to the same matter if 
such other organization agrees with the terms and conditions of the 
membership, participation or association reflected in the notice or 
notification so filed or furnished, and such agreement is set forth in 
the notice or notification.
    (6) The notice requirements of sections 6(c)(2), 15A(g)(2), and 
17A(b)(4)(A) of the Act concerning an action of a self-regulatory 
organization subject to one (or more) of such sections and this 
paragraph (a) shall be satisfied by a notice with respect to such action 
filed in accordance with paragraph (c) of this section.
    (7) The Commission, by written notice to a self-regulatory 
organization on or before the thirtieth day after receipt of a notice 
under this Rule, may direct that such organization not admit to 
membership, participation, or association with a member any person who 
is subject to a statutory disqualification for a period not to exceed an 
additional 60 days beyond the initial 30 day notice period in order that 
the Commission may extend its consideration of the proposal; Provided, 
however, That during such extended period of consideration, the 
Commission will not direct the self-regulatory organization to bar the 
proposed admission to membership, participation or association with a 
member pursuant to section 6(c)(2), 15A(g)(2), or 17A(b)(4)(A) of the 
Act, and the Commission will not institute proceedings pursuant to 
section 15(b) or 15B of the Act on the basis of such disqualification if 
the self-regulatory organization has permitted the admission to 
membership, participation or association with a member, on a temporary 
basis, pending a final Commission determination.
    (b) Preliminary notifications. Promptly after receiving an 
application for admission to, or continuance in, participation or 
membership in, or association with a member of, a self-regulatory 
organization which would be required to file with the Commission a 
notice thereof pursuant to paragraph (a) of this section if such 
admission or continuance is ultimately proposed by such organization, 
the organization shall file with the Commission a notification of such 
receipt. Such notification shall include, as appropriate:
    (1) The date of such receipt;
    (2) The names of the person subject to the statutory 
disqualification and the prospective employer concerned together with 
their respective last known

[[Page 762]]

places of residence or business as reflected on the records of the 
organization;
    (3) The basis for any such disqualification including (if based on a 
prior adjudication) a copy of the order or decision of the court, the 
Commission, or the self-regulatory organization which adjudicated the 
matter giving rise to the disqualification; and
    (4) The capacity in which the person concerned is proposed to be 
employed.
    (c) Contents of notice of admission or continuance. A notice filed 
with the Commission pursuant to paragraph (a) of this section shall 
contain the following, as appropriate:
    (1) The name of the person concerned together with his last known 
place of residence or business as reflected on the records of the self-
regulatory organization;
    (2) The basis for any such disqualification from membership, 
participation or association including (if based on a prior 
adjudication) a copy of the order or decision of the court, the 
Commission or the self-regulatory organization which adjudicated the 
matter giving rise to such disqualification;
    (3) In the case of an admission, the date upon which it is proposed 
by the organization that such membership, participation or association 
shall become effective, which shall be not less than 30 days from the 
date upon which the Commission receives the notice;
    (4) A description by or on behalf of the person concerned of the 
activities engaged in by the person since the disqualification arose, 
the prospective business or employment in which the person plans to 
engage and the manner and extent of supervision to be exercised over and 
by such person. This description shall be accompanied by a written 
statement submitted to the self-regulatory organization by the proposed 
employer setting forth the terms and conditions of such employment and 
supervision. The description also shall include (i) the qualifications, 
experience and disciplinary records of the proposed supervisors of the 
person and their family relationship (if any) to that person; (ii) the 
findings and results of all examinations conducted, during the two years 
preceding the filing of the notice, by self-regulatory organizations of 
the main office of the proposed employer and of the branch office(s) in 
which the employment will occur or be subject to supervisory controls; 
(iii) a copy of a completed Form U-4 with respect to the proposed 
association of such person and a certification by the self-regulatory 
organization that such person is fully qualified under all applicable 
requirements to engage in the proposed activities; and (iv) the name and 
place of employment of any other associated person of the proposed 
employer who is subject to a statutory disqualification (other than a 
disqualification specified in paragraph (a)(3)(iii) of this section);
    (5) If a hearing on the matter has been held by the organization, a 
certified record of the hearing together with copies of any exhibits 
introduced therein;
    (6) All written submissions not included in a certified oral hearing 
record which were considered by the organization in its disposition of 
the matter;
    (7) An identification of any other self-regulatory organization 
which has indicated its agreement with the terms and conditions of the 
proposed admission or continuance;
    (8) All information furnished in writing to the self-regulatory 
organization by the staff of the Commission for consideration by the 
organization in its disposition of the matter or the incorporation by 
reference of such information, and a statement of the organization's 
views thereon; and
    (9) Such other matters as the organization or person deems relevant.

If the notice contains assertions of material facts not a matter of 
record before the self-regulatory organization, such facts shall be 
sworn to by affidavit of the person or organization offering such facts 
for Commission consideration. The notice may be accompanied by a brief.
    (d) Application to the Commission for relief from certain statutory 
disqualifications. The filing of a notice pursuant to paragraph (a) of 
this section shall neither affect nor foreclose any action which the 
Commission may take with respect to such person pursuant to the 
provisions of section 15(b), 15B or 19(h)

[[Page 763]]

of the Act or any rule thereunder. Accordingly, a notice filed pursuant 
to paragraph (a) of this section with respect to the membership, 
participation, or association of any person subject to an ``applicable 
disqualification,'' as defined in paragraph (f) of this section, may be 
accompanied by an application by or on behalf of the person concerned to 
the Commission for an order declaring, as applicable, that 
notwithstanding such disqualification, the Commission:
    (1) Will not institute proceedings pursuant to section 15(b)(1)(B), 
15(b)(4), 15(b)(6), 15B(a)(2), 15B(c)(2), 19(h)(2) or 19(h)(3) of the 
Act if such person seeks to obtain or continue registration as a broker 
or dealer or municipal securities dealer or association with a broker or 
dealer or municipal securities dealer so registered, or membership or 
participation in a self-regulatory organization;
    (2) Will not direct otherwise, as provided in section 6(c)(2), 
15A(g)(2) or 17A(b)(4)(A) of the Act; and
    (3) Will deem such person qualified pursuant to Rule G-4 of the 
Municipal Securities Rulemaking Board under the Act.

If a Commission consent is required in order to render a proposed 
association lawful under section 15(b)(6) or 15B(c)(4) of the Act, an 
application by or on behalf of the person seeking such consent shall 
accompany the notice of the proposed association filed pursuant to 
paragraph (a) of this section. The Commission may, in its discretion and 
subject to such terms and conditions as it deems necessary, issue such 
an order and consent should the Commission determine not to object to 
the position of the self-regulatory organization set forth in the notice 
or application; Provided, however, That nothing herein shall foreclose 
the right of any person, at his election, to apply directly to the 
Commission for such consent, if he makes such application pursuant to 
the terms of an existing order of the Commission under section 15(b)(6) 
or 15B(c)(4) of the Act limiting his association with a broker or dealer 
or municipal securities dealer but explicitly granting him such a right 
to apply for entry or reentry at a later time.
    (e) Contents of application to the Commission. An application to the 
Commission pursuant to paragraph (d) of this section shall consist of 
the following, as appropriate:
    (1) The name of the person subject to the disqualification together 
with his last known place of residence or business as reflected on the 
records of the self-regulatory organization;
    (2) A copy of the order or decision of the court, the Commission or 
the self-regulatory organization which adjudicated the matter giving 
rise to such ``applicable disqualification'';
    (3) The nature of the relief sought and the reasons therefor;
    (4) A description of the activities engaged in by the person since 
the disqualification arose;
    (5) A description of the prospective business or employment in which 
the person plans to engage and the manner and extent of supervision to 
be exercised over and by such person. This description shall be 
accompanied by a written statement submitted to the self-regulatory 
organization by the proposed employer setting forth the terms and 
conditions of such employment and supervision. The description also 
shall include (i) the qualifications, experience, and disciplinary 
records of the proposed supervisors of the person and their family 
relationship (if any) to that person; (ii) the findings and results of 
all examinations conducted, during the two years preceding the filing of 
the application, by self-regulatory organizations of the main office of 
the proposed employer and of the branch office(s) in which the 
employment will occur or be subject to supervisory controls; (iii) a 
copy of a completed Form U-4 with respect to the proposed association of 
such person and a certification by the self-regulatory organization that 
such person is fully qualified under all applicable requirements to 
engage in the proposed activities; and (iv) the name and place of 
employment of any other associated person of the proposed employer who 
is subject to a statutory disqualification (other than a 
disqualification specified in paragraph (a)(3)(iii) of this section);

[[Page 764]]

    (6) If a hearing on the matter has been held by the organization, a 
certified copy of the hearing record, together with copies of any 
exhibits introduced therein;
    (7) All written submissions not included in a certified oral hearing 
record which were considered by the organization in its disposition of 
the matter;
    (8) All information furnished in writing to the self-regulatory 
organization by the staff of the Commission for consideration by the 
organization in its disposition of the matter or the incorporation by 
reference of such information, and a statement of the organization's 
views thereon; and
    (9) Such other matters as the organization or person deems relevant.

If the application contains assertions of material facts not a matter of 
record before the organization, such facts shall be sworn to by 
affidavit of the person or organization offering such facts for 
Commission consideration.
    (f) Definitions. For purposes of this rule:
    (1) The term applicable disqualification shall mean:
    (i) Any effective order of the Commission pursuant to section 15(b) 
(4) or (6), 15B(c) (2) or (4) or 19(h) (2) or (3) of the Act--
    (A) Revoking, suspending or placing limitations on the registration, 
activities, functions, or operations of a broker or dealer;
    (B) Suspending, barring, or placing limitations on the association, 
activities, or functions of an associated person of a broker or dealer;
    (C) Suspending or expelling any person from membership or 
participation in a self-regulatory organization; or
    (D) Suspending or barring any person from being associated with a 
member of a national securities exchange or registered securities 
association;
    (ii) Any conviction of injunction of a type described in section 
15(b)(4) (B) or (C) of the Act; or
    (iii) A failure under the provisions of Rule G-4 of the Municipal 
Securities Rulemaking Board under the Act, to meet qualifications 
standards, and such failure may be remedied by a finding or 
determination by the Commission pursuant to such rule(s) that the person 
affected nevertheless meets such standards.
    (2) The term control shall mean the power to direct or cause the 
direction of the management or policies of a company whether through 
ownership of securities, by contract or otherwise; Provided, however, 
That
    (i) Any person who, directly or indirectly, (A) has the right to 
vote 10 percent or more of the voting securities, (B) is entitled to 
receive 10 percent or more of the net profits, or (C) is a director (or 
person occupying a similar status or performing similar functions) of a 
company shall be presumed to be a person who controls such company;
    (ii) Any person not covered by paragraph (i) shall be presumed not 
to be a person who controls such company; and
    (iii) Any presumption may be rebutted on an appropriate showing.
    (g) Where it deems appropriate to do so, the Commission may 
determine whether to (1) direct, pursuant to section 6(c)(2), 15A(g)(2) 
or 17A(b)(4)(A) of the Act, that a proposed admission covered by a 
notice filed pursuant to paragraph (a) of this section shall be denied 
or an order barring a proposed association issued or (2) grant or deny 
an application filed pursuant to paragraph (d) of this section on the 
basis of the notice or application filed by the self-regulatory 
organization, the person subject to the disqualification, or other 
applicant (such as the proposed employer) on behalf of such person, 
without oral hearing. Any request for oral hearing or argument should be 
submitted with the notice or application.
    (h) The Rules of Practice (17 CFR part 201) shall apply to 
proceedings under this rule to the extent that they are not inconsistent 
with this rule.

(15 U.S.C. 78a et seq., as amended by Pub. L. 94-29 (June 4, 1975) and 
by Pub. L. 98-38 (June 6, 1983), particularly secs. 11A, 15, 19 and 23 
thereof (15 U.S.C. 78k-1, 78o, 78s and 78w))

[46 FR 58661, Dec. 3, 1981, as amended at 48 FR 53691, Nov. 29, 1983]

           Securities Whistleblower Incentives and Protections

    Source: Sections 240.21F-1 through 240.21F-17 appear at 76 FR 34363, 
June 13, 2011.

[[Page 765]]



Sec.240.21F-1  General.

    Section 21F of the Securities Exchange Act of 1934 (``Exchange 
Act'') (15 U.S.C. 78u-6), entitled ``Securities Whistleblower Incentives 
and Protection,'' requires the Securities and Exchange Commission 
(``Commission'') to pay awards, subject to certain limitations and 
conditions, to whistleblowers who provide the Commission with original 
information about violations of the Federal securities laws. These rules 
describe the whistleblower program that the Commission has established 
to implement the provisions of Section 21F, and explain the procedures 
you will need to follow in order to be eligible for an award. You should 
read these procedures carefully because the failure to take certain 
required steps within the time frames described in these rules may 
disqualify you from receiving an award for which you otherwise may be 
eligible. Unless expressly provided for in these rules, no person is 
authorized to make any offer or promise, or otherwise to bind the 
Commission with respect to the payment of any award or the amount 
thereof. The Securities and Exchange Commission's Office of the 
Whistleblower administers our whistleblower program. Questions about the 
program or these rules should be directed to the SEC Office of the 
Whistleblower, 100 F Street, NE., Washington, DC 20549-5631.



Sec.240.21F-2  Whistleblower status and retaliation protection.

    (a) Definition of a whistleblower. (1) You are a whistleblower if, 
alone or jointly with others, you provide the Commission with 
information pursuant to the procedures set forth in Sec.240.21F-9(a) 
of this chapter, and the information relates to a possible violation of 
the Federal securities laws (including any rules or regulations 
thereunder) that has occurred, is ongoing, or is about to occur. A 
whistleblower must be an individual. A company or another entity is not 
eligible to be a whistleblower.
    (2) To be eligible for an award, you must submit original 
information to the Commission in accordance with the procedures and 
conditions described in Sec.Sec.240.21F-4, 240.21F-8, and 240.21F-9 
of this chapter.
    (b) Prohibition against retaliation. (1) For purposes of the anti-
retaliation protections afforded by Section 21F(h)(1) of the Exchange 
Act (15 U.S.C. 78u-6(h)(1)), you are a whistleblower if:
    (i) You possess a reasonable belief that the information you are 
providing relates to a possible securities law violation (or, where 
applicable, to a possible violation of the provisions set forth in 18 
U.S.C. 1514A(a)) that has occurred, is ongoing, or is about to occur, 
and;
    (ii) You provide that information in a manner described in Section 
21F(h)(1)(A) of the Exchange Act (15 U.S.C. 78u-6(h)(1)(A)).
    (iii) The anti-retaliation protections apply whether or not you 
satisfy the requirements, procedures and conditions to qualify for an 
award.
    (2) Section 21F(h)(1) of the Exchange Act (15 U.S.C. 78u-6(h)(1)), 
including any rules promulgated thereunder, shall be enforceable in an 
action or proceeding brought by the Commission.



Sec.240.21F-3  Payment of awards.

    (a) Commission actions: Subject to the eligibility requirements 
described in Sec.Sec.240.21F-2, 240.21F-8, and 240.21F-16 of this 
chapter, the Commission will pay an award or awards to one or more 
whistleblowers who:
    (1) Voluntarily provide the Commission
    (2) With original information
    (3) That leads to the successful enforcement by the Commission of a 
Federal court or administrative action
    (4) In which the Commission obtains monetary sanctions totaling more 
than $1,000,000.

    Note to paragraph (a): The terms voluntarily, original information, 
leads to successful enforcement, action, and monetary sanctions are 
defined in Sec.240.21F-4 of this chapter.

    (b) Related actions: The Commission will also pay an award based on 
amounts collected in certain related actions.
    (1) A related action is a judicial or administrative action that is 
brought by:
    (i) The Attorney General of the United States;
    (ii) An appropriate regulatory authority;
    (iii) A self-regulatory organization; or

[[Page 766]]

    (iv) A state attorney general in a criminal case, and is based on 
the same original information that the whistleblower voluntarily 
provided to the Commission, and that led the Commission to obtain 
monetary sanctions totaling more than $1,000,000.

    Note to paragraph (b)(1): The terms appropriate regulatory authority 
and self-regulatory organization are defined in Sec.240.21F-4 of this 
chapter.

    (2) In order for the Commission to make an award in connection with 
a related action, the Commission must determine that the same original 
information that the whistleblower gave to the Commission also led to 
the successful enforcement of the related action under the same criteria 
described in these rules for awards made in connection with Commission 
actions. The Commission may seek assistance and confirmation from the 
authority bringing the related action in making this determination. The 
Commission will deny an award in connection with the related action if:
    (i) The Commission determines that the criteria for an award are not 
satisfied; or
    (ii) The Commission is unable to make a determination because the 
Office of the Whistleblower could not obtain sufficient and reliable 
information that could be used as the basis for an award determination 
pursuant to Sec.240.21F-12(a) of this chapter. Additional procedures 
apply to the payment of awards in related actions. These procedures are 
described in Sec.Sec.240.21F-11 and 240.21F-14 of this chapter.
    (3) The Commission will not make an award to you for a related 
action if you have already been granted an award by the Commodity 
Futures Trading Commission (``CFTC'') for that same action pursuant to 
its whistleblower award program under Section 23 of the Commodity 
Exchange Act (7 U.S.C. 26). Similarly, if the CFTC has previously denied 
an award to you in a related action, you will be precluded from 
relitigating any issues before the Commission that the CFTC resolved 
against you as part of the award denial.



Sec.240.21F-4  Other definitions.

    (a) Voluntary submission of information. (1) Your submission of 
information is made voluntarily within the meaning of Sec.Sec.
240.21F-1 through 240.21F-17 of this chapter if you provide your 
submission before a request, inquiry, or demand that relates to the 
subject matter of your submission is directed to you or anyone 
representing you (such as an attorney):
    (i) By the Commission;
    (ii) In connection with an investigation, inspection, or examination 
by the Public Company Accounting Oversight Board, or any self-regulatory 
organization; or
    (iii) In connection with an investigation by Congress, any other 
authority of the Federal government, or a state Attorney General or 
securities regulatory authority.
    (2) If the Commission or any of these other authorities direct a 
request, inquiry, or demand as described in paragraph (a)(1) of this 
section to you or your representative first, your submission will not be 
considered voluntary, and you will not be eligible for an award, even if 
your response is not compelled by subpoena or other applicable law. 
However, your submission of information to the Commission will be 
considered voluntary if you voluntarily provided the same information to 
one of the other authorities identified above prior to receiving a 
request, inquiry, or demand from the Commission.
    (3) In addition, your submission will not be considered voluntary if 
you are required to report your original information to the Commission 
as a result of a pre-existing legal duty, a contractual duty that is 
owed to the Commission or to one of the other authorities set forth in 
paragraph (a)(1) of this section, or a duty that arises out of a 
judicial or administrative order.
    (b) Original information. (1) In order for your whistleblower 
submission to be considered original information, it must be:
    (i) Derived from your independent knowledge or independent analysis;
    (ii) Not already known to the Commission from any other source, 
unless you are the original source of the information;
    (iii) Not exclusively derived from an allegation made in a judicial 
or administrative hearing, in a governmental

[[Page 767]]

report, hearing, audit, or investigation, or from the news media, unless 
you are a source of the information; and
    (iv) Provided to the Commission for the first time after July 21, 
2010 (the date of enactment of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act).
    (2) Independent knowledge means factual information in your 
possession that is not derived from publicly available sources. You may 
gain independent knowledge from your experiences, communications and 
observations in your business or social interactions.
    (3) Independent analysis means your own analysis, whether done alone 
or in combination with others. Analysis means your examination and 
evaluation of information that may be publicly available, but which 
reveals information that is not generally known or available to the 
public.
    (4) The Commission will not consider information to be derived from 
your independent knowledge or independent analysis in any of the 
following circumstances:
    (i) If you obtained the information through a communication that was 
subject to the attorney-client privilege, unless disclosure of that 
information would otherwise be permitted by an attorney pursuant to 
Sec.205.3(d)(2) of this chapter, the applicable state attorney conduct 
rules, or otherwise;
    (ii) If you obtained the information in connection with the legal 
representation of a client on whose behalf you or your employer or firm 
are providing services, and you seek to use the information to make a 
whistleblower submission for your own benefit, unless disclosure would 
otherwise be permitted by an attorney pursuant to Sec.205.3(d)(2) of 
this chapter, the applicable state attorney conduct rules, or otherwise; 
or
    (iii) In circumstances not covered by paragraphs (b)(4)(i) or 
(b)(4)(ii) of this section, if you obtained the information because you 
were:
    (A) An officer, director, trustee, or partner of an entity and 
another person informed you of allegations of misconduct, or you learned 
the information in connection with the entity's processes for 
identifying, reporting, and addressing possible violations of law;
    (B) An employee whose principal duties involve compliance or 
internal audit responsibilities, or you were employed by or otherwise 
associated with a firm retained to perform compliance or internal audit 
functions for an entity;
    (C) Employed by or otherwise associated with a firm retained to 
conduct an inquiry or investigation into possible violations of law; or
    (D) An employee of, or other person associated with, a public 
accounting firm, if you obtained the information through the performance 
of an engagement required of an independent public accountant under the 
Federal securities laws (other than an audit subject to Sec.240.21F-
8(c)(4) of this chapter), and that information related to a violation by 
the engagement client or the client's directors, officers or other 
employees.
    (iv) If you obtained the information by a means or in a manner that 
is determined by a United States court to violate applicable Federal or 
state criminal law; or
    (v) Exceptions. Paragraph (b)(4)(iii) of this section shall not 
apply if:
    (A) You have a reasonable basis to believe that disclosure of the 
information to the Commission is necessary to prevent the relevant 
entity from engaging in conduct that is likely to cause substantial 
injury to the financial interest or property of the entity or investors;
    (B) You have a reasonable basis to believe that the relevant entity 
is engaging in conduct that will impede an investigation of the 
misconduct; or
    (C) At least 120 days have elapsed since you provided the 
information to the relevant entity's audit committee, chief legal 
officer, chief compliance officer (or their equivalents), or your 
supervisor, or since you received the information, if you received it 
under circumstances indicating that the entity's audit committee, chief 
legal officer, chief compliance officer (or their equivalents), or your 
supervisor was already aware of the information.
    (vi) If you obtained the information from a person who is subject to 
this section, unless the information is not

[[Page 768]]

excluded from that person's use pursuant to this section, or you are 
providing the Commission with information about possible violations 
involving that person.
    (5) The Commission will consider you to be an original source of the 
same information that we obtain from another source if the information 
satisfies the definition of original information and the other source 
obtained the information from you or your representative. In order to be 
considered an original source of information that the Commission 
receives from Congress, any other authority of the Federal government, a 
state Attorney General or securities regulatory authority, any self-
regulatory organization, or the Public Company Accounting Oversight 
Board, you must have voluntarily given such authorities the information 
within the meaning of these rules. You must establish your status as the 
original source of information to the Commission's satisfaction. In 
determining whether you are the original source of information, the 
Commission may seek assistance and confirmation from one of the other 
authorities described above, or from another entity (including your 
employer), in the event that you claim to be the original source of 
information that an authority or another entity provided to the 
Commission.
    (6) If the Commission already knows some information about a matter 
from other sources at the time you make your submission, and you are not 
an original source of that information under paragraph (b)(5) of this 
section, the Commission will consider you an original source of any 
information you provide that is derived from your independent knowledge 
or analysis and that materially adds to the information that the 
Commission already possesses.
    (7) If you provide information to the Congress, any other authority 
of the Federal government, a state Attorney General or securities 
regulatory authority, any self-regulatory organization, or the Public 
Company Accounting Oversight Board, or to an entity's internal 
whistleblower, legal, or compliance procedures for reporting allegations 
of possible violations of law, and you, within 120 days, submit the same 
information to the Commission pursuant to Sec.240.21F-9 of this 
chapter, as you must do in order for you to be eligible to be considered 
for an award, then, for purposes of evaluating your claim to an award 
under Sec.Sec.240.21F-10 and 240.21F-11 of this chapter, the 
Commission will consider that you provided information as of the date of 
your original disclosure, report or submission to one of these other 
authorities or persons. You must establish the effective date of any 
prior disclosure, report, or submission, to the Commission's 
satisfaction. The Commission may seek assistance and confirmation from 
the other authority or person in making this determination.
    (c) Information that leads to successful enforcement. The Commission 
will consider that you provided original information that led to the 
successful enforcement of a judicial or administrative action in any of 
the following circumstances:
    (1) You gave the Commission original information that was 
sufficiently specific, credible, and timely to cause the staff to 
commence an examination, open an investigation, reopen an investigation 
that the Commission had closed, or to inquire concerning different 
conduct as part of a current examination or investigation, and the 
Commission brought a successful judicial or administrative action based 
in whole or in part on conduct that was the subject of your original 
information; or
    (2) You gave the Commission original information about conduct that 
was already under examination or investigation by the Commission, the 
Congress, any other authority of the Federal government, a state 
Attorney General or securities regulatory authority, any self-regulatory 
organization, or the PCAOB (except in cases where you were an original 
source of this information as defined in paragraph (b)(4) of this 
section), and your submission significantly contributed to the success 
of the action.
    (3) You reported original information through an entity's internal 
whistleblower, legal, or compliance procedures for reporting allegations 
of possible violations of law before or at the same

[[Page 769]]

time you reported them to the Commission; the entity later provided your 
information to the Commission, or provided results of an audit or 
investigation initiated in whole or in part in response to information 
you reported to the entity; and the information the entity provided to 
the Commission satisfies either paragraph (c)(1) or (c)(2) of this 
section. Under this paragraph (c)(3), you must also submit the same 
information to the Commission in accordance with the procedures set 
forth in Sec.240.21F-9 within 120 days of providing it to the entity.
    (d) An action generally means a single captioned judicial or 
administrative proceeding brought by the Commission. Notwithstanding the 
foregoing:
    (1) For purposes of making an award under Sec.240.21F-10 of this 
chapter, the Commission will treat as a Commission action two or more 
administrative or judicial proceedings brought by the Commission if 
these proceedings arise out of the same nucleus of operative facts; or
    (2) For purposes of determining the payment on an award under Sec.
240.21F-14 of this chapter, the Commission will deem as part of the 
Commission action upon which the award was based any subsequent 
Commission proceeding that, individually, results in a monetary sanction 
of $1,000,000 or less, and that arises out of the same nucleus of 
operative facts.
    (e) Monetary sanctions means any money, including penalties, 
disgorgement, and interest, ordered to be paid and any money deposited 
into a disgorgement fund or other fund pursuant to Section 308(b) of the 
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)) as a result of a 
Commission action or a related action.
    (f) Appropriate regulatory agency means the Commission, the 
Comptroller of the Currency, the Board of Governors of the Federal 
Reserve System, the Federal Deposit Insurance Corporation, the Office of 
Thrift Supervision, and any other agencies that may be defined as 
appropriate regulatory agencies under Section 3(a)(34) of the Exchange 
Act (15 U.S.C. 78c(a)(34)).
    (g) Appropriate regulatory authority means an appropriate regulatory 
agency other than the Commission.
    (h) Self-regulatory organization means any national securities 
exchange, registered securities association, registered clearing agency, 
the Municipal Securities Rulemaking Board, and any other organizations 
that may be defined as self-regulatory organizations under Section 
3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26)).



Sec.240.21F-5  Amount of award.

    (a) The determination of the amount of an award is in the discretion 
of the Commission.
    (b) If all of the conditions are met for a whistleblower award in 
connection with a Commission action or a related action, the Commission 
will then decide the percentage amount of the award applying the 
criteria set forth in Sec.240.21F-6 of this chapter and pursuant to 
the procedures set forth in Sec.Sec.240.21F-10 and 240.21F-11 of this 
chapter. The amount will be at least 10 percent and no more than 30 
percent of the monetary sanctions that the Commission and the other 
authorities are able to collect. The percentage awarded in connection 
with a Commission action may differ from the percentage awarded in 
connection with a related action.
    (c) If the Commission makes awards to more than one whistleblower in 
connection with the same action or related action, the Commission will 
determine an individual percentage award for each whistleblower, but in 
no event will the total amount awarded to all whistleblowers in the 
aggregate be less than 10 percent or greater than 30 percent of the 
amount the Commission or the other authorities collect.



Sec.240.21F-6  Criteria for determining amount of award.

    In exercising its discretion to determine the appropriate award 
percentage, the Commission may consider the following factors in 
relation to the unique facts and circumstances of each case, and may 
increase or decrease the award percentage based on its analysis of these 
factors. In the event that awards are determined for multiple

[[Page 770]]

whistleblowers in connection an action, these factors will be used to 
determine the relative allocation of awards among the whistleblowers.
    (a) Factors that may increase the amount of a whistleblower's award. 
In determining whether to increase the amount of an award, the 
Commission will consider the following factors, which are not listed in 
order of importance.
    (1) Significance of the information provided by the whistleblower. 
The Commission will assess the significance of the information provided 
by a whistleblower to the success of the Commission action or related 
action. In considering this factor, the Commission may take into 
account, among other things:
    (i) The nature of the information provided by the whistleblower and 
how it related to the successful enforcement action, including whether 
the reliability and completeness of the information provided to the 
Commission by the whistleblower resulted in the conservation of 
Commission resources;
    (ii) The degree to which the information provided by the 
whistleblower supported one or more successful claims brought in the 
Commission or related action.
    (2) Assistance provided by the whistleblower. The Commission will 
assess the degree of assistance provided by the whistleblower and any 
legal representative of the whistleblower in the Commission action or 
related action. In considering this factor, the Commission may take into 
account, among other things:
    (i) Whether the whistleblower provided ongoing, extensive, and 
timely cooperation and assistance by, for example, helping to explain 
complex transactions, interpreting key evidence, or identifying new and 
productive lines of inquiry;
    (ii) The timeliness of the whistleblower's initial report to the 
Commission or to an internal compliance or reporting system of business 
organizations committing, or impacted by, the securities violations, 
where appropriate;
    (iii) The resources conserved as a result of the whistleblower's 
assistance;
    (iv) Whether the whistleblower appropriately encouraged or 
authorized others to assist the staff of the Commission who might 
otherwise not have participated in the investigation or related action;
    (v) The efforts undertaken by the whistleblower to remediate the 
harm caused by the violations, including assisting the authorities in 
the recovery of the fruits and instrumentalities of the violations; and
    (vi) Any unique hardships experienced by the whistleblower as a 
result of his or her reporting and assisting in the enforcement action.
    (3) Law enforcement interest. The Commission will assess its 
programmatic interest in deterring violations of the securities laws by 
making awards to whistleblowers who provide information that leads to 
the successful enforcement of such laws. In considering this factor, the 
Commission may take into account, among other things:
    (i) The degree to which an award enhances the Commission's ability 
to enforce the Federal securities laws and protect investors; and
    (ii) The degree to which an award encourages the submission of high 
quality information from whistleblowers by appropriately rewarding 
whistleblowers' submission of significant information and assistance, 
even in cases where the monetary sanctions available for collection are 
limited or potential monetary sanctions were reduced or eliminated by 
the Commission because an entity self-reported a securities violation 
following the whistleblower's related internal disclosure, report, or 
submission.
    (iii) Whether the subject matter of the action is a Commission 
priority, whether the reported misconduct involves regulated entities or 
fiduciaries, whether the whistleblower exposed an industry-wide 
practice, the type and severity of the securities violations, the age 
and duration of misconduct, the number of violations, and the isolated, 
repetitive, or ongoing nature of the violations; and
    (iv) The dangers to investors or others presented by the underlying 
violations involved in the enforcement action, including the amount of 
harm or

[[Page 771]]

potential harm caused by the underlying violations, the type of harm 
resulting from or threatened by the underlying violations, and the 
number of individuals or entities harmed.
    (4) Participation in internal compliance systems. The Commission 
will assess whether, and the extent to which, the whistleblower and any 
legal representative of the whistleblower participated in internal 
compliance systems. In considering this factor, the Commission may take 
into account, among other things:
    (i) Whether, and the extent to which, a whistleblower reported the 
possible securities violations through internal whistleblower, legal or 
compliance procedures before, or at the same time as, reporting them to 
the Commission; and
    (ii) Whether, and the extent to which, a whistleblower assisted any 
internal investigation or inquiry concerning the reported securities 
violations.
    (b) Factors that may decrease the amount of a whistleblower's award. 
In determining whether to decrease the amount of an award, the 
Commission will consider the following factors, which are not listed in 
order of importance.
    (1) Culpability. The Commission will assess the culpability or 
involvement of the whistleblower in matters associated with the 
Commission's action or related actions. In considering this factor, the 
Commission may take into account, among other things:
    (i) The whistleblower's role in the securities violations;
    (ii) The whistleblower's education, training, experience, and 
position of responsibility at the time the violations occurred;
    (iii) Whether the whistleblower acted with scienter, both generally 
and in relation to others who participated in the violations;
    (iv) Whether the whistleblower financially benefitted from the 
violations;
    (v) Whether the whistleblower is a recidivist;
    (vi) The egregiousness of the underlying fraud committed by the 
whistleblower; and
    (vii) Whether the whistleblower knowingly interfered with the 
Commission's investigation of the violations or related enforcement 
actions.
    (2) Unreasonable reporting delay. The Commission will assess whether 
the whistleblower unreasonably delayed reporting the securities 
violations. In considering this factor, the Commission may take into 
account, among other things:
    (i) Whether the whistleblower was aware of the relevant facts but 
failed to take reasonable steps to report or prevent the violations from 
occurring or continuing;
    (ii) Whether the whistleblower was aware of the relevant facts but 
only reported them after learning about a related inquiry, 
investigation, or enforcement action; and
    (iii) Whether there was a legitimate reason for the whistleblower to 
delay reporting the violations.
    (3) Interference with internal compliance and reporting systems. The 
Commission will assess, in cases where the whistleblower interacted with 
his or her entity's internal compliance or reporting system, whether the 
whistleblower undermined the integrity of such system. In considering 
this factor, the Commission will take into account whether there is 
evidence provided to the Commission that the whistleblower knowingly:
    (i) Interfered with an entity's established legal, compliance, or 
audit procedures to prevent or delay detection of the reported 
securities violation;
    (ii) Made any material false, fictitious, or fraudulent statements 
or representations that hindered an entity's efforts to detect, 
investigate, or remediate the reported securities violations; and
    (iii) Provided any false writing or document knowing the writing or 
document contained any false, fictitious or fraudulent statements or 
entries that hindered an entity's efforts to detect, investigate, or 
remediate the reported securities violations.



Sec.240.21F-7  Confidentiality of submissions.

    (a) Section 21F(h)(2) of the Exchange Act (15 U.S.C. 78u-6(h)(2)) 
requires that the Commission not disclose information that could 
reasonably be expected to reveal the identity of a whistleblower, except 
that the Commission

[[Page 772]]

may disclose such information in the following circumstances:
    (1) When disclosure is required to a defendant or respondent in 
connection with a Federal court or administrative action that the 
Commission files or in another public action or proceeding that is filed 
by an authority to which we provide the information, as described below;
    (2) When the Commission determines that it is necessary to 
accomplish the purposes of the Exchange Act (15 U.S.C. 78a) and to 
protect investors, it may provide your information to the Department of 
Justice, an appropriate regulatory authority, a self regulatory 
organization, a state attorney general in connection with a criminal 
investigation, any appropriate state regulatory authority, the Public 
Company Accounting Oversight Board, or foreign securities and law 
enforcement authorities. Each of these entities other than foreign 
securities and law enforcement authorities is subject to the 
confidentiality requirements set forth in Section 21F(h) of the Exchange 
Act (15 U.S.C. 78u-6(h)). The Commission will determine what assurances 
of confidentiality it deems appropriate in providing such information to 
foreign securities and law enforcement authorities.
    (3) The Commission may make disclosures in accordance with the 
Privacy Act of 1974 (5 U.S.C. 552a).
    (b) You may submit information to the Commission anonymously. If you 
do so, however, you must also do the following:
    (1) You must have an attorney represent you in connection with both 
your submission of information and your claim for an award, and your 
attorney's name and contact information must be provided to the 
Commission at the time you submit your information;
    (2) You and your attorney must follow the procedures set forth in 
Sec.240.21F-9 of this chapter for submitting original information 
anonymously; and
    (3) Before the Commission will pay any award to you, you must 
disclose your identity to the Commission and your identity must be 
verified by the Commission as set forth in Sec.240.21F-10 of this 
chapter.



Sec.240.21F-8  Eligibility.

    (a) To be eligible for a whistleblower award, you must give the 
Commission information in the form and manner that the Commission 
requires. The procedures for submitting information and making a claim 
for an award are described in Sec.240.21F-9 through Sec.240.21F-11 
of this chapter. You should read these procedures carefully because you 
need to follow them in order to be eligible for an award, except that 
the Commission may, in its sole discretion, waive any of these 
procedures based upon a showing of extraordinary circumstances.
    (b) In addition to any forms required by these rules, the Commission 
may also require that you provide certain additional information. You 
may be required to:
    (1) Provide explanations and other assistance in order that the 
staff may evaluate and use the information that you submitted;
    (2) Provide all additional information in your possession that is 
related to the subject matter of your submission in a complete and 
truthful manner, through follow-up meetings, or in other forms that our 
staff may agree to;
    (3) Provide testimony or other evidence acceptable to the staff 
relating to whether you are eligible, or otherwise satisfy any of the 
conditions, for an award; and
    (4) Enter into a confidentiality agreement in a form acceptable to 
the Office of the Whistleblower, covering any non-public information 
that the Commission provides to you, and including a provision that a 
violation of the agreement may lead to your ineligibility to receive an 
award.
    (c) You are not eligible to be considered for an award if you do not 
satisfy the requirements of paragraphs (a) and (b) of this section. In 
addition, you are not eligible if:
    (1) You are, or were at the time you acquired the original 
information provided to the Commission, a member, officer, or employee 
of the Commission, the Department of Justice, an appropriate regulatory 
agency, a self-regulatory organization, the Public Company Accounting 
Oversight Board, or any law enforcement organization;

[[Page 773]]

    (2) You are, or were at the time you acquired the original 
information provided to the Commission, a member, officer, or employee 
of a foreign government, any political subdivision, department, agency, 
or instrumentality of a foreign government, or any other foreign 
financial regulatory authority as that term is defined in Section 
3(a)(52) of the Exchange Act (15 U.S.C. 78c(a)(52));
    (3) You are convicted of a criminal violation that is related to the 
Commission action or to a related action (as defined in Sec.240.21F-4 
of this chapter) for which you otherwise could receive an award;
    (4) You obtained the original information that you gave the 
Commission through an audit of a company's financial statements, and 
making a whistleblower submission would be contrary to requirements of 
Section 10A of the Exchange Act (15 U.S.C. 78j-a).
    (5) You are the spouse, parent, child, or sibling of a member or 
employee of the Commission, or you reside in the same household as a 
member or employee of the Commission;
    (6) You acquired the original information you gave the Commission 
from a person:
    (i) Who is subject to paragraph (c)(4) of this section, unless the 
information is not excluded from that person's use, or you are providing 
the Commission with information about possible violations involving that 
person; or
    (ii) With the intent to evade any provision of these rules; or
    (7) In your whistleblower submission, your other dealings with the 
Commission, or your dealings with another authority in connection with a 
related action, you knowingly and willfully make any false, fictitious, 
or fraudulent statement or representation, or use any false writing or 
document knowing that it contains any false, fictitious, or fraudulent 
statement or entry with intent to mislead or otherwise hinder the 
Commission or another authority.



Sec.240.21F-9  Procedures for submitting original information.

    (a) To be considered a whistleblower under Section 21F of the 
Exchange Act (15 U.S.C. 78u-6(h)), you must submit your information 
about a possible securities law violation by either of these methods:
    (1) Online, through the Commission's Web site located at http://
www.sec.gov; or
    (2) By mailing or faxing a Form TCR (Tip, Complaint or Referral) 
(referenced in Sec.249.1800 of this chapter) to the SEC Office of the 
Whistleblower, 100 F Street NE., Washington, DC 20549-5631, Fax (703) 
813-9322.
    (b) Further, to be eligible for an award, you must declare under 
penalty of perjury at the time you submit your information pursuant to 
paragraph (a)(1) or (2) of this section that your information is true 
and correct to the best of your knowledge and belief.
    (c) Notwithstanding paragraphs (a) and (b) of this section, if you 
are providing your original information to the Commission anonymously, 
then your attorney must submit your information on your behalf pursuant 
to the procedures specified in paragraph (a) of this section. Prior to 
your attorney's submission, you must provide your attorney with a 
completed Form TCR (referenced in Sec.249.1800 of this chapter) that 
you have signed under penalty of perjury. When your attorney makes her 
submission on your behalf, your attorney will be required to certify 
that he or she:
    (1) Has verified your identity;
    (2) Has reviewed your completed and signed Form TCR (referenced in 
Sec.249.1800 of this chapter) for completeness and accuracy and that 
the information contained therein is true, correct and complete to the 
best of the attorney's knowledge, information and belief;
    (3) Has obtained your non-waivable consent to provide the Commission 
with your original completed and signed Form TCR (referenced in Sec.
249.1800 of this chapter) in the event that the Commission requests it 
due to concerns that you may have knowingly and willfully made false, 
fictitious, or fraudulent statements or representations, or used any 
false writing or document knowing that the writing or document contains 
any false fictitious or fraudulent statement or entry; and

[[Page 774]]

    (4) Consents to be legally obligated to provide the signed Form TCR 
(referenced in Sec.249.1800 of this chapter) within seven (7) calendar 
days of receiving such request from the Commission.
    (d) If you submitted original information in writing to the 
Commission after July 21, 2010 (the date of enactment of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act) but before the effective 
date of these rules, your submission will be deemed to satisfy the 
requirements set forth in paragraphs (a) and (b) of this section. If you 
were an anonymous whistleblower, however, you must provide your attorney 
with a completed and signed copy of Form TCR (referenced in Sec.
249.1800 of this chapter) within 60 days of the effective date of these 
rules, your attorney must retain the signed form in his or her records, 
and you must provide of copy of the signed form to the Commission staff 
upon request by Commission staff prior to any payment of an award to you 
in connection with your submission. Notwithstanding the foregoing, you 
must follow the procedures and conditions for making a claim for a 
whistleblower award described in Sec.Sec.240.21F-10 and 240.21F-11 of 
this chapter.



Sec.240.21F-10  Procedures for making a claim for a whistleblower 
award in SEC actions that result in monetary sanctions in excess 
of $1,000,000.

    (a) Whenever a Commission action results in monetary sanctions 
totaling more than $1,000,000, the Office of the Whistleblower will 
cause to be published on the Commission's Web site a ``Notice of Covered 
Action.'' Such Notice will be published subsequent to the entry of a 
final judgment or order that alone, or collectively with other judgments 
or orders previously entered in the Commission action, exceeds 
$1,000,000; or, in the absence of such judgment or order subsequent to 
the deposit of monetary sanctions exceeding $1,000,000 into a 
disgorgement or other fund pursuant to Section 308(b) of the Sarbanes-
Oxley Act of 2002. A claimant will have ninety (90) days from the date 
of the Notice of Covered Action to file a claim for an award based on 
that action, or the claim will be barred.
    (b) To file a claim for a whistleblower award, you must file Form 
WB-APP, Application for Award for Original Information Provided Pursuant 
to Section 21F of the Securities Exchange Act of 1934 (referenced in 
Sec.249.1801 of this chapter). You must sign this form as the claimant 
and submit it to the Office of the Whistleblower by mail or fax. All 
claim forms, including any attachments, must be received by the Office 
of the Whistleblower within ninety (90) calendar days of the date of the 
Notice of Covered Action in order to be considered for an award.
    (c) If you provided your original information to the Commission 
anonymously, you must disclose your identity on the Form WB-APP 
(referenced in Sec.249.1801 of this chapter), and your identity must 
be verified in a form and manner that is acceptable to the Office of the 
Whistleblower prior to the payment of any award.
    (d) Once the time for filing any appeals of the Commission's 
judicial or administrative action has expired, or where an appeal has 
been filed, after all appeals in the action have been concluded, the 
staff designated by the Director of the Division of Enforcement 
(``Claims Review Staff'') will evaluate all timely whistleblower award 
claims submitted on Form WB-APP (referenced in Sec.249.1801 of this 
chapter) in accordance with the criteria set forth in these rules. In 
connection with this process, the Office of the Whistleblower may 
require that you provide additional information relating to your 
eligibility for an award or satisfaction of any of the conditions for an 
award, as set forth in Sec.240.21F-(8)(b) of this chapter. Following 
that evaluation, the Office of the Whistleblower will send you a 
Preliminary Determination setting forth a preliminary assessment as to 
whether the claim should be allowed or denied and, if allowed, setting 
forth the proposed award percentage amount.
    (e) You may contest the Preliminary Determination made by the Claims 
Review Staff by submitting a written response to the Office of the 
Whistleblower setting forth the grounds for your objection to either the 
denial of an award or the proposed amount of an

[[Page 775]]

award. The response must be in the form and manner that the Office of 
the Whistleblower shall require. You may also include documentation or 
other evidentiary support for the grounds advanced in your response.
    (1) Before determining whether to contest a Preliminary 
Determination, you may:
    (i) Within thirty (30) days of the date of the Preliminary 
Determination, request that the Office of the Whistleblower make 
available for your review the materials from among those set forth in 
Sec.240.21F-12(a) of this chapter that formed the basis of the Claims 
Review Staff's Preliminary Determination.
    (ii) Within thirty (30) calendar days of the date of the Preliminary 
Determination, request a meeting with the Office of the Whistleblower; 
however, such meetings are not required and the office may in its sole 
discretion decline the request.
    (2) If you decide to contest the Preliminary Determination, you must 
submit your written response and supporting materials within sixty (60) 
calendar days of the date of the Preliminary Determination, or if a 
request to review materials is made pursuant to paragraph (e)(1) of this 
section, then within sixty (60) calendar days of the Office of the 
Whistleblower making those materials available for your review.
    (f) If you fail to submit a timely response pursuant to paragraph 
(e) of this section, then the Preliminary Determination will become the 
Final Order of the Commission (except where the Preliminary 
Determination recommended an award, in which case the Preliminary 
Determination will be deemed a Proposed Final Determination for purposes 
of paragraph (h) of this section). Your failure to submit a timely 
response contesting a Preliminary Determination will constitute a 
failure to exhaust administrative remedies, and you will be prohibited 
from pursuing an appeal pursuant to Sec.240.21F-13 of this chapter.
    (g) If you submit a timely response pursuant to paragraph (e) of 
this section, then the Claims Review Staff will consider the issues and 
grounds advanced in your response, along with any supporting 
documentation you provided, and will make its Proposed Final 
Determination.
    (h) The Office of the Whistleblower will then notify the Commission 
of each Proposed Final Determination. Within thirty 30 days thereafter, 
any Commissioner may request that the Proposed Final Determination be 
reviewed by the Commission. If no Commissioner requests such a review 
within the 30-day period, then the Proposed Final Determination will 
become the Final Order of the Commission. In the event a Commissioner 
requests a review, the Commission will review the record that the staff 
relied upon in making its determinations, including your previous 
submissions to the Office of the Whistleblower, and issue its Final 
Order.
    (i) The Office of the Whistleblower will provide you with the Final 
Order of the Commission.



Sec.240.21F-11  Procedures for determining awards based upon 
a related action.

    (a) If you are eligible to receive an award following a Commission 
action that results in monetary sanctions totaling more than $1,000,000, 
you also may be eligible to receive an award based on the monetary 
sanctions that are collected from a related action (as defined in Sec.
240.21F-3 of this chapter).
    (b) You must also use Form WB-APP (referenced in Sec.249.1801 of 
this chapter) to submit a claim for an award in a related action. You 
must sign this form as the claimant and submit it to the Office of the 
Whistleblower by mail or fax as follows:
    (1) If a final order imposing monetary sanctions has been entered in 
a related action at the time you submit your claim for an award in 
connection with a Commission action, you must submit your claim for an 
award in that related action on the same Form WB-APP (referenced in 
Sec.249.1801 of this chapter) that you use for the Commission action.
    (2) If a final order imposing monetary sanctions in a related action 
has not been entered at the time you submit your claim for an award in 
connection with a Commission action, you must submit your claim on Form 
WB-APP

[[Page 776]]

(referenced in Sec.249.1801 of this chapter) within ninety (90) days 
of the issuance of a final order imposing sanctions in the related 
action.
    (c) The Office of the Whistleblower may request additional 
information from you in connection with your claim for an award in a 
related action to demonstrate that you directly (or through the 
Commission) voluntarily provided the governmental agency, regulatory 
authority or self-regulatory organization the same original information 
that led to the Commission's successful covered action, and that this 
information led to the successful enforcement of the related action. The 
Office of the Whistleblower may, in its discretion, seek assistance and 
confirmation from the other agency in making this determination.
    (d) Once the time for filing any appeals of the final judgment or 
order in a related action has expired, or if an appeal has been filed, 
after all appeals in the action have been concluded, the Claims Review 
Staff will evaluate all timely whistleblower award claims submitted on 
Form WB-APP (referenced in Sec.249.1801 of this chapter) in connection 
with the related action. The evaluation will be undertaken pursuant to 
the criteria set forth in these rules. In connection with this process, 
the Office of the Whistleblower may require that you provide additional 
information relating to your eligibility for an award or satisfaction of 
any of the conditions for an award, as set forth in Sec.240.21F-(8)(b) 
of this chapter. Following this evaluation, the Office of the 
Whistleblower will send you a Preliminary Determination setting forth a 
preliminary assessment as to whether the claim should be allowed or 
denied and, if allowed, setting forth the proposed award percentage 
amount.
    (e) You may contest the Preliminary Determination made by the Claims 
Review Staff by submitting a written response to the Office of the 
Whistleblower setting forth the grounds for your objection to either the 
denial of an award or the proposed amount of an award. The response must 
be in the form and manner that the Office of the Whistleblower shall 
require. You may also include documentation or other evidentiary support 
for the grounds advanced in your response.
    (1) Before determining whether to contest a Preliminary 
Determination, you may:
    (i) Within thirty (30) days of the date of the Preliminary 
Determination, request that the Office of the Whistleblower make 
available for your review the materials from among those set forth in 
Sec.240.21F-12(a) of this chapter that formed the basis of the Claims 
Review Staff's Preliminary Determination.
    (ii) Within thirty (30) days of the date of the Preliminary 
Determination, request a meeting with the Office of the Whistleblower; 
however, such meetings are not required and the office may in its sole 
discretion decline the request.
    (2) If you decide to contest the Preliminary Determination, you must 
submit your written response and supporting materials within sixty (60) 
calendar days of the date of the Preliminary Determination, or if a 
request to review materials is made pursuant to paragraph (e)(1)(i) of 
this section, then within sixty (60) calendar days of the Office of the 
Whistleblower making those materials available for your review.
    (f) If you fail to submit a timely response pursuant to paragraph 
(e) of this section, then the Preliminary Determination will become the 
Final Order of the Commission (except where the Preliminary 
Determination recommended an award, in which case the Preliminary 
Determination will be deemed a Proposed Final Determination for purposes 
of paragraph (h) of this section). Your failure to submit a timely 
response contesting a Preliminary Determination will constitute a 
failure to exhaust administrative remedies, and you will be prohibited 
from pursuing an appeal pursuant to Sec.240.21F-13 of this chapter.
    (g) If you submit a timely response pursuant to paragraph (e) of 
this section, then the Claims Review Staff will consider the issues and 
grounds that you advanced in your response, along with any supporting 
documentation you provided, and will make its Proposed Final 
Determination.
    (h) The Office of the Whistleblower will notify the Commission of 
each

[[Page 777]]

Proposed Final Determination. Within thirty 30 days thereafter, any 
Commissioner may request that the Proposed Final Determination be 
reviewed by the Commission. If no Commissioner requests such a review 
within the 30-day period, then the Proposed Final Determination will 
become the Final Order of the Commission. In the event a Commissioner 
requests a review, the Commission will review the record that the staff 
relied upon in making its determinations, including your previous 
submissions to the Office of the Whistleblower, and issue its Final 
Order.
    (i) The Office of the Whistleblower will provide you with the Final 
Order of the Commission.



Sec.240.21F-12  Materials that may form the basis of an award 
determination and that may comprise the record on appeal.

    (a) The following items constitute the materials that the Commission 
and the Claims Review Staff may rely upon to make an award determination 
pursuant to Sec.Sec.240.21F-10 and 240.21F-11 of this chapter:
    (1) Any publicly available materials from the covered action or 
related action, including:
    (i) The complaint, notice of hearing, answers and any amendments 
thereto;
    (ii) The final judgment, consent order, or final administrative 
order;
    (iii) Any transcripts of the proceedings, including any exhibits;
    (iv) Any items that appear on the docket; and
    (v) Any appellate decisions or orders.
    (2) The whistleblower's Form TCR (referenced in Sec.249.1800 of 
this chapter), including attachments, and other related materials 
provided by the whistleblower to assist the Commission with the 
investigation or examination;
    (3) The whistleblower's Form WB-APP (referenced in Sec.249.1800 of 
this chapter), including attachments, and any other filings or 
submissions from the whistleblower in support of the award application;
    (4) Sworn declarations (including attachments) from the Commission 
staff regarding any matters relevant to the award determination;
    (5) With respect to an award claim involving a related action, any 
statements or other information that the entity provides or identifies 
in connection with an award determination, provided the entity has 
authorized the Commission to share the information with the claimant. 
(Neither the Commission nor the Claims Review Staff may rely upon 
information that the entity has not authorized the Commission to share 
with the claimant); and
    (6) Any other documents or materials including sworn declarations 
from third-parties that are received or obtained by the Office of the 
Whistleblower to assist the Commission resolve the claimant's award 
application, including information related to the claimant's 
eligibility. (Neither the Commission nor the Claims Review Staff may 
rely upon information that the entity has not authorized the Commission 
to share with the claimant).
    (b) These rules do not entitle claimants to obtain from the 
Commission any materials (including any pre-decisional or internal 
deliberative process materials that are prepared exclusively to assist 
the Commission in deciding the claim) other than those listed in 
paragraph (a) of this section. Moreover, the Office of the Whistleblower 
may make redactions as necessary to comply with any statutory 
restrictions, to protect the Commission's law enforcement and regulatory 
functions, and to comply with requests for confidential treatment from 
other law enforcement and regulatory authorities. The Office of the 
Whistleblower may also require you to sign a confidentiality agreement, 
as set forth in Sec.240.21F-(8)(b)(4) of this chapter, before 
providing these materials.



Sec.240.21F-13  Appeals.

    (a) Section 21F of the Exchange Act (15 U.S.C. 78u-6) commits 
determinations of whether, to whom, and in what amount to make awards to 
the Commission's discretion. A determination of whether or to whom to 
make an award may be appealed within 30 days after the Commission issues 
its final decision to the United States Court of Appeals for the 
District of Columbia Circuit, or to the circuit where the aggrieved 
person resides or has his principal place of business. Where the 
Commission makes an award based on the factors set forth in Sec.
240.21F-6 of this

[[Page 778]]

chapter of not less than 10 percent and not more than 30 percent of the 
monetary sanctions collected in the Commission or related action, the 
Commission's determination regarding the amount of an award (including 
the allocation of an award as between multiple whistleblowers, and any 
factual findings, legal conclusions, policy judgments, or discretionary 
assessments involving the Commission's consideration of the factors in 
Sec.240.21F-6 of this chapter) is not appealable.
    (b) The record on appeal shall consist of the Preliminary 
Determination, the Final Order of the Commission, and any other items 
from those set forth in Sec.240.21F-12(a) of this chapter that either 
the claimant or the Commission identifies for inclusion in the record. 
The record on appeal shall not include any pre-decisional or internal 
deliberative process materials that are prepared exclusively to assist 
the Commission in deciding the claim (including the staff's Draft Final 
Determination in the event that the Commissioners reviewed the claim and 
issued the Final Order).



Sec.240.21F-14  Procedures applicable to the payment of awards.

    (a) Any award made pursuant to these rules will be paid from the 
Securities and Exchange Commission Investor Protection Fund (the 
``Fund'').
    (b) A recipient of a whistleblower award is entitled to payment on 
the award only to the extent that a monetary sanction is collected in 
the Commission action or in a related action upon which the award is 
based.
    (c) Payment of a whistleblower award for a monetary sanction 
collected in a Commission action or related action shall be made 
following the later of:
    (1) The date on which the monetary sanction is collected; or
    (2) The completion of the appeals process for all whistleblower 
award claims arising from:
    (i) The Notice of Covered Action, in the case of any payment of an 
award for a monetary sanction collected in a Commission action; or
    (ii) The related action, in the case of any payment of an award for 
a monetary sanction collected in a related action.
    (d) If there are insufficient amounts available in the Fund to pay 
the entire amount of an award payment within a reasonable period of time 
from the time for payment specified by paragraph (c) of this section, 
then subject to the following terms, the balance of the payment shall be 
paid when amounts become available in the Fund, as follows:
    (1) Where multiple whistleblowers are owed payments from the Fund 
based on awards that do not arise from the same Notice of Covered Action 
(or related action), priority in making these payments will be 
determined based upon the date that the collections for which the 
whistleblowers are owed payments occurred. If two or more of these 
collections occur on the same date, those whistleblowers owed payments 
based on these collections will be paid on a pro rata basis until 
sufficient amounts become available in the Fund to pay their entire 
payments.
    (2) Where multiple whistleblowers are owed payments from the Fund 
based on awards that arise from the same Notice of Covered Action (or 
related action), they will share the same payment priority and will be 
paid on a pro rata basis until sufficient amounts become available in 
the Fund to pay their entire payments.



Sec.240.21F-15  No amnesty.

    The Securities Whistleblower Incentives and Protection provisions do 
not provide amnesty to individuals who provide information to the 
Commission. The fact that you may become a whistleblower and assist in 
Commission investigations and enforcement actions does not preclude the 
Commission from bringing an action against you based upon your own 
conduct in connection with violations of the Federal securities laws. If 
such an action is determined to be appropriate, however, the Commission 
will take your cooperation into consideration in accordance with its 
Policy Statement Concerning Cooperation by Individuals in Investigations 
and Related Enforcement Actions (17 CFR 202.12).

[[Page 779]]



Sec.240.21F-16  Awards to whistleblowers who engage in culpable conduct.

    In determining whether the required $1,000,000 threshold has been 
satisfied (this threshold is further explained in Sec.240.21F-10 of 
this chapter) for purposes of making any award, the Commission will not 
take into account any monetary sanctions that the whistleblower is 
ordered to pay, or that are ordered against any entity whose liability 
is based substantially on conduct that the whistleblower directed, 
planned, or initiated. Similarly, if the Commission determines that a 
whistleblower is eligible for an award, any amounts that the 
whistleblower or such an entity pay in sanctions as a result of the 
action or related actions will not be included within the calculation of 
the amounts collected for purposes of making payments.



Sec.240.21F-17  Staff communications with individuals reporting 
possible securities law violations.

    (a) No person may take any action to impede an individual from 
communicating directly with the Commission staff about a possible 
securities law violation, including enforcing, or threatening to 
enforce, a confidentiality agreement (other than agreements dealing with 
information covered by Sec.240.21F-4(b)(4)(i) and Sec.240.21F-
4(b)(4)(ii) of this chapter related to the legal representation of a 
client) with respect to such communications.
    (b) If you are a director, officer, member, agent, or employee of an 
entity that has counsel, and you have initiated communication with the 
Commission relating to a possible securities law violation, the staff is 
authorized to communicate directly with you regarding the possible 
securities law violation without seeking the consent of the entity's 
counsel.

      Inspection and Publication of Information Filed Under the Act



Sec.240.24b-1  Documents to be kept public by exchanges.

    Upon action of the Commission granting an exchange's application for 
registration or exemption, the exchange shall make available to public 
inspection at its offices during reasonable office hours a copy of the 
statement and exhibits filed with the Commission (including any 
amendments thereto) except those portions thereof to the disclosure of 
which the exchange shall have filed objection pursuant to Sec.240.24b-
2 which objection shall not have been overruled by the Commission 
pursuant to section 24(b) of the Act.

(Sec.24, 48 Stat. 901; 15 U.S.C. 78x)

    Cross Reference: For regulations relating to registration and 
exemption of exchanges, see Sec.Sec.240.6a-1 to 240.6a-3.

[13 FR 8214, Dec. 22, 1948]



Sec.240.24b-2  Nondisclosure of information filed with the Commission 
and with any exchange.

    Preliminary Note: Except as otherwise provided in this rule, 
confidential treatment requests shall be submitted in paper format only, 
whether or not the filer is required to submit a filing in electronic 
format.

    (a) Any person filing any registration statement, report, 
application, statement, correspondence, notice or other document (herein 
referred to as the material filed) pursuant to the Act may make written 
objection to the public disclosure of any information contained therein 
in accordance with the procedure set forth below. The procedure provided 
in this rule shall be the exclusive means of requesting confidential 
treatment of information required to be filed under the Act.
    (b) Except as otherwise provided in paragraphs (g) and (h) of this 
section, the person shall omit from material filed the portion thereof 
which it desires to keep undisclosed (hereinafter called the 
confidential portion). In lieu thereof, it shall indicate at the 
appropriate place in the material filed that the confidential portion 
has been so omitted and filed separately with the Commission. The person 
shall file with the copies of the material filed with the Commission:
    (1) One copy of the confidential portion, marked ``Confidential 
Treatment,'' of the material filed with the Commission. The copy shall 
contain an appropriate identification of the item or other requirement 
involved and, notwithstanding that the confidential portion does not 
constitute the whole

[[Page 780]]

of the answer, the entire answer thereto; except that in the case where 
the confidential portion is part of a financial statement or schedule, 
only the particular financial statement or schedule need be included. 
The copy of the confidential portion shall be in the same form as the 
remainder of the material filed;
    (2) An application making objection to the disclosure of the 
confidential portion. Such application shall be on a sheet or sheets 
separate from the confidential portion, and shall contain:
    (i) An identification of the portion;
    (ii) A statement of the grounds of objection referring to, and 
containing an analysis of, the applicable exemption(s) from disclosure 
under the Freedom of Information Act (5 U.S.C. 552(b)), and a 
justification of the period of time for which confidential treatment is 
sought;
    (iii) A written consent to the furnishing of the confidential 
portion to other government agencies, offices or bodies and to the 
Congress; and
    (iv) The name of each exchange, if any, with which the material is 
filed.
    (3) The copy of the confidential portion and the application filed 
in accordance with this paragraph (b) shall be enclosed in a separate 
envelope marked ``Confidential Treatment'' and addressed to The 
Secretary, Securities and Exchange Commission, Washington, DC 20549.
    (c) Pending a determination as to the objection filed the material 
for which confidential treatment has been applied will not be made 
available to the public.
    (d)(1) If it is determined that the objection should be sustained, a 
notation to that effect will be made at the appropriate place in the 
material filed. Such a determination will not preclude reconsideration 
whenever appropriate, such as upon receipt of any subsequent request 
under the Freedom of Information Act (5 U.S.C. 552) and, if appropriate, 
revocation of the confidential status of all or a portion of the 
information in question. Where an initial determination has been made 
under this rule to sustain objections to disclosure, the Commission will 
attempt to give the person requesting confidential treatment advance 
notice, wherever possible, if confidential treatment is revoked.
    (2) In any case where an objection to disclosure has been disallowed 
or where a prior grant of confidential treatment has been revoked, the 
person who requested such treatment will be so informed by registered or 
certified mail to the person or his agent for service. Pursuant to Sec.
201.431 of this chapter, persons making objections to disclosure may 
petition the Commission for review of a determination by the Division 
disallowing objections or revoking confidential treatment.
    (e) The confidential portion shall be made available to the public 
at the time and according to the conditions specified in paragraphs (d) 
(1) and (2) of this section:
    (1) Upon the lapse of five days after the dispatch of notice by 
registered or certified mail of a determination disallowing an 
objection, if prior to the lapse of such five days the person shall not 
have communicated to the Secretary of the Commission his intention to 
seek review by the Commission under Sec.201.431 of this chapter of the 
determination made by the Division; or
    (2) If such a petition for review shall have been filed under Sec.
201.431 of this chapter, upon final disposition thereof adverse to the 
petitioner.
    (f) If the confidential portion is made available to the public, one 
copy thereof shall be attached to each copy of the material filed with 
the Commission and with each exchange.
    (g) An SCI entity (as defined in Sec.242.1000 of this chapter) 
shall not omit the confidential portion from the material filed in 
electronic format on Form SCI pursuant to Regulation SCI, Sec.242.1000 
et. seq., and, in lieu of the procedures described in paragraph (b) of 
this section, may request confidential treatment of all information 
provided on Form SCI by completing Section IV of Form SCI.
    (h) A security-based swap data repository shall not omit the 
confidential portion from the material filed in electronic format 
pursuant to section 13(n) of the Act (15 U.S.C. 78m(n)) and the rules 
and regulations thereunder. In lieu of the procedures described in 
paragraph (b) of this section, a security-based swap data repository 
shall

[[Page 781]]

request confidential treatment electronically for any material filed in 
electronic format pursuant to section 13(n) of the Act (15 U.S.C. 
78m(n)) and the rules and regulations thereunder.

[41 FR 20578, May 19, 1976, as amended at 58 FR 14685, Mar. 18, 1993; 60 
FR 32825, June 23, 1995; 60 FR 47692, Sept. 14, 1995; 61 FR 30404, June 
14, 1996; 79 FR 72436, Dec. 5, 2014; 80 FR 14556, Mar. 19, 2015; 84 FR 
50739, Sept. 26, 2019]



Sec.240.24b-3  Information filed by issuers and others under sections 
12, 13, 14, and 16.

    (a) Except as otherwise provided in this section and in Sec.
240.17a-6, each exchange shall keep available to the public under 
reasonable regulations as to the manner of inspection, during reasonable 
office hours, all information regarding a security registered on such 
exchange which is filed with it pursuant to section 12, 13, 14, or 16, 
or any rules or regulations thereunder. This requirement shall not apply 
to any information to the disclosure of which objection has been filed 
pursuant to Sec.240.24b-2, which objection shall not have been 
overruled by the Commission pursuant to section 24(b). The making of 
such information available pursuant to this section shall not be deemed 
a representation by any exchange as to the accuracy, completeness, or 
genuineness thereof.
    (b) In the case of an application for registration of a security 
pursuant to section 12 an exchange may delay making available the 
information contained therein until it has certified to the Commission 
its approval of such security for listing and registration.

(Sec.24, 48 Stat. 901, as amended; 15 U.S.C. 78x)

[16 FR 3109, Apr. 10, 1951]



Sec.240.24c-1  Access to nonpublic information.

    (a) For purposes of this section, the term ``nonpublic information'' 
means records, as defined in Section 24(a) of the Act, and other 
information in the Commission's possession, which are not available for 
public inspection and copying.
    (b) The Commission may, in its discretion and upon a showing that 
such information is needed, provide nonpublic information in its 
possession to any of the following persons if the person receiving such 
nonpublic information provides such assurances of confidentiality as the 
Commission deems appropriate:
    (1) A federal, state, local or foreign government or any political 
subdivision, authority, agency or instrumentality of such government;
    (2) A self-regulatory organization as defined in Section 3(a)(26) of 
the Act, or any similar organization empowered with self-regulatory 
responsibilities under the federal securities laws (as defined in 
Section 3(a)(47) of the Act), the Commodity Exchange Act (7 U.S.C. 1, et 
seq.), or any substantially equivalent foreign statute or regulation;
    (3) A foreign financial regulatory authority as defined in Section 
3(a)(51) of the Act;
    (4) The Securities Investor Protection Corporation or any trustee or 
counsel for a trustee appointed pursuant to Section 5(b) of the 
Securities Investor Protection Act of 1970;
    (5) A trustee in bankruptcy;
    (6) A trustee, receiver, master, special counsel or other person 
that is appointed by a court of competent jurisdiction or as a result of 
an agreement between the parties in connection with litigation or an 
administrative proceeding involving allegations of violations of the 
securities laws (as defined in Section 3(a)(47) of the Act) or the 
Commission's Rules of Practice, 17 CFR part 201, or otherwise, where 
such trustee, receiver, master, special counsel or other person is 
specifically designated to perform particular functions with respect to, 
or as a result of, the litigation or proceeding or in connection with 
the administration and enforcement by the Commission of the federal 
securities laws or the Commission's Rules of Practice;
    (7) A bar association, state accountancy board or other federal, 
state, local or foreign licensing or oversight authority, or a 
professional association or self-regulatory authority to the extent that 
it performs similar functions; or
    (8) A duly authorized agent, employee or representative of any of 
the above persons.
    (c) Nothing contained in this section shall affect:

[[Page 782]]

    (1) The Commission's authority or discretion to provide or refuse to 
provide access to, or copies of, nonpublic information in its possession 
in accordance with such other authority or discretion as the Commission 
possesses by statute, rule or regulation; or
    (2) The Commission's responsibilities under the Privacy Act of 1974 
(5 U.S.C. 552a), or the Right to Financial Privacy Act of 1978 (12 
U.S.C. 3401-22) as limited by section 21(h) of the Act.

[58 FR 52419, Oct. 8, 1993]



Sec.240.31  Section 31 transaction fees.

    (a) Definitions. For the purpose of this section, the following 
definitions shall apply:
    (1) Assessment charge means the amount owed by a covered SRO for a 
covered round turn transaction pursuant to section 31(d) of the Act (15 
U.S.C. 78ee(d)).
    (2) Billing period means, for a single calendar year:
    (i) January 1 through August 31 (``billing period 1''); or
    (ii) September 1 through December 31 (``billing period 2'').
    (3) Charge date means the date on which a covered sale or covered 
round turn transaction occurs for purposes of determining the liability 
of a covered SRO pursuant to section 31 of the Act (15 U.S.C. 78ee). The 
charge date is:
    (i) The settlement date, with respect to any covered sale (other 
than a covered sale resulting from the exercise of an option settled by 
physical delivery or from the maturation of a security future settled by 
physical delivery) or covered round turn transaction that a covered SRO 
is required to report to the Commission based on data that the covered 
SRO receives from a designated clearing agency;
    (ii) The exercise date, with respect to a covered sale resulting 
from the exercise of an option settled by physical delivery;
    (iii) The maturity date, with respect to a covered sale resulting 
from the maturation of a security future settled by physical delivery; 
and
    (iv) The trade date, with respect to all other covered sales and 
covered round turn transactions.
    (4) Covered association means any national securities association by 
or through any member of which covered sales or covered round turn 
transactions occur otherwise than on a national securities exchange.
    (5) Covered exchange means any national securities exchange on which 
covered sales or covered round turn transactions occur.
    (6) Covered sale means a sale of a security, other than an exempt 
sale or a sale of a security future, occurring on a national securities 
exchange or by or through any member of a national securities 
association otherwise than on a national securities exchange.
    (7) Covered round turn transaction means a round turn transaction in 
a security future, other than a round turn transaction in a future on a 
narrow-based security index, occurring on a national securities exchange 
or by or through a member of a national securities association otherwise 
than on a national securities exchange.
    (8) Covered SRO means a covered exchange or covered association.
    (9) Designated clearing agency means a clearing agency registered 
under section 17A of the Act (15 U.S.C. 78q-1) that clears and settles 
covered sales or covered round turn transactions.
    (10) Due date means:
    (i) March 15, with respect to the amounts owed by covered SROs under 
section 31 of the Act (15 U.S.C. 78ee) for covered sales and covered 
round turn transactions having a charge date in billing period 2; and
    (ii) September 30, with respect to the amounts owed by covered SROs 
under section 31 of the Act (15 U.S.C. 78ee) for covered sales and 
covered round turn transactions having a charge date in billing period 
1.
    (11) Exempt sale means:
    (i) Any sale of a security offered pursuant to an effective 
registration statement under the Securities Act of 1933 (except a sale 
of a put or call option issued by the Options Clearing Corporation) or 
offered in accordance with an exemption from registration afforded by 
section 3(a) or 3(b) of the Securities Act of 1933 (15 U.S.C. 77c(a) or 
77c(b)), or a rule thereunder;
    (ii) Any sale of a security by an issuer not involving any public 
offering within the meaning of section 4(2) of

[[Page 783]]

the Securities Act of 1933 (15 U.S.C. 77d(2));
    (iii) Any sale of a security pursuant to and in consummation of a 
tender or exchange offer;
    (iv) Any sale of a security upon the exercise of a warrant or right 
(except a put or call), or upon the conversion of a convertible 
security;
    (v) Any sale of a security that is executed outside the United 
States and is not reported, or required to be reported, to a transaction 
reporting association as defined in Sec.242.600 of this chapter and 
any approved plan filed thereunder;
    (vi) Any sale of an option on a security index (including both a 
narrow-based security index and a non-narrow-based security index);
    (vii) Any sale of a bond, debenture, or other evidence of 
indebtedness; and
    (viii) Any recognized riskless principal sale.
    (12) Fee rate means the fee rate applicable to covered sales under 
section 31(b) or (c) of the Act (15 U.S.C. 78ee(b) or (c)), as adjusted 
from time to time by the Commission pursuant to section 31(j) of the Act 
(15 U.S.C. 78ee(j)).
    (13) Narrow-based security index means the same as in section 
3(a)(55)(B) and (C) of the Act (15 U.S.C. 78c(a)(55)(B) and (C)).
    (14) Recognized riskless principal sale means a sale of a security 
where all of the following conditions are satisfied:
    (i) A broker-dealer receives from a customer an order to buy (sell) 
a security;
    (ii) The broker-dealer engages in two contemporaneous offsetting 
transactions as principal, one in which the broker-dealer buys (sells) 
the security from (to) a third party and the other in which the broker-
dealer sells (buys) the security to (from) the customer; and
    (iii) The Commission, pursuant to section 19(b)(2) of the Act (15 
U.S.C. 78s(b)(2)), has approved a proposed rule change submitted by the 
covered SRO on which the second of the two contemporaneous offsetting 
transactions occurs that permits that transaction to be reported as 
riskless.
    (15) Round turn transaction in a security future means one purchase 
and one sale of a contract of sale for future delivery.
    (16) Physical delivery exchange-traded option means a securities 
option that is listed and registered on a national securities exchange 
and settled by the physical delivery of the underlying securities.
    (17) Section 31 bill means the bill sent by the Commission to a 
covered SRO pursuant to section 31 of the Act (15 U.S.C. 78ee) showing 
the total amount due from the covered SRO for the billing period, as 
calculated by the Commission based on the data submitted by the covered 
SRO in its Form R31 (Sec.249.11 of this chapter) submissions for the 
months of the billing period.
    (18) Trade reporting system means an automated facility operated by 
a covered SRO used to collect or compare trade data.
    (b) Reporting of covered sales and covered round turn transactions. 
(1) Each covered SRO shall submit a completed Form R31 (Sec.249.11 of 
this chapter) to the Commission within ten business days after the end 
of each month.
    (2) A covered exchange shall provide on Form R31 the following data 
on covered sales and covered round turn transactions occurring on that 
exchange and having a charge date in that month:
    (i) The aggregate dollar amount of covered sales that it reported to 
a designated clearing agency, as reflected in the data provided by the 
designated clearing agency;
    (ii) The aggregate dollar amount of covered sales resulting from the 
exercise of physical delivery exchange-traded options or from matured 
security futures, as reflected in the data provided by a designated 
clearing agency that clears and settles options or security futures;
    (iii) The aggregate dollar amount of covered sales that it captured 
in a trade reporting system but did not report to a designated clearing 
agency;
    (iv) The aggregate dollar amount of covered sales that it neither 
captured in a trade reporting system nor reported to a designated 
clearing agency; and
    (v) The total number of covered round turn transactions that it 
reported to a designated clearing agency, as reflected in the data 
provided by the designated clearing agency.

[[Page 784]]

    (3) A covered association shall provide on Form R31 the following 
data on covered sales and covered round turn transactions occurring by 
or through any member of such association otherwise than on a national 
securities exchange and having a charge date in that month:
    (i) The aggregate dollar amount of covered sales that it captured in 
a trade reporting system;
    (ii) The aggregate dollar amount of covered sales that it did not 
capture in a trade reporting system; and
    (iii) The total number of covered round turn transactions that it 
reported to a designated clearing agency, as reflected in the data 
provided by the designated clearing agency.
    (4) Duties of designated clearing agency. (i) A designated clearing 
agency shall provide a covered SRO, upon request, the data in its 
possession needed by the covered SRO to complete Part I of Form R31 
(Sec.249.11 of this chapter).
    (ii) If a covered exchange trades physical delivery exchange-traded 
options or security futures that settle by physical delivery of the 
underlying securities, the designated clearing agency that clears and 
settles such transactions shall provide that covered exchange with the 
data in its possession relating to the covered sales resulting from the 
exercise of such options or from the matured security futures. If, 
during a particular month, the designated clearing agency cannot 
determine the covered exchange on which the options or security futures 
originally were traded, the designated clearing agency shall assign 
covered sales resulting from exercises or maturations as follows. To 
provide Form R31 data to the covered exchange for a particular month, 
the designated clearing agency shall:
    (A) Calculate the aggregate dollar amount of all covered sales in 
the previous calendar month resulting from exercises and maturations, 
respectively, occurring on all covered exchanges for which it clears and 
settles transactions;
    (B) Calculate, for the previous calendar month, the aggregate dollar 
amount of covered sales of physical delivery exchange-traded options 
occurring on each covered exchange for which it clears and settles 
transactions, and the aggregate dollar amount of covered sales of 
physical delivery exchange-traded options occurring on all such 
exchanges collectively;
    (C) Calculate, for the previous calendar month, the total number of 
covered round turn transactions in security futures that settle by 
physical delivery that occurred on each covered exchange for which it 
clears and settles transactions, and the total number of covered round 
turn transactions in security futures that settle by physical delivery 
that occurred on all such exchanges collectively;
    (D) Determine for the previous calendar month each covered 
exchange's percentage of the total dollar volume of physical delivery 
exchange-traded options (``exercise percentage'') and each covered 
exchange's percentage of the total number of covered round turn 
transactions in security futures that settle by physical delivery 
(``maturation percentage''); and
    (E) In the current month, assign to each covered exchange for which 
it clears and settles covered sales the exercise percentage of the 
aggregate dollar amount of covered sales on all covered exchanges 
resulting from the exercise of physical delivery exchange-traded options 
and the maturation percentage of all covered sales on all covered 
exchanges resulting from the maturation of security futures that settle 
by physical delivery.
    (5) A covered SRO shall provide in Part I of Form R31 only the data 
supplied to it by a designated clearing agency.
    (c) Calculation and billing of section 31 fees. (1) The amount due 
from a covered SRO for a billing period, as reflected in its Section 31 
bill, shall be the sum of the monthly amounts due for each month in the 
billing period.
    (2) The monthly amount due from a covered SRO shall equal:
    (i) The aggregate dollar amount of its covered sales that have a 
charge date in that month, times the fee rate; plus
    (ii) The total number of its covered round turn transactions that 
have a charge date in that month, times the assessment charge.
    (3) By the due date, each covered SRO shall pay the Commission, 
either

[[Page 785]]

directly or through a designated clearing agency acting as agent, the 
entire amount due for the billing period, as reflected in its Section 31 
bill.

[69 FR 41078, July 7, 2004, as amended at 70 FR 37619, June 29, 2005]



Sec.240.31T  Temporary rule regarding fiscal year 2004.

    (a) Definitions. (1) For the purpose of this section, the following 
definitions shall apply:
    (i) FY2004 adjustment amount means the FY2004 recalculated amount 
minus the FY2004 prepayment amount.
    (ii) FY2004 prepayment amount means the total dollar amount of fees 
and assessments paid by a covered SRO pursuant to the March 15, 2004, 
due date for covered sales and covered round turn transactions having a 
charge date between September 1, 2003, and December 31, 2003, inclusive.
    (iii) FY2004 recalculated amount means the total dollar amount of 
fees and assessments owed by a covered SRO for covered sales and covered 
round turn transactions having a charge date between September 1, 2003, 
and December 31, 2003, inclusive, as calculated by the Commission based 
on the data submitted by the covered SRO in its Form R31 (Sec.249.11 
of this chapter) submissions for September 2003, October 2003, November 
2003, and December 2003, and indicated on a Section 31 bill for these 
months.
    (2) Any term used in this section that is defined in Sec.240.30(a) 
of this chapter shall have the same meaning as in Sec.240.30(a) of 
this chapter.
    (b) By August 13, 2004, each covered SRO shall submit to the 
Commission a completed Form R31 for each of the months September 2003 to 
June 2004, inclusive.
    (c) If the FY2004 adjustment amount of a covered SRO is a positive 
number, the covered SRO shall include the FY2004 adjustment amount with 
the payment for its next Section 31 bill.
    (d) If the FY2004 adjustment amount is a negative number, the 
Commission shall credit the FY2004 adjustment amount to the covered 
SRO's next Section 31 bill.
    (e) Notwithstanding paragraph (a)(1)(iii) of this section, any 
covered exchange that as of August 2003 was calculating its Section 31 
fees based on the trade date of its covered sales shall not include on 
its September 2003 Form R31 data for any covered sale having a trade 
date before September 1, 2003.
    (f) This temporary section shall expire on January 1, 2005.

[69 FR 41080, July 7, 2004]



Sec.240.36a1-1  Exemption from Section 7 for OTC derivatives dealers.

    Preliminary Note: OTC derivatives dealers are a special class of 
broker-dealers that are exempt from certain broker-dealer requirements, 
including membership in a self-regulatory organization (Sec.240.15b9-
2), regular broker-dealer margin rules (Sec.240.36a1-1), and 
application of the Securities Investor Protection Act of 1970 (Sec.
240.36a1-2). OTC derivative dealers are subject to special requirements, 
including limitations on the scope of their securities activities (Sec.
240.15a-1), specified internal risk management control systems (Sec.
240.15c3-4), recordkeeping obligations (Sec.240.17a-3(a)(10)), and 
reporting responsibilities (Sec.240.17a-12). They are also subject to 
alternative net capital treatment (Sec.240.15c3-1(a)(5)).

    (a) Except as otherwise provided in paragraph (b) of this section, 
transactions involving the extension of credit by an OTC derivatives 
dealer shall be exempt from the provisions of section 7(c) of the Act 
(15 U.S.C. 78g(c)), provided that the OTC derivatives dealer complies 
with Section 7(d) of the Act (15 U.S.C. 78g(d)).
    (b) The exemption provided under paragraph (a) of this section shall 
not apply to extensions of credit made directly by a registered broker 
or dealer (other than an OTC derivatives dealer) in connection with 
transactions in eligible OTC derivative instruments for which an OTC 
derivatives dealer acts as counterparty.

[63 FR 59404, Nov. 3, 1998]



Sec.240.36a1-2  Exemption from SIPA for OTC derivatives dealers.

    Preliminary Note: OTC derivatives dealers are a special class of 
broker-dealers that are exempt from certain broker-dealer requirements, 
including membership in a self-regulatory organization (Sec.240.15b9-
2), regular broker-dealer margin rules (Sec.240.36a1-1), and 
application of the Securities Investor Protection Act of 1970 (Sec.
240.36a1-2). OTC derivative dealers are subject to special requirements, 
including limitations on the scope of

[[Page 786]]

their securities activities (Sec.240.15a-1), specified internal risk 
management control systems (Sec.240.15c3-4), recordkeeping obligations 
(Sec.240.17a-3(a)(10)), and reporting responsibilities (Sec.240.17a-
12). They are also subject to alternative net capital treatment (Sec.
240.15c3-1(a)(5)).

    OTC derivatives dealers, as defined in Sec.240.3b-12, shall be 
exempt from the provisions of the Securities Investor Protection Act of 
1970 (15 U.S.C. 78aaa through 78lll).

[63 FR 59404, Nov. 3, 1998]

Subpart B--Rules and Regulations Under the Securities Investor Protection 
Act of 1970 [Reserved]



        PART 241_INTERPRETATIVE RELEASES RELATING TO THE SECURITIES
        EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS 
        THEREUNDER--Table of Contents

    Authority: 15 U.S.C. 78a et seq.

----------------------------------------------------------------------------------------------------------------
                                                      Release
                      Subject                           No.         Date            Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Excerpt from letter relating to section 16(a)......        21    Oct. 1, 1934  11 FR 10968.
Statement by Commission to correct the erroneous           68   July 22, 1934   Do.
 impression created by certain commercial
 institutions with respect to the necessity for
 filing reports with the Commission.
Letter of General Counsel relating to section 16(a)       116    Mar. 9, 1935   Do.
Opinion of General Counsel relating to section            175   Apr. 16, 1935   Do.
 16(a).
Excerpt from a general letter relating to section         227    May 14, 1935   Do.
 16(a).
Opinion of the Director of the Division of Forms         1131    Apr. 7, 1937   Do.
 and Regulations discussing the definition of
 ``parent'' as used in various forms under the
 Securities Act of 1933 and the Securities Exchange
 Act of 1934.
Statement by Commission with respect to the purpose      1350   Aug. 13, 1937  11 FR 10969.
 of the disclosure requirements of section 14 and
 the rules adopted thereunder.
Opinion of Director of the Trading and Exchange          1411    Oct. 7, 1937   Do.
 Division relating to Rules X-15C1-6 (17 CFR
 240.15c1-6) and X-10B-2 (17 CFR 240.10b-2).
Opinion of Director of the Trading and Exchange          1462   Nov. 15, 1937   Do.
 Division relating to Rule X-15C1-1(a) (17 CFR,
 240.15c1-1a).
Partial text of letter of February 2, 1938, from         1571    Feb. 5, 1938   Do.
 the Secretary of the New York Stock Exchange to
 its members, relating to Rules X-3B-3 (17 CFR
 240.3b-3), X-10A-1 (17 CFR 240.10a-1), and X-10A-2
 (17 CFR 240.10a-2), together with a letter from
 Director of Trading and Exchange Division,
 concurring in the opinions expressed by the
 Exchange.
Opinion of General Counsel relating to section           1965   Dec. 21, 1938  11 FR 10970.
 16(a).
Letter of General Counsel concerning the services        2066     May 5, 1939  11 FR 10971.
 of former employees of the Commission in
 connection with matters with which such employees
 become familiar during their course of employment
 with the Commission.
Statement of Commission and separate statement by        2446   Mar. 18, 1940   Do.
 Commissioner Healy on the problem of regulating
 the ``pegging, fixing and stabilizing'' of
 security prices under sections 9(a)(2), 9(a)(6)
 and 15(c)(1) of the Securities Exchange Act.
Statement of Commission respecting distinctions          2687   Nov. 16, 1940  11 FR 10981.
 between the reporting requirements of section
 16(a) of the Securities Exchange Act of 1934 and
 section 30(f) of the Investment Company Act of
 1940.
Statement of Commission issued in connection with        2690   Nov. 15, 1940  11 FR 10982.
 the adoption of Rules X-8C-1 (17 CFR, 240.8c-1)
 and X-15-C2-1 (17 CFR, 240.15c 2-1) under the
 Securities Exchange Act of 1934 relating to the
 hypothecation of customers' securities by members
 of national securities exchanges and other brokers
 and dealers.
Opinion of General Counsel relating to paragraph         2822   Mar. 17, 1941  11 FR 10983.
 (b)(2)(ii) of Rules X-8C-1 (17 CFR, 240.8c-1) and
 X-15C2-1 (17 CFR, 240.15C 2-1) under the
 Securities Exchange Act.
Partial text of letter sent by Director of the           3040   Oct. 13, 1941  11 FR 10984.
 Trading and Exchange Division to certain
 securities dealers who had failed to keep records
 of the times of their securities transactions, as
 required by Rules X-17A-3 (17 CFR, 240.17a-3) and
 X-17A-4 (17 CFR, 240.17a-4) under the Securities
 Exchange Act.
Opinion of General Counsel relating to the anti-         3056   Oct. 27, 1941   Do.
 manipulation provisions of sections 9(a)(2), 10(b)
 and 15(c)(1) of the Securities Exchange Act of
 1934, as well as section 17(a) of the Securities
 Act of 1933.

[[Page 787]]

 
Opinion of Chief Counsel to the Corporation Finance      3069    Jan. 4, 1945  11 FR 10985.
 Division relating to when-issued trading of
 securities the issuance of which has already been
 approved by a Federal district court under Chapter
 X of the Bankruptcy Act.
Statement of Commission policy with respect to the       3085    Dec. 6, 1941   Do.
 acceleration of the effective date of a
 registration statement.
Letter of Director of the Corporation Finance            3380    Feb. 2, 1943   Do.
 Division relating to sections 14 and 18.
Excerpts from letters of Director of the                 3385   Feb. 17, 1943   Do.
 Corporation Finance Division relating to section
 14 and Schedule 14A under Regulation X-14 (17 CFR,
 240.14a-9).
Opinion of Director of the Trading and Exchange          3505   Nov. 16, 1943  11 FR 10986.
 Division relating to the anti-manipulation
 provisions of sections 9(a)(2), 10(b), and
 15(c)(1) of the Securities Exchange Act of 1934,
 and 17(a) of the Securities Act of 1933.
Opinion of Director of the Trading and Exchange          3506   Nov. 16, 1943  11 FR 10987.
 Division relating to the anti-manipulation
 provisions of sections 9(a)(2), 10(b), and
 15(c)(1) of the Securities Exchange Act of 1934,
 and 17(a) of the Securities Act of 1933.
Statement of the Commission relating to the anti-        3572    June 1, 1944   Do.
 fraud provisions of section 17(a) of the
 Securities Act of 1933, and sections 10(b) and
 15(c)(1) of the Securities Exchange Act of 1934.
Letter of Director of the Corporation Finance            3638    Jan. 3, 1945  11 FR 10988.
 Division relating to section 20 and to Rule X-14A-
 7 (17 CFR, 240.14a-7) under the Securities
 Exchange Act of 1934.
Statement by Commission relating to section 3(a)(1)      3639    Jan. 4, 1945   Do.
Statement of the Commission in connection with the       3674    Apr. 9, 1945   Do.
 adoption of certain amendments to Form 3-M, one of
 the forms for registration of over-the-counter
 brokers or dealers under section 15(b) of the
 Securities Exchange Act of 1934, and to Rule X-15B-
 2 (17 CFR, 240.15b-2), the rule governing the
 filing of supplemental statements to such
 applications.
Statement by Commission relating to the adoption of      3803   Mar. 28, 1946   Do.
 Rule X-13A-6B (17 CFR, 240.13a-6b).
Statement of the Commission in connection with           4163  Sept. 16, 1948  13 FR 4163.
 notice of opportunity to submit proposals for
 regulations or legislation regarding the
 stabilization of market prices by persons offering
 securities to the public.
Statement of the Commission accompanying November        4185    Nov. 5, 1948  13 FR 6680.
 5, 1948, revision of Sec.240.14 of this chapter
 (Regulation X-14).
Opinion of the General Counsel, relating to the use      4593   Apr. 18, 1951  16 FR 3387.
 of ``hedge clauses'' by brokers, dealers,
 investment advisers, and others.
Statement of the Commission regarding public             5633   Jan. 31, 1958  23 FR 841.
 offerings of investment contracts providing for
 the acquisition, sale or servicing of mortgages or
 deeds of trust.
Statement of the Commission as to the applicability      6419   Nov. 18, 1960  25 FR 12178.
 of the Federal securities laws to real estate
 investment trusts.
Statement of the Commission concerning standards of      6721    Feb. 2, 1962  27 FR 1251.
 conduct for registered broker-dealers in the
 distribution of unregistered securities.
Opinion of Philip A. Loomis, Jr., Director of            6726    Feb. 8, 1962  27 FR 1415.
 Division of Trading and Exchanges of the
 Commission, on the application of section
 11(d)(1), Securities Exchange Act of 1934, to
 broker-dealers engaged in ``equity funding'',
 ``secured funding'', and ``life funding''.
Statement of the Commission cautioning broker-           6778   Apr. 16, 1962  27 FR 3991.
 dealers about violating the anti-fraud provisions
 of the Federal securities laws when making short
 sales in which they delay effecting the covering
 transaction to acquire the security.
Statement of Commission showing circumstances in 7       6982   Dec. 28, 1962  28 FR 276.
 cases where profits in real estate transactions
 were not earned at time transactions were recorded
 but that the sales were designed to create the
 illusion of profits or value as a basis for the
 sale of securities.
Answer of the Commission to four questions relating      7078    May 15, 1963  28 FR 5133.
 to the solicitation of proxies.
Statement by the Commission on the maintenance of        7169   Nov. 13, 1963  28 FR 12617.
 rec-ords of transactions by brokers-dealers as
 underwriters of investment company shares
 according to Rule 17a-3 under section 17(a) of the
 Securities Exchange Act of 1934 (17 CFR 240.17a-3).
Opinion of the General Counsel relating to               7208    Jan. 7, 1964  29 FR 341.
 participation by broker-dealer firms in proxy
 solicitations.
Statement of the Commission re applicability of          7366    July 9, 1964  29 FR 9828.
 Securities Act of 1933 to offerings of securities
 outside the U.S. and re applicability of section
 15(a) of the Securities Exchange Act of 1934 to
 foreign underwriters as part of program of
 Presidential Task Force to reduce U.S. balance of
 payments deficit and protect U.S. gold reserves.
Summary and interpretation by the Commission of          7425  Sept. 14, 1964  29 FR 13455.
 amendments to the Securities Act of 1933 and
 Securities Exchange Act of 1934 as contained in
 the Securities Acts Amendments of 1964.

[[Page 788]]

 
Opinion and statement of the Commission in regard        7763    Dec. 7, 1965  30 FR 15420.
 to proper reporting of deferred income taxes
 arising from installment sales.
Statement of the Commission to clarify the meaning       7793   Jan. 19, 1966  31 FR 1005.
 of ``beneficial ownership of securities'' as
 relates to beneficial ownership of securities held
 by family members.
Program by the Commission which it requests that         7805   Jan. 26, 1966  31 FR 2475.
 issuing companies follow in order to expedite the
 processing of proxy material.
Statement of the Commission setting the date of May      7824   Feb. 14, 1966  31 FR 3175.
 1, 1966 after which filings must reflect
 beneficial ownership of securities held by family
 members.
Policy statement by the Director of the Division of      7920   July 19, 1966  31 FR 10076.
 Trading and Markets re consummation of securities
 transactions by brokers-dealers when trading is
 suspended.
Opinions of the Commission on the acceleration of        8336   June 18, 1968  33 FR 10086.
 the effective date of a registration statement
 under the Securities Act of 1933 and on the
 clearance of proxy material such as convertible
 preferred shares considered residual securities in
 determining earnings per share applicable to
 common stock.
Statement of the Commission to alert prospective         8351    July 5, 1968  33 FR 10134.
 borrowers obtaining loans for real estate
 development about recent fraudulent schemes.
Statement of the Commission warning broker-dealers       8363   July 29, 1968  33 FR 11150.
 to be prompt in the consummation of securities
 transactions and about the penalty for not so
 doing.
Statement of the Commission re broker-dealer             8389   Aug. 29, 1968  33 FR 13005.
 registration of insurance companies acting as
 agents for distribution of ``variable annuities''
 and application of regulations for such under the
 Securities Exchange Act of 1934.
Statement of the Commission reminding broker-dealer      8404  Sept. 11, 1968  33 FR 14286.
 managements to establish and maintain an effective
 supervisory system and failure to do so will
 result in disciplinary action against the firm and
 responsible individuals.
Statement of the Commission clarifying that              8409  Sept. 16, 1968  33 FR 14545.
 industrial revenue bonds sold according to Rule
 131 (17 CFR 230.131) and Rule 3b-5 (17 CFR 240.3b-
 5) are not affected if acquired and paid for by
 the underwriters on or before December 31, 1968.
Statement of the Commission cautioning brokers and       8638    July 2, 1969  34 FR 11581.
 dealers with respect to effecting transactions of
 ``spin offs'' and ``shell corporations''.
Commission's statement about publicity concerning        8728   Oct. 20, 1969  34 FR 17433.
 the petroleum discoveries on the North Slope of
 Alaska.
Commission's warning statement re sale and               8733    Nov. 4, 1969  34 FR 18160.
 distribution of whisky warehouse receipts.
Letter by Philip A. Loomis, Jr., General Counsel         8746   Nov. 10, 1969  34 FR 18543.
 for the Commission, explaining obligations of
 mutual fund managements and brokers with respect
 to commissions on portfolio brokerage of mutual
 funds.
Publication of the Commission's guidelines re            8907   June 23, 1970  35 FR 12103.
 applicability of Federal securities laws to offer
 and sale outside the U.S. of shares of registered
 open-end investment companies.
Statement of the Commission reminding reporting          8995   Oct. 15, 1970  35 FR 16733.
 companies of obligation re Commission's rules to
 file reports on a timely basis.
Commission's statement re exemption of certain           9016    Nov. 6, 1970  35 FR 17990.
 industrial revenue bonds from registration, etc.
 requirements in view of amendment of Securities
 Act of 1933 and of Securities Exchange Act of 1934
 by ``section 401'' (Pub. L. 91-1037).
Commission's views relating to important questions       9049   Dec. 23, 1970  35 FR 19986.
 re the accounting by registered investment
 companies for investment securities in their
 financial statements and in the periodic
 computations of net asset value for the purpose of
 pricing their shares.
Publication of the Commission's procedure to be          9065   Jan. 25, 1971  36 FR 2600.
 followed if requests are to be met for no action
 or interpretative letters and responses thereto to
 be made available for public use.
Interpretations of the Commission in regard to           9083   Feb. 18, 1971  36 FR 4483.
 requirements for registration statements and
 reports concerning information requested re
 description of business, summary of operations,
 and financial statements.
Statement of the Commission warning the public           9148   Apr. 12, 1971  36 FR 8239.
 about novel unsecured debt securities which appear
 to invite unwarranted comparisons with bank
 savings accounts, savings and loan association
 accounts, and bank time deposit certificates.
Statement of the Commission prohibiting the              9210   June 16, 1971  36 FR 11918.
 reduction of fixed charges by amounts representing
 interest or investment income or gains on
 retirement of debt in registration statements or
 reports filed with the Commission.
Statement of the Commission calling attention to         9252   July 19, 1971  36 FR 13988.
 requirements in its forms and rules under the
 Securities Act of 1933 and the Securities and
 Exchange Act of 1934 for disclosure of legal
 proceedings and descriptions of registrant's
 business as these requirements relate to material
 matters involving the environment and civil rights.

[[Page 789]]

 
Commission's policy requiring the inclusion in           9279   Aug. 10, 1971  36 FR 15527.
 financial statements of the ratio of earnings to
 fixed charges for the total enterprise in
 equivalent prominence with the ratio for the
 registrant or registrant and consolidated
 subsidiaries.
Policy of Commission's Division of Corporation           9345  Sept. 27, 1971  36 FR 19362.
 Finance to defer processing registration
 statements and amendments filed under the
 Securities Act of 1933 by issuers whose reports
 are delinquent until such reports are brought up
 to date.
Commission's statement concerning applicability of       9387   Nov. 30, 1971  36 FR 23289.
 securities laws to multilevel distributorships and
 other business opportunities offered through
 pyramid sales plans.
Statement by the Commission regarding payment of         9395   Nov. 24, 1971  36 FR 23359.
 solicitation fees in tender offers.
Commission's statement concerning offering and sale      9444   Jan. 14, 1972  37 FR 600.
 of securities in non-public offerings and
 applicability of antifraud provisions of
 securities acts.
Statement of the Commission's views on the present   ........   Mar. 14, 1972  37 FR 5286
 status of the securities markets and the direction
 in which the public interest requires that they
 evolve in the future.
Commission endorses the establishment by all             9548    Apr. 5, 1972  37 FR 6850.
 publicly held companies of audit committees
 composed of outside directors.
Applicability of Commission's policy statement on        9598    May 18, 1972  37 FR 9988.
 the future structure of securities markets to
 selection of brokers and payment of commissions by
 institutional managers.
Commission's statement and policy on misleading pro      9618    June 9, 1972  37 FR 11559.
 rata stock distributions to shareholders.
Commission's guidelines on independence of               9662   June 19, 1972  37 FR 14294.
 certifying accountants; example cases and
 Commission's conclusions.
Commission's decisions on recommendations of             9796    Mar. 1, 1973  38 FR 5457.
 advisory committee regarding commencement of
 enforcement proceedings and termination of staff
 investigations.
Commission's interpretation of risk-sharing test in      9798    Oct. 5, 1972  37 FR 20937.
 pooling-of-interest accounting.
Commission's statement that short-selling                9824   Oct. 25, 1972  37 FR 22796.
 securities prior to offering date is a possible
 violation of antifraud and antimanipulative laws.
Commission reaffirms proper accounting treatment to      9867   Dec. 13, 1972  37 FR 26516.
 be followed by a lessee when the lessor is created
 as a conduit for debt financing.
Commission's interpretations of a rule (15c3-3)          9922   Jan. 18, 1973  38 FR 1737.
 dealing with customer protection by securities
 brokers and dealers.
Amendment of previous interpretation (AS-130) of         9927   Jan. 18, 1973  38 FR 1734.
 risk-sharing test in pooling of interest
 accounting.
Commission clarifies effective dates of Rule 15c3-3      9946    Feb. 5, 1973  38 FR 3313.
Commission's designation of control locations for        9969    Feb. 5, 1973   Do.
 foreign securities.
Commission's findings on disclosure of projections       9984   Mar. 19, 1973  38 FR 7220.
 of future economic performance by issuers of
 publicly traded securities.
Commission's views on reporting cash flow and other     10041   Apr. 11, 1973  38 FR 9158.
 related data.
Commission's statement on obligations of                10181    June 1, 1973  38 FR 17201.
 underwriters with respect to discretionary
 accounts.
Commission's opinion on net capital treatment of        10209    June 8, 1973  38 FR 16774.
 securities position, obligation and transactions
 in suspended securities.
Commission expresses concern with failure of            10214   July 10, 1973  38 FR 18366.
 issuers to timely and properly file periodic and
 current report.
Commission's statement and policy on application of     10304    Aug. 3, 1973  38 FR 20820.
 minimum net capital requirement.
Commission's conclusions as to certain problem          10363  Sept. 10, 1973  38 FR 24635.
 relating to the effect of treasury stock
 transactions on accounting for business
 combinations.
Commission's interpretation of market                   10388  Sept. 20, 1973  38 FR 26358.
 identification requirement of rule for reporting
 of market information on transactions in listed
 securities.
Commission's response to the New York Stock             10391  Sept. 25, 1973  38 FR 26716.
 Exchange's proposed interpretation of ``affiliated
 person''.
Commission request for comments on Accounting           10422   Oct. 17, 1973  38 FR 28819.
 Series Release No. 46.
Commission's guidelines for control locations for       10429   Oct. 23, 1973  38 FR 29217.
 foreign securities.
Commission's views and comments relating to             10547    Jan. 7, 1974  39 FR 1261.
 quarterly reporting on Form 10-Q and Form 10-QSB.
Statement by the Commission on disclosure of the        10569   Jan. 10, 1974  39 FR 1511.
 impact of possible fuel shortages on the
 operations of issuers.
Commission's statement on disclosure of inventory       10580   Jan. 17, 1974  39 FR 2085.
 profits reflected in income in periods of rising
 prices.
Commission decision on trading in securities issued     10610   Jan. 31, 1974  39 FR 3932.
 or guaranteed by the governments of Bulgaria,
 Hungary, and Romania.
Commission views on disclosure of illegal campaign      10673   Mar. 11, 1974  39 FR 10237.
 contributions.
Commission's statement of policy and                   10363A   Apr. 12, 1974  39 FR 14588.
 interpretations.
Commission's statement regarding maintenance of         10756     May 9, 1974  39 FR 16440.
 current books and records by brokers and dealers.

[[Page 790]]

 
Commission's practices on reporting of natural gas      10857   June 14, 1974  39 FR 27556.
 reserve estimates.
Commission's views on business combinations             10898    July 3, 1974  39 FR 26719.
 involving open-end investment companies.
Commission's guidelines for filings related to          10899    July 3, 1974  39 FR 26720.
 extractive reserves and natural gas supplies.
Commission's guidelines for registration and            10961   Aug. 14, 1974  39 FR 31894.
 reporting.
Commission's requirements for financial statements;     11029  Sept. 27, 1974  39 FR 36578.
 limited partnerships in annual reports.
Commission's examples of unusual risks and              11150   Dec. 23, 1994  40 FR 2678.
 uncertainties.
Letters of the Division of Corporation Finance with     11156   Dec. 26, 1994  40 FR 1695.
 respect to certain proposed arrangements for the
 sale of gold bullion.
Commission's statement on disclosure problems           11198   Jan. 23, 1975  40 FR 6483.
 relating to LIFO accounting.
Commission's guidelines on Accounting Series            11470   June 13, 1975  40 FR 27441.
 Release No. 148.
Brokers and dealers effecting transactions in           11854   Nov. 20, 1975  40 FR 57786.
 municipal securities.
Financial responsibility requirements of brokers        11969     Jan 2, 1976  41 FR 5277.
 and dealers.
Brokers and dealers effecting transactions in           12021  ..............  41 FR 3469.
 municipal securities.
Interpretation of certain terms in item 10 of Form      12078   Feb. 17, 1976  41 FR 7089.
 BD.
Brokers and dealers effecting transactions in           12288   Apr. 15, 1976  41 FR 15842.
 municipal securities.
Standards for disclosure; oil and gas reserve......     12435    May 12, 1976  41 FR 21764.
Brokers and dealers effecting transactions in           12496   June 11, 1976  41 FR 23668.
 municipal securities.
Statement of informal proposals for the rendering       12599   July 20, 1976  41 FR 29989.
 of staff advice with respect to shareholder
 proposals.
Guides for statistical disclosure by bank holding       12748   Aug. 31, 1976  41 FR 39007.
 companies.
Uniform net capital rule...........................     12766  Sept. 14, 1976  41 FR 39014.
Uniform net capital rule...........................     12927   Oct. 27, 1976  41 FR 48335.
Brokers and dealers effecting transactions in           12932   Oct. 27, 1976  41 FR 48336.
 municipal securities.
Brokers and dealers effecting transactions in           13108    Jan. 4, 1977  42 FR 759.
 municipal securities.
Brokers and dealers effecting transactions in           13362   Mar. 21, 1977  42 FR 15310.
 municipal securities.
Rescission of certain accounting series releases...     13630   June 15, 1977  42 FR 33282.
Guideline regarding the preparation of integrated       13639   June 17, 1977  42 FR 31780.
 reports to shareholders.
Industry segment determination.....................     14523    Mar. 3, 1978  43 FR 9599.
Securities transactions by members of national          14563   Mar. 14, 1978  43 FR 11542.
 securities exchanges.
Application of registration requirements to certain     14699   Apr. 24, 1978  43 FR 18163.
 tender offers and the application of tender offer
 provisions to certain cash-option mergers.
Reporting by certain institutional investors of         14830   June 13, 1978  43 FR 25420.
 beneficial ownership of certain equity securities
 which as of the end of any month exceeds ten
 percent of the class.
Division of investment management's interpretative      15292    Nov. 2, 1978  43 FR 52697.
 positions relating to Rule 13f-1 and related Form
 13F.
Guides for disclosure of projections of future          15305    Nov. 7, 1978  43 FR 53246.
 economic performance.
Commission's statement regarding disclosure of          15371   Nov. 29, 1978  43 FR 57596.
 impact of Wage and Price Standards for 1979 on the
 operations of issuers.
Statement of the views of the Commission's Division     15572   Feb. 15, 1979  44 FR 11541.
 of Corporation Finance with respect to disclosure
 in proxy statements containing certain sale of
 assets transactions.
Short sales; interpretation of rule................     16150   Aug. 30, 1979  44 FR 53159.
Shareholder communications, shareholder                 16163   Sept. 6, 1979  44 FR 53426.
 participation in the corporate electoral process
 and corporate governance generally.
Environmental disclosure requirements..............     16224  Sept. 27, 1979  44 FR 56924.
Pooled income funds................................     16478   Jan. 10, 1980  45 FR 3258.
Tender offer rules.................................     16623    Mar. 5, 1980  45 FR 15521.
Proxy rules........................................     16833    May 23, 1980  45 FR 36374.
Clearing agencies..................................     16900   June 17, 1980  45 FR 41920.
Guides for statistical disclosure by bank holding       16961    July 8, 1980  45 FR 47142.
 companies.
Transfer agents....................................     17111   Sept. 2, 1980  45 FR 59840.
Amendments to guides...............................     17114   Sept. 2, 1980  45 FR 63647.
Extension date of clearing agencies for form filing     17231   Oct. 20, 1980  45 FR 70857.
Beneficial ownership rules.........................     17354    Dec. 4, 1980  45 FR 81559.
Distribution of proxy materials to beneficial           17424    Jan. 7, 1981  46 FR 3204.
 shareowners.
Foreign Corrupt Practices Act of 1977..............     17500   Jan. 29, 1981  46 FR 11544.
Analysis of results of 1980 proxy statement             17518    Feb. 5, 1981  46 FR 11954.
 disclosure monitoring program.
Option and option-related transactions during           17609    Mar. 6, 1981  46 FR 16670.
 underwritten offerings.
Going private transactions under rule 13e-3........     17719   Apr. 13, 1981  46 FR 22571.
Insider reporting and trading......................     18114  Sept. 23, 1981  46 FR 48147.
Retail repurchase agreements by banks and savings       18122  Sept. 25, 1981  46 FR 48637.
 and loan associations.
Analysis of results of 1981 proxy statement             18532    Mar. 3, 1982  47 FR 10794.
 disclosure monitoring program.
Rescission of guides and redesignation of industry      18525    Mar. 3, 1982  47 FR 11481.
 guides (effective May 24, 1982).
Amendments to guides...............................     19337   Dec. 15, 1982  47 FR 57911.
Revision of financial statement requirements and        19570    Mar. 7, 1983  48 FR 11104.
 industry guide disclosure for bank holding
 companies..
Commission's views on Colema Realty Corp. v. R. D.      19756    May 11, 1983  48 FR 23173.
 Bibow, et al.
Revision of industry guide disclosures for bank         20068   Aug. 11, 1983  48 FR 37609.
 holding companies.

[[Page 791]]

 
Public statements by corporate representatives.....     20560   Jan. 13, 1984  49 FR 2468.
Research reports...................................     21332  Sept. 19, 1984  49 FR 37574.
Commission views on computer brokerage systems.....     21383    Oct. 9, 1984  49 FR 40159.
Guide for disclosures concerning reserves for           21521   Nov. 27, 1984  49 FR 47601.
 unpaid claims and claim adjustment expenses of
 property-casualty underwriters.
Brokerage and research services concerning scope of     23170   Apr. 23, 1986  51 FR 16012.
 section 28(e) of Securities Exchange Act of 1934.
Application of Rule 10b--6 under the Securities         23611  Sept. 11, 1986  51 FR 33248.
 Exchange Act of 1934 to persons participating in
 shelf distributions.
Industry guides for statistical disclosure by bank      23846   Nov. 25, 1986  51 FR 43599.
 holding companies.
Tender offers rules................................     24296    Apr. 3, 1987  52 FR 11458.
Statement of the Commission Regarding Disclosure        25951    Aug. 1, 1988  53 FR 29228.
 Obligations of Companies Affected by the
 Government's Defense Contract Procurement Inquiry
 and Related Issues.
Statement of the Commission Regarding Disclosure by     26508    Feb. 1, 1989  54 FR 5603.
 Issuers of interests in Publicly Offered Commodity
 Pools.
Management's discussion and analysis of financial       26831    May 18, 1989  54 FR 22427.
 condition and results of operations; certain
 investment company disclosures.
Modifying and confirming the interpretation of          26985   June 28, 1989  54 FR 28814.
 municipal underwriter securities responsibilities.
Liquidation of Index Arbitrage Positions...........     27938   Apr. 30, 1990  55 FR 17949.
Ownership reports on trading by officers, directors     29131   Apr. 26, 1991  56 FR 19928.
 and principal security holders.
Limited partnership reorganizations and public          29314   June 17, 1991  56 FR 28986.
 offerings of limited partnership interests.
Registration of Successors to Broker-Dealers and        31661    Jan. 4, 1993  58 FR 11.
 Investment Advisors.
Statement of the Commission regarding disclosure        33741    Mar. 9, 1994  59 FR 12758.
 obligations of municipal securities issuers and
 others.
Amendment of interpretation regarding substantive       34061    May 12, 1994  59 FR 26109.
 repossession of collateral.
Use of electronic media for delivery purposes......     36345    Oct. 6, 1995  60 FR 53467.
Use of electronic media for delivery purposes......     37182     May 9, 1996  61 FR 24651.
Statement of the Commission Regarding Use of            39779   Mar. 23, 1998  63 FR 14813
 Internet Web Sites to Offer Securities, Solicit
 Securities Transactions or Advertise Investment
 Services Offshore.
Confirmation and Affirmation of Securities Trades;      39829    Apr. 6, 1998  63 FR 17947
 Matching.
Statement of the Commission Regarding Disclosure of     40277   July 29, 1998  63 FR 41404.
 Year 2000 Issues and Consequences by Public
 Companies, Investment Advisers, Investment
 Companies, and Municipal Securities Issuers.
Use of electronic media............................     42728   Apr. 28, 2000  65 FR 25856.
Commission Guidance on Mini-Tender Offers and           43069   July 24, 2000  65 FR 46588.
 Limited Partnership Tender Offers.
Commission Guidance to Broker-Dealers on the Use of     44238     May 7, 2001  66 FR 22921.
 Electronic Storage Media Under the Electronic
 Signatures in Global and National Commerce Act of
 2000 With Respect to Rule 17a-4(f).
Application of the Electronic Signatures in Global      44424   June 21, 2001  66 FR 33176.
 and National Commerce Act to Record Retention
 Requirements Pertaining to Issuers.
Calculation of Average Weekly Trading Volume.......    44820A  Sept. 27, 2001  66 FR 49274
Commission Guidance on the Scope of Section 28(e)       45194   Dec. 27, 2001  67 FR 8
 of the Exchange Act.
Commission Guidance on Trading in Security Futures      46101   June 21, 2002  67 FR 43246
 Products.
Electronic Storage of Broker-Dealer Records........     47806     May 7, 2003  68 FR 25283
Books and Records Requirements for Brokers and          47910    May 22, 2003  68 FR 32311
 Dealers Under the Securities Exchange Act of 1934.
Commission Guidance on Rule 3b-3 and Married Put        48795    November 17,  68 FR 65822
 Transactions.                                                           2003
Commission Guidance Regarding Management's              48960    December 19,  68 FR 75065
 Discussion and Analysis of Financial Condition and                      2003
 Results of Operations.
Commission Guidance Regarding the Public Company        49708    May 14, 2004  69 FR 29066
 Accounting Oversight Board's Auditing and Related
 Profesional Practice Standard No. 1.
Short Sales........................................     50103   July 28, 2004  69 FR 48029
Prohibited Conduct in Connection with IPO               51500   April 7, 2005  70 FR 19677
 Allocations.
Commission Guidance Regarding Accounting for Sales      52885     December 5,  70 FR 73345
 of Vaccines and Bioterror Countermeasures to the                        2005
 Federal Government for Placement Into the
 Pediatric Vaccine Stockpile or the Strategic
 National Stockpile.
Commission Guidance Regarding Client Commission         54165   July 18, 2006  71 FR 41996
 Practices Under Section 28(e) of the Securities
 and Exchange Act of 1934.
Commission Guidance Regarding Management's Report       55929   June 20, 2007  72 FR 35343
 on Internal Control Over Financial Reporting Under
 Section 13(a) or 15(d) of the Securities and
 Exchange Act of 1934.
Commission Guidance Regarding and Amendment to the      58024   June 25, 2008  73 FR 40152
 Rules Relating to Organization and Program
 Management Concerning Proposed Rule Changes Filed
 by Self-Regulatory Organizations.
Commission Guidance on the Use of Company Web Sites     58288    Aug. 1, 2008  73 FR 45874

[[Page 792]]

 
Commission Guidance and Revisions to the Cross-         58597  Sept. 19, 2008  73 FR 60094
 Border Tender Offer, Exchange Offer, Rights
 Offerings, and Business Combination Rules and
 Beneficial Ownership Reporting Rules for Certain
 Foreign Institutions.
Regulation SHO Amendments..........................     58775   Oct. 14, 2008  73 FR 61706
Commission Guidance Regarding the Financial            60519A   Aug. 25, 2009  74 FR 42773
 Accounting Standards Board's Accounting Standards
 Codification.
Commission Guidance Regarding Disclosure Related to     61469    Feb. 2, 2010  75 FR 62973
 Climate Change.
Amendment to Municipal Securities Disclosure.......    62184A    May 26, 2010  75 FR 33156
Commission Guidance on Presentation of Liquidity        62934  Sept. 17, 2010  75 FR 59897
 and Capital Resources Disclosures in Management's
 Discussion and Analysis.
Commission Guidance Regarding Auditing,                 62991  Sept. 24, 2010  75 FR 60617
 Attestation, and Related Professional Practice
 Standards Related to Brokers and Dealers.
Commission Guidance Regarding Definitions of            67448   July 17, 2012  77 FR 42988
 Mortgage Related Security and Small Business
 Related Security.
Further Definition of ``Swap,'' ``Security-Based        67453   July 18, 2012  77 FR 48362
 Swap,'' and ``Security-Based Swap Agreement'';
 Mixed Swaps; Security-Based Swap Agreement
 Recordkeeping.
Application of ``Security-Based Swap Dealer'' and    34-72472   June 25, 2014  79 FR 47371
 ``Major Security-Based Swap Participant''
 Definitions to Cross-Border Security-Based Swap
 Activities.
Commission Guidance Regarding the Definition of the  34-75250   June 19, 2015  80 FR 37536
 Terms ``Spouse'' and ``Marriage'' Following the
 Supreme Court's Decision in United States v.
 Windsor.
Interpretation of the SEC's Whistleblower Rules      34-75592    Aug. 4, 2015  80 FR 47831
 under Section 21F of the Securities Exchange Act
 of 1934.
Interpretation Regarding Automated Quotations Under  34-78102   June 17, 2016  81 FR 40793
 Regulation NMS.
Commission Guidance Regarding Revenue Recognition    34-81428   Aug. 18, 2017  82 FR 41148
 for Bill-and-Hold Arrangements.
Updates to Commission Guidance Regarding Accounting  34-81429   Aug. 18, 2017  82 FR 41150
 for Sales of Vaccines and Bioterror
 Countermeasures to the Federal Government for
 Placement into the Pediatric Vaccine Stockpile or
 the Strategic National Stockpile.
Commission Interpretation and Guidance Regarding     34-86721   Aug. 21, 2019  84 FR 47419.
 the Applicability of the Proxy Rules to Proxy
 Voting Advice.
Commission Guidance on Management's Discussion and   34-88094   Jan. 30, 2020  85 FR 10571
 Analysis of Financial Condition and Results of
 Operations.
----------------------------------------------------------------------------------------------------------------



PART 242_REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER 
MARGIN REQUIREMENTS FOR SECURITY FUTURES--Table of Contents



                              Regulation M

Sec.
242.100 Preliminary note; definitions.
242.101 Activities by distribution participants.
242.102 Activities by issuers and selling security holders during a 
          distribution.
242.103 Nasdaq passive market making.
242.104 Stabilizing and other activities in connection with an offering.
242.105 Short selling in connection with a public offering.

                Regulation SHO--Regulation of Short Sales

242.200 Definition of ``short sale'' and marking requirements.
242.201 Circuit breaker.
242.203 Borrowing and delivery requirements.
242.204 Close-out requirement.

               Regulation ATS--Alternative Trading Systems

242.300 Definitions.
242.301 Requirements for alternative trading systems.
242.302 Recordkeeping requirements for alternative trading systems.
242.303 Record preservation requirements for alternative trading 
          systems.
242.304 NMS Stock ATSs.

            Customer Margin Requirements for Security Futures

242.400 Customer margin requirements for security futures--authority, 
          purpose, interpretation, and scope.
242.401 Definitions.
242.402 General provisions.
242.403 Required margin.
242.404 Type, form and use of margin.
242.405 Withdrawal of margin.
242.406 Undermargined accounts.

                  Regulation AC--Analyst Certification

242.500 Definitions
242.501 Certifications in connection with research reports.

[[Page 793]]

242.502 Certifications in connection with public appearances.
242.503 Certain foreign research reports.
242.504 Notification to associated persons.
242.505 Exclusion for news media.

        Regulation NMS--Regulation of the National Market System

242.600 NMS security designation and definitions.
242.601 Dissemination of transaction reports and last sale data with 
          respect to transactions in NMS stocks.
242.602 Dissemination of quotations in NMS securities.
242.603 Distribution, consolidation, and display of information with 
          respect to quotations for and transactions in NMS stocks.
242.604 Display of customer limit orders.
242.605 Disclosure of order execution information.
242.606 Disclosure of order routing information.
242.607 Customer account statements.
242.608 Filing and amendment of national market system plans.
242.609 Registration of securities information processors: form of 
          application and amendments.
242.610 Access to quotations.
242.610T Equity transaction fee pilot.
242.611 Order protection rule.
242.612 Minimum pricing increment.
242.613 Consolidated audit trail.

   Regulation SBSR--Regulatory Reporting and Public Dissemination of 
                     Security-Based Swap Information

242.900 Definitions
242.901 Reporting obligations.
242.902 Public dissemination of transaction reports.
242.903 Coded information.
242.904 Operating hours of registered security-based swap data 
          repositories.
242.905 Correction of errors in security-based swap information.
242.906 Other duties of participants.
242.907 Policies and procedures of registered security-based swap data 
          repositories.
242.908 Cross-border matters.
242.909 Registration of security-based swap data repository as a 
          securities information processor.

             Regulation SCI_Systems Compliance and Integrity

242.1000 Definitions.
242.1001 Obligations related to policies and procedures of SCI entities.
242.1002 Obligations related to SCI events.
242.1003 Obligations related to systems changes; SCI review.
242.1004 SCI entity business continuity and disaster recovery plans 
          testing requirements for members or participants.
242.1005 Recordkeeping requirements related to compliance with 
          Regulation SCI.
242.1006 Electronic filing and submission.
242.1007 Requirements for service bureaus.

    Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 
78i(a), 78j, 78k-1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 78q(a), 
78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and 80a-37.

    Source: 62 FR 544, Jan. 3, 1997, unless otherwise noted.

                              Regulation M



Sec.242.100  Preliminary note; definitions.

    (a) Preliminary note: Any transaction or series of transactions, 
whether or not effected pursuant to the provisions of Regulation M 
(Sec.Sec.242.100-242.105 of this chapter), remain subject to the 
antifraud and antimanipulation provisions of the securities laws, 
including, without limitation, Section 17(a) of the Securities Act of 
1933 [15 U.S.C. 77q(a)] and Sections 9, 10(b), and 15(c) of the 
Securities Exchange Act of 1934 [15 U.S.C. 78i, 78j(b), and 78o(c)].
    (b) For purposes of regulation M (Sec.Sec.242.100 through 242.105 
of this chapter) the following definitions shall apply:
    ADTV means the worldwide average daily trading volume during the two 
full calendar months immediately preceding, or any 60 consecutive 
calendar days ending within the 10 calendar days preceding, the filing 
of the registration statement; or, if there is no registration statement 
or if the distribution involves the sale of securities on a delayed 
basis pursuant to Sec.230.415 of this chapter, two full calendar 
months immediately preceding, or any consecutive 60 calendar days ending 
within the 10 calendar days preceding, the determination of the offering 
price.
    Affiliated purchaser means:
    (1) A person acting, directly or indirectly, in concert with a 
distribution participant, issuer, or selling security holder in 
connection with the acquisition or distribution of any covered security; 
or
    (2) An affiliate, which may be a separately identifiable department 
or division of a distribution participant, issuer, or selling security 
holder, that,

[[Page 794]]

directly or indirectly, controls the purchases of any covered security 
by a distribution participant, issuer, or selling security holder, whose 
purchases are controlled by any such person, or whose purchases are 
under common control with any such person; or
    (3) An affiliate, which may be a separately identifiable department 
or division of a distribution participant, issuer, or selling security 
holder, that regularly purchases securities for its own account or for 
the account of others, or that recommends or exercises investment 
discretion with respect to the purchase or sale of securities; Provided, 
however, That this paragraph (3) shall not apply to such affiliate if 
the following conditions are satisfied:
    (i) The distribution participant, issuer, or selling security 
holder:
    (A) Maintains and enforces written policies and procedures 
reasonably designed to prevent the flow of information to or from the 
affiliate that might result in a violation of Sec.Sec.242.101, 
242.102, and 242.104; and
    (B) Obtains an annual, independent assessment of the operation of 
such policies and procedures; and
    (ii) The affiliate has no officers (or persons performing similar 
functions) or employees (other than clerical, ministerial, or support 
personnel) in common with the distribution participant, issuer, or 
selling security holder that direct, effect, or recommend transactions 
in securities; and
    (iii) The affiliate does not, during the applicable restricted 
period, act as a market maker (other than as a specialist in compliance 
with the rules of a national securities exchange), or engage, as a 
broker or a dealer, in solicited transactions or proprietary trading, in 
covered securities.
    Agent independent of the issuer means a trustee or other person who 
is independent of the issuer. The agent shall be deemed to be 
independent of the issuer only if:
    (1) The agent is not an affiliate of the issuer; and
    (2) Neither the issuer nor any affiliate of the issuer exercises any 
direct or indirect control or influence over the prices or amounts of 
the securities to be purchased, the timing of, or the manner in which, 
the securities are to be purchased, or the selection of a broker or 
dealer (other than the independent agent itself) through which purchases 
may be executed; Provided, however, That the issuer or its affiliate 
will not be deemed to have such control or influence solely because it 
revises not more than once in any three-month period the source of the 
shares to fund the plan the basis for determining the amount of its 
contributions to a plan, or the basis for determining the frequency of 
its allocations to a plan, or any formula specified in a plan that 
determines the amount or timing of securities to be purchased by the 
agent.
    Asset-backed security has the meaning contained in Sec.229.1101 of 
this chapter.
    At-the-market offering means an offering of securities at other than 
a fixed price.
    Business day refers to a 24 hour period determined with reference to 
the principal market for the securities to be distributed, and that 
includes a complete trading session for that market.
    Completion of participation in a distribution. Securities acquired 
in the distribution for investment by any person participating in a 
distribution, or any affiliated purchaser of such person, shall be 
deemed to be distributed. A person shall be deemed to have completed its 
participation in a distribution as follows:
    (1) An issuer or selling security holder, when the distribution is 
completed;
    (2) An underwriter, when such person's participation has been 
distributed, including all other securities of the same class that are 
acquired in connection with the distribution, and any stabilization 
arrangements and trading restrictions in connection with the 
distribution have been terminated; Provided, however, That an 
underwriter's participation will not be deemed to have been completed if 
a syndicate overallotment option is exercised in an amount that exceeds 
the net syndicate short position at the time of such exercise; and
    (3) Any other person participating in the distribution, when such 
person's participation has been distributed.
    Covered security means any security that is the subject of a 
distribution, or any reference security.

[[Page 795]]

    Current exchange rate means the current rate of exchange between two 
currencies, which is obtained from at least one independent entity that 
provides or disseminates foreign exchange quotations in the ordinary 
course of its business.
    Distribution means an offering of securities, whether or not subject 
to registration under the Securities Act, that is distinguished from 
ordinary trading transactions by the magnitude of the offering and the 
presence of special selling efforts and selling methods.
    Distribution participant means an underwriter, prospective 
underwriter, broker, dealer, or other person who has agreed to 
participate or is participating in a distribution.
    Electronic communications network has the meaning provided in Sec.
242.600.
    Employee has the meaning contained in Form S-8 (Sec.239.16b of 
this chapter) relating to employee benefit plans.
    Exchange Act means the Securities Exchange Act of 1934 (15 U.S.C. 
78a et seq.).
    Independent bid means a bid by a person who is not a distribution 
participant, issuer, selling security holder, or affiliated purchaser.
    NASD means the National Association of Securities Dealers, Inc. or 
any of its subsidiaries.
    Nasdaq means the electronic dealer quotation system owned and 
operated by The Nasdaq Stock Market, Inc.
    Nasdaq security means a security that is authorized for quotation on 
Nasdaq, and such authorization is not suspended, terminated, or 
prohibited.
    Net purchases means the amount by which a passive market maker's 
purchases exceed its sales.
    Offering price means the price at which the security is to be or is 
being distributed.
    Passive market maker means a market maker that effects bids or 
purchases in accordance with the provisions of Sec.242.103.
    Penalty bid means an arrangement that permits the managing 
underwriter to reclaim a selling concession from a syndicate member in 
connection with an offering when the securities originally sold by the 
syndicate member are purchased in syndicate covering transactions.
    Plan means any bonus, profit-sharing, pension, retirement, thrift, 
savings, incentive, stock purchase, stock option, stock ownership, stock 
appreciation, dividend reinvestment, or similar plan; or any dividend or 
interest reinvestment plan or employee benefit plan as defined in Sec.
230.405 of this chapter.
    Principal market means the single securities market with the largest 
aggregate reported trading volume for the class of securities during the 
12 full calendar months immediately preceding the filing of the 
registration statement; or, if there is no registration statement or if 
the distribution involves the sale of securities on a delayed basis 
pursuant to Sec.230.415 of this chapter, during the 12 full calendar 
months immediately preceding the determination of the offering price. 
For the purpose of determining the aggregate trading volume in a 
security, the trading volume of depositary shares representing such 
security shall be included, and shall be multiplied by the multiple or 
fraction of the security represented by the depositary share. For 
purposes of this paragraph, depositary share means a security, evidenced 
by a depositary receipt, that represents another security, or a multiple 
or fraction thereof, deposited with a depositary.
    Prospective underwriter means a person:
    (1) Who has submitted a bid to the issuer or selling security 
holder, and who knows or is reasonably certain that such bid will be 
accepted, whether or not the terms and conditions of the underwriting 
have been agreed upon; or
    (2) Who has reached, or is reasonably certain to reach, an 
understanding with the issuer or selling security holder, or managing 
underwriter that such person will become an underwriter, whether or not 
the terms and conditions of the underwriting have been agreed upon.
    Public float value shall be determined in the manner set forth on 
the front page of Form 10-K (Sec.249.310 of this chapter), even if the 
issuer of such securities is not required to file Form 10-K, relating to 
the aggregate market value of common equity securities held by non-
affiliates of the issuer.

[[Page 796]]

    Reference period means the two full calendar months immediately 
preceding the filing of the registration statement or, if there is no 
registration statement or if the distribution involves the sale of 
securities on a delayed basis pursuant to Sec.230.415 of this chapter, 
the two full calendar months immediately preceding the determination of 
the offering price.
    Reference security means a security into which a security that is 
the subject of a distribution (``subject security'') may be converted, 
exchanged, or exercised or which, under the terms of the subject 
security, may in whole or in significant part determine the value of the 
subject security.
    Restricted period means:
    (1) For any security with an ADTV value of $100,000 or more of an 
issuer whose common equity securities have a public float value of $25 
million or more, the period beginning on the later of one business day 
prior to the determination of the offering price or such time that a 
person becomes a distribution participant, and ending upon such person's 
completion of participation in the distribution; and
    (2) For all other securities, the period beginning on the later of 
five business days prior to the determination of the offering price or 
such time that a person becomes a distribution participant, and ending 
upon such person's completion of participation in the distribution.
    (3) In the case of a distribution involving a merger, acquisition, 
or exchange offer, the period beginning on the day proxy solicitation or 
offering materials are first disseminated to security holders, and 
ending upon the completion of the distribution.
    Securities Act means the Securities Act of 1933 (15 U.S.C. 77a et 
seq.).
    Selling security holder means any person on whose behalf a 
distribution is made, other than an issuer.
    Stabilize or stabilizing means the placing of any bid, or the 
effecting of any purchase, for the purpose of pegging, fixing, or 
maintaining the price of a security.
    Syndicate covering transaction means the placing of any bid or the 
effecting of any purchase on behalf of the sole distributor or the 
underwriting syndicate or group to reduce a short position created in 
connection with the offering.
    30% ADTV limitation means 30 percent of the market maker's ADTV in a 
covered security during the reference period, as obtained from the NASD.
    Underwriter means a person who has agreed with an issuer or selling 
security holder:
    (1) To purchase securities for distribution; or
    (2) To distribute securities for or on behalf of such issuer or 
selling security holder; or
    (3) To manage or supervise a distribution of securities for or on 
behalf of such issuer or selling security holder.

[62 FR 544, Jan. 3, 1997, as amended at 62 FR 11323, Mar. 12, 1997; 70 
FR 1623, Jan. 7, 2005; 70 FR 37619, June 29, 2005]



Sec.242.101  Activities by distribution participants.

    (a) Unlawful Activity. In connection with a distribution of 
securities, it shall be unlawful for a distribution participant or an 
affiliated purchaser of such person, directly or indirectly, to bid for, 
purchase, or attempt to induce any person to bid for or purchase, a 
covered security during the applicable restricted period; Provided, 
however, That if a distribution participant or affiliated purchaser is 
the issuer or selling security holder of the securities subject to the 
distribution, such person shall be subject to the provisions of Sec.
242.102, rather than this section.
    (b) Excepted Activity. The following activities shall not be 
prohibited by paragraph (a) of this section:
    (1) Research. The publication or dissemination of any information, 
opinion, or recommendation, if the conditions of Sec.230.138, Sec.
230.139, or Sec.230.139b of this chapter are met; or
    (2) Transactions complying with certain other sections. Transactions 
complying with Sec.Sec.242.103 or 242.104; or
    (3) Odd-lot transactions. Transactions in odd-lots; or transactions 
to offset odd-lots in connection with an odd-lot tender offer conducted 
pursuant to Sec.240.13e-4(h)(5) of this chapter; or
    (4) Exercises of securities. The exercise of any option, warrant, 
right, or any conversion privilege set forth in the instrument governing 
a security; or

[[Page 797]]

    (5) Unsolicited transactions. Unsolicited brokerage transactions; or 
unsolicited purchases that are not effected from or through a broker or 
dealer, on a securities exchange, or through an inter-dealer quotation 
system or electronic communications network; or
    (6) Basket transactions. (i) Bids or purchases, in the ordinary 
course of business, in connection with a basket of 20 or more securities 
in which a covered security does not comprise more than 5% of the value 
of the basket purchased; or
    (ii) Adjustments to such a basket in the ordinary course of business 
as a result of a change in the composition of a standardized index; or
    (7) De minimis transactions. Purchases during the restricted period, 
other than by a passive market maker, that total less than 2% of the 
ADTV of the security being purchased, or unaccepted bids; Provided, 
however, That the person making such bid or purchase has maintained and 
enforces written policies and procedures reasonably designed to achieve 
compliance with the other provisions of this section; or
    (8) Transactions in connection with a distribution. Transactions 
among distribution participants in connection with a distribution, and 
purchases of securities from an issuer or selling security holder in 
connection with a distribution, that are not effected on a securities 
exchange, or through an inter-dealer quotation system or electronic 
communications network; or
    (9) Offers to sell or the solicitation of offers to buy. Offers to 
sell or the solicitation of offers to buy the securities being 
distributed (including securities acquired in stabilizing), or 
securities offered as principal by the person making such offer or 
solicitation; or
    (10) Transactions in Rule 144A securities. Transactions in 
securities eligible for resale under Sec.230.144A(d)(3) of this 
chapter, or any reference security, if the Rule 144A securities are sold 
in the United States solely to:
    (i) Qualified institutional buyers, as defined in Sec.
230.144A(a)(1) of this chapter, or to purchasers that the seller and any 
person acting on behalf of the seller reasonably believes are qualified 
institutional buyers, in transactions exempt from registration under 
section 4(2) of the Securities Act (15 U.S.C. 77d(2)) or Sec.Sec.
230.144A or Sec.230.500 et seq of this chapter; or
    (ii) Persons not deemed to be ``U.S. persons'' for purposes of 
Sec.Sec.230.902(o)(2) or 230.902(o)(7) of this chapter, during a 
distribution qualifying under paragraph (b)(10)(i) of this section.
    (c) Excepted Securities. The provisions of this section shall not 
apply to any of the following securities:
    (1) Actively-traded securities. Securities that have an ADTV value 
of at least $1 million and are issued by an issuer whose common equity 
securities have a public float value of at least $150 million; Provided, 
however, That such securities are not issued by the distribution 
participant or an affiliate of the distribution participant; or
    (2) Investment grade nonconvertible and asset-backed securities. 
Nonconvertible debt securities, nonconvertible preferred securities, and 
asset-backed securities, that are rated by at least one nationally 
recognized statistical rating organization, as that term is used in 
Sec.240.15c3-1 of this chapter, in one of its generic rating 
categories that signifies investment grade; or
    (3) Exempted securities. ``Exempted securities'' as defined in 
section 3(a)(12) of the Exchange Act (15 U.S.C. 78c(a)(12)); or
    (4) Face-amount certificates or securities issued by an open-end 
management investment company or unit investment trust. Face-amount 
certificates issued by a face-amount certificate company, or redeemable 
securities issued by an open-end management investment company or a unit 
investment trust. Any terms used in this paragraph (c)(4) that are 
defined in the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) 
shall have the meanings specified in such Act.
    (d) Exemptive authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, to any transaction or class of transactions, or to any 
security or class of securities.

[62 FR 544, Jan. 3, 1997, as amended at 77 FR 18685, Mar. 28, 2012; 78 
FR 44805, July 24, 2013; 83 FR 64222, Dec. 13, 2018]

[[Page 798]]



Sec.242.102  Activities by issuers and selling security holders during
a distribution.

    (a) Unlawful Activity. In connection with a distribution of 
securities effected by or on behalf of an issuer or selling security 
holder, it shall be unlawful for such person, or any affiliated 
purchaser of such person, directly or indirectly, to bid for, purchase, 
or attempt to induce any person to bid for or purchase, a covered 
security during the applicable restricted period; Except That if an 
affiliated purchaser is a distribution participant, such affiliated 
purchaser may comply with Sec.242.101, rather than this section.
    (b) Excepted Activity. The following activities shall not be 
prohibited by paragraph (a) of this section:
    (1) Odd-lot transactions. Transactions in odd-lots, or transactions 
to offset odd-lots in connection with an odd-lot tender offer conducted 
pursuant to Sec.240.13e-4(h)(5) of this chapter; or
    (2) Transactions by closed-end investment companies. (i) 
Transactions complying with Sec.270.23c-3 of this chapter; or
    (ii) Periodic tender offers of securities, at net asset value, 
conducted pursuant to Sec.240.13e-4 of this chapter by a closed-end 
investment company that engages in a continuous offering of its 
securities pursuant to Sec.230.415 of this chapter; Provided, however, 
That such securities are not traded on a securities exchange or through 
an inter-dealer quotation system or electronic communications network; 
or
    (3) Redemptions by commodity pools or limited partnerships. 
Redemptions by commodity pools or limited partnerships, at a price based 
on net asset value, which are effected in accordance with the terms and 
conditions of the instruments governing the securities; Provided, 
however, That such securities are not traded on a securities exchange, 
or through an inter-dealer quotation system or electronic communications 
network; or
    (4) Exercises of securities. The exercise of any option, warrant, 
right, or any conversion privilege set forth in the instrument governing 
a security; or
    (5) Offers to sell or the solicitation of offers to buy. Offers to 
sell or the solicitation of offers to buy the securities being 
distributed; or
    (6) Unsolicited purchases. Unsolicited purchases that are not 
effected from or through a broker or dealer, on a securities exchange, 
or through an inter-dealer quotation system or electronic communications 
network; or
    (7) Transactions in Rule 144A securities. Transactions in securities 
eligible for resale under Sec.230.144A(d)(3) of this chapter, or any 
reference security, if the Rule 144A securities are sold in the United 
States solely to:
    (i) Qualified institutional buyers, as defined in Sec.
230.144A(a)(1) of this chapter, or to purchasers that the seller and any 
person acting on behalf of the seller reasonably believes are qualified 
institutional buyers, in transactions exempt from registration under 
section 4(2) of the Securities Act (15 U.S.C. 77d(2)) or Sec.Sec.
230.144A or Sec.230.500 et seq of this chapter; or
    (ii) Persons not deemed to be ``U.S. persons'' for purposes of 
Sec.Sec.230.902(o)(2) or 230.902(o)(7) of this chapter, during a 
distribution qualifying under paragraph (b)(7)(i) of this section.
    (c) Plans. (1) Paragraph (a) of this section shall not apply to 
distributions of securities pursuant to a plan, which are made:
    (i) Solely to employees or security holders of an issuer or its 
subsidiaries, or to a trustee or other person acquiring such securities 
for the accounts of such persons; or
    (ii) To persons other than employees or security holders, if bids 
for or purchases of securities pursuant to the plan are effected solely 
by an agent independent of the issuer and the securities are from a 
source other than the issuer or an affiliated purchaser of the issuer.
    (2) Bids for or purchases of any security made or effected by or for 
a plan shall be deemed to be a purchase by the issuer unless the bid is 
made, or the purchase is effected, by an agent independent of the 
issuer.
    (d) Excepted Securities. The provisions of this section shall not 
apply to any of the following securities:
    (1) Actively-traded reference securities. Reference securities with 
an ADTV value of at least $1 million that are

[[Page 799]]

issued by an issuer whose common equity securities have a public float 
value of at least $150 million; Provided, however, That such securities 
are not issued by the issuer, or any affiliate of the issuer, of the 
security in distribution.
    (2) Investment grade nonconvertible and asset-backed securities. 
Nonconvertible debt securities, nonconvertible preferred securities, and 
asset-backed securities, that are rated by at least one nationally 
recognized statistical rating organization, as that term is used in 
Sec.240.15c3-1 of this chapter, in one of its generic rating 
categories that signifies investment grade; or
    (3) Exempted securities. ``Exempted securities'' as defined in 
section 3(a)(12) of the Exchange Act (15 U.S.C. 78c(a)(12)); or
    (4) Face-amount certificates or securities issued by an open-end 
management investment company or unit investment trust. Face-amount 
certificates issued by a face-amount certificate company, or redeemable 
securities issued by an open-end management investment company or a unit 
investment trust. Any terms used in this paragraph (d)(4) that are 
defined in the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) 
shall have the meanings specified in such Act.
    (e) Exemptive Authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, to any transaction or class of transactions, or to any 
security or class of securities.

[62 FR 544, Jan. 3, 1997, as amended at 62 FR 11323, Mar. 12, 1997; 77 
FR 18685, Mar. 28, 2012; 78 FR 44805, July 24, 2013]



Sec.242.103  Nasdaq passive market making.

    (a) Scope of section. This section permits broker-dealers to engage 
in market making transactions in covered securities that are Nasdaq 
securities without violating the provisions of Sec.242.101; Except 
That this section shall not apply to any security for which a 
stabilizing bid subject to Sec.242.104 is in effect, or during any at-
the-market offering or best efforts offering.
    (b) Conditions to be met--(1) General limitations. A passive market 
maker must effect all transactions in the capacity of a registered 
market maker on Nasdaq. A passive market maker shall not bid for or 
purchase a covered security at a price that exceeds the highest 
independent bid for the covered security at the time of the transaction, 
except as permitted by paragraph (b)(3) of this section or required by a 
rule promulgated by the Commission or the NASD governing the handling of 
customer orders.
    (2) Purchase limitation. On each day of the restricted period, a 
passive market maker's net purchases shall not exceed the greater of its 
30% ADTV limitation or 200 shares (together, ``purchase limitation''); 
Provided, however, That a passive market maker may purchase all of the 
securities that are part of a single order that, when executed, results 
in its purchase limitation being equalled or exceeded. If a passive 
market maker's net purchases equal or exceed its purchase limitation, it 
shall withdraw promptly its quotations from Nasdaq. If a passive market 
maker withdraws its quotations pursuant to this paragraph, it may not 
effect any bid or purchase in the covered security for the remainder of 
that day, irrespective of any later sales during that day, unless 
otherwise permitted by Sec.242.101.
    (3) Requirement to lower the bid. If all independent bids for a 
covered security are reduced to a price below the passive market maker's 
bid, the passive market maker must lower its bid promptly to a level not 
higher than the then highest independent bid; Provided, however, That a 
passive market maker may continue to bid and effect purchases at its bid 
at a price exceeding the then highest independent bid until the passive 
market maker purchases an aggregate amount of the covered security that 
equals or, through the purchase of all securities that are part of a 
single order, exceeds the lesser of two times the minimum quotation size 
for the security, as determined by NASD rules, or the passive market 
maker's remaining purchasing capacity under paragraph (b)(2) of this 
section.

[[Page 800]]

    (4) Limitation on displayed size. At all times, the passive market 
maker's displayed bid size may not exceed the lesser of the minimum 
quotation size for the covered security, or the passive market maker's 
remaining purchasing capacity under paragraph (b)(2) of this section; 
Provided, however, That a passive market maker whose purchasing capacity 
at any time is between one and 99 shares may display a bid size of 100 
shares.
    (5) Identification of a passive market making bid. The bid displayed 
by a passive market maker shall be designated as such.
    (6) Notification and reporting to the NASD. A passive market maker 
shall notify the NASD in advance of its intention to engage in passive 
market making, and shall submit to the NASD information regarding 
passive market making purchases, in such form as the NASD shall 
prescribe.
    (7) Prospectus disclosure. The prospectus for any registered 
offering in which any passive market maker intends to effect 
transactions in any covered security shall contain the information 
required in Sec.Sec.228.502, 228.508, 229.502, and 229.508 of this 
chapter.
    (c) Transactions at prices resulting from unlawful activity. No 
transaction shall be made at a price that the passive market maker knows 
or has reason to know is the result of activity that is fraudulent, 
manipulative, or deceptive under the securities laws, or any rule or 
regulation thereunder.



Sec.242.104  Stabilizing and other activities in connection with 
an offering.

    (a) Unlawful activity. It shall be unlawful for any person, directly 
or indirectly, to stabilize, to effect any syndicate covering 
transaction, or to impose a penalty bid, in connection with an offering 
of any security, in contravention of the provisions of this section. No 
stabilizing shall be effected at a price that the person stabilizing 
knows or has reason to know is in contravention of this section, or is 
the result of activity that is fraudulent, manipulative, or deceptive 
under the securities laws, or any rule or regulation thereunder.
    (b) Purpose. Stabilizing is prohibited except for the purpose of 
preventing or retarding a decline in the market price of a security.
    (c) Priority. To the extent permitted or required by the market 
where stabilizing occurs, any person stabilizing shall grant priority to 
any independent bid at the same price irrespective of the size of such 
independent bid at the time that it is entered.
    (d) Control of stabilizing. No sole distributor or syndicate or 
group stabilizing the price of a security or any member or members of 
such syndicate or group shall maintain more than one stabilizing bid in 
any one market at the same price at the same time.
    (e) At-the-market offerings. Stabilizing is prohibited in an at-the-
market offering.
    (f) Stabilizing levels--(1) Maximum stabilizing bid. Notwithstanding 
the other provisions of this paragraph (f), no stabilizing shall be made 
at a price higher than the lower of the offering price or the 
stabilizing bid for the security in the principal market (or, if the 
principal market is closed, the stabilizing bid in the principal market 
at its previous close).
    (2) Initiating stabilizing--(i) Initiating stabilizing when the 
principal market is open. After the opening of quotations for the 
security in the principal market, stabilizing may be initiated in any 
market at a price no higher than the last independent transaction price 
for the security in the principal market if the security has traded in 
the principal market on the day stabilizing is initiated or on the most 
recent prior day of trading in the principal market and the current 
asked price in the principal market is equal to or greater than the last 
independent transaction price. If both conditions of the preceding 
sentence are not satisfied, stabilizing may be initiated in any market 
after the opening of quotations in the principal market at a price no 
higher than the highest current independent bid for the security in the 
principal market.
    (ii) Initiating stabilizing when the principal market is closed. (A) 
When the principal market for the security is closed, but immediately 
before the opening of quotations for the security in the market where 
stabilizing will be initiated, stabilizing may be initiated at a price 
no higher than the lower of:

[[Page 801]]

    (1) The price at which stabilizing could have been initiated in the 
principal market for the security at its previous close; or
    (2) The most recent price at which an independent transaction in the 
security has been effected in any market since the close of the 
principal market, if the person stabilizing knows or has reason to know 
of such transaction.
    (B) When the principal market for the security is closed, but after 
the opening of quotations in the market where stabilizing will be 
initiated, stabilizing may be initiated at a price no higher than the 
lower of:
    (1) The price at which stabilization could have been initiated in 
the principal market for the security at its previous close; or
    (2) The last independent transaction price for the security in that 
market if the security has traded in that market on the day stabilizing 
is initiated or on the last preceding business day and the current asked 
price in that market is equal to or greater than the last independent 
transaction price. If both conditions of the preceding sentence are not 
satisfied, under this paragraph (f)(2)(ii)(B)(2), stabilizing may be 
initiated at a price no higher than the highest current independent bid 
for the security in that market.
    (iii) Initiating stabilizing when there is no market for the 
security or before the offering price is determined. If no bona fide 
market for the security being distributed exists at the time stabilizing 
is initiated, no stabilizing shall be initiated at a price in excess of 
the offering price. If stabilizing is initiated before the offering 
price is determined, then stabilizing may be continued after 
determination of the offering price at the price at which stabilizing 
then could be initiated.
    (3) Maintaining or carrying over a stabilizing bid. A stabilizing 
bid initiated pursuant to paragraph (f)(2) of this section, which has 
not been discontinued, may be maintained, or carried over into another 
market, irrespective of changes in the independent bids or transaction 
prices for the security.
    (4) Increasing or reducing a stabilizing bid. A stabilizing bid may 
be increased to a price no higher than the highest current independent 
bid for the security in the principal market if the principal market is 
open, or, if the principal market is closed, to a price no higher than 
the highest independent bid in the principal market at the previous 
close thereof. A stabilizing bid may be reduced, or carried over into 
another market at a reduced price, irrespective of changes in the 
independent bids or transaction prices for the security. If stabilizing 
is discontinued, it shall not be resumed at a price higher than the 
price at which stabilizing then could be initiated.
    (5) Initiating, maintaining, or adjusting a stabilizing bid to 
reflect the current exchange rate. If a stabilizing bid is expressed in 
a currency other than the currency of the principal market for the 
security, such bid may be initiated, maintained, or adjusted to reflect 
the current exchange rate, consistent with the provisions of this 
section. If, in initiating, maintaining, or adjusting a stabilizing bid 
pursuant to this paragraph (f)(5), the bid would be at or below the 
midpoint between two trading differentials, such stabilizing bid shall 
be adjusted downward to the lower differential.
    (6) Adjustments to stabilizing bid. If a security goes ex-dividend, 
ex-rights, or ex-distribution, the stabilizing bid shall be reduced by 
an amount equal to the value of the dividend, right, or distribution. 
If, in reducing a stabilizing bid pursuant to this paragraph (f)(6), the 
bid would be at or below the midpoint between two trading differentials, 
such stabilizing bid shall be adjusted downward to the lower 
differential.
    (7) Stabilizing of components. When two or more securities are being 
offered as a unit, the component securities shall not be stabilized at 
prices the sum of which exceeds the then permissible stabilizing price 
for the unit.
    (8) Special prices. Any stabilizing price that otherwise meets the 
requirements of this section need not be adjusted to reflect special 
prices available to any group or class of persons (including employees 
or holders of warrants or rights).
    (g) Offerings with no U.S. stabilizing activities. (1) Stabilizing 
to facilitate an offering of a security in the United

[[Page 802]]

States shall not be deemed to be in violation of this section if all of 
the following conditions are satisfied:
    (i) No stabilizing is made in the United States;
    (ii) Stabilizing outside the United States is made in a jurisdiction 
with statutory or regulatory provisions governing stabilizing that are 
comparable to the provisions of this section; and
    (iii) No stabilizing is made at a price above the offering price in 
the United States, except as permitted by paragraph (f)(5) of this 
section.
    (2) For purposes of this paragraph (g), the Commission by rule, 
regulation, or order may determine whether a foreign statute or 
regulation is comparable to this section considering, among other 
things, whether such foreign statute or regulation: specifies 
appropriate purposes for which stabilizing is permitted; provides for 
disclosure and control of stabilizing activities; places limitations on 
stabilizing levels; requires appropriate recordkeeping; provides other 
protections comparable to the provisions of this section; and whether 
procedures exist to enable the Commission to obtain information 
concerning any foreign stabilizing transactions.
    (h) Disclosure and notification. (1) Any person displaying or 
transmitting a bid that such person knows is for the purpose of 
stabilizing shall provide prior notice to the market on which such 
stabilizing will be effected, and shall disclose its purpose to the 
person with whom the bid is entered.
    (2) Any person effecting a syndicate covering transaction or 
imposing a penalty bid shall provide prior notice to the self-regulatory 
organization with direct authority over the principal market in the 
United States for the security for which the syndicate covering 
transaction is effected or the penalty bid is imposed.
    (3) Any person subject to this section who sells to, or purchases 
for the account of, any person any security where the price of such 
security may be or has been stabilized, shall send to the purchaser at 
or before the completion of the transaction, a prospectus, offering 
circular, confirmation, or other document containing a statement similar 
to that comprising the statement provided for in Item 502(d) of 
Regulation S-B (Sec.228.502(d) of this chapter) or Item 502(d) of 
Regulation S-K (Sec.229.502(d) of this chapter).
    (i) Recordkeeping requirements. A person subject to this section 
shall keep the information and make the notification required by Sec.
240.17a-2 of this chapter.
    (j) Excepted securities. The provisions of this section shall not 
apply to:
    (1) Exempted securities. ``Exempted securities,'' as defined in 
section 3(a)(12) of the Exchange Act (15 U.S.C. 78c(a)(12)); or
    (2) Transactions of Rule 144A securities. Transactions in securities 
eligible for resale under Sec.230.144A(d)(3) of this chapter, if such 
securities are sold in the United States solely to:
    (i) Qualified institutional buyers, as defined in Sec.
230.144A(a)(1) of this chapter, or to purchasers that the seller and any 
person acting on behalf of the seller reasonably believes are qualified 
institutional buyers, in a transaction exempt from registration under 
section 4(2) of the Securities Act (15 U.S.C. 77d(2)) or Sec.Sec.
230.144A or Sec.230.500 et seq of this chapter; or
    (ii) Persons not deemed to be ``U.S. persons'' for purposes of 
Sec.Sec.230.902(o)(2) or 230.902(o)(7) of this chapter, during a 
distribution qualifying under paragraph (j)(2)(i) of this section.
    (k) Exemptive authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, to any transaction or class of transactions, or to any 
security or class of securities.

[62 FR 544, Jan. 3, 1997, as amended at 62 FR 11323, Mar. 12, 1997; 62 
FR 13213, Mar. 19, 1997; 77 FR 18685, Mar. 28, 2012; 78 FR 44805, July 
24, 2013]



Sec.242.105  Short selling in connection with a public offering.

    (a) Unlawful activity. In connection with an offering of equity 
securities for cash pursuant to a registration statement or a 
notification on Form 1-A (Sec.239.90 of this chapter) or Form 1-E 
(Sec.239.200 of this chapter) filed under the Securities Act of 1933 
(``offered securities''), it shall be unlawful for any person to sell 
short (as defined in

[[Page 803]]

Sec.242.200(a)) the security that is the subject of the offering and 
purchase the offered securities from an underwriter or broker or dealer 
participating in the offering if such short sale was effected during the 
period (``Rule 105 restricted period'') that is the shorter of the 
period:
    (1) Beginning five business days before the pricing of the offered 
securities and ending with such pricing; or
    (2) Beginning with the initial filing of such registration statement 
or notification on Form 1-A or Form 1-E and ending with the pricing.
    (b) Excepted activity--(1) Bona fide purchase. It shall not be 
prohibited for such person to purchase the offered securities as 
provided in paragraph (a) of this section if:
    (i) Such person makes a bona fide purchase(s) of the security that 
is the subject of the offering that is:
    (A) At least equivalent in quantity to the entire amount of the Rule 
105 restricted period short sale(s);
    (B) Effected during regular trading hours;
    (C) Reported to an ``effective transaction reporting plan'' (as 
defined in Sec.242.600(b)(23)); and
    (D) Effected after the last Rule 105 restricted period short sale, 
and no later than the business day prior to the day of pricing; and
    (ii) Such person did not effect a short sale, that is reported to an 
effective transaction reporting plan, within the 30 minutes prior to the 
close of regular trading hours (as defined in Sec.242.600(b)(68)) on 
the business day prior to the day of pricing.
    (2) Separate accounts. Paragraph (a) of this section shall not 
prohibit the purchase of the offered security in an account of a person 
where such person sold short during the Rule 105 restricted period in a 
separate account, if decisions regarding securities transactions for 
each account are made separately and without coordination of trading or 
cooperation among or between the accounts.
    (3) Investment companies. Paragraph (a) of this section shall not 
prohibit an investment company (as defined by Section 3 of the 
Investment Company Act) that is registered under Section 8 of the 
Investment Company Act, or a series of such company (investment company) 
from purchasing an offered security where any of the following sold the 
offered security short during the Rule 105 restricted period:
    (i) An affiliated investment company, or any series of such a 
company; or
    (ii) A separate series of the investment company.
    (c) Excepted offerings. This section shall not apply to offerings 
that are not conducted on a firm commitment basis.
    (d) Exemptive authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, to any transaction or class of transactions, or to any 
security or class of securities.

[62 FR 544, Jan. 3, 1997, as amended at 69 FR 48029, Aug. 6, 2004; 72 FR 
45107, Aug. 10, 2007; 83 FR 58427, Nov. 19, 2018]

                Regulation SHO--Regulation of Short Sales



Sec.242.200  Definition of ``short sale'' and marking requirements.

    (a) The term short sale shall mean any sale of a security which the 
seller does not own or any sale which is consummated by the delivery of 
a security borrowed by, or for the account of, the seller.
    (b) A person shall be deemed to own a security if:
    (1) The person or his agent has title to it; or
    (2) The person has purchased, or has entered into an unconditional 
contract, binding on both parties thereto, to purchase it, but has not 
yet received it; or
    (3) The person owns a security convertible into or exchangeable for 
it and has tendered such security for conversion or exchange; or
    (4) The person has an option to purchase or acquire it and has 
exercised such option; or
    (5) The person has rights or warrants to subscribe to it and has 
exercised such rights or warrants; or
    (6) The person holds a security futures contract to purchase it and 
has received notice that the position will be physically settled and is 
irrevocably

[[Page 804]]

bound to receive the underlying security.
    (c) A person shall be deemed to own securities only to the extent 
that he has a net long position in such securities.
    (d) A broker or dealer shall be deemed to own a security, even if it 
is not net long, if:
    (1) The broker or dealer acquired that security while acting in the 
capacity of a block positioner; and
    (2) If and to the extent that the broker or dealer's short position 
in the security is the subject of offsetting positions created in the 
course of bona fide arbitrage, risk arbitrage, or bona fide hedge 
activities.
    (e) A broker-dealer shall be deemed to own a security even if it is 
not net long, if:
    (1) The broker-dealer is unwinding index arbitrage position 
involving a long basket of stock and one or more short index futures 
traded on a board of trade or one or more standardized options contracts 
as defined in 17 CFR 240.9b-1(a)(4); and
    (2) If and to the extent that the broker-dealer's short position in 
the security is the subject of offsetting positions created and 
maintained in the course of bona-fide arbitrage, risk arbitrage, or bona 
fide hedge activities; and
    (3) The sale does not occur during a period commencing at the time 
that the NYSE Composite Index has declined by two percent or more from 
its closing value on the previous day and terminating upon the end of 
the trading day. The two percent shall be calculated at the beginning of 
each calendar quarter and shall be two percent, rounded down to the 
nearest 10 points, of the average closing value of the NYSE Composite 
Index for the last month of the previous quarter.
    (f) In order to determine its net position, a broker or dealer shall 
aggregate all of its positions in a security unless it qualifies for 
independent trading unit aggregation, in which case each independent 
trading unit shall aggregate all of its positions in a security to 
determine its net position. Independent trading unit aggregation is 
available only if:
    (1) The broker or dealer has a written plan of organization that 
identifies each aggregation unit, specifies its trading objective(s), 
and supports its independent identity;
    (2) Each aggregation unit within the firm determines, at the time of 
each sale, its net position for every security that it trades;
    (3) All traders in an aggregation unit pursue only the particular 
trading objective(s) or strategy(s) of that aggregation unit and do not 
coordinate that strategy with any other aggregation unit; and
    (4) Individual traders are assigned to only one aggregation unit at 
any time.
    (g) A broker or dealer must mark all sell orders of any equity 
security as ``long,'' ``short,'' or ``short exempt.''
    (1) An order to sell shall be marked ``long'' only if the seller is 
deemed to own the security being sold pursuant to paragraphs (a) through 
(f) of this section and either:
    (i) The security to be delivered is in the physical possession or 
control of the broker or dealer; or
    (ii) It is reasonably expected that the security will be in the 
physical possession or control of the broker or dealer no later than the 
settlement of the transaction.
    (2) A sale order shall be marked ``short exempt'' only if the 
provisions of Sec.242.201(c) or (d) are met.
    (h) Upon written application or upon its own motion, the Commission 
may grant an exemption from the provisions of this section, either 
unconditionally or on specified terms and conditions, to any transaction 
or class of transactions, or to any security or class of securities, or 
to any person or class of persons.

[69 FR 48029, Aug. 6, 2004, as amended at 72 FR 36359, July 3, 2007; 72 
FR 45557, Aug. 14, 2007; 75 FR 11323, Mar. 10, 2010]



Sec.242.201  Circuit breaker.

    (a) Definitions. For the purposes of this section:
    (1) The term covered security shall mean any NMS stock as defined in 
Sec.242.600(b)(48).
    (2) The term effective transaction reporting plan for a covered 
security shall have the same meaning as in Sec.242.600(b)(23).
    (3) The term listing market shall have the same meaning as the term 
``listing

[[Page 805]]

market'' as defined in the effective transaction reporting plan for the 
covered security.
    (4) The term national best bid shall have the same meaning as in 
Sec.242.600(b)(43).
    (5) The term odd lot shall have the same meaning as in Sec.
242.600(b)(51).
    (6) The term plan processor shall have the same meaning as in Sec.
242.600(b)(59).
    (7) The term regular trading hours shall have the same meaning as in 
Sec.242.600(b)(68).
    (8) The term riskless principal shall mean a transaction in which a 
broker or dealer, after having received an order to buy a security, 
purchases the security as principal at the same price to satisfy the 
order to buy, exclusive of any explicitly disclosed markup or markdown, 
commission equivalent, or other fee, or, after having received an order 
to sell, sells the security as principal at the same price to satisfy 
the order to sell, exclusive of any explicitly disclosed markup or 
markdown, commission equivalent, or other fee.
    (9) The term trading center shall have the same meaning as in Sec.
242.600(b)(82).
    (b)(1) A trading center shall establish, maintain, and enforce 
written policies and procedures reasonably designed to:
    (i) Prevent the execution or display of a short sale order of a 
covered security at a price that is less than or equal to the current 
national best bid if the price of that covered security decreases by 10% 
or more from the covered security's closing price as determined by the 
listing market for the covered security as of the end of regular trading 
hours on the prior day; and
    (ii) Impose the requirements of paragraph (b)(1)(i) of this section 
for the remainder of the day and the following day when a national best 
bid for the covered security is calculated and disseminated on a current 
and continuing basis by a plan processor pursuant to an effective 
national market system plan.
    (iii) Provided, however, that the policies and procedures must be 
reasonably designed to permit:
    (A) The execution of a displayed short sale order of a covered 
security by a trading center if, at the time of initial display of the 
short sale order, the order was at a price above the current national 
best bid; and
    (B) The execution or display of a short sale order of a covered 
security marked ``short exempt'' without regard to whether the order is 
at a price that is less than or equal to the current national best bid.
    (2) A trading center shall regularly surveil to ascertain the 
effectiveness of the policies and procedures required by paragraph 
(b)(1) of this section and shall take prompt action to remedy 
deficiencies in such policies and procedures.
    (3) The determination regarding whether the price of a covered 
security has decreased by 10% or more from the covered security's 
closing price as determined by the listing market for the covered 
security as of the end of regular trading hours on the prior day shall 
be made by the listing market for the covered security and, if such 
decrease has occurred, the listing market shall immediately notify the 
single plan processor responsible for consolidation of information for 
the covered security pursuant to Sec.242.603(b). The single plan 
processor must then disseminate this information.
    (c) Following any determination and notification pursuant to 
paragraph (b)(3) of this section with respect to a covered security, a 
broker or dealer submitting a short sale order of the covered security 
in question to a trading center may mark the order ``short exempt'' if 
the broker or dealer identifies the order as being at a price above the 
current national best bid at the time of submission; provided, however:
    (1) The broker or dealer that identifies a short sale order of a 
covered security as ``short exempt'' in accordance with this paragraph 
(c) must establish, maintain, and enforce written policies and 
procedures reasonably designed to prevent incorrect identification of 
orders for purposes of this paragraph; and
    (2) The broker or dealer shall regularly surveil to ascertain the 
effectiveness of the policies and procedures required by paragraph 
(c)(1) of this section and shall take prompt action to remedy 
deficiencies in such policies and procedures.
    (d) Following any determination and notification pursuant to 
paragraph

[[Page 806]]

(b)(3) of this section with respect to a covered security, a broker or 
dealer may mark a short sale order of a covered security ``short 
exempt'' if the broker or dealer has a reasonable basis to believe that:
    (1) The short sale order of a covered security is by a person that 
is deemed to own the covered security pursuant to Sec.242.200, 
provided that the person intends to deliver the security as soon as all 
restrictions on delivery have been removed.
    (2) The short sale order of a covered security is by a market maker 
to offset customer odd-lot orders or to liquidate an odd-lot position 
that changes such broker's or dealer's position by no more than a unit 
of trading.
    (3) The short sale order of a covered security is for a good faith 
account of a person who then owns another security by virtue of which he 
is, or presently will be, entitled to acquire an equivalent number of 
securities of the same class as the securities sold; provided such sale, 
or the purchase which such sale offsets, is effected for the bona fide 
purpose of profiting from a current difference between the price of the 
security sold and the security owned and that such right of acquisition 
was originally attached to or represented by another security or was 
issued to all the holders of any such securities of the issuer.
    (4) The short sale order of a covered security is for a good faith 
account and submitted to profit from a current price difference between 
a security on a foreign securities market and a security on a securities 
market subject to the jurisdiction of the United States, provided that 
the short seller has an offer to buy on a foreign market that allows the 
seller to immediately cover the short sale at the time it was made. For 
the purposes of this paragraph (d)(4), a depository receipt of a 
security shall be deemed to be the same security as the security 
represented by such receipt.
    (5)(i) The short sale order of a covered security is by an 
underwriter or member of a syndicate or group participating in the 
distribution of a security in connection with an over-allotment of 
securities; or
    (ii) The short sale order of a covered security is for purposes of a 
lay-off sale by an underwriter or member of a syndicate or group in 
connection with a distribution of securities through a rights or standby 
underwriting commitment.
    (6) The short sale order of a covered security is by a broker or 
dealer effecting the execution of a customer purchase or the execution 
of a customer ``long'' sale on a riskless principal basis. In addition, 
for purposes of this paragraph (d)(6), a broker or dealer must have 
written policies and procedures in place to assure that, at a minimum:
    (i) The customer order was received prior to the offsetting 
transaction;
    (ii) The offsetting transaction is allocated to a riskless principal 
or customer account within 60 seconds of execution; and
    (iii) The broker or dealer has supervisory systems in place to 
produce records that enable the broker or dealer to accurately and 
readily reconstruct, in a time-sequenced manner, all orders on which a 
broker or dealer relies pursuant to this exception.
    (7) The short sale order is for the sale of a covered security at 
the volume weighted average price (VWAP) that meets the following 
criteria:
    (i) The VWAP for the covered security is calculated by:
    (A) Calculating the values for every regular way trade reported in 
the consolidated system for the security during the regular trading 
session, by multiplying each such price by the total number of shares 
traded at that price;
    (B) Compiling an aggregate sum of all values; and
    (C) Dividing the aggregate sum by the total number of reported 
shares for that day in the security.
    (ii) The transactions are reported using a special VWAP trade 
modifier.
    (iii) The VWAP matched security:
    (A) Qualifies as an ``actively-traded security'' pursuant to Sec.
242.101 and Sec.242.102; or
    (B) The proposed short sale transaction is being conducted as part 
of a basket transaction of twenty or more securities in which the 
subject security does not comprise more than 5% of the value of the 
basket traded.

[[Page 807]]

    (iv) The transaction is not effected for the purpose of creating 
actual, or apparent, active trading in or otherwise affecting the price 
of any security.
    (v) A broker or dealer shall be permitted to act as principal on the 
contra-side to fill customer short sale orders only if the broker's or 
dealer's position in the covered security, as committed by the broker or 
dealer during the pre-opening period of a trading day and aggregated 
across all of its customers who propose to sell short the same security 
on a VWAP basis, does not exceed 10% of the covered security's relevant 
average daily trading volume.
    (e) No self-regulatory organization shall have any rule that is not 
in conformity with, or conflicts with, this section.
    (f) Upon written application or upon its own motion, the Commission 
may grant an exemption from the provisions of this section, either 
unconditionally or on specified terms and conditions, to any person or 
class of persons, to any transaction or class of transactions, or to any 
security or class of securities to the extent that such exemption is 
necessary or appropriate, in the public interest, and is consistent with 
the protection of investors.

[75 FR 11323, Mar. 10, 2010, as amended at 83 FR 58427, Nov. 19, 2018]



Sec.242.203  Borrowing and delivery requirements.

    (a) Long sales. (1) If a broker or dealer knows or has reasonable 
grounds to believe that the sale of an equity security was or will be 
effected pursuant to an order marked ``long,'' such broker or dealer 
shall not lend or arrange for the loan of any security for delivery to 
the purchaser's broker after the sale, or fail to deliver a security on 
the date delivery is due.
    (2) The provisions of paragraph (a)(1) of this section shall not 
apply:
    (i) To the loan of any security by a broker or dealer through the 
medium of a loan to another broker or dealer;
    (ii) If the broker or dealer knows, or has been reasonably informed 
by the seller, that the seller owns the security, and that the seller 
would deliver the security to the broker or dealer prior to the 
scheduled settlement of the transaction, but the seller failed to do so; 
or
    (iii) If, prior to any loan or arrangement to loan any security for 
delivery, or failure to deliver, a national securities exchange, in the 
case of a sale effected thereon, or a national securities association, 
in the case of a sale not effected on an exchange, finds:
    (A) That such sale resulted from a mistake made in good faith;
    (B) That due diligence was used to ascertain that the circumstances 
specified in Sec.242.200(g) existed; and
    (C) Either that the condition of the market at the time the mistake 
was discovered was such that undue hardship would result from covering 
the transaction by a ``purchase for cash'' or that the mistake was made 
by the seller's broker and the sale was at a permissible price under any 
applicable short sale price test.
    (b) Short sales. (1) A broker or dealer may not accept a short sale 
order in an equity security from another person, or effect a short sale 
in an equity security for its own account, unless the broker or dealer 
has:
    (i) Borrowed the security, or entered into a bona-fide arrangement 
to borrow the security; or
    (ii) Reasonable grounds to believe that the security can be borrowed 
so that it can be delivered on the date delivery is due; and
    (iii) Documented compliance with this paragraph (b)(1).
    (2) The provisions of paragraph (b)(1) of this section shall not 
apply to:
    (i) A broker or dealer that has accepted a short sale order from 
another registered broker or dealer that is required to comply with 
paragraph (b)(1) of this section, unless the broker or dealer relying on 
this exception contractually undertook responsibility for compliance 
with paragraph (b)(1) of this section;
    (ii) Any sale of a security that a person is deemed to own pursuant 
to Sec.242.200, provided that the broker or dealer has been reasonably 
informed that the person intends to deliver such security as soon as all 
restrictions on delivery have been removed. If the person has not 
delivered such security within 35 days after the trade date, the

[[Page 808]]

broker-dealer that effected the sale must borrow securities or close out 
the short position by purchasing securities of like kind and quantity;
    (iii) Short sales effected by a market maker in connection with 
bona-fide market making activities in the security for which this 
exception is claimed; and
    (iv) Transactions in security futures.
    (3) If a participant of a registered clearing agency has a fail to 
deliver position at a registered clearing agency in a threshold security 
for thirteen consecutive settlement days, the participant shall 
immediately thereafter close out the fail to deliver position by 
purchasing securities of like kind and quantity:
    (i) Provided, however, that a participant of a registered clearing 
agency that has a fail to deliver position at a registered clearing 
agency in a threshold security on the effective date of this amendment 
and which, prior to the effective date of this amendment, had been 
previously grandfathered from the close-out requirement in this 
paragraph (b)(3) (i.e., because the participant of a registered clearing 
agency had a fail to deliver position at a registered clearing agency on 
the settlement day preceding the day that the security became a 
threshold security), shall close out that fail to deliver position 
within thirty-five consecutive settlement days of the effective date of 
this amendment by purchasing securities of like kind and quantity;
    (ii) Provided, however, that if a participant of a registered 
clearing agency has a fail to deliver position at a registered clearing 
agency in a threshold security that was sold pursuant to Sec.230.144 
of this chapter for thirty-five consecutive settlement days, the 
participant shall immediately thereafter close out the fail to deliver 
position in the security by purchasing securities of like kind and 
quantity;
    (iii) Provided, however, that a participant of a registered clearing 
agency that has a fail to deliver position at a registered clearing 
agency in a threshold security on the effective date of this amendment 
and which, prior to the effective date of this amendment, had been 
previously excepted from the close-out requirement in paragraph (b)(3) 
of this section (i.e., because the participant of a registered clearing 
agency had a fail to deliver position in the threshold security that is 
attributed to short sales effected by a registered options market maker 
to establish or maintain a hedge on options positions that were created 
before the security became a threshold security), shall immediately 
close out that fail to deliver position, including any adjustments to 
the fail to deliver position, within 35 consecutive settlement days of 
the effective date of this amendment by purchasing securities of like 
kind and quantity;
    (iv) If a participant of a registered clearing agency has a fail to 
deliver position at a registered clearing agency in a threshold security 
for thirteen consecutive settlement days, the participant and any broker 
or dealer for which it clears transactions, including any market maker 
that would otherwise be entitled to rely on the exception provided in 
paragraph (b)(2)(iii) of this section, may not accept a short sale order 
in the threshold security from another person, or effect a short sale in 
the threshold security for its own account, without borrowing the 
security or entering into a bona-fide arrangement to borrow the 
security, until the participant closes out the fail to deliver position 
by purchasing securities of like kind and quantity;
    (v) If a participant of a registered clearing agency entitled to 
rely on the 35 consecutive settlement day close-out requirement 
contained in paragraph (b)(3)(i), (b)(3)(ii), or (b)(3)(iii) of this 
section has a fail to deliver position at a registered clearing agency 
in the threshold security for 35 consecutive settlement days, the 
participant and any broker or dealer for which it clears transactions, 
including any market maker, that would otherwise be entitled to rely on 
the exception provided in paragraph (b)(2)(ii) of this section, may not 
accept a short sale order in the threshold security from another person, 
or effect a short sale in the threshold security for its own account, 
without borrowing the security or entering into a bona fide arrangement 
to

[[Page 809]]

borrow the security, until the participant closes out the fail to 
deliver position by purchasing securities of like kind and quantity;
    (vi) If a participant of a registered clearing agency reasonably 
allocates a portion of a fail to deliver position to another registered 
broker or dealer for which it clears trades or for which it is 
responsible for settlement, based on such broker or dealer's short 
position, then the provisions of this paragraph (b)(3) relating to such 
fail to deliver position shall apply to the portion of such registered 
broker or dealer that was allocated the fail to deliver position, and 
not to the participant; and
    (vii) A participant of a registered clearing agency shall not be 
deemed to have fulfilled the requirements of this paragraph (b)(3) where 
the participant enters into an arrangement with another person to 
purchase securities as required by this paragraph (b)(3), and the 
participant knows or has reason to know that the other person will not 
deliver securities in settlement of the purchase.
    (c) Definitions. (1) For purposes of this section, the term market 
maker has the same meaning as in section 3(a)(38) of the Securities 
Exchange Act of 1934 (``Exchange Act'') (15 U.S.C. 78c(a)(38)).
    (2) For purposes of this section, the term participant has the same 
meaning as in section 3(a)(24) of the Exchange Act (15 U.S.C. 
78c(a)(24)).
    (3) For purposes of this section, the term registered clearing 
agency means a clearing agency, as defined in section 3(a)(23)(A) of the 
Exchange Act (15 U.S.C. 78c(a)(23)(A)), that is registered with the 
Commission pursuant to section 17A of the Exchange Act (15 U.S.C. 78q-
1).
    (4) For purposes of this section, the term security future has the 
same meaning as in section 3(a)(55) of the Exchange Act (15 U.S.C. 
78c(a)(55)).
    (5) For purposes of this section, the term settlement day means any 
business day on which deliveries of securities and payments of money may 
be made through the facilities of a registered clearing agency.
    (6) For purposes of this section, the term threshold security means 
any equity security of an issuer that is registered pursuant to section 
12 of the Exchange Act (15 U.S.C. 78l) or for which the issuer is 
required to file reports pursuant to section 15(d) of the Exchange Act 
(15 U.S.C. 78o(d)):
    (i) For which there is an aggregate fail to deliver position for 
five consecutive settlement days at a registered clearing agency of 
10,000 shares or more, and that is equal to at least 0.5% of the issue's 
total shares outstanding;
    (ii) Is included on a list disseminated to its members by a self-
regulatory organization; and
    (iii) Provided, however, that a security shall cease to be a 
threshold security if the aggregate fail to deliver position at a 
registered clearing agency does not exceed the level specified in 
paragraph (c)(6)(i) of this section for five consecutive settlement 
days.
    (d) Exemptive authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, to any transaction or class of transactions, or to any 
security or class of securities, or to any person or class of persons.

[69 FR 48029, Aug. 6, 2004, as amended at 72 FR 45557, Aug. 14, 2007; 73 
FR 61706, Oct. 17, 2008]



Sec.242.204  Close-out requirement.

    (a) A participant of a registered clearing agency must deliver 
securities to a registered clearing agency for clearance and settlement 
on a long or short sale in any equity security by settlement date, or if 
a participant of a registered clearing agency has a fail to deliver 
position at a registered clearing agency in any equity security for a 
long or short sale transaction in that equity security, the participant 
shall, by no later than the beginning of regular trading hours on the 
settlement day following the settlement date, immediately close out its 
fail to deliver position by borrowing or purchasing securities of like 
kind and quantity; Provided, however:
    (1) If a participant of a registered clearing agency has a fail to 
deliver position at a registered clearing agency in any equity security 
and the participant can demonstrate on its books and

[[Page 810]]

records that such fail to deliver position resulted from a long sale, 
the participant shall by no later than the beginning of regular trading 
hours on the third consecutive settlement day following the settlement 
date, immediately close out the fail to deliver position by purchasing 
or borrowing securities of like kind and quantity;
    (2) If a participant of a registered clearing agency has a fail to 
deliver position at a registered clearing agency in any equity security 
resulting from a sale of a security that a person is deemed to own 
pursuant to Sec.242.200 and that such person intends to deliver as 
soon as all restrictions on delivery have been removed, the participant 
shall, by no later than the begining of regular trading hours on the 
thirty-fifth consecutive calendar day following the trade date for the 
transaction, immediately close out the fail to deliver position by 
purchasing securities of like kind and quantity; or
    (3) If a participant of a registered clearing agency has a fail to 
deliver position at a registered clearing agency in any equity security 
that is attributable to bona fide market making activities by a 
registered market maker, options market maker, or other market maker 
obligated to quote in the over-the-counter market, the participant shall 
by no later than the beginning of regular trading hours on the third 
consecutive settlement day following the settlement date, immediately 
close out the fail to deliver position by purchasing or borrowing 
securities of like kind and quantity.
    (b) If a participant of a registered clearing agency has a fail to 
deliver position in any equity security at a registered clearing agency 
and does not close out such fail to deliver position in accordance with 
the requirements of paragraph (a) of this section, the participant and 
any broker or dealer from which it receives trades for clearance and 
settlement, including any market maker that would otherwise be entitled 
to rely on the exception provided in Sec.242.203(b)(2)(iii), may not 
accept a short sale order in the equity security from another person, or 
effect a short sale in the equity security for its own account, to the 
extent that the broker or dealer submits its short sales to that 
participant for clearance and settlement, without first borrowing the 
security, or entering into a bona fide arrangement to borrow the 
security, until the participant closes out the fail to deliver position 
by purchasing securities of like kind and quantity and that purchase has 
cleared and settled at a registered clearing agency; Provided, however: 
A broker or dealer shall not be subject to the requirements of this 
paragraph if the broker or dealer timely certifies to the participant of 
a registered clearing agency that it has not incurred a fail to deliver 
position on settlement date for a long or short sale in an equity 
security for which the participant has a fail to deliver position at a 
registered clearing agency or that the broker or dealer is in compliance 
with paragraph (e) of this section.
    (c) The participant must notify any broker or dealer from which it 
receives trades for clearance and settlement, including any market maker 
that would otherwise be entitled to rely on the exception provided in 
Sec.242.203(b)(2)(iii):
    (1) That the participant has a fail to deliver position in an equity 
security at a registered clearing agency that has not been closed out in 
accordance with the requirements of paragraph (a) of this section; and
    (2) When the purchase that the participant has made to close out the 
fail to deliver position has cleared and settled at a registered 
clearing agency.
    (d) If a participant of a registered clearing agency reasonably 
allocates a portion of a fail to deliver position to another registered 
broker or dealer for which it clears trades or from which it receives 
trades for settlement, based on such broker's or dealer's short 
position, the provisions of paragraphs (a) and (b) of this section 
relating to such fail to deliver position shall apply to such registered 
broker or dealer that was allocated the fail to deliver position, and 
not to the participant. A broker or dealer that has been allocated a 
portion of a fail to deliver position that does not comply with the 
provisions of paragraph (a) of this section must immediately notify the 
participant that it has become subject to the requirements of paragraph 
(b) of this section.

[[Page 811]]

    (e) Even if a participant of a registered clearing agency has not 
closed out a fail to deliver position at a registered clearing agency in 
accordance with paragraph (a) of this section, or has not allocated a 
fail to deliver position to a broker or dealer in accordance with 
paragraph (d) of this section, a broker or dealer shall not be subject 
to the requirements of paragraph (a) or (b) of this section if the 
broker or dealer purchases or borrows the securities, and if:
    (1) The purchase or borrow is bona fide;
    (2) The purchase or borrow is executed after trade date but by no 
later than the end of regular trading hours on settlement date for the 
transaction;
    (3) The purchase or borrow is of a quantity of securities sufficient 
to cover the entire amount of that broker's or dealer's fail to deliver 
position at a registered clearing agency in that security; and
    (4) The broker or dealer can demonstrate that it has a net flat or 
net long position on its books and records on the day of the purchase or 
borrow.
    (f) A participant of a registered clearing agency shall not be 
deemed to have fulfilled the requirements of this section where the 
participant enters into an arrangement with another person to purchase 
or borrow securities as required by this section, and the participant 
knows or has reason to know that the other person will not deliver 
securities in settlement of the purchase or borrow.
    (g) Definitions. (1) For purposes of this section, the term 
settlement date shall mean the business day on which delivery of a 
security and payment of money is to be made through the facilities of a 
registered clearing agency in connection with the sale of a security.
    (2) For purposes of this section, the term regular trading hours has 
the same meaning as in Sec.600(b)(68) of Regulation NMS (17 CFR 
242.600(b)(68)).

[74 FR 38292, July 31, 2009, as amended at 83 FR 58427, Nov. 19, 2018]

               Regulation ATS--Alternative Trading Systems

    Source: Sections 242.300 through 242.303 appear at 63 FR 70921, Dec. 
22, 1998, unless otherwise noted.

                            Preliminary Notes

    1. An alternative trading system is required to comply with the 
requirements in this Regulation ATS, unless such alternative trading 
system:
    (a) Is registered as a national securities exchange;
    (b) Is exempt from registration as a national securities exchange 
based on the limited volume of transactions effected on the alternative 
trading system; or
    (c) Trades only government securities and certain other related 
instruments.
    All alternative trading systems must comply with the antifraud, 
antimanipulation, and other applicable provisions of the federal 
securities laws.
    2. The requirements imposed upon an alternative trading system by 
Regulation ATS are in addition to any requirements applicable to broker-
dealers registered under section 15 of the Act, (15 U.S.C. 78o).
    3. An alternative trading system must comply with any applicable 
state law relating to the offer or sale of securities or the 
registration or regulation of persons or entities effecting transactions 
in securities.
    4. The disclosures made pursuant to the provisions of this section 
are in addition to any other disclosure requirements under the federal 
securities laws.



Sec.242.300  Definitions.

    For purposes of this section, the following definitions shall apply:
    (a) Alternative trading system means any organization, association, 
person, group of persons, or system:
    (1) That constitutes, maintains, or provides a market place or 
facilities for bringing together purchasers and sellers of securities or 
for otherwise performing with respect to securities the functions 
commonly performed by a stock exchange within the meaning of Sec.
240.3b-16 of this chapter; and
    (2) That does not:
    (i) Set rules governing the conduct of subscribers other than the 
conduct of such subscribers' trading on such organization, association, 
person, group of persons, or system; or
    (ii) Discipline subscribers other than by exclusion from trading.

[[Page 812]]

    (b) Subscriber means any person that has entered into a contractual 
agreement with an alternative trading system to access such alternative 
trading system for the purpose of effecting transactions in securities 
or submitting, disseminating, or displaying orders on such alternative 
trading system, including a customer, member, user, or participant in an 
alternative trading system. A subscriber, however, shall not include a 
national securities exchange or national securities association.
    (c) Affiliate of a subscriber means any person that, directly or 
indirectly, controls, is under common control with, or is controlled by, 
the subscriber, including any employee.
    (d) Debt security shall mean any security other than an equity 
security, as defined in Sec.240.3a11-1 of this chapter, as well as 
non-participatory preferred stock.
    (e) Order means any firm indication of a willingness to buy or sell 
a security, as either principal or agent, including any bid or offer 
quotation, market order, limit order, or other priced order.
    (f) Control means the power, directly or indirectly, to direct the 
management or policies of the broker-dealer of an alternative trading 
system, whether through ownership of securities, by contract, or 
otherwise. A person is presumed to control the broker-dealer of an 
alternative trading system, if that person:
    (1) Is a director, general partner, or officer exercising executive 
responsibility (or having similar status or performing similar 
functions);
    (2) Directly or indirectly has the right to vote 25 percent or more 
of a class of voting security or has the power to sell or direct the 
sale of 25 percent or more of a class of voting securities of the 
broker-dealer of the alternative trading system; or
    (3) In the case of a partnership, has contributed, or has the right 
to receive upon dissolution, 25 percent or more of the capital of the 
broker-dealer of the alternative trading system.
    (g) NMS stock shall have the meaning provided in Sec.242.600; 
provided, however, that a debt or convertible debt security shall not be 
deemed an NMS stock for purposes of this Regulation ATS.
    (h) Effective transaction reporting plan shall have the meaning 
provided in Sec.242.600.
    (i) Corporate debt security shall mean any security that:
    (1) Evidences a liability of the issuer of such security;
    (2) Has a fixed maturity date that is at least one year following 
the date of issuance; and
    (3) Is not an exempted security, as defined in section 3(a)(12) of 
the Act (15 U.S.C. 78c(a)(12)).
    (j) Commercial paper shall mean any note, draft, or bill of exchange 
which arises out of a current transaction or the proceeds of which have 
been or are to be used for current transactions, and which has a 
maturity at the time of issuance of not exceeding nine months, exclusive 
of days of grace, or any renewal thereof the maturity of which is 
likewise limited.
    (k) NMS Stock ATS means an alternative trading system, as defined in 
paragraph (a) of this section, that trades NMS stocks, as defined in 
paragraph (g) of this section.

[62 FR 544, Jan. 3, 1997, as amended at 70 FR 37619, June 29, 2005; 74 
FR 52372, Oct. 9, 2009; 83 FR 38911, Aug. 7, 2018]



Sec.242.301  Requirements for alternative trading systems.

    (a) Scope of section. An alternative trading system shall comply 
with the requirements in paragraph (b) of this section, unless such 
alternative trading system:
    (1) Is registered as an exchange under section 6 of the Act, (15 
U.S.C. 78f);
    (2) Is exempted by the Commission from registration as an exchange 
based on the limited volume of transactions effected;
    (3) Is operated by a national securities association;
    (4)(i) Is registered as a broker-dealer under sections 15(b) or 15C 
of the Act (15 U.S.C. 78o(b), and 78o-5), or is a bank, and
    (ii) Limits its securities activities to the following instruments:
    (A) Government securities, as defined in section 3(a)(42) of the 
Act, (15 U.S.C. 78c(a)(42));

[[Page 813]]

    (B) Repurchase and reverse repurchase agreements solely involving 
securities included within paragraph (a)(4)(ii)(A) of this section;
    (C) Any put, call, straddle, option, or privilege on a government 
security, other than a put, call, straddle, option, or privilege that:
    (1) Is traded on one or more national securities exchanges; or
    (2) For which quotations are disseminated through an automated 
quotation system operated by a registered securities association; and
    (D) Commercial paper.
    (5) Is exempted, conditionally or unconditionally, by Commission 
order, after application by such alternative trading system, from one or 
more of the requirements of paragraph (b) of this section or Sec.
242.304. The Commission will grant such exemption only after determining 
that such an order is consistent with the public interest, the 
protection of investors, and the removal of impediments to, and 
perfection of the mechanisms of, a national market system.
    (b) Requirements. Every alternative trading system subject to this 
Regulation ATS, pursuant to paragraph (a) of this section, shall comply 
with the requirements in this paragraph (b).
    (1) Broker-dealer registration. The alternative trading system shall 
register as a broker-dealer under section 15 of the Act, (15 U.S.C. 
78o).
    (2) Notice. (i) The alternative trading system shall file an initial 
operation report on Form ATS, Sec.249.637 of this chapter, in 
accordance with the instructions therein, at least 20 days prior to 
commencing operation as an alternative trading system.
    (ii) The alternative trading system shall file an amendment on Form 
ATS at least 20 calendar days prior to implementing a material change to 
the operation of the alternative trading system.
    (iii) If any information contained in the initial operation report 
filed under paragraph (b)(2)(i) of this section becomes inaccurate for 
any reason and has not been previously reported to the Commission as an 
amendment on Form ATS, the alternative trading system shall file an 
amendment on Form ATS correcting such information within 30 calendar 
days after the end of each calendar quarter in which the alternative 
trading system has operated.
    (iv) The alternative trading system shall promptly file an amendment 
on Form ATS correcting information previously reported on Form ATS after 
discovery that any information filed under paragraphs (b)(2)(i), (ii) or 
(iii) of this section was inaccurate when filed.
    (v) The alternative trading system shall promptly file a cessation 
of operations report on Form ATS in accordance with the instructions 
therein upon ceasing to operate as an alternative trading system.
    (vi) Every notice or amendment filed pursuant to this paragraph 
(b)(2) shall constitute a ``report'' within the meaning of sections 11A, 
17(a), 18(a), and 32(a), (15 U.S.C. 78k-1, 78q(a), 78r(a), and 78ff(a)), 
and any other applicable provisions of the Act.
    (vii) The reports provided for in paragraph (b)(2) of this section 
shall be considered filed upon receipt by the Division of Trading and 
Markets, at the Commission's principal office in Washington, DC. 
Duplicate originals of the reports provided for in paragraphs (b)(2)(i) 
through (v) of this section must be filed with surveillance personnel 
designated as such by any self-regulatory organization that is the 
designated examining authority for the alternative trading system 
pursuant to Sec.240.17d-1 of this chapter simultaneously with filing 
with the Commission. Duplicates of the reports required by paragraph 
(b)(9) of this section shall be provided to surveillance personnel of 
such self-regulatory authority upon request. All reports filed pursuant 
to this paragraph (b)(2) and paragraph (b)(9) of this section shall be 
deemed confidential when filed.
    (viii) An NMS Stock ATS that is operating pursuant to an initial 
operation report on Form ATS on file with the Commission as of January 
7, 2019 (``Legacy NMS Stock ATS'') shall be subject to the requirements 
of paragraphs (b)(2)(i) through (vii) of this section until that ATS 
files an initial Form ATS-N with the Commission pursuant to Sec.
242.304(a)(1)(iv)(A). Thereafter, the Legacy NMS Stock ATS shall file 
reports pursuant to Sec.242.304. An alternative trading system that

[[Page 814]]

trades NMS stocks and securities other than NMS stocks shall be subject 
to the requirements of Sec.242.304 of this chapter with respect to NMS 
stocks and paragraph (b)(2) of this section with respect to non-NMS 
stocks. As of January 7, 2019, an entity seeking to operate as an NMS 
Stock ATS shall not be subject to the requirements of paragraphs 
(b)(2)(i) through (vii) of this section and shall file reports pursuant 
to Sec.242.304.
    (3) Order display and execution access. (i) An alternative trading 
system shall comply with the requirements set forth in paragraph 
(b)(3)(ii) of this section, with respect to any NMS stock in which the 
alternative trading system:
    (A) Displays subscriber orders to any person (other than alternative 
trading system employees); and
    (B) During at least 4 of the preceding 6 calendar months, had an 
average daily trading volume of 5 percent or more of the aggregate 
average daily share volume for such NMS stock as reported by an 
effective transaction reporting plan.
    (ii) Such alternative trading system shall provide to a national 
securities exchange or national securities association the prices and 
sizes of the orders at the highest buy price and the lowest sell price 
for such NMS stock, displayed to more than one person in the alternative 
trading system, for inclusion in the quotation data made available by 
the national securities exchange or national securities association to 
vendors pursuant to Sec.242.602.
    (iii) With respect to any order displayed pursuant to paragraph 
(b)(3)(ii) of this section, an alternative trading system shall provide 
to any broker-dealer that has access to the national securities exchange 
or national securities association to which the alternative trading 
system provides the prices and sizes of displayed orders pursuant to 
paragraph (b)(3)(ii) of this section, the ability to effect a 
transaction with such orders that is:
    (A) Equivalent to the ability of such broker-dealer to effect a 
transaction with other orders displayed on the exchange or by the 
association; and
    (B) At the price of the highest priced buy order or lowest priced 
sell order displayed for the lesser of the cumulative size of such 
priced orders entered therein at such price, or the size of the 
execution sought by such broker-dealer.
    (4) Fees. The alternative trading system shall not charge any fee to 
broker-dealers that access the alternative trading system through a 
national securities exchange or national securities association, that is 
inconsistent with equivalent access to the alternative trading system 
required by paragraph (b)(3)(iii) of this section. In addition, if the 
national securities exchange or national securities association to which 
an alternative trading system provides the prices and sizes of orders 
under paragraphs (b)(3)(ii) and (b)(3)(iii) of this section establishes 
rules designed to assure consistency with standards for access to 
quotations displayed on such national securities exchange, or the market 
operated by such national securities association, the alternative 
trading system shall not charge any fee to members that is contrary to, 
that is not disclosed in the manner required by, or that is inconsistent 
with any standard of equivalent access established by such rules.
    (5) Fair access. (i) An alternative trading system shall comply with 
the requirements in paragraph (b)(5)(ii) of this section, if during at 
least 4 of the preceding 6 calendar months, such alternative trading 
system had:
    (A) With respect to any NMS stock, 5 percent or more of the average 
daily volume in that security reported by an effective transaction 
reporting plan;
    (B) With respect to an equity security that is not an NMS stock and 
for which transactions are reported to a self-regulatory organization, 5 
percent or more of the average daily trading volume in that security as 
calculated by the self-regulatory organization to which such 
transactions are reported;
    (C) With respect to municipal securities, 5 percent or more of the 
average daily volume traded in the United States; or
    (D) With respect to corporate debt securities, 5 percent or more of 
the average daily volume traded in the United States.
    (ii) An alternative trading system shall:

[[Page 815]]

    (A) Establish written standards for granting access to trading on 
its system;
    (B) Not unreasonably prohibit or limit any person in respect to 
access to services offered by such alternative trading system by 
applying the standards established under paragraph (b)(5)(ii)(A) of this 
section in an unfair or discriminatory manner;
    (C) Make and keep records of:
    (1) All grants of access including, for all subscribers, the reasons 
for granting such access; and
    (2) All denials or limitations of access and reasons, for each 
applicant, for denying or limiting access; and
    (D) Report the information required on Form ATS-R (Sec.249.638 of 
this chapter) regarding grants, denials, and limitations of access.
    (iii) Notwithstanding paragraph (b)(5)(i) of this section, an 
alternative trading system shall not be required to comply with the 
requirements in paragraph (b)(5)(ii) of this section, if such 
alternative trading system:
    (A) Matches customer orders for a security with other customer 
orders;
    (B) Such customers' orders are not displayed to any person, other 
than employees of the alternative trading system; and
    (C) Such orders are executed at a price for such security 
disseminated by an effective transaction reporting plan, or derived from 
such prices.
    (6) Capacity, integrity, and security of automated systems. (i) The 
alternative trading system shall comply with the requirements in 
paragraph (b)(6)(ii) of this section, if during at least 4 of the 
preceding 6 calendar months, such alternative trading system had:
    (A) With respect to municipal securities, 20 percent or more of the 
average daily volume traded in the United States; or
    (B) With respect to corporate debt securities, 20 percent or more of 
the average daily volume traded in the United States.
    (ii) With respect to those systems that support order entry, order 
routing, order execution, transaction reporting, and trade comparison, 
the alternative trading system shall:
    (A) Establish reasonable current and future capacity estimates;
    (B) Conduct periodic capacity stress tests of critical systems to 
determine such system's ability to process transactions in an accurate, 
timely, and efficient manner;
    (C) Develop and implement reasonable procedures to review and keep 
current its system development and testing methodology;
    (D) Review the vulnerability of its systems and data center computer 
operations to internal and external threats, physical hazards, and 
natural disasters;
    (E) Establish adequate contingency and disaster recovery plans;
    (F) On an annual basis, perform an independent review, in accordance 
with established audit procedures and standards, of such alternative 
trading system's controls for ensuring that paragraphs (b)(6)(ii)(A) 
through (E) of this section are met, and conduct a review by senior 
management of a report containing the recommendations and conclusions of 
the independent review; and
    (G) Promptly notify the Commission staff of material systems outages 
and significant systems changes.
    (iii) Notwithstanding paragraph (b)(6)(i) of this section, an 
alternative trading system shall not be required to comply with the 
requirements in paragraph (b)(6)(ii) of this section, if such 
alternative trading system:
    (A) Matches customer orders for a security with other customer 
orders;
    (B) Such customers' orders are not displayed to any person, other 
than employees of the alternative trading system; and
    (C) Such orders are executed at a price for such security 
disseminated by an effective transaction reporting plan, or derived from 
such prices.
    (7) Examinations, inspections, and investigations. The alternative 
trading system shall permit the examination and inspection of its 
premises, systems, and records, and cooperate with the examination, 
inspection, or investigation of subscribers, whether such examination is 
being conducted by the Commission or by a self-regulatory organization 
of which such subscriber is a member.
    (8) Recordkeeping. The alternative trading system shall:

[[Page 816]]

    (i) Make and keep current the records specified in Sec.242.302; 
and
    (ii) Preserve the records specified in Sec.242.303.
    (9) Reporting. The alternative trading system shall:
    (i) Separately file the information required by Form ATS-R (Sec.
249.638 of this chapter) for transactions in NMS stocks, as defined in 
paragraph (g) of this section, and transactions in securities other than 
NMS stocks within 30 calendar days after the end of each calendar 
quarter in which the market has operated after the effective date of 
this section; and
    (ii) Separately file the information required by Form ATS-R for 
transactions in NMS stocks and transactions in securities other than NMS 
stocks within 10 calendar days after an alternative trading system 
ceases to operate.
    (10)  Written procedures to ensure the confidential treatment of 
trading information. (i) The alternative trading system shall establish 
adequate written safeguards and written procedures to protect 
subscribers' confidential trading information. Such written safeguards 
and written procedures shall include:
    (A) Limiting access to the confidential trading information of 
subscribers to those employees of the alternative trading system who are 
operating the system or responsible for its compliance with these or any 
other applicable rules;
    (B) Implementing standards controlling employees of the alternative 
trading system trading for their own accounts; and
    (ii) The alternative trading system shall adopt and implement 
adequate written oversight procedures to ensure that the written 
safeguards and procedures established pursuant to paragraph (b)(10)(i) 
of this section are followed.
    (11) Name. The alternative trading system shall not use in its name 
the word ``exchange,'' or derivations of the word ``exchange,'' such as 
the term ``stock market.''

[63 FR 70921, Dec. 22, 1998, as amended at 65 FR 13235, Mar. 13, 2000; 
70 FR 37619, June 29, 2005; 74 FR 52372, Oct. 9, 2009; 79 FR 72436, Dec. 
5, 2014; 83 FR 38911, Aug. 7, 2018]



Sec.242.302  Recordkeeping requirements for alternative trading systems.

    To comply with the condition set forth in paragraph (b)(8) of Sec.
242.301, an alternative trading system shall make and keep current the 
following records:
    (a) A record of subscribers to such alternative trading system 
(identifying any affiliations between the alternative trading system and 
subscribers to the alternative trading system, including common 
directors, officers, or owners);
    (b) Daily summaries of trading in the alternative trading system 
including:
    (1) Securities for which transactions have been executed;
    (2) Transaction volume, expressed with respect to equity securities 
in:
    (i) Number of trades;
    (ii) Number of shares traded; and
    (iii) Total settlement value in terms of U.S. dollars; and
    (3) Transaction volume, expressed with respect to debt securities 
in:
    (i) Number of trades; and
    (ii) Total U.S. dollar value; and
    (c) Time-sequenced records of order information in the alternative 
trading system, including:
    (1) Date and time (expressed in terms of hours, minutes, and 
seconds) that the order was received;
    (2) Identity of the security;
    (3) The number of shares, or principal amount of bonds, to which the 
order applies;
    (4) An identification of the order as related to a program trade or 
an index arbitrage trade as defined in New York Stock Exchange Rule 80A;
    (5) The designation of the order as a buy or sell order;
    (6) The designation of the order as a short sale order;
    (7) The designation of the order as a market order, limit order, 
stop order, stop limit order, or other type or order;
    (8) Any limit or stop price prescribed by the order;
    (9) The date on which the order expires and, if the time in force is 
less than one day, the time when the order expires;
    (10) The time limit during which the order is in force;
    (11) Any instructions to modify or cancel the order;

[[Page 817]]

    (12) The type of account, i.e., retail, wholesale, employee, 
proprietary, or any other type of account designated by the alternative 
trading system, for which the order is submitted;
    (13) Date and time (expressed in terms of hours, minutes, and 
seconds) that the order was executed;
    (14) Price at which the order was executed;
    (15) Size of the order executed (expressed in number of shares or 
units or principal amount); and
    (16) Identity of the parties to the transaction.



Sec.242.303  Record preservation requirements for alternative trading 
systems.

    (a) To comply with the condition set forth in paragraph (b)(8) of 
Sec.242.301, an alternative trading system shall preserve the 
following records:
    (1) For a period of not less than three years, the first two years 
in an easily accessible place, an alternative trading system shall 
preserve:
    (i) All records required to be made pursuant to Sec.242.302;
    (ii) All notices provided by such alternative trading system to 
subscribers generally, whether written or communicated through automated 
means, including, but not limited to, notices addressing hours of system 
operations, system malfunctions, changes to system procedures, 
maintenance of hardware and software, instructions pertaining to access 
to the market and denials of, or limitations on, access to the 
alternative trading system;
    (iii) If subject to paragraph (b)(5)(ii) of Sec.242.301, at least 
one copy of such alternative trading system's standards for access to 
trading, all documents relevant to the alternative trading systems 
decision to grant, deny, or limit access to any person, and all other 
documents made or received by the alternative trading system in the 
course of complying with paragraph (b)(5) of Sec.242.301; and
    (iv) At least one copy of all documents made or received by the 
alternative trading system in the course of complying with paragraph 
(b)(6) of Sec.242.301, including all correspondence, memoranda, 
papers, books, notices, accounts, reports, test scripts, test results, 
and other similar records.
    (v) At least one copy of the written safeguards and written 
procedures to protect subscribers' confidential trading information and 
the written oversight procedures created in the course of complying with 
paragraph (b)(10) of Sec.242.301.
    (2) During the life of the enterprise and of any successor 
enterprise, an alternative trading system shall preserve:
    (i) All partnership articles or, in the case of a corporation, all 
articles of incorporation or charter, minute books and stock certificate 
books; and
    (ii) Copies of reports filed pursuant to paragraph (b)(2) of Sec.
242.301 or Sec.242.304 of this chapter and records made pursuant to 
paragraph (b)(5) of Sec.242.301 of this chapter.
    (b) The records required to be maintained and preserved pursuant to 
paragraph (a) of this section must be produced, reproduced, and 
maintained in paper form or in any of the forms permitted under Sec.
240.17a-4(f) of this chapter.
    (c) Alternative trading systems must comply with any other 
applicable recordkeeping or reporting requirement in the Act, and the 
rules and regulations thereunder. If the information in a record 
required to be made pursuant to this section is preserved in a record 
made pursuant to Sec.240.17a-3 or Sec.240.17a-4 of this chapter, or 
otherwise preserved by the alternative trading system (whether in 
summary or some other form), this section shall not require the sponsor 
to maintain such information in a separate file, provided that the 
sponsor can promptly sort and retrieve the information as if it had been 
kept in a separate file as a record made pursuant to this section, and 
preserves the information in accordance with the time periods specified 
in paragraph (a) of this section.
    (d) The records required to be maintained and preserved pursuant to 
this section may be prepared or maintained by a service bureau, 
depository, or other recordkeeping service on behalf of the alternative 
trading system. An agreement with a service bureau, depository, or other 
recordkeeping service shall not relieve the alternative

[[Page 818]]

trading system from the responsibility to prepare and maintain records 
as specified in this section. The service bureau, depository, or other 
recordkeeping service shall file with the Commission a written 
undertaking in a form acceptable to the Commission, signed by a duly 
authorized person, to the effect that such records are the property of 
the alternative trading system required to be maintained and preserved 
and will be surrendered promptly on request of the alternative trading 
system, and shall include the following provision: With respect to any 
books and records maintained or preserved on behalf of (name of 
alternative trading system), the undersigned hereby undertakes to permit 
examination of such books and records at any time, or from time to time, 
during business hours by the staff of the Securities and Exchange 
Commission, any self-regulatory organization of which the alternative 
trading system is a member, or any State securities regulator having 
jurisdiction over the alternative trading system, and to promptly 
furnish to the Commission, self-regulatory organization of which the 
alternative trading system is a member, or any State securities 
regulator having jurisdiction over the alternative trading system a 
true, correct, complete and current hard copy of any, all, or any part 
of, such books and records.
    (e) Every alternative trading system shall furnish to any 
representative of the Commission promptly upon request, legible, true, 
and complete copies of those records that are required to be preserved 
under this section.

[63 FR 70921, Dec. 22, 1998, as amended at 66 FR 55841, Nov. 2, 2001; 83 
FR 38911, Aug. 7, 2018]



Sec.242.304  NMS Stock ATSs.

    (a) Conditions to the exemption. Unless not required to comply with 
Regulation ATS pursuant to Sec.242.301(a), an NMS Stock ATS must 
comply with Sec.Sec.242.300 through 242.304 (except Sec.
242.301(b)(2)(i) through (vii)) to be exempt pursuant to Sec.240.3a1-
1(a)(2).
    (1) Initial Form ATS-N. (i) Filing and effectiveness requirement. No 
exemption is available to an NMS Stock ATS pursuant to Sec.240.3a1-
1(a)(2) unless the NMS Stock ATS files with the Commission an initial 
Form ATS-N, in accordance with the conditions of this section, and the 
initial Form ATS-N is effective pursuant to paragraph (a)(1)(iii) or 
(a)(1)(iv)(A) of this section.
    (ii) Commission review period. (A) The Commission may, by order, as 
provided in paragraph (a)(1)(iii) of this section, declare an initial 
Form ATS-N filed by an NMS Stock ATS ineffective no later than 120 
calendar days from the date of filing with the Commission, or, if 
applicable, the end of the extended review period. The Commission may 
extend the initial Form ATS-N review period for:
    (1) An additional 90 calendar days, if the Form ATS-N is unusually 
lengthy or raises novel or complex issues that require additional time 
for review, in which case the Commission will notify the NMS Stock ATS 
in writing within the initial 120-calendar day review period and will 
briefly describe the reason for the determination for which additional 
time for review is required; or
    (2) Any extended review period to which a duly authorized 
representative of the NMS Stock ATS agrees in writing.
    (B) During review by the Commission of the initial Form ATS-N, the 
NMS Stock ATS shall amend its initial Form ATS-N pursuant to the 
requirements of paragraphs (a)(2)(i)(B) and (C) of this section. To make 
material changes to its initial Form ATS-N during the Commission review 
period, the NMS Stock ATS shall withdraw its filed initial Form ATS-N 
and may refile an initial Form ATS-N pursuant to paragraph (a)(1) of 
this section.
    (iii) Effectiveness; Ineffectiveness determination. (A) An initial 
Form ATS-N, as amended, filed by an NMS Stock ATS will become effective, 
unless declared ineffective, upon the earlier of:
    (1) The completion of review by the Commission and publication 
pursuant to paragraph (b)(2)(i) of this section; or
    (2) The expiration of the review period, or, if applicable, the end 
of the extended review period, pursuant to paragraph (a)(1)(ii) of this 
section.
    (B) The Commission will, by order, declare an initial Form ATS-N 
ineffective if it finds, after notice and opportunity for hearing, that 
such action is necessary or appropriate in the public

[[Page 819]]

interest, and is consistent with the protection of investors. If the 
Commission declares an initial Form ATS-N ineffective, the NMS Stock ATS 
shall be prohibited from operating as an NMS Stock ATS pursuant to Sec.
240.3a1-1(a)(2). An initial Form ATS-N declared ineffective does not 
prevent the NMS Stock ATS from subsequently filing a new Form ATS-N.
    (iv) Transition for Legacy NMS Stock ATSs. (A) Initial Form ATS-N 
filing requirements. A Legacy NMS Stock ATS shall file with the 
Commission an initial Form ATS-N, in accordance with the conditions of 
this section, no earlier than January 7, 2019, and no later than 
February 8, 2019. An initial Form ATS-N filed by a Legacy NMS Stock ATS 
shall supersede and replace for purposes of the exemption the previously 
filed Form ATS of the Legacy NMS Stock ATS. The Legacy NMS Stock ATS may 
operate, on a provisional basis, pursuant to the filed initial Form ATS-
N, and any amendments thereto, during the review of the initial Form 
ATS-N by the Commission. An initial Form ATS-N filed by a Legacy NMS 
Stock ATS, as amended, will become effective, unless declared 
ineffective, upon the earlier of:
    (1) The completion of review by the Commission and publication 
pursuant to paragraph (b)(2)(i) of this section; or
    (2) The expiration of the review period, or, if applicable, the end 
of the extended review period, pursuant to paragraph (a)(1)(iv)(B) of 
this section.
    (B) Commission review period; Ineffectiveness determination. The 
Commission may, by order, as provided in paragraph (a)(1)(iii) of this 
section, declare an initial Form ATS-N filed by a Legacy NMS Stock ATS 
ineffective no later than 120 calendar days from the date of filing with 
the Commission, or, if applicable, the end of the extended review 
period. The Commission may extend the initial Form ATS-N review period 
for a Legacy NMS Stock ATS for:
    (1) An additional 120 calendar days if the initial Form ATS-N is 
unusually lengthy or raises novel or complex issues that require 
additional time for review, in which case the Commission will notify the 
Legacy NMS Stock ATS in writing within the initial 120-calendar day 
review period and will briefly describe the reason for the determination 
for which additional time for review is required; or
    (2) Any extended review period to which a duly-authorized 
representative of the Legacy NMS Stock ATS agrees in writing.
    (C) Amendments to initial Form ATS-N. During review by the 
Commission of the initial Form ATS-N filed by a Legacy NMS Stock ATS, 
the Legacy NMS Stock ATS shall amend its initial Form ATS-N pursuant to 
the requirements of paragraphs (a)(2)(i)(A) through (D) of this section.
    (2) Form ATS-N amendment. (i) Filing requirements. An NMS Stock ATS 
shall amend a Form ATS-N, in accordance with the conditions of this 
section:
    (A) At least 30 calendar days, except as provided by paragraph 
(a)(2)(i)(D) of this section, prior to the date of implementation of a 
material change to the operations of the NMS Stock ATS or to the 
activities of the broker-dealer operator or its affiliates that are 
subject to disclosure on Form ATS-N (``Material Amendment'');
    (B) No later than 30 calendar days after the end of each calendar 
quarter to correct information that has become inaccurate or incomplete 
for any reason and was not required to be reported to the Commission as 
a Form ATS-N amendment pursuant to paragraphs (a)(2)(i)(A), (C), or (D) 
of this section (``Updating Amendment'');
    (C) Promptly, to correct information in any previous disclosure on 
Form ATS-N, after discovery that any information previously filed on 
Form ATS-N was materially inaccurate or incomplete when filed 
(``Correcting Amendment''); or
    (D) No later than seven calendar days after information required to 
be disclosed in Part III, Items 24 and 25 on Form ATS-N has become 
inaccurate or incomplete (``Order Display and Fair Access Amendment'').
    (ii) Commission review period; Ineffectiveness determination. The 
Commission will, by order, declare ineffective any Form ATS-N amendment 
filed pursuant to paragraphs (a)(2)(i)(A) through (D) of this section, 
no later than 30 calendar days from filing with the Commission, if the 
Commission finds that

[[Page 820]]

such action is necessary or appropriate in the public interest, and is 
consistent with the protection of investors. A Form ATS-N amendment 
declared ineffective shall prohibit the NMS Stock ATS from operating 
pursuant to the ineffective Form ATS-N amendment. A Form ATS-N amendment 
declared ineffective does not prevent the NMS Stock ATS from 
subsequently filing a new Form ATS-N amendment. During review by the 
Commission of a Material Amendment, the NMS Stock ATS shall amend the 
Material Amendment pursuant to the requirements of paragraphs 
(a)(2)(i)(B) through (C) of this section. To make material changes to a 
filed Material Amendment during the Commission review period, an NMS 
Stock ATS shall withdraw its filed Material Amendment and must file the 
new Material Amendment pursuant to (a)(2)(i)(A) of this section.
    (3) Notice of cessation. An NMS Stock ATS shall notice its cessation 
of operations on Form ATS-N at least 10 business days prior to the date 
the NMS Stock ATS will cease to operate as an NMS Stock ATS. The notice 
of cessation shall cause the Form ATS-N to become ineffective on the 
date designated by the NMS Stock ATS.
    (4) Suspension, limitation, and revocation of the exemption from the 
definition of exchange. (i) The Commission will, by order, if it finds, 
after notice and opportunity for hearing, that such action is necessary 
or appropriate in the public interest, and is consistent with the 
protection of investors, suspend for a period not exceeding twelve 
months, limit, or revoke the exemption for an NMS Stock ATS pursuant to 
Sec.240.3a1-1(a)(2) of this chapter.
    (ii) If the exemption for an NMS Stock ATS is suspended or revoked 
pursuant to paragraph (a)(4)(i) of this section, the NMS Stock ATS shall 
be prohibited from operating pursuant to the exemption pursuant to Sec.
240.3a1-1(a)(2) of this chapter. If the exemption for an NMS Stock ATS 
is limited pursuant to paragraph (a)(4)(i) of this section, the NMS 
Stock ATS shall be prohibited from operating in a manner otherwise 
inconsistent with the terms and conditions of the Commission order.
    (b) Public disclosures. (1) Every Form ATS-N filed pursuant to this 
section shall constitute a ``report'' within the meaning of sections 
11A, 17(a), 18(a), and 32(a) (15 U.S.C. 78k-1, 78q(a), 78r(a), and 
78ff(a)), and any other applicable provisions of the Act.
    (2) The Commission will make public via posting on the Commission's 
website, each:
    (i) Effective initial Form ATS-N, as amended;
    (ii) Order of ineffective initial Form ATS-N;
    (iii) Form ATS-N amendment to an effective Form ATS-N:
    (A) Material Amendments: The cover page of the Material Amendment 
will be made public by the Commission upon filing and, unless the 
Commission declares the Material Amendment ineffective, the entirety of 
the Material Amendment, as amended, will be made public by the 
Commission following the expiration of the review period pursuant to 
paragraph (a)(2)(ii) of this section.
    (B) Updating, Correcting, and Order Display and Fair Access 
Amendments: The entirety of Updating, Correcting, and Order Display and 
Fair Access Amendments will be made public by the Commission upon 
filing. Notwithstanding the foregoing, an Updating or Correcting 
Amendment filed to a Material Amendment will be made public by the 
Commission following the expiration of the review period for such 
Material Amendment pursuant to paragraph (a)(2)(ii) of this section.
    (iv) Order of ineffective Form ATS-N amendment;
    (v) Notice of cessation; and
    (vi) Order suspending, limiting, or revoking the exemption for an 
NMS Stock ATS from the definition of an ``exchange'' pursuant to Sec.
240.3a1-1(a)(2) of this chapter.
    (3) Each NMS Stock ATS shall make public via posting on its website 
a direct URL hyperlink to the Commission's website that contains the 
documents enumerated in paragraph (b)(2) of this section.
    (c) Form ATS-N disclosure requirements. (1) An NMS Stock ATS must 
file a Form ATS-N in accordance with the instructions therein.

[[Page 821]]

    (2) Any report required to be filed with the Commission under this 
section shall be filed on Form ATS-N, and include all information as 
prescribed in Form ATS-N and the instructions thereto. Such document 
shall be executed at, or prior to, the time Form ATS-N is filed and 
shall be retained by the NMS Stock ATS in accordance with Sec.Sec.
242.303 and Sec.232.302 of this chapter, and the instructions in Form 
ATS-N.

[83 FR 38911, Aug. 7, 2018]

            Customer Margin Requirements for Security Futures

    Source: 67 FR 53176, Aug. 14, 2002, unless otherwise noted.



Sec.242.400  Customer margin requirements for security futures--
authority, purpose, interpretation, and scope.

    (a) Authority and purpose. Sections 242.400 through 242.406 and 17 
CFR 41.42 through 41.49 (``this Regulation, Sec.Sec.242.400 through 
242.406'') are issued by the Securities and Exchange Commission 
(``Commission'') jointly with the Commodity Futures Trading Commission 
(``CFTC''), pursuant to authority delegated by the Board of Governors of 
the Federal Reserve System under section 7(c)(2)(A) of the Securities 
Exchange Act of 1934 (``Act'') (15 U.S.C. 78g(c)(2)(A)). The principal 
purpose of this Regulation (Sec.Sec.242.400 through 242.406) is to 
regulate customer margin collected by brokers, dealers, and members of 
national securities exchanges, including futures commission merchants 
required to register as brokers or dealers under section 15(b)(11) of 
the Act (15 U.S.C. 78o(b)(11)), relating to security futures.
    (b) Interpretation. This Regulation (Sec.Sec.242.400 through 
242.406) shall be jointly interpreted by the Commission and the CFTC, 
consistent with the criteria set forth in clauses (i) through (iv) of 
section 7(c)(2)(B) of the Act (15 U.S.C. 78g(c)(2)(B)) and the 
provisions of Regulation T (12 CFR part 220).
    (c) Scope. (1) This Regulation (Sec.Sec.242.400 through 242.406) 
does not preclude a self-regulatory authority, under rules that are 
effective in accordance with section 19(b)(2) of the Act (15 U.S.C. 
78s(b)(2)) or section 19(b)(7) of the Act (15 U.S.C. 78s(b)(7)) and, as 
applicable, section 5c(c) of the Commodity Exchange Act (``CEA'') (7 
U.S.C. 7a-2(c)), or a security futures intermediary from imposing 
additional margin requirements on security futures, including higher 
initial or maintenance margin levels, consistent with this Regulation 
(Sec.Sec.242.400 through 242.406), or from taking appropriate action 
to preserve its financial integrity.
    (2) This Regulation (Sec.Sec.242.400 through 242.406) does not 
apply to:
    (i) Financial relations between a customer and a security futures 
intermediary to the extent that they comply with a portfolio margining 
system under rules that meet the criteria set forth in section 
7(c)(2)(B) of the Act (15 U.S.C. 78g(c)(2)(B)) and that are effective in 
accordance with section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) and, 
as applicable, section 5c(c) of the CEA (7 U.S.C. 7a-2(c));
    (ii) Financial relations between a security futures intermediary and 
a foreign person involving security futures traded on or subject to the 
rules of a foreign board of trade;
    (iii) Margin requirements that clearing agencies registered under 
section 17A of the Exchange Act (15 U.S.C. 78q-1) or derivatives 
clearing organizations registered under section 5b of the CEA (7 U.S.C. 
7a-1) impose on their members;
    (iv) Financial relations between a security futures intermediary and 
a person based on a good faith determination by the security futures 
intermediary that such person is an exempted person; and
    (v) Financial relations between a security futures intermediary and, 
or arranged by a security futures intermediary for, a person relating to 
trading in security futures by such person for its own account, if such 
person:
    (A) Is a member of a national securities exchange or national 
securities association registered pursuant to section 15A(a) of the Act 
(15 U.S.C. 78o-3(a)); and
    (B) Is registered with such exchange or such association as a 
security futures dealer pursuant to rules that are effective in 
accordance with section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2))

[[Page 822]]

and, as applicable, section 5c(c) of the CEA (7 U.S.C. 7a-2(c)), that:
    (1) Require such member to be registered as a floor trader or a 
floor broker with the CFTC under Section 4f(a)(1) of the CEA (7 U.S.C. 
6f(a)(1)), or as a dealer with the Commission under section 15(b) of the 
Act (15 U.S.C. 78o(b));
    (2) Require such member to maintain records sufficient to prove 
compliance with this paragraph (c)(2)(v) and the rules of the exchange 
or association of which it is a member;
    (3) Require such member to hold itself out as being willing to buy 
and sell security futures for its own account on a regular or continuous 
basis; and
    (4) Provide for disciplinary action, including revocation of such 
member's registration as a security futures dealer, for such member's 
failure to comply with this Regulation (Sec.Sec.242.400 through 
242.406) or the rules of the exchange or association.
    (d) Exemption. The Commission may exempt, either unconditionally or 
on specified terms and conditions, financial relations involving any 
security futures intermediary, customer, position, or transaction, or 
any class of security futures intermediaries, customers, positions, or 
transactions, from one or more requirements of this Regulation 
(Sec.Sec.242.400 through 242.406), if the Commission determines that 
such exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors. An exemption granted 
pursuant to this paragraph shall not operate as an exemption from any 
CFTC rules. Any exemption that may be required from such rules must be 
obtained separately from the CFTC.



Sec.242.401  Definitions.

    (a) For purposes of this Regulation (Sec.Sec.242.400 through 
242.406) only, the following terms shall have the meanings set forth in 
this section.
    (1) Applicable margin rules and margin rules applicable to an 
account mean the rules and regulations applicable to financial relations 
between a security futures intermediary and a customer with respect to 
security futures and related positions carried in a securities account 
or futures account as provided in Sec.242.402(a) of this Regulation 
(Sec.Sec.242.400 through 242.406).
    (2) Broker shall have the meaning provided in section 3(a)(4) of the 
Act (15 U.S.C. 78c(a)(4)).
    (3) Contract multiplier means the number of units of a narrow-based 
security index expressed as a dollar amount, in accordance with the 
terms of the security future contract.
    (4) Current market value means, on any day:
    (i) With respect to a security future:
    (A) If the instrument underlying such security future is a stock, 
theproduct of the daily settlement price of such security future as 
shown by any regularly published reporting or quotation service, and the 
applicable number of shares per contract; or
    (B) If the instrument underlying such security future is a narrow-
based security index, as defined in section 3(a)(55)(B) of the Act (15 
U.S.C. 78c(a)(55)(B)), the product of the daily settlement price of such 
security future as shown by any regularly published reporting or 
quotation service, and the applicable contract multiplier.
    (ii) With respect to a security other than a security future, the 
most recent closing sale price of the security, as shown by any 
regularly published reporting or quotation service. If there is no 
recent closing sale price, the security futures intermediary may use any 
reasonable estimate of the market value of the security as of the most 
recent close of business.
    (5) Customer excludes an exempted person and includes:
    (i) Any person or persons acting jointly:
    (A) On whose behalf a security futures intermediary effects a 
security futures transaction or carries a security futures position; or
    (B) Who would be considered a customer of the security futures 
intermediary according to the ordinary usage of the trade;
    (ii) Any partner in a security futures intermediary that is 
organized as a partnership who would be considered a customer of the 
security futures intermediary absent the partnership relationship; and

[[Page 823]]

    (iii) Any joint venture in which a security futures intermediary 
participates and which would be considered a customer of the security 
futures intermediary if the security futures intermediary were not a 
participant.
    (6) Daily settlement price means, with respect to a security future, 
the settlement price of such security future determined at the close of 
trading each day, under the rules of the applicable exchange, clearing 
agency, or derivatives clearing organization.
    (7) Dealer shall have the meaning provided in section 3(a)(5) of the 
Act (15 U.S.C. 78c(a)(5)).
    (8) Equity means the equity or margin equity in a securities or 
futures account, as computed in accordance with the margin rules 
applicable to the account and subject to adjustment under Sec.
242.404(c), (d) and (e) of this Regulation (Sec.Sec.242.400 through 
242.406).
    (9) Exempted person means:
    (i) A member of a national securities exchange, a registered broker 
or dealer, or a registered futures commission merchant, a substantial 
portion of whose business consists of transactions in securities, 
commodity futures, or commodity options with persons other than brokers, 
dealers, futures commission merchants, floor brokers, or floor traders, 
and includes a person who:
    (A) Maintains at least 1000 active accounts on an annual basis for 
persons other than brokers, dealers, persons associated with a broker or 
dealer, futures commission merchants, floor brokers, floor traders, and 
persons affiliated with a futures commission merchant, floor broker, or 
floor trader that are effecting transactions in securities, commodity 
futures, or commodity options;
    (B) Earns at least $10 million in gross revenues on an annual basis 
from transactions in securities, commodity futures, or commodity options 
with persons other than brokers, dealers, persons associated with a 
broker or dealer, futures commission merchants, floor brokers, floor 
traders, and persons affiliated with a futures commission merchant, 
floor broker, or floor trader; or
    (C) Earns at least 10 percent of its gross revenues on an annual 
basis from transactions in securities, commodity futures, or commodity 
options with persons other than brokers, dealers, persons associated 
with a broker or dealer, futures commission merchants, floor brokers, 
floor traders, and persons affiliated with a futures commission 
merchant, floor broker, or floor trader.
    (ii) For purposes of paragraph (a)(9)(i) of this section only, 
persons affiliated with a futures commission merchant, floor broker, or 
floor trader means any partner, officer, director, or branch manager of 
such futures commission merchant, floor broker, or floor trader (or any 
person occupying a similar status or performing similar functions), any 
person directly or indirectly controlling, controlled by, or under 
common control with such futures commission merchant, floor broker, or 
floor trader, or any employee of such a futures commission merchant, 
floor broker, or floor trader.
    (iii) A member of a national securities exchange, a registered 
broker or dealer, or a registered futures commission merchant that has 
been in existence for less than one year may meet the definition of 
exempted person based on a six-month period.
    (10) Exempted security shall have the meaning provided in section 
3(a)(12) of the Act (15 U.S.C. 78c(a)(12)).
    (11) Floor broker shall have the meaning provided in Section 1a(16) 
of the CEA (7 U.S.C. 1a(16)).
    (12) Floor trader shall have the meaning provided in Section 1a(17) 
of the CEA (7 U.S.C. 1a(17)).
    (13) Futures account shall have the meaning provided in Sec.
240.15c3-3(a) of this chapter.
    (14) Futures commission merchant shall have the meaning provided in 
Section 1a of the CEA (7 U.S.C. 1a).
    (15) Good faith, with respect to making a determination or accepting 
a statement concerning financial relations with a person, means that the 
security futures intermediary is alert to the circumstances surrounding 
such financial relations, and if in possession of information that would 
cause a prudent person not to make the determination or accept the 
notice or certification without inquiry, investigates and is satisfied 
that it is correct.

[[Page 824]]

    (16) Listed option means a put or call option that is:
    (i) Issued by a clearing agency that is registered under section 17A 
of the Act (15 U.S.C. 17q-1) or cleared and guaranteed by a derivatives 
clearing organization that is registered under Section 5b of the CEA (7 
U.S.C. 7a-1); and
    (ii) Traded on or subject to the rules of a self-regulatory 
authority.
    (17) Margin call means a demand by a security futures intermediary 
to a customer for a deposit of cash, securities or other assets to 
satisfy the required margin for security futures or related positions or 
a special margin requirement.
    (18) Margin deficiency means the amount by which the required margin 
in an account is not satisfied by the equity in the account, as computed 
in accordance with Sec.242.404 of this Regulation (Sec.Sec.242.400 
through 242.406).
    (19) Margin equity security shall have the meaning provided in 
Regulation T.
    (20) Margin security shall have the meaning provided in Regulation 
T.
    (21) Member shall have the meaning provided in section 3(a)(3) of 
the Act (15 U.S.C. 78c(a)(3)), and shall include persons registered 
under section 15(b)(11) of the Act (15 U.S.C. 78o(b)(11)) that are 
permitted to effect transactions on a national securities exchange 
without the services of another person acting as executing broker.
    (22) Money market mutual fund means any security issued by an 
investment company registered under section 8 of the Investment Company 
Act of 1940 (15 U.S.C. 80a-8) that is considered a money market fund 
under Sec.270.2a-7 of this chapter.
    (23) Persons associated with a broker or dealer shall have the 
meaning provided in section 3(a)(18) of the Act (15 U.S.C. 78c(a)(18)).
    (24) Regulation T means Regulation T promulgated by the Board of 
Governors of the Federal Reserve System, 12 CFR part 220, as amended 
from time to time.
    (25) Regulation T collateral value, with respect to a security, 
means the current market value of the security reduced by the percentage 
of required margin for a position in the security held in a margin 
account under Regulation T.
    (26) Related position, with respect to a security future, means any 
position in an account that is combined with the security future to 
create an offsetting position as provided in Sec.242.403(b)(2) of this 
Regulation (Sec.Sec.242.400 through 242.406).
    (27) Related transaction, with respect to a position or transaction 
in a security future, means:
    (i) Any transaction that creates, eliminates, increases or reduces 
an offsetting position involving a security future and a related 
position, as provided in Sec.242.403(b)(2) of this Regulation 
(Sec.Sec.242.400 through 242.406); or
    (ii) Any deposit or withdrawal of margin for the security future or 
a related position, except as provided in Sec.242.405(b) of this 
Regulation (Sec.Sec.242.400 through 242.406).
    (28) Securities account shall have the meaning provided in Sec.
240.15c3-3(a) of this chapter.
    (29) Security futures intermediary means any creditor as defined in 
Regulation T with respect to its financial relations with any person 
involving security futures.
    (30) Self-regulatory authority means a national securities exchange 
registered under section 6 of the Act (15 U.S.C. 78f), a national 
securities association registered under section 15A of the Act (15 
U.S.C. 78o-3), a contract market registered under Section 5 of the CEA 
(7 U.S.C. 7) or Section 5f of the CEA (7 U.S.C. 7b-1), or a derivatives 
transaction execution facility registered under Section 5a of the CEA (7 
U.S.C. 7a).
    (31) Special margin requirement shall have the meaning provided in 
Sec.242.404(e)(1)(ii) of this Regulation (Sec.Sec.242.400 through 
242.406).
    (32) Variation settlement means any credit or debit to a customer 
account, made on a daily or intraday basis, for the purpose of marking 
to market a security future or any other contract that is:
    (i) Issued by a clearing agency that is registered under section 17A 
of the Act (15 U.S.C. 78q-1) or cleared and guaranteed by a derivatives 
clearing organization that is registered under Section 5b of the CEA (7 
U.S.C. 7a-1); and
    (ii) Traded on or subject to the rules of a self-regulatory 
authority.

[[Page 825]]

    (b) Terms used in this Regulation (Sec.Sec.242.400 through 
242.406) and not otherwise defined in this section shall have the 
meaning set forth in the margin rules applicable to the account.
    (c) Terms used in this Regulation (Sec.Sec.242.400 through 
242.406) and not otherwise defined in this section or in the margin 
rules applicable to the account shall have the meaning set forth in the 
Act and the CEA; if the definitions of a term in the Act and the CEA are 
inconsistent as applied in particular circumstances, such term shall 
have the meaning set forth in rules, regulations, or interpretations 
jointly promulgated by the Commission and the CFTC.



Sec.242.402  General provisions.

    (a) Applicable margin rules. Except to the extent inconsistent with 
this Regulation (Sec.Sec.242.400 through 242.406):
    (1) A security futures intermediary that carries a security future 
on behalf of a customer in a securities account shall record and conduct 
all financial relations with respect to such security future and related 
positions in accordance with Regulation T and the margin rules of the 
self-regulatory authorities of which the security futures intermediary 
is a member.
    (2) A security futures intermediary that carries a security future 
on behalf of a customer in a futures account shall record and conduct 
all financial relations with respect to such security future and related 
positions in accordance with the margin rules of the self-regulatory 
authorities of which the security futures intermediary is a member.
    (b) Separation and consolidation of accounts. (1) The requirements 
for security futures and related positions in one account may not be met 
by considering items in any other account, except as permitted or 
required under paragraph (b)(2) of this section or applicable margin 
rules. If withdrawals of cash, securities or other assets deposited as 
margin are permitted under this Regulation (Sec.Sec.242.400 through 
242.406), bookkeeping entries shall be made when such cash, securities, 
or assets are used for purposes of meeting requirements in another 
account.
    (2) Notwithstanding paragraph (b)(1) of this section, the security 
futures intermediary shall consider all futures accounts in which 
security futures and related positions are held that are within the same 
regulatory classification or account type and are owned by the same 
customer to be a single account for purposes of this Regulation 
(Sec.Sec.242.400 through 242.406). The security futures intermediary 
may combine such accounts with other futures accounts that are within 
the same regulatory classification or account type and are owned by the 
same customer for purposes of computing a customer's overall margin 
requirement, as permitted or required by applicable margin rules.
    (c) Accounts of partners. If a partner of the security futures 
intermediary has an account with the security futures intermediary in 
which security futures or related positions are held, the security 
futures intermediary shall disregard the partner's financial relations 
with the firm (as shown in the partner's capital and ordinary drawing 
accounts) in calculating the margin or equity of any such account.
    (d) Contribution to joint venture. If an account in which security 
futures or related positions are held is the account of a joint venture 
in which the security futures intermediary participates, any interest of 
the security futures intermediary in the joint account in excess of the 
interest which the security futures intermediary would have on the basis 
of its right to share in the profits shall be margined in accordance 
with this Regulation (Sec.Sec.242.400 through 242.406).
    (e) Extensions of credit. (1) No security futures intermediary may 
extend or maintain credit to or for any customer for the purpose of 
evading or circumventing any requirement under this Regulation 
(Sec.Sec.242.400 through 242.406).
    (2) A security futures intermediary may arrange for the extension or 
maintenance of credit to or for any customer by any person, provided 
that the security futures intermediary does not willfully arrange credit 
that would constitute a violation of Regulation T, U or X of the Board 
of Governors of the Federal Reserve System (12 CFR parts 220, 221, and 
224) by such person.
    (f) Change in exempted person status. Once a person ceases to 
qualify as an

[[Page 826]]

exempted person, it shall notify the security futures intermediary of 
this fact before entering into any new security futures transaction or 
related transaction that would require additional margin to be deposited 
under this Regulation (Sec.Sec.242.400 through 242.406). Financial 
relations with respect to any such transactions shall be subject to the 
provisions of this Regulation (Sec.Sec.242.400 through 242.406).



Sec.242.403  Required margin.

    (a) Applicability. Each security futures intermediary shall 
determine the required margin for the security futures and related 
positions held on behalf of a customer in a securities account or 
futures account as set forth in this section.
    (b) Required margin--(1) General rule. The required margin for each 
long or short position n a security future shall be twenty (20) percent 
of the current market value of such security future.
    (2) Offsetting positions. Notwithstanding the margin levels 
specified in paragraph (b)(1) of this section, a self-regulatory 
authority may set the required initial or maintenance margin level for 
an offsetting position involving security futures and related positions 
at a level lower than the level that would be required under paragraph 
(b)(1) of this section if such positions were margined separately, 
pursuant to rules that meet the criteria set forth in section 7(c)(2)(B) 
of the Act (15 U.S.C. 78g(c)(2)(B)) and are effective in accordance with 
section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) and, as applicable, 
Section 5c(c) of the CEA (7 U.S.C. 7a-2(c)).
    (c) Procedures for certain margin level adjustments. An exchange 
registered under section 6(g) of the Act (15 U.S.C. 78f(g)), or a 
national securities association registered under section 15A(k) of the 
Act (15 U.S.C. 78o-3(k)), may raise or lower the required margin level 
for a security future to a level not lower than that specified in this 
section, in accordance with section 19(b)(7) of the Act (15 U.S.C. 
78s(b)(7)).



Sec.242.404  Type, form and use of margin.

    (a) When margin is required. Margin is required to be deposited 
whenever the required margin for security futures and related positions 
in an account is not satisfied by the equity in the account, subject to 
adjustment under paragraph (c) of this section.
    (b) Acceptable margin deposits. (1) The required margin may be 
satisfied by a deposit of cash, margin securities (subject to paragraph 
(b)(2) of this section), exempted securities, any other asset permitted 
under Regulation T to satisfy a margin deficiency in a securities margin 
account, or any combination thereof, each as valued in accordance with 
paragraph (c) of this section.
    (2) Shares of a money market mutual fund may be accepted as a margin 
deposit for purposes of this Regulation (Sec.Sec.242.400 through 
242.406), provided that:
    (i) The customer waives any right to redeem the shares without the 
consent of the security futures intermediary and instructs the fund or 
its transfer agent accordingly;
    (ii) The security futures intermediary (or clearing agency or 
derivatives clearing organization with which the shares are deposited as 
margin) obtains the right to redeem the shares in cash, promptly upon 
request; and
    (iii) The fund agrees to satisfy any conditions necessary or 
appropriate to ensure that the shares may be redeemed in cash, promptly 
upon request.
    (c) Adjustments--(1) Futures accounts. For purposes of this section, 
the equity in a futures account shall be computed in accordance with the 
margin rules applicable to the account, subject to the following:
    (i) A security future shall have no value;
    (ii) Each net long or short position in a listed option on a 
contract for future delivery shall be valued in accordance with the 
margin rules applicable to the account;
    (iii) Except as permitted in paragraph (e) of this section, each 
margin equity security shall be valued at an amount no greater than its 
Regulation T collateral value;
    (iv) Each other security shall be valued at an amount no greater 
than its current market value reduced by the percentage specified for 
such security in Sec.240.15c3-1(c)(2)(vi) of this chapter;

[[Page 827]]

    (v) Freely convertible foreign currency may be valued at an amount 
no greater than its daily marked-to-market U.S. dollar equivalent;
    (vi) Variation settlement receivable (or payable) by an account at 
the close of trading on any day shall be treated as a credit (or debit) 
to the account on that day; and
    (vii) Each other acceptable margin deposit or component of equity 
shall be valued at an amount no greater than its value under Regulation 
T.
    (2) Securities accounts. For purposes of this section, the equity in 
a securities account shall be computed in accordance with the margin 
rules applicable to the account, subject to the following:
    (i) A security future shall have no value;
    (ii) Freely convertible foreign currency may be valued at an amount 
no greater than its daily mark-to-market U.S. dollar equivalent; and
    (iii) Variation settlement receivable (or payable) to an account at 
the close of trading on any day shall be treated as a credit (or debit) 
by the account on that day.
    (d) Satisfaction restriction. Any transaction, position or deposit 
that is used to satisfy the required margin for security futures or 
related positions under this Regulation (Sec.Sec.242.400 through 
242.406), including a related position, shall be unavailable to satisfy 
the required margin for any other position or transaction or any other 
requirement.
    (e) Alternative collateral valuation for margin equity securities in 
a futures account. (1) Notwithstanding paragraph (c)(1)(iii) of this 
section, a security futures intermediary need not value a margin equity 
security at its Regulation T collateral value when determining whether 
the required margin for the security futures and related positions in a 
futures account is satisfied, provided that:
    (i) The margin equity security is valued at an amount no greater 
than the current market value of the security reduced by the lowest 
percentage level of margin required for a long position in the security 
held in a margin account under the rules of a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a));
    (ii) Additional margin is required to be deposited on any day when 
the day's security futures transactions and related transactions would 
create or increase a margin deficiency in the account if the margin 
equity securities were valued at their Regulation T collateral value, 
and shall be for the amount of the margin deficiency so created or 
increased (a ``special margin requirement''); and
    (iii) Cash, securities, or other assets deposited as margin for the 
positions in an account are not permitted to be withdrawn from the 
account at any time that:
    (A) Additional cash, securities, or other assets are required to be 
deposited as margin under this section for a transaction in the account 
on the same or a previous day; or
    (B) The withdrawal, together with other transactions, deposits, and 
withdrawals on the same day, would create or increase a margin 
deficiency if the margin equity securities were valued at their 
Regulation T collateral value.
    (2) All security futures transactions and related transactions on 
any day shall be combined to determine the amount of a special margin 
requirement. Additional margin deposited to satisfy a special margin 
requirement shall be valued at an amount no greater than its Regulation 
T collateral value.
    (3) If the alternative collateral valuation method set forth in 
paragraph (e) of this section is used with respect to an account in 
which security futures or related positions are carried:
    (i) An account that is transferred from one security futures 
intermediary to another may be treated as if it had been maintained by 
the transferee from the date of its origin, if the transferee accepts, 
in good faith, a signed statement of the transferor (or, if that is not 
practicable, of the customer), that any margin call issued under this 
Regulation (Sec.Sec.242.400 through 242.406) has been satisfied; and
    (ii) An account that is transferred from one customer to another as 
part of a transaction, not undertaken to avoid the requirements of this 
Regulation (Sec.Sec.242.400 through 242.406), may be

[[Page 828]]

treated as if it had been maintained for the transferee from the date of 
its origin, if the security futures intermediary accepts in good faith 
and keeps with the transferee account a signed statement of the 
transferor describing the circumstances for the transfer.
    (f) Guarantee of accounts. No guarantee of a customer's account 
shall be given any effect for purposes of determining whether the 
required margin in an account is satisfied, except as permitted under 
applicable margin rules.



Sec.242.405  Withdrawal of margin.

    (a) By the customer. Except as otherwise provided in Sec.
242.404(e)(1)(ii) of this Regulation (Sec.Sec.242.400 through 
242.406), cash, securities, or other assets deposited as margin for 
positions in an account may be withdrawn, provided that the equity in 
the account after such withdrawal is sufficient to satisfy the required 
margin for the security futures and related positions in the account 
under this Regulation (Sec.Sec.242.400 through 242.406).
    (b) By the security futures intermediary. Notwithstanding paragraph 
(a) of this section, the security futures intermediary, in its usual 
practice, may deduct the following items from an account in which 
security futures or related positions are held if they are considered in 
computing the balance of such account:
    (1) Variation settlement payable, directly or indirectly, to a 
clearing agency that is registered under section 17A of the Act (15 
U.S.C. 78q-1) or a derivatives clearing organization that is registered 
under section 5b of the CEA (7 U.S.C. 7a-1);
    (2) Interest charged on credit maintained in the account;
    (3) Communication or shipping charges with respect to transactions 
in the account;
    (4) Payment of commissions, brokerage, taxes, storage and other 
charges lawfully accruing in connection with the positions and 
transactions in the account;
    (5) Any service charges that the security futures intermediary may 
impose; or
    (6) Any other withdrawals that are permitted from a securities 
margin account under Regulation T, to the extent permitted under 
applicable margin rules.



Sec.242.406  Undermargined accounts.

    (a) Failure to satisfy margin call. If any margin call required by 
this Regulation (Sec.Sec.242.400 through 242.406) is not met in full, 
the security futures intermediary shall take the deduction required with 
respect to an undermargined account in computing its net capital under 
Commission or CFTC rules.
    (b) Accounts that liquidate to a deficit. If at any time there is a 
liquidating deficit in an account in which security futures are held, 
the security futures intermediary shall take steps to liquidate 
positions in the account promptly and in an orderly manner.
    (c) Liquidation of undermargined accounts not required. 
Notwithstanding Section 402(a) of this Regulation (Sec.Sec.242.400 
through 242.406), section 220.4(d) of Regulation T (12 CFR 220.4(d)) 
respecting liquidation of positions in lieu of deposit shall not apply 
with respect to security futures carried in a securities account.

                  Regulation AC--Analyst Certification

    Source: 68 FR 9492, February 27, 2003, unless otherwise noted.



Sec.242.500  Definitions.

    For purposes of Regulation AC (Sec.Sec.242.500 through 242.505 of 
this chapter) the term:
    Covered person of a broker or dealer means an associated person of 
that broker or dealer but does not include:
    (1) An associated person:
    (i) If the associated person has no officers (or persons performing 
similar functions) or employees in common with the broker or dealer who 
can influence the activities of research analysts or the content of 
research reports; and
    (ii) If the broker or dealer maintains and enforces written policies 
and procedures reasonably designed to prevent the broker or dealer, any 
controlling persons, officers (or persons performing similar functions), 
and employees of the broker or dealer from influencing

[[Page 829]]

the activities of research analysts and the content of research reports 
prepared by the associated person.
    (2) An associated person who is an investment adviser:
    (i) Not registered with the Commission as an investment adviser 
because of the prohibition of section 203A of the Investment Advisers 
Act of 1940 (15 U.S.C. 80b-3a); and
    (ii) Not registered or required to be registered with the Commission 
as a broker or dealer.

    Note to definition of covered person: An associated person of a 
broker or dealer who is not a covered person continues to be subject to 
the federal securities laws, including the anti-fraud provisions of the 
federal securities laws.

    Foreign person means any person who is not a U.S. person.
    Foreign security means a security issued by a foreign issuer for 
which a U.S. market is not the principal trading market.
    Public appearance means any participation by a research analyst in a 
seminar, forum (including an interactive electronic forum), or radio or 
television or other interview, in which the research analyst makes a 
specific recommendation or provides information reasonably sufficient 
upon which to base an investment decision about a security or an issuer.
    Registered broker or dealer means a broker or dealer registered or 
required to register pursuant to section 15 or section 15B of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o or 78o-4) or a government 
securities broker or government securities dealer registered or required 
to register pursuant to section 15C(a)(1)(A) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o-5(a)(1)(A)).
    Research analyst means any natural person who is primarily 
responsible for the preparation of the content of a research report.
    Research report means a written communication (including an 
electronic communication) that includes an analysis of a security or an 
issuer and provides information reasonably sufficient upon which to base 
an investment decision.
    Third party research analyst means:
    (1) With respect to a broker or dealer, any research analyst not 
employed by that broker or dealer or any associated person of that 
broker or dealer; and
    (2) With respect to a covered person of a broker or dealer, any 
research analyst not employed by that covered person, by the broker or 
dealer with whom that covered person is associated, or by any other 
associated person of the broker or dealer with whom that covered person 
is associated.
    United States has the meaning contained in Sec.230.902(l) of this 
chapter.
    U.S. person has the meaning contained in Sec.230.902(k) of this 
chapter.



Sec.242.501  Certifications in connection with research reports.

    (a) A broker or dealer or covered person that publishes, circulates, 
or provides a research report prepared by a research analyst to a U.S. 
person in the United States shall include in that research report a 
clear and prominent certification by the research analyst containing the 
following:
    (1) A statement attesting that all of the views expressed in the 
research report accurately reflect the research analyst's personal views 
about any and all of the subject securities or issuers; and
    (2)(i) A statement attesting that no part of the research analyst's 
compensation was, is, or will be, directly or indirectly, related to the 
specific recommendations or views expressed by the research analyst in 
the research report; or
    (ii) A statement:
    (A) Attesting that part or all of the research analyst's 
compensation was, is, or will be, directly or indirectly, related to the 
specific recommendations or views expressed by the research analyst in 
the research report;
    (B) Identifying the source, amount, and purpose of such 
compensation; and
    (C) Further disclosing that the compensation could influence the 
recommendations or views expressed in the research report.
    (b) A broker or dealer or covered person that publishes, circulates, 
or provides a research report prepared by a third party research analyst 
to a U.S. person in the United States shall be exempt from the 
requirements of this section with respect to such research

[[Page 830]]

report if the following conditions are satisfied:
    (1) The employer of the third party research analyst has no officers 
(or persons performing similar functions) or employees in common with 
the broker or dealer or covered person; and
    (2) The broker or dealer (or, with respect to a covered person, the 
broker or dealer with whom the covered person is associated) maintains 
and enforces written policies and procedures reasonably designed to 
prevent the broker or dealer, any controlling persons, officers (or 
persons performing similar functions), and employees of the broker or 
dealer from influencing the activities of the third party research 
analyst and the content of research reports prepared by the third party 
research analyst.



Sec.242.502  Certifications in connection with public appearances.

    (a) If a broker or dealer publishes, circulates, or provides a 
research report prepared by a research analyst employed by the broker or 
dealer or covered person to a U.S. person in the United States, the 
broker or dealer must make a record within 30 days after any calendar 
quarter in which the research analyst made a public appearance that 
contains the following:
    (1) A statement by the research analyst attesting that the views 
expressed by the research analyst in all public appearances during the 
calendar quarter accurately reflected the research analyst's personal 
views at that time about any and all of the subject securities or 
issuers; and
    (2) A statement by the research analyst attesting that no part of 
the research analyst's compensation was, is, or will be, directly or 
indirectly, related to the specific recommendations or views expressed 
by the research analyst in such public appearances.
    (b) If the broker or dealer does not obtain a statement by the 
research analyst in accordance with paragraph (a) of this section:
    (1) The broker or dealer shall promptly notify in writing its 
examining authority, designated pursuant to section 17(d) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78q(d)) and Sec.240.17d-2 
of this chapter, that the research analyst did not provide the 
certifications specified in paragraph (a) of this section; and
    (2) For 120 days following notification pursuant to paragraph (b)(1) 
of this section, the broker or dealer shall disclose in any research 
report prepared by the research analyst and published, circulated, or 
provided to a U.S. person in the United States that the research analyst 
did not provide the certifications specified in paragraph (a) of this 
section.
    (c) In the case of a research analyst who is employed outside the 
United States by a foreign person located outside the United States, 
this section shall only apply to a public appearance while the research 
analyst is physically present in the United States.
    (d) A broker or dealer shall preserve the records specified in 
paragraphs (a) and (b) of this section in accordance with Sec.240.17a-
4 of this chapter and for a period of not less than 3 years, the first 2 
years in an accessible place.



Sec.242.503  Certain foreign research reports.

    A foreign person, located outside the United States and not 
associated with a registered broker or dealer, who prepares a research 
report concerning a foreign security and provides it to a U.S. person in 
the United States in accordance with the provisions of Sec.240.15a-
6(a)(2) of this chapter shall be exempt from the requirements of this 
regulation.



Sec.242.504  Notification to associated persons.

    A broker or dealer shall notify any person with whom that broker or 
dealer is associated who publishes, circulates, or provides research 
reports:
    (a) Whether the broker or dealer maintains and enforces written 
policies and procedures reasonably designed to prevent the broker or 
dealer, any controlling persons, officers (or persons performing similar 
functions), or employees of the broker or dealer from influencing the 
activities of research analysts and the content of research reports 
prepared by the associated person; and
    (b) Whether the associated person has any officers (or persons 
performing

[[Page 831]]

similar functions) or employees in common with the broker or dealer who 
can influence the activities of research analysts or the content of 
research reports and, if so, the identity of those persons.



Sec.242.505  Exclusion for news media.

    No provision of this Regulation AC shall apply to any person who:
    (a) Is the publisher of any bona fide newspaper, news magazine or 
business or financial publication of general and regular circulation; 
and
    (b) Is not registered or required to be registered with the 
Commission as a broker or dealer or investment adviser.

        Regulation NMS--Regulation of the National Market System

    Source: 70 FR 37620, June 29, 2005, unless otherwise noted.



Sec.242.600  NMS security designation and definitions.

    (a) The term national market system security as used in section 
11A(a)(2) of the Act (15 U.S.C. 78k-1(a)(2)) shall mean any NMS security 
as defined in paragraph (b) of this section.
    (b) For purposes of Regulation NMS (Sec.Sec.242.600 through 
242.612), the following definitions shall apply:
    (1) Actionable indication of interest means any indication of 
interest that explicitly or implicitly conveys all of the following 
information with respect to any order available at the venue sending the 
indication of interest:
    (i) Symbol;
    (ii) Side (buy or sell);
    (iii) A price that is equal to or better than the national best bid 
for buy orders and the national best offer for sell orders; and
    (iv) A size that is at least equal to one round lot.
    (2) Aggregate quotation size means the sum of the quotation sizes of 
all responsible brokers or dealers who have communicated on any national 
securities exchange bids or offers for an NMS security at the same 
price.
    (3) Alternative trading system has the meaning provided in Sec.
242.300(a).
    (4) Automated quotation means a quotation displayed by a trading 
center that:
    (i) Permits an incoming order to be marked as immediate-or-cancel;
    (ii) Immediately and automatically executes an order marked as 
immediate-or-cancel against the displayed quotation up to its full size;
    (iii) Immediately and automatically cancels any unexecuted portion 
of an order marked as immediate-or-cancel without routing the order 
elsewhere;
    (iv) Immediately and automatically transmits a response to the 
sender of an order marked as immediate-or-cancel indicating the action 
taken with respect to such order; and
    (v) Immediately and automatically displays information that updates 
the displayed quotation to reflect any change to its material terms.
    (5) Automated trading center means a trading center that:
    (i) Has implemented such systems, procedures, and rules as are 
necessary to render it capable of displaying quotations that meet the 
requirements for an automated quotation set forth in paragraph (b)(4) of 
this section;
    (ii) Identifies all quotations other than automated quotations as 
manual quotations;
    (iii) Immediately identifies its quotations as manual quotations 
whenever it has reason to believe that it is not capable of displaying 
automated quotations; and
    (iv) Has adopted reasonable standards limiting when its quotations 
change from automated quotations to manual quotations, and vice versa, 
to specifically defined circumstances that promote fair and efficient 
access to its automated quotations and are consistent with the 
maintenance of fair and orderly markets.
    (6) Average effective spread means the share-weighted average of 
effective spreads for order executions calculated, for buy orders, as 
double the amount of difference between the execution price and the 
midpoint of the national best bid and national best offer at the time of 
order receipt and, for sell orders, as double the amount of difference 
between the midpoint of the national best bid and national best offer at 
the time of order receipt and the execution price.
    (7) Average realized spread means the share-weighted average of 
realized

[[Page 832]]

spreads for order executions calculated, for buy orders, as double the 
amount of difference between the execution price and the midpoint of the 
national best bid and national best offer five minutes after the time of 
order execution and, for sell orders, as double the amount of difference 
between the midpoint of the national best bid and national best offer 
five minutes after the time of order execution and the execution price; 
provided, however, that the midpoint of the final national best bid and 
national best offer disseminated for regular trading hours shall be used 
to calculate a realized spread if it is disseminated less than five 
minutes after the time of order execution.
    (8) Best bid and best offer mean the highest priced bid and the 
lowest priced offer.
    (9) Bid or offer means the bid price or the offer price communicated 
by a member of a national securities exchange or member of a national 
securities association to any broker or dealer, or to any customer, at 
which it is willing to buy or sell one or more round lots of an NMS 
security, as either principal or agent, but shall not include 
indications of interest.
    (10) Block size with respect to an order means it is:
    (i) Of at least 10,000 shares; or
    (ii) For a quantity of stock having a market value of at least 
$200,000.
    (11) Categorized by order size means dividing orders into separate 
categories for sizes from 100 to 499 shares, from 500 to 1999 shares, 
from 2000 to 4999 shares, and 5000 or greater shares.
    (12) Categorized by order type means dividing orders into separate 
categories for market orders, marketable limit orders, inside-the-quote 
limit orders, at-the-quote limit orders, and near-the-quote limit 
orders.
    (13) Categorized by security means dividing orders into separate 
categories for each NMS stock that is included in a report.
    (14) Consolidated display means:
    (i) The prices, sizes, and market identifications of the national 
best bid and national best offer for a security; and
    (ii) Consolidated last sale information for a security.
    (15) Consolidated last sale information means the price, volume, and 
market identification of the most recent transaction report for a 
security that is disseminated pursuant to an effective national market 
system plan.
    (16) Covered order means any market order or any limit order 
(including immediate-or-cancel orders) received by a market center 
during regular trading hours at a time when a national best bid and 
national best offer is being disseminated, and, if executed, is executed 
during regular trading hours, but shall exclude any order for which the 
customer requests special handling for execution, including, but not 
limited to, orders to be executed at a market opening price or a market 
closing price, orders submitted with stop prices, orders to be executed 
only at their full size, orders to be executed on a particular type of 
tick or bid, orders submitted on a ``not held'' basis, orders for other 
than regular settlement, and orders to be executed at prices unrelated 
to the market price of the security at the time of execution.
    (17) Customer means any person that is not a broker or dealer.
    (18) Customer limit order means an order to buy or sell an NMS stock 
at a specified price that is not for the account of either a broker or 
dealer; provided, however, that the term customer limit order shall 
include an order transmitted by a broker or dealer on behalf of a 
customer.
    (19) Customer order means an order to buy or sell an NMS security 
that is not for the account of a broker or dealer, but shall not include 
any order for a quantity of a security having a market value of at least 
$50,000 for an NMS security that is an option contract and a market 
value of at least $200,000 for any other NMS security.
    (20) Directed order means an order from a customer that the customer 
specifically instructed the broker or dealer to route to a particular 
venue for execution.
    (21) Dynamic market monitoring device means any service provided by 
a vendor on an interrogation device or other display that:
    (i) Permits real-time monitoring, on a dynamic basis, of transaction 
reports, last sale data, or quotations

[[Page 833]]

with respect to a particular security; and
    (ii) Displays the most recent transaction report, last sale data, or 
quotation with respect to that security until such report, data, or 
quotation has been superseded or supplemented by the display of a new 
transaction report, last sale data, or quotation reflecting the next 
reported transaction or quotation in that security.
    (22) Effective national market system plan means any national market 
system plan approved by the Commission (either temporarily or on a 
permanent basis) pursuant to Sec.242.608.
    (23) Effective transaction reporting plan means any transaction 
reporting plan approved by the Commission pursuant to Sec.242.601.
    (24) Electronic communications network means, for the purposes of 
Sec.242.602(b)(5), any electronic system that widely disseminates to 
third parties orders entered therein by an exchange market maker or OTC 
market maker, and permits such orders to be executed against in whole or 
in part; except that the term electronic communications network shall 
not include:
    (i) Any system that crosses multiple orders at one or more specified 
times at a single price set by the system (by algorithm or by any 
derivative pricing mechanism) and does not allow orders to be crossed or 
executed against directly by participants outside of such times; or
    (ii) Any system operated by, or on behalf of, an OTC market maker or 
exchange market maker that executes customer orders primarily against 
the account of such market maker as principal, other than riskless 
principal.
    (25) Exchange market maker means any member of a national securities 
exchange that is registered as a specialist or market maker pursuant to 
the rules of such exchange.
    (26) Exchange-traded security means any NMS security or class of NMS 
securities listed and registered, or admitted to unlisted trading 
privileges, on a national securities exchange; provided, however, that 
securities not listed on any national securities exchange that are 
traded pursuant to unlisted trading privileges are excluded.
    (27) Executed at the quote means, for buy orders, execution at a 
price equal to the national best offer at the time of order receipt and, 
for sell orders, execution at a price equal to the national best bid at 
the time of order receipt.
    (28) Executed outside the quote means, for buy orders, execution at 
a price higher than the national best offer at the time of order receipt 
and, for sell orders, execution at a price lower than the national best 
bid at the time of order receipt.
    (29) Executed with price improvement means, for buy orders, 
execution at a price lower than the national best offer at the time of 
order receipt and, for sell orders, execution at a price higher than the 
national best bid at the time of order receipt.
    (30) Inside-the-quote limit order, at-the-quote limit order, and 
near-the-quote limit order mean non-marketable buy orders with limit 
prices that are, respectively, higher than, equal to, and lower by $0.10 
or less than the national best bid at the time of order receipt, and 
non-marketable sell orders with limit prices that are, respectively, 
lower than, equal to, and higher by $0.10 or less than the national best 
offer at the time of order receipt.
    (31) Intermarket sweep order means a limit order for an NMS stock 
that meets the following requirements:
    (i) When routed to a trading center, the limit order is identified 
as an intermarket sweep order; and
    (ii) Simultaneously with the routing of the limit order identified 
as an intermarket sweep order, one or more additional limit orders, as 
necessary, are routed to execute against the full displayed size of any 
protected bid, in the case of a limit order to sell, or the full 
displayed size of any protected offer, in the case of a limit order to 
buy, for the NMS stock with a price that is superior to the limit price 
of the limit order identified as an intermarket sweep order. These 
additional routed orders also must be marked as intermarket sweep 
orders.
    (32) Interrogation device means any securities information retrieval 
system capable of displaying transaction reports, last sale data, or 
quotations upon inquiry, on a current basis on a terminal or other 
device.

[[Page 834]]

    (33) Joint self-regulatory organization plan means a plan as to 
which two or more self-regulatory organizations, acting jointly, are 
sponsors.
    (34) Last sale data means any price or volume data associated with a 
transaction.
    (35) Listed equity security means any equity security listed and 
registered, or admitted to unlisted trading privileges, on a national 
securities exchange.
    (36) Listed option means any option traded on a registered national 
securities exchange or automated facility of a national securities 
association.
    (37) Make publicly available means posting on an Internet Web site 
that is free and readily accessible to the public, furnishing a written 
copy to customers on request without charge, and notifying customers at 
least annually in writing that a written copy will be furnished on 
request.
    (38) Manual quotation means any quotation other than an automated 
quotation.
    (39) Market center means any exchange market maker, OTC market 
maker, alternative trading system, national securities exchange, or 
national securities association.
    (40) Marketable limit order means any buy order with a limit price 
equal to or greater than the national best offer at the time of order 
receipt, or any sell order with a limit price equal to or less than the 
national best bid at the time of order receipt.
    (41) Moving ticker means any continuous real-time moving display of 
transaction reports or last sale data (other than a dynamic market 
monitoring device) provided on an interrogation or other display device.
    (42) Nasdaq security means any registered security listed on The 
Nasdaq Stock Market, Inc.
    (43) National best bid and national best offer means, with respect 
to quotations for an NMS security, the best bid and best offer for such 
security that are calculated and disseminated on a current and 
continuing basis by a plan processor pursuant to an effective national 
market system plan; provided, that in the event two or more market 
centers transmit to the plan processor pursuant to such plan identical 
bids or offers for an NMS security, the best bid or best offer (as the 
case may be) shall be determined by ranking all such identical bids or 
offers (as the case may be) first by size (giving the highest ranking to 
the bid or offer associated with the largest size), and then by time 
(giving the highest ranking to the bid or offer received first in time).
    (44) National market system plan means any joint self-regulatory 
organization plan in connection with:
    (i) The planning, development, operation or regulation of a national 
market system (or a subsystem thereof) or one or more facilities 
thereof; or
    (ii) The development and implementation of procedures and/or 
facilities designed to achieve compliance by self-regulatory 
organizations and their members with any section of this Regulation NMS 
and part 240, subpart A of this chapter promulgated pursuant to section 
11A of the Act (15 U.S.C. 78k-1).
    (45) National securities association means any association of 
brokers and dealers registered pursuant to section 15A of the Act (15 
U.S.C. 78o-3).
    (46) National securities exchange means any exchange registered 
pursuant to section 6 of the Act (15 U.S.C. 78f).
    (47) NMS security means any security or class of securities for 
which transaction reports are collected, processed, and made available 
pursuant to an effective transaction reporting plan, or an effective 
national market system plan for reporting transactions in listed 
options.
    (48) NMS stock means any NMS security other than an option.
    (49) Non-directed order means any order from a customer other than a 
directed order.
    (50) Non-marketable limit order means any limit order other than a 
marketable limit order.
    (51) Odd-lot means an order for the purchase or sale of an NMS stock 
in an amount less than a round lot.
    (52) Options class means all of the put option or call option series 
overlying a security, as defined in section 3(a)(10) of the Act (15 
U.S.C. 78c(a)(10)).
    (53) Options series means the contracts in an options class that 
have the same unit of trade, expiration date, and exercise price, and 
other terms or conditions.

[[Page 835]]

    (54) Orders providing liquidity means orders that were executed 
against after resting at a trading center.
    (55) Orders removing liquidity means orders that executed against 
resting trading interest at a trading center.
    (56) OTC market maker means any dealer that holds itself out as 
being willing to buy from and sell to its customers, or others, in the 
United States, an NMS stock for its own account on a regular or 
continuous basis otherwise than on a national securities exchange in 
amounts of less than block size.
    (57) Participants, when used in connection with a national market 
system plan, means any self-regulatory organization which has agreed to 
act in accordance with the terms of the plan but which is not a 
signatory of such plan.
    (58) Payment for order flow has the meaning provided in Sec.
240.10b-10 of this chapter.
    (59) Plan processor means any self-regulatory organization or 
securities information processor acting as an exclusive processor in 
connection with the development, implementation and/or operation of any 
facility contemplated by an effective national market system plan.
    (60) Profit-sharing relationship means any ownership or other type 
of affiliation under which the broker or dealer, directly or indirectly, 
may share in any profits that may be derived from the execution of non-
directed orders.
    (61) Protected bid or protected offer means a quotation in an NMS 
stock that:
    (i) Is displayed by an automated trading center;
    (ii) Is disseminated pursuant to an effective national market system 
plan; and
    (iii) Is an automated quotation that is the best bid or best offer 
of a national securities exchange, the best bid or best offer of The 
Nasdaq Stock Market, Inc., or the best bid or best offer of a national 
securities association other than the best bid or best offer of The 
Nasdaq Stock Market, Inc.
    (62) Protected quotation means a protected bid or a protected offer.
    (63) Published aggregate quotation size means the aggregate 
quotation size calculated by a national securities exchange and 
displayed by a vendor on a terminal or other display device at the time 
an order is presented for execution to a responsible broker or dealer.
    (64) Published bid and published offer means the bid or offer of a 
responsible broker or dealer for an NMS security communicated by it to 
its national securities exchange or association pursuant to Sec.
242.602 and displayed by a vendor on a terminal or other display device 
at the time an order is presented for execution to such responsible 
broker or dealer.
    (65) Published quotation size means the quotation size of a 
responsible broker or dealer communicated by it to its national 
securities exchange or association pursuant to Sec.242.602 and 
displayed by a vendor on a terminal or other display device at the time 
an order is presented for execution to such responsible broker or 
dealer.
    (66) Quotation means a bid or an offer.
    (67) Quotation size, when used with respect to a responsible 
broker's or dealer's bid or offer for an NMS security, means:
    (i) The number of shares (or units of trading) of that security 
which such responsible broker or dealer has specified, for purposes of 
dissemination to vendors, that it is willing to buy at the bid price or 
sell at the offer price comprising its bid or offer, as either principal 
or agent; or
    (ii) In the event such responsible broker or dealer has not so 
specified, a normal unit of trading for that NMS security.
    (68) Regular trading hours means the time between 9:30 a.m. and 4:00 
p.m. Eastern Time, or such other time as is set forth in the procedures 
established pursuant to Sec.242.605(a)(2).
    (69) Responsible broker or dealer means:
    (i) When used with respect to bids or offers communicated on a 
national securities exchange, any member of such national securities 
exchange who communicates to another member on such national securities 
exchange, at the location (or locations) or through the facility or 
facilities designated by such national securities exchange for trading 
in an NMS security a bid or offer for such NMS security, as either 
principal or agent; provided, however, that,

[[Page 836]]

in the event two or more members of a national securities exchange have 
communicated on or through such national securities exchange bids or 
offers for an NMS security at the same price, each such member shall be 
considered a responsible broker or dealer for that bid or offer, subject 
to the rules of priority and precedence then in effect on that national 
securities exchange; and further provided, that for a bid or offer which 
is transmitted from one member of a national securities exchange to 
another member who undertakes to represent such bid or offer on such 
national securities exchange as agent, only the last member who 
undertakes to represent such bid or offer as agent shall be considered 
the responsible broker or dealer for that bid or offer; and
    (ii) When used with respect to bids and offers communicated by a 
member of an association to a broker or dealer or a customer, the member 
communicating the bid or offer (regardless of whether such bid or offer 
is for its own account or on behalf of another person).
    (70) Revised bid or offer means a market maker's bid or offer which 
supersedes its published bid or published offer.
    (71) Revised quotation size means a market maker's quotation size 
which supersedes its published quotation size.
    (72) Self-regulatory organization means any national securities 
exchange or national securities association.
    (73) Specified persons, when used in connection with any 
notification required to be provided pursuant to Sec.242.602(a)(3) and 
any election (or withdrawal thereof) permitted under Sec.
242.602(a)(5), means:
    (i) Each vendor;
    (ii) Each plan processor; and
    (iii) The processor for the Options Price Reporting Authority (in 
the case of a notification for a subject security which is a class of 
securities underlying options admitted to trading on any national 
securities exchange).
    (74) Sponsor, when used in connection with a national market system 
plan, means any self-regulatory organization which is a signatory to 
such plan and has agreed to act in accordance with the terms of the 
plan.
    (75) SRO display-only facility means a facility operated by or on 
behalf of a national securities exchange or national securities 
association that displays quotations in a security, but does not execute 
orders against such quotations or present orders to members for 
execution.
    (76) SRO trading facility means a facility operated by or on behalf 
of a national securities exchange or a national securities association 
that executes orders in a security or presents orders to members for 
execution.
    (77) Subject security means:
    (i) With respect to a national securities exchange:
    (A) Any exchange-traded security other than a security for which the 
executed volume of such exchange, during the most recent calendar 
quarter, comprised one percent or less of the aggregate trading volume 
for such security as reported pursuant to an effective transaction 
reporting plan or effective national market system plan; and
    (B) Any other NMS security for which such exchange has in effect an 
election, pursuant to Sec.242.602(a)(5)(i), to collect, process, and 
make available to a vendor bids, offers, quotation sizes, and aggregate 
quotation sizes communicated on such exchange; and
    (ii) With respect to a member of a national securities association:
    (A) Any exchange-traded security for which such member acts in the 
capacity of an OTC market maker unless the executed volume of such 
member, during the most recent calendar quarter, comprised one percent 
or less of the aggregate trading volume for such security as reported 
pursuant to an effective transaction reporting plan or effective 
national market system plan; and
    (B) Any other NMS security for which such member acts in the 
capacity of an OTC market maker and has in effect an election, pursuant 
to Sec.242.602(a)(5)(ii), to communicate to its association bids, 
offers, and quotation sizes for the purpose of making such bids, offers, 
and quotation sizes available to a vendor.
    (78) Time of order execution means the time (to the second) that an 
order was executed at any venue.

[[Page 837]]

    (79) Time of order receipt means the time (to the second) that an 
order was received by a market center for execution.
    (80) Time of the transaction has the meaning provided in Sec.
240.10b-10 of this chapter.
    (81) Trade-through means the purchase or sale of an NMS stock during 
regular trading hours, either as principal or agent, at a price that is 
lower than a protected bid or higher than a protected offer.
    (82) Trading center means a national securities exchange or national 
securities association that operates an SRO trading facility, an 
alternative trading system, an exchange market maker, an OTC market 
maker, or any other broker or dealer that executes orders internally by 
trading as principal or crossing orders as agent.
    (83) Trading rotation means, with respect to an options class, the 
time period on a national securities exchange during which:
    (i) Opening, re-opening, or closing transactions in options series 
in such options class are not yet completed; and
    (ii) Continuous trading has not yet commenced or has not yet ended 
for the day in options series in such options class.
    (84) Transaction report means a report containing the price and 
volume associated with a transaction involving the purchase or sale of 
one or more round lots of a security.
    (85) Transaction reporting association means any person authorized 
to implement or administer any transaction reporting plan on behalf of 
persons acting jointly under Sec.242.601(a).
    (86) Transaction reporting plan means any plan for collecting, 
processing, making available or disseminating transaction reports with 
respect to transactions in securities filed with the Commission pursuant 
to, and meeting the requirements of, Sec.242.601.
    (87) Vendor means any securities information processor engaged in 
the business of disseminating transaction reports, last sale data, or 
quotations with respect to NMS securities to brokers, dealers, or 
investors on a real-time or other current and continuing basis, whether 
through an electronic communications network, moving ticker, or 
interrogation device.

[62 FR 544, Jan. 3, 1997, as amended at 83 FR 58427, Nov. 19, 2018]



Sec.242.601  Dissemination of transaction reports and last sale data
with respect to transactions in NMS stocks.

    (a) Filing and effectiveness of transaction reporting plans. (1) 
Every national securities exchange shall file a transaction reporting 
plan regarding transactions in listed equity and Nasdaq securities 
executed through its facilities, and every national securities 
association shall file a transaction reporting plan regarding 
transactions in listed equity and Nasdaq securities executed by its 
members otherwise than on a national securities exchange.
    (2) Any transaction reporting plan, or any amendment thereto, filed 
pursuant to this section shall be filed with the Commission, and 
considered for approval, in accordance with the procedures set forth in 
Sec.242.608(a) and (b). Any such plan, or amendment thereto, shall 
specify, at a minimum:
    (i) The listed equity and Nasdaq securities or classes of such 
securities for which transaction reports shall be required by the plan;
    (ii) Reporting requirements with respect to transactions in listed 
equity securities and Nasdaq securities, for any broker or dealer 
subject to the plan;
    (iii) The manner of collecting, processing, sequencing, making 
available and disseminating transaction reports and last sale data 
reported pursuant to such plan;
    (iv) The manner in which such transaction reports reported pursuant 
to such plan are to be consolidated with transaction reports from 
national securities exchanges and national securities associations 
reported pursuant to any other effective transaction reporting plan;
    (v) The applicable standards and methods which will be utilized to 
ensure promptness of reporting, and accuracy and completeness of 
transaction reports;
    (vi) Any rules or procedures which may be adopted to ensure that 
transaction reports or last sale data will not

[[Page 838]]

be disseminated in a fraudulent or manipulative manner;
    (vii) Specific terms of access to transaction reports made available 
or disseminated pursuant to the plan; and
    (viii) That transaction reports or last sale data made available to 
any vendor for display on an interrogation device identify the 
marketplace where each transaction was executed.
    (3) No transaction reporting plan filed pursuant to this section, or 
any amendment to an effective transaction reporting plan, shall become 
effective unless approved by the Commission or otherwise permitted in 
accordance with the procedures set forth in Sec.242.608.
    (b) Prohibitions and reporting requirements. (1) No broker or dealer 
may execute any transaction in, or induce or attempt to induce the 
purchase or sale of, any NMS stock:
    (i) On or through the facilities of a national securities exchange 
unless there is an effective transaction reporting plan with respect to 
transactions in such security executed on or through such exchange 
facilities; or
    (ii) Otherwise than on a national securities exchange unless there 
is an effective transaction reporting plan with respect to transactions 
in such security executed otherwise than on a national securities 
exchange by such broker or dealer.
    (2) Every broker or dealer who is a member of a national securities 
exchange or national securities association shall promptly transmit to 
the exchange or association of which it is a member all information 
required by any effective transaction reporting plan filed by such 
exchange or association (either individually or jointly with other 
exchanges and/or associations).
    (c) Retransmission of transaction reports or last sale data. 
Notwithstanding any provision of any effective transaction reporting 
plan, no national securities exchange or national securities association 
may, either individually or jointly, by rule, stated policy or practice, 
transaction reporting plan or otherwise, prohibit, condition or 
otherwise limit, directly or indirectly, the ability of any vendor to 
retransmit, for display in moving tickers, transaction reports or last 
sale data made available pursuant to any effective transaction reporting 
plan; provided, however, that a national securities exchange or national 
securities association may, by means of an effective transaction 
reporting plan, condition such retransmission upon appropriate 
undertakings to ensure that any charges for the distribution of 
transaction reports or last sale data in moving tickers permitted by 
paragraph (d) of this section are collected.
    (d) Charges. Nothing in this section shall preclude any national 
securities exchange or national securities association, separately or 
jointly, pursuant to the terms of an effective transaction reporting 
plan, from imposing reasonable, uniform charges (irrespective of 
geographic location) for distribution of transaction reports or last 
sale data.
    (e) Appeals. The Commission may, in its discretion, entertain 
appeals in connection with the implementation or operation of any 
effective transaction reporting plan in accordance with the provisions 
of Sec.242.608(d).
    (f) Exemptions. The Commission may exempt from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, any national securities exchange, national securities 
association, broker, dealer, or specified security if the Commission 
determines that such exemption is consistent with the public interest, 
the protection of investors and the removal of impediments to, and 
perfection of the mechanisms of, a national market system.



Sec.242.602  Dissemination of quotations in NMS securities.

    (a) Dissemination requirements for national securities exchanges and 
national securities associations. (1) Every national securities exchange 
and national securities association shall establish and maintain 
procedures and mechanisms for collecting bids, offers, quotation sizes, 
and aggregate quotation sizes from responsible brokers or dealers who 
are members of such exchange or association, processing such bids, 
offers, and sizes, and making such bids, offers, and sizes available to 
vendors, as follows:
    (i) Each national securities exchange shall at all times such 
exchange is open

[[Page 839]]

for trading, collect, process, and make available to vendors the best 
bid, the best offer, and aggregate quotation sizes for each subject 
security listed or admitted to unlisted trading privileges which is 
communicated on any national securities exchange by any responsible 
broker or dealer, but shall not include:
    (A) Any bid or offer executed immediately after communication and 
any bid or offer communicated by a responsible broker or dealer other 
than an exchange market maker which is cancelled or withdrawn if not 
executed immediately after communication; and
    (B) Any bid or offer communicated during a period when trading in 
that security has been suspended or halted, or prior to the commencement 
of trading in that security on any trading day, on that exchange.
    (ii) Each national securities association shall, at all times that 
last sale information with respect to NMS securities is reported 
pursuant to an effective transaction reporting plan, collect, process, 
and make available to vendors the best bid, best offer, and quotation 
sizes communicated otherwise than on an exchange by each member of such 
association acting in the capacity of an OTC market maker for each 
subject security and the identity of that member (excluding any bid or 
offer executed immediately after communication), except during any 
period when over-the-counter trading in that security has been 
suspended.
    (2) Each national securities exchange shall, with respect to each 
published bid and published offer representing a bid or offer of a 
member for a subject security, establish and maintain procedures for 
ascertaining and disclosing to other members of that exchange, upon 
presentation of orders sought to be executed by them in reliance upon 
paragraph (b)(2) of this section, the identity of the responsible broker 
or dealer who made such bid or offer and the quotation size associated 
with it.
    (3)(i) If, at any time a national securities exchange is open for 
trading, such exchange determines, pursuant to rules approved by the 
Commission pursuant to section 19(b)(2) of the Act (15 U.S.C. 
78s(b)(2)), that the level of trading activities or the existence of 
unusual market conditions is such that the exchange is incapable of 
collecting, processing, and making available to vendors the data for a 
subject security required to be made available pursuant to paragraph 
(a)(1) of this section in a manner that accurately reflects the current 
state of the market on such exchange, such exchange shall immediately 
notify all specified persons of that determination. Upon such 
notification, responsible brokers or dealers that are members of that 
exchange shall be relieved of their obligation under paragraphs (b)(2) 
and (c)(3) of this section and such exchange shall be relieved of its 
obligations under paragraphs (a)(1) and (2) of this section for that 
security; provided, however, that such exchange will continue, to the 
maximum extent practicable under the circumstances, to collect, process, 
and make available to vendors data for that security in accordance with 
paragraph (a)(1) of this section.
    (ii) During any period a national securities exchange, or any 
responsible broker or dealer that is a member of that exchange, is 
relieved of any obligation imposed by this section for any subject 
security by virtue of a notification made pursuant to paragraph 
(a)(3)(i) of this section, such exchange shall monitor the activity or 
conditions which formed the basis for such notification and shall 
immediately renotify all specified persons when that exchange is once 
again capable of collecting, processing, and making available to vendors 
the data for that security required to be made available pursuant to 
paragraph (a)(1) of this section in a manner that accurately reflects 
the current state of the market on such exchange. Upon such 
renotification, any exchange or responsible broker or dealer which had 
been relieved of any obligation imposed by this section as a consequence 
of the prior notification shall again be subject to such obligation.
    (4) Nothing in this section shall preclude any national securities 
exchange or national securities association from making available to 
vendors indications of interest or bids and offers for a subject 
security at any time such exchange or association is not required to

[[Page 840]]

do so pursuant to paragraph (a)(1) of this section.
    (5)(i) Any national securities exchange may make an election for 
purposes of the definition of subject security in Sec.242.600(b)(77) 
for any NMS security, by collecting, processing, and making available 
bids, offers, quotation sizes, and aggregate quotation sizes in that 
security; except that for any NMS security previously listed or admitted 
to unlisted trading privileges on only one exchange and not traded by 
any OTC market maker, such election shall be made by notifying all 
specified persons, and shall be effective at the opening of trading on 
the business day following notification.
    (ii) Any member of a national securities association acting in the 
capacity of an OTC market maker may make an election for purposes of the 
definition of subject security in Sec.242.600(b)(77) for any NMS 
security, by communicating to its association bids, offers, and 
quotation sizes in that security; except that for any other NMS security 
listed or admitted to unlisted trading privileges on only one exchange 
and not traded by any other OTC market maker, such election shall be 
made by notifying its association and all specified persons, and shall 
be effective at the opening of trading on the business day following 
notification.
    (iii) The election of a national securities exchange or member of a 
national securities association for any NMS security pursuant to this 
paragraph (a)(5) shall cease to be in effect if such exchange or member 
ceases to make available or communicate bids, offers, and quotation 
sizes in such security.
    (b) Obligations of responsible brokers and dealers. (1) Each 
responsible broker or dealer shall promptly communicate to its national 
securities exchange or national securities association, pursuant to the 
procedures established by that exchange or association, its best bids, 
best offers, and quotation sizes for any subject security.
    (2) Subject to the provisions of paragraph (b)(3) of this section, 
each responsible broker or dealer shall be obligated to execute any 
order to buy or sell a subject security, other than an odd-lot order, 
presented to it by another broker or dealer, or any other person 
belonging to a category of persons with whom such responsible broker or 
dealer customarily deals, at a price at least as favorable to such buyer 
or seller as the responsible broker's or dealer's published bid or 
published offer (exclusive of any commission, commission equivalent or 
differential customarily charged by such responsible broker or dealer in 
connection with execution of any such order) in any amount up to its 
published quotation size.
    (3)(i) No responsible broker or dealer shall be obligated to execute 
a transaction for any subject security as provided in paragraph (b)(2) 
of this section to purchase or sell that subject security in an amount 
greater than such revised quotation size if:
    (A) Prior to the presentation of an order for the purchase or sale 
of a subject security, a responsible broker or dealer has communicated 
to its exchange or association, pursuant to paragraph (b)(1) of this 
section, a revised quotation size; or
    (B) At the time an order for the purchase or sale of a subject 
security is presented, a responsible broker or dealer is in the process 
of effecting a transaction in such subject security, and immediately 
after the completion of such transaction, it communicates to its 
exchange or association a revised quotation size, such responsible 
broker or dealer shall not be obligated by paragraph (b)(2) of this 
section to purchase or sell that subject security in an amount greater 
than such revised quotation size.
    (ii) No responsible broker or dealer shall be obligated to execute a 
transaction for any subject security as provided in paragraph (b)(2) of 
this section if:
    (A) Before the order sought to be executed is presented, such 
responsible broker or dealer has communicated to its exchange or 
association pursuant to paragraph (b)(1) of this section, a revised bid 
or offer; or
    (B) At the time the order sought to be executed is presented, such 
responsible broker or dealer is in the process of effecting a 
transaction in such subject security, and, immediately after the 
completion of such transaction,

[[Page 841]]

such responsible broker or dealer communicates to its exchange or 
association pursuant to paragraph (b)(1) of this section, a revised bid 
or offer; provided, however, that such responsible broker or dealer 
shall nonetheless be obligated to execute any such order in such subject 
security as provided in paragraph (b)(2) of this section at its revised 
bid or offer in any amount up to its published quotation size or revised 
quotation size.
    (4) Subject to the provisions of paragraph (a)(4) of this section:
    (i) No national securities exchange or OTC market maker may make 
available, disseminate or otherwise communicate to any vendor, directly 
or indirectly, for display on a terminal or other display device any 
bid, offer, quotation size, or aggregate quotation size for any NMS 
security which is not a subject security with respect to such exchange 
or OTC market maker; and
    (ii) No vendor may disseminate or display on a terminal or other 
display device any bid, offer, quotation size, or aggregate quotation 
size from any national securities exchange or OTC market maker for any 
NMS security which is not a subject security with respect to such 
exchange or OTC market maker.
    (5)(i) Entry of any priced order for an NMS security by an exchange 
market maker or OTC market maker in that security into an electronic 
communications network that widely disseminates such order shall be 
deemed to be:
    (A) A bid or offer under this section, to be communicated to the 
market maker's exchange or association pursuant to this paragraph (b) 
for at least the minimum quotation size that is required by the rules of 
the market maker's exchange or association if the priced order is for 
the account of a market maker, or the actual size of the order up to the 
minimum quotation size required if the priced order is for the account 
of a customer; and
    (B) A communication of a bid or offer to a vendor for display on a 
display device for purposes of paragraph (b)(4) of this section.
    (ii) An exchange market maker or OTC market maker that has entered a 
priced order for an NMS security into an electronic communications 
network that widely disseminates such order shall be deemed to be in 
compliance with paragraph (b)(5)(i)(A) of this section if the electronic 
communications network:
    (A)(1) Provides to a national securities exchange or national 
securities association (or an exclusive processor acting on behalf of 
one or more exchanges or associations) the prices and sizes of the 
orders at the highest buy price and the lowest sell price for such 
security entered in, and widely disseminated by, the electronic 
communications network by exchange market makers and OTC market makers 
for the NMS security, and such prices and sizes are included in the 
quotation data made available by such exchange, association, or 
exclusive processor to vendors pursuant to this section; and
    (2) Provides, to any broker or dealer, the ability to effect a 
transaction with a priced order widely disseminated by the electronic 
communications network entered therein by an exchange market maker or 
OTC market maker that is:
    (i) Equivalent to the ability of any broker or dealer to effect a 
transaction with an exchange market maker or OTC market maker pursuant 
to the rules of the national securities exchange or national securities 
association to which the electronic communications network supplies such 
bids and offers; and
    (ii) At the price of the highest priced buy order or lowest priced 
sell order, or better, for the lesser of the cumulative size of such 
priced orders entered therein by exchange market makers or OTC market 
makers at such price, or the size of the execution sought by the broker 
or dealer, for such security; or
    (B) Is an alternative trading system that:
    (1) Displays orders and provides the ability to effect transactions 
with such orders under Sec.242.301(b)(3); and
    (2) Otherwise is in compliance with Regulation ATS (Sec.242.300 
through Sec.242.303).
    (c) Transactions in listed options. (1) A national securities 
exchange or national securities association:
    (i) Shall not be required, under paragraph (a) of this section, to 
collect from responsible brokers or dealers

[[Page 842]]

who are members of such exchange or association, or to make available to 
vendors, the quotation sizes and aggregate quotation sizes for listed 
options, if such exchange or association establishes by rule and 
periodically publishes the quotation size for which such responsible 
brokers or dealers are obligated to execute an order to buy or sell an 
options series that is a subject security at its published bid or offer 
under paragraph (b)(2) of this section;
    (ii) May establish by rule and periodically publish a quotation 
size, which shall not be for less than one contract, for which 
responsible brokers or dealers who are members of such exchange or 
association are obligated under paragraph (b)(2) of this section to 
execute an order to buy or sell a listed option for the account of a 
broker or dealer that is in an amount different from the quotation size 
for which it is obligated to execute an order for the account of a 
customer; and
    (iii) May establish and maintain procedures and mechanisms for 
collecting from responsible brokers and dealers who are members of such 
exchange or association, and making available to vendors, the quotation 
sizes and aggregate quotation sizes in listed options for which such 
responsible broker or dealer will be obligated under paragraph (b)(2) of 
this section to execute an order from a customer to buy or sell a listed 
option and establish by rule and periodically publish the size, which 
shall not be less than one contract, for which such responsible brokers 
or dealers are obligated to execute an order for the account of a broker 
or dealer.
    (2) If, pursuant to paragraph (c)(1) of this section, the rules of a 
national securities exchange or national securities association do not 
require its members to communicate to it their quotation sizes for 
listed options, a responsible broker or dealer that is a member of such 
exchange or association shall:
    (i) Be relieved of its obligations under paragraph (b)(1) of this 
section to communicate to such exchange or association its quotation 
sizes for any listed option; and
    (ii) Comply with its obligations under paragraph (b)(2) of this 
section by executing any order to buy or sell a listed option, in an 
amount up to the size established by such exchange's or association's 
rules under paragraph (c)(1) of this section.
    (3) Thirty second response. Each responsible broker or dealer, 
within thirty seconds of receiving an order to buy or sell a listed 
option in an amount greater than the quotation size established by a 
national securities exchange's or national securities association's 
rules pursuant to paragraph (c)(1) of this section, or its published 
quotation size must:
    (i) Execute the entire order; or
    (ii)(A) Execute that portion of the order equal to at least:
    (1) The quotation size established by a national securities 
exchange's or national securities association's rules, pursuant to 
paragraph (c)(1) of this section, to the extent that such exchange or 
association does not collect and make available to vendors quotation 
size and aggregate quotation size under paragraph (a) of this section; 
or
    (2) Its published quotation size; and
    (B) Revise its bid or offer.
    (4) Notwithstanding paragraph (c)(3) of this section, no responsible 
broker or dealer shall be obligated to execute a transaction for any 
listed option as provided in paragraph (b)(2) of this section if:
    (i) Any of the circumstances in paragraph (b)(3) of this section 
exist; or
    (ii) The order for the purchase or sale of a listed option is 
presented during a trading rotation in that listed option.
    (d) Exemptions. The Commission may exempt from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, any responsible broker or dealer, electronic communications 
network, national securities exchange, or national securities 
association if the Commission determines that such exemption is 
consistent with the public interest, the protection of investors and the 
removal of impediments to and perfection of the mechanism of a national 
market system.

[62 FR 544, Jan. 3, 1997, as amended at 83 FR 58427, Nov. 19, 2018]

[[Page 843]]



Sec.242.603  Distribution, consolidation, and display of information
with respect to quotations for and transactions in NMS stocks.

    (a) Distribution of information. (1) Any exclusive processor, or any 
broker or dealer with respect to information for which it is the 
exclusive source, that distributes information with respect to 
quotations for or transactions in an NMS stock to a securities 
information processor shall do so on terms that are fair and reasonable.
    (2) Any national securities exchange, national securities 
association, broker, or dealer that distributes information with respect 
to quotations for or transactions in an NMS stock to a securities 
information processor, broker, dealer, or other persons shall do so on 
terms that are not unreasonably discriminatory.
    (b) Consolidation of information. Every national securities exchange 
on which an NMS stock is traded and national securities association 
shall act jointly pursuant to one or more effective national market 
system plans to disseminate consolidated information, including a 
national best bid and national best offer, on quotations for and 
transactions in NMS stocks. Such plan or plans shall provide for the 
dissemination of all consolidated information for an individual NMS 
stock through a single plan processor.
    (c) Display of information. (1) No securities information processor, 
broker, or dealer shall provide, in a context in which a trading or 
order-routing decision can be implemented, a display of any information 
with respect to quotations for or transactions in an NMS stock without 
also providing, in an equivalent manner, a consolidated display for such 
stock.
    (2) The provisions of paragraph (c)(1) of this section shall not 
apply to a display of information on the trading floor or through the 
facilities of a national securities exchange or to a display in 
connection with the operation of a market linkage system implemented in 
accordance with an effective national market system plan.
    (d) Exemptions. The Commission, by order, may exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any person, security, or item of information, or any 
class or classes of persons, securities, or items of information, if the 
Commission determines that such exemption is necessary or appropriate in 
the public interest, and is consistent with the protection of investors.



Sec.242.604  Display of customer limit orders.

    (a) Specialists and OTC market makers. For all NMS stocks:
    (1) Each member of a national securities exchange that is registered 
by that exchange as a specialist, or is authorized by that exchange to 
perform functions substantially similar to that of a specialist, shall 
publish immediately a bid or offer that reflects:
    (i) The price and the full size of each customer limit order held by 
the specialist that is at a price that would improve the bid or offer of 
such specialist in such security; and
    (ii) The full size of each customer limit order held by the 
specialist that:
    (A) Is priced equal to the bid or offer of such specialist for such 
security;
    (B) Is priced equal to the national best bid or national best offer; 
and
    (C) Represents more than a de minimis change in relation to the size 
associated with the specialist's bid or offer.
    (2) Each registered broker or dealer that acts as an OTC market 
maker shall publish immediately a bid or offer that reflects:
    (i) The price and the full size of each customer limit order held by 
the OTC market maker that is at a price that would improve the bid or 
offer of such OTC market maker in such security; and
    (ii) The full size of each customer limit order held by the OTC 
market maker that:
    (A) Is priced equal to the bid or offer of such OTC market maker for 
such security;
    (B) Is priced equal to the national best bid or national best offer; 
and
    (C) Represents more than a de minimis change in relation to the size 
associated with the OTC market maker's bid or offer.
    (b) Exceptions. The requirements in paragraph (a) of this section 
shall not apply to any customer limit order:

[[Page 844]]

    (1) That is executed upon receipt of the order.
    (2) That is placed by a customer who expressly requests, either at 
the time that the order is placed or prior thereto pursuant to an 
individually negotiated agreement with respect to such customer's 
orders, that the order not be displayed.
    (3) That is an odd-lot order.
    (4) That is a block size order, unless a customer placing such order 
requests that the order be displayed.
    (5) That is delivered immediately upon receipt to a national 
securities exchange or national securities association-sponsored system, 
or an electronic communications network that complies with the 
requirements of Sec.242.602(b)(5)(ii) with respect to that order.
    (6) That is delivered immediately upon receipt to another exchange 
member or OTC market maker that complies with the requirements of this 
section with respect to that order.
    (7) That is an ``all or none'' order.
    (c) Exemptions. The Commission may exempt from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, any responsible broker or dealer, electronic communications 
network, national securities exchange, or national securities 
association if the Commission determines that such exemption is 
consistent with the public interest, the protection of investors and the 
removal of impediments to and perfection of the mechanism of a national 
market system.



Sec.242.605  Disclosure of order execution information.

    This section requires market centers to make available standardized, 
monthly reports of statistical information concerning their order 
executions. This information is presented in accordance with uniform 
standards that are based on broad assumptions about order execution and 
routing practices. The information will provide a starting point to 
promote visibility and competition on the part of market centers and 
broker-dealers, particularly on the factors of execution price and 
speed. The disclosures required by this section do not encompass all of 
the factors that may be important to investors in evaluating the order 
routing services of a broker-dealer. In addition, any particular market 
center's statistics will encompass varying types of orders routed by 
different broker-dealers on behalf of customers with a wide range of 
objectives. Accordingly, the statistical information required by this 
section alone does not create a reliable basis to address whether any 
particular broker-dealer failed to obtain the most favorable terms 
reasonably available under the circumstances for customer orders.
    (a) Monthly electronic reports by market centers. (1) Every market 
center shall make available for each calendar month, in accordance with 
the procedures established pursuant to paragraph (a)(2) of this section, 
a report on the covered orders in NMS stocks that it received for 
execution from any person. Such report shall be in electronic form; 
shall be categorized by security, order type, and order size; and shall 
include the following columns of information:
    (i) For market orders, marketable limit orders, inside-the-quote 
limit orders, at-the-quote limit orders, and near-the-quote limit 
orders:
    (A) The number of covered orders;
    (B) The cumulative number of shares of covered orders;
    (C) The cumulative number of shares of covered orders cancelled 
prior to execution;
    (D) The cumulative number of shares of covered orders executed at 
the receiving market center;
    (E) The cumulative number of shares of covered orders executed at 
any other venue;
    (F) The cumulative number of shares of covered orders executed from 
0 to 9 seconds after the time of order receipt;
    (G) The cumulative number of shares of covered orders executed from 
10 to 29 seconds after the time of order receipt;
    (H) The cumulative number of shares of covered orders executed from 
30 seconds to 59 seconds after the time of order receipt;
    (I) The cumulative number of shares of covered orders executed from 
60 seconds to 299 seconds after the time of order receipt;

[[Page 845]]

    (J) The cumulative number of shares of covered orders executed from 
5 minutes to 30 minutes after the time of order receipt; and
    (K) The average realized spread for executions of covered orders; 
and
    (ii) For market orders and marketable limit orders:
    (A) The average effective spread for executions of covered orders;
    (B) The cumulative number of shares of covered orders executed with 
price improvement;
    (C) For shares executed with price improvement, the share-weighted 
average amount per share that prices were improved;
    (D) For shares executed with price improvement, the share-weighted 
average period from the time of order receipt to the time of order 
execution;
    (E) The cumulative number of shares of covered orders executed at 
the quote;
    (F) For shares executed at the quote, the share-weighted average 
period from the time of order receipt to the time of order execution;
    (G) The cumulative number of shares of covered orders executed 
outside the quote;
    (H) For shares executed outside the quote, the share-weighted 
average amount per share that prices were outside the quote; and
    (I) For shares executed outside the quote, the share-weighted 
average period from the time of order receipt to the time of order 
execution.
    (2) Every national securities exchange on which NMS stocks are 
traded and each national securities association shall act jointly in 
establishing procedures for market centers to follow in making available 
to the public the reports required by paragraph (a)(1) of this section 
in a uniform, readily accessible, and usable electronic form. In the 
event there is no effective national market system plan establishing 
such procedures, market centers shall prepare their reports in a 
consistent, usable, and machine-readable electronic format, and make 
such reports available for downloading from an Internet Web site that is 
free and readily accessible to the public. Every market center shall 
keep such reports posted on an internet website that is free and readily 
accessible to the public for a period of three years from the initial 
date of posting on the internet website.
    (3) A market center shall make available the report required by 
paragraph (a)(1) of this section within one month after the end of the 
month addressed in the report.
    (b) Exemptions. The Commission may, by order upon application, 
conditionally or unconditionally exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision or provisions of this section, if the 
Commission determines that such exemption is necessary or appropriate in 
the public interest, and is consistent with the protection of investors.

[62 FR 544, Jan. 3, 1997, as amended at 83 FR 58427, Nov. 19, 2018]



Sec.242.606  Disclosure of order routing information.

    (a) Quarterly report on order routing. (1) Every broker or dealer 
shall make publicly available for each calendar quarter a report on its 
routing of non-directed orders in NMS stocks that are submitted on a 
held basis and of non-directed orders that are customer orders in NMS 
securities that are option contracts during that quarter broken down by 
calendar month and keep such report posted on an internet website that 
is free and readily accessible to the public for a period of three years 
from the initial date of posting on the internet website. Such report 
shall include a section for NMS stocks--separated by securities that are 
included in the S&P 500 Index as of the first day of that quarter and 
other NMS stocks--and a separate section for NMS securities that are 
option contracts. Such report shall be made available using the most 
recent versions of the XML schema and the associated PDF renderer as 
published on the Commission's website for all reports required by this 
section. Each section in a report shall include the following 
information:
    (i) The percentage of total orders for the section that were non-
directed orders, and the percentages of total non-directed orders for 
the section that were market orders, marketable limit orders, non-
marketable limit orders, and other orders;

[[Page 846]]

    (ii) The identity of the ten venues to which the largest number of 
total non-directed orders for the section were routed for execution and 
of any venue to which five percent or more of non-directed orders were 
routed for execution, the percentage of total non-directed orders for 
the section routed to the venue, and the percentages of total non-
directed market orders, total non-directed marketable limit orders, 
total non-directed non-marketable limit orders, and total non-directed 
other orders for the section that were routed to the venue;
    (iii) For each venue identified pursuant to paragraph (a)(1)(ii) of 
this section, the net aggregate amount of any payment for order flow 
received, payment from any profit-sharing relationship received, 
transaction fees paid, and transaction rebates received, both as a total 
dollar amount and per share, for each of the following non-directed 
order types:
    (A) Market orders;
    (B) Marketable limit orders;
    (C) Non-marketable limit orders; and
    (D) Other orders.
    (iv) A discussion of the material aspects of the broker's or 
dealer's relationship with each venue identified pursuant to paragraph 
(a)(1)(ii) of this section, including a description of any arrangement 
for payment for order flow and any profit-sharing relationship and a 
description of any terms of such arrangements, written or oral, that may 
influence a broker's or dealer's order routing decision including, among 
other things:
    (A) Incentives for equaling or exceeding an agreed upon order flow 
volume threshold, such as additional payments or a higher rate of 
payment;
    (B) Disincentives for failing to meet an agreed upon minimum order 
flow threshold, such as lower payments or the requirement to pay a fee;
    (C) Volume-based tiered payment schedules; and
    (D) Agreements regarding the minimum amount of order flow that the 
broker-dealer would send to a venue.
    (2) A broker or dealer shall make the report required by paragraph 
(a)(1) of this section publicly available within one month after the end 
of the quarter addressed in the report.
    (b) Customer requests for information on order routing. (1) Every 
broker or dealer shall, on request of a customer, disclose to its 
customer, for:
    (i) Orders in NMS stocks that are submitted on a held basis;
    (ii) Orders in NMS stocks that are submitted on a not held basis and 
the broker or dealer is not required to provide the customer a report 
under paragraph (b)(3) of this section; and
    (iii) Orders in NMS securities that are option contracts, the 
identity of the venue to which the customer's orders were routed for 
execution in the six months prior to the request, whether the orders 
were directed orders or non-directed orders, and the time of the 
transactions, if any, that resulted from such orders. Such disclosure 
shall be made available using the most recent versions of the XML schema 
and the associated PDF renderer as published on the Commission's website 
for all reports required by this section.
    (2) A broker or dealer shall notify customers in writing at least 
annually of the availability on request of the information specified in 
paragraph (b)(1) of this section.
    (3) Except as provided for in paragraphs (b)(4) and (5) of this 
section, every broker or dealer shall, on request of a customer that 
places, directly or indirectly, one or more orders in NMS stocks that 
are submitted on a not held basis with the broker or dealer, disclose to 
such customer within seven business days of receiving the request, a 
report on its handling of such orders for that customer for the prior 
six months by calendar month. Such report shall be made available using 
the most recent versions of the XML schema and the associated PDF 
renderer as published on the Commission's website for all reports 
required by this section. For purposes of such report, the handling of a 
NMS stock order submitted by a customer to a broker-dealer on a not held 
basis includes the handling of all child orders derived from that order. 
Such report shall be divided into two sections: One for directed orders 
and one for non-directed orders. Each section of such report shall 
include, with respect to such order flow sent by the customer to the 
broker or dealer, the total number of shares sent to the

[[Page 847]]

broker or dealer by the customer during the relevant period; the total 
number of shares executed by the broker or dealer as principal for its 
own account; the total number of orders exposed by the broker or dealer 
through an actionable indication of interest; and the venue or venues to 
which orders were exposed by the broker or dealer through an actionable 
indication of interest, provided that, where applicable, a broker or 
dealer must disclose that it exposed a customer's order through an 
actionable indication of interest to other customers but need not 
disclose the identity of such customers. Each section of such report 
also shall include the following columns of information for each venue 
to which the broker or dealer routed such orders for the customer, in 
the aggregate:
    (i) Information on Order Routing.(A) Total shares routed;
    (B) Total shares routed marked immediate or cancel;
    (C) Total shares routed that were further routable; and
    (D) Average order size routed.
    (ii) Information on Order Execution. (A) Total shares executed;
    (B) Fill rate (shares executed divided by the shares routed);
    (C) Average fill size;
    (D) Average net execution fee or rebate (cents per 100 shares, 
specified to four decimal places);
    (E) Total number of shares executed at the midpoint;
    (F) Percentage of shares executed at the midpoint;
    (G) Total number of shares executed that were priced on the side of 
the spread more favorable to the order;
    (H) Percentage of total shares executed that were priced at the side 
of the spread more favorable to the order;
    (I) Total number of shares executed that were priced on the side of 
the spread less favorable to the order; and
    (J) Percentage of total shares executed that were priced on the side 
of the spread less favorable to the order.
    (iii) Information on Orders that Provided Liquidity. (A) Total 
number of shares executed of orders providing liquidity;
    (B) Percentage of shares executed of orders providing liquidity;
    (C) Average time between order entry and execution or cancellation, 
for orders providing liquidity (in milliseconds); and
    (D) Average net execution rebate or fee for shares of orders 
providing liquidity (cents per 100 shares, specified to four decimal 
places).
    (iv) Information on Orders that Removed Liquidity. (A) Total number 
of shares executed of orders removing liquidity;
    (B) Percentage of shares executed of orders removing liquidity; and
    (C) Average net execution fee or rebate for shares of orders 
removing liquidity (cents per 100 shares, specified to four decimal 
places).
    (4) Except as provided below, no broker or dealer shall be required 
to provide reports pursuant to paragraph (b)(3) of this section if the 
percentage of shares of not held orders in NMS stocks the broker or 
dealer received from its customers over the prior six calendar months 
was less than five percent of the total shares in NMS stocks the broker 
or dealer received from its customers during that time (the ``five 
percent threshold'' for purposes of this paragraph). A broker or dealer 
that equals or exceeds this five percent threshold shall be required 
(subject to paragraph (b)(5) of this section) to provide reports 
pursuant to paragraph (b)(3) of this section for at least six calendar 
months (``Compliance Period'') regardless of the percentage of shares of 
not held orders in NMS stocks the broker or dealer receives from its 
customers during the Compliance Period. The Compliance Period shall 
begin the first calendar day of the next calendar month after the broker 
or dealer equaled or exceeded the five percent threshold, unless it is 
the first time the broker or dealer has equaled or exceeded the five 
percent threshold, in which case the Compliance Period shall begin the 
first calendar day four calendar months later. A broker or dealer shall 
not be required to provide reports pursuant to paragraph (b)(3) of this 
section for orders that the broker or dealer did not receive during a 
Compliance Period. If, at any time after the end of a Compliance Period, 
the percentage of shares of not held orders in NMS stocks the broker or 
dealer received

[[Page 848]]

from its customers was less than five percent of the total shares in NMS 
stocks the broker or dealer received from its customers over the prior 
six calendar months, the broker or dealer shall not be required to 
provide reports pursuant to paragraph (b)(3) of this section, except for 
orders that the broker or dealer received during the portion of a 
Compliance Period that remains covered by paragraph (b)(3) of this 
section.
    (5) No broker or dealer shall be subject to the requirements of 
paragraph (b)(3) of this section with respect to a customer that traded 
on average each month for the prior six months less than $1,000,000 of 
notional value of not held orders in NMS stocks through the broker or 
dealer.
    (c) Exemptions. The Commission may, by order upon application, 
conditionally or unconditionally exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision or provisions of this section, if the 
Commission determines that such exemption is necessary or appropriate in 
the public interest, and is consistent with the protection of investors.

[62 FR 544, Jan. 3, 1997, as amended at 83 FR 58427, Nov. 19, 2018]



Sec.242.607  Customer account statements.

    (a) No broker or dealer acting as agent for a customer may effect 
any transaction in, induce or attempt to induce the purchase or sale of, 
or direct orders for purchase or sale of, any NMS stock or a security 
authorized for quotation on an automated inter-dealer quotation system 
that has the characteristics set forth in section 17B of the Act (15 
U.S.C. 78q-2), unless such broker or dealer informs such customer, in 
writing, upon opening a new account and on an annual basis thereafter, 
of the following:
    (1) The broker's or dealer's policies regarding receipt of payment 
for order flow from any broker or dealer, national securities exchange, 
national securities association, or exchange member to which it routes 
customers' orders for execution, including a statement as to whether any 
payment for order flow is received for routing customer orders and a 
detailed description of the nature of the compensation received; and
    (2) The broker's or dealer's policies for determining where to route 
customer orders that are the subject of payment for order flow absent 
specific instructions from customers, including a description of the 
extent to which orders can be executed at prices superior to the 
national best bid and national best offer.
    (b) Exemptions. The Commission, upon request or upon its own motion, 
may exempt by rule or by order, any broker or dealer or any class of 
brokers or dealers, security or class of securities from the 
requirements of paragraph (a) of this section with respect to any 
transaction or class of transactions, either unconditionally or on 
specified terms and conditions, if the Commission determines that such 
exemption is consistent with the public interest and the protection of 
investors.



Sec.242.608  Filing and amendment of national market system plans.

    (a) Filing of national market system plans and amendments thereto. 
(1) Any two or more self-regulatory organizations, acting jointly, may 
file a national market system plan or may propose an amendment to an 
effective national market system plan (``proposed amendment'') by 
submitting the text of the plan or amendment to the Secretary of the 
Commission, together with a statement of the purpose of such plan or 
amendment and, to the extent applicable, the documents and information 
required by paragraphs (a)(4) and (5) of this section.
    (2) The Commission may propose amendments to any effective national 
market system plan by publishing the text thereof, together with a 
statement of the purpose of such amendment, in accordance with the 
provisions of paragraph (b) of this section.
    (3) Self-regulatory organizations are authorized to act jointly in:
    (i) Planning, developing, and operating any national market 
subsystem or facility contemplated by a national market system plan;
    (ii) Preparing and filing a national market system plan or any 
amendment thereto; or

[[Page 849]]

    (iii) Implementing or administering an effective national market 
system plan.
    (4) Every national market system plan filed pursuant to this 
section, or any amendment thereto, shall be accompanied by:
    (i) Copies of all governing or constituent documents relating to any 
person (other than a self-regulatory organization) authorized to 
implement or administer such plan on behalf of its sponsors; and
    (ii) To the extent applicable:
    (A) A detailed description of the manner in which the plan or 
amendment, and any facility or procedure contemplated by the plan or 
amendment, will be implemented;
    (B) A listing of all significant phases of development and 
implementation (including any pilot phase) contemplated by the plan or 
amendment, together with the projected date of completion of each phase;
    (C) An analysis of the impact on competition of implementation of 
the plan or amendment or of any facility contemplated by the plan or 
amendment;
    (D) A description of any written understandings or agreements 
between or among plan sponsors or participants relating to 
interpretations of the plan or conditions for becoming a sponsor or 
participant in the plan; and
    (E) In the case of a proposed amendment, a statement that such 
amendment has been approved by the sponsors in accordance with the terms 
of the plan.
    (5) Every national market system plan, or any amendment thereto, 
filed pursuant to this section shall include a description of the manner 
in which any facility contemplated by the plan or amendment will be 
operated. Such description shall include, to the extent applicable:
    (i) The terms and conditions under which brokers, dealers, and/or 
self-regulatory organizations will be granted or denied access 
(including specific procedures and standards governing the granting or 
denial of access);
    (ii) The method by which any fees or charges collected on behalf of 
all of the sponsors and/or participants in connection with access to, or 
use of, any facility contemplated by the plan or amendment will be 
determined and imposed (including any provision for distribution of any 
net proceeds from such fees or charges to the sponsors and/or 
participants) and the amount of such fees or charges;
    (iii) The method by which, and the frequency with which, the 
performance of any person acting as plan processor with respect to the 
implementation and/or operation of the plan will be evaluated; and
    (iv) The method by which disputes arising in connection with the 
operation of the plan will be resolved.
    (6) In connection with the selection of any person to act as plan 
processor with respect to any facility contemplated by a national market 
system plan (including renewal of any contract for any person to so 
act), the sponsors shall file with the Commission a statement 
identifying the person selected, describing the material terms under 
which such person is to serve as plan processor, and indicating the 
solicitation efforts, if any, for alternative plan processors, the 
alternatives considered and the reasons for selection of such person.
    (7) Any national market system plan (or any amendment thereto) which 
is intended by the sponsors to satisfy a plan filing requirement 
contained in any other section of this Regulation NMS and part 240, 
subpart A of this chapter shall, in addition to compliance with this 
section, also comply with the requirements of such other section.
    (8)(i) A participant in an effective national market system plan 
shall ensure that a current and complete version of the plan is posted 
on a plan Web site or on a Web site designated by plan participants 
within two business days after notification by the Commission of 
effectiveness of the plan. Each participant in an effective national 
market system plan shall ensure that such Web site is updated to reflect 
amendments to such plan within two business days after the plan 
participants have been notified by the Commission of its approval of a 
proposed amendment pursuant to paragraph (b) of this section. If the 
amendment is not effective for a certain period, the plan participants 
shall clearly indicate the effective date

[[Page 850]]

in the relevant text of the plan. Each plan participant also shall 
provide a link on its own Web site to the Web site with the current 
version of the plan.
    (ii) The plan participants shall ensure that any proposed amendments 
filed pursuant to paragraph (a) of this section are posted on a plan Web 
site or a designated Web site no later than two business days after the 
filing of the proposed amendments with the Commission. The plan 
participants shall maintain any proposed amendment to the plan on a plan 
Web site or a designated Web site until the Commission approves the plan 
amendment and the plan participants update the Web site to reflect such 
amendment or the plan participants withdraw the proposed amendment. If 
the plan participants withdraw proposed amendments, the plan 
participants shall remove such amendments from the plan Web site or 
designated Web site within two business days of withdrawal. Each plan 
participant shall provide a link to the Web site with the current 
version of the plan.
    (b) Effectiveness of national market system plans. (1) The 
Commission shall publish notice of the filing of any national market 
system plan, or any proposed amendment to any effective national market 
system plan (including any amendment initiated by the Commission), 
together with the terms of substance of the filing or a description of 
the subjects and issues involved, and shall provide interested persons 
an opportunity to submit written comments. No national market system 
plan, or any amendment thereto, shall become effective unless approved 
by the Commission or otherwise permitted in accordance with paragraph 
(b)(3) of this section.
    (2) Within 120 days of the date of publication of notice of filing 
of a national market system plan or an amendment to an effective 
national market system plan, or within such longer period as the 
Commission may designate up to 180 days of such date if it finds such 
longer period to be appropriate and publishes its reasons for so finding 
or as to which the sponsors consent, the Commission shall approve such 
plan or amendment, with such changes or subject to such conditions as 
the Commission may deem necessary or appropriate, if it finds that such 
plan or amendment is necessary or appropriate in the public interest, 
for the protection of investors and the maintenance of fair and orderly 
markets, to remove impediments to, and perfect the mechanisms of, a 
national market system, or otherwise in furtherance of the purposes of 
the Act. Approval of a national market system plan, or an amendment to 
an effective national market system plan (other than an amendment 
initiated by the Commission), shall be by order. Promulgation of an 
amendment to an effective national market system plan initiated by the 
Commission shall be by rule.
    (3) A proposed amendment may be put into effect upon filing with the 
Commission if designated by the sponsors as:
    (i) Establishing or changing a fee or other charge collected on 
behalf of all of the sponsors and/or participants in connection with 
access to, or use of, any facility contemplated by the plan or amendment 
(including changes in any provision with respect to distribution of any 
net proceeds from such fees or other charges to the sponsors and/or 
participants);
    (ii) Concerned solely with the administration of the plan, or 
involving the governing or constituent documents relating to any person 
(other than a self-regulatory organization) authorized to implement or 
administer such plan on behalf of its sponsors; or
    (iii) Involving solely technical or ministerial matters. At any time 
within 60 days of the filing of any such amendment, the Commission may 
summarily abrogate the amendment and require that such amendment be 
refiled in accordance with paragraph (a)(1) of this section and reviewed 
in accordance with paragraph (b)(2) of this section, if it appears to 
the Commission that such action is necessary or appropriate in the 
public interest, for the protection of investors, or the maintenance of 
fair and orderly markets, to remove impediments to, and perfect the 
mechanisms of, a national market system or otherwise in furtherance of 
the purposes of the Act.

[[Page 851]]

    (4) Notwithstanding the provisions of paragraph (b)(1) of this 
section, a proposed amendment may be put into effect summarily upon 
publication of notice of such amendment, on a temporary basis not to 
exceed 120 days, if the Commission finds that such action is necessary 
or appropriate in the public interest, for the protection of investors 
or the maintenance of fair and orderly markets, to remove impediments 
to, and perfect the mechanisms of, a national market system or otherwise 
in furtherance of the purposes of the Act.
    (5) Any plan (or amendment thereto) in connection with:
    (i) The planning, development, operation, or regulation of a 
national market system (or a subsystem thereof) or one or more 
facilities thereof; or
    (ii) The development and implementation of procedures and/or 
facilities designed to achieve compliance by self-regulatory 
organizations and/or their members of any section of this Regulation NMS 
(Sec.Sec.242.600 through 242.612) and part 240, subpart A of this 
chapter promulgated pursuant to section 11A of the Act (15 U.S.C. 78k-
1), approved by the Commission pursuant to section 11A of the Act (or 
pursuant to any rule or regulation thereunder) prior to the effective 
date of this section (either temporarily or permanently) shall be deemed 
to have been filed and approved pursuant to this section and no 
additional filing need be made by the sponsors with respect to such plan 
or amendment; provided, however, that all terms and conditions 
associated with any such approval (including time limitations) shall 
continue to be applicable; provided, further, that any amendment to such 
plan filed with or approved by the Commission on or after the effective 
date of this section shall be subject to the provisions of, and 
considered in accordance with the procedures specified in, this section.
    (c) Compliance with terms of national market system plans. Each 
self-regulatory organization shall comply with the terms of any 
effective national market system plan of which it is a sponsor or a 
participant. Each self-regulatory organization also shall, absent 
reasonable justification or excuse, enforce compliance with any such 
plan by its members and persons associated with its members.
    (d) Appeals. The Commission may, in its discretion, entertain 
appeals in connection with the implementation or operation of any 
effective national market system plan as follows:
    (1) Any action taken or failure to act by any person in connection 
with an effective national market system plan (other than a prohibition 
or limitation of access reviewable by the Commission pursuant to section 
11A(b)(5) or section 19(d) of the Act (15 U.S.C. 78k-1(b)(5) or 78s(d))) 
shall be subject to review by the Commission, on its own motion or upon 
application by any person aggrieved thereby (including, but not limited 
to, self-regulatory organizations, brokers, dealers, issuers, and 
vendors), filed not later than 30 days after notice of such action or 
failure to act or within such longer period as the Commission may 
determine.
    (2) Application to the Commission for review, or the institution of 
review by the Commission on its own motion, shall not operate as a stay 
of any such action unless the Commission determines otherwise, after 
notice and opportunity for hearing on the question of a stay (which 
hearing may consist only of affidavits or oral arguments).
    (3) In any proceedings for review, if the Commission, after 
appropriate notice and opportunity for hearing (which hearing may 
consist solely of consideration of the record of any proceedings 
conducted in connection with such action or failure to act and an 
opportunity for the presentation of reasons supporting or opposing such 
action or failure to act) and upon consideration of such other data, 
views, and arguments as it deems relevant, finds that the action or 
failure to act is in accordance with the applicable provisions of such 
plan and that the applicable provisions are, and were, applied in a 
manner consistent with the public interest, the protection of investors, 
the maintenance of fair and orderly markets, and the removal of 
impediments to, and the perfection of the mechanisms of a national 
market system, the Commission, by order, shall dismiss the proceeding. 
If the Commission does not make any

[[Page 852]]

such finding, or if it finds that such action or failure to act imposes 
any burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act, the Commission, by order, shall set aside such 
action and/or require such action with respect to the matter reviewed as 
the Commission deems necessary or appropriate in the public interest, 
for the protection of investors, and the maintenance of fair and orderly 
markets, or to remove impediments to, and perfect the mechanisms of, a 
national market system.
    (e) Exemptions. The Commission may exempt from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, any self-regulatory organization, member thereof, or 
specified security, if the Commission determines that such exemption is 
consistent with the public interest, the protection of investors, the 
maintenance of fair and orderly markets and the removal of impediments 
to, and perfection of the mechanisms of, a national market system.

[70 FR 37620, June 29, 2005; 71 FR 232, Jan. 4, 2006]



Sec.242.609  Registration of securities information processors: 
form of application and amendments.

    (a) An application for the registration of a securities information 
processor shall be filed on Form SIP (Sec.249.1001 of this chapter) in 
accordance with the instructions contained therein.
    (b) If any information reported in items 1-13 or item 21 of Form SIP 
or in any amendment thereto is or becomes inaccurate for any reason, 
whether before or after the registration has been granted, the 
securities information processor shall promptly file an amendment on 
Form SIP correcting such information.
    (c) The Commission, upon its own motion or upon application by any 
securities information processor, may conditionally or unconditionally 
exempt any securities information processor from any provision of the 
rules or regulations adopted under section 11A(b) of the Act (15 U.S.C. 
78k-1(b)).
    (d) Every amendment filed pursuant to this section shall constitute 
a ``report'' within the meaning of sections 17(a), 18(a) and 32(a) of 
the Act (15 U.S.C. 78q(a), 78r(a), and 78ff(a)).



Sec.242.610  Access to quotations.

    (a) Quotations of SRO trading facility. A national securities 
exchange or national securities association shall not impose unfairly 
discriminatory terms that prevent or inhibit any person from obtaining 
efficient access through a member of the national securities exchange or 
national securities association to the quotations in an NMS stock 
displayed through its SRO trading facility.
    (b) Quotations of SRO display-only facility. (1) Any trading center 
that displays quotations in an NMS stock through an SRO display-only 
facility shall provide a level and cost of access to such quotations 
that is substantially equivalent to the level and cost of access to 
quotations displayed by SRO trading facilities in that stock.
    (2) Any trading center that displays quotations in an NMS stock 
through an SRO display-only facility shall not impose unfairly 
discriminatory terms that prevent or inhibit any person from obtaining 
efficient access to such quotations through a member, subscriber, or 
customer of the trading center.
    (c) Fees for access to quotations. A trading center shall not 
impose, nor permit to be imposed, any fee or fees for the execution of 
an order against a protected quotation of the trading center or against 
any other quotation of the trading center that is the best bid or best 
offer of a national securities exchange, the best bid or best offer of 
The Nasdaq Stock Market, Inc., or the best bid or best offer of a 
national securities association other than the best bid or best offer of 
The Nasdaq Stock Market, Inc. in an NMS stock that exceed or accumulate 
to more than the following limits:
    (1) If the price of a protected quotation or other quotation is 
$1.00 or more, the fee or fees cannot exceed or accumulate to more than 
$0.003 per share; or
    (2) If the price of a protected quotation or other quotation is less 
than $1.00, the fee or fees cannot exceed or accumulate to more than 
0.3% of the quotation price per share.

[[Page 853]]

    (d) Locking or crossing quotations. Each national securities 
exchange and national securities association shall establish, maintain, 
and enforce written rules that:
    (1) Require its members reasonably to avoid:
    (i) Displaying quotations that lock or cross any protected quotation 
in an NMS stock; and
    (ii) Displaying manual quotations that lock or cross any quotation 
in an NMS stock disseminated pursuant to an effective national market 
system plan;
    (2) Are reasonably designed to assure the reconciliation of locked 
or crossed quotations in an NMS stock; and
    (3) Prohibit its members from engaging in a pattern or practice of 
displaying quotations that lock or cross any protected quotation in an 
NMS stock, or of displaying manual quotations that lock or cross any 
quotation in an NMS stock disseminated pursuant to an effective national 
market system plan, other than displaying quotations that lock or cross 
any protected or other quotation as permitted by an exception contained 
in its rules established pursuant to paragraph (d)(1) of this section.
    (e) Exemptions. The Commission, by order, may exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any person, security, quotations, orders, or fees, or 
any class or classes of persons, securities, quotations, orders, or 
fees, if the Commission determines that such exemption is necessary or 
appropriate in the public interest, and is consistent with the 
protection of investors.



Sec.242.610T  Equity transaction fee pilot.

    (a) Pilot pricing restrictions. Notwithstanding Sec.242.610(c), on 
a pilot basis for the period specified in paragraph (c) of this section, 
in connection with a transaction in an NMS stock, a national securities 
exchange shall not:
    (1) For Test Group 1, impose, or permit to be imposed, any fee or 
fees for the display of, or execution against, the displayed best bid or 
best offer of such market that exceed or accumulate to more than $0.0010 
per share;
    (2) For Test Group 2, provide to any person, or permit to be 
provided to any person, a rebate or other remuneration in connection 
with an execution, or offer, or permit to be offered, any linked pricing 
that provides a discount or incentive on transaction fees applicable to 
removing (providing) liquidity that is linked to providing (removing) 
liquidity, except to the extent the exchange has a rule to provide non-
rebate linked pricing to its registered market makers in consideration 
for meeting market quality metrics; and
    (3) For the Control Group, impose, or permit to be imposed, any fee 
or fees in contravention of the limits specified in Sec.242.610(c).
    (b) Pilot securities--(1) Initial List of Pilot Securities. (i) The 
Commission shall designate by notice the initial List of Pilot 
Securities, and shall assign each Pilot Security to one Test Group or 
the Control Group. Further, the Commission may designate by notice the 
assignment of NMS stocks that are interlisted on a Canadian securities 
exchange to Test Group 2 or the Control Group.
    (ii) For purposes of this section, ``Pilot Securities'' means the 
NMS stocks designated by the Commission on the initial List of Pilot 
Securities pursuant to paragraph (b)(1)(i) of this section and any 
successors to such NMS stocks. At the time of selection by the 
Commission, an NMS stock must have a minimum share price of $2 to be 
included in the Pilot and must have an unlimited duration or a duration 
beyond the end of the post-Pilot Period. In addition, an NMS stock must 
have an average daily volume of 30,000 shares or more to be included in 
the Pilot. If the share price of a Pilot Security in one of the Test 
Groups or the Control Group closes below $1 at the end of a trading day, 
it shall be removed from the Pilot.
    (iii) For purposes of this section, ``primary listing exchange'' 
means the national securities exchange on which the NMS stock is listed. 
If an NMS stock is listed on more than one national securities exchange, 
the national securities exchange upon which the NMS stock has been 
listed the longest shall be the primary listing exchange.

[[Page 854]]

    (2) Pilot Securities Exchange Lists. (i) After the Commission 
selects the initial List of Pilot Securities and prior to the beginning 
of trading on the first day of the Pilot Period each primary listing 
exchange shall publicly post on its website downloadable files 
containing a list, in pipe-delimited ASCII format, of the Pilot 
Securities for which the exchange serves as the primary listing 
exchange. Each primary listing exchange shall maintain and update this 
list as necessary prior to the beginning of trading on each business day 
that the U.S. equities markets are open for trading through the end of 
the post-Pilot Period.
    (ii) The Pilot Securities Exchange Lists shall contain the following 
fields:
    (A) Ticker Symbol;
    (B) Security Name;
    (C) Primary Listing Exchange;
    (D) Security Type:
    (1) Common Stock;
    (2) ETP;
    (3) Preferred Stock;
    (4) Warrant;
    (5) Closed-End Fund;
    (6) Structured Product;
    (7) ADR; and
    (8) Other;
    (E) Pilot Group:
    (1) Control Group;
    (2) Test Group 1; and
    (3) Test Group 2;
    (F) Stratum Code; and
    (G) Date the Entry Was Last Updated.
    (3) Pilot Securities Change Lists. (i) Prior to the beginning of 
trading on each trading day the U.S. equities markets are open for 
trading throughout the end of the post-Pilot Period, each primary 
listing exchange shall publicly post on its website downloadable files 
containing a Pilot Securities Change List, in pipe-delimited ASCII 
format, that lists each separate change applicable to any Pilot 
Securities for which it serves or has served as the primary listing 
exchange. The Pilot Securities Change List will provide a cumulative 
list of all changes to the Pilot Securities that the primary listing 
exchange has made to the Pilot Securities Exchange List published 
pursuant to paragraph (b)(2) of this section.
    (ii) In addition to the fields required for the Pilot Securities 
Exchange List, the Pilot Securities Change Lists shall contain the 
following fields:
    (A) New Ticker Symbol (if applicable);
    (B) New Security Name (if applicable);
    (C) Deleted Date (if applicable);
    (D) Date Security Closed Below $1 (if applicable);
    (E) Effective Date of Change; and
    (F) Reason for the Change.
    (4) Posting requirement. All information publicly posted in 
downloadable files pursuant to paragraphs (b)(2) and (3) of this section 
shall be and remain freely and persistently available and easily 
accessible by the general public on the primary listing exchange's 
website for a period of not less than five years from the conclusion of 
the post-Pilot Period. In addition, the information shall be presented 
in a manner that facilitates access by machines without encumbrance, and 
shall not be subject to any restrictions, including restrictions on 
access, retrieval, distribution and reuse.
    (c) Pilot duration. (1) The Pilot shall include:
    (i) A six-month ``pre-Pilot Period;''
    (ii) A two-year ``Pilot Period'' with an automatic sunset at the end 
of the first year unless, no later than thirty days prior to that time, 
the Commission publishes a notice that the Pilot shall continue for up 
to one additional year; and
    (iii) A six-month ``post-Pilot Period.''
    (2) The Commission shall designate by notice the commencement and 
termination dates of the pre-Pilot Period, Pilot Period, and post-Pilot 
Period, including any suspension of the one-year sunset of the Pilot 
Period.
    (d) Order routing datasets. Throughout the duration of the Pilot, 
including the pre-Pilot Period and post-Pilot Period, each national 
securities exchange that facilitates trading in NMS stocks shall prepare 
and transmit to the Commission a file, in pipe-delimited ASCII format, 
no later than the last day of each month, containing sets of order 
routing data, for the prior month, in accordance with the specifications 
in paragraphs (d)(1) and (2) of this section. For the pre-Pilot Period, 
order routing datasets shall include each NMS stock.

[[Page 855]]

For the Pilot Period and post-Pilot Period, order routing datasets shall 
include each Pilot Security. Each national securities exchange shall 
treat the order routing datasets as regulatory information and shall not 
access or use that information for any commercial or non-regulatory 
purpose.
    (1) Dataset of daily volume statistics, with field names as the 
first record and a consistent naming convention that indicates the 
exchange and date of the file, that include the following specifications 
of liquidity-providing orders by security and separating orders by order 
designation (exchanges may exclude auction orders) and order capacity:
    (i) Code identifying the submitting exchange.
    (ii) Eight-digit code identifying the date of the calendar day of 
trading in the format ``yyyymmdd.''
    (iii) Symbol assigned to an NMS stock (including ETPs) under the 
national market system plan to which the consolidated best bid and offer 
for such a security are disseminated.
    (iv) The broker-dealer's CRD number and MPID.
    (v) Order type code:
    (A) Inside-the-quote orders;
    (B) At-the-quote limit orders; and
    (C) Near-the-quote limit orders.
    (vi) Order size codes:
    (A) <100 share bucket;
    (B) 100-499 share bucket;
    (C) 500-1,999 share bucket;
    (D) 2,000-4,999 share bucket;
    (E) 5,000-9,999 share bucket; and
    (F) =10,000 share bucket.
    (vii) Number of orders received.
    (viii) Cumulative number of shares of orders received.
    (ix) Cumulative number of shares of orders cancelled prior to 
execution.
    (x) Cumulative number of shares of orders executed at receiving 
market center.
    (xi) Cumulative number of shares of orders routed to another 
execution venue.
    (xii) Cumulative number of shares of orders executed within:
    (A) 0 to < 100 microseconds of order receipt;
    (B) 100 microseconds to < 100 milliseconds of order receipt;
    (C) 100 milliseconds to < 1 second of order receipt;
    (D) 1 second to < 30 seconds of order receipt;
    (E) 30 seconds to < 60 seconds of order receipt;
    (F) 60 seconds to < 5 minutes of order receipt;
    (G) 5 minutes to < 30 minutes of order receipt; and
    (H) = 30 minutes of order receipt.
    (2) Dataset of daily volume statistics, with field names as the 
first record and a consistent naming convention that indicates the 
exchange and date of the file, that include the following specifications 
of liquidity-taking orders by security and separating orders by order 
designation (exchanges may exclude auction orders) and order capacity:
    (i) Code identifying the submitting exchange.
    (ii) Eight-digit code identifying the date of the calendar day of 
trading in the format ``yyyymmdd.''
    (iii) Symbol assigned to an NMS stock (including ETPs) under the 
national market system plan to which the consolidated best bid and offer 
for such a security are disseminated.
    (iv) The broker-dealer's CRD number and MPID.
    (v) Order type code:
    (A) Market orders; and
    (B) Marketable limit orders.
    (vi) Order size codes:
    (A) <100 share bucket;
    (B) 100-499 share bucket;
    (C) 500-1,999 share bucket;
    (D) 2,000-4,999 share bucket;
    (E) 5,000-9,999 share bucket; and
    (F) =10,000 share bucket.
    (vii) Number of orders received.
    (viii) Cumulative number of shares of orders received.
    (ix) Cumulative number of shares of orders cancelled prior to 
execution.
    (x) Cumulative number of shares of orders executed at receiving 
market center.
    (xi) Cumulative number of shares of orders routed to another 
execution venue.
    (e) Exchange Transaction Fee Summary. Throughout the duration of the 
Pilot, including the pre-Pilot Period and post-Pilot Period, each 
national securities exchange that facilitates trading in NMS stocks 
shall publicly post

[[Page 856]]

on its website downloadable files containing information relating to 
transaction fees and rebates and changes thereto (applicable to 
securities having a price equal to or greater than $1). Each national 
securities exchange shall post its initial Exchange Transaction Fee 
Summary prior to the start of trading on the first day of the pre-Pilot 
Period and update its Exchange Transaction Fee Summary on a monthly 
basis within 10 business days of the first day of each calendar month, 
to reflect data collected for the prior month. The information 
prescribed by this section shall be made available using the most recent 
version of the XML schema published on the Commission's website. All 
information publicly posted pursuant to this paragraph (e) shall be and 
remain freely and persistently available and easily accessible on the 
national securities exchange's website for a period of not less than 
five years from the conclusion of the post-Pilot Period. In addition, 
the information shall be presented in a manner that facilitates access 
by machines without encumbrance, and shall not be subject to any 
restrictions, including restrictions on access, retrieval, distribution, 
and reuse. The Exchange Transaction Fee Summary shall contain the 
following fields:
    (1) Exchange Name;
    (2) Record Type Indicator:
    (i) Reported Fee is the Monthly Average;
    (ii) Reported Fee is the Median; and
    (iii) Reported Fee is the Spot Monthly;
    (3) Participant Type:
    (i) Registered Market Maker; and
    (ii) All Others;
    (4) Pilot Group:
    (i) Control Group;
    (ii) Test Group 1; and
    (iii) Test Group 2;
    (5) Applicability to Displayed and Non-Displayed Interest:
    (i) Displayed only;
    (ii) Non-displayed only; and
    (iii) Both displayed and non-displayed;
    (6) Applicability to Top and Depth of Book Interest:
    (i) Top of book only;
    (ii) Depth of book only; and
    (iii) Both top and depth of book;
    (7) Effective Date of Fee or Rebate;
    (8) End Date of Currently Reported Fee or Rebate (if applicable);
    (9) Month and Year of the monthly realized reported average and 
median per share fees and rebates;
    (10) Pre/Post Fee Changes Indicator (if applicable) denoting 
implementation of a new fee or rebate on a day other than the first day 
of the month;
    (11) Base and Top Tier Fee or Rebate:
    (i) Take (to remove):
    (A) Base Fee/Rebate reflecting the standard amount assessed or 
rebated before any applicable discounts, tiers, caps, or other 
incentives are applied; and
    (B) Top Tier Fee/Rebate reflecting the amount assessed or rebated 
after any applicable discounts, tiers, caps, or other incentives are 
applied; and
    (ii) Make (to provide):
    (A) Base Fee/Rebate reflecting the standard amount assessed or 
rebated before any applicable discounts, tiers, caps, or other 
incentives are applied; and
    (B) Top Tier Fee/Rebate reflecting the amount assessed or rebated 
after any applicable discounts, tiers, caps, or other incentives are 
applied;
    (12) Average Take Fee (Rebate)/Average Make Rebate (Fee), by 
Participant Type, Test Group, Displayed/Non-Displayed, and Top/Depth of 
Book; and
    (13) Median Take Fee (Rebate)/Median Make Fee (Rebate), by 
Participant Type, Test Group, Displayed/Non-Displayed, and Top/Depth of 
Book.

[84 FR 5298, Feb. 20, 2019]

    Effective Date Note: At 84 FR 5298, Feb. 20, 2019, Sec.242.610T 
was added, effective Apr. 22, 2019, through Dec. 29, 2023.



Sec.242.611  Order protection rule.

    (a) Reasonable policies and procedures. (1) A trading center shall 
establish, maintain, and enforce written policies and procedures that 
are reasonably designed to prevent trade-throughs on that trading center 
of protected quotations in NMS stocks that do not fall within an 
exception set forth in paragraph (b) of this section and, if relying on 
such an exception, that are reasonably designed to assure compliance 
with the terms of the exception.
    (2) A trading center shall regularly surveil to ascertain the 
effectiveness of

[[Page 857]]

the policies and procedures required by paragraph (a)(1) of this section 
and shall take prompt action to remedy deficiencies in such policies and 
procedures.
    (b) Exceptions. (1) The transaction that constituted the trade-
through was effected when the trading center displaying the protected 
quotation that was traded through was experiencing a failure, material 
delay, or malfunction of its systems or equipment.
    (2) The transaction that constituted the trade-through was not a 
``regular way'' contract.
    (3) The transaction that constituted the trade-through was a single-
priced opening, reopening, or closing transaction by the trading center.
    (4) The transaction that constituted the trade-through was executed 
at a time when a protected bid was priced higher than a protected offer 
in the NMS stock.
    (5) The transaction that constituted the trade-through was the 
execution of an order identified as an intermarket sweep order.
    (6) The transaction that constituted the trade-through was effected 
by a trading center that simultaneously routed an intermarket sweep 
order to execute against the full displayed size of any protected 
quotation in the NMS stock that was traded through.
    (7) The transaction that constituted the trade-through was the 
execution of an order at a price that was not based, directly or 
indirectly, on the quoted price of the NMS stock at the time of 
execution and for which the material terms were not reasonably 
determinable at the time the commitment to execute the order was made.
    (8) The trading center displaying the protected quotation that was 
traded through had displayed, within one second prior to execution of 
the transaction that constituted the trade-through, a best bid or best 
offer, as applicable, for the NMS stock with a price that was equal or 
inferior to the price of the trade-through transaction.
    (9) The transaction that constituted the trade-through was the 
execution by a trading center of an order for which, at the time of 
receipt of the order, the trading center had guaranteed an execution at 
no worse than a specified price (a ``stopped order''), where:
    (i) The stopped order was for the account of a customer;
    (ii) The customer agreed to the specified price on an order-by-order 
basis; and
    (iii) The price of the trade-through transaction was, for a stopped 
buy order, lower than the national best bid in the NMS stock at the time 
of execution or, for a stopped sell order, higher than the national best 
offer in the NMS stock at the time of execution.
    (c) Intermarket sweep orders. The trading center, broker, or dealer 
responsible for the routing of an intermarket sweep order shall take 
reasonable steps to establish that such order meets the requirements set 
forth in Sec.242.600(b)(31).
    (d) Exemptions. The Commission, by order, may exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any person, security, transaction, quotation, or order, 
or any class or classes of persons, securities, quotations, or orders, 
if the Commission determines that such exemption is necessary or 
appropriate in the public interest, and is consistent with the 
protection of investors.

[62 FR 544, Jan. 3, 1997, as amended at 83 FR 58429, Nov. 19, 2018]



Sec.242.612  Minimum pricing increment.

    (a) No national securities exchange, national securities 
association, alternative trading system, vendor, or broker or dealer 
shall display, rank, or accept from any person a bid or offer, an order, 
or an indication of interest in any NMS stock priced in an increment 
smaller than $0.01 if that bid or offer, order, or indication of 
interest is priced equal to or greater than $1.00 per share.
    (b) No national securities exchange, national securities 
association, alternative trading system, vendor, or broker or dealer 
shall display, rank, or accept from any person a bid or offer, an order, 
or an indication of interest in any NMS stock priced in an increment 
smaller than $0.0001 if that bid or offer, order, or indication of 
interest is priced less than $1.00 per share.

[[Page 858]]

    (c) The Commission, by order, may exempt from the provisions of this 
section, either unconditionally or on specified terms and conditions, 
any person, security, quotation, or order, or any class or classes of 
persons, securities, quotations, or orders, if the Commission determines 
that such exemption is necessary or appropriate in the public interest, 
and is consistent with the protection of investors.



Sec.242.613  Consolidated audit trail.

    (a) Creation of a national market system plan governing a 
consolidated audit trail. (1) Each national securities exchange and 
national securities association shall jointly file on or before 270 days 
from the date of publication of the Adopting Release in the Federal 
Register a national market system plan to govern the creation, 
implementation, and maintenance of a consolidated audit trail and 
central repository as required by this section. The national market 
system plan shall discuss the following considerations:
    (i) The method(s) by which data will be reported to the central 
repository including, but not limited to, the sources of such data and 
the manner in which the central repository will receive, extract, 
transform, load, and retain such data; and the basis for selecting such 
method(s);
    (ii) The time and method by which the data in the central repository 
will be made available to regulators, in accordance with paragraph 
(e)(1) of this section, to perform surveillance or analyses, or for 
other purposes as part of their regulatory and oversight 
responsibilities;
    (iii) The reliability and accuracy of the data reported to and 
maintained by the central repository throughout its lifecycle, including 
transmission and receipt from market participants; data extraction, 
transformation and loading at the central repository; data maintenance 
and management at the central repository; and data access by regulators;
    (iv) The security and confidentiality of the information reported to 
the central repository;
    (v) The flexibility and scalability of the systems used by the 
central repository to collect, consolidate and store consolidated audit 
trail data, including the capacity of the consolidated audit trail to 
efficiently incorporate, in a cost-effective manner, improvements in 
technology, additional capacity, additional order data, information 
about additional securities or transactions, changes in regulatory 
requirements, and other developments;
    (vi) The feasibility, benefits, and costs of broker-dealers 
reporting to the consolidated audit trail in a timely manner:
    (A) The identity of all market participants (including broker-
dealers and customers) that are allocated NMS securities, directly or 
indirectly, in a primary market transaction;
    (B) The number of such securities each such market participant is 
allocated; and
    (C) The identity of the broker-dealer making each such allocation;
    (vii) The detailed estimated costs for creating, implementing, and 
maintaining the consolidated audit trail as contemplated by the national 
market system plan, which estimated costs should specify:
    (A) An estimate of the costs to the plan sponsors for establishing 
and maintaining the central repository;
    (B) An estimate of the costs to members of the plan sponsors, 
initially and on an ongoing basis, for reporting the data required by 
the national market system plan;
    (C) An estimate of the costs to the plan sponsors, initially and on 
an ongoing basis, for reporting the data required by the national market 
system plan; and
    (D) How the plan sponsors propose to fund the creation, 
implementation, and maintenance of the consolidated audit trail, 
including the proposed allocation of such estimated costs among the plan 
sponsors, and between the plan sponsors and members of the plan 
sponsors;
    (viii) An analysis of the impact on competition, efficiency and 
capital formation of creating, implementing, and maintaining of the 
national market system plan;
    (ix) A plan to eliminate existing rules and systems (or components 
thereof) that will be rendered duplicative by the consolidated audit 
trail, including identification of such rules and

[[Page 859]]

systems (or components thereof); to the extent that any existing rules 
or systems related to monitoring quotes, orders, and executions provide 
information that is not rendered duplicative by the consolidated audit 
trail, an analysis of:
    (A) Whether the collection of such information remains appropriate;
    (B) If still appropriate, whether such information should continue 
to be separately collected or should instead be incorporated into the 
consolidated audit trail; and
    (C) If no longer appropriate, how the collection of such information 
could be efficiently terminated; the steps the plan sponsors propose to 
take to seek Commission approval for the elimination of such rules and 
systems (or components thereof); and a timetable for such elimination, 
including a description of how the plan sponsors propose to phase in the 
consolidated audit trail and phase out such existing rules and systems 
(or components thereof);
    (x) Objective milestones to assess progress toward the 
implementation of the national market system plan;
    (xi) The process by which the plan sponsors solicited views of their 
members and other appropriate parties regarding the creation, 
implementation, and maintenance of the consolidated audit trail, a 
summary of the views of such members and other parties, and how the plan 
sponsors took such views into account in preparing the national market 
system plan; and
    (xii) Any reasonable alternative approaches to creating, 
implementing, and maintaining a consolidated audit trail that the plan 
sponsors considered in developing the national market system plan 
including, but not limited to, a description of any such alternative 
approach; the relative advantages and disadvantages of each such 
alternative, including an assessment of the alternative's costs and 
benefits; and the basis upon which the plan sponsors selected the 
approach reflected in the national market system plan.
    (2) The national market system plan, or any amendment thereto, filed 
pursuant to this section shall comply with the requirements in Sec.
242.608(a), if applicable, and be filed with the Commission pursuant to 
Sec.242.608.
    (3) The national market system plan submitted pursuant to this 
section shall require each national securities exchange and national 
securities association to:
    (i) Within two months after effectiveness of the national market 
system plan jointly (or under the governance structure described in the 
plan) select a person to be the plan processor;
    (ii) Within four months after effectiveness of the national market 
system plan synchronize their business clocks and require members of 
each such exchange and association to synchronize their business clocks 
in accordance with paragraph (d) of this section;
    (iii) Within one year after effectiveness of the national market 
system plan provide to the central repository the data specified in 
paragraph (c) of this section;
    (iv) Within fourteen months after effectiveness of the national 
market system plan implement a new or enhanced surveillance system(s) as 
required by paragraph (f) of this section;
    (v) Within two years after effectiveness of the national market 
system plan require members of each such exchange and association, 
except those members that qualify as small broker-dealers as defined in 
Sec.240.0-10(c) of this chapter, to provide to the central repository 
the data specified in paragraph (c) of this section; and
    (vi) Within three years after effectiveness of the national market 
system plan require members of each such exchange and association that 
qualify as small broker-dealers as defined in Sec.240.0-10(c) of this 
chapter to provide to the central repository the data specified in 
paragraph (c) of this section.
    (4) Each national securities exchange and national securities 
association shall be a sponsor of the national market system plan 
submitted pursuant to this section and approved by the Commission.
    (5) No national market system plan filed pursuant to this section, 
or any amendment thereto, shall become effective unless approved by the 
Commission or otherwise permitted in accordance with the procedures set 
forth in Sec.242.608. In determining whether to approve the national 
market system plan, or any amendment thereto, and

[[Page 860]]

whether the national market system plan or any amendment thereto is in 
the public interest under Sec.242.608(b)(2), the Commission shall 
consider the impact of the national market system plan or amendment, as 
applicable, on efficiency, competition, and capital formation.
    (b) Operation and administration of the national market system plan. 
(1) The national market system plan submitted pursuant to this section 
shall include a governance structure to ensure fair representation of 
the plan sponsors, and administration of the central repository, 
including the selection of the plan processor.
    (2) The national market system plan submitted pursuant to this 
section shall include a provision addressing the requirements for the 
admission of new sponsors of the plan and the withdrawal of existing 
sponsors from the plan.
    (3) The national market system plan submitted pursuant to this 
section shall include a provision addressing the percentage of votes 
required by the plan sponsors to effectuate amendments to the plan.
    (4) The national market system plan submitted pursuant to this 
section shall include a provision addressing the manner in which the 
costs of operating the central repository will be allocated among the 
national securities exchanges and national securities associations that 
are sponsors of the plan, including a provision addressing the manner in 
which costs will be allocated to new sponsors to the plan.
    (5) The national market system plan submitted pursuant to this 
section shall require the appointment of a Chief Compliance Officer to 
regularly review the operation of the central repository to assure its 
continued effectiveness in light of market and technological 
developments, and make any appropriate recommendations for enhancements 
to the nature of the information collected and the manner in which it is 
processed.
    (6) The national market system plan submitted pursuant to this 
section shall include a provision requiring the plan sponsors to provide 
to the Commission, at least every two years after effectiveness of the 
national market system plan, a written assessment of the operation of 
the consolidated audit trail. Such document shall include, at a minimum:
    (i) An evaluation of the performance of the consolidated audit trail 
including, at a minimum, with respect to data accuracy (consistent with 
paragraph (e)(6) of this section), timeliness of reporting, 
comprehensiveness of data elements, efficiency of regulatory access, 
system speed, system downtime, system security (consistent with 
paragraph (e)(4) of this section), and other performance metrics to be 
determined by the Chief Compliance Officer, along with a description of 
such metrics;
    (ii) A detailed plan, based on such evaluation, for any potential 
improvements to the performance of the consolidated audit trail with 
respect to any of the following: improving data accuracy; shortening 
reporting timeframes; expanding data elements; adding granularity and 
details regarding the scope and nature of Customer-IDs; expanding the 
scope of the national market system plan to include new instruments and 
new types of trading and order activities; improving the efficiency of 
regulatory access; increasing system speed; reducing system downtime; 
and improving performance under other metrics to be determined by the 
Chief Compliance Officer;
    (iii) An estimate of the costs associated with any such potential 
improvements to the performance of the consolidated audit trail, 
including an assessment of the potential impact on competition, 
efficiency, and capital formation; and
    (iv) An estimated implementation timeline for any such potential 
improvements, if applicable.
    (7) The national market system plan submitted pursuant to this 
section shall include an Advisory Committee which shall function in 
accordance with the provisions set forth in this paragraph (b)(7). The 
purpose of the Advisory Committee shall be to advise the plan sponsors 
on the implementation, operation, and administration of the central 
repository.
    (i) The national market system plan submitted pursuant to this 
section

[[Page 861]]

shall set forth the term and composition of the Advisory Committee, 
which composition shall include representatives of the member firms of 
the plan sponsors.
    (ii) Members of the Advisory Committee shall have the right to 
attend any meetings of the plan sponsors, to receive information 
concerning the operation of the central repository, and to provide their 
views to the plan sponsors; provided, however, that the plan sponsors 
may meet without the Advisory Committee members in executive session if, 
by affirmative vote of a majority of the plan sponsors, the plan 
sponsors determine that such an executive session is required.
    (c) Data recording and reporting. (1) The national market system 
plan submitted pursuant to this section shall provide for an accurate, 
time-sequenced record of orders beginning with the receipt or 
origination of an order by a member of a national securities exchange or 
national securities association, and further documenting the life of the 
order through the process of routing, modification, cancellation, and 
execution (in whole or in part) of the order.
    (2) The national market system plan submitted pursuant to this 
section shall require each national securities exchange, national 
securities association, and member to report to the central repository 
the information required by paragraph (c)(7) of this section in a 
uniform electronic format, or in a manner that would allow the central 
repository to convert the data to a uniform electronic format, for 
consolidation and storage.
    (3) The national market system plan submitted pursuant to this 
section shall require each national securities exchange, national 
securities association, and member to record the information required by 
paragraphs (c)(7)(i) through (v) of this section contemporaneously with 
the reportable event. The national market system plan shall require that 
information recorded pursuant to paragraphs (c)(7)(i) through (v) of 
this section must be reported to the central repository by 8:00 a.m. 
Eastern Time on the trading day following the day such information has 
been recorded by the national securities exchange, national securities 
association, or member. The national market system plan may accommodate 
voluntary reporting prior to 8:00 a.m. Eastern Time, but shall not 
impose an earlier reporting deadline on the reporting parties.
    (4) The national market system plan submitted pursuant to this 
section shall require each member of a national securities exchange or 
national securities association to record and report to the central 
repository the information required by paragraphs (c)(7)(vi) through 
(viii) of this section by 8:00 a.m. Eastern Time on the trading day 
following the day the member receives such information. The national 
market system plan may accommodate voluntary reporting prior to 8:00 
a.m. Eastern Time, but shall not impose an earlier reporting deadline on 
the reporting parties.
    (5) The national market system plan submitted pursuant to this 
section shall require each national securities exchange and its members 
to record and report to the central repository the information required 
by paragraph (c)(7) of this section for each NMS security registered or 
listed for trading on such exchange or admitted to unlisted trading 
privileges on such exchange.
    (6) The national market system plan submitted pursuant to this 
section shall require each national securities association and its 
members to record and report to the central repository the information 
required by paragraph (c)(7) of this section for each NMS security for 
which transaction reports are required to be submitted to the 
association.
    (7) The national market system plan submitted pursuant to this 
section shall require each national securities exchange, national 
securities association, and any member of such exchange or association 
to record and electronically report to the central repository details 
for each order and each reportable event, including, but not limited to, 
the following information:
    (i) For original receipt or origination of an order:
    (A) Customer-ID(s) for each customer;
    (B) The CAT-Order-ID;

[[Page 862]]

    (C) The CAT-Reporter-ID of the broker-dealer receiving or 
originating the order;
    (D) Date of order receipt or origination;
    (E) Time of order receipt or origination (using time stamps pursuant 
to paragraph (d)(3) of this section); and
    (F) Material terms of the order.
    (ii) For the routing of an order, the following information:
    (A) The CAT-Order-ID;
    (B) Date on which the order is routed;
    (C) Time at which the order is routed (using time stamps pursuant to 
paragraph (d)(3) of this section);
    (D) The CAT-Reporter-ID of the broker-dealer or national securities 
exchange routing the order;
    (E) The CAT-Reporter-ID of the broker-dealer, national securities 
exchange, or national securities association to which the order is being 
routed;
    (F) If routed internally at the broker-dealer, the identity and 
nature of the department or desk to which an order is routed; and
    (G) Material terms of the order.
    (iii) For the receipt of an order that has been routed, the 
following information:
    (A) The CAT-Order-ID;
    (B) Date on which the order is received;
    (C) Time at which the order is received (using time stamps pursuant 
to paragraph (d)(3) of this section);
    (D) The CAT-Reporter-ID of the broker-dealer, national securities 
exchange, or national securities association receiving the order;
    (E) The CAT-Reporter-ID of the broker-dealer or national securities 
exchange routing the order; and
    (F) Material terms of the order.
    (iv) If the order is modified or cancelled, the following 
information:
    (A) The CAT-Order-ID;
    (B) Date the modification or cancellation is received or originated;
    (C) Time the modification or cancellation is received or originated 
(using time stamps pursuant to paragraph (d)(3) of this section);
    (D) Price and remaining size of the order, if modified;
    (E) Other changes in material terms of the order, if modified; and
    (F) The CAT-Reporter-ID of the broker-dealer or Customer-ID of the 
person giving the modification or cancellation instruction.
    (v) If the order is executed, in whole or part, the following 
information:
    (A) The CAT-Order-ID;
    (B) Date of execution;
    (C) Time of execution (using time stamps pursuant to paragraph 
(d)(3) of this section);
    (D) Execution capacity (principal, agency, riskless principal);
    (E) Execution price and size;
    (F) The CAT-Reporter-ID of the national securities exchange or 
broker-dealer executing the order; and
    (G) Whether the execution was reported pursuant to an effective 
transaction reporting plan or the Plan for Reporting of Consolidated 
Options Last Sale Reports and Quotation Information.
    (vi) If the order is executed, in whole or part, the following 
information:
    (A) The account number for any subaccounts to which the execution is 
allocated (in whole or part);
    (B) The CAT-Reporter-ID of the clearing broker or prime broker, if 
applicable; and
    (C) The CAT-Order-ID of any contra-side order(s).
    (vii) If the trade is cancelled, a cancelled trade indicator.
    (viii) For original receipt or origination of an order, the 
following information:
    (A) Information of sufficient detail to identify the customer; and
    (B) Customer account information.
    (8) All plan sponsors and their members shall use the same Customer-
ID and CAT-Reporter-ID for each customer and broker-dealer.
    (d) Clock synchronization and time stamps. The national market 
system plan submitted pursuant to this section shall require:
    (1) Each national securities exchange, national securities 
association, and member of such exchange or association to synchronize 
its business clocks that are used for the purposes of recording the date 
and time of any reportable event that must be reported pursuant to this 
section to the time maintained by the National Institute

[[Page 863]]

of Standards and Technology, consistent with industry standards;
    (2) Each national securities exchange and national securities 
association to evaluate annually the clock synchronization standard to 
determine whether it should be shortened, consistent with changes in 
industry standards; and
    (3) Each national securities exchange, national securities 
association, and member of such exchange or association to utilize the 
time stamps required by paragraph (c)(7) of this section, with at 
minimum the granularity set forth in the national market system plan 
submitted pursuant to this section, which shall reflect current industry 
standards and be at least to the millisecond. To the extent that the 
relevant order handling and execution systems of any national securities 
exchange, national securities association, or member of such exchange or 
association utilize time stamps in increments finer than the minimum 
required by the national market system plan, the plan shall require such 
national securities exchange, national securities association, or member 
to utilize time stamps in such finer increments when providing data to 
the central repository, so that all reportable events reported to the 
central repository by any national securities exchange, national 
securities association, or member can be accurately sequenced. The 
national market system plan shall require the sponsors of the national 
market system plan to annually evaluate whether industry standards have 
evolved such that the required time stamp standard should be in finer 
increments.
    (e) Central repository. (1) The national market system plan 
submitted pursuant to this section shall provide for the creation and 
maintenance of a central repository. Such central repository shall be 
responsible for the receipt, consolidation, and retention of all 
information reported pursuant to paragraph (c)(7) of this section. The 
central repository shall store and make available to regulators data in 
a uniform electronic format, and in a form in which all events 
pertaining to the same originating order are linked together in a manner 
that ensures timely and accurate retrieval of the information required 
by paragraph (c)(7) of this section for all reportable events for that 
order.
    (2) Each national securities exchange, national securities 
association, and the Commission shall have access to the central 
repository, including all systems operated by the central repository, 
and access to and use of the data reported to and consolidated by the 
central repository under paragraph (c) of this section, for the purpose 
of performing its respective regulatory and oversight responsibilities 
pursuant to the federal securities laws, rules, and regulations. The 
national market system plan submitted pursuant to this section shall 
provide that such access to and use of such data by each national 
securities exchange, national securities association, and the Commission 
for the purpose of performing its regulatory and oversight 
responsibilities pursuant to the federal securities laws, rules, and 
regulations shall not be limited.
    (3) The national market system plan submitted pursuant to this 
section shall include a provision requiring the creation and maintenance 
by the plan processor of a method of access to the consolidated data 
stored in the central repository that includes the ability to run 
searches and generate reports.
    (4) The national market system plan submitted pursuant to this 
section shall include policies and procedures, including standards, to 
be used by the plan processor to:
    (i) Ensure the security and confidentiality of all information 
reported to the central repository by requiring that:
    (A) All plan sponsors and their employees, as well as all employees 
of the central repository, agree to use appropriate safeguards to ensure 
the confidentiality of such data and agree not to use such data for any 
purpose other than surveillance and regulatory purposes, provided that 
nothing in this paragraph (e)(4)(i)(A) shall be construed to prevent a 
plan sponsor from using the data that it reports to the central 
repository for regulatory, surveillance, commercial, or other purposes 
as otherwise permitted by applicable law, rule, or regulation;
    (B) Each plan sponsor adopt and enforce rules that:

[[Page 864]]

    (1) Require information barriers between regulatory staff and non-
regulatory staff with regard to access and use of data in the central 
repository; and
    (2) Permit only persons designated by plan sponsors to have access 
to the data in the central repository;
    (C) The plan processor:
    (1) Develop and maintain a comprehensive information security 
program for the central repository, with dedicated staff, that is 
subject to regular reviews by the Chief Compliance Officer;
    (2) Have a mechanism to confirm the identity of all persons 
permitted to access the data; and
    (3) Maintain a record of all instances where such persons access the 
data; and
    (D) The plan sponsors adopt penalties for non-compliance with any 
policies and procedures of the plan sponsors or central repository with 
respect to information security.
    (ii) Ensure the timeliness, accuracy, integrity, and completeness of 
the data provided to the central repository pursuant to paragraph (c) of 
this section; and
    (iii) Ensure the accuracy of the consolidation by the plan processor 
of the data provided to the central repository pursuant to paragraph (c) 
of this section.
    (5) The national market system plan submitted pursuant to this 
section shall address whether there will be an annual independent 
evaluation of the security of the central repository and:
    (i) If so, provide a description of the scope of such planned 
evaluation; and
    (ii) If not, provide a detailed explanation of the alternative 
measures for evaluating the security of the central repository that are 
planned instead.
    (6) The national market system plan submitted pursuant to this 
section shall:
    (i) Specify a maximum error rate to be tolerated by the central 
repository for any data reported pursuant to paragraphs (c)(3) and 
(c)(4) of this section; describe the basis for selecting such maximum 
error rate; explain how the plan sponsors will seek to reduce such 
maximum error rate over time; describe how the plan will seek to ensure 
compliance with such maximum error rate and, in the event of 
noncompliance, will promptly remedy the causes thereof;
    (ii) Require the central repository to measure the error rate each 
business day and promptly take appropriate remedial action, at a 
minimum, if the error rate exceeds the maximum error rate specified in 
the plan;
    (iii) Specify a process for identifying and correcting errors in the 
data reported to the central repository pursuant to paragraphs (c)(3) 
and (c)(4) of this section, including the process for notifying the 
national securities exchanges, national securities association, and 
members who reported erroneous data to the central repository of such 
errors, to help ensure that such errors are promptly corrected by the 
reporting entity, and for disciplining those who repeatedly report 
erroneous data; and
    (iv) Specify the time by which data that has been corrected will be 
made available to regulators.
    (7) The national market system plan submitted pursuant to this 
section shall require the central repository to collect and retain on a 
current and continuing basis and in a format compatible with the 
information consolidated and stored pursuant to paragraph (c)(7) of this 
section:
    (i) Information, including the size and quote condition, on the 
national best bid and national best offer for each NMS security;
    (ii) Transaction reports reported pursuant to an effective 
transaction reporting plan filed with the Commission pursuant to, and 
meeting the requirements of, Sec.242.601; and
    (iii) Last sale reports reported pursuant to the Plan for Reporting 
of Consolidated Options Last Sale Reports and Quotation Information 
filed with the Commission pursuant to, and meeting the requirements of, 
Sec.242.608.
    (8) The national market system plan submitted pursuant to this 
section shall require the central repository to retain the information 
collected pursuant to paragraphs (c)(7) and (e)(7) of this section in a 
convenient and usable standard electronic data format that is

[[Page 865]]

directly available and searchable electronically without any manual 
intervention for a period of not less than five years.
    (f) Surveillance. Every national securities exchange and national 
securities association subject to this section shall develop and 
implement a surveillance system, or enhance existing surveillance 
systems, reasonably designed to make use of the consolidated information 
contained in the consolidated audit trail.
    (g) Compliance by members. (1) Each national securities exchange and 
national securities association shall file with the Commission pursuant 
to section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) and Sec.240.19b-4 
of this chapter on or before 60 days from approval of the national 
market system plan a proposed rule change to require its members to 
comply with the requirements of this section and the national market 
system plan approved by the Commission.
    (2) Each member of a national securities exchange or national 
securities association shall comply with all the provisions of any 
approved national market system plan applicable to members.
    (3) The national market system plan submitted pursuant to this 
section shall include a provision requiring each national securities 
exchange and national securities association to agree to enforce 
compliance by its members with the provisions of any approved plan.
    (4) The national market system plan submitted pursuant to this 
section shall include a mechanism to ensure compliance with the 
requirements of any approved plan by the members of a national 
securities exchange or national securities association.
    (h) Compliance by national securities exchanges and national 
securities associations. (1) Each national securities exchange and 
national securities association shall comply with the provisions of the 
national market system plan approved by the Commission.
    (2) Any failure by a national securities exchange or national 
securities association to comply with the provisions of the national 
market system plan approved by the Commission shall be considered a 
violation of this section.
    (3) The national market system plan submitted pursuant to this 
section shall include a mechanism to ensure compliance by the sponsors 
of the plan with the requirements of any approved plan. Such enforcement 
mechanism may include penalties where appropriate.
    (i) Other securities and other types of transactions. The national 
market system plan submitted pursuant to this section shall include a 
provision requiring each national securities exchange and national 
securities association to jointly provide to the Commission within six 
months after effectiveness of the national market system plan a document 
outlining how such exchanges and associations could incorporate into the 
consolidated audit trail information with respect to equity securities 
that are not NMS securities, debt securities, primary market 
transactions in equity securities that are not NMS securities, and 
primary market transactions in debt securities, including details for 
each order and reportable event that may be required to be provided, 
which market participants may be required to provide the data, an 
implementation timeline, and a cost estimate.
    (j) Definitions. As used in this section:
    (1) The term CAT-Order-ID shall mean a unique order identifier or 
series of unique order identifiers that allows the central repository to 
efficiently and accurately link all reportable events for an order, and 
all orders that result from the aggregation or disaggregation of such 
order.
    (2) The term CAT-Reporter-ID shall mean, with respect to each 
national securities exchange, national securities association, and 
member of a national securities exchange or national securities 
association, a code that uniquely and consistently identifies such 
person for purposes of providing data to the central repository.
    (3) The term customer shall mean:
    (i) The account holder(s) of the account at a registered broker-
dealer originating the order; and
    (ii) Any person from whom the broker-dealer is authorized to accept

[[Page 866]]

trading instructions for such account, if different from the account 
holder(s).
    (4) The term customer account information shall include, but not be 
limited to, account number, account type, customer type, date account 
opened, and large trader identifier (if applicable).
    (5) The term Customer-ID shall mean, with respect to a customer, a 
code that uniquely and consistently identifies such customer for 
purposes of providing data to the central repository.
    (6) The term error rate shall mean the percentage of reportable 
events collected by the central repository in which the data reported 
does not fully and accurately reflect the order event that occurred in 
the market.
    (7) The term material terms of the order shall include, but not be 
limited to, the NMS security symbol; security type; price (if 
applicable); size (displayed and non-displayed); side (buy/sell); order 
type; if a sell order, whether the order is long, short, short exempt; 
open/close indicator; time in force (if applicable); if the order is for 
a listed option, option type (put/call), option symbol or root symbol, 
underlying symbol, strike price, expiration date, and open/close; and 
any special handling instructions.
    (8) The term order shall include:
    (i) Any order received by a member of a national securities exchange 
or national securities association from any person;
    (ii) Any order originated by a member of a national securities 
exchange or national securities association; or
    (iii) Any bid or offer.
    (9) The term reportable event shall include, but not be limited to, 
the original receipt or origination, modification, cancellation, 
routing, and execution (in whole or in part) of an order, and receipt of 
a routed order.

[77 FR 45808, Aug. 1, 2012]

   Regulation SBSR--Regulatory Reporting and Public Dissemination of 
                     Security-Based Swap Information

    Source: 80 FR 14728, Mar. 19, 2015, unless otherwise noted.



Sec.242.900  Definitions.

    Terms used in Sec.Sec.242.900 through 242.909 that appear in 
Section 3 of the Exchange Act (15 U.S.C. 78c) have the same meaning as 
in Section 3 of the Exchange Act and the rules or regulations 
thereunder. In addition, for purposes of Regulation SBSR (Sec.Sec.
242.900 through 242.909), the following definitions shall apply:
    (a) Affiliate means any person that, directly or indirectly, 
controls, is controlled by, or is under common control with, a person.
    (b) Asset class means those security-based swaps in a particular 
broad category, including, but not limited to, credit derivatives and 
equity derivatives.
    (c) [Reserved].
    (d) Branch ID means the UIC assigned to a branch or other 
unincorporated office of a participant.
    (e) Broker ID means the UIC assigned to a person acting as a broker 
for a participant.
    (f) Business day means a day, based on U.S. Eastern Time, other than 
a Saturday, Sunday, or a U.S. federal holiday.
    (g) Clearing transaction means a security-based swap that has a 
registered clearing agency as a direct counterparty.
    (h) Control means, for purposes of Sec.Sec.242.900 through 
242.909, the possession, direct or indirect, of the power to direct or 
cause the direction of the management and policies of a person, whether 
through the ownership of voting securities, by contract, or otherwise. A 
person is presumed to control another person if the person:
    (1) Is a director, general partner or officer exercising executive 
responsibility (or having similar status or functions);
    (2) Directly or indirectly has the right to vote 25 percent or more 
of a class of voting securities or has the power to sell or direct the 
sale of 25 percent or more of a class of voting securities; or
    (3) In the case of a partnership, has the right to receive, upon 
dissolution, or has contributed, 25 percent or more of the capital.
    (i) Counterparty means a person that is a direct counterparty or 
indirect counterparty of a security-based swap.

[[Page 867]]

    (j) Counterparty ID means the UIC assigned to a counterparty to a 
security-based swap.
    (k) Direct counterparty means a person that is a primary obligor on 
a security-based swap.
    (l) Direct electronic access has the same meaning as in Sec.
240.13n-4(a)(5) of this chapter.
    (m) Exchange Act means the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.), as amended.
    (n) Execution agent ID means the UIC assigned to any person other 
than a broker or trader that facilitates the execution of a security-
based swap on behalf of a direct counterparty.
    (o) Foreign branch has the same meaning as in Sec.240.3a71-3(a)(1) 
of this chapter.
    (p) Indirect counterparty means a guarantor of a direct 
counterparty's performance of any obligation under a security-based swap 
such that the direct counterparty on the other side can exercise rights 
of recourse against the indirect counterparty in connection with the 
security-based swap; for these purposes a direct counterparty has rights 
of recourse against a guarantor on the other side if the direct 
counterparty has a conditional or unconditional legally enforceable 
right, in whole or in part, to receive payments from, or otherwise 
collect from, the guarantor in connection with the security-based swap.
    (q) Life cycle event means, with respect to a security-based swap, 
any event that would result in a change in the information reported to a 
registered security-based swap data repository under Sec.242.901(c), 
(d), or (i), including: An assignment or novation of the security-based 
swap; a partial or full termination of the security-based swap; a change 
in the cash flows originally reported; for a security-based swap that is 
not a clearing transaction, any change to the title or date of any 
master agreement, collateral agreement, margin agreement, or any other 
agreement incorporated by reference into the security-based swap 
contract; or a corporate action affecting a security or securities on 
which the security-based swap is based (e.g., a merger, dividend, stock 
split, or bankruptcy). Notwithstanding the above, a life cycle event 
shall not include the scheduled expiration of the security-based swap, a 
previously described and anticipated interest rate adjustment (such as a 
quarterly interest rate adjustment), or other event that does not result 
in any change to the contractual terms of the security-based swap.
    (r) Non-mandatory report means any information provided to a 
registered security-based swap data repository by or on behalf of a 
counterparty other than as required by Sec.Sec.242.900 through 
242.909.
    (s) Non-U.S. person means a person that is not a U.S. person.
    (t) Parent means a legal person that controls a participant.
    (u) Participant, with respect to a registered security-based swap 
data repository, means:
    (1) A counterparty, that meets the criteria of Sec.242.908(b), of 
a security-based swap that is reported to that registered security-based 
swap data repository to satisfy an obligation under Sec.242.901(a);
    (2) A platform that reports a security-based swap to that registered 
security-based swap data repository to satisfy an obligation under Sec.
242.901(a);
    (3) A registered clearing agency that is required to report to that 
registered security-based swap data repository whether or not it has 
accepted a security-based swap for clearing pursuant to Sec.
242.901(e)(1)(ii); or
    (4) A registered broker-dealer (including a registered security-
based swap execution facility) that is required to report a security-
based swap to that registered security-based swap data repository by 
Sec.242.901(a).
    (v) Platform means a national securities exchange or security-based 
swap execution facility that is registered or exempt from registration.
    (w) Platform ID means the UIC assigned to a platform on which a 
security-based swap is executed.
    (x) Post-trade processor means any person that provides affirmation, 
confirmation, matching, reporting, or clearing services for a security-
based swap transaction.
    (y) Pre-enactment security-based swap means any security-based swap 
executed before July 21, 2010 (the date of enactment of the Dodd-Frank 
Act

[[Page 868]]

(Pub. L. 111-203, H.R. 4173)), the terms of which had not expired as of 
that date.
    (z) Price means the price of a security-based swap transaction, 
expressed in terms of the commercial conventions used in that asset 
class.
    (aa) Product means a group of security-based swap contracts each 
having the same material economic terms except those relating to price 
and size.
    (bb) Product ID means the UIC assigned to a product.
    (cc) Publicly disseminate means to make available through the 
Internet or other electronic data feed that is widely accessible and in 
machine-readable electronic format.
    (dd) [Reserved].
    (ee) Registered clearing agency means a person that is registered 
with the Commission as a clearing agency pursuant to section 17A of the 
Exchange Act (15 U.S.C. 78q-1) and any rules or regulations thereunder.
    (ff) Registered security-based swap data repository means a person 
that is registered with the Commission as a security-based swap data 
repository pursuant to section 13(n) of the Exchange Act (15 U.S.C. 
78m(n)) and any rules or regulations thereunder.
    (gg) Reporting side means the side of a security-based swap 
identified by Sec.242.901(a)(2).
    (hh) Side means a direct counterparty and any guarantor of that 
direct counterparty's performance who meets the definition of indirect 
counterparty in connection with the security-based swap.
    (ii) Time of execution means the point at which the counterparties 
to a security-based swap become irrevocably bound under applicable law.
    (jj) Trader ID means the UIC assigned to a natural person who 
executes one or more security-based swaps on behalf of a direct 
counterparty.
    (kk) Trading desk means, with respect to a counterparty, the 
smallest discrete unit of organization of the participant that purchases 
or sells security-based swaps for the account of the participant or an 
affiliate thereof.
    (ll) Trading desk ID means the UIC assigned to the trading desk of a 
participant.
    (mm) Transaction ID means the UIC assigned to a specific security-
based swap transaction.
    (nn) Transitional security-based swap means a security-based swap 
executed on or after July 21, 2010, and before the first date on which 
trade-by-trade reporting of security-based swaps in that asset class to 
a registered security-based swap data repository is required pursuant to 
Sec.Sec.242.900 through 242.909.
    (oo) Ultimate parent means a legal person that controls a 
participant and that itself has no parent.
    (pp) Ultimate parent ID means the UIC assigned to an ultimate parent 
of a participant.
    (qq) Unique Identification Code or UIC means a unique identification 
code assigned to a person, unit of a person, product, or transaction.
    (rr) United States has the same meaning as in Sec.240.3a71-3(a)(5) 
of this chapter.
    (ss) U.S. person has the same meaning as in Sec.240.3a71-3(a)(4) 
of this chapter.
    (tt) Widely accessible, as used in paragraph (cc) of this section, 
means widely available to users of the information on a non-fee basis.

[80 FR 14728, Mar. 19, 2015, as amended at 81 FR 53653, Aug. 12, 2016]



Sec.242.901  Reporting obligations.

    (a) Assigning reporting duties. A security-based swap, including a 
security-based swap that results from the allocation, termination, 
novation, or assignment of another security-based swap, shall be 
reported as follows:
    (1) Platform-executed security-based swaps that will be submitted to 
clearing. If a security-based swap is executed on a platform and will be 
submitted to clearing, the platform on which the transaction was 
executed shall report to a registered security-based swap data 
repository the counterparty ID or the execution agent ID of each direct 
counterparty, as applicable, and the information set forth in paragraph 
(c) of this section (except that, with respect to paragraph (c)(5) of 
this section, the platform need indicate only if both direct 
counterparties are registered security-based swap dealers) and 
paragraphs (d)(9) and (10) of this section.
    (2) All other security-based swaps. For all security-based swaps 
other than

[[Page 869]]

platform-executed security-based swaps that will be submitted to 
clearing, the reporting side shall provide the information required by 
Sec.Sec.242.900 through 242.909 to a registered security-based swap 
data repository. The reporting side shall be determined as follows:
    (i) Clearing transactions. For a clearing transaction, the reporting 
side is the registered clearing agency that is a counterparty to the 
transaction.
    (ii) Security-based swaps other than clearing transactions. (A) If 
both sides of the security-based swap include a registered security-
based swap dealer, the sides shall select the reporting side.
    (B) If only one side of the security-based swap includes a 
registered security-based swap dealer, that side shall be the reporting 
side.
    (C) If both sides of the security-based swap include a registered 
major security-based swap participant, the sides shall select the 
reporting side.
    (D) If one side of the security-based swap includes a registered 
major security-based swap participant and the other side includes 
neither a registered security-based swap dealer nor a registered major 
security-based swap participant, the side including the registered major 
security-based swap participant shall be the reporting side.
    (E) If neither side of the security-based swap includes a registered 
security-based swap dealer or registered major security-based swap 
participant:
    (1) If both sides include a U.S. person, the sides shall select the 
reporting side.
    (2) If one side includes a non-U.S. person that falls within Sec.
242.908(b)(5) or a U.S. person and the other side includes a non-U.S. 
person that falls within Sec.242.908(b)(5), the sides shall select the 
reporting side.
    (3) If one side includes only non-U.S. persons that do not fall 
within Sec.242.908(b)(5) and the other side includes a non-U.S. person 
that falls within Sec.242.908(b)(5) or a U.S. person, the side 
including a non-U.S. person that falls within Sec.242.908(b)(5) or a 
U.S. person shall be the reporting side.
    (4) If neither side includes a U.S. person and neither side includes 
a non-U.S. person that falls within Sec.242.908(b)(5) but the 
security-based swap is effected by or through a registered broker-dealer 
(including a registered security-based swap execution facility), the 
registered broker-dealer (including a registered security-based swap 
execution facility) shall report the counterparty ID or the execution 
agent ID of each direct counterparty, as applicable, and the information 
set forth in paragraph (c) of this section (except that, with respect to 
paragraph (c)(5) of this section, the registered broker-dealer 
(including a registered security-based swap execution facility) need 
indicate only if both direct counterparties are registered security-
based swap dealers) and paragraphs (d)(9) and (10) of this section.
    (3) Notification to registered clearing agency. A person who, under 
paragraph (a)(1) or (a)(2)(ii) of this section, has a duty to report a 
security-based swap that has been submitted to clearing at a registered 
clearing agency shall promptly provide that registered clearing agency 
with the transaction ID of the submitted security-based swap and the 
identity of the registered security-based swap data repository to which 
the transaction will be reported or has been reported.
    (b) Alternate recipient of security-based swap information. If there 
is no registered security-based swap data repository that will accept 
the report required by Sec.242.901(a), the person required to make 
such report shall instead provide the required information to the 
Commission.
    (c) Primary trade information. The reporting side shall report the 
following information within the timeframe specified in paragraph (j) of 
this section:
    (1) The product ID, if available. If the security-based swap has no 
product ID, or if the product ID does not include the following 
information, the reporting side shall report:
    (i) Information that identifies the security-based swap, including 
the asset class of the security-based swap and the specific underlying 
reference asset(s), reference issuer(s), or reference index;
    (ii) The effective date;
    (iii) The scheduled termination date;
    (iv) The terms of any standardized fixed or floating rate payments, 
and

[[Page 870]]

the frequency of any such payments; and
    (v) If the security-based swap is customized to the extent that the 
information provided in paragraphs (c)(1)(i) through (iv) of this 
section does not provide all of the material information necessary to 
identify such customized security-based swap or does not contain the 
data elements necessary to calculate the price, a flag to that effect;
    (2) The date and time, to the second, of execution, expressed using 
Coordinated Universal Time (UTC);
    (3) The price, including the currency in which the price is 
expressed and the amount(s) and currenc(ies) of any up-front payments;
    (4) The notional amount(s) and the currenc(ies) in which the 
notional amount(s) is expressed;
    (5) If both sides of the security-based swap include a registered 
security-based swap dealer, an indication to that effect;
    (6) Whether the direct counterparties intend that the security-based 
swap will be submitted to clearing; and
    (7) If applicable, any flags pertaining to the transaction that are 
specified in the policies and procedures of the registered security-
based swap data repository to which the transaction will be reported.
    (d) Secondary trade information. In addition to the information 
required under paragraph (c) of this section, for each security-based 
swap for which it is the reporting side, the reporting side shall report 
the following information within the timeframe specified in paragraph 
(j) of this section:
    (1) The counterparty ID or the execution agent ID of each 
counterparty, as applicable;
    (2) As applicable, the branch ID, broker ID, execution agent ID, 
trader ID, and trading desk ID of the direct counterparty on the 
reporting side;
    (3) To the extent not provided pursuant to paragraph (c)(1) of this 
section, the terms of any fixed or floating rate payments, or otherwise 
customized or non-standard payment streams, including the frequency and 
contingencies of any such payments;
    (4) For a security-based swap that is not a clearing transaction and 
that will not be allocated after execution, the title and date of any 
master agreement, collateral agreement, margin agreement, or any other 
agreement incorporated by reference into the security-based swap 
contract;
    (5) To the extent not provided pursuant to paragraph (c) of this 
section or other provisions of this paragraph (d), any additional data 
elements included in the agreement between the counterparties that are 
necessary for a person to determine the market value of the transaction;
    (6) If applicable, and to the extent not provided pursuant to 
paragraph (c) of this section, the name of the clearing agency to which 
the security-based swap will be submitted for clearing;
    (7) If the direct counterparties do not intend to submit the 
security-based swap to clearing, whether they have invoked the exception 
in Section 3C(g) of the Exchange Act (15 U.S.C. 78c-3(g));
    (8) To the extent not provided pursuant to the other provisions of 
this paragraph (d), if the direct counterparties do not submit the 
security-based swap to clearing, a description of the settlement terms, 
including whether the security-based swap is cash-settled or physically 
settled, and the method for determining the settlement value;
    (9) The platform ID, if applicable, or if a registered broker-dealer 
(including a registered security-based swap execution facility) is 
required to report the security-based swap by Sec.
242.901(a)(2)(ii)(E)(4), the broker ID of that registered broker-dealer 
(including a registered security-based swap execution facility); and
    (10) If the security-based swap arises from the allocation, 
termination, novation, or assignment of one or more existing security-
based swaps, the transaction ID of the allocated, terminated, assigned, 
or novated security-based swap(s), except in the case of a clearing 
transaction that results from the netting or compression of other 
clearing transactions.
    (e) Reporting of life cycle events. (1)(i) Generally. A life cycle 
event, and any adjustment due to a life cycle event, that results in a 
change to information previously reported pursuant to paragraph (c), 
(d), or (i) of this section shall

[[Page 871]]

be reported by the reporting side, except that the reporting side shall 
not report whether or not a security-based swap has been accepted for 
clearing.
    (ii) Acceptance for clearing. A registered clearing agency shall 
report whether or not it has accepted a security-based swap for 
clearing.
    (2) All reports of life cycle events and adjustments due to life 
cycle events shall, within the timeframe specified in paragraph (j) of 
this section, be reported to the entity to which the original security-
based swap transaction will be reported or has been reported and shall 
include the transaction ID of the original transaction.
    (f) Time stamping incoming information. A registered security-based 
swap data repository shall time stamp, to the second, its receipt of any 
information submitted to it pursuant to paragraph (c), (d), (e), or (i) 
of this section.
    (g) Assigning transaction ID. A registered security-based swap data 
repository shall assign a transaction ID to each security-based swap, or 
establish or endorse a methodology for transaction IDs to be assigned by 
third parties.
    (h) Format of reported information. A person having a duty to report 
shall electronically transmit the information required under this 
section in a format required by the registered security-based swap data 
repository to which it reports.
    (i) Reporting of pre-enactment and transitional security-based 
swaps. With respect to any pre-enactment security-based swap or 
transitional security-based swap in a particular asset class, and to the 
extent that information about such transaction is available, the 
reporting side shall report all of the information required by 
paragraphs (c) and (d) of this section to a registered security-based 
swap data repository that accepts security-based swaps in that asset 
class and indicate whether the security-based swap was open as of the 
date of such report.
    (j) Interim timeframe for reporting. The reporting timeframe for 
paragraphs (c) and (d) of this section shall be 24 hours after the time 
of execution (or acceptance for clearing in the case of a security-based 
swap that is subject to regulatory reporting and public dissemination 
solely by operation of Sec.242.908(a)(1)(ii)), or, if 24 hours after 
the time of execution or acceptance, as applicable, would fall on a day 
that is not a business day, by the same time on the next day that is a 
business day. The reporting timeframe for paragraph (e) of this section 
shall be 24 hours after the occurrence of the life cycle event or the 
adjustment due to the life cycle event.

Appendix to 17 CFR 242.901 Reports Regarding the Establishment of Block 
  Thresholds and Reporting Delays for Regulatory Reporting of Security-
                       Based Swap Transaction Data

    This appendix sets forth guidelines applicable to reports that the 
Commission has directed its staff to make in connection with the 
determination of block thresholds and reporting delays for security-
based swap transaction data. The Commission intends to use these reports 
to inform its specification of the criteria for determining what 
constitutes a large notional security-based swap transaction (block 
trade) for particular markets and contracts; and the appropriate time 
delay for reporting large notional security-based swap transactions 
(block trades) to the public in order to implement regulatory 
requirements under Section 13 of the Act (15 U.S.C. 78m). In producing 
these reports, the staff shall consider security-based swap data 
collected by the Commission pursuant to other Title VII rules, as well 
as any other applicable information as the staff may determine to be 
appropriate for its analysis.
    (a) Report topics. As appropriate, based on the availability of data 
and information, the reports should address the following topics for 
each asset class:
    (1) Price impact. In connection with the Commission's obligation to 
specify criteria for determining what constitutes a block trade and the 
appropriate reporting delay for block trades, the report generally 
should assess the effect of notional amount and observed reporting delay 
on price impact of trades in the security-based swap market.
    (2) Hedging. In connection with the Commission's obligation to 
specify criteria for determining what constitutes a block trade and the 
appropriate reporting delay for block trades, the report generally 
should consider potential relationships between observed reporting 
delays and the incidence and cost of hedging large trades in the 
security-based swap market, and whether these relationships differ for 
interdealer trades and dealer to customer trades.
    (3) Price efficiency. In connection with the Commission's obligation 
to specify criteria for determining what constitutes a block trade and 
the appropriate reporting delay for

[[Page 872]]

block trades, the report generally should assess the relationship 
between reporting delays and the speed with which transaction 
information is impounded into market prices, estimating this 
relationship for trades of different notional amounts.
    (4) Other topics. Any other analysis of security-based swap data and 
information, such as security-based swap market liquidity and price 
volatility, that the Commission or the staff deem relevant to the 
specification of:
    (i) The criteria for determining what constitutes a large notional 
security-based swap transaction (block trade) for particular markets and 
contracts; and
    (ii) The appropriate time delay for reporting large notional 
security-based swap transactions (block trades).
    (b) Timing of reports. Each report shall be complete no later than 
two years following the initiation of public dissemination of security-
based swap transaction data by the first registered SDR in that asset 
class.
    (c) Public comment on the report. Following completion of the 
report, the report shall be published in the Federal Register for public 
comment.

[80 FR 14728, Mar. 19, 2015, as amended at 81 FR 53653, Aug. 12, 2016]



Sec.242.902  Public dissemination of transaction reports.

    (a) General. Except as provided in paragraph (c) of this section, a 
registered security-based swap data repository shall publicly 
disseminate a transaction report of a security-based swap, or a life 
cycle event or adjustment due to a life cycle event, immediately upon 
receipt of information about the security-based swap, or upon re-opening 
following a period when the registered security-based swap data 
repository was closed. The transaction report shall consist of all the 
information reported pursuant to Sec.242.901(c), plus any condition 
flags contemplated by the registered security-based swap data 
repository's policies and procedures that are required by Sec.242.907.
    (b) [Reserved].
    (c) Non-disseminated information. A registered security-based swap 
data repository shall not disseminate:
    (1) The identity of any counterparty to a security-based swap;
    (2) With respect to a security-based swap that is not cleared at a 
registered clearing agency and that is reported to the registered 
security-based swap data repository, any information disclosing the 
business transactions and market positions of any person;
    (3) Any information regarding a security-based swap reported 
pursuant to Sec.242.901(i);
    (4) Any non-mandatory report;
    (5) Any information regarding a security-based swap that is required 
to be reported pursuant to Sec.Sec.242.901 and 242.908(a)(1) but is 
not required to be publicly disseminated pursuant to Sec.
242.908(a)(2);
    (6) Any information regarding a clearing transaction that arises 
from the acceptance of a security-based swap for clearing by a 
registered clearing agency or that results from netting other clearing 
transactions;
    (7) Any information regarding the allocation of a security-based 
swap; or
    (8) Any information regarding a security-based swap that has been 
rejected from clearing or rejected by a prime broker if the original 
transaction report has not yet been publicly disseminated.
    (d) Temporary restriction on other market data sources. No person 
shall make available to one or more persons (other than a counterparty 
or a post-trade processor) transaction information relating to a 
security-based swap before the primary trade information about the 
security-based swap is sent to a registered security-based swap data 
repository.

[80 FR 14728, Mar. 19, 2015, as amended at 81 FR 53654, Aug. 12, 2016]



Sec.242.903  Coded information.

    (a) If an internationally recognized standards-setting system that 
imposes fees and usage restrictions on persons that obtain UICs for 
their own usage that are fair and reasonable and not unreasonably 
discriminatory and that meets the criteria of paragraph (b) of this 
section is recognized by the Commission and has assigned a UIC to a 
person, unit of a person, or product (or has endorsed a methodology for 
assigning transaction IDs), the registered security-based swap data 
repository shall employ that UIC (or methodology for assigning 
transaction IDs). If no such system has been recognized by the 
Commission, or a recognized system has not assigned a UIC to a 
particular person, unit of a person, or product (or

[[Page 873]]

has not endorsed a methodology for assigning transaction IDs), the 
registered security-based swap data repository shall assign a UIC to 
that person, unit of person, or product using its own methodology (or 
endorse a methodology for assigning transaction IDs). If the Commission 
has recognized such a system that assigns UICs to persons, each 
participant of a registered security-based swap data repository shall 
obtain a UIC from or through that system for identifying itself, and 
each participant that acts as a guarantor of a direct counterparty's 
performance of any obligation under a security-based swap that is 
subject to Sec.242.908(a) shall, if the direct counterparty has not 
already done so, obtain a UIC for identifying the direct counterparty 
from or through that system, if that system permits third-party 
registration without a requirement to obtain prior permission of the 
direct counterparty.
    (b) A registered security-based swap data repository may permit 
information to be reported pursuant to Sec.242.901, and may publicly 
disseminate that information pursuant to Sec.242.902, using codes in 
place of certain data elements, provided that the information necessary 
to interpret such codes is widely available to users of the information 
on a non-fee basis.



Sec.242.904  Operating hours of registered security-based swap data 
repositories.

    A registered security-based swap data repository shall have systems 
in place to continuously receive and disseminate information regarding 
security-based swaps pursuant to Sec.Sec.242.900 through 242.909, 
subject to the following exceptions:
    (a) A registered security-based swap data repository may establish 
normal closing hours during periods when, in its estimation, the U.S. 
market and major foreign markets are inactive. A registered security-
based swap data repository shall provide reasonable advance notice to 
participants and to the public of its normal closing hours.
    (b) A registered security-based swap data repository may declare, on 
an ad hoc basis, special closing hours to perform system maintenance 
that cannot wait until normal closing hours. A registered security-based 
swap data repository shall, to the extent reasonably possible under the 
circumstances, avoid scheduling special closing hours during periods 
when, in its estimation, the U.S. market and major foreign markets are 
most active; and provide reasonable advance notice of its special 
closing hours to participants and to the public.
    (c) During normal closing hours, and to the extent reasonably 
practicable during special closing hours, a registered security-based 
swap data repository shall have the capability to receive and hold in 
queue information regarding security-based swaps that has been reported 
pursuant to Sec.Sec.242.900 through 242.909.
    (d) When a registered security-based swap data repository re-opens 
following normal closing hours or special closing hours, it shall 
disseminate transaction reports of security-based swaps held in queue, 
in accordance with the requirements of Sec.242.902.
    (e) If a registered security-based swap data repository could not 
receive and hold in queue transaction information that was required to 
be reported pursuant to Sec.Sec.242.900 through 242.909, it must 
immediately upon re-opening send a message to all participants that it 
has resumed normal operations. Thereafter, any participant that had an 
obligation to report information to the registered security-based swap 
data repository pursuant to Sec.Sec.242.900 through 242.909, but 
could not do so because of the registered security-based swap data 
repository's inability to receive and hold in queue data, must promptly 
report the information to the registered security-based swap data 
repository.



Sec.242.905  Correction of errors in security-based swap information.

    (a) Duty to correct. Any counterparty or other person having a duty 
to report a security-based swap that discovers an error in information 
previously reported pursuant to Sec.Sec.242.900 through 242.909 shall 
correct such error in accordance with the following procedures:
    (1) If a person that was not the reporting side for a security-based 
swap transaction discovers an error in the information reported with 
respect to

[[Page 874]]

such security-based swap, that person shall promptly notify the person 
having the duty to report the security-based swap of the error; and
    (2) If the person having the duty to report a security-based swap 
transaction discovers an error in the information reported with respect 
to a security-based swap, or receives notification from a counterparty 
of an error, such person shall promptly submit to the entity to which 
the security-based swap was originally reported an amended report 
pertaining to the original transaction report. If the person having the 
duty to report reported the initial transaction to a registered 
security-based swap data repository, such person shall submit an amended 
report to the registered security-based swap data repository in a manner 
consistent with the policies and procedures contemplated by Sec.
242.907(a)(3).
    (b) Duty of security-based swap data repository to correct. A 
registered security-based swap data repository shall:
    (1) Upon discovery of an error or receipt of a notice of an error, 
verify the accuracy of the terms of the security-based swap and, 
following such verification, promptly correct the erroneous information 
regarding such security-based swap contained in its system; and
    (2) If such erroneous information relates to a security-based swap 
that the registered security-based swap data repository previously 
disseminated and falls into any of the categories of information 
enumerated in Sec.242.901(c), publicly disseminate a corrected 
transaction report of the security-based swap promptly following 
verification of the trade by the counterparties to the security-based 
swap, with an indication that the report relates to a previously 
disseminated transaction.

[80 FR 14728, Mar. 19, 2015, as amended at 81 FR 53654, Aug. 12, 2016]



Sec.242.906  Other duties of participants.

    (a) Identifying missing UIC information. A registered security-based 
swap data repository shall identify any security-based swap reported to 
it for which the registered security-based swap data repository does not 
have the counterparty ID and (if applicable) the broker ID, branch ID, 
execution agent ID, trading desk ID, and trader ID of each direct 
counterparty. Once a day, the registered security-based swap data 
repository shall send a report to each participant of the registered 
security-based swap data repository or, if applicable, an execution 
agent, identifying, for each security-based swap to which that 
participant is a counterparty, the security-based swap(s) for which the 
registered security-based swap data repository lacks counterparty ID and 
(if applicable) broker ID, branch ID, execution agent ID, trading desk 
ID, and trader ID. A participant of a registered security-based swap 
data repository that receives such a report shall provide the missing 
information with respect to its side of each security-based swap 
referenced in the report to the registered security-based swap data 
repository within 24 hours.
    (b) Duty to provide ultimate parent and affiliate information. Each 
participant of a registered security-based swap data repository that is 
not a platform, a registered clearing agency, an externally managed 
investment vehicle, or a registered broker-dealer (including a 
registered security-based swap execution facility) that becomes a 
participant solely as a result of making a report to satisfy an 
obligation under Sec.242.901(a)(2)(ii)(E)(4) shall provide to the 
registered security-based swap data repository information sufficient to 
identify its ultimate parent(s) and any affiliate(s) of the participant 
that also are participants of the registered security-based swap data 
repository, using ultimate parent IDs and counterparty IDs. Any such 
participant shall promptly notify the registered security-based swap 
data repository of any changes to that information.
    (c) Policies and procedures to support reporting compliance. Each 
participant of a registered security-based swap data repository that is 
a registered security-based swap dealer, registered major security-based 
swap participant, registered clearing agency, platform, or registered 
broker-dealer (including a registered security-based swap execution 
facility) that becomes a participant solely as a result of making a 
report to satisfy an obligation under Sec.242.901(a)(2)(ii)(E)(4) 
shall establish, maintain, and enforce written policies

[[Page 875]]

and procedures that are reasonably designed to ensure that it complies 
with any obligations to report information to a registered security-
based swap data repository in a manner consistent with Sec.Sec.
242.900 through 242.909. Each such participant shall review and update 
its policies and procedures at least annually.

[81 FR 53654, Aug. 12, 2016]



Sec.242.907  Policies and procedures of registered security-based 
swap data repositories.

    (a) General policies and procedures. With respect to the receipt, 
reporting, and dissemination of data pursuant to Sec.Sec.242.900 
through 242.909, a registered security-based swap data repository shall 
establish and maintain written policies and procedures:
    (1) That enumerate the specific data elements of a security-based 
swap that must be reported, which shall include, at a minimum, the data 
elements specified in Sec.242.901(c) and (d);
    (2) That specify one or more acceptable data formats (each of which 
must be an open-source structured data format that is widely used by 
participants), connectivity requirements, and other protocols for 
submitting information;
    (3) For specifying procedures for reporting life cycle events and 
corrections to previously submitted information, making corresponding 
updates or corrections to transaction records, and applying an 
appropriate flag to the transaction report to indicate that the report 
is an error correction required to be disseminated by Sec.
242.905(b)(2), or is a life cycle event, or any adjustment due to a life 
cycle event, required to be disseminated by Sec.242.902(a);
    (4) For:
    (i) Identifying characteristic(s) of a security-based swap, or 
circumstances associated with the execution or reporting of the 
security-based swap, that could, in the fair and reasonable estimation 
of the registered security-based swap data repository, cause a person 
without knowledge of these characteristic(s) or circumstance(s), to 
receive a distorted view of the market;
    (ii) Establishing flags to denote such characteristic(s) or 
circumstance(s);
    (iii) Directing participants that report security-based swaps to 
apply such flags, as appropriate, in their reports to the registered 
security-based swap data repository; and
    (iv) Applying such flags:
    (A) To disseminated reports to help to prevent a distorted view of 
the market; or
    (B) In the case of a transaction referenced in Sec.242.902(c), to 
suppress the report from public dissemination entirely, as appropriate;
    (5) For assigning UICs in a manner consistent with Sec.242.903; 
and
    (6) For periodically obtaining from each participant other than a 
platform, registered clearing agency, externally managed investment 
vehicle, or registered broker-dealer (including a registered security-
based swap execution facility) that becomes a participant solely as a 
result of making a report to satisfy an obligation under Sec.
242.901(a)(2)(ii)(E)(4) information that identifies the participant's 
ultimate parent(s) and any participant(s) with which the participant is 
affiliated, using ultimate parent IDs and counterparty IDs.
    (b) [Reserved].
    (c) Public availability of policies and procedures. A registered 
security-based swap data repository shall make the policies and 
procedures required by Sec.Sec.242.900 through 242.909 publicly 
available on its Web site.
    (d) Updating of policies and procedures. A registered security-based 
swap data repository shall review, and update as necessary, the policies 
and procedures required by Sec.Sec.242.900 through 242.909 at least 
annually. Such policies and procedures shall indicate the date on which 
they were last reviewed.
    (e) A registered security-based swap data repository shall provide 
to the Commission, upon request, information or reports related to the 
timeliness, accuracy, and completeness of data reported to it pursuant 
to Sec.Sec.242.900 through 242.909 and the registered security-based 
swap data repository's policies and procedures thereunder.

[80 FR 14728, Mar. 19, 2015, as amended at 81 FR 53655, Aug. 12, 2016]

[[Page 876]]



Sec.242.908  Cross-border matters.

    (a) Application of Regulation SBSR to cross-border transactions. (1) 
A security-based swap shall be subject to regulatory reporting and 
public dissemination if:
    (i) There is a direct or indirect counterparty that is a U.S. person 
on either or both sides of the transaction;
    (ii) The security-based swap is accepted for clearing by a clearing 
agency having its principal place of business in the United States;
    (iii) The security-based swap is executed on a platform having its 
principal place of business in the United States;
    (iv) The security-based swap is effected by or through a registered 
broker-dealer (including a registered security-based swap execution 
facility); or
    (v) The transaction is connected with a non-U.S. person's security-
based swap dealing activity and is arranged, negotiated, or executed by 
personnel of such non-U.S. person located in a U.S. branch or office, or 
by personnel of an agent of such non-U.S. person located in a U.S. 
branch or office.
    (2) A security-based swap that is not included within paragraph 
(a)(1) of this section shall be subject to regulatory reporting but not 
public dissemination if there is a direct or indirect counterparty on 
either or both sides of the transaction that is a registered security-
based swap dealer or a registered major security-based swap participant.
    (b) Limitation on obligations. Notwithstanding any other provision 
of Sec.Sec.242.900 through 242.909, a person shall not incur any 
obligation under Sec.Sec.242.900 through 242.909 unless it is:
    (1) A U.S. person;
    (2) A registered security-based swap dealer or registered major 
security-based swap participant;
    (3) A platform;
    (4) A registered clearing agency; or
    (5) A non-U.S. person that, in connection with such person's 
security-based swap dealing activity, arranged, negotiated, or executed 
the security-based swap using its personnel located in a U.S. branch or 
office, or using personnel of an agent located in a U.S. branch or 
office.
    (c) Substituted compliance--(1) General. Compliance with the 
regulatory reporting and public dissemination requirements in sections 
13(m) and 13A of the Act (15 U.S.C. 78m(m) and 78m-1), and the rules and 
regulations thereunder, may be satisfied by compliance with the rules of 
a foreign jurisdiction that is the subject of a Commission order 
described in paragraph (c)(2) of this section, provided that at least 
one of the direct counterparties to the security-based swap is either a 
non-U.S. person or a foreign branch.
    (2) Procedure. (i) The Commission may, conditionally or 
unconditionally, by order, make a substituted compliance determination 
regarding regulatory reporting and public dissemination of security-
based swaps with respect to a foreign jurisdiction if that 
jurisdiction's requirements for the regulatory reporting and public 
dissemination of security-based swaps are comparable to otherwise 
applicable requirements. The Commission may, conditionally or 
unconditionally, by order, make a substituted compliance determination 
regarding regulatory reporting of security-based swaps that are subject 
to Sec.242.908(a)(2) with respect to a foreign jurisdiction if that 
jurisdiction's requirements for the regulatory reporting of security-
based swaps are comparable to otherwise applicable requirements.
    (ii) A party that potentially would comply with requirements under 
Sec.Sec.242.900 through 242.909 pursuant to a substituted compliance 
order or any foreign financial regulatory authority or authorities 
supervising such a person's security-based swap activities may file an 
application, pursuant to the procedures set forth in Sec.240.0-13 of 
this chapter, requesting that the Commission make a substituted 
compliance determination regarding regulatory reporting and public 
dissemination with respect to a foreign jurisdiction the rules of which 
also would require reporting and public dissemination of those security-
based swaps.
    (iii) In making such a substituted compliance determination, the 
Commission shall take into account such factors as the Commission 
determines are appropriate, such as the scope and

[[Page 877]]

objectives of the relevant foreign regulatory requirements, as well as 
the effectiveness of the supervisory compliance program administered, 
and the enforcement authority exercised, by the foreign financial 
regulatory authority to support oversight of its regulatory reporting 
and public dissemination system for security-based swaps. The Commission 
shall not make such a substituted compliance determination unless it 
finds that:
    (A) The data elements that are required to be reported pursuant to 
the rules of the foreign jurisdiction are comparable to those required 
to be reported pursuant to Sec.242.901;
    (B) The rules of the foreign jurisdiction require the security-based 
swap to be reported and publicly disseminated in a manner and a 
timeframe comparable to those required by Sec.Sec.242.900 through 
242.909 (or, in the case of transactions that are subject to Sec.
242.908(a)(2) but not to Sec.242.908(a)(1), the rules of the foreign 
jurisdiction require the security-based swap to be reported in a manner 
and a timeframe comparable to those required by Sec.Sec.242.900 
through 242.909);
    (C) The Commission has direct electronic access to the security-
based swap data held by a trade repository or foreign regulatory 
authority to which security-based swaps are reported pursuant to the 
rules of that foreign jurisdiction; and
    (D) Any trade repository or foreign regulatory authority in the 
foreign jurisdiction that receives and maintains required transaction 
reports of security-based swaps pursuant to the laws of that foreign 
jurisdiction is subject to requirements regarding data collection and 
maintenance; systems capacity, integrity, resiliency, availability, and 
security; and recordkeeping that are comparable to the requirements 
imposed on security-based swap data repositories by the Commission's 
rules and regulations.
    (iv) Before issuing a substituted compliance order pursuant to this 
section, the Commission shall have entered into memoranda of 
understanding and/or other arrangements with the relevant foreign 
financial regulatory authority or authorities under such foreign 
financial regulatory system addressing supervisory and enforcement 
cooperation and other matters arising under the substituted compliance 
determination.
    (v) The Commission may, on its own initiative, modify or withdraw 
such order at any time, after appropriate notice and opportunity for 
comment.

[80 FR 14728, Mar. 19, 2015, as amended at 81 FR 53655, Aug. 12, 2016]



Sec.242.909  Registration of security-based swap data repository as
a securities information processor.

    A registered security-based swap data repository shall also register 
with the Commission as a securities information processor on Form SDR 
(Sec.249.1500 of this chapter).



             Regulation SCI_Systems Compliance and Integrity

    Source: 79 FR 72436, Dec. 5, 2014, unless otherwise noted.



Sec.242.1000  Definitions.

    For purposes of Regulation SCI (Sec.Sec.242.1000 through 
242.1007), the following definitions shall apply:
    Critical SCI systems means any SCI systems of, or operated by or on 
behalf of, an SCI entity that:
    (1) Directly support functionality relating to:
    (i) Clearance and settlement systems of clearing agencies;
    (ii) Openings, reopenings, and closings on the primary listing 
market;
    (iii) Trading halts;
    (iv) Initial public offerings;
    (v) The provision of consolidated market data; or
    (vi) Exclusively-listed securities; or
    (2) Provide functionality to the securities markets for which the 
availability of alternatives is significantly limited or nonexistent and 
without which there would be a material impact on fair and orderly 
markets.
    Electronic signature has the meaning set forth in Sec.240.19b-4(j) 
of this chapter.
    Exempt clearing agency subject to ARP means an entity that has 
received from the Commission an exemption from registration as a 
clearing agency under Section 17A of the Act, and whose exemption 
contains conditions that relate to the Commission's Automation

[[Page 878]]

Review Policies (ARP), or any Commission regulation that supersedes or 
replaces such policies.
    Indirect SCI systems means any systems of, or operated by or on 
behalf of, an SCI entity that, if breached, would be reasonably likely 
to pose a security threat to SCI systems.
    Major SCI event means an SCI event that has had, or the SCI entity 
reasonably estimates would have:
    (1) Any impact on a critical SCI system; or
    (2) A significant impact on the SCI entity's operations or on market 
participants.
    Plan processor has the meaning set forth in Sec.242.600(b)(59).
    Responsible SCI personnel means, for a particular SCI system or 
indirect SCI system impacted by an SCI event, such senior manager(s) of 
the SCI entity having responsibility for such system, and their 
designee(s).
    SCI alternative trading system or SCI ATS means an alternative 
trading system, as defined in Sec.242.300(a), which during at least 
four of the preceding six calendar months:
    (1) Had with respect to NMS stocks:
    (i) Five percent (5%) or more in any single NMS stock, and one-
quarter percent (0.25%) or more in all NMS stocks, of the average daily 
dollar volume reported by applicable transaction reporting plans; or
    (ii) One percent (1%) or more in all NMS stocks of the average daily 
dollar volume reported by applicable transaction reporting plans; or
    (2) Had with respect to equity securities that are not NMS stocks 
and for which transactions are reported to a self-regulatory 
organization, five percent (5%) or more of the average daily dollar 
volume as calculated by the self-regulatory organization to which such 
transactions are reported;
    (3) Provided, however, that such SCI ATS shall not be required to 
comply with the requirements of Regulation SCI until six months after 
satisfying any of paragraphs (1) or (2) of this definition, as 
applicable, for the first time.
    SCI entity means an SCI self-regulatory organization, SCI 
alternative trading system, plan processor, or exempt clearing agency 
subject to ARP.
    SCI event means an event at an SCI entity that constitutes:
    (1) A systems disruption;
    (2) A systems compliance issue; or
    (3) A systems intrusion.
    SCI review means a review, following established procedures and 
standards, that is performed by objective personnel having appropriate 
experience to conduct reviews of SCI systems and indirect SCI systems, 
and which review contains:
    (1) A risk assessment with respect to such systems of an SCI entity; 
and
    (2) An assessment of internal control design and effectiveness of 
its SCI systems and indirect SCI systems to include logical and physical 
security controls, development processes, and information technology 
governance, consistent with industry standards.
    SCI self-regulatory organization or SCI SRO means any national 
securities exchange, registered securities association, or registered 
clearing agency, or the Municipal Securities Rulemaking Board; provided 
however, that for purposes of this section, the term SCI self-regulatory 
organization shall not include an exchange that is notice registered 
with the Commission pursuant to 15 U.S.C. 78f(g) or a limited purpose 
national securities association registered with the Commission pursuant 
to 15 U.S.C. 78o-3(k).
    SCI systems means all computer, network, electronic, technical, 
automated, or similar systems of, or operated by or on behalf of, an SCI 
entity that, with respect to securities, directly support trading, 
clearance and settlement, order routing, market data, market regulation, 
or market surveillance.
    Senior management means, for purposes of Rule 1003(b), an SCI 
entity's Chief Executive Officer, Chief Technology Officer, Chief 
Information Officer, General Counsel, and Chief Compliance Officer, or 
the equivalent of such employees or officers of an SCI entity.
    Systems compliance issue means an event at an SCI entity that has 
caused any SCI system of such entity to operate in a manner that does 
not comply with the Act and the rules and regulations thereunder or the 
entity's rules or governing documents, as applicable.

[[Page 879]]

    Systems disruption means an event in an SCI entity's SCI systems 
that disrupts, or significantly degrades, the normal operation of an SCI 
system.
    Systems intrusion means any unauthorized entry into the SCI systems 
or indirect SCI systems of an SCI entity.

[79 FR 72436, Dec. 5, 2014, as amended at 80 FR 81454, Dec. 30, 2015; 83 
FR 58429, Nov. 19, 2018]



Sec.242.1001  Obligations related to policies and procedures of SCI 
entities.

    (a) Capacity, integrity, resiliency, availability, and security. (1) 
Each SCI entity shall establish, maintain, and enforce written policies 
and procedures reasonably designed to ensure that its SCI systems and, 
for purposes of security standards, indirect SCI systems, have levels of 
capacity, integrity, resiliency, availability, and security, adequate to 
maintain the SCI entity's operational capability and promote the 
maintenance of fair and orderly markets.
    (2) Policies and procedures required by paragraph (a)(1) of this 
section shall include, at a minimum:
    (i) The establishment of reasonable current and future technological 
infrastructure capacity planning estimates;
    (ii) Periodic capacity stress tests of such systems to determine 
their ability to process transactions in an accurate, timely, and 
efficient manner;
    (iii) A program to review and keep current systems development and 
testing methodology for such systems;
    (iv) Regular reviews and testing, as applicable, of such systems, 
including backup systems, to identify vulnerabilities pertaining to 
internal and external threats, physical hazards, and natural or manmade 
disasters;
    (v) Business continuity and disaster recovery plans that include 
maintaining backup and recovery capabilities sufficiently resilient and 
geographically diverse and that are reasonably designed to achieve next 
business day resumption of trading and two-hour resumption of critical 
SCI systems following a wide-scale disruption;
    (vi) Standards that result in such systems being designed, 
developed, tested, maintained, operated, and surveilled in a manner that 
facilitates the successful collection, processing, and dissemination of 
market data; and
    (vii) Monitoring of such systems to identify potential SCI events.
    (3) Each SCI entity shall periodically review the effectiveness of 
the policies and procedures required by this paragraph (a), and take 
prompt action to remedy deficiencies in such policies and procedures.
    (4) For purposes of this paragraph (a), such policies and procedures 
shall be deemed to be reasonably designed if they are consistent with 
current SCI industry standards, which shall be comprised of information 
technology practices that are widely available to information technology 
professionals in the financial sector and issued by an authoritative 
body that is a U.S. governmental entity or agency, association of U.S. 
governmental entities or agencies, or widely recognized organization. 
Compliance with such current SCI industry standards, however, shall not 
be the exclusive means to comply with the requirements of this paragraph 
(a).
    (b) Systems compliance. (1) Each SCI entity shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that its SCI systems operate in a manner that 
complies with the Act and the rules and regulations thereunder and the 
entity's rules and governing documents, as applicable.
    (2) Policies and procedures required by paragraph (b)(1) of this 
section shall include, at a minimum:
    (i) Testing of all SCI systems and any changes to SCI systems prior 
to implementation;
    (ii) A system of internal controls over changes to SCI systems;
    (iii) A plan for assessments of the functionality of SCI systems 
designed to detect systems compliance issues, including by responsible 
SCI personnel and by personnel familiar with applicable provisions of 
the Act and the rules and regulations thereunder and the SCI entity's 
rules and governing documents; and
    (iv) A plan of coordination and communication between regulatory and 
other personnel of the SCI entity, including by responsible SCI 
personnel, regarding SCI systems design, changes, testing, and controls 
designed to detect and prevent systems compliance issues.

[[Page 880]]

    (3) Each SCI entity shall periodically review the effectiveness of 
the policies and procedures required by this paragraph (b), and take 
prompt action to remedy deficiencies in such policies and procedures.
    (4) Safe harbor from liability for individuals. Personnel of an SCI 
entity shall be deemed not to have aided, abetted, counseled, commanded, 
caused, induced, or procured the violation by an SCI entity of this 
paragraph (b) if the person:
    (i) Has reasonably discharged the duties and obligations incumbent 
upon such person by the SCI entity's policies and procedures; and
    (ii) Was without reasonable cause to believe that the policies and 
procedures relating to an SCI system for which such person was 
responsible, or had supervisory responsibility, were not established, 
maintained, or enforced in accordance with this paragraph (b) in any 
material respect.
    (c) Responsible SCI personnel. (1) Each SCI entity shall establish, 
maintain, and enforce reasonably designed written policies and 
procedures that include the criteria for identifying responsible SCI 
personnel, the designation and documentation of responsible SCI 
personnel, and escalation procedures to quickly inform responsible SCI 
personnel of potential SCI events.
    (2) Each SCI entity shall periodically review the effectiveness of 
the policies and procedures required by paragraph (c)(1) of this 
section, and take prompt action to remedy deficiencies in such policies 
and procedures.



Sec.242.1002  Obligations related to SCI events.

    (a) Corrective action. Upon any responsible SCI personnel having a 
reasonable basis to conclude that an SCI event has occurred, each SCI 
entity shall begin to take appropriate corrective action which shall 
include, at a minimum, mitigating potential harm to investors and market 
integrity resulting from the SCI event and devoting adequate resources 
to remedy the SCI event as soon as reasonably practicable.
    (b) Commission notification and recordkeeping of SCI events. Each 
SCI entity shall:
    (1) Upon any responsible SCI personnel having a reasonable basis to 
conclude that an SCI event has occurred, notify the Commission of such 
SCI event immediately;
    (2) Within 24 hours of any responsible SCI personnel having a 
reasonable basis to conclude that the SCI event has occurred, submit a 
written notification pertaining to such SCI event to the Commission, 
which shall be made on a good faith, best efforts basis and include:
    (i) A description of the SCI event, including the system(s) 
affected; and
    (ii) To the extent available as of the time of the notification: The 
SCI entity's current assessment of the types and number of market 
participants potentially affected by the SCI event; the potential impact 
of the SCI event on the market; a description of the steps the SCI 
entity has taken, is taking, or plans to take, with respect to the SCI 
event; the time the SCI event was resolved or timeframe within which the 
SCI event is expected to be resolved; and any other pertinent 
information known by the SCI entity about the SCI event;
    (3) Until such time as the SCI event is resolved and the SCI 
entity's investigation of the SCI event is closed, provide updates 
pertaining to such SCI event to the Commission on a regular basis, or at 
such frequency as reasonably requested by a representative of the 
Commission, to correct any materially incorrect information previously 
provided, or when new material information is discovered, including but 
not limited to, any of the information listed in paragraph (b)(2)(ii) of 
this section;
    (4)(i)(A) If an SCI event is resolved and the SCI entity's 
investigation of the SCI event is closed within 30 calendar days of the 
occurrence of the SCI event, then within five business days after the 
resolution of the SCI event and closure of the investigation regarding 
the SCI event, submit a final written notification pertaining to such 
SCI event to the Commission containing the information required in 
paragraph (b)(4)(ii) of this section.
    (B)(1) If an SCI event is not resolved or the SCI entity's 
investigation of the

[[Page 881]]

SCI event is not closed within 30 calendar days of the occurrence of the 
SCI event, then submit an interim written notification pertaining to 
such SCI event to the Commission within 30 calendar days after the 
occurrence of the SCI event containing the information required in 
paragraph (b)(4)(ii) of this section, to the extent known at the time.
    (2) Within five business days after the resolution of such SCI event 
and closure of the investigation regarding such SCI event, submit a 
final written notification pertaining to such SCI event to the 
Commission containing the information required in paragraph (b)(4)(ii) 
of this section.
    (ii) Written notifications required by paragraph (b)(4)(i) of this 
section shall include:
    (A) A detailed description of: The SCI entity's assessment of the 
types and number of market participants affected by the SCI event; the 
SCI entity's assessment of the impact of the SCI event on the market; 
the steps the SCI entity has taken, is taking, or plans to take, with 
respect to the SCI event; the time the SCI event was resolved; the SCI 
entity's rule(s) and/or governing document(s), as applicable, that 
relate to the SCI event; and any other pertinent information known by 
the SCI entity about the SCI event;
    (B) A copy of any information disseminated pursuant to paragraph (c) 
of this section by the SCI entity to date regarding the SCI event to any 
of its members or participants; and
    (C) An analysis of parties that may have experienced a loss, whether 
monetary or otherwise, due to the SCI event, the number of such parties, 
and an estimate of the aggregate amount of such loss.
    (5) The requirements of paragraphs (b)(1) through (4) of this 
section shall not apply to any SCI event that has had, or the SCI entity 
reasonably estimates would have, no or a de minimis impact on the SCI 
entity's operations or on market participants. For such events, each SCI 
entity shall:
    (i) Make, keep, and preserve records relating to all such SCI 
events; and
    (ii) Submit to the Commission a report, within 30 calendar days 
after the end of each calendar quarter, containing a summary description 
of such systems disruptions and systems intrusions, including the SCI 
systems and, for systems intrusions, indirect SCI systems, affected by 
such systems disruptions and systems intrusions during the applicable 
calendar quarter.
    (c) Dissemination of SCI events. (1) Each SCI entity shall:
    (i) Promptly after any responsible SCI personnel has a reasonable 
basis to conclude that an SCI event that is a systems disruption or 
systems compliance issue has occurred, disseminate the following 
information about such SCI event:
    (A) The system(s) affected by the SCI event; and
    (B) A summary description of the SCI event; and
    (ii) When known, promptly further disseminate the following 
information about such SCI event:
    (A) A detailed description of the SCI event;
    (B) The SCI entity's current assessment of the types and number of 
market participants potentially affected by the SCI event; and
    (C) A description of the progress of its corrective action for the 
SCI event and when the SCI event has been or is expected to be resolved; 
and
    (iii) Until resolved, provide regular updates of any information 
required to be disseminated under paragraphs (c)(1)(i) and (ii) of this 
section.
    (2) Each SCI entity shall, promptly after any responsible SCI 
personnel has a reasonable basis to conclude that a SCI event that is a 
systems intrusion has occurred, disseminate a summary description of the 
systems intrusion, including a description of the corrective action 
taken by the SCI entity and when the systems intrusion has been or is 
expected to be resolved, unless the SCI entity determines that 
dissemination of such information would likely compromise the security 
of the SCI entity's SCI systems or indirect SCI systems, or an 
investigation of the systems intrusion, and documents the reasons for 
such determination.
    (3) The information required to be disseminated under paragraphs 
(c)(1) and (2) of this section promptly after any responsible SCI 
personnel has a reasonable basis to conclude that an

[[Page 882]]

SCI event has occurred, shall be promptly disseminated by the SCI entity 
to those members or participants of the SCI entity that any responsible 
SCI personnel has reasonably estimated may have been affected by the SCI 
event, and promptly disseminated to any additional members or 
participants that any responsible SCI personnel subsequently reasonably 
estimates may have been affected by the SCI event; provided, however, 
that for major SCI events, the information required to be disseminated 
under paragraphs (c)(1) and (2) of this section shall be promptly 
disseminated by the SCI entity to all of its members or participants.
    (4) The requirements of paragraphs (c)(1) through (3) of this 
section shall not apply to:
    (i) SCI events to the extent they relate to market regulation or 
market surveillance systems; or
    (ii) Any SCI event that has had, or the SCI entity reasonably 
estimates would have, no or a de minimis impact on the SCI entity's 
operations or on market participants.



Sec.242.1003  Obligations related to systems changes; SCI review.

    (a) Systems changes. Each SCI entity shall:
    (1) Within 30 calendar days after the end of each calendar quarter, 
submit to the Commission a report describing completed, ongoing, and 
planned material changes to its SCI systems and the security of indirect 
SCI systems, during the prior, current, and subsequent calendar 
quarters, including the dates or expected dates of commencement and 
completion. An SCI entity shall establish reasonable written criteria 
for identifying a change to its SCI systems and the security of indirect 
SCI systems as material and report such changes in accordance with such 
criteria.
    (2) Promptly submit a supplemental report notifying the Commission 
of a material error in or material omission from a report previously 
submitted under this paragraph (a).
    (b) SCI review. Each SCI entity shall:
    (1) Conduct an SCI review of the SCI entity's compliance with 
Regulation SCI not less than once each calendar year; provided, however, 
that:
    (i) Penetration test reviews of the network, firewalls, and 
production systems shall be conducted at a frequency of not less than 
once every three years; and
    (ii) Assessments of SCI systems directly supporting market 
regulation or market surveillance shall be conducted at a frequency 
based upon the risk assessment conducted as part of the SCI review, but 
in no case less than once every three years; and
    (2) Submit a report of the SCI review required by paragraph (b)(1) 
of this section to senior management of the SCI entity for review no 
more than 30 calendar days after completion of such SCI review; and
    (3) Submit to the Commission, and to the board of directors of the 
SCI entity or the equivalent of such board, a report of the SCI review 
required by paragraph (b)(1) of this section, together with any response 
by senior management, within 60 calendar days after its submission to 
senior management of the SCI entity.



Sec.242.1004  SCI entity business continuity and disaster recovery 
plans testing requirements for members or participants.

    With respect to an SCI entity's business continuity and disaster 
recovery plans, including its backup systems, each SCI entity shall:
    (a) Establish standards for the designation of those members or 
participants that the SCI entity reasonably determines are, taken as a 
whole, the minimum necessary for the maintenance of fair and orderly 
markets in the event of the activation of such plans;
    (b) Designate members or participants pursuant to the standards 
established in paragraph (a) of this section and require participation 
by such designated members or participants in scheduled functional and 
performance testing of the operation of such plans, in the manner and 
frequency specified by the SCI entity, provided that such frequency 
shall not be less than once every 12 months; and

[[Page 883]]

    (c) Coordinate the testing of such plans on an industry- or sector-
wide basis with other SCI entities.



Sec.242.1005  Recordkeeping requirements related to compliance with
Regulation SCI.

    (a) An SCI SRO shall make, keep, and preserve all documents relating 
to its compliance with Regulation SCI as prescribed in Sec.240.17a-1 
of this chapter.
    (b) An SCI entity that is not an SCI SRO shall:
    (1) Make, keep, and preserve at least one copy of all documents, 
including correspondence, memoranda, papers, books, notices, accounts, 
and other such records, relating to its compliance with Regulation SCI, 
including, but not limited to, records relating to any changes to its 
SCI systems and indirect SCI systems;
    (2) Keep all such documents for a period of not less than five 
years, the first two years in a place that is readily accessible to the 
Commission or its representatives for inspection and examination; and
    (3) Upon request of any representative of the Commission, promptly 
furnish to the possession of such representative copies of any documents 
required to be kept and preserved by it pursuant to paragraphs (b)(1) 
and (2) of this section.
    (c) Upon or immediately prior to ceasing to do business or ceasing 
to be registered under the Securities Exchange Act of 1934, an SCI 
entity shall take all necessary action to ensure that the records 
required to be made, kept, and preserved by this section shall be 
accessible to the Commission and its representatives in the manner 
required by this section and for the remainder of the period required by 
this section.



Sec.242.1006  Electronic filing and submission.

    (a) Except with respect to notifications to the Commission made 
pursuant to Sec.242.1002(b)(1) or updates to the Commission made 
pursuant to paragraph Sec.242.1002(b)(3), any notification, review, 
description, analysis, or report to the Commission required to be 
submitted under Regulation SCI shall be filed electronically on Form SCI 
(Sec.249.1900 of this chapter), include all information as prescribed 
in Form SCI and the instructions thereto, and contain an electronic 
signature; and
    (b) The signatory to an electronically filed Form SCI shall manually 
sign a signature page or document, in the manner prescribed by Form SCI, 
authenticating, acknowledging, or otherwise adopting his or her 
signature that appears in typed form within the electronic filing. Such 
document shall be executed before or at the time Form SCI is 
electronically filed and shall be retained by the SCI entity in 
accordance with Sec.242.1005.



Sec.242.1007  Requirements for service bureaus.

    If records required to be filed or kept by an SCI entity under 
Regulation SCI are prepared or maintained by a service bureau or other 
recordkeeping service on behalf of the SCI entity, the SCI entity shall 
ensure that the records are available for review by the Commission and 
its representatives by submitting a written undertaking, in a form 
acceptable to the Commission, by such service bureau or other 
recordkeeping service, signed by a duly authorized person at such 
service bureau or other recordkeeping service. Such a written 
undertaking shall include an agreement by the service bureau to permit 
the Commission and its representatives to examine such records at any 
time or from time to time during business hours, and to promptly furnish 
to the Commission and its representatives true, correct, and current 
electronic files in a form acceptable to the Commission or its 
representatives or hard copies of any or all or any part of such 
records, upon request, periodically, or continuously and, in any case, 
within the same time periods as would apply to the SCI entity for such 
records. The preparation or maintenance of records by a service bureau 
or other recordkeeping service shall not relieve an SCI entity from its 
obligation to prepare, maintain, and provide the Commission and its 
representatives access to such records.

[[Page 884]]



PART 243_REGULATION FD--Table of Contents



Sec.
243.100 General rule regarding selective disclosure.
243.101 Definitions.
243.102 No effect on antifraud liability.
243.103 No effect on Exchange Act reporting status.

    Authority: 15 U.S.C. 78c, 78i, 78j, 78m, 78o, 78w, 78mm, and 80a-29, 
unless otherwise noted.

    Source: 65 FR 51738, Aug. 24, 2000, unless otherwise noted.



Sec.243.100  General rule regarding selective disclosure.

    (a) Whenever an issuer, or any person acting on its behalf, 
discloses any material nonpublic information regarding that issuer or 
its securities to any person described in paragraph (b)(1) of this 
section, the issuer shall make public disclosure of that information as 
provided in Sec.243.101(e):
    (1) Simultaneously, in the case of an intentional disclosure; and
    (2) Promptly, in the case of a non-intentional disclosure.
    (b)(1) Except as provided in paragraph (b)(2) of this section, 
paragraph (a) of this section shall apply to a disclosure made to any 
person outside the issuer:
    (i) Who is a broker or dealer, or a person associated with a broker 
or dealer, as those terms are defined in Section 3(a) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a));
    (ii) Who is an investment adviser, as that term is defined in 
Section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 
80b-2(a)(11)); an institutional investment manager, as that term is 
defined in Section 13(f)(6) of the Securities Exchange Act of 1934 (15 
U.S.C. 78m(f)(6)), that filed a report on Form 13F (17 CFR 249.325) with 
the Commission for the most recent quarter ended prior to the date of 
the disclosure; or a person associated with either of the foregoing. For 
purposes of this paragraph, a ``person associated with an investment 
adviser or institutional investment manager'' has the meaning set forth 
in Section 202(a)(17) of the Investment Advisers Act of 1940 (15 U.S.C. 
80b-2(a)(17)), assuming for these purposes that an institutional 
investment manager is an investment adviser;
    (iii) Who is an investment company, as defined in Section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3), or who would be an 
investment company but for Section 3(c)(1) (15 U.S.C. 80a-3(c)(1)) or 
Section 3(c)(7) (15 U.S.C. 80a-3(c)(7)) thereof, or an affiliated person 
of either of the foregoing. For purposes of this paragraph, ``affiliated 
person'' means only those persons described in Section 2(a)(3)(C), (D), 
(E), and (F) of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(3)(C), (D), (E), and (F)), assuming for these purposes that a 
person who would be an investment company but for Section 3(c)(1) (15 
U.S.C. 80a-3(c)(1)) or Section 3(c)(7) (15 U.S.C. 80a-3(c)(7)) of the 
Investment Company Act of 1940 is an investment company; or
    (iv) Who is a holder of the issuer's securities, under circumstances 
in which it is reasonably foreseeable that the person will purchase or 
sell the issuer's securities on the basis of the information.
    (2) Paragraph (a) of this section shall not apply to a disclosure 
made:
    (i) To a person who owes a duty of trust or confidence to the issuer 
(such as an attorney, investment banker, or accountant);
    (ii) To a person who expressly agrees to maintain the disclosed 
information in confidence;
    (iii) In connection with a securities offering registered under the 
Securities Act, other than an offering of the type described in any of 
Rule 415(a)(1)(i) through (vi) under the Securities Act (Sec.
230.415(a)(1)(i) through (vi) of this chapter) (except an offering of 
the type described in Rule 415(a)(1)(i) under the Securities Act (Sec.
230.415(a)(1)(i) of this chapter) also involving a registered offering, 
whether or not underwritten, for capital formation purposes for the 
account of the issuer (unless the issuer's offering is being registered 
for the purpose of evading the requirements of this section)), if the 
disclosure is by any of the following means:
    (A) A registration statement filed under the Securities Act, 
including a prospectus contained therein;

[[Page 885]]

    (B) A free writing prospectus used after filing of the registration 
statement for the offering or a communication falling within the 
exception to the definition of prospectus contained in clause (a) of 
section 2(a)(10) of the Securities Act;
    (C) Any other Section 10(b) prospectus;
    (D) A notice permitted by Rule 135 under the Securities Act (Sec.
230.135 of this chapter);
    (E) A communication permitted by Rule 134 under the Securities Act 
(Sec.230.134 of this chapter); or
    (F) An oral communication made in connection with the registered 
securities offering after filing of the registration statement for the 
offering under the Securities Act.

[65 FR 51738, Aug. 24, 2000, as amended at 70 FR 44829, Aug. 3, 2005; 74 
FR 63865, Dec. 4, 2009; 75 FR 61051, Oct. 4, 2010; 76 FR 71877, Nov. 21, 
2011]



Sec.243.101  Definitions.

    This section defines certain terms as used in Regulation FD 
(Sec.Sec.243.100-243.103).
    (a) Intentional. A selective disclosure of material nonpublic 
information is ``intentional'' when the person making the disclosure 
either knows, or is reckless in not knowing, that the information he or 
she is communicating is both material and nonpublic.
    (b) Issuer. An ``issuer'' subject to this regulation is one that has 
a class of securities registered under Section 12 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78l), or is required to file reports 
under Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(d)), including any closed-end investment company (as defined in 
Section 5(a)(2) of the Investment Company Act of 1940) (15 U.S.C. 80a-
5(a)(2)), but not including any other investment company or any foreign 
government or foreign private issuer, as those terms are defined in Rule 
405 under the Securities Act (Sec.230.405 of this chapter).
    (c) Person acting on behalf of an issuer. ``Person acting on behalf 
of an issuer'' means any senior official of the issuer (or, in the case 
of a closed-end investment company, a senior official of the issuer's 
investment adviser), or any other officer, employee, or agent of an 
issuer who regularly communicates with any person described in Sec.
243.100(b)(1)(i), (ii), or (iii), or with holders of the issuer's 
securities. An officer, director, employee, or agent of an issuer who 
discloses material nonpublic information in breach of a duty of trust or 
confidence to the issuer shall not be considered to be acting on behalf 
of the issuer.
    (d) Promptly. ``Promptly'' means as soon as reasonably practicable 
(but in no event after the later of 24 hours or the commencement of the 
next day's trading on the New York Stock Exchange) after a senior 
official of the issuer (or, in the case of a closed-end investment 
company, a senior official of the issuer's investment adviser) learns 
that there has been a non-intentional disclosure by the issuer or person 
acting on behalf of the issuer of information that the senior official 
knows, or is reckless in not knowing, is both material and nonpublic.
    (e) Public disclosure. (1) Except as provided in paragraph (e)(2) of 
this section, an issuer shall make the ``public disclosure'' of 
information required by Sec.243.100(a) by furnishing to or filing with 
the Commission a Form 8-K (17 CFR 249.308) disclosing that information.
    (2) An issuer shall be exempt from the requirement to furnish or 
file a Form 8-K if it instead disseminates the information through 
another method (or combination of methods) of disclosure that is 
reasonably designed to provide broad, non-exclusionary distribution of 
the information to the public.
    (f) Senior official. ``Senior official'' means any director, 
executive officer (as defined in Sec.240.3b-7 of this chapter), 
investor relations or public relations officer, or other person with 
similar functions.
    (g) Securities offering. For purposes of Sec.243.100(b)(2)(iv):
    (1) Underwritten offerings. A securities offering that is 
underwritten commences when the issuer reaches an understanding with the 
broker-dealer that is to act as managing underwriter and continues until 
the later of the end of the period during which a dealer must deliver a 
prospectus or the sale of the securities (unless the offering is sooner 
terminated);

[[Page 886]]

    (2) Non-underwritten offerings. A securities offering that is not 
underwritten:
    (i) If covered by Rule 415(a)(1)(x) (Sec.230.415(a)(1)(x) of this 
chapter), commences when the issuer makes its first bona fide offer in a 
takedown of securities and continues until the later of the end of the 
period during which each dealer must deliver a prospectus or the sale of 
the securities in that takedown (unless the takedown is sooner 
terminated);
    (ii) If a business combination as defined in Rule 165(f)(1) (Sec.
230.165(f)(1) of this chapter), commences when the first public 
announcement of the transaction is made and continues until the 
completion of the vote or the expiration of the tender offer, as 
applicable (unless the transaction is sooner terminated);
    (iii) If an offering other than those specified in paragraphs (a) 
and (b) of this section, commences when the issuer files a registration 
statement and continues until the later of the end of the period during 
which each dealer must deliver a prospectus or the sale of the 
securities (unless the offering is sooner terminated).



Sec.243.102  No effect on antifraud liability.

    No failure to make a public disclosure required solely by Sec.
243.100 shall be deemed to be a violation of Rule 10b-5 (17 CFR 240.10b-
5) under the Securities Exchange Act.



Sec.243.103  No effect on Exchange Act reporting status.

    A failure to make a public disclosure required solely by Sec.
243.100 shall not affect whether:
    (a) For purposes of Forms S-2 (17 CFR 239.12), S-3 (17 CFR 239.13), 
S-8 (17 CFR 239.16b) and SF-3 (17 CFR 239.45) under the Securities Act, 
an issuer is deemed to have filed all the material required to be filed 
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
(15 U.S.C. 78m or 78o(d)) or, where applicable, has made those filings 
in a timely manner; or
    (b) There is adequate current public information about the issuer 
for purposes of Sec.230.144(c) of this chapter (Rule 144(c)).

[65 FR 51738, Aug. 24, 2000, as amended at 79 FR 57344, Sept. 24, 2014



PART 244_REGULATION G--Table of Contents



Sec.
244.100 General rules regarding disclosure of non-GAAP financial 
          measures.
244.101 Definitions.
244.102 No effect on antifraud liability.

    Authority: 15 U.S.C. 7261, 78c, 78i, 78j, 78m, 78o, 78w, 78mm, and 
80a-29

    Source: 68 FR 4832, Jan. 30, 2003, unless otherwise noted.



Sec.244.100  General rules regarding disclosure of non-GAAP financial
measures.

    (a) Whenever a registrant, or person acting on its behalf, publicly 
discloses material information that includes a non-GAAP financial 
measure, the registrant must accompany that non-GAAP financial measure 
with:
    (1) A presentation of the most directly comparable financial measure 
calculated and presented in accordance with Generally Accepted 
Accounting Principles (GAAP); and
    (2) A reconciliation (by schedule or other clearly understandable 
method), which shall be quantitative for historical non-GAAP measures 
presented, and quantitative, to the extent available without 
unreasonable efforts, for forward-looking information, of the 
differences between the non-GAAP financial measure disclosed or released 
with the most comparable financial measure or measures calculated and 
presented in accordance with GAAP identified in paragraph (a)(1) of this 
section.
    (b) A registrant, or a person acting on its behalf, shall not make 
public a non-GAAP financial measure that, taken together with the 
information accompanying that measure and any other accompanying 
discussion of that measure, contains an untrue statement of a material 
fact or omits to state a material fact necessary in order to make the 
presentation of the non-GAAP financial measure, in light of the 
circumstances under which it is presented, not misleading.

[[Page 887]]

    (c) This section shall not apply to a disclosure of a non-GAAP 
financial measure that is made by or on behalf of a registrant that is a 
foreign private issuer if the following conditions are satisfied:
    (1) The securities of the registrant are listed or quoted on a 
securities exchange or inter-dealer quotation system outside the United 
States;
    (2) The non-GAAP financial measure is not derived from or based on a 
measure calculated and presented in accordance with generally accepted 
accounting principles in the United States; and
    (3) The disclosure is made by or on behalf of the registrant outside 
the United States, or is included in a written communication that is 
released by or on behalf of the registrant outside the United States.
    (d) This section shall not apply to a non-GAAP financial measure 
included in disclosure relating to a proposed business combination, the 
entity resulting therefrom or an entity that is a party thereto, if the 
disclosure is contained in a communication that is subject to Sec.
230.425 of this chapter, Sec.240.14a-12 or Sec.240.14d-2(b)(2) of 
this chapter or Sec.229.1015 of this chapter.

    Notes to Sec.244.100: 1. If a non-GAAP financial measure is made 
public orally, telephonically, by Web cast, by broadcast, or by similar 
means, the requirements of paragraphs (a)(1)(i) and (a)(1)(ii) of this 
section will be satisfied if:
    (i) The required information in those paragraphs is provided on the 
registrant's Web site at the time the non-GAAP financial measure is made 
public; and
    (ii) The location of the web site is made public in the same 
presentation in which the non-GAAP financial measure is made public.
    2. The provisions of paragraph (c) of this section shall apply 
notwithstanding the existence of one or more of the following 
circumstances:
    (i) A written communication is released in the United States as well 
as outside the United States, so long as the communication is released 
in the United States contemporaneously with or after the release outside 
the United States and is not otherwise targeted at persons located in 
the United States;
    (ii) Foreign journalists, U.S. journalists or other third parties 
have access to the information;
    (iii) The information appears on one or more web sites maintained by 
the registrant, so long as the web sites, taken together, are not 
available exclusively to, or targeted at, persons located in the United 
States; or
    (iv) Following the disclosure or release of the information outside 
the United States, the information is included in a submission by the 
registrant to the Commission made under cover of a Form 6-K.



Sec.244.101  Definitions.

    This section defines certain terms as used in Regulation G 
(Sec.Sec.244.100 through 244.102).
    (a)(1) Non-GAAP financial measure. A non-GAAP financial measure is a 
numerical measure of a registrant's historical or future financial 
performance, financial position or cash flows that:
    (i) Excludes amounts, or is subject to adjustments that have the 
effect of excluding amounts, that are included in the most directly 
comparable measure calculated and presented in accordance with GAAP in 
the statement of income, balance sheet or statement of cash flows (or 
equivalent statements) of the issuer; or
    (ii) Includes amounts, or is subject to adjustments that have the 
effect of including amounts, that are excluded from the most directly 
comparable measure so calculated and presented.
    (2) A non-GAAP financial measure does not include operating and 
other financial measures and ratios or statistical measures calculated 
using exclusively one or both of:
    (i) Financial measures calculated in accordance with GAAP; and
    (ii) Operating measures or other measures that are not non-GAAP 
financial measures.
    (3) A non-GAAP financial measure does not include financial measures 
required to be disclosed by GAAP, Commission rules, or a system of 
regulation of a government or governmental authority or self-regulatory 
organization that is applicable to the registrant.
    (b) GAAP. GAAP refers to generally accepted accounting principles in 
the United States, except that:
    (1) In the case of foreign private issuers whose primary financial 
statements are prepared in accordance with non-U.S. generally accepted 
accounting principles, GAAP refers to the principles under which those 
primary financial statements are prepared; and

[[Page 888]]

    (2) In the case of foreign private issuers that include a non-GAAP 
financial measure derived from a measure calculated in accordance with 
U.S. generally accepted accounting principles, GAAP refers to U.S. 
generally accepted accounting principles for purposes of the application 
of the requirements of Regulation G to the disclosure of that measure.
    (c) Registrant. A registrant subject to this regulation is one that 
has a class of securities registered under Section 12 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78l), or is required to file reports 
under Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(d)), excluding any investment company registered under Section 8 of 
the Investment Company Act of 1940 (15 U.S.C. 80a-8).
    (d) United States. United States means the United States of America, 
its territories and possessions, any State of the United States, and the 
District of Columbia.



Sec.244.102  No effect on antifraud liability.

    Neither the requirements of this Regulation G (17 CFR 244.100 
through 244.102) nor a person's compliance or non-compliance with the 
requirements of this Regulation shall in itself affect any person's 
liability under Section 10(b) (15 U.S.C. 78j(b)) of the Securities 
Exchange Act of 1934 or Sec.240.10b-5 of this chapter.



PART 245_REGULATION BLACKOUT TRADING RESTRICTION--Table of Contents



[Regulation BTR--Blackout Trading Restriction]

Sec.
245.100 Definitions.
245.101 Prohibition of insider trading during pension fund blackout 
          periods.
245.102 Exceptions to definition of blackout period.
245.103 Issuer right of recovery; right of action by equity security 
          owner.
245.104 Notice.

    Authority: 15 U.S.C. 78w(a), unless otherwise noted.
    Sections 245.100-245.104 are also issued under secs. 3(a) and 
306(a), Pub. L. 107-204, 116 Stat. 745.

    Source: 68 FR 4355, Jan. 28, 2003, unless otherwise noted.



Sec.245.100  Definitions.

    As used in Regulation BTR (Sec.Sec.245.100 through 245.104), 
unless the context otherwise requires:
    (a) The term acquired in connection with service or employment as a 
director or executive officer, when applied to a director or executive 
officer, means that he or she acquired, directly or indirectly, an 
equity security:
    (1) At a time when he or she was a director or executive officer, 
under a compensatory plan, contract, authorization or arrangement, 
including, but not limited to, an option, warrants or rights plan, a 
pension, retirement or deferred compensation plan or a bonus, incentive 
or profit-sharing plan (whether or not set forth in any formal plan 
document), including a compensatory plan, contract, authorization or 
arrangement with a parent, subsidiary or affiliate;
    (2) At a time when he or she was a director or executive officer, as 
a result of any transaction or business relationship described in 
paragraph (a) of Item 404 of Regulation S-K (Sec.229.404 of this 
chapter) or, in the case of a foreign private issuer, Item 7.B of Form 
20-F (Sec.249.220f of this chapter) (but without application of the 
disclosure thresholds of such provisions), to the extent that he or she 
has a pecuniary interest (as defined in paragraph (l) of this section) 
in the equity securities;
    (3) At a time when he or she was a director or executive officer, as 
directors' qualifying shares or other securities that he or she must 
hold to satisfy minimum ownership requirements or guidelines for 
directors or executive officers;
    (4) Prior to becoming, or while, a director or executive officer 
where the equity security was acquired as a direct or indirect 
inducement to service or employment as a director or executive officer; 
or
    (5) Prior to becoming, or while, a director or executive officer 
where the equity security was received as a result of a business 
combination in respect of an equity security of an entity involved in 
the business combination

[[Page 889]]

that he or she had acquired in connection with service or employment as 
a director or executive officer of such entity.
    (b) Except as provided in Sec.245.102, the term blackout period:
    (1) With respect to the equity securities of any issuer (other than 
a foreign private issuer), means any period of more than three 
consecutive business days during which the ability to purchase, sell or 
otherwise acquire or transfer an interest in any equity security of such 
issuer held in an individual account plan is temporarily suspended by 
the issuer or by a fiduciary of the plan with respect to not fewer than 
50% of the participants or beneficiaries located in the United States 
and its territories and possessions under all individual account plans 
(as defined in paragraph (j) of this section) maintained by the issuer 
that permit participants or beneficiaries to acquire or hold equity 
securities of the issuer;
    (2) With respect to the equity securities of any foreign private 
issuer (as defined in Sec.240.3b-4(c) of this chapter), means any 
period of more than three consecutive business days during which both:
    (i) The conditions of paragraph (b)(1) of this section are met; and
    (ii)(A) The number of participants and beneficiaries located in the 
United States and its territories and possessions subject to the 
temporary suspension exceeds 15% of the total number of employees of the 
issuer and its consolidated subsidiaries; or
    (B) More than 50,000 participants and beneficiaries located in the 
United States and its territories and possessions are subject to the 
temporary suspension.
    (3) In determining the individual account plans (as defined in 
paragraph (j) of this section) maintained by an issuer for purposes of 
this paragraph (b):
    (i) The rules under section 414(b), (c), (m) and (o) of the Internal 
Revenue Code (26 U.S.C. 414(b), (c), (m) and (o)) are to be applied; and
    (ii) An individual account plan that is maintained outside of the 
United States primarily for the benefit of persons substantially all of 
whom are nonresident aliens (within the meaning of section 104(b)(4) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1003(b)(4))) is not to be considered.
    (4) In determining the number of participants and beneficiaries in 
an individual account plan (as defined in paragraph (j) of this section) 
maintained by an issuer:
    (i) The determination may be made as of any date within the 12-month 
period preceding the beginning date of the temporary suspension in 
question; provided that if there has been a significant change in the 
number of participants or beneficiaries in an individual account plan 
since the date selected, the determination for such plan must be made as 
of the most recent practicable date that reflects such change; and
    (ii) The determination may be made without regard to overlapping 
plan participation.
    (c)(1) The term director has, except as provided in paragraph (c)(2) 
of this section, the meaning set forth in section 3(a)(7) of the 
Exchange Act (15 U.S.C. 78c(a)(7)).
    (2) In the case of a foreign private issuer (as defined in Sec.
240.3b-4(c) of this chapter), the term director means an individual 
within the definition set forth in section 3(a)(7) of the Exchange Act 
who is a management employee of the issuer.
    (d) The term derivative security has the meaning set forth in Sec.
240.16a-1(c) of this chapter.
    (e) The term equity security has the meaning set forth in section 
3(a)(11) of the Exchange Act (15 U.S.C. 78c(a)(11)) and Sec.240.3a11-1 
of this chapter.
    (f) The term equity security of the issuer means any equity security 
or derivative security relating to an issuer, whether or not issued by 
that issuer.
    (g) The term Exchange Act means the Securities Exchange Act of 1934 
(15 U.S.C. 78a et seq.).
    (h)(1) The term executive officer has, except as provided in 
paragraph (h)(2) of this section, the meaning set forth in Sec.
240.16a-1(f) of this chapter.
    (2) In the case of a foreign private issuer (as defined in Sec.
240.3b-4(c) of this chapter), the term executive officer means the 
principal executive officer

[[Page 890]]

or officers, the principal financial officer or officers and the 
principal accounting officer or officers of the issuer.
    (i) The term exempt security has the meaning set forth in section 
3(a)(12) of the Exchange Act (15 U.S.C. 78c(a)(12)).
    (j) The term individual account plan means a pension plan which 
provides for an individual account for each participant and for benefits 
based solely upon the amount contributed to the participant's account, 
and any income, expenses, gains and losses, and any forfeitures of 
accounts of other participants which may be allocated to such 
participant's account, except that such term does not include a one-
participant retirement plan (within the meaning of section 101(i)(8)(B) 
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1021(i)(8)(B))), nor does it include a pension plan in which 
participation is limited to directors of the issuer.
    (k) The term issuer means an issuer (as defined in section 3(a)(8) 
of the Exchange Act (15 U.S.C. 78c(a)(8))), the securities of which are 
registered under section 12 of the Exchange Act (15 U.S.C. 78l) or that 
is required to file reports under section 15(d) of the Exchange Act (15 
U.S.C. 78o(d)) or that files or has filed a registration statement that 
has not yet become effective under the Securities Act of 1933 (15 U.S.C. 
77a et seq.) and that it has not withdrawn.
    (l) The term pecuniary interest has the meaning set forth in Sec.
240.16a-1(a)(2)(i) of this chapter and the term indirect pecuniary 
interest has the meaning set forth in Sec.240.16a-1(a)(2)(ii) of this 
chapter. Section 240.16a-1(a)(2)(iii) of this chapter also shall apply 
to determine pecuniary interest for purposes of this regulation.

[68 FR 4355, Jan. 28, 2003, as amended at 71 FR 53263, Sept. 8, 2006]



Sec.245.101  Prohibition of insider trading during pension fund 
blackout periods.

    (a) Except to the extent otherwise provided in paragraph (c) of this 
section, it is unlawful under section 306(a)(1) of the Sarbanes-Oxley 
Act of 2002 (15 U.S.C. 7244(a)(1)) for any director or executive officer 
of an issuer of any equity security (other than an exempt security), 
directly or indirectly, to purchase, sell or otherwise acquire or 
transfer any equity security of the issuer (other than an exempt 
security) during any blackout period with respect to such equity 
security, if such director or executive officer acquires or previously 
acquired such equity security in connection with his or her service or 
employment as a director or executive officer.
    (b) For purposes of section 306(a)(1) of the Sarbanes-Oxley Act of 
2002, any sale or other transfer of an equity security of the issuer 
during a blackout period will be treated as a transaction involving an 
equity security ``acquired in connection with service or employment as a 
director or executive officer'' (as defined in Sec.245.100(a)) to the 
extent that the director or executive officer has a pecuniary interest 
(as defined in Sec.245.100(l)) in such equity security, unless the 
director or executive officer establishes by specific identification of 
securities that the transaction did not involve an equity security 
``acquired in connection with service or employment as a director or 
executive officer.'' To establish that the equity security was not so 
acquired, a director or executive officer must identify the source of 
the equity securities and demonstrate that he or she has utilized the 
same specific identification for any purpose related to the transaction 
(such as tax reporting and any applicable disclosure and reporting 
requirements).
    (c) The following transactions are exempt from section 306(a)(1) of 
the Sarbanes-Oxley Act of 2002:
    (1) Any acquisition of equity securities resulting from the 
reinvestment of dividends in, or interest on, equity securities of the 
same issuer if the acquisition is made pursuant to a plan providing for 
the regular reinvestment of dividends or interest and the plan provides 
for broad-based participation, does not discriminate in favor of 
employees of the issuer and operates on substantially the same terms for 
all plan participants;
    (2) Any purchase or sale of equity securities of the issuer pursuant 
to a contract, instruction or written plan entered into by the director 
or executive officer that satisfies the affirmative

[[Page 891]]

defense conditions of Sec.240.10b5-1(c) of this chapter; provided that 
the director or executive officer did not enter into or modify the 
contract, instruction or written plan during the blackout period (as 
defined in Sec.245.100(b)) in question, or while aware of the actual 
or approximate beginning or ending dates of that blackout period 
(whether or not the director or executive officer received notice of the 
blackout period as required by Section 306(a)(6) of the Sarbanes-Oxley 
Act of 2002 (15 U.S.C. 7244(a)(6)));
    (3) Any purchase or sale of equity securities, other than a 
Discretionary Transaction (as defined in Sec.240.16b-3(b)(1) of this 
chapter), pursuant to a Qualified Plan (as defined in Sec.240.16b-
3(b)(4) of this chapter), an Excess Benefit Plan (as defined in Sec.
240.16b-3(b)(2) of this chapter) or a Stock Purchase Plan (as defined in 
Sec.240.16b-3(b)(5) of this chapter) (or, in the case of a foreign 
private issuer, pursuant to an employee benefit plan that either (i) has 
been approved by the taxing authority of a foreign jurisdiction, or (ii) 
is eligible for preferential treatment under the tax laws of a foreign 
jurisdiction because the plan provides for broad-based employee 
participation); provided that a Discretionary Transaction that meets the 
conditions of paragraph (c)(2) of this section also shall be exempt;
    (4) Any grant or award of an option, stock appreciation right or 
other equity compensation pursuant to a plan that, by its terms:
    (i) Permits directors or executive officers to receive grants or 
awards; and
    (ii) Either:
    (A) States the amount and price of securities to be awarded to 
designated directors and executive officers or categories of directors 
and executive officers (though not necessarily to others who may 
participate in the plan) and specifies the timing of awards to directors 
and executive officers; or
    (B) Sets forth a formula that determines the amount, price and 
timing, using objective criteria (such as earnings of the issuer, value 
of the securities, years of service, job classification, and 
compensation levels);
    (5) Any exercise, conversion or termination of a derivative security 
that the director or executive officer did not write or acquire during 
the blackout period (as defined in Sec.245.100(b)) in question, or 
while aware of the actual or approximate beginning or ending dates of 
that blackout period (whether or not the director or executive officer 
received notice of the blackout period as required by Section 306(a)(6) 
of the Sarbanes-Oxley Act of 2002); and either:
    (i) The derivative security, by its terms, may be exercised, 
converted or terminated only on a fixed date, with no discretionary 
provision for earlier exercise, conversion or termination; or
    (ii) The derivative security is exercised, converted or terminated 
by a counterparty and the director or executive officer does not 
exercise any influence on the counterparty with respect to whether or 
when to exercise, convert or terminate the derivative security;
    (6) Any acquisition or disposition of equity securities involving a 
bona fide gift or a transfer by will or the laws of descent and 
distribution;
    (7) Any acquisition or disposition of equity securities pursuant to 
a domestic relations order, as defined in the Internal Revenue Code or 
Title I of the Employment Retirement Income Security Act of 1974, or the 
rules thereunder;
    (8) Any sale or other disposition of equity securities compelled by 
the laws or other requirements of an applicable jurisdiction;
    (9) Any acquisition or disposition of equity securities in 
connection with a merger, acquisition, divestiture or similar 
transaction occurring by operation of law;
    (10) The increase or decrease in the number of equity securities 
held as a result of a stock split or stock dividend applying equally to 
all securities of that class, including a stock dividend in which equity 
securities of a different issuer are distributed; and the acquisition of 
rights, such as shareholder or pre-emptive rights, pursuant to a pro 
rata grant to all holders of the same class of equity securities; and
    (11) Any acquisition or disposition of an asset-backed security, as 
defined in Sec.229.1101 of this chapter.

[70 FR 1623, Jan. 7, 2005]

[[Page 892]]



Sec.245.102  Exceptions to definition of blackout period.

    The term ``blackout period,'' as defined in Sec.245.100(b), does 
not include:
    (a) A regularly scheduled period in which participants and 
beneficiaries may not purchase, sell or otherwise acquire or transfer an 
interest in any equity security of an issuer, if a description of such 
period, including its frequency and duration and the plan transactions 
to be suspended or otherwise affected, is:
    (1) Incorporated into the individual account plan or included in the 
documents or instruments under which the plan operates; and
    (2) Disclosed to an employee before he or she formally enrolls, or 
within 30 days following formal enrollment, as a participant under the 
individual account plan or within 30 days after the adoption of an 
amendment to the plan. For purposes of this paragraph (a)(2), the 
disclosure may be provided in any graphic form that is reasonably 
accessible to the employee; or
    (b) Any trading suspension described in Sec.245.100(b) that is 
imposed in connection with a corporate merger, acquisition, divestiture 
or similar transaction involving the plan or plan sponsor, the principal 
purpose of which is to permit persons affiliated with the acquired or 
divested entity to become participants or beneficiaries, or to cease to 
be participants or beneficiaries, in an individual account plan; 
provided that the persons who become participants or beneficiaries in an 
individual account plan are not able to participate in the same class of 
equity securities after the merger, acquisition, divestiture or similar 
transaction as before the transaction.



Sec.245.103  Issuer right of recovery; right of action by equity 
security owner.

    (a) Recovery of profits. Section 306(a)(2) of the Sarbanes-Oxley Act 
of 2002 (15 U.S.C. 7244(a)(2)) provides that any profit realized by a 
director or executive officer from any purchase, sale or other 
acquisition or transfer of any equity security of an issuer in violation 
of section 306(a)(1) of that Act (15 U.S.C. 7244(a)(1)) will inure to 
and be recoverable by the issuer, regardless of any intention on the 
part of the director or executive officer in entering into the 
transaction.
    (b) Actions to recover profit. Section 306(a)(2) of the Sarbanes-
Oxley Act of 2002 provides that an action to recover profit may be 
instituted at law or in equity in any court of competent jurisdiction by 
the issuer, or by the owner of any equity security of the issuer in the 
name and on behalf of the issuer if the issuer fails or refuses to bring 
such action within 60 days after the date of request, or fails 
diligently to prosecute the action thereafter, except that no such suit 
may be brought more than two years after the date on which such profit 
was realized.
    (c) Measurement of profit. (1) In determining the profit recoverable 
in an action undertaken pursuant to section 306(a)(2) of the Sarbanes-
Oxley Act of 2002 from a transaction that involves a purchase, sale or 
other acquisition or transfer (other than a grant, exercise, conversion 
or termination of a derivative security) in violation of section 
306(a)(1) of that Act of an equity security of an issuer that is 
registered pursuant to section 12(b) or 12(g) of the Exchange Act (15 
U.S.C. 78l(b) or (g)) and listed on a national securities exchange or 
listed in an automated inter-dealer quotation system of a national 
securities association, profit (including any loss avoided) may be 
measured by comparing the difference between the amount paid or received 
for the equity security on the date of the transaction during the 
blackout period and the average market price of the equity security 
calculated over the first three trading days after the ending date of 
the blackout period.
    (2) In determining the profit recoverable in an action undertaken 
pursuant to section 306(a)(2) of the Sarbanes-Oxley Act of 2002 from a 
transaction that is not described in paragraph (c)(1) of this section, 
profit (including any loss avoided) may be measured in a manner that is 
consistent with the objective of identifying the amount of any gain 
realized or loss avoided by a director or executive officer as a result 
of a transaction taking place in violation of section 306(a)(1) of that 
Act during the blackout period as opposed to

[[Page 893]]

taking place outside of such blackout period.
    (3) The terms of this section do not limit in any respect the 
authority of the Commission to seek or determine remedies as the result 
of a transaction taking place in violation of section 306(a)(1) of the 
Sarbanes-Oxley Act.



Sec.245.104  Notice.

    (a) In any case in which a director or executive officer is subject 
to section 306(a)(1) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7244(a)(1)) in connection with a blackout period (as defined in Sec.
245.100(b)) with respect to any equity security, the issuer of the 
equity security must timely notify each director or officer and the 
Commission of the blackout period.
    (b) For purposes of this section:
    (1) The notice must include:
    (i) The reason or reasons for the blackout period;
    (ii) A description of the plan transactions to be suspended during, 
or otherwise affected by, the blackout period;
    (iii) A description of the class of equity securities subject to the 
blackout period;
    (iv) The length of the blackout period by reference to:
    (A) The actual or expected beginning date and ending date of the 
blackout period; or
    (B) The calendar week during which the blackout period is expected 
to begin and the calendar week during which the blackout period is 
expected to end, provided that the notice to directors and executive 
officers describes how, during such week or weeks, a director or 
executive officer may obtain, without charge, information as to whether 
the blackout period has begun or ended; and provided further that the 
notice to the Commission describes how, during the blackout period and 
for a period of two years after the ending date of the blackout period, 
a security holder or other interested person may obtain, without charge, 
the actual beginning and ending dates of the blackout period.
    (C) For purposes of this paragraph (b)(1)(iv), a calendar week means 
a seven-day period beginning on Sunday and ending on Saturday; and
    (v) The name, address and telephone number of the person designated 
by the issuer to respond to inquiries about the blackout period, or, in 
the absence of such a designation, the issuer's human resources director 
or person performing equivalent functions.
    (2) (i) Notice to an affected director or executive officer will be 
considered timely if the notice described in paragraph (b)(1) of this 
section is provided (in graphic form that is reasonably accessible to 
the recipient):
    (A) No later than five business days after the issuer receives the 
notice required by section 101(i)(2)(E) of the Employment Retirement 
Income Security Act of 1974 (29 U.S.C. 1021(i)(2)(E)); or
    (B) If no such notice is received by the issuer, a date that is at 
least 15 calendar days before the actual or expected beginning date of 
the blackout period.
    (ii) Notwithstanding paragraph (b)(2)(i) of this section, the 
requirement to give advance notice will not apply in any case in which 
the inability to provide advance notice of the blackout period is due to 
events that were unforeseeable to, or circumstances that were beyond the 
reasonable control of, the issuer, and the issuer reasonably so 
determines in writing. Determinations described in the preceding 
sentence must be dated and signed by an authorized representative of the 
issuer. In any case in which this exception to the advance notice 
requirement applies, the issuer must provide the notice described in 
paragraph (b)(1) of this section, as well as a copy of the written 
determination, to all affected directors and executive officers as soon 
as reasonably practicable.
    (iii) If there is a subsequent change in the beginning or ending 
dates of the blackout period as provided in the notice to directors and 
executive officers under paragraph (b)(2)(i) of this section, an issuer 
must provide directors and executive officers with an updated notice 
explaining the reasons for the change in the date or dates and 
identifying all material changes in the information contained in the 
prior notice. The updated notice is required to be provided as soon as 
reasonably practicable, unless such notice in advance

[[Page 894]]

of the termination of a blackout period is impracticable.
    (3) Notice to the Commission will be considered timely if:
    (i) The issuer, except as provided in paragraph (b)(3)(ii) of this 
section, files a current report on Form 8-K (Sec.249.308 of this 
chapter) within the time prescribed for filing the report under the 
instructions for the form; or
    (ii) In the case of a foreign private issuer (as defined in Sec.
240.3b-4(c) of this chapter), the issuer includes the information set 
forth in paragraph (b)(1) of this section in the first annual report on 
Form 20-F (Sec.249.220f of this chapter) or 40-F (Sec.249.240f of 
this chapter) required to be filed after the receipt of the notice of a 
blackout period required by 29 CFR 2520.101-3(c) within the time 
prescribed for filing the report under the instructions for the form or 
in an earlier filed report on Form 6-K (Sec.249.306).
    (iii) If there is a subsequent change in the beginning or ending 
dates of the blackout period as provided in the notice to the Commission 
under paragraph (b)(3)(i) of this section, an issuer must file a current 
report on Form 8-K containing the updated beginning or ending dates of 
the blackout period, explaining the reasons for the change in the date 
or dates and identifying all material changes in the information 
contained in the prior report. The updated notice is required to be 
provided as soon as reasonably practicable.



PART 246_CREDIT RISK RETENTION--Table of Contents



           Subpart A_Authority, Purpose, Scope and Definitions

Sec.
246.1 [Reserved]
246.2 Definitions.

                     Subpart B_Credit Risk Retention

246.3 Base risk retention requirement.
246.4 Standard risk retention.
246.5 Revolving pool securitizations.
246.6 Eligible ABCP conduits.
246.7 Commercial mortgage-backed securities.
246.8 Federal National Mortgage Association and Federal Home Loan 
          Mortgage Corporation ABS.
246.9 Open market CLOs.
246.10 Qualified tender option bonds.

                  Subpart C_Transfer of Risk Retention

246.11 Allocation of risk retention to an originator.
246.12 Hedging, transfer and financing prohibitions.

                   Subpart D_Exceptions and Exemptions

246.13 Exemption for qualified residential mortgages.
246.14 Definitions applicable to qualifying commercial loans, commercial 
          real estate loans, and automobile loans.
246.15 Qualifying commercial loans, commercial real estate loans, and 
          automobile loans.
246.16 Underwriting standards for qualifying commercial loans.
246.17 Underwriting standards for qualifying CRE loans.
246.18 Underwriting standards for qualifying automobile loans.
246.19 General exemptions.
246.20 Safe harbor for certain foreign-related transactions.
246.21 Additional exemptions.
246.22 Periodic review of the QRM definition, exempted three-to-four 
          unit residential mortgage loans, and community-focused 
          residential mortgage exemption.

    Authority: 15 U.S.C. 77g, 77j, 77s, 77z-3, 78c, 78m, 78o, 78o-11, 
78w, 78mm.

    Source: 79 FR 77740, Dec. 24, 2014, unless otherwise noted.



           Subpart A_Authority, Purpose, Scope and Definitions



Sec.246.1  Purpose, scope, and authority.

    (a) Authority and purpose. This part (Regulation RR) is issued by 
the Securities and Exchange Commission (``Commission'') jointly with the 
Board of Governors of the Federal Reserve System, the Federal Deposit 
Insurance Corporation, the Office of the Comptroller of the Currency, 
and, in the case of the securitization of any residential mortgage 
asset, together with the Secretary of Housing and Urban Development and 
the Federal Housing Finance Agency, pursuant to Section 15G of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-11). The Commission also 
is issuing this part pursuant to its authority under Sections 7, 10, 
19(a), and 28 of the Securities Act and Sections 3, 13, 15, 23, and 36 
of the Exchange Act. This part requires securitizers to retain an 
economic interest in a portion of the credit risk for any asset that the

[[Page 895]]

securitizer, through the issuance of an asset-backed security, 
transfers, sells, or conveys to a third party. This part specifies the 
permissible types, forms, and amounts of credit risk retention, and 
establishes certain exemptions for securitizations collateralized by 
assets that meet specified underwriting standards or otherwise qualify 
for an exemption.
    (b) The authority of the Commission under this part shall be in 
addition to the authority of the Commission to otherwise enforce the 
federal securities laws, including, without limitation, the antifraud 
provisions of the securities laws.

[79 FR 77766, Dec. 24, 2014]



Sec.246.2  Definitions.

    For purposes of this part, the following definitions apply:
    ABS interest means:
    (1) Any type of interest or obligation issued by an issuing entity, 
whether or not in certificated form, including a security, obligation, 
beneficial interest or residual interest (other than an uncertificated 
regular interest in a REMIC that is held by another REMIC, where both 
REMICs are part of the same structure and a single REMIC in that 
structure issues ABS interests to investors, or a non-economic residual 
interest issued by a REMIC), payments on which are primarily dependent 
on the cash flows of the collateral owned or held by the issuing entity; 
and
    (2) Does not include common or preferred stock, limited liability 
interests, partnership interests, trust certificates, or similar 
interests that:
    (i) Are issued primarily to evidence ownership of the issuing 
entity; and
    (ii) The payments, if any, on which are not primarily dependent on 
the cash flows of the collateral held by the issuing entity; and
    (3) Does not include the right to receive payments for services 
provided by the holder of such right, including servicing, trustee 
services and custodial services.
    Affiliate of, or a person affiliated with, a specified person means 
a person that directly, or indirectly through one or more 
intermediaries, controls, or is controlled by, or is under common 
control with, the person specified.
    Appropriate Federal banking agency has the same meaning as in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    Asset means a self-liquidating financial asset (including but not 
limited to a loan, lease, mortgage, or receivable).
    Asset-backed security has the same meaning as in section 3(a)(79) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(79)).
    Collateral means, with respect to any issuance of ABS interests, the 
assets that provide the cash flow and the servicing assets that support 
such cash flow for the ABS interests irrespective of the legal structure 
of issuance, including security interests in assets or other property of 
the issuing entity, fractional undivided property interests in the 
assets or other property of the issuing entity, or any other property 
interest in or rights to cash flow from such assets and related 
servicing assets. Assets or other property collateralize an issuance of 
ABS interests if the assets or property serve as collateral for such 
issuance.
    Commercial real estate loan has the same meaning as in Sec.246.14.
    Commission means the Securities and Exchange Commission.
    Control including the terms ``controlling,'' ``controlled by'' and 
``under common control with'':
    (1) Means the possession, direct or indirect, of the power to direct 
or cause the direction of the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise.
    (2) Without limiting the foregoing, a person shall be considered to 
control another person if the first person:
    (i) Owns, controls or holds with power to vote 25 percent or more of 
any class of voting securities of the other person; or
    (ii) Controls in any manner the election of a majority of the 
directors, trustees or persons performing similar functions of the other 
person.
    Credit risk means:
    (1) The risk of loss that could result from the failure of the 
borrower in the case of a securitized asset, or the issuing entity in 
the case of an ABS interest in the issuing entity, to make

[[Page 896]]

required payments of principal or interest on the asset or ABS interest 
on a timely basis;
    (2) The risk of loss that could result from bankruptcy, insolvency, 
or a similar proceeding with respect to the borrower or issuing entity, 
as appropriate; or
    (3) The effect that significant changes in the underlying credit 
quality of the asset or ABS interest may have on the market value of the 
asset or ABS interest.
    Creditor has the same meaning as in 15 U.S.C. 1602(g).
    Depositor means:
    (1) The person that receives or purchases and transfers or sells the 
securitized assets to the issuing entity;
    (2) The sponsor, in the case of a securitization transaction where 
there is not an intermediate transfer of the assets from the sponsor to 
the issuing entity; or
    (3) The person that receives or purchases and transfers or sells the 
securitized assets to the issuing entity in the case of a securitization 
transaction where the person transferring or selling the securitized 
assets directly to the issuing entity is itself a trust.
    Eligible horizontal residual interest means, with respect to any 
securitization transaction, an ABS interest in the issuing entity:
    (1) That is an interest in a single class or multiple classes in the 
issuing entity, provided that each interest meets, individually or in 
the aggregate, all of the requirements of this definition;
    (2) With respect to which, on any payment date or allocation date on 
which the issuing entity has insufficient funds to satisfy its 
obligation to pay all contractual interest or principal due, any 
resulting shortfall will reduce amounts payable to the eligible 
horizontal residual interest prior to any reduction in the amounts 
payable to any other ABS interest, whether through loss allocation, 
operation of the priority of payments, or any other governing 
contractual provision (until the amount of such ABS interest is reduced 
to zero); and
    (3) That, with the exception of any non-economic REMIC residual 
interest, has the most subordinated claim to payments of both principal 
and interest by the issuing entity.
    Eligible horizontal cash reserve account means an account meeting 
the requirements of Sec.246.4(b).
    Eligible vertical interest means, with respect to any securitization 
transaction, a single vertical security or an interest in each class of 
ABS interests in the issuing entity issued as part of the securitization 
transaction that constitutes the same proportion of each such class.
    Federal banking agencies means the Office of the Comptroller of the 
Currency, the Board of Governors of the Federal Reserve System, and the 
Federal Deposit Insurance Corporation.
    GAAP means generally accepted accounting principles as used in the 
United States.
    Issuing entity means, with respect to a securitization transaction, 
the trust or other entity:
    (1) That owns or holds the pool of assets to be securitized; and
    (2) In whose name the asset-backed securities are issued.
    Majority-owned affiliate of a person means an entity (other than the 
issuing entity) that, directly or indirectly, majority controls, is 
majority controlled by or is under common majority control with, such 
person. For purposes of this definition, majority control means 
ownership of more than 50 percent of the equity of an entity, or 
ownership of any other controlling financial interest in the entity, as 
determined under GAAP.
    Originator means a person who:
    (1) Through an extension of credit or otherwise, creates an asset 
that collateralizes an asset-backed security; and
    (2) Sells the asset directly or indirectly to a securitizer or 
issuing entity.
    REMIC has the same meaning as in 26 U.S.C. 860D.
    Residential mortgage means:
    (1) A transaction that is a covered transaction as defined in Sec.
1026.43(b) of Regulation Z (12 CFR 1026.43(b)(1));
    (2) Any transaction that is exempt from the definition of ``covered 
transaction'' under Sec.1026.43(a) of Regulation Z (12 CFR 
1026.43(a)); and

[[Page 897]]

    (3) Any other loan secured by a residential structure that contains 
one to four units, whether or not that structure is attached to real 
property, including an individual condominium or cooperative unit and, 
if used as a residence, a mobile home or trailer.
    Retaining sponsor means, with respect to a securitization 
transaction, the sponsor that has retained or caused to be retained an 
economic interest in the credit risk of the securitized assets pursuant 
to subpart B of this part.
    Securitization transaction means a transaction involving the offer 
and sale of asset-backed securities by an issuing entity.
    Securitized asset means an asset that:
    (1) Is transferred, sold, or conveyed to an issuing entity; and
    (2) Collateralizes the ABS interests issued by the issuing entity.
    Securitizer means, with respect to a securitization transaction, 
either:
    (1) The depositor of the asset-backed securities (if the depositor 
is not the sponsor); or
    (2) The sponsor of the asset-backed securities.
    Servicer means any person responsible for the management or 
collection of the securitized assets or making allocations or 
distributions to holders of the ABS interests, but does not include a 
trustee for the issuing entity or the asset-backed securities that makes 
allocations or distributions to holders of the ABS interests if the 
trustee receives such allocations or distributions from a servicer and 
the trustee does not otherwise perform the functions of a servicer.
    Servicing assets means rights or other assets designed to assure the 
servicing or timely distribution of proceeds to ABS interest holders and 
rights or other assets that are related or incidental to purchasing or 
otherwise acquiring and holding the issuing entity's securitized assets. 
Servicing assets include amounts received by the issuing entity as 
proceeds of securitized assets, including proceeds of rights or other 
assets, whether as remittances by obligors or as other recoveries.
    Single vertical security means, with respect to any securitization 
transaction, an ABS interest entitling the sponsor to a specified 
percentage of the amounts paid on each class of ABS interests in the 
issuing entity (other than such single vertical security).
    Sponsor means a person who organizes and initiates a securitization 
transaction by selling or transferring assets, either directly or 
indirectly, including through an affiliate, to the issuing entity.
    State has the same meaning as in Section 3(a)(16) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(16)).
    United States or U.S. means the United States of America, including 
its territories and possessions, any State of the United States, and the 
District of Columbia.
    Wholly-owned affiliate means a person (other than an issuing entity) 
that, directly or indirectly, wholly controls, is wholly controlled by, 
or is wholly under common control with, another person. For purposes of 
this definition, ``wholly controls'' means ownership of 100 percent of 
the equity of an entity.



                     Subpart B_Credit Risk Retention



Sec.246.3  Base risk retention requirement.

    (a) Base risk retention requirement. Except as otherwise provided in 
this part, the sponsor of a securitization transaction (or majority-
owned affiliate of the sponsor) shall retain an economic interest in the 
credit risk of the securitized assets in accordance with any one of 
Sec.Sec.246.4 through 246.10. Credit risk in securitized assets 
required to be retained and held by any person for purposes of 
compliance with this part, whether a sponsor, an originator, an 
originator-seller, or a third-party purchaser, except as otherwise 
provided in this part, may be acquired and held by any of such person's 
majority-owned affiliates (other than an issuing entity).
    (b) Multiple sponsors. If there is more than one sponsor of a 
securitization transaction, it shall be the responsibility of each 
sponsor to ensure that at least one of the sponsors of the 
securitization transaction (or at least one of their majority-owned or 
wholly-owned affiliates, as applicable) retains an economic interest in 
the credit risk of the securitized assets in accordance

[[Page 898]]

with any one of Sec.Sec.246.4, 246.5, 246.8, 246.9, or 246.10.



Sec.246.4  Standard risk retention.

    (a) General requirement. Except as provided in Sec.Sec.246.5 
through 246.10, the sponsor of a securitization transaction must retain 
an eligible vertical interest or eligible horizontal residual interest, 
or any combination thereof, in accordance with the requirements of this 
section.
    (1) If the sponsor retains only an eligible vertical interest as its 
required risk retention, the sponsor must retain an eligible vertical 
interest in a percentage of not less than 5 percent.
    (2) If the sponsor retains only an eligible horizontal residual 
interest as its required risk retention, the amount of the interest must 
equal at least 5 percent of the fair value of all ABS interests in the 
issuing entity issued as a part of the securitization transaction, 
determined using a fair value measurement framework under GAAP.
    (3) If the sponsor retains both an eligible vertical interest and an 
eligible horizontal residual interest as its required risk retention, 
the percentage of the fair value of the eligible horizontal residual 
interest and the percentage of the eligible vertical interest must equal 
at least five.
    (4) The percentage of the eligible vertical interest, eligible 
horizontal residual interest, or combination thereof retained by the 
sponsor must be determined as of the closing date of the securitization 
transaction.
    (b) Option to hold base amount in eligible horizontal cash reserve 
account. In lieu of retaining all or any part of an eligible horizontal 
residual interest under paragraph (a) of this section, the sponsor may, 
at closing of the securitization transaction, cause to be established 
and funded, in cash, an eligible horizontal cash reserve account in the 
amount equal to the fair value of such eligible horizontal residual 
interest or part thereof, provided that the account meets all of the 
following conditions:
    (1) The account is held by the trustee (or person performing similar 
functions) in the name and for the benefit of the issuing entity;
    (2) Amounts in the account are invested only in cash and cash 
equivalents; and
    (3) Until all ABS interests in the issuing entity are paid in full, 
or the issuing entity is dissolved:
    (i) Amounts in the account shall be released only to:
    (A) Satisfy payments on ABS interests in the issuing entity on any 
payment date on which the issuing entity has insufficient funds from any 
source to satisfy an amount due on any ABS interest; or
    (B) Pay critical expenses of the trust unrelated to credit risk on 
any payment date on which the issuing entity has insufficient funds from 
any source to pay such expenses and:
    (1) Such expenses, in the absence of available funds in the eligible 
horizontal cash reserve account, would be paid prior to any payments to 
holders of ABS interests; and
    (2) Such payments are made to parties that are not affiliated with 
the sponsor; and
    (ii) Interest (or other earnings) on investments made in accordance 
with paragraph (b)(2) of this section may be released once received by 
the account.
    (c) Disclosures. A sponsor relying on this section shall provide, or 
cause to be provided, to potential investors, under the caption ``Credit 
Risk Retention'', a reasonable period of time prior to the sale of the 
asset-backed securities in the securitization transaction the following 
disclosures in written form and within the time frames set forth in this 
paragraph (c):
    (1) Horizontal interest. With respect to any eligible horizontal 
residual interest held under paragraph (a) of this section, a sponsor 
must disclose:
    (i) A reasonable period of time prior to the sale of an asset-backed 
security issued in the same offering of ABS interests,
    (A) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS interests are issued, as applicable)) of the eligible horizontal 
residual interest that the sponsor expects to retain at

[[Page 899]]

the closing of the securitization transaction. If the specific prices, 
sizes, or rates of interest of each tranche of the securitization are 
not available, the sponsor must disclose a range of fair values 
(expressed as a percentage of the fair value of all of the ABS interests 
issued in the securitization transaction and dollar amount (or 
corresponding amount in the foreign currency in which the ABS interests 
are issued, as applicable)) of the eligible horizontal residual interest 
that the sponsor expects to retain at the close of the securitization 
transaction based on a range of bona fide estimates or specified prices, 
sizes, or rates of interest of each tranche of the securitization. A 
sponsor disclosing a range of fair values based on a range of bona fide 
estimates or specified prices, sizes or rates of interest of each 
tranche of the securitization must also disclose the method by which it 
determined any range of prices, tranche sizes, or rates of interest.
    (B) A description of the material terms of the eligible horizontal 
residual interest to be retained by the sponsor;
    (C) A description of the valuation methodology used to calculate the 
fair values or range of fair values of all classes of ABS interests, 
including any portion of the eligible horizontal residual interest 
retained by the sponsor;
    (D) All key inputs and assumptions or a comprehensive description of 
such key inputs and assumptions that were used in measuring the 
estimated total fair value or range of fair values of all classes of ABS 
interests, including the eligible horizontal residual interest to be 
retained by the sponsor.
    (E) To the extent applicable to the valuation methodology used, the 
disclosure required in paragraph (c)(1)(i)(D) of this section shall 
include, but should not be limited to, quantitative information about 
each of the following:
    (1) Discount rates;
    (2) Loss given default (recovery);
    (3) Prepayment rates;
    (4) Default rates;
    (5) Lag time between default and recovery; and
    (6) The basis of forward interest rates used.
    (F) The disclosure required in paragraphs (c)(1)(i)(C) and (D) of 
this section shall include, at a minimum, descriptions of all inputs and 
assumptions that either could have a material impact on the fair value 
calculation or would be material to a prospective investor's ability to 
evaluate the sponsor's fair value calculations. To the extent the 
disclosure required in this paragraph (c)(1) includes a description of a 
curve or curves, the description shall include a description of the 
methodology that was used to derive each curve and a description of any 
aspects or features of each curve that could materially impact the fair 
value calculation or the ability of a prospective investor to evaluate 
the sponsor's fair value calculation. To the extent a sponsor uses 
information about the securitized assets in its calculation of fair 
value, such information shall not be as of a date more than 60 days 
prior to the date of first use with investors; provided that for a 
subsequent issuance of ABS interests by the same issuing entity with the 
same sponsor for which the securitization transaction distributes 
amounts to investors on a quarterly or less frequent basis, such 
information shall not be as of a date more than 135 days prior to the 
date of first use with investors; provided further, that the balance or 
value (in accordance with the transaction documents) of the securitized 
assets may be increased or decreased to reflect anticipated additions or 
removals of assets the sponsor makes or expects to make between the cut-
off date or similar date for establishing the composition of the asset 
pool collateralizing such asset-backed security and the closing date of 
the securitization.
    (G) A summary description of the reference data set or other 
historical information used to develop the key inputs and assumptions 
referenced in paragraph (c)(1)(i)(D) of this section, including loss 
given default and default rates;
    (ii) A reasonable time after the closing of the securitization 
transaction:
    (A) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in

[[Page 900]]

the foreign currency in which the ABS are issued, as applicable)) of the 
eligible horizontal residual interest the sponsor retained at the 
closing of the securitization transaction, based on actual sale prices 
and finalized tranche sizes;
    (B) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS are issued, as applicable)) of the eligible horizontal residual 
interest that the sponsor is required to retain under this section; and
    (C) To the extent the valuation methodology or any of the key inputs 
and assumptions that were used in calculating the fair value or range of 
fair values disclosed prior to sale and required under paragraph 
(c)(1)(i) of this section materially differs from the methodology or key 
inputs and assumptions used to calculate the fair value at the time of 
closing, descriptions of those material differences.
    (iii) If the sponsor retains risk through the funding of an eligible 
horizontal cash reserve account:
    (A) The amount to be placed (or that is placed) by the sponsor in 
the eligible horizontal cash reserve account at closing, and the fair 
value (expressed as a percentage of the fair value of all of the ABS 
interests issued in the securitization transaction and dollar amount (or 
corresponding amount in the foreign currency in which the ABS interests 
are issued, as applicable)) of the eligible horizontal residual interest 
that the sponsor is required to fund through the eligible horizontal 
cash reserve account in order for such account, together with other 
retained interests, to satisfy the sponsor's risk retention requirement;
    (B) A description of the material terms of the eligible horizontal 
cash reserve account; and
    (C) The disclosures required in paragraphs (c)(1)(i) and (ii) of 
this section.
    (2) Vertical interest. With respect to any eligible vertical 
interest retained under paragraph (a) of this section, the sponsor must 
disclose:
    (i) A reasonable period of time prior to the sale of an asset-backed 
security issued in the same offering of ABS interests,
    (A) The form of the eligible vertical interest;
    (B) The percentage that the sponsor is required to retain as a 
vertical interest under this section; and
    (C) A description of the material terms of the vertical interest and 
the amount that the sponsor expects to retain at the closing of the 
securitization transaction.
    (ii) A reasonable time after the closing of the securitization 
transaction, the amount of the vertical interest the sponsor retained at 
closing, if that amount is materially different from the amount 
disclosed under paragraph (c)(2)(i) of this section.
    (d) Record maintenance. A sponsor must retain the certifications and 
disclosures required in paragraphs (a) and (c) of this section in its 
records and must provide the disclosure upon request to the Commission 
and its appropriate Federal banking agency, if any, until three years 
after all ABS interests are no longer outstanding.



Sec.246.5  Revolving pool securitizations.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    Revolving pool securitization means an issuing entity that is 
established to issue on multiple issuance dates more than one series, 
class, subclass, or tranche of asset-backed securities that are 
collateralized by a common pool of securitized assets that will change 
in composition over time, and that does not monetize excess interest and 
fees from its securitized assets.
    Seller's interest means an ABS interest or ABS interests:
    (1) Collateralized by the securitized assets and servicing assets 
owned or held by the issuing entity, other than the following that are 
not considered a component of seller's interest:
    (i) Servicing assets that have been allocated as collateral only for 
a specific series in connection with administering the revolving pool 
securitization, such as a principal accumulation or interest reserve 
account; and

[[Page 901]]

    (ii) Assets that are not eligible under the terms of the 
securitization transaction to be included when determining whether the 
revolving pool securitization holds aggregate securitized assets in 
specified proportions to aggregate outstanding investor ABS interests 
issued; and
    (2) That is pari passu with each series of investor ABS interests 
issued, or partially or fully subordinated to one or more series in 
identical or varying amounts, with respect to the allocation of all 
distributions and losses with respect to the securitized assets prior to 
early amortization of the revolving securitization (as specified in the 
securitization transaction documents); and
    (3) That adjusts for fluctuations in the outstanding principal 
balance of the securitized assets in the pool.
    (b) General requirement. A sponsor satisfies the risk retention 
requirements of Sec.246.3 with respect to a securitization transaction 
for which the issuing entity is a revolving pool securitization if the 
sponsor maintains a seller's interest of not less than 5 percent of the 
aggregate unpaid principal balance of all outstanding investor ABS 
interests in the issuing entity.
    (c) Measuring the seller's interest. In measuring the seller's 
interest for purposes of meeting the requirements of paragraph (b) of 
this section:
    (1) The unpaid principal balance of the securitized assets for the 
numerator of the 5 percent ratio shall not include assets of the types 
excluded from the definition of seller's interest in paragraph (a) of 
this section;
    (2) The aggregate unpaid principal balance of outstanding investor 
ABS interests in the denominator of the 5 percent ratio may be reduced 
by the amount of funds held in a segregated principal accumulation 
account for the repayment of outstanding investor ABS interests, if:
    (i) The terms of the securitization transaction documents prevent 
funds in the principal accumulation account from being applied for any 
purpose other than the repayment of the unpaid principal of outstanding 
investor ABS interests; and
    (ii) Funds in that account are invested only in the types of assets 
in which funds held in an eligible horizontal cash reserve account 
pursuant to Sec.246.4 are permitted to be invested;
    (3) If the terms of the securitization transaction documents set 
minimum required seller's interest as a proportion of the unpaid 
principal balance of outstanding investor ABS interests for one or more 
series issued, rather than as a proportion of the aggregate outstanding 
investor ABS interests in all outstanding series combined, the 
percentage of the seller's interest for each such series must, when 
combined with the percentage of any minimum seller's interest set by 
reference to the aggregate outstanding investor ABS interests, equal at 
least 5 percent;
    (4) The 5 percent test must be determined and satisfied at the 
closing of each issuance of ABS interests to investors by the issuing 
entity, and
    (i) At least monthly at a seller's interest measurement date 
specified under the securitization transaction documents, until no ABS 
interest in the issuing entity is held by any person not a wholly-owned 
affiliate of the sponsor; or
    (ii) If the revolving pool securitization fails to meet the 5 
percent test as of any date described in paragraph (c)(4)(i) of this 
section, and the securitization transaction documents specify a cure 
period, the 5 percent test must be determined and satisfied within the 
earlier of the cure period, or one month after the date described in 
paragraph (c)(4)(i).
    (d) Measuring outstanding investor ABS interests. In measuring the 
amount of outstanding investor ABS interests for purposes of this 
section, ABS interests held for the life of such ABS interests by the 
sponsor or its wholly-owned affiliates may be excluded.
    (e) Holding and retention of the seller's interest; legacy trusts. 
(1) Notwithstanding Sec.246.12(a), the seller's interest, and any 
offsetting horizontal retention interest retained pursuant to paragraph 
(g) of this section, must be retained by the sponsor or by one or more 
wholly-owned affiliates of the sponsor, including one or more depositors 
of the revolving pool securitization.

[[Page 902]]

    (2) If one revolving pool securitization issues collateral 
certificates representing a beneficial interest in all or a portion of 
the securitized assets held by that securitization to another revolving 
pool securitization, which in turn issues ABS interests for which the 
collateral certificates are all or a portion of the securitized assets, 
a sponsor may satisfy the requirements of paragraphs (b) and (c) of this 
section by retaining the seller's interest for the assets represented by 
the collateral certificates through either of the revolving pool 
securitizations, so long as both revolving pool securitizations are 
retained at the direction of the same sponsor or its wholly-owned 
affiliates.
    (3) If the sponsor retains the seller's interest associated with the 
collateral certificates at the level of the revolving pool 
securitization that issues those collateral certificates, the proportion 
of the seller's interest required by paragraph (b) of this section 
retained at that level must equal the proportion that the principal 
balance of the securitized assets represented by the collateral 
certificates bears to the principal balance of the securitized assets in 
the revolving pool securitization that issues the ABS interests, as of 
each measurement date required by paragraph (c) of this section.
    (f) Offset for pool-level excess funding account. The 5 percent 
seller's interest required on each measurement date by paragraph (c) of 
this section may be reduced on a dollar-for-dollar basis by the balance, 
as of such date, of an excess funding account in the form of a 
segregated account that:
    (1) Is funded in the event of a failure to meet the minimum seller's 
interest requirements or other requirement to maintain a minimum balance 
of securitized assets under the securitization transaction documents by 
distributions otherwise payable to the holder of the seller's interest;
    (2) Is invested only in the types of assets in which funds held in a 
horizontal cash reserve account pursuant to Sec.246.4 are permitted to 
be invested; and
    (3) In the event of an early amortization, makes payments of amounts 
held in the account to holders of investor ABS interests in the same 
manner as payments to holders of investor ABS interests of amounts 
received on securitized assets.
    (g) Combined seller's interests and horizontal interest retention. 
The 5 percent seller's interest required on each measurement date by 
paragraph (c) of this section may be reduced to a percentage lower than 
5 percent to the extent that, for all series of investor ABS interests 
issued after the applicable effective date of this Sec.246.5, the 
sponsor, or notwithstanding Sec.246.12(a) a wholly-owned affiliate of 
the sponsor, retains, at a minimum, a corresponding percentage of the 
fair value of ABS interests issued in each series, in the form of one or 
more of the horizontal residual interests meeting the requirements of 
paragraphs (h) or (i).
    (h) Residual ABS interests in excess interest and fees. The sponsor 
may take the offset described in paragraph (g) of this section for a 
residual ABS interest in excess interest and fees, whether certificated 
or uncertificated, in a single or multiple classes, subclasses, or 
tranches, that meets, individually or in the aggregate, the requirements 
of this paragraph (h);
    (1) Each series of the revolving pool securitization distinguishes 
between the series' share of the interest and fee cash flows and the 
series' share of the principal repayment cash flows from the securitized 
assets collateralizing the revolving pool securitization, which may 
according to the terms of the securitization transaction documents, 
include not only the series' ratable share of such cash flows but also 
excess cash flows available from other series;
    (2) The residual ABS interest's claim to any part of the series' 
share of the interest and fee cash flows for any interest payment period 
is subordinated to all accrued and payable interest due on the payment 
date to more senior ABS interests in the series for that period, and 
further reduced by the series' share of losses, including defaults on 
principal of the securitized assets collateralizing the revolving pool 
securitization (whether incurred in that period or carried over from 
prior periods) to the extent that such payments would have been included 
in

[[Page 903]]

amounts payable to more senior interests in the series;
    (3) The revolving pool securitization continues to revolve, with one 
or more series, classes, subclasses, or tranches of asset-backed 
securities that are collateralized by a common pool of assets that 
change in composition over time; and
    (4) For purposes of taking the offset described in paragraph (g) of 
this section, the sponsor determines the fair value of the residual ABS 
interest in excess interest and fees, and the fair value of the series 
of outstanding investor ABS interests to which it is subordinated and 
supports using the fair value measurement framework under GAAP, as of:
    (i) The closing of the securitization transaction issuing the 
supported ABS interests; and
    (ii) The seller's interest measurement dates described in paragraph 
(c)(4) of this section, except that for these periodic determinations 
the sponsor must update the fair value of the residual ABS interest in 
excess interest and fees for the numerator of the percentage ratio, but 
may at the sponsor's option continue to use the fair values determined 
in (h)(4)(i) for the outstanding investor ABS interests in the 
denominator.
    (i) Offsetting eligible horizontal residual interest. The sponsor 
may take the offset described in paragraph (g) of this section for ABS 
interests that would meet the definition of eligible horizontal residual 
interests in Sec.246.2 but for the sponsor's simultaneous holding of 
subordinated seller's interests, residual ABS interests in excess 
interests and fees, or a combination of the two, if:
    (1) The sponsor complies with all requirements of paragraphs (b) 
through (e) of this section for its holdings of subordinated seller's 
interest, and paragraph (h) for its holdings of residual ABS interests 
in excess interests and fees, as applicable;
    (2) For purposes of taking the offset described in paragraph (g) of 
this section, the sponsor determines the fair value of the eligible 
horizontal residual interest as a percentage of the fair value of the 
outstanding investor ABS interests in the series supported by the 
eligible horizontal residual interest, determined using the fair value 
measurement framework under GAAP:
    (i) As of the closing of the securitization transaction issuing the 
supported ABS interests; and
    (ii) Without including in the numerator of the percentage ratio any 
fair value based on:
    (A) The subordinated seller's interest or residual ABS interest in 
excess interest and fees;
    (B) the interest payable to the sponsor on the eligible horizontal 
residual interest, if the sponsor is including the value of residual ABS 
interest in excess interest and fees pursuant to paragraph (h) of this 
section in taking the offset in paragraph (g) of this section; and,
    (C) the principal payable to the sponsor on the eligible horizontal 
residual interest, if the sponsor is including the value of the seller's 
interest pursuant to paragraphs (b) through (f) of this section and 
distributions on that seller's interest are available to reduce charge-
offs that would otherwise be allocated to reduce principal payable to 
the offset eligible horizontal residual interest.
    (j) Specified dates. A sponsor using data about the revolving pool 
securitization's collateral, or ABS interests previously issued, to 
determine the closing-date percentage of a seller's interest, residual 
ABS interest in excess interest and fees, or eligible horizontal 
residual interest pursuant to this Sec.246.5 may use such data 
prepared as of specified dates if:
    (1) The sponsor describes the specified dates in the disclosures 
required by paragraph (k) of this section; and
    (2) The dates are no more than 60 days prior to the date of first 
use with investors of disclosures required for the interest by paragraph 
(k) of this section, or for revolving pool securitizations that make 
distributions to investors on a quarterly or less frequent basis, no 
more than 135 days prior to the date of first use with investors of such 
disclosures.
    (k) Disclosure and record maintenance. (1) Disclosure. A sponsor 
relying on this section shall provide, or cause to be provided, to 
potential investors, under the caption ``Credit Risk Retention'' the 
following disclosure in written

[[Page 904]]

form and within the time frames set forth in this paragraph (k):
    (i) A reasonable period of time prior to the sale of an asset-backed 
security, a description of the material terms of the seller's interest, 
and the percentage of the seller's interest that the sponsor expects to 
retain at the closing of the securitization transaction, measured in 
accordance with the requirements of this Sec.246.5, as a percentage of 
the aggregate unpaid principal balance of all outstanding investor ABS 
interests issued, or as a percentage of the aggregate unpaid principal 
balance of outstanding investor ABS interests for one or more series 
issued, as required by the terms of the securitization transaction;
    (ii) A reasonable time after the closing of the securitization 
transaction, the amount of seller's interest the sponsor retained at 
closing, if that amount is materially different from the amount 
disclosed under paragraph (k)(1)(i) of this section; and
    (iii) A description of the material terms of any horizontal residual 
interests offsetting the seller's interest in accordance with paragraphs 
(g), (h), and (i) of this section; and
    (iv) Disclosure of the fair value of those horizontal residual 
interests retained by the sponsor for the series being offered to 
investors and described in the disclosures, as a percentage of the fair 
value of the outstanding investor ABS interests issued, described in the 
same manner and within the same timeframes required for disclosure of 
the fair values of eligible horizontal residual interests specified in 
Sec.246.4(c).
    (2) Adjusted data. Disclosures required by this paragraph (k) to be 
made a reasonable period of time prior to the sale of an asset-backed 
security of the amount of seller's interest, residual ABS interest in 
excess interest and fees, or eligible horizontal residual interest may 
include adjustments to the amount of securitized assets for additions or 
removals the sponsor expects to make before the closing date and 
adjustments to the amount of outstanding investor ABS interests for 
expected increases and decreases of those interests under the control of 
the sponsor.
    (3) Record maintenance. A sponsor must retain the disclosures 
required in paragraph (k)(1) of this section in its records and must 
provide the disclosure upon request to the Commission and its 
appropriate Federal banking agency, if any, until three years after all 
ABS interests are no longer outstanding.
    (l) Early amortization of all outstanding series. A sponsor that 
organizes a revolving pool securitization that relies on this Sec.
246.5 to satisfy the risk retention requirements of Sec.246.3, does 
not violate the requirements of this part if its seller's interest falls 
below the level required by Sec.246. 5 after the revolving pool 
securitization commences early amortization, pursuant to the terms of 
the securitization transaction documents, of all series of outstanding 
investor ABS interests, if:
    (1) The sponsor was in full compliance with the requirements of this 
section on all measurement dates specified in paragraph (c) of this 
section prior to the commencement of early amortization;
    (2) The terms of the seller's interest continue to make it pari 
passu with or subordinate in identical or varying amounts to each series 
of outstanding investor ABS interests issued with respect to the 
allocation of all distributions and losses with respect to the 
securitized assets;
    (3) The terms of any horizontal interest relied upon by the sponsor 
pursuant to paragraph (g) to offset the minimum seller's interest amount 
continue to require the interests to absorb losses in accordance with 
the terms of paragraph (h) or (i) of this section, as applicable; and
    (4) The revolving pool securitization issues no additional ABS 
interests after early amortization is initiated to any person not a 
wholly-owned affiliate of the sponsor, either at the time of issuance or 
during the amortization period.



Sec.246.6  Eligible ABCP conduits.

    (a) Definitions. For purposes of this section, the following 
additional definitions apply:
    100 percent liquidity coverage means an amount equal to the 
outstanding balance of all ABCP issued by the conduit

[[Page 905]]

plus any accrued and unpaid interest without regard to the performance 
of the ABS interests held by the ABCP conduit and without regard to any 
credit enhancement.
    ABCP means asset-backed commercial paper that has a maturity at the 
time of issuance not exceeding 397 days, exclusive of days of grace, or 
any renewal thereof the maturity of which is likewise limited.
    ABCP conduit means an issuing entity with respect to ABCP.
    Eligible ABCP conduit means an ABCP conduit, provided that:
    (1) The ABCP conduit is bankruptcy remote or otherwise isolated for 
insolvency purposes from the sponsor of the ABCP conduit and from any 
intermediate SPV;
    (2) The ABS interests acquired by the ABCP conduit are:
    (i) ABS interests collateralized solely by assets originated by an 
originator-seller and by servicing assets;
    (ii) Special units of beneficial interest (or similar ABS interests) 
in a trust or special purpose vehicle that retains legal title to leased 
property underlying leases originated by an originator-seller that were 
transferred to an intermediate SPV in connection with a securitization 
collateralized solely by such leases and by servicing assets;
    (iii) ABS interests in a revolving pool securitization 
collateralized solely by assets originated by an originator-seller and 
by servicing assets; or
    (iv) ABS interests described in paragraph (2)(i), (ii), or (iii) of 
this definition that are collateralized, in whole or in part, by assets 
acquired by an originator-seller in a business combination that 
qualifies for business combination accounting under GAAP, and, if 
collateralized in part, the remainder of such assets are assets 
described in paragraph (2)(i), (ii), or (iii) of this definition; and
    (v) Acquired by the ABCP conduit in an initial issuance by or on 
behalf of an intermediate SPV:
    (A) Directly from the intermediate SPV,
    (B) From an underwriter of the ABS interests issued by the 
intermediate SPV, or
    (C) From another person who acquired the ABS interests directly from 
the intermediate SPV;
    (3) The ABCP conduit is collateralized solely by ABS interests 
acquired from intermediate SPVs as described in paragraph (2) of this 
definition and servicing assets; and
    (4) A regulated liquidity provider has entered into a legally 
binding commitment to provide 100 percent liquidity coverage (in the 
form of a lending facility, an asset purchase agreement, a repurchase 
agreement, or other similar arrangement) to all the ABCP issued by the 
ABCP conduit by lending to, purchasing ABCP issued by, or purchasing 
assets from, the ABCP conduit in the event that funds are required to 
repay maturing ABCP issued by the ABCP conduit. With respect to the 100 
percent liquidity coverage, in the event that the ABCP conduit is unable 
for any reason to repay maturing ABCP issued by the issuing entity, the 
liquidity provider shall be obligated to pay an amount equal to any 
shortfall, and the total amount that may be due pursuant to the 100 
percent liquidity coverage shall be equal to 100 percent of the amount 
of the ABCP outstanding at any time plus accrued and unpaid interest 
(amounts due pursuant to the required liquidity coverage may not be 
subject to credit performance of the ABS interests held by the ABCP 
conduit or reduced by the amount of credit support provided to the ABCP 
conduit and liquidity support that only funds performing loans or 
receivables or performing ABS interests does not meet the requirements 
of this section).
    Intermediate SPV means a special purpose vehicle that:
    (1) (i) Is a direct or indirect wholly-owned affiliate of the 
originator-seller; or
    (ii) Has nominal equity owned by a trust or corporate service 
provider that specializes in providing independent ownership of special 
purpose vehicles, and such trust or corporate service provider is not 
affiliated with any other transaction parties;
    (2) Is bankruptcy remote or otherwise isolated for insolvency 
purposes from the eligible ABCP conduit and from each originator-seller 
and each majority-owned affiliate in each case

[[Page 906]]

that, directly or indirectly, sells or transfers assets to such 
intermediate SPV;
    (3) Acquires assets from the originator-seller that are originated 
by the originator-seller or acquired by the originator-seller in the 
acquisition of a business that qualifies for business combination 
accounting under GAAP or acquires ABS interests issued by another 
intermediate SPV of the originator-seller that are collateralized solely 
by such assets; and
    (4) Issues ABS interests collateralized solely by such assets, as 
applicable.
    Originator-seller means an entity that originates assets and sells 
or transfers those assets, directly or through a majority-owned 
affiliate, to an intermediate SPV, and includes (except for the purposes 
of identifying the sponsorship and affiliation of an intermediate SPV 
pursuant to this Sec.246.6) any affiliate of the originator-seller 
that, directly or indirectly, majority controls, is majority controlled 
by or is under common majority control with, the originator-seller. For 
purposes of this definition, majority control means ownership of more 
than 50 percent of the equity of an entity, or ownership of any other 
controlling financial interest in the entity, as determined under GAAP.
    Regulated liquidity provider means:
    (1) A depository institution (as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813));
    (2) A bank holding company (as defined in 12 U.S.C. 1841), or a 
subsidiary thereof;
    (3) A savings and loan holding company (as defined in 12 U.S.C. 
1467a), provided all or substantially all of the holding company's 
activities are permissible for a financial holding company under 12 
U.S.C. 1843(k), or a subsidiary thereof; or
    (4) A foreign bank whose home country supervisor (as defined in 
Sec.211.21 of the Federal Reserve Board's Regulation K (12 CFR 
211.21)) has adopted capital standards consistent with the Capital 
Accord of the Basel Committee on Banking Supervision, as amended, and 
that is subject to such standards, or a subsidiary thereof.
    (b) In general. An ABCP conduit sponsor satisfies the risk retention 
requirement of Sec.246.3 with respect to the issuance of ABCP by an 
eligible ABCP conduit in a securitization transaction if, for each ABS 
interest the ABCP conduit acquires from an intermediate SPV:
    (1) An originator-seller of the intermediate SPV retains an economic 
interest in the credit risk of the assets collateralizing the ABS 
interest acquired by the eligible ABCP conduit in the amount and manner 
required under Sec.246.4 or Sec.246.5; and
    (2) The ABCP conduit sponsor:
    (i) Approves each originator-seller permitted to sell or transfer 
assets, directly or indirectly, to an intermediate SPV from which an 
eligible ABCP conduit acquires ABS interests;
    (ii) Approves each intermediate SPV from which an eligible ABCP 
conduit is permitted to acquire ABS interests;
    (iii) Establishes criteria governing the ABS interests, and the 
securitized assets underlying the ABS interests, acquired by the ABCP 
conduit;
    (iv) Administers the ABCP conduit by monitoring the ABS interests 
acquired by the ABCP conduit and the assets supporting those ABS 
interests, arranging for debt placement, compiling monthly reports, and 
ensuring compliance with the ABCP conduit documents and with the ABCP 
conduit's credit and investment policy; and
    (v) Maintains and adheres to policies and procedures for ensuring 
that the requirements in this paragraph (b) of this section have been 
met.
    (c) Originator-seller compliance with risk retention. The use of the 
risk retention option provided in this section by an ABCP conduit 
sponsor does not relieve the originator-seller that sponsors ABS 
interests acquired by an eligible ABCP conduit from such originator-
seller's obligation to comply with its own risk retention obligations 
under this part.
    (d) Disclosures--(1) Periodic disclosures to investors. An ABCP 
conduit sponsor relying upon this section shall provide, or cause to be 
provided, to each purchaser of ABCP, before or contemporaneously with 
the first sale of ABCP to such purchaser and at least monthly

[[Page 907]]

thereafter, to each holder of commercial paper issued by the ABCP 
conduit, in writing, each of the following items of information, which 
shall be as of a date not more than 60 days prior to date of first use 
with investors:
    (i) The name and form of organization of the regulated liquidity 
provider that provides liquidity coverage to the eligible ABCP conduit, 
including a description of the material terms of such liquidity 
coverage, and notice of any failure to fund.
    (ii) With respect to each ABS interest held by the ABCP conduit:
    (A) The asset class or brief description of the underlying 
securitized assets;
    (B) The standard industrial category code (SIC Code) for the 
originator-seller that will retain (or has retained) pursuant to this 
section an interest in the securitization transaction; and
    (C) A description of the percentage amount of risk retention 
pursuant to the rule by the originator-seller, and whether it is in the 
form of an eligible horizontal residual interest, vertical interest, or 
revolving pool securitization seller's interest, as applicable.
    (2) Disclosures to regulators regarding originator-sellers. An ABCP 
conduit sponsor relying upon this section shall provide, or cause to be 
provided, upon request, to the Commission and its appropriate Federal 
banking agency, if any, in writing, all of the information required to 
be provided to investors in paragraph (d)(1) of this section, and the 
name and form of organization of each originator-seller that will retain 
(or has retained) pursuant to this section an interest in the 
securitization transaction.
    (e) Sale or transfer of ABS interests between eligible ABCP 
conduits. At any time, an eligible ABCP conduit that acquired an ABS 
interest in accordance with the requirements set forth in this section 
may transfer, and another eligible ABCP conduit may acquire, such ABS 
interest, if the following conditions are satisfied:
    (1) The sponsors of both eligible ABCP conduits are in compliance 
with this section; and
    (2) The same regulated liquidity provider has entered into one or 
more legally binding commitments to provide 100 percent liquidity 
coverage to all the ABCP issued by both eligible ABCP conduits.
    (f) Duty to comply. (1) The ABCP conduit sponsor shall be 
responsible for compliance with this section.
    (2) An ABCP conduit sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures that are 
reasonably designed to monitor compliance by each originator-seller 
which is satisfying a risk retention obligation in respect of ABS 
interests acquired by an eligible ABCP conduit with the requirements of 
paragraph (b)(1) of this section; and
    (ii) In the event that the ABCP conduit sponsor determines that an 
originator-seller no longer complies with the requirements of paragraph 
(b)(1) of this section, shall:
    (A) Promptly notify the holders of the ABCP, and upon request, the 
Commission and its appropriate Federal banking agency, if any, in 
writing of:
    (1) The name and form of organization of any originator-seller that 
fails to retain risk in accordance with paragraph (b)(1) of this section 
and the amount of ABS interests issued by an intermediate SPV of such 
originator-seller and held by the ABCP conduit;
    (2) The name and form of organization of any originator-seller that 
hedges, directly or indirectly through an intermediate SPV, its risk 
retention in violation of paragraph (b)(1) of this section and the 
amount of ABS interests issued by an intermediate SPV of such 
originator-seller and held by the ABCP conduit; and
    (3) Any remedial actions taken by the ABCP conduit sponsor or other 
party with respect to such ABS interests; and
    (B) Take other appropriate steps pursuant to the requirements of 
paragraphs (b)(2)(iv) and (v) of this section which may include, as 
appropriate, curing any breach of the requirements in this section, or 
removing from the eligible ABCP conduit any ABS interest that does not 
comply with the requirements in this section.

[[Page 908]]



Sec.246.7  Commercial mortgage-backed securities.

    (a) Definitions. For purposes of this section, the following 
definition shall apply:
    Special servicer means, with respect to any securitization of 
commercial real estate loans, any servicer that, upon the occurrence of 
one or more specified conditions in the servicing agreement, has the 
right to service one or more assets in the transaction.
    (b) Third-party purchaser. A sponsor may satisfy some or all of its 
risk retention requirements under Sec.246.3 with respect to a 
securitization transaction if a third party (or any majority-owned 
affiliate thereof) purchases and holds for its own account an eligible 
horizontal residual interest in the issuing entity in the same form, 
amount, and manner as would be held by the sponsor under Sec.246.4 and 
all of the following conditions are met:
    (1) Number of third-party purchasers. At any time, there are no more 
than two third-party purchasers of an eligible horizontal residual 
interest. If there are two third-party purchasers, each third-party 
purchaser's interest must be pari passu with the other third-party 
purchaser's interest.
    (2) Composition of collateral. The securitization transaction is 
collateralized solely by commercial real estate loans and servicing 
assets.
    (3) Source of funds. (i) Each third-party purchaser pays for the 
eligible horizontal residual interest in cash at the closing of the 
securitization transaction.
    (ii) No third-party purchaser obtains financing, directly or 
indirectly, for the purchase of such interest from any other person that 
is a party to, or an affiliate of a party to, the securitization 
transaction (including, but not limited to, the sponsor, depositor, or 
servicer other than a special servicer affiliated with the third-party 
purchaser), other than a person that is a party to the transaction 
solely by reason of being an investor.
    (4) Third-party review. Each third-party purchaser conducts an 
independent review of the credit risk of each securitized asset prior to 
the sale of the asset-backed securities in the securitization 
transaction that includes, at a minimum, a review of the underwriting 
standards, collateral, and expected cash flows of each commercial real 
estate loan that is collateral for the asset-backed securities.
    (5) Affiliation and control rights. (i) Except as provided in 
paragraph (b)(5)(ii) of this section, no third-party purchaser is 
affiliated with any party to the securitization transaction (including, 
but not limited to, the sponsor, depositor, or servicer) other than 
investors in the securitization transaction.
    (ii) Notwithstanding paragraph (b)(5)(i) of this section, a third-
party purchaser may be affiliated with:
    (A) The special servicer for the securitization transaction; or
    (B) One or more originators of the securitized assets, as long as 
the assets originated by the affiliated originator or originators 
collectively comprise less than 10 percent of the unpaid principal 
balance of the securitized assets included in the securitization 
transaction at the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction.
    (6) Operating Advisor. The underlying securitization transaction 
documents shall provide for the following:
    (i) The appointment of an operating advisor (the Operating Advisor) 
that:
    (A) Is not affiliated with other parties to the securitization 
transaction;
    (B) Does not directly or indirectly have any financial interest in 
the securitization transaction other than in fees from its role as 
Operating Advisor; and
    (C) Is required to act in the best interest of, and for the benefit 
of, investors as a collective whole;
    (ii) Standards with respect to the Operating Advisor's experience, 
expertise and financial strength to fulfill its duties and 
responsibilities under the applicable transaction documents over the 
life of the securitization transaction;
    (iii) The terms of the Operating Advisor's compensation with respect 
to the securitization transaction;
    (iv) When the eligible horizontal residual interest has been reduced 
by principal payments, realized losses, and

[[Page 909]]

appraisal reduction amounts (which reduction amounts are determined in 
accordance with the applicable transaction documents) to a principal 
balance of 25 percent or less of its initial principal balance, the 
special servicer for the securitized assets must consult with the 
Operating Advisor in connection with, and prior to, any material 
decision in connection with its servicing of the securitized assets, 
including, without limitation:
    (A) Any material modification of, or waiver with respect to, any 
provision of a loan agreement (including a mortgage, deed of trust, or 
other security agreement);
    (B) Foreclosure upon or comparable conversion of the ownership of a 
property; or
    (C) Any acquisition of a property.
    (v) The Operating Advisor shall have adequate and timely access to 
information and reports necessary to fulfill its duties under the 
transaction documents, including all reports made available to holders 
of ABS interests and third-party purchasers, and shall be responsible 
for:
    (A) Reviewing the actions of the special servicer;
    (B) Reviewing all reports provided by the special servicer to the 
issuing entity or any holder of ABS interests;
    (C) Reviewing for accuracy and consistency with the transaction 
documents calculations made by the special servicer; and
    (D) Issuing a report to investors (including any third-party 
purchasers) and the issuing entity on a periodic basis concerning:
    (1) Whether the Operating Advisor believes, in its sole discretion 
exercised in good faith, that the special servicer is operating in 
compliance with any standard required of the special servicer in the 
applicable transaction documents; and
    (2) Which, if any, standards the Operating Advisor believes, in its 
sole discretion exercised in good faith, the special servicer has failed 
to comply.
    (vi)(A) The Operating Advisor shall have the authority to recommend 
that the special servicer be replaced by a successor special servicer if 
the Operating Advisor determines, in its sole discretion exercised in 
good faith, that:
    (1) The special servicer has failed to comply with a standard 
required of the special servicer in the applicable transaction 
documents; and
    (2) Such replacement would be in the best interest of the investors 
as a collective whole; and
    (B) If a recommendation described in paragraph (b)(6)(vi)(A) of this 
section is made, the special servicer shall be replaced upon the 
affirmative vote of a majority of the outstanding principal balance of 
all ABS interests voting on the matter, with a minimum of a quorum of 
ABS interests voting on the matter. For purposes of such vote, the 
applicable transaction documents shall specify the quorum and may not 
specify a quorum of more than the holders of 20 percent of the 
outstanding principal balance of all ABS interests in the issuing 
entity, with such quorum including at least three ABS interest holders 
that are not affiliated with each other.
    (7) Disclosures. The sponsor provides, or causes to be provided, to 
potential investors a reasonable period of time prior to the sale of the 
asset-backed securities as part of the securitization transaction and, 
upon request, to the Commission and its appropriate Federal banking 
agency, if any, the following disclosure in written form under the 
caption ``Credit Risk Retention'':
    (i) The name and form of organization of each initial third-party 
purchaser that acquired an eligible horizontal residual interest at the 
closing of a securitization transaction;
    (ii) A description of each initial third-party purchaser's 
experience in investing in commercial mortgage-backed securities;
    (iii) Any other information regarding each initial third-party 
purchaser or each initial third-party purchaser's retention of the 
eligible horizontal residual interest that is material to investors in 
light of the circumstances of the particular securitization transaction;
    (iv) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS

[[Page 910]]

interests are issued, as applicable)) of the eligible horizontal 
residual interest that will be retained (or was retained) by each 
initial third-party purchaser, as well as the amount of the purchase 
price paid by each initial third-party purchaser for such interest;
    (v) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS interests are issued, as applicable)) of the eligible horizontal 
residual interest in the securitization transaction that the sponsor 
would have retained pursuant to Sec.246.4 if the sponsor had relied on 
retaining an eligible horizontal residual interest in that section to 
meet the requirements of Sec.246.3 with respect to the transaction;
    (vi) A description of the material terms of the eligible horizontal 
residual interest retained by each initial third-party purchaser, 
including the same information as is required to be disclosed by 
sponsors retaining horizontal interests pursuant to Sec.246.4;
    (vii) The material terms of the applicable transaction documents 
with respect to the Operating Advisor, including without limitation:
    (A) The name and form of organization of the Operating Advisor;
    (B) A description of any material conflict of interest or material 
potential conflict of interest between the Operating Advisor and any 
other party to the transaction;
    (C) The standards required by paragraph (b)(6)(ii) of this section 
and a description of how the Operating Advisor satisfies each of the 
standards; and
    (D) The terms of the Operating Advisor's compensation under 
paragraph (b)(6)(iii) of this section; and
    (viii) The representations and warranties concerning the securitized 
assets, a schedule of any securitized assets that are determined not to 
comply with such representations and warranties, and what factors were 
used to make the determination that such securitized assets should be 
included in the pool notwithstanding that the securitized assets did not 
comply with such representations and warranties, such as compensating 
factors or a determination that the exceptions were not material.
    (8) Hedging, transfer and pledging--(i) General rule. Except as set 
forth in paragraph (b)(8)(ii) of this section, each third-party 
purchaser and its affiliates must comply with the hedging and other 
restrictions in Sec.246.12 as if it were the retaining sponsor with 
respect to the securitization transaction and had acquired the eligible 
horizontal residual interest pursuant to Sec.246.4; provided that, the 
hedging and other restrictions in Sec.246.12 shall not apply on or 
after the date that each CRE loan (as defined in Sec.246.14) that 
serves as collateral for outstanding ABS interests has been defeased. 
For purposes of this section, a loan is deemed to be defeased if:
    (A) cash or cash equivalents of the types permitted for an eligible 
horizontal cash reserve account pursuant to Sec.246.4 whose maturity 
corresponds to the remaining debt service obligations, have been pledged 
to the issuing entity as collateral for the loan and are in such amounts 
and payable at such times as necessary to timely generate cash 
sufficient to make all remaining debt service payments due on such loan; 
and
    (B) the issuing entity has an obligation to release its lien on the 
loan.
    (ii) Exceptions--(A) Transfer by initial third-party purchaser or 
sponsor. An initial third-party purchaser that acquired an eligible 
horizontal residual interest at the closing of a securitization 
transaction in accordance with this section, or a sponsor that acquired 
an eligible horizontal residual interest at the closing of a 
securitization transaction in accordance with this section, may, on or 
after the date that is five years after the date of the closing of the 
securitization transaction, transfer that interest to a subsequent 
third-party purchaser that complies with paragraph (b)(8)(ii)(C) of this 
section. The initial third-party purchaser shall provide the sponsor 
with complete identifying information for the subsequent third-party 
purchaser.
    (B) Transfer by subsequent third-party purchaser. At any time, a 
subsequent third-party purchaser that acquired an eligible horizontal 
residual interest

[[Page 911]]

pursuant to this section may transfer its interest to a different third-
party purchaser that complies with paragraph (b)(8)(ii)(C) of this 
section. The transferring third-party purchaser shall provide the 
sponsor with complete identifying information for the acquiring third-
party purchaser.
    (C) Requirements applicable to subsequent third-party purchasers. A 
subsequent third-party purchaser is subject to all of the requirements 
of paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section 
applicable to third-party purchasers, provided that obligations under 
paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section that 
apply to initial third-party purchasers at or before the time of closing 
of the securitization transaction shall apply to successor third-party 
purchasers at or before the time of the transfer of the eligible 
horizontal residual interest to the successor third-party purchaser.
    (c) Duty to comply. (1) The retaining sponsor shall be responsible 
for compliance with this section by itself and for compliance by each 
initial or subsequent third-party purchaser that acquired an eligible 
horizontal residual interest in the securitization transaction.
    (2) A sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures to monitor 
each third-party purchaser's compliance with the requirements of 
paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section; and
    (ii) In the event that the sponsor determines that a third-party 
purchaser no longer complies with one or more of the requirements of 
paragraphs (b)(1), (b)(3) through (5), or (b)(8) of this section, shall 
promptly notify, or cause to be notified, the holders of the ABS 
interests issued in the securitization transaction of such noncompliance 
by such third-party purchaser.



Sec.246.8  Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation ABS.

    (a) In general. A sponsor satisfies its risk retention requirement 
under this part if the sponsor fully guarantees the timely payment of 
principal and interest on all ABS interests issued by the issuing entity 
in the securitization transaction and is:
    (1) The Federal National Mortgage Association or the Federal Home 
Loan Mortgage Corporation operating under the conservatorship or 
receivership of the Federal Housing Finance Agency pursuant to section 
1367 of the Federal Housing Enterprises Financial Safety and Soundness 
Act of 1992 (12 U.S.C. 4617) with capital support from the United 
States; or
    (2) Any limited-life regulated entity succeeding to the charter of 
either the Federal National Mortgage Association or the Federal Home 
Loan Mortgage Corporation pursuant to section 1367(i) of the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992 (12 
U.S.C. 4617(i)), provided that the entity is operating with capital 
support from the United States.
    (b) Certain provisions not applicable. The provisions of Sec.
246.12(b), (c), and (d) shall not apply to a sponsor described in 
paragraph (a)(1) or (2) of this section, its affiliates, or the issuing 
entity with respect to a securitization transaction for which the 
sponsor has retained credit risk in accordance with the requirements of 
this section.
    (c) Disclosure. A sponsor relying on this section shall provide to 
investors, in written form under the caption ``Credit Risk Retention'' 
and, upon request, to the Federal Housing Finance Agency and the 
Commission, a description of the manner in which it has met the credit 
risk retention requirements of this part.



Sec.246.9  Open market CLOs.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    CLO means a special purpose entity that:
    (i) Issues debt and equity interests, and
    (ii) Whose assets consist primarily of loans that are securitized 
assets and servicing assets.
    CLO-eligible loan tranche means a term loan of a syndicated facility 
that meets the criteria set forth in paragraph (c) of this section.
    CLO manager means an entity that manages a CLO, which entity is 
registered as an investment adviser under

[[Page 912]]

the Investment Advisers Act of 1940, as amended (15 U.S.C. 80b-1 et 
seq.), or is an affiliate of such a registered investment adviser and 
itself is managed by such registered investment adviser.
    Commercial borrower means an obligor under a corporate credit 
obligation (including a loan).
    Initial loan syndication transaction means a transaction in which a 
loan is syndicated to a group of lenders.
    Lead arranger means, with respect to a CLO-eligible loan tranche, an 
institution that:
    (i) Is active in the origination, structuring and syndication of 
commercial loan transactions (as defined in Sec.246.14) and has played 
a primary role in the structuring, underwriting and distribution on the 
primary market of the CLO-eligible loan tranche.
    (ii) Has taken an allocation of the funded portion of the syndicated 
credit facility under the terms of the transaction that includes the 
CLO-eligible loan tranche of at least 20 percent of the aggregate 
principal balance at origination, and no other member (or members 
affiliated with each other) of the syndication group that funded at 
origination has taken a greater allocation; and
    (iii) Is identified in the applicable agreement governing the CLO-
eligible loan tranche; represents therein to the holders of the CLO-
eligible loan tranche and to any holders of participation interests in 
such CLO-eligible loan tranche that such lead arranger satisfies the 
requirements of paragraph (i) of this definition and, at the time of 
initial funding of the CLO-eligible tranche, will satisfy the 
requirements of paragraph (ii) of this definition; further represents 
therein (solely for the purpose of assisting such holders to determine 
the eligibility of such CLO-eligible loan tranche to be held by an open 
market CLO) that in the reasonable judgment of such lead arranger, the 
terms of such CLO-eligible loan tranche are consistent with the 
requirements of paragraphs (c)(2) and (3) of this section; and covenants 
therein to such holders that such lead arranger will fulfill the 
requirements of paragraph (c)(1) of this section.
    Open market CLO means a CLO:
    (i) Whose assets consist of senior, secured syndicated loans 
acquired by such CLO directly from the sellers thereof in open market 
transactions and of servicing assets,
    (ii) That is managed by a CLO manager, and
    (iii) That holds less than 50 percent of its assets, by aggregate 
outstanding principal amount, in loans syndicated by lead arrangers that 
are affiliates of the CLO or the CLO manager or originated by 
originators that are affiliates of the CLO or the CLO manager.
    Open market transaction means:
    (i) Either an initial loan syndication transaction or a secondary 
market transaction in which a seller offers senior, secured syndicated 
loans to prospective purchasers in the loan market on market terms on an 
arm's length basis, which prospective purchasers include, but are not 
limited to, entities that are not affiliated with the seller, or
    (ii) A reverse inquiry from a prospective purchaser of a senior, 
secured syndicated loan through a dealer in the loan market to purchase 
a senior, secured syndicated loan to be sourced by the dealer in the 
loan market.
    Secondary market transaction means a purchase of a senior, secured 
syndicated loan not in connection with an initial loan syndication 
transaction but in the secondary market.
    Senior, secured syndicated loan means a loan made to a commercial 
borrower that:
    (i) Is not subordinate in right of payment to any other obligation 
for borrowed money of the commercial borrower,
    (ii) Is secured by a valid first priority security interest or lien 
in or on specified collateral securing the commercial borrower's 
obligations under the loan, and
    (iii) The value of the collateral subject to such first priority 
security interest or lien, together with other attributes of the obligor 
(including, without limitation, its general financial condition, ability 
to generate cash flow available for debt service and other demands for 
that cash flow), is adequate (in the commercially reasonable judgment of 
the CLO manager exercised at the time of investment) to repay the

[[Page 913]]

loan and to repay all other indebtedness of equal seniority secured by 
such first priority security interest or lien in or on the same 
collateral, and the CLO manager certifies, on or prior to each date that 
it acquires a loan constituting part of a new CLO-eligible tranche, that 
it has policies and procedures to evaluate the likelihood of repayment 
of loans acquired by the CLO and it has followed such policies and 
procedures in evaluating each CLO-eligible loan tranche.
    (b) In general. A sponsor satisfies the risk retention requirements 
of Sec.246.3 with respect to an open market CLO transaction if:
    (1) The open market CLO does not acquire or hold any assets other 
than CLO-eligible loan tranches that meet the requirements of paragraph 
(c) of this section and servicing assets;
    (2) The governing documents of such open market CLO require that, at 
all times, the assets of the open market CLO consist of senior, secured 
syndicated loans that are CLO-eligible loan tranches and servicing 
assets;
    (3) The open market CLO does not invest in ABS interests or in 
credit derivatives other than hedging transactions that are servicing 
assets to hedge risks of the open market CLO;
    (4) All purchases of CLO-eligible loan tranches and other assets by 
the open market CLO issuing entity or through a warehouse facility used 
to accumulate the loans prior to the issuance of the CLO's ABS interests 
are made in open market transactions on an arms-length basis;
    (5) The CLO manager of the open market CLO is not entitled to 
receive any management fee or gain on sale at the time the open market 
CLO issues its ABS interests.
    (c) CLO-eligible loan tranche. To qualify as a CLO-eligible loan 
tranche, a term loan of a syndicated credit facility to a commercial 
borrower must have the following features:
    (1) A minimum of 5 percent of the face amount of the CLO-eligible 
loan tranche is retained by the lead arranger thereof until the earliest 
of the repayment, maturity, involuntary and unscheduled acceleration, 
payment default, or bankruptcy default of such CLO-eligible loan 
tranche, provided that such lead arranger complies with limitations on 
hedging, transferring and pledging in Sec.246.12 with respect to the 
interest retained by the lead arranger.
    (2) Lender voting rights within the credit agreement and any 
intercreditor or other applicable agreements governing such CLO-eligible 
loan tranche are defined so as to give holders of the CLO-eligible loan 
tranche consent rights with respect to, at minimum, any material waivers 
and amendments of such applicable documents, including but not limited 
to, adverse changes to the calculation or payments of amounts due to the 
holders of the CLO-eligible tranche, alterations to pro rata provisions, 
changes to voting provisions, and waivers of conditions precedent; and
    (3) The pro rata provisions, voting provisions, and similar 
provisions applicable to the security associated with such CLO-eligible 
loan tranches under the CLO credit agreement and any intercreditor or 
other applicable agreements governing such CLO-eligible loan tranches 
are not materially less advantageous to the holder(s) of such CLO-
eligible tranche than the terms of other tranches of comparable 
seniority in the broader syndicated credit facility.
    (d) Disclosures. A sponsor relying on this section shall provide, or 
cause to be provided, to potential investors a reasonable period of time 
prior to the sale of the asset-backed securities in the securitization 
transaction and at least annually with respect to the information 
required by paragraph (d)(1) of this section and, upon request, to the 
Commission and its appropriate Federal banking agency, if any, the 
following disclosure in written form under the caption ``Credit Risk 
Retention'':
    (1) Open market CLOs. A complete list of every asset held by an open 
market CLO (or before the CLO's closing, in a warehouse facility in 
anticipation of transfer into the CLO at closing), including the 
following information:
    (i) The full legal name, Standard Industrial Classification (SIC) 
category code, and legal entity identifier (LEI)

[[Page 914]]

issued by a utility endorsed or otherwise governed by the Global LEI 
Regulatory Oversight Committee or the Global LEI Foundation (if an LEI 
has been obtained by the obligor) of the obligor of the loan or asset;
    (ii) The full name of the specific loan tranche held by the CLO;
    (iii) The face amount of the entire loan tranche held by the CLO, 
and the face amount of the portion thereof held by the CLO;
    (iv) The price at which the loan tranche was acquired by the CLO; 
and
    (v) For each loan tranche, the full legal name of the lead arranger 
subject to the sales and hedging restrictions of Sec.246.12; and
    (2) CLO manager. The full legal name and form of organization of the 
CLO manager.



Sec.246.10  Qualified tender option bonds.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Municipal security or municipal securities shall have the same 
meaning as the term ``municipal securities'' in Section 3(a)(29) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29)) and any rules 
promulgated pursuant to such section.
    Qualified tender option bond entity means an issuing entity with 
respect to tender option bonds for which each of the following applies:
    (i) Such entity is collateralized solely by servicing assets and by 
municipal securities that have the same municipal issuer and the same 
underlying obligor or source of payment (determined without regard to 
any third-party credit enhancement), and such municipal securities are 
not subject to substitution.
    (ii) Such entity issues no securities other than:
    (A) A single class of tender option bonds with a preferred variable 
return payable out of capital that meets the requirements of paragraph 
(b) of this section, and
    (B) One or more residual equity interests that, in the aggregate, 
are entitled to all remaining income of the issuing entity.
    (C) The types of securities referred to in paragraphs (ii)(A) and 
(B) of this definition must constitute asset-backed securities.
    (iii) The municipal securities held as assets by such entity are 
issued in compliance with Section 103 of the Internal Revenue Code of 
1986, as amended (the ``IRS Code'', 26 U.S.C. 103), such that the 
interest payments made on those securities are excludable from the gross 
income of the owners under Section 103 of the IRS Code.
    (iv) The terms of all of the securities issued by the entity are 
structured so that all holders of such securities who are eligible to 
exclude interest received on such securities will be able to exclude 
that interest from gross income pursuant to Section 103 of the IRS Code 
or as ``exempt-interest dividends'' pursuant to Section 852(b)(5) of the 
IRS Code (26 U.S.C. 852(b)(5)) in the case of regulated investment 
companies under the Investment Company Act of 1940, as amended.
    (v) Such entity has a legally binding commitment from a regulated 
liquidity provider as defined in Sec.246.6(a), to provide a 100 
percent guarantee or liquidity coverage with respect to all of the 
issuing entity's outstanding tender option bonds.
    (vi) Such entity qualifies for monthly closing elections pursuant to 
IRS Revenue Procedure 2003-84, as amended or supplemented from time to 
time.
    Tender option bond means a security which has features which entitle 
the holders to tender such bonds to the issuing entity for purchase at 
any time upon no more than 397 days' notice, for a purchase price equal 
to the approximate amortized cost of the security, plus accrued 
interest, if any, at the time of tender.
    (b) Risk retention options. Notwithstanding anything in this 
section, the sponsor with respect to an issuance of tender option bonds 
may retain an eligible vertical interest or eligible horizontal residual 
interest, or any combination thereof, in accordance with the 
requirements of Sec.246.4. In order to satisfy its risk retention 
requirements under this section, the sponsor with respect to an issuance 
of tender option bonds by a qualified tender option bond entity may 
retain:
    (1) An eligible vertical interest or an eligible horizontal residual 
interest, or

[[Page 915]]

any combination thereof, in accordance with the requirements of Sec.
246.4; or
    (2) An interest that meets the requirements set forth in paragraph 
(c) of this section; or
    (3) A municipal security that meets the requirements set forth in 
paragraph (d) of this section; or
    (4) Any combination of interests and securities described in 
paragraphs (b)(1) through (b)(3) of this section such that the sum of 
the percentages held in each form equals at least five.
    (c) Tender option termination event. The sponsor with respect to an 
issuance of tender option bonds by a qualified tender option bond entity 
may retain an interest that upon issuance meets the requirements of an 
eligible horizontal residual interest but that upon the occurrence of a 
``tender option termination event'' as defined in Section 4.01(5) of IRS 
Revenue Procedure 2003-84, as amended or supplemented from time to time 
will meet the requirements of an eligible vertical interest.
    (d) Retention of a municipal security outside of the qualified 
tender option bond entity. The sponsor with respect to an issuance of 
tender option bonds by a qualified tender option bond entity may satisfy 
its risk retention requirements under this Section by holding municipal 
securities from the same issuance of municipal securities deposited in 
the qualified tender option bond entity, the face value of which 
retained municipal securities is equal to 5 percent of the face value of 
the municipal securities deposited in the qualified tender option bond 
entity.
    (e) Disclosures. The sponsor shall provide, or cause to be provided, 
to potential investors a reasonable period of time prior to the sale of 
the asset-backed securities as part of the securitization transaction 
and, upon request, to the Commission and its appropriate Federal banking 
agency, if any, the following disclosure in written form under the 
caption ``Credit Risk Retention'':
    (1) The name and form of organization of the qualified tender option 
bond entity;
    (2) A description of the form and subordination features of such 
retained interest in accordance with the disclosure obligations in Sec.
246.4(c);
    (3) To the extent any portion of the retained interest is claimed by 
the sponsor as an eligible horizontal residual interest (including any 
interest held in compliance with Sec.246.10(c)), the fair value of 
that interest (expressed as a percentage of the fair value of all of the 
ABS interests issued in the securitization transaction and as a dollar 
amount);
    (4) To the extent any portion of the retained interest is claimed by 
the sponsor as an eligible vertical interest (including any interest 
held in compliance with Sec.246.10(c)), the percentage of ABS 
interests issued represented by the eligible vertical interest; and
    (5) To the extent any portion of the retained interest claimed by 
the sponsor is a municipal security held outside of the qualified tender 
option bond entity, the name and form of organization of the qualified 
tender option bond entity, the identity of the issuer of the municipal 
securities, the face value of the municipal securities deposited into 
the qualified tender option bond entity, and the face value of the 
municipal securities retained by the sponsor or its majority-owned 
affiliates and subject to the transfer and hedging prohibition.
    (f) Prohibitions on Hedging and Transfer. The prohibitions on 
transfer and hedging set forth in Sec.246.12, apply to any interests 
or municipal securities retained by the sponsor with respect to an 
issuance of tender option bonds by a qualified tender option bond entity 
pursuant to of this section.



                  Subpart C_Transfer of Risk Retention



Sec.246.11  Allocation of risk retention to an originator.

    (a) In general. A sponsor choosing to retain an eligible vertical 
interest or an eligible horizontal residual interest (including an 
eligible horizontal cash reserve account), or combination thereof under 
Sec.246.4, with respect to a securitization transaction may offset the 
amount of its risk retention requirements under Sec.246.4 by the 
amount of the eligible interests, respectively,

[[Page 916]]

acquired by an originator of one or more of the securitized assets if:
    (1) At the closing of the securitization transaction:
    (i) The originator acquires the eligible interest from the sponsor 
and retains such interest in the same manner and proportion (as between 
horizontal and vertical interests) as the sponsor under Sec.246.4, as 
such interest was held prior to the acquisition by the originator;
    (ii) The ratio of the percentage of eligible interests acquired and 
retained by the originator to the percentage of eligible interests 
otherwise required to be retained by the sponsor pursuant to Sec.
246.4, does not exceed the ratio of:
    (A) The unpaid principal balance of all the securitized assets 
originated by the originator; to
    (B) The unpaid principal balance of all the securitized assets in 
the securitization transaction;
    (iii) The originator acquires and retains at least 20 percent of the 
aggregate risk retention amount otherwise required to be retained by the 
sponsor pursuant to Sec.246.4; and
    (iv) The originator purchases the eligible interests from the 
sponsor at a price that is equal, on a dollar-for-dollar basis, to the 
amount by which the sponsor's required risk retention is reduced in 
accordance with this section, by payment to the sponsor in the form of:
    (A) Cash; or
    (B) A reduction in the price received by the originator from the 
sponsor or depositor for the assets sold by the originator to the 
sponsor or depositor for inclusion in the pool of securitized assets.
    (2) Disclosures. In addition to the disclosures required pursuant to 
Sec.246.4(c), the sponsor provides, or causes to be provided, to 
potential investors a reasonable period of time prior to the sale of the 
asset-backed securities as part of the securitization transaction and, 
upon request, to the Commission and its appropriate Federal banking 
agency, if any, in written form under the caption ``Credit Risk 
Retention'', the name and form of organization of any originator that 
will acquire and retain (or has acquired and retained) an interest in 
the transaction pursuant to this section, including a description of the 
form and amount (expressed as a percentage and dollar amount (or 
corresponding amount in the foreign currency in which the ABS interests 
are issued, as applicable)) and nature (e.g., senior or subordinated) of 
the interest, as well as the method of payment for such interest under 
paragraph (a)(1)(iv) of this section.
    (3) Hedging, transferring and pledging. The originator and each of 
its affiliates complies with the hedging and other restrictions in Sec.
246.12 with respect to the interests retained by the originator pursuant 
to this section as if it were the retaining sponsor and was required to 
retain the interest under subpart B of this part.
    (b) Duty to comply. (1) The retaining sponsor shall be responsible 
for compliance with this section.
    (2) A retaining sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures that are 
reasonably designed to monitor the compliance by each originator that is 
allocated a portion of the sponsor's risk retention obligations with the 
requirements in paragraphs (a)(1) and (3) of this section; and
    (ii) In the event the sponsor determines that any such originator no 
longer complies with any of the requirements in paragraphs (a)(1) and 
(3) of this section, shall promptly notify, or cause to be notified, the 
holders of the ABS interests issued in the securitization transaction of 
such noncompliance by such originator.



Sec.246.12  Hedging, transfer and financing prohibitions.

    (a) Transfer. Except as permitted by Sec.246.7(b)(8), and subject 
to Sec.246.5, a retaining sponsor may not sell or otherwise transfer 
any interest or assets that the sponsor is required to retain pursuant 
to subpart B of this part to any person other than an entity that is and 
remains a majority-owned affiliate of the sponsor and each such 
majority-owned affiliate shall be subject to the same restrictions.
    (b) Prohibited hedging by sponsor and affiliates. A retaining 
sponsor and its affiliates may not purchase or sell a security, or other 
financial instrument,

[[Page 917]]

or enter into an agreement, derivative or other position, with any other 
person if:
    (1) Payments on the security or other financial instrument or under 
the agreement, derivative, or position are materially related to the 
credit risk of one or more particular ABS interests that the retaining 
sponsor (or any of its majority-owned affiliates) is required to retain 
with respect to a securitization transaction pursuant to subpart B of 
this part or one or more of the particular securitized assets that 
collateralize the asset-backed securities issued in the securitization 
transaction; and
    (2) The security, instrument, agreement, derivative, or position in 
any way reduces or limits the financial exposure of the sponsor (or any 
of its majority-owned affiliates) to the credit risk of one or more of 
the particular ABS interests that the retaining sponsor (or any of its 
majority-owned affiliates) is required to retain with respect to a 
securitization transaction pursuant to subpart B of this part or one or 
more of the particular securitized assets that collateralize the asset-
backed securities issued in the securitization transaction.
    (c) Prohibited hedging by issuing entity. The issuing entity in a 
securitization transaction may not purchase or sell a security or other 
financial instrument, or enter into an agreement, derivative or 
position, with any other person if:
    (1) Payments on the security or other financial instrument or under 
the agreement, derivative or position are materially related to the 
credit risk of one or more particular ABS interests that the retaining 
sponsor for the transaction (or any of its majority-owned affiliates) is 
required to retain with respect to the securitization transaction 
pursuant to subpart B of this part; and
    (2) The security, instrument, agreement, derivative, or position in 
any way reduces or limits the financial exposure of the retaining 
sponsor (or any of its majority-owned affiliates) to the credit risk of 
one or more of the particular ABS interests that the sponsor (or any of 
its majority-owned affiliates) is required to retain pursuant to subpart 
B of this part.
    (d) Permitted hedging activities. The following activities shall not 
be considered prohibited hedging activities under paragraph (b) or (c) 
of this section:
    (1) Hedging the interest rate risk (which does not include the 
specific interest rate risk, known as spread risk, associated with the 
ABS interest that is otherwise considered part of the credit risk) or 
foreign exchange risk arising from one or more of the particular ABS 
interests required to be retained by the sponsor (or any of its 
majority-owned affiliates) under subpart B of this part or one or more 
of the particular securitized assets that underlie the asset-backed 
securities issued in the securitization transaction; or
    (2) Purchasing or selling a security or other financial instrument 
or entering into an agreement, derivative, or other position with any 
third party where payments on the security or other financial instrument 
or under the agreement, derivative, or position are based, directly or 
indirectly, on an index of instruments that includes asset-backed 
securities if:
    (i) Any class of ABS interests in the issuing entity that were 
issued in connection with the securitization transaction and that are 
included in the index represents no more than 10 percent of the dollar-
weighted average (or corresponding weighted average in the currency in 
which the ABS interests are issued, as applicable) of all instruments 
included in the index; and
    (ii) All classes of ABS interests in all issuing entities that were 
issued in connection with any securitization transaction in which the 
sponsor (or any of its majority-owned affiliates) is required to retain 
an interest pursuant to subpart B of this part and that are included in 
the index represent, in the aggregate, no more than 20 percent of the 
dollar-weighted average (or corresponding weighted average in the 
currency in which the ABS interests are issued, as applicable) of all 
instruments included in the index.
    (e) Prohibited non-recourse financing. Neither a retaining sponsor 
nor any of its affiliates may pledge as collateral for any obligation 
(including a loan, repurchase agreement, or other financing

[[Page 918]]

transaction) any ABS interest that the sponsor is required to retain 
with respect to a securitization transaction pursuant to subpart B of 
this part unless such obligation is with full recourse to the sponsor or 
affiliate, respectively.
    (f) Duration of the hedging and transfer restrictions--(1) General 
rule. Except as provided in paragraph (f)(2) of this section, the 
prohibitions on sale and hedging pursuant to paragraphs (a) and (b) of 
this section shall expire on or after the date that is the latest of:
    (i) The date on which the total unpaid principal balance (if 
applicable) of the securitized assets that collateralize the 
securitization transaction has been reduced to 33 percent of the total 
unpaid principal balance of the securitized assets as of the cut-off 
date or similar date for establishing the composition of the securitized 
assets collateralizing the asset-backed securities issued pursuant to 
the securitization transaction;
    (ii) The date on which the total unpaid principal obligations under 
the ABS interests issued in the securitization transaction has been 
reduced to 33 percent of the total unpaid principal obligations of the 
ABS interests at closing of the securitization transaction; or
    (iii) Two years after the date of the closing of the securitization 
transaction.
    (2) Securitizations of residential mortgages. (i) If all of the 
assets that collateralize a securitization transaction subject to risk 
retention under this part are residential mortgages, the prohibitions on 
sale and hedging pursuant to paragraphs (a) and (b) of this section 
shall expire on or after the date that is the later of:
    (A) Five years after the date of the closing of the securitization 
transaction; or
    (B) The date on which the total unpaid principal balance of the 
residential mortgages that collateralize the securitization transaction 
has been reduced to 25 percent of the total unpaid principal balance of 
such residential mortgages at the cut-off date or similar date for 
establishing the composition of the securitized assets collateralizing 
the asset-backed securities issued pursuant to the securitization 
transaction.
    (ii) Notwithstanding paragraph (f)(2)(i) of this section, the 
prohibitions on sale and hedging pursuant to paragraphs (a) and (b) of 
this section shall expire with respect to the sponsor of a 
securitization transaction described in paragraph (f)(2)(i) of this 
section on or after the date that is seven years after the date of the 
closing of the securitization transaction.
    (3) Conservatorship or receivership of sponsor. A conservator or 
receiver of the sponsor (or any other person holding risk retention 
pursuant to this part) of a securitization transaction is permitted to 
sell or hedge any economic interest in the securitization transaction if 
the conservator or receiver has been appointed pursuant to any provision 
of federal or State law (or regulation promulgated thereunder) that 
provides for the appointment of the Federal Deposit Insurance 
Corporation, or an agency or instrumentality of the United States or of 
a State as conservator or receiver, including without limitation any of 
the following authorities:
    (i) 12 U.S.C. 1811;
    (ii) 12 U.S.C. 1787;
    (iii) 12 U.S.C. 4617; or
    (iv) 12 U.S.C. 5382.
    (4) Revolving pool securitizations. The provisions of paragraphs 
(f)(1) and (2) are not available to sponsors of revolving pool 
securitizations with respect to the forms of risk retention specified in 
Sec.246.5.



                   Subpart D_Exceptions and Exemptions



Sec.246.13  Exemption for qualified residential mortgages.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Currently performing means the borrower in the mortgage transaction 
is not currently thirty (30) days or more past due, in whole or in part, 
on the mortgage transaction.
    Qualified residential mortgage means a ``qualified mortgage'' as 
defined in section 129C of the Truth in Lending Act (15 U.S.C.1639c) and 
regulations issued

[[Page 919]]

thereunder, as amended from time to time.
    (b) Exemption. A sponsor shall be exempt from the risk retention 
requirements in subpart B of this part with respect to any 
securitization transaction, if:
    (1) All of the assets that collateralize the asset-backed securities 
are qualified residential mortgages or servicing assets;
    (2) None of the assets that collateralize the asset-backed 
securities are asset-backed securities;
    (3) As of the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, each 
qualified residential mortgage collateralizing the asset-backed 
securities is currently performing; and
    (4)(i) The depositor with respect to the securitization transaction 
certifies that it has evaluated the effectiveness of its internal 
supervisory controls with respect to the process for ensuring that all 
assets that collateralize the asset-backed security are qualified 
residential mortgages or servicing assets and has concluded that its 
internal supervisory controls are effective; and
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls must be performed, for each issuance of an asset-
backed security in reliance on this section, as of a date within 60 days 
of the cut-off date or similar date for establishing the composition of 
the asset pool collateralizing such asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (b)(4)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to the 
Commission and its appropriate Federal banking agency, if any.
    (c) Repurchase of loans subsequently determined to be non-qualified 
after closing. A sponsor that has relied on the exemption provided in 
paragraph (b) of this section with respect to a securitization 
transaction shall not lose such exemption with respect to such 
transaction if, after closing of the securitization transaction, it is 
determined that one or more of the residential mortgage loans 
collateralizing the asset-backed securities does not meet all of the 
criteria to be a qualified residential mortgage provided that:
    (1) The depositor complied with the certification requirement set 
forth in paragraph (b)(4) of this section;
    (2) The sponsor repurchases the loan(s) from the issuing entity at a 
price at least equal to the remaining aggregate unpaid principal balance 
and accrued interest on the loan(s) no later than 90 days after the 
determination that the loans do not satisfy the requirements to be a 
qualified residential mortgage; and
    (3) The sponsor promptly notifies, or causes to be notified, the 
holders of the asset-backed securities issued in the securitization 
transaction of any loan(s) included in such securitization transaction 
that is (or are) required to be repurchased by the sponsor pursuant to 
paragraph (c)(2) of this section, including the amount of such 
repurchased loan(s) and the cause for such repurchase.



Sec.246.14  Definitions applicable to qualifying commercial loans,
qualifying commercial real estate loans, and qualifying automobile loans.

    The following definitions apply for purposes of Sec.Sec.246.15 
through 246.18:
    Appraisal Standards Board means the board of the Appraisal 
Foundation that develops, interprets, and amends the Uniform Standards 
of Professional Appraisal Practice (USPAP), establishing generally 
accepted standards for the appraisal profession.
    Automobile loan:
    (1) Means any loan to an individual to finance the purchase of, and 
that is secured by a first lien on, a passenger car or other passenger 
vehicle, such as a minivan, van, sport-utility vehicle, pickup truck, or 
similar light truck for personal, family, or household use; and
    (2) Does not include any:
    (i) Loan to finance fleet sales;
    (ii) Personal cash loan secured by a previously purchased 
automobile;
    (iii) Loan to finance the purchase of a commercial vehicle or farm 
equipment that is not used for personal, family, or household purposes;
    (iv) Lease financing;

[[Page 920]]

    (v) Loan to finance the purchase of a vehicle with a salvage title; 
or
    (vi) Loan to finance the purchase of a vehicle intended to be used 
for scrap or parts.
    Combined loan-to-value (CLTV) ratio means, at the time of 
origination, the sum of the principal balance of a first-lien mortgage 
loan on the property, plus the principal balance of any junior-lien 
mortgage loan that, to the creditor's knowledge, would exist at the 
closing of the transaction and that is secured by the same property, 
divided by:
    (1) For acquisition funding, the lesser of the purchase price or the 
estimated market value of the real property based on an appraisal that 
meets the requirements set forth in Sec.246.17(a)(2)(ii); or
    (2) For refinancing, the estimated market value of the real property 
based on an appraisal that meets the requirements set forth in Sec.
246.17(a)(2)(ii).
    Commercial loan means a secured or unsecured loan to a company or an 
individual for business purposes, other than any:
    (1) Loan to purchase or refinance a one-to-four family residential 
property;
    (2) Commercial real estate loan.
    Commercial real estate (CRE) loan means:
    (1) A loan secured by a property with five or more single family 
units, or by nonfarm nonresidential real property, the primary source 
(50 percent or more) of repayment for which is expected to be:
    (i) The proceeds of the sale, refinancing, or permanent financing of 
the property; or
    (ii) Rental income associated with the property;
    (2) Loans secured by improved land if the obligor owns the fee 
interest in the land and the land is leased to a third party who owns 
all improvements on the land, and the improvements are nonresidential or 
residential with five or more single family units; and
    (3) Does not include:
    (i) A land development and construction loan (including 1- to 4-
family residential or commercial construction loans);
    (ii) Any other land loan; or
    (iii) An unsecured loan to a developer.
    Debt service coverage (DSC) ratio means:
    (1) For qualifying leased CRE loans, qualifying multi-family loans, 
and other CRE loans:
    (i) The annual NOI less the annual replacement reserve of the CRE 
property at the time of origination of the CRE loan(s) divided by
    (ii) The sum of the borrower's annual payments for principal and 
interest (calculated at the fully-indexed rate) on any debt obligation.
    (2) For commercial loans:
    (i) The borrower's EBITDA as of the most recently completed fiscal 
year divided by
    (ii) The sum of the borrower's annual payments for principal and 
interest on all debt obligations.
    Debt to income (DTI) ratio means the borrower's total debt, 
including the monthly amount due on the automobile loan, divided by the 
borrower's monthly income.
    Earnings before interest, taxes, depreciation, and amortization 
(EBITDA) means the annual income of a business before expenses for 
interest, taxes, depreciation and amortization are deducted, as 
determined in accordance with GAAP.
    Environmental risk assessment means a process for determining 
whether a property is contaminated or exposed to any condition or 
substance that could result in contamination that has an adverse effect 
on the market value of the property or the realization of the collateral 
value.
    First lien means a lien or encumbrance on property that has priority 
over all other liens or encumbrances on the property.
    Junior lien means a lien or encumbrance on property that is lower in 
priority relative to other liens or encumbrances on the property.
    Leverage ratio means the borrower's total debt divided by the 
borrower's EBITDA.
    Loan-to-value (LTV) ratio means, at the time of origination, the 
principal balance of a first-lien mortgage loan on the property divided 
by:

[[Page 921]]

    (1) For acquisition funding, the lesser of the purchase price or the 
estimated market value of the real property based on an appraisal that 
meets the requirements set forth in Sec.246.17(a)(2)(ii); or
    (2) For refinancing, the estimated market value of the real property 
based on an appraisal that meets the requirements set forth in Sec.
246.17(a)(2)(ii).
    Model year means the year determined by the manufacturer and 
reflected on the vehicle's Motor Vehicle Title as part of the vehicle 
description.
    Net operating income (NOI) refers to the income a CRE property 
generates for the owner after all expenses have been deducted for 
federal income tax purposes, except for depreciation, debt service 
expenses, and federal and state income taxes, and excluding any unusual 
and nonrecurring items of income.
    Operating affiliate means an affiliate of a borrower that is a 
lessor or similar party with respect to the commercial real estate 
securing the loan.
    Payments-in-kind means payments of accrued interest that are not 
paid in cash when due, and instead are paid by increasing the principal 
balance of the loan or by providing equity in the borrowing company.
    Purchase money security interest means a security interest in 
property that secures the obligation of the obligor incurred as all or 
part of the price of the property.
    Purchase price means the amount paid by the borrower for the vehicle 
net of any incentive payments or manufacturer cash rebates.
    Qualified tenant means:
    (1) A tenant with a lease who has satisfied all obligations with 
respect to the property in a timely manner; or
    (2) A tenant who originally had a lease that subsequently expired 
and currently is leasing the property on a month-to-month basis, has 
occupied the property for at least three years prior to the date of 
origination, and has satisfied all obligations with respect to the 
property in a timely manner.
    Qualifying leased CRE loan means a CRE loan secured by commercial 
nonfarm real property, other than a multi-family property or a hotel, 
inn, or similar property:
    (1) That is occupied by one or more qualified tenants pursuant to a 
lease agreement with a term of no less than one (1) month; and
    (2) Where no more than 20 percent of the aggregate gross revenue of 
the property is payable from one or more tenants who:
    (i) Are subject to a lease that will terminate within six months 
following the date of origination; or
    (ii) Are not qualified tenants.
    Qualifying multi-family loan means a CRE loan secured by any 
residential property (excluding a hotel, motel, inn, hospital, nursing 
home, or other similar facility where dwellings are not leased to 
residents):
    (1) That consists of five or more dwelling units (including 
apartment buildings, condominiums, cooperatives and other similar 
structures) primarily for residential use; and
    (2) Where at least 75 percent of the NOI is derived from residential 
rents and tenant amenities (including income from parking garages, 
health or swim clubs, and dry cleaning), and not from other commercial 
uses.
    Rental income means:
    (1) Income derived from a lease or other occupancy agreement between 
the borrower or an operating affiliate of the borrower and a party which 
is not an affiliate of the borrower for the use of real property or 
improvements serving as collateral for the applicable loan; and
    (2) Other income derived from hotel, motel, dormitory, nursing home, 
assisted living, mini-storage warehouse or similar properties that are 
used primarily by parties that are not affiliates or employees of the 
borrower or its affiliates.
    Replacement reserve means the monthly capital replacement or 
maintenance amount based on the property type, age, construction and 
condition of the property that is adequate to maintain the physical 
condition and NOI of the property.
    Salvage title means a form of vehicle title branding, which notes 
that the vehicle has been severely damaged and/or deemed a total loss 
and uneconomical

[[Page 922]]

to repair by an insurance company that paid a claim on the vehicle.
    Total debt, with respect to a borrower, means:
    (1) In the case of an automobile loan, the sum of:
    (i) All monthly housing payments (rent- or mortgage-related, 
including property taxes, insurance and home owners association fees); 
and
    (ii) Any of the following that is dependent upon the borrower's 
income for payment:
    (A) Monthly payments on other debt and lease obligations, such as 
credit card loans or installment loans, including the monthly amount due 
on the automobile loan;
    (B) Estimated monthly amortizing payments for any term debt, debts 
with other than monthly payments and debts not in repayment (such as 
deferred student loans, interest-only loans); and
    (C) Any required monthly alimony, child support or court-ordered 
payments; and
    (2) In the case of a commercial loan, the outstanding balance of all 
long-term debt (obligations that have a remaining maturity of more than 
one year) and the current portion of all debt that matures in one year 
or less.
    Total liabilities ratio means the borrower's total liabilities 
divided by the sum of the borrower's total liabilities and equity, less 
the borrower's intangible assets, with each component determined in 
accordance with GAAP.
    Trade-in allowance means the amount a vehicle purchaser is given as 
a credit at the purchase of a vehicle for the fair exchange of the 
borrower's existing vehicle to compensate the dealer for some portion of 
the vehicle purchase price, not to exceed the highest trade-in value of 
the existing vehicle, as determined by a nationally recognized 
automobile pricing agency and based on the manufacturer, year, model, 
features, mileage, and condition of the vehicle, less the payoff balance 
of any outstanding debt collateralized by the existing vehicle.
    Uniform Standards of Professional Appraisal Practice (USPAP) means 
generally accepted standards for professional appraisal practice issued 
by the Appraisal Standards Board of the Appraisal Foundation.



Sec.246.15  Qualifying commercial loans, commercial real estate 
loans, and automobile loans.

    (a) General exception for qualifying assets. Commercial loans, 
commercial real estate loans, and automobile loans that are securitized 
through a securitization transaction shall be subject to a 0 percent 
risk retention requirement under subpart B, provided that the following 
conditions are met:
    (1) The assets meet the underwriting standards set forth in 
Sec.Sec.246.16 (qualifying commercial loans), 246.17 (qualifying CRE 
loans), or 246.18 (qualifying automobile loans) of this part, as 
applicable;
    (2) The securitization transaction is collateralized solely by loans 
of the same asset class and by servicing assets;
    (3) The securitization transaction does not permit reinvestment 
periods; and
    (4) The sponsor provides, or causes to be provided, to potential 
investors a reasonable period of time prior to the sale of asset-backed 
securities of the issuing entity, and, upon request, to the Commission, 
and to its appropriate Federal banking agency, if any, in written form 
under the caption ``Credit Risk Retention'', a description of the manner 
in which the sponsor determined the aggregate risk retention requirement 
for the securitization transaction after including qualifying commercial 
loans, qualifying CRE loans, or qualifying automobile loans with 0 
percent risk retention.
    (b) Risk retention requirement. For any securitization transaction 
described in paragraph (a) of this section, the percentage of risk 
retention required under Sec.246.3(a) is reduced by the percentage 
evidenced by the ratio of the unpaid principal balance of the qualifying 
commercial loans, qualifying CRE loans, or qualifying automobile loans 
(as applicable) to the total unpaid principal balance of commercial 
loans, CRE loans, or automobile loans (as applicable) that are included 
in the pool of assets collateralizing the asset-backed securities issued 
pursuant to

[[Page 923]]

the securitization transaction (the qualifying asset ratio); provided 
that:
    (1) The qualifying asset ratio is measured as of the cut-off date or 
similar date for establishing the composition of the securitized assets 
collateralizing the asset-backed securities issued pursuant to the 
securitization transaction;
    (2) If the qualifying asset ratio would exceed 50 percent, the 
qualifying asset ratio shall be deemed to be 50 percent; and
    (3) The disclosure required by paragraph (a)(4) of this section also 
includes descriptions of the qualifying commercial loans, qualifying CRE 
loans, and qualifying automobile loans (qualifying assets) and 
descriptions of the assets that are not qualifying assets, and the 
material differences between the group of qualifying assets and the 
group of assets that are not qualifying assets with respect to the 
composition of each group's loan balances, loan terms, interest rates, 
borrower credit information, and characteristics of any loan collateral.
    (c) Exception for securitizations of qualifying assets only. 
Notwithstanding other provisions of this section, the risk retention 
requirements of subpart B of this part shall not apply to securitization 
transactions where the transaction is collateralized solely by servicing 
assets and either qualifying commercial loans, qualifying CRE loans, or 
qualifying automobile loans.
    (d) Record maintenance. A sponsor must retain the disclosures 
required in paragraphs (a) and (b) of this section and the 
certifications required in Sec.Sec.246.16(a)(8), 246.17(a)(10), and 
246.18(a)(8), as applicable, in its records until three years after all 
ABS interests issued in the securitization are no longer outstanding. 
The sponsor must provide the disclosures and certifications upon request 
to the Commission and the sponsor's appropriate Federal banking agency, 
if any.



Sec.246.16  Underwriting standards for qualifying commercial loans.

    (a) Underwriting, product and other standards. (1) Prior to 
origination of the commercial loan, the originator:
    (i) Verified and documented the financial condition of the borrower:
    (A) As of the end of the borrower's two most recently completed 
fiscal years; and
    (B) During the period, if any, since the end of its most recently 
completed fiscal year;
    (ii) Conducted an analysis of the borrower's ability to service its 
overall debt obligations during the next two years, based on reasonable 
projections;
    (iii) Determined that, based on the previous two years' actual 
performance, the borrower had:
    (A) A total liabilities ratio of 50 percent or less;
    (B) A leverage ratio of 3.0 or less; and
    (C) A DSC ratio of 1.5 or greater;
    (iv) Determined that, based on the two years of projections, which 
include the new debt obligation, following the closing date of the loan, 
the borrower will have:
    (A) A total liabilities ratio of 50 percent or less;
    (B) A leverage ratio of 3.0 or less; and
    (C) A DSC ratio of 1.5 or greater.
    (2) Prior to, upon or promptly following the inception of the loan, 
the originator:
    (i) If the loan is originated on a secured basis, obtains a 
perfected security interest (by filing, title notation or otherwise) or, 
in the case of real property, a recorded lien, on all of the property 
pledged to collateralize the loan; and
    (ii) If the loan documents indicate the purpose of the loan is to 
finance the purchase of tangible or intangible property, or to refinance 
such a loan, obtains a first lien on the property.
    (3) The loan documentation for the commercial loan includes 
covenants that:
    (i) Require the borrower to provide to the servicer of the 
commercial loan the borrower's financial statements and supporting 
schedules on an ongoing basis, but not less frequently than quarterly;
    (ii) Prohibit the borrower from retaining or entering into a debt 
arrangement that permits payments-in-kind;
    (iii) Impose limits on:
    (A) The creation or existence of any other security interest or lien 
with respect to any of the borrower's property that serves as collateral 
for the loan;

[[Page 924]]

    (B) The transfer of any of the borrower's assets that serve as 
collateral for the loan; and
    (C) Any change to the name, location or organizational structure of 
the borrower, or any other party that pledges collateral for the loan;
    (iv) Require the borrower and any other party that pledges 
collateral for the loan to:
    (A) Maintain insurance that protects against loss on the collateral 
for the commercial loan at least up to the amount of the loan, and that 
names the originator or any subsequent holder of the loan as an 
additional insured or loss payee;
    (B) Pay taxes, charges, fees, and claims, where non-payment might 
give rise to a lien on any collateral;
    (C) Take any action required to perfect or protect the security 
interest and first lien (as applicable) of the originator or any 
subsequent holder of the loan in any collateral for the commercial loan 
or the priority thereof, and to defend any collateral against claims 
adverse to the lender's interest;
    (D) Permit the originator or any subsequent holder of the loan, and 
the servicer of the loan, to inspect any collateral for the commercial 
loan and the books and records of the borrower; and
    (E) Maintain the physical condition of any collateral for the 
commercial loan.
    (4) Loan payments required under the loan agreement are:
    (i) Based on level monthly payments of principal and interest (at 
the fully indexed rate) that fully amortize the debt over a term that 
does not exceed five years from the date of origination; and
    (ii) To be made no less frequently than quarterly over a term that 
does not exceed five years.
    (5) The primary source of repayment for the loan is revenue from the 
business operations of the borrower.
    (6) The loan was funded within the six (6) months prior to the cut-
off date or similar date for establishing the composition of the 
securitized assets collateralizing the asset-backed securities issued 
pursuant to the securitization transaction.
    (7) At the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, all 
payments due on the loan are contractually current.
    (8)(i) The depositor of the asset-backed security certifies that it 
has evaluated the effectiveness of its internal supervisory controls 
with respect to the process for ensuring that all qualifying commercial 
loans that collateralize the asset-backed security and that reduce the 
sponsor's risk retention requirement under Sec.246.15 meet all of the 
requirements set forth in paragraphs (a)(1) through (7) of this section 
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls referenced in paragraph (a)(8)(i) of this section 
shall be performed, for each issuance of an asset-backed security, as of 
a date within 60 days of the cut-off date or similar date for 
establishing the composition of the asset pool collateralizing such 
asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (a)(8)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to its 
appropriate Federal banking agency, if any.
    (b) Cure or buy-back requirement. If a sponsor has relied on the 
exception provided in Sec.246.15 with respect to a qualifying 
commercial loan and it is subsequently determined that the loan did not 
meet all of the requirements set forth in paragraphs (a)(1) through (7) 
of this section, the sponsor shall not lose the benefit of the exception 
with respect to the commercial loan if the depositor complied with the 
certification requirement set forth in paragraph (a)(8) of this section 
and:
    (1) The failure of the loan to meet any of the requirements set 
forth in paragraphs (a)(1) through (7) of this section is not material; 
or
    (2) No later than 90 days after the determination that the loan does 
not meet one or more of the requirements

[[Page 925]]

of paragraphs (a)(1) through (7) of this section, the sponsor:
    (i) Effectuates cure, establishing conformity of the loan to the 
unmet requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at 
least equal to the remaining principal balance and accrued interest on 
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph (b)(2) 
of this section, the sponsor must promptly notify, or cause to be 
notified, the holders of the asset-backed securities issued in the 
securitization transaction of any loan(s) included in such 
securitization transaction that is required to be cured or repurchased 
by the sponsor pursuant to paragraph (b)(2) of this section, including 
the principal amount of such loan(s) and the cause for such cure or 
repurchase.



Sec.246.17  Underwriting standards for qualifying CRE loans.

    (a) Underwriting, product and other standards. (1) The CRE loan must 
be secured by the following:
    (i) An enforceable first lien, documented and recorded appropriately 
pursuant to applicable law, on the commercial real estate and 
improvements;
    (ii)(A) An assignment of:
    (1) Leases and rents and other occupancy agreements related to the 
commercial real estate or improvements or the operation thereof for 
which the borrower or an operating affiliate is a lessor or similar 
party and all payments under such leases and occupancy agreements; and
    (2) All franchise, license and concession agreements related to the 
commercial real estate or improvements or the operation thereof for 
which the borrower or an operating affiliate is a lessor, licensor, 
concession granter or similar party and all payments under such other 
agreements, whether the assignments described in this paragraph 
(a)(1)(ii)(A)(2) are absolute or are stated to be made to the extent 
permitted by the agreements governing the applicable franchise, license 
or concession agreements;
    (B) An assignment of all other payments due to the borrower or due 
to any operating affiliate in connection with the operation of the 
property described in paragraph (a)(1)(i) of this section; and
    (C) The right to enforce the agreements described in paragraph 
(a)(1)(ii)(A) of this section and the agreements under which payments 
under paragraph (a)(1)(ii)(B) of this section are due against, and 
collect amounts due from, each lessee, occupant or other obligor whose 
payments were assigned pursuant to paragraphs (a)(1)(ii)(A) or (B) of 
this section upon a breach by the borrower of any of the terms of, or 
the occurrence of any other event of default (however denominated) 
under, the loan documents relating to such CRE loan; and
    (iii) A security interest:
    (A) In all interests of the borrower and any applicable operating 
affiliate in all tangible and intangible personal property of any kind, 
in or used in the operation of or in connection with, pertaining to, 
arising from, or constituting, any of the collateral described in 
paragraphs (a)(1)(i) or (ii) of this section; and
    (B) In the form of a perfected security interest if the security 
interest in such property can be perfected by the filing of a financing 
statement, fixture filing, or similar document pursuant to the law 
governing the perfection of such security interest;
    (2) Prior to origination of the CRE loan, the originator:
    (i) Verified and documented the current financial condition of the 
borrower and each operating affiliate;
    (ii) Obtained a written appraisal of the real property securing the 
loan that:
    (A) Had an effective date not more than six months prior to the 
origination date of the loan by a competent and appropriately State-
certified or State-licensed appraiser;
    (B) Conforms to generally accepted appraisal standards as evidenced 
by the USPAP and the appraisal requirements \1\ of the Federal banking 
agencies; and
---------------------------------------------------------------------------

    \1\ 12 CFR part 34, subpart C (OCC); 12 CFR part 208, subpart E, and 
12 CFR part 225, subpart G (Board); and 12 CFR part 323 (FDIC).

---------------------------------------------------------------------------

[[Page 926]]

    (C) Provides an ``as is'' opinion of the market value of the real 
property, which includes an income approach; \2\
---------------------------------------------------------------------------

    \2\ See USPAP, Standard 1.
---------------------------------------------------------------------------

    (iii) Qualified the borrower for the CRE loan based on a monthly 
payment amount derived from level monthly payments consisting of both 
principal and interest (at the fully-indexed rate) over the term of the 
loan, not exceeding 25 years, or 30 years for a qualifying multi-family 
property;
    (iv) Conducted an environmental risk assessment to gain 
environmental information about the property securing the loan and took 
appropriate steps to mitigate any environmental liability determined to 
exist based on this assessment;
    (v) Conducted an analysis of the borrower's ability to service its 
overall debt obligations during the next two years, based on reasonable 
projections (including operating income projections for the property);
    (vi)(A) Determined that based on the two years' actual performance 
immediately preceding the origination of the loan, the borrower would 
have had:
    (1) A DSC ratio of 1.5 or greater, if the loan is a qualifying 
leased CRE loan, net of any income derived from a tenant(s) who is not a 
qualified tenant(s);
    (2) A DSC ratio of 1.25 or greater, if the loan is a qualifying 
multi-family property loan; or
    (3) A DSC ratio of 1.7 or greater, if the loan is any other type of 
CRE loan;
    (B) If the borrower did not own the property for any part of the 
last two years prior to origination, the calculation of the DSC ratio, 
for purposes of paragraph (a)(2)(vi)(A) of this section, shall include 
the property's operating income for any portion of the two-year period 
during which the borrower did not own the property;
    (vii) Determined that, based on two years of projections, which 
include the new debt obligation, following the origination date of the 
loan, the borrower will have:
    (A) A DSC ratio of 1.5 or greater, if the loan is a qualifying 
leased CRE loan, net of any income derived from a tenant(s) who is not a 
qualified tenant(s);
    (B) A DSC ratio of 1.25 or greater, if the loan is a qualifying 
multi-family property loan; or
    (C) A DSC ratio of 1.7 or greater, if the loan is any other type of 
CRE loan.
    (3) The loan documentation for the CRE loan includes covenants that:
    (i) Require the borrower to provide the borrower's financial 
statements and supporting schedules to the servicer on an ongoing basis, 
but not less frequently than quarterly, including information on 
existing, maturing and new leasing or rent-roll activity for the 
property securing the loan, as appropriate; and
    (ii) Impose prohibitions on:
    (A) The creation or existence of any other security interest with 
respect to the collateral for the CRE loan described in paragraphs 
(a)(1)(i) and (a)(1)(ii)(A) of this section, except as provided in 
paragraph (a)(4) of this section;
    (B) The transfer of any collateral for the CRE loan described in 
paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section or of any other 
collateral consisting of fixtures, furniture, furnishings, machinery or 
equipment other than any such fixture, furniture, furnishings, machinery 
or equipment that is obsolete or surplus; and
    (C) Any change to the name, location or organizational structure of 
any borrower, operating affiliate or other pledgor unless such borrower, 
operating affiliate or other pledgor shall have given the holder of the 
loan at least 30 days advance notice and, pursuant to applicable law 
governing perfection and priority, the holder of the loan is able to 
take all steps necessary to continue its perfection and priority during 
such 30-day period.
    (iii) Require each borrower and each operating affiliate to:
    (A) Maintain insurance that protects against loss on collateral for 
the CRE loan described in paragraph (a)(1)(i) of this section for an 
amount no less than the replacement cost of the property improvements, 
and names the originator or any subsequent holder of the loan as an 
additional insured or lender loss payee;
    (B) Pay taxes, charges, fees, and claims, where non-payment might 
give rise to a lien on collateral for the CRE

[[Page 927]]

loan described in paragraphs (a)(1)(i) and (ii) of this section;
    (C) Take any action required to:
    (1) Protect the security interest and the enforceability and 
priority thereof in the collateral described in paragraphs (a)(1)(i) and 
(a)(1)(ii)(A) of this section and defend such collateral against claims 
adverse to the originator's or any subsequent holder's interest; and
    (2) Perfect the security interest of the originator or any 
subsequent holder of the loan in any other collateral for the CRE loan 
to the extent that such security interest is required by this section to 
be perfected;
    (D) Permit the originator or any subsequent holder of the loan, and 
the servicer, to inspect any collateral for the CRE loan and the books 
and records of the borrower or other party relating to any collateral 
for the CRE loan;
    (E) Maintain the physical condition of collateral for the CRE loan 
described in paragraph (a)(1)(i) of this section;
    (F) Comply with all environmental, zoning, building code, licensing 
and other laws, regulations, agreements, covenants, use restrictions, 
and proffers applicable to collateral for the CRE loan described in 
paragraph (a)(1)(i) of this section;
    (G) Comply with leases, franchise agreements, condominium 
declarations, and other documents and agreements relating to the 
operation of collateral for the CRE loan described in paragraph 
(a)(1)(i) of this section, and to not modify any material terms and 
conditions of such agreements over the term of the loan without the 
consent of the originator or any subsequent holder of the loan, or the 
servicer; and
    (H) Not materially alter collateral for the CRE loan described in 
paragraph (a)(1)(i) of this section without the consent of the 
originator or any subsequent holder of the loan, or the servicer.
    (4) The loan documentation for the CRE loan prohibits the borrower 
and each operating affiliate from obtaining a loan secured by a junior 
lien on collateral for the CRE loan described in paragraph (a)(1)(i) or 
(a)(1)(ii)(A) of this section, unless:
    (i) The sum of the principal amount of such junior lien loan, plus 
the principal amount of all other loans secured by collateral described 
in paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section, does not exceed 
the applicable CLTV ratio in paragraph (a)(5) of this section, based on 
the appraisal at origination of such junior lien loan; or
    (ii) Such loan is a purchase money obligation that financed the 
acquisition of machinery or equipment and the borrower or operating 
affiliate (as applicable) pledges such machinery and equipment as 
additional collateral for the CRE loan.
    (5) At origination, the applicable loan-to-value ratios for the loan 
are:
    (i) LTV less than or equal to 65 percent and CLTV less than or equal 
to 70 percent; or
    (ii) LTV less than or equal to 60 percent and CLTV less than or 
equal to 65 percent, if an appraisal used to meet the requirements set 
forth in paragraph (a)(2)(ii) of this section used a direct 
capitalization rate, and that rate is less than or equal to the sum of:
    (A) The 10-year swap rate, as reported in the Federal Reserve's H.15 
Report (or any successor report) as of the date concurrent with the 
effective date of such appraisal; and
    (B) 300 basis points.
    (iii) If the appraisal required under paragraph (a)(2)(ii) of this 
section included a direct capitalization method using an overall 
capitalization rate, that rate must be disclosed to potential investors 
in the securitization.
    (6) All loan payments required to be made under the loan agreement 
are:
    (i) Based on level monthly payments of principal and interest (at 
the fully indexed rate) to fully amortize the debt over a term that does 
not exceed 25 years, or 30 years for a qualifying multifamily loan; and
    (ii) To be made no less frequently than monthly over a term of at 
least ten years.
    (7) Under the terms of the loan agreement:
    (i) Any maturity of the note occurs no earlier than ten years 
following the date of origination;
    (ii) The borrower is not permitted to defer repayment of principal 
or payment of interest; and

[[Page 928]]

    (iii) The interest rate on the loan is:
    (A) A fixed interest rate;
    (B) An adjustable interest rate and the borrower, prior to or 
concurrently with origination of the CRE loan, obtained a derivative 
that effectively results in a fixed interest rate; or
    (C) An adjustable interest rate and the borrower, prior to or 
concurrently with origination of the CRE loan, obtained a derivative 
that established a cap on the interest rate for the term of the loan, 
and the loan meets the underwriting criteria in paragraphs (a)(2)(vi) 
and (vii) of this section using the maximum interest rate allowable 
under the interest rate cap.
    (8) The originator does not establish an interest reserve at 
origination to fund all or part of a payment on the loan.
    (9) At the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, all 
payments due on the loan are contractually current.
    (10)(i) The depositor of the asset-backed security certifies that it 
has evaluated the effectiveness of its internal supervisory controls 
with respect to the process for ensuring that all qualifying CRE loans 
that collateralize the asset-backed security and that reduce the 
sponsor's risk retention requirement under Sec.246.15 meet all of the 
requirements set forth in paragraphs (a)(1) through (9) of this section 
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls referenced in paragraph (a)(10)(i) of this section 
shall be performed, for each issuance of an asset-backed security, as of 
a date within 60 days of the cut-off date or similar date for 
establishing the composition of the asset pool collateralizing such 
asset-backed security;
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (a)(10)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to its 
appropriate Federal banking agency, if any; and
    (11) Within two weeks of the closing of the CRE loan by its 
originator or, if sooner, prior to the transfer of such CRE loan to the 
issuing entity, the originator shall have obtained a UCC lien search 
from the jurisdiction of organization of the borrower and each operating 
affiliate, that does not report, as of the time that the security 
interest of the originator in the property described in paragraph 
(a)(1)(iii) of this section was perfected, other higher priority liens 
of record on any property described in paragraph (a)(1)(iii) of this 
section, other than purchase money security interests.
    (b) Cure or buy-back requirement. If a sponsor has relied on the 
exception provided in Sec.246.15 with respect to a qualifying CRE loan 
and it is subsequently determined that the CRE loan did not meet all of 
the requirements set forth in paragraphs (a)(1) through (9) and (a)(11) 
of this section, the sponsor shall not lose the benefit of the exception 
with respect to the CRE loan if the depositor complied with the 
certification requirement set forth in paragraph (a)(10) of this 
section, and:
    (1) The failure of the loan to meet any of the requirements set 
forth in paragraphs (a)(1) through (9) and (a)(11) of this section is 
not material; or;
    (2) No later than 90 days after the determination that the loan does 
not meet one or more of the requirements of paragraphs (a)(1) through 
(9) or (a)(11) of this section, the sponsor:
    (i) Effectuates cure, restoring conformity of the loan to the unmet 
requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at 
least equal to the remaining principal balance and accrued interest on 
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph (b)(2) 
of this section, the sponsor must promptly notify, or cause to be 
notified, the holders of the asset-backed securities issued in the 
securitization transaction of any loan(s) included in such 
securitization transaction that is required to be cured or repurchased 
by the sponsor pursuant to paragraph (b)(2) of this section, including 
the

[[Page 929]]

principal amount of such repurchased loan(s) and the cause for such cure 
or repurchase.



Sec.246.18  Underwriting standards for qualifying automobile loans.

    (a) Underwriting, product and other standards. (1) Prior to 
origination of the automobile loan, the originator:
    (i) Verified and documented that within 30 days of the date of 
origination:
    (A) The borrower was not currently 30 days or more past due, in 
whole or in part, on any debt obligation;
    (B) Within the previous 24 months, the borrower has not been 60 days 
or more past due, in whole or in part, on any debt obligation;
    (C) Within the previous 36 months, the borrower has not:
    (1) Been a debtor in a proceeding commenced under Chapter 7 
(Liquidation), Chapter 11 (Reorganization), Chapter 12 (Family Farmer or 
Family Fisherman plan), or Chapter 13 (Individual Debt Adjustment) of 
the U.S. Bankruptcy Code; or
    (2) Been the subject of any federal or State judicial judgment for 
the collection of any unpaid debt;
    (D) Within the previous 36 months, no one-to-four family property 
owned by the borrower has been the subject of any foreclosure, deed in 
lieu of foreclosure, or short sale; or
    (E) Within the previous 36 months, the borrower has not had any 
personal property repossessed;
    (ii) Determined and documented that the borrower has at least 24 
months of credit history; and
    (iii) Determined and documented that, upon the origination of the 
loan, the borrower's DTI ratio is less than or equal to 36 percent.
    (A) For the purpose of making the determination under paragraph 
(a)(1)(iii) of this section, the originator must:
    (1) Verify and document all income of the borrower that the 
originator includes in the borrower's effective monthly income (using 
payroll stubs, tax returns, profit and loss statements, or other similar 
documentation); and
    (2) On or after the date of the borrower's written application and 
prior to origination, obtain a credit report regarding the borrower from 
a consumer reporting agency that compiles and maintain files on 
consumers on a nationwide basis (within the meaning of 15 U.S.C. 
1681a(p)) and verify that all outstanding debts reported in the 
borrower's credit report are incorporated into the calculation of the 
borrower's DTI ratio under paragraph (a)(1)(iii) of this section;
    (2) An originator will be deemed to have met the requirements of 
paragraph (a)(1)(i) of this section if:
    (i) The originator, no more than 30 days before the closing of the 
loan, obtains a credit report regarding the borrower from a consumer 
reporting agency that compiles and maintains files on consumers on a 
nationwide basis (within the meaning of 15 U.S.C. 1681a(p));
    (ii) Based on the information in such credit report, the borrower 
meets all of the requirements of paragraph (a)(1)(i) of this section, 
and no information in a credit report subsequently obtained by the 
originator before the closing of the loan contains contrary information; 
and
    (iii) The originator obtains electronic or hard copies of the credit 
report.
    (3) At closing of the automobile loan, the borrower makes a down 
payment from the borrower's personal funds and trade-in allowance, if 
any, that is at least equal to the sum of:
    (i) The full cost of the vehicle title, tax, and registration fees;
    (ii) Any dealer-imposed fees;
    (iii) The full cost of any additional warranties, insurance or other 
products purchased in connection with the purchase of the vehicle; and
    (iv) 10 percent of the vehicle purchase price.
    (4) The originator records a first lien securing the loan on the 
purchased vehicle in accordance with State law.
    (5) The terms of the loan agreement provide a maturity date for the 
loan that does not exceed the lesser of:
    (i) Six years from the date of origination; or
    (ii) 10 years minus the difference between the current model year 
and the vehicle's model year.
    (6) The terms of the loan agreement:
    (i) Specify a fixed rate of interest for the life of the loan;

[[Page 930]]

    (ii) Provide for a level monthly payment amount that fully amortizes 
the amount financed over the loan term;
    (iii) Do not permit the borrower to defer repayment of principal or 
payment of interest; and
    (iv) Require the borrower to make the first payment on the 
automobile loan within 45 days of the loan's contract date.
    (7) At the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, all 
payments due on the loan are contractually current; and
    (8)(i) The depositor of the asset-backed security certifies that it 
has evaluated the effectiveness of its internal supervisory controls 
with respect to the process for ensuring that all qualifying automobile 
loans that collateralize the asset-backed security and that reduce the 
sponsor's risk retention requirement under Sec.246.15 meet all of the 
requirements set forth in paragraphs (a)(1) through (7) of this section 
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls referenced in paragraph (a)(8)(i) of this section 
shall be performed, for each issuance of an asset-backed security, as of 
a date within 60 days of the cut-off date or similar date for 
establishing the composition of the asset pool collateralizing such 
asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (a)(8)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to its 
appropriate Federal banking agency, if any.
    (b) Cure or buy-back requirement. If a sponsor has relied on the 
exception provided in Sec.246.15 with respect to a qualifying 
automobile loan and it is subsequently determined that the loan did not 
meet all of the requirements set forth in paragraphs (a)(1) through (7) 
of this section, the sponsor shall not lose the benefit of the exception 
with respect to the automobile loan if the depositor complied with the 
certification requirement set forth in paragraph (a)(8) of this section, 
and:
    (1) The failure of the loan to meet any of the requirements set 
forth in paragraphs (a)(1) through (7) of this section is not material; 
or
    (2) No later than ninety (90) days after the determination that the 
loan does not meet one or more of the requirements of paragraphs (a)(1) 
through (7) of this section, the sponsor:
    (i) Effectuates cure, establishing conformity of the loan to the 
unmet requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at 
least equal to the remaining principal balance and accrued interest on 
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph (b)(2) 
of this section, the sponsor must promptly notify, or cause to be 
notified, the holders of the asset-backed securities issued in the 
securitization transaction of any loan(s) included in such 
securitization transaction that is required to be cured or repurchased 
by the sponsor pursuant to paragraph (b)(2) of this section, including 
the principal amount of such loan(s) and the cause for such cure or 
repurchase.



Sec.246.19  General exemptions.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Community-focused residential mortgage means a residential mortgage 
exempt from the definition of ``covered transaction'' under Sec.
1026.43(a)(3)(iv) and (v) of the CFPB's Regulation Z (12 CFR 
1026.43(a)).
    First pay class means a class of ABS interests for which all 
interests in the class are entitled to the same priority of payment and 
that, at the time of closing of the transaction, is entitled to 
repayments of principal and payments of interest prior to or pro-rata 
with all other classes of securities collateralized by the same pool of 
first-lien residential mortgages, until such class has no principal or 
notional balance remaining.

[[Page 931]]

    Inverse floater means an ABS interest issued as part of a 
securitization transaction for which interest or other income is payable 
to the holder based on a rate or formula that varies inversely to a 
reference rate of interest.
    Qualifying three-to-four unit residential mortgage loan means a 
mortgage loan that is:
    (i) Secured by a dwelling (as defined in 12 CFR 1026.2(a)(19)) that 
is owner occupied and contains three-to-four housing units;
    (ii) Is deemed to be for business purposes for purposes of 
Regulation Z under 12 CFR part 1026, Supplement I, paragraph 3(a)(5)(i); 
and
    (iii) Otherwise meets all of the requirements to qualify as a 
qualified mortgage under Sec.1026.43(e) and (f) of Regulation Z (12 
CFR 1026.43(e) and (f)) as if the loan were a covered transaction under 
that section.
    (b) This part shall not apply to:
    (1) U.S. Government-backed securitizations. Any securitization 
transaction that:
    (i) Is collateralized solely by residential, multifamily, or health 
care facility mortgage loan assets that are insured or guaranteed (in 
whole or in part) as to the payment of principal and interest by the 
United States or an agency of the United States, and servicing assets; 
or
    (ii) Involves the issuance of asset-backed securities that:
    (A) Are insured or guaranteed as to the payment of principal and 
interest by the United States or an agency of the United States; and
    (B) Are collateralized solely by residential, multifamily, or health 
care facility mortgage loan assets or interests in such assets, and 
servicing assets.
    (2) Certain agricultural loan securitizations. Any securitization 
transaction that is collateralized solely by loans or other assets made, 
insured, guaranteed, or purchased by any institution that is subject to 
the supervision of the Farm Credit Administration, including the Federal 
Agricultural Mortgage Corporation, and servicing assets;
    (3) State and municipal securitizations. Any asset-backed security 
that is a security issued or guaranteed by any State, or by any 
political subdivision of a State, or by any public instrumentality of a 
State that is exempt from the registration requirements of the 
Securities Act of 1933 by reason of section 3(a)(2) of that Act (15 
U.S.C. 77c(a)(2)); and
    (4) Qualified scholarship funding bonds. Any asset-backed security 
that meets the definition of a qualified scholarship funding bond, as 
set forth in section 150(d)(2) of the Internal Revenue Code of 1986 (26 
U.S.C. 150(d)(2)).
    (5) Pass-through resecuritizations. Any securitization transaction 
that:
    (i) Is collateralized solely by servicing assets, and by asset-
backed securities:
    (A) For which credit risk was retained as required under subpart B 
of this part; or
    (B) That were exempted from the credit risk retention requirements 
of this part pursuant to subpart D of this part;
    (ii) Is structured so that it involves the issuance of only a single 
class of ABS interests; and
    (iii) Provides for the pass-through of all principal and interest 
payments received on the underlying asset-backed securities (net of 
expenses of the issuing entity) to the holders of such class.
    (6) First-pay-class securitizations. Any securitization transaction 
that:
    (i) Is collateralized solely by servicing assets, and by first-pay 
classes of asset-backed securities collateralized by first-lien 
residential mortgages on properties located in any state:
    (A) For which credit risk was retained as required under subpart B 
of this part; or
    (B) That were exempted from the credit risk retention requirements 
of this part pursuant to subpart D of this part;
    (ii) Does not provide for any ABS interest issued in the 
securitization transaction to share in realized principal losses other 
than pro rata with all other ABS interests issued in the securitization 
transaction based on the current unpaid principal balance of such ABS 
interests at the time the loss is realized;
    (iii) Is structured to reallocate prepayment risk;

[[Page 932]]

    (iv) Does not reallocate credit risk (other than as a consequence of 
reallocation of prepayment risk); and
    (v) Does not include any inverse floater or similarly structured ABS 
interest.
    (7) Seasoned loans. (i) Any securitization transaction that is 
collateralized solely by servicing assets, and by seasoned loans that 
meet the following requirements:
    (A) The loans have not been modified since origination; and
    (B) None of the loans have been delinquent for 30 days or more.
    (ii) For purposes of this paragraph, a seasoned loan means:
    (A) With respect to asset-backed securities collateralized by 
residential mortgages, a loan that has been outstanding and performing 
for the longer of:
    (1) A period of five years; or
    (2) Until the outstanding principal balance of the loan has been 
reduced to 25 percent of the original principal balance.
    (3) Notwithstanding paragraphs (b)(7)(ii)(A)(1) and (2) of this 
section, any residential mortgage loan that has been outstanding and 
performing for a period of at least seven years shall be deemed a 
seasoned loan.
    (B) With respect to all other classes of asset-backed securities, a 
loan that has been outstanding and performing for the longer of:
    (1) A period of at least two years; or
    (2) Until the outstanding principal balance of the loan has been 
reduced to 33 percent of the original principal balance.
    (8) Certain public utility securitizations. (i) Any securitization 
transaction where the asset-back securities issued in the transaction 
are secured by the intangible property right to collect charges for the 
recovery of specified costs and such other assets, if any, of an issuing 
entity that is wholly owned, directly or indirectly, by an investor 
owned utility company that is subject to the regulatory authority of a 
State public utility commission or other appropriate State agency.
    (ii) For purposes of this paragraph:
    (A) Specified cost means any cost identified by a State legislature 
as appropriate for recovery through securitization pursuant to specified 
cost recovery legislation; and
    (B) Specified cost recovery legislation means legislation enacted by 
a State that:
    (1) Authorizes the investor owned utility company to apply for, and 
authorizes the public utility commission or other appropriate State 
agency to issue, a financing order determining the amount of specified 
costs the utility will be allowed to recover;
    (2) Provides that pursuant to a financing order, the utility 
acquires an intangible property right to charge, collect, and receive 
amounts necessary to provide for the full recovery of the specified 
costs determined to be recoverable, and assures that the charges are 
non-bypassable and will be paid by customers within the utility's 
historic service territory who receive utility goods or services through 
the utility's transmission and distribution system, even if those 
customers elect to purchase these goods or services from a third party; 
and
    (3) Guarantees that neither the State nor any of its agencies has 
the authority to rescind or amend the financing order, to revise the 
amount of specified costs, or in any way to reduce or impair the value 
of the intangible property right, except as may be contemplated by 
periodic adjustments authorized by the specified cost recovery 
legislation.
    (c) Exemption for securitizations of assets issued, insured or 
guaranteed by the United States. This part shall not apply to any 
securitization transaction if the asset-backed securities issued in the 
transaction are:
    (1) Collateralized solely by obligations issued by the United States 
or an agency of the United States and servicing assets;
    (2) Collateralized solely by assets that are fully insured or 
guaranteed as to the payment of principal and interest by the United 
States or an agency of the United States (other than those referred to 
in paragraph (b)(1)(i) of this section) and servicing assets; or
    (3) Fully guaranteed as to the timely payment of principal and 
interest by the United States or any agency of the United States;

[[Page 933]]

    (d) Federal Deposit Insurance Corporation securitizations. This part 
shall not apply to any securitization transaction that is sponsored by 
the Federal Deposit Insurance Corporation acting as conservator or 
receiver under any provision of the Federal Deposit Insurance Act or of 
Title II of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act.
    (e) Reduced requirement for certain student loan securitizations. 
The 5 percent risk retention requirement set forth in Sec.246.4 shall 
be modified as follows:
    (1) With respect to a securitization transaction that is 
collateralized solely by student loans made under the Federal Family 
Education Loan Program (``FFELP loans'') that are guaranteed as to 100 
percent of defaulted principal and accrued interest, and servicing 
assets, the risk retention requirement shall be 0 percent;
    (2) With respect to a securitization transaction that is 
collateralized solely by FFELP loans that are guaranteed as to at least 
98 percent but less than 100 percent of defaulted principal and accrued 
interest, and servicing assets, the risk retention requirement shall be 
2 percent; and
    (3) With respect to any other securitization transaction that is 
collateralized solely by FFELP loans, and servicing assets, the risk 
retention requirement shall be 3 percent.
    (f) Community-focused lending securitizations. (1) This part shall 
not apply to any securitization transaction if the asset-backed 
securities issued in the transaction are collateralized solely by 
community-focused residential mortgages and servicing assets.
    (2) For any securitization transaction that includes both community-
focused residential mortgages and residential mortgages that are not 
exempt from risk retention under this part, the percent of risk 
retention required under Sec.246.4(a) is reduced by the ratio of the 
unpaid principal balance of the community-focused residential mortgages 
to the total unpaid principal balance of residential mortgages that are 
included in the pool of assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction (the 
community-focused residential mortgage asset ratio); provided that:
    (i) The community-focused residential mortgage asset ratio is 
measured as of the cut-off date or similar date for establishing the 
composition of the pool assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction; and
    (ii) If the community-focused residential mortgage asset ratio would 
exceed 50 percent, the community-focused residential mortgage asset 
ratio shall be deemed to be 50 percent.
    (g) Exemptions for securitizations of certain three-to-four unit 
mortgage loans. A sponsor shall be exempt from the risk retention 
requirements in subpart B of this part with respect to any 
securitization transaction if:
    (1)(i) The asset-backed securities issued in the transaction are 
collateralized solely by qualifying three-to-four unit residential 
mortgage loans and servicing assets; or
    (ii) The asset-backed securities issued in the transaction are 
collateralized solely by qualifying three-to-four unit residential 
mortgage loans, qualified residential mortgages as defined in Sec.
246.13, and servicing assets.
    (2) The depositor with respect to the securitization provides the 
certifications set forth in Sec.246.13(b)(4) with respect to the 
process for ensuring that all assets that collateralize the asset-backed 
securities issued in the transaction are qualifying three-to-four unit 
residential mortgage loans, qualified residential mortgages, or 
servicing assets; and
    (3) The sponsor of the securitization complies with the repurchase 
requirements in Sec.246.13(c) with respect to a loan if, after 
closing, it is determined that the loan does not meet all of the 
criteria to be either a qualified residential mortgage or a qualifying 
three-to-four unit residential mortgage loan, as appropriate.
    (h) Rule of construction. Securitization transactions involving the 
issuance of asset-backed securities that are either issued, insured, or 
guaranteed by, or are collateralized by obligations issued by, or loans 
that are issued, insured, or guaranteed by, the Federal National 
Mortgage Association, the Federal Home Loan Mortgage Corporation, or a 
Federal home loan

[[Page 934]]

bank shall not on that basis qualify for exemption under this part.



Sec.246.20  Safe harbor for certain foreign-related transactions.

    (a) Definitions. For purposes of this section, the following 
definition shall apply:
    U.S. person means:
    (i) Any of the following:
    (A) Any natural person resident in the United States;
    (B) Any partnership, corporation, limited liability company, or 
other organization or entity organized or incorporated under the laws of 
any State or of the United States;
    (C) Any estate of which any executor or administrator is a U.S. 
person (as defined under any other clause of this definition);
    (D) Any trust of which any trustee is a U.S. person (as defined 
under any other clause of this definition);
    (E) Any agency or branch of a foreign entity located in the United 
States;
    (F) Any non-discretionary account or similar account (other than an 
estate or trust) held by a dealer or other fiduciary for the benefit or 
account of a U.S. person (as defined under any other clause of this 
definition);
    (G) Any discretionary account or similar account (other than an 
estate or trust) held by a dealer or other fiduciary organized, 
incorporated, or (if an individual) resident in the United States; and
    (H) Any partnership, corporation, limited liability company, or 
other organization or entity if:
    (1) Organized or incorporated under the laws of any foreign 
jurisdiction; and
    (2) Formed by a U.S. person (as defined under any other clause of 
this definition) principally for the purpose of investing in securities 
not registered under the Act; and
    (ii) ``U.S. person(s)'' does not include:
    (A) Any discretionary account or similar account (other than an 
estate or trust) held for the benefit or account of a person not 
constituting a U.S. person (as defined in paragraph (i) of this section) 
by a dealer or other professional fiduciary organized, incorporated, or 
(if an individual) resident in the United States;
    (B) Any estate of which any professional fiduciary acting as 
executor or administrator is a U.S. person (as defined in paragraph (i) 
of this section) if:
    (1) An executor or administrator of the estate who is not a U.S. 
person (as defined in paragraph (i) of this section) has sole or shared 
investment discretion with respect to the assets of the estate; and
    (2) The estate is governed by foreign law;
    (C) Any trust of which any professional fiduciary acting as trustee 
is a U.S. person (as defined in paragraph (i) of this section), if a 
trustee who is not a U.S. person (as defined in paragraph (i) of this 
section) has sole or shared investment discretion with respect to the 
trust assets, and no beneficiary of the trust (and no settlor if the 
trust is revocable) is a U.S. person (as defined in paragraph (i) of 
this section);
    (D) An employee benefit plan established and administered in 
accordance with the law of a country other than the United States and 
customary practices and documentation of such country;
    (E) Any agency or branch of a U.S. person (as defined in paragraph 
(i) of this section) located outside the United States if:
    (1) The agency or branch operates for valid business reasons; and
    (2) The agency or branch is engaged in the business of insurance or 
banking and is subject to substantive insurance or banking regulation, 
respectively, in the jurisdiction where located;
    (F) The International Monetary Fund, the International Bank for 
Reconstruction and Development, the Inter-American Development Bank, the 
Asian Development Bank, the African Development Bank, the United 
Nations, and their agencies, affiliates and pension plans, and any other 
similar international organizations, their agencies, affiliates and 
pension plans.
    (b) In general. This part shall not apply to a securitization 
transaction if all the following conditions are met:
    (1) The securitization transaction is not required to be and is not 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.);
    (2) No more than 10 percent of the dollar value (or equivalent 
amount in

[[Page 935]]

the currency in which the ABS interests are issued, as applicable) of 
all classes of ABS interests in the securitization transaction are sold 
or transferred to U.S. persons or for the account or benefit of U.S. 
persons;
    (3) Neither the sponsor of the securitization transaction nor the 
issuing entity is:
    (i) Chartered, incorporated, or organized under the laws of the 
United States or any State;
    (ii) An unincorporated branch or office (wherever located) of an 
entity chartered, incorporated, or organized under the laws of the 
United States or any State; or
    (iii) An unincorporated branch or office located in the United 
States or any State of an entity that is chartered, incorporated, or 
organized under the laws of a jurisdiction other than the United States 
or any State; and
    (4) If the sponsor or issuing entity is chartered, incorporated, or 
organized under the laws of a jurisdiction other than the United States 
or any State, no more than 25 percent (as determined based on unpaid 
principal balance) of the assets that collateralize the ABS interests 
sold in the securitization transaction were acquired by the sponsor or 
issuing entity, directly or indirectly, from:
    (i) A majority-owned affiliate of the sponsor or issuing entity that 
is chartered, incorporated, or organized under the laws of the United 
States or any State; or
    (ii) An unincorporated branch or office of the sponsor or issuing 
entity that is located in the United States or any State.
    (c) Evasions prohibited. In view of the objective of these rules and 
the policies underlying Section 15G of the Exchange Act, the safe harbor 
described in paragraph (b) of this section is not available with respect 
to any transaction or series of transactions that, although in technical 
compliance with paragraphs (a) and (b) of this section, is part of a 
plan or scheme to evade the requirements of section 15G and this part. 
In such cases, compliance with section 15G and this part is required.



Sec.246.21  Additional exemptions.

    (a) Securitization transactions. The federal agencies with 
rulewriting authority under section 15G(b) of the Exchange Act (15 
U.S.C. 78o-11(b)) with respect to the type of assets involved may 
jointly provide a total or partial exemption of any securitization 
transaction as such agencies determine may be appropriate in the public 
interest and for the protection of investors.
    (b) Exceptions, exemptions, and adjustments. The Federal banking 
agencies and the Commission, in consultation with the Federal Housing 
Finance Agency and the Department of Housing and Urban Development, may 
jointly adopt or issue exemptions, exceptions or adjustments to the 
requirements of this part, including exemptions, exceptions or 
adjustments for classes of institutions or assets in accordance with 
section 15G(e) of the Exchange Act (15 U.S.C. 78o-11(e)).



Sec.246.22  Periodic review of the QRM definition, exempted three-
to-four unit residential mortgage loans, and community-focused 
residential mortgage exemption

          
    (a) The Federal banking agencies and the Commission, in consultation 
with the Federal Housing Finance Agency and the Department of Housing 
and Urban Development, shall commence a review of the definition of 
qualified residential mortgage in Sec.246.13, a review of the 
community-focused residential mortgage exemption in Sec.246.19(f), and 
a review of the exemption for qualifying three-to-four unit residential 
mortgage loans in Sec.246.19(g):
    (1) No later than four years after the effective date of the rule 
(as it relates to securitizers and originators of asset-backed 
securities collateralized by residential mortgages), five years 
following the completion of such initial review, and every five years 
thereafter; and
    (2) At any time, upon the request of any Federal banking agency, the 
Commission, the Federal Housing Finance Agency or the Department of 
Housing and Urban Development, specifying the reason for such request, 
including as a

[[Page 936]]

result of any amendment to the definition of qualified mortgage or 
changes in the residential housing market.
    (b) The Federal banking agencies, the Commission, the Federal 
Housing Finance Agency and the Department of Housing and Urban 
Development shall publish in the Federal Register notice of the 
commencement of a review and, in the case of a review commenced under 
paragraph (a)(2) of this section, the reason an agency is requesting 
such review. After completion of any review, but no later than six 
months after the publication of the notice announcing the review, unless 
extended by the agencies, the agencies shall jointly publish a notice 
disclosing the determination of their review. If the agencies determine 
to amend the definition of qualified residential mortgage, the agencies 
shall complete any required rulemaking within 12 months of publication 
in the Federal Register of such notice disclosing the determination of 
their review, unless extended by the agencies.



PART 247_REGULATION R_EXEMPTIONS AND DEFINITIONS RELATED TO THE 
EXCEPTIONS FOR BANKS FROM THE DEFINITION OF BROKER--Table of Contents



Sec.
247.100 Definition.
247.700 Defined terms relating to the networking exception from the 
          definition of ``broker.''
247.701 Exemption from the definition of ``broker'' for certain 
          institutional referrals.
247.721 Defined terms relating to the trust and fiduciary activities 
          exception from the definition of ``broker.''
247.722 Exemption allowing banks to calculate trust and fiduciary 
          compensation on a bank-wide basis.
247.723 Exemptions for special accounts, transferred accounts, foreign 
          branches, and a de minimis number of accounts.
247.740 Defined terms relating to the sweep accounts exception from the 
          definition of ``broker.''
247.741 Exemption for banks effecting transactions in money market 
          funds.
247.760 Exemption from definition of ``broker'' for banks accepting 
          orders to effect transactions in securities from or on behalf 
          of custody accounts.
247.771 Exemption from the definition of ``broker'' for banks effecting 
          transactions in securities issued pursuant to Regulation S.
247.772 Exemption from the definition of ``broker'' for banks engaging 
          in securities lending transactions.
247.775 Exemption from the definition of ``broker'' for banks effecting 
          certain excepted or exempted transactions in investment 
          company securities.
247.776 Exemption from the definition of ``broker'' for banks effecting 
          certain excepted or exempted transactions in a company's 
          securities for its employee benefit plans.
247.780 Exemption for banks from liability under section 29 of the 
          Securities Exchange Act of 1934.
247.781 Exemption from the definition of ``broker'' for banks for a 
          limited period of time.

    Authority: 15 U.S.C. 78c, 78o, 78q, 78w, and 78mm.

    Source: 72 FR 56554, Oct. 3, 2007, unless otherwise noted.



Sec.247.100  Definition.

    For purposes of this part the following definition shall apply: Act 
means the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).



Sec.247.700  Defined terms relating to the networking exception from
the definition of ``broker.''

    When used with respect to the Third Party Brokerage Arrangements 
(``Networking'') Exception from the definition of the term ``broker'' in 
section 3(a)(4)(B)(i) of the Act (15 U.S.C. 78c(a)(4)(B)(i)) in the 
context of transactions with a customer, the following terms shall have 
the meaning provided:
    (a) Contingent on whether the referral results in a transaction 
means dependent on whether the referral results in a purchase or sale of 
a security; whether an account is opened with a broker or dealer; 
whether the referral results in a transaction involving a particular 
type of security; or whether it results in multiple securities 
transactions; provided, however, that a referral fee may be contingent 
on whether a customer:
    (1) Contacts or keeps an appointment with a broker or dealer as a 
result of the referral; or
    (2) Meets any objective, base-line qualification criteria 
established by the bank or broker or dealer for customer referrals, 
including such criteria as minimum assets, net worth, income,

[[Page 937]]

or marginal federal or state income tax rate, or any requirement for 
citizenship or residency that the broker or dealer, or the bank, may 
have established generally for referrals for securities brokerage 
accounts.
    (b)(1) Incentive compensation means compensation that is intended to 
encourage a bank employee to refer customers to a broker or dealer or 
give a bank employee an interest in the success of a securities 
transaction at a broker or dealer. The term does not include 
compensation paid by a bank under a bonus or similar plan that is:
    (i) Paid on a discretionary basis; and
    (ii) Based on multiple factors or variables and:
    (A) Those factors or variables include multiple significant factors 
or variables that are not related to securities transactions at the 
broker or dealer;
    (B) A referral made by the employee is not a factor or variable in 
determining the employee's compensation under the plan; and
    (C) The employee's compensation under the plan is not determined by 
reference to referrals made by any other person.
    (2) Nothing in this paragraph (b) shall be construed to prevent a 
bank from compensating an officer, director or employee under a bonus or 
similar plan on the basis of any measure of the overall profitability or 
revenue of:
    (i) The bank, either on a stand-alone or consolidated basis;
    (ii) Any affiliate of the bank (other than a broker or dealer), or 
any operating unit of the bank or an affiliate (other than a broker or 
dealer), if the affiliate or operating unit does not over time 
predominately engage in the business of making referrals to a broker or 
dealer; or
    (iii) A broker or dealer if:
    (A) Such measure of overall profitability or revenue is only one of 
multiple factors or variables used to determine the compensation of the 
officer, director or employee;
    (B) The factors or variables used to determine the compensation of 
the officer, director or employee include multiple significant factors 
or variables that are not related to the profitability or revenue of the 
broker or dealer;
    (C) A referral made by the employee is not a factor or variable in 
determining the employee's compensation under the plan; and
    (D) The employee's compensation under the plan is not determined by 
reference to referrals made by any other person.
    (c) Nominal one-time cash fee of a fixed dollar amount means a cash 
payment for a referral, to a bank employee who was personally involved 
in referring the customer to the broker or dealer, in an amount that 
meets any of the following standards:
    (1) The payment does not exceed:
    (i) Twice the average of the minimum and maximum hourly wage 
established by the bank for the current or prior year for the job family 
that includes the employee; or
    (ii) 1/1000th of the average of the minimum and maximum annual base 
salary established by the bank for the current or prior year for the job 
family that includes the employee; or
    (2) The payment does not exceed twice the employee's actual base 
hourly wage or 1/1000th of the employee's actual annual base salary; or
    (3) The payment does not exceed twenty-five dollars ($25), as 
adjusted in accordance with paragraph (f) of this section.
    (d) Job family means a group of jobs or positions involving similar 
responsibilities, or requiring similar skills, education or training, 
that a bank, or a separate unit, branch or department of a bank, has 
established and uses in the ordinary course of its business to 
distinguish among its employees for purposes of hiring, promotion, and 
compensation.
    (e) Referral means the action taken by one or more bank employees to 
direct a customer of the bank to a broker or dealer for the purchase or 
sale of securities for the customer's account.
    (f) Inflation adjustment--(1) In general. On April 1, 2012, and on 
the 1st day of each subsequent 5-year period, the dollar amount referred 
to in paragraph (c)(3) of this section shall be adjusted by:
    (i) Dividing the annual value of the Employment Cost Index For Wages 
and Salaries, Private Industry Workers (or

[[Page 938]]

any successor index thereto), as published by the Bureau of Labor 
Statistics, for the calendar year preceding the calendar year in which 
the adjustment is being made by the annual value of such index (or 
successor) for the calendar year ending December 31, 2006; and
    (ii) Multiplying the dollar amount by the quotient obtained in 
paragraph (f)(1)(i) of this section.
    (2) Rounding. If the adjusted dollar amount determined under 
paragraph (f)(1) of this section for any period is not a multiple of $1, 
the amount so determined shall be rounded to the nearest multiple of $1.



Sec.247.701  Exemption from the definition of ``broker'' for certain 
institutional referrals.

    (a) General. A bank that meets the requirements for the exception 
from the definition of ``broker'' under section 3(a)(4)(B)(i) of the Act 
(15 U.S.C. 78c(a)(4)(B)(i)), other than section 3(a)(4)(B)(i)(VI) of the 
Act (15 U.S.C. 78c(a)(4)(B)(i)(VI)), is exempt from the conditions of 
section 3(a)(4)(B)(i)(VI) of the Act solely to the extent that a bank 
employee receives a referral fee for referring a high net worth customer 
or institutional customer to a broker or dealer with which the bank has 
a contractual or other written arrangement of the type specified in 
section 3(a)(4)(B)(i) of the Act, if:
    (1) Bank employee. (i) The bank employee is:
    (A) Not registered or approved, or otherwise required to be 
registered or approved, in accordance with the qualification standards 
established by the rules of any self-regulatory organization;
    (B) Predominantly engaged in banking activities other than making 
referrals to a broker or dealer; and
    (C) Not subject to statutory disqualification, as that term is 
defined in section 3(a)(39) of the Act (15 U.S.C. 78c(a)(39)), except 
subparagraph (E) of that section; and
    (ii) The high net worth customer or institutional customer is 
encountered by the bank employee in the ordinary course of the 
employee's assigned duties for the bank.
    (2) Bank determinations and obligations--(i) Disclosures. The bank 
provides the high net worth customer or institutional customer the 
information set forth in paragraph (b) of this section
    (A) In writing prior to or at the time of the referral; or
    (B) Orally prior to or at the time of the referral and
    (1) The bank provides such information to the customer in writing 
within 3 business days of the date on which the bank employee refers the 
customer to the broker or dealer; or
    (2) The written agreement between the bank and the broker or dealer 
provides for the broker or dealer to provide such information to the 
customer in writing in accordance with paragraph (a)(3)(i) of this 
section.
    (ii) Customer qualification. (A) In the case of a customer that is a 
not a natural person, the bank has a reasonable basis to believe that 
the customer is an institutional customer before the referral fee is 
paid to the bank employee.
    (B) In the case of a customer that is a natural person, the bank has 
a reasonable basis to believe that the customer is a high net worth 
customer prior to or at the time of the referral.
    (iii) Employee qualification information. Before a referral fee is 
paid to a bank employee under this section, the bank provides the broker 
or dealer the name of the employee and such other identifying 
information that may be necessary for the broker or dealer to determine 
whether the bank employee is registered or approved, or otherwise 
required to be registered or approved, in accordance with the 
qualification standards established by the rules of any self-regulatory 
organization or is subject to statutory disqualification, as that term 
is defined in section 3(a)(39) of the Act (15 U.S.C. 78c(a)(39)), except 
subparagraph (E) of that section.
    (iv) Good faith compliance and corrections. A bank that acts in good 
faith and that has reasonable policies and procedures in place to comply 
with the requirements of this section shall not be considered a 
``broker'' under section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) solely 
because the bank fails to comply with the provisions of this paragraph

[[Page 939]]

(a)(2) with respect to a particular customer if the bank:
    (A) Takes reasonable and prompt steps to remedy the error (such as, 
for example, by promptly making the required determination or promptly 
providing the broker or dealer the required information); and
    (B) Makes reasonable efforts to reclaim the portion of the referral 
fee paid to the bank employee for the referral that does not, following 
any required remedial action, meet the requirements of this section and 
that exceeds the amount otherwise permitted under section 
3(a)(4)(B)(i)(VI) of the Act (15 U.S.C. 78c(a)(4)(B)(i)(VI)) and Sec.
247.700.
    (3) Provisions of written agreement. The written agreement between 
the bank and the broker or dealer shall require that:
    (i) Broker-dealer written disclosures. If, pursuant to paragraph 
(a)(2)(i)(B)(2) of this section, the broker or dealer is to provide the 
customer in writing the disclosures set forth in paragraph (b) of this 
section, the broker or dealer provides such information to the customer 
in writing:
    (A) Prior to or at the time the customer begins the process of 
opening an account at the broker or dealer, if the customer does not 
have an account with the broker or dealer; or
    (B) Prior to the time the customer places an order for a securities 
transaction with the broker or dealer as a result of the referral, if 
the customer already has an account at the broker or dealer.
    (ii) Customer and employee qualifications. Before the referral fee 
is paid to the bank employee:
    (A) The broker or dealer determine that the bank employee is not 
subject to statutory disqualification, as that term is defined in 
section 3(a)(39) of the Act (15 U.S.C. 78c(a)(39)), except subparagraph 
(E) of that section; and
    (B) The broker or dealer has a reasonable basis to believe that the 
customer is a high net worth customer or an institutional customer.
    (iii) Suitability or sophistication determination by broker or 
dealer--(A) Contingent referral fees. In any case in which payment of 
the referral fee is contingent on completion of a securities transaction 
at the broker or dealer, the broker or dealer, before such securities 
transaction is conducted, perform a suitability analysis of the 
securities transaction in accordance with the rules of the broker or 
dealer's applicable self-regulatory organization as if the broker or 
dealer had recommended the securities transaction.
    (B) Non-contingent referral fees. In any case in which payment of 
the referral fee is not contingent on the completion of a securities 
transaction at the broker or dealer, the broker or dealer, before the 
referral fee is paid, either:
    (1) Determine that the customer:
    (i) Has the capability to evaluate investment risk and make 
independent decisions; and
    (ii) Is exercising independent judgment based on the customer's own 
independent assessment of the opportunities and risks presented by a 
potential investment, market factors and other investment 
considerations; or
    (2) Perform a suitability analysis of all securities transactions 
requested by the customer contemporaneously with the referral in 
accordance with the rules of the broker or dealer's applicable self-
regulatory organization as if the broker or dealer had recommended the 
securities transaction.
    (iv) Notice to the customer. The broker or dealer inform the 
customer if the broker or dealer determines that the customer or the 
securities transaction(s) to be conducted by the customer does not meet 
the applicable standard set forth in paragraph (a)(3)(iii) of this 
section.
    (v) Notice to the bank. The broker or dealer promptly inform the 
bank if the broker or dealer determines that:
    (A) The customer is not a high net worth customer or institutional 
customer, as applicable; or
    (B) The bank employee is subject to statutory disqualification, as 
that term is defined in section 3(a)(39) of the Act (15 U.S.C. 
78c(a)(39)), except subparagraph (E) of that section.
    (b) Required disclosures. The disclosures provided to the high net 
worth customer or institutional customer pursuant to paragraphs 
(a)(2)(i) or (a)(3)(i) of this section shall clearly and conspicuously 
disclose:

[[Page 940]]

    (1) The name of the broker or dealer; and
    (2) That the bank employee participates in an incentive compensation 
program under which the bank employee may receive a fee of more than a 
nominal amount for referring the customer to the broker or dealer and 
payment of this fee may be contingent on whether the referral results in 
a transaction with the broker or dealer.
    (c) Receipt of other compensation. Nothing in this section prevents 
or prohibits a bank from paying or a bank employee from receiving any 
type of compensation that would not be considered incentive compensation 
under Sec.247.700(b)(1) or that is described in Sec.247.700(b)(2).
    (d) Definitions. When used in this section:
    (1) High net worth customer--(i) General. High net worth customer 
means:
    (A) Any natural person who, either individually or jointly with his 
or her spouse, has at least $5 million in net worth excluding the 
primary residence and associated liabilities of the person and, if 
applicable, his or her spouse; and
    (B) Any revocable, inter vivos or living trust the settlor of which 
is a natural person who, either individually or jointly with his or her 
spouse, meets the net worth standard set forth in paragraph (d)(1)(i)(A) 
of this section.
    (ii) Individual and spousal assets. In determining whether any 
person is a high net worth customer, there may be included in the assets 
of such person
    (A) Any assets held individually;
    (B) If the person is acting jointly with his or her spouse, any 
assets of the person's spouse (whether or not such assets are held 
jointly); and
    (C) If the person is not acting jointly with his or her spouse, 
fifty percent of any assets held jointly with such person's spouse and 
any assets in which such person shares with such person's spouse a 
community property or similar shared ownership interest.
    (2) Institutional customer means any corporation, partnership, 
limited liability company, trust or other non-natural person that has, 
or is controlled by a non-natural person that has, at least:
    (i) $10 million in investments; or
    (ii) $20 million in revenues; or
    (iii) $15 million in revenues if the bank employee refers the 
customer to the broker or dealer for investment banking services.
    (3) Investment banking services includes, without limitation, acting 
as an underwriter in an offering for an issuer; acting as a financial 
adviser in a merger, acquisition, tender offer or similar transaction; 
providing venture capital, equity lines of credit, private investment-
private equity transactions or similar investments; serving as placement 
agent for an issuer; and engaging in similar activities.
    (4) Referral fee means a fee (paid in one or more installments) for 
the referral of a customer to a broker or dealer that is:
    (i) A predetermined dollar amount, or a dollar amount determined in 
accordance with a predetermined formula (such as a fixed percentage of 
the dollar amount of total assets placed in an account with the broker 
or dealer), that does not vary based on:
    (A) The revenue generated by or the profitability of securities 
transactions conducted by the customer with the broker or dealer; or
    (B) The quantity, price, or identity of securities transactions 
conducted over time by the customer with the broker or dealer; or
    (C) The number of customer referrals made; or
    (ii) A dollar amount based on a fixed percentage of the revenues 
received by the broker or dealer for investment banking services 
provided to the customer.
    (e) Inflation adjustments--(1) In general. On April 1, 2012, and on 
the 1st day of each subsequent 5-year period, each dollar amount in 
paragraphs (d)(1) and (d)(2) of this section shall be adjusted by:
    (i) Dividing the annual value of the Personal Consumption 
Expenditures Chain-Type Price Index (or any successor index thereto), as 
published by the Department of Commerce, for the calendar year preceding 
the calendar year in which the adjustment is being made by the annual 
value of such index (or successor) for the calendar year ending December 
31, 2006; and

[[Page 941]]

    (ii) Multiplying the dollar amount by the quotient obtained in 
paragraph (e)(1)(i) of this section.
    (2) Rounding. If the adjusted dollar amount determined under 
paragraph (e)(1) of this section for any period is not a multiple of 
$100,000, the amount so determined shall be rounded to the nearest 
multiple of $100,000.

[72 FR 56554, Oct. 3, 2007, as amended at 73 FR 20780, Apr. 17, 2008]



Sec.247.721  Defined terms relating to the trust and fiduciary 
activities exception from the definition of ``broker.''

    (a) Defined terms for chiefly compensated test. For purposes of this 
part and section 3(a)(4)(B)(ii) of the Act (15 U.S.C. 78c(a)(4)(B)(ii)), 
the following terms shall have the meaning provided:
    (1) Chiefly compensated--account-by-account test. Chiefly 
compensated shall mean the relationship-total compensation percentage 
for each trust or fiduciary account of the bank is greater than 50 
percent.
    (2) The relationship-total compensation percentage for a trust or 
fiduciary account shall be the mean of the yearly compensation 
percentage for the account for the immediately preceding year and the 
yearly compensation percentage for the account for the year immediately 
preceding that year.
    (3) The yearly compensation percentage for a trust or fiduciary 
account shall be
    (i) Equal to the relationship compensation attributable to the trust 
or fiduciary account during the year divided by the total compensation 
attributable to the trust or fiduciary account during that year, with 
the quotient expressed as a percentage; and
    (ii) Calculated within 60 days of the end of the year.
    (4) Relationship compensation means any compensation a bank receives 
attributable to a trust or fiduciary account that consists of:
    (i) An administration fee, including, without limitation, a fee 
paid--
    (A) For personal services, tax preparation, or real estate 
settlement services;
    (B) For disbursing funds from, or for recording receipt of payments 
to, a trust or fiduciary account;
    (C) In connection with securities lending or borrowing transactions;
    (D) For custody services; or
    (E) In connection with an investment in shares of an investment 
company for personal service, the maintenance of shareholder accounts or 
any service described in paragraph (a)(4)(iii)(C) of this section;
    (ii) An annual fee (payable on a monthly, quarterly or other basis), 
including, without limitation, a fee paid for assessing investment 
performance or for reviewing compliance with applicable investment 
guidelines or restrictions;
    (iii) A fee based on a percentage of assets under management, 
including, without limitation, a fee paid
    (A) Pursuant to a plan under Sec.270.12b-1;
    (B) In connection with an investment in shares of an investment 
company for personal service or the maintenance of shareholder accounts;
    (C) Based on a percentage of assets under management for any of the 
following services--
    (1) Providing transfer agent or sub-transfer agent services for 
beneficial owners of investment company shares;
    (2) Aggregating and processing purchase and redemption orders for 
investment company shares;
    (3) Providing beneficial owners with account statements showing 
their purchases, sales, and positions in the investment company;
    (4) Processing dividend payments for the investment company;
    (5) Providing sub-accounting services to the investment company for 
shares held beneficially;
    (6) Forwarding communications from the investment company to the 
beneficial owners, including proxies, shareholder reports, dividend and 
tax notices, and updated prospectuses; or
    (7) Receiving, tabulating, and transmitting proxies executed by 
beneficial owners of investment company shares;
    (D) Based on the financial performance of the assets in an account; 
or
    (E) For the types of services described in paragraph (a)(4)(i)(C) or 
(D) of this section if paid based on a percentage of assets under 
management;
    (iv) A flat or capped per order processing fee, paid by or on behalf 
of a customer or beneficiary, that is equal to not more than the cost 
incurred by the

[[Page 942]]

bank in connection with executing securities transactions for trust or 
fiduciary accounts; or
    (v) Any combination of such fees.
    (5) Trust or fiduciary account means an account for which the bank 
acts in a trustee or fiduciary capacity as defined in section 3(a)(4)(D) 
of the Act (15 U.S.C. 78c(a)(4)(D)).
    (6) Year means a calendar year, or fiscal year consistently used by 
the bank for recordkeeping and reporting purposes.
    (b) Revenues derived from transactions conducted under other 
exceptions or exemptions. For purposes of calculating the yearly 
compensation percentage for a trust or fiduciary account, a bank may at 
its election exclude the compensation associated with any securities 
transaction conducted in accordance with the exceptions in section 
3(a)(4)(B)(i) or sections 3(a)(4)(B)(iii)-(xi) of the Act (15 U.S.C. 
78c(a)(4)(B)(i) or 78c(a)(4)(B)(iii)-(xi)) and the rules issued 
thereunder, including any exemption related to such exceptions jointly 
adopted by the Commission and the Board, provided that if the bank 
elects to exclude such compensation, the bank must exclude the 
compensation from both the relationship compensation (if applicable) and 
total compensation for the account.
    (c) Advertising restrictions--(1) In general. A bank complies with 
the advertising restriction in section 3(a)(4)(B)(ii)(II) of the Act (15 
U.S.C. 78c(a)(4)(B)(ii)(II)) if advertisements by or on behalf of the 
bank do not advertise--
    (i) That the bank provides securities brokerage services for trust 
or fiduciary accounts except as part of advertising the bank's broader 
trust or fiduciary services; and
    (ii) The securities brokerage services provided by the bank to trust 
or fiduciary accounts more prominently than the other aspects of the 
trust or fiduciary services provided to such accounts.
    (2) Advertisement. For purposes of this section, the term 
advertisement has the same meaning as in Sec.247.760(h)(2).

[72 FR 56554, Oct. 3, 2007, as amended at 73 FR 20780, Apr. 17, 2008]



Sec.247.722  Exemption allowing banks to calculate trust and fiduciary
compensation on a bank-wide basis.

    (a) General. A bank is exempt from meeting the ``chiefly 
compensated'' condition in section 3(a)(4)(B)(ii)(I) of the Act (15 
U.S.C. 78c(a)(4)(B)(ii)(I)) to the extent that it effects transactions 
in securities for any account in a trustee or fiduciary capacity within 
the scope of section 3(a)(4)(D) of the Act (15 U.S.C. 78c(a)(4)(D)) if:
    (1) The bank meets the other conditions for the exception from the 
definition of the term ``broker'' under sections 3(a)(4)(B)(ii) and 
3(a)(4)(C) of the Act (15 U.S.C. 78c(a)(4)(B)(ii) and 15 U.S.C. 
78c(a)(4)(C)), including the advertising restrictions in section 
3(a)(4)(B)(ii)(II) of the Act (15 U.S.C. 78c(a)(4)(B)(ii)(II) as 
implemented by Sec.247.721(c); and
    (2) The aggregate relationship-total compensation percentage for the 
bank's trust and fiduciary business is at least 70 percent.
    (b) Aggregate relationship-total compensation percentage. For 
purposes of this section, the aggregate relationship-total compensation 
percentage for a bank's trust and fiduciary business shall be the mean 
of the bank's yearly bank-wide compensation percentage for the 
immediately preceding year and the bank's yearly bank-wide compensation 
percentage for the year immediately preceding that year.
    (c) Yearly bank-wide compensation percentage. For purposes of this 
section, a bank's yearly bank-wide compensation percentage for a year 
shall be
    (1) Equal to the relationship compensation attributable to the 
bank's trust and fiduciary business as a whole during the year divided 
by the total compensation attributable to the bank's trust and fiduciary 
business as a whole during that year, with the quotient expressed as a 
percentage; and
    (2) Calculated within 60 days of the end of the year.
    (d) Revenues derived from transactions conducted under other 
exceptions or exemptions. For purposes of calculating the yearly 
compensation percentage for a trust or fiduciary account, a bank may at 
its election exclude the compensation associated with any securities 
transaction conducted in accordance

[[Page 943]]

with the exceptions in section 3(a)(4)(B)(i) or sections 
3(a)(4)(B)(iii)-(xi) of the Act (15 U.S.C. 78c(a)(4)(B)(i) or 
78c(a)(4)(B)(iii)-(xi)) and the rules issued thereunder, including any 
exemption related to such sections jointly adopted by the Commission and 
the Board, provided that if the bank elects to exclude such 
compensation, the bank must exclude the compensation from both the 
relationship compensation (if applicable) and total compensation of the 
bank.



Sec.247.723  Exemptions for special accounts, transferred accounts,
foreign branches and a de minimis number of accounts.

    (a) Short-term accounts. A bank may, in determining its compliance 
with the chiefly compensated test in Sec.247.721(a)(1) or Sec.
247.722(a)(2), exclude any trust or fiduciary account that had been open 
for a period of less than 3 months during the relevant year.
    (b) Accounts acquired as part of a business combination or asset 
acquisition. For purposes of determining compliance with the chiefly 
compensated test in Sec.247.721(a)(1) or Sec.247.722(a)(2), any 
trust or fiduciary account that a bank acquired from another person as 
part of a merger, consolidation, acquisition, purchase of assets or 
similar transaction may be excluded by the bank for 12 months after the 
date the bank acquired the account from the other person.
    (c) Non-shell foreign branches--(1) Exemption. For purposes of 
determining compliance with the chiefly compensated test in Sec.
247.722(a)(2), a bank may exclude the trust or fiduciary accounts held 
at a non-shell foreign branch of the bank if the bank has reasonable 
cause to believe that trust or fiduciary accounts of the foreign branch 
held by or for the benefit of a U.S. person as defined in 17 CFR 
230.902(k) constitute less than 10 percent of the total number of trust 
or fiduciary accounts of the foreign branch.
    (2) Rules of construction. Solely for purposes of this paragraph 
(c), a bank will be deemed to have reasonable cause to believe that a 
trust or fiduciary account of a foreign branch of the bank is not held 
by or for the benefit of a U.S. person if
    (i) The principal mailing address maintained and used by the foreign 
branch for the accountholder(s) and beneficiary(ies) of the account is 
not in the United States; or
    (ii) The records of the foreign branch indicate that the 
accountholder(s) and beneficiary(ies) of the account is not a U.S. 
person as defined in 17 CFR 230.902(k).
    (3) Non-shell foreign branch. Solely for purposes of this paragraph 
(c), a non-shell foreign branch of a bank means a branch of the bank
    (i) That is located outside the United States and provides banking 
services to residents of the foreign jurisdiction in which the branch is 
located; and
    (ii) For which the decisions relating to day-to-day operations and 
business of the branch are made at that branch and are not made by an 
office of the bank located in the United States.
    (d) Accounts transferred to a broker or dealer or other unaffiliated 
entity. Notwithstanding section 3(a)(4)(B)(ii)(I) of the Act (15 U.S.C. 
78c(a)(4)(B)(ii)(I)) and Sec.247.721(a)(1) of this part, a bank 
operating under Sec.247.721(a)(1) shall not be considered a broker for 
purposes of section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) solely 
because a trust or fiduciary account does not meet the chiefly 
compensated standard in Sec.247.721(a)(1) if, within 3 months of the 
end of the year in which the account fails to meet such standard, the 
bank transfers the account or the securities held by or on behalf of the 
account to a broker or dealer registered under section 15 of the Act (15 
U.S.C. 78o) or another entity that is not an affiliate of the bank and 
is not required to be registered as a broker or dealer.
    (e) De minimis exclusion. A bank may, in determining its compliance 
with the chiefly compensated test in Sec.247.721(a)(1), exclude a 
trust or fiduciary account if:
    (1) The bank maintains records demonstrating that the securities 
transactions conducted by or on behalf of the account were undertaken by 
the bank in the exercise of its trust or fiduciary responsibilities with 
respect to the account;

[[Page 944]]

    (2) The total number of accounts excluded by the bank under this 
paragraph (d) does not exceed the lesser of--
    (i) 1 percent of the total number of trust or fiduciary accounts 
held by the bank, provided that if the number so obtained is less than 1 
the amount shall be rounded up to 1; or
    (ii) 500; and
    (3) The bank did not rely on this paragraph (e) with respect to such 
account during the immediately preceding year.

[72 FR 56554, Oct. 3, 2007, as amended at 73 FR 20780, Apr. 17, 2008]



Sec.247.740  Defined terms relating to the sweep accounts exception
from the definition of ``broker.''

    For purposes of section 3(a)(4)(B)(v) of the Act (15 U.S.C. 
78c(a)(4)(B)(v)), the following terms shall have the meaning provided:
    (a) Deferred sales load has the same meaning as in 17 CFR 270.6c-10.
    (b) Money market fund means an open-end company registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) that is 
regulated as a money market fund pursuant to 17 CFR 270.2a-7.
    (c)(1) No-load, in the context of an investment company or the 
securities issued by an investment company, means, for securities of the 
class or series in which a bank effects transactions, that:
    (i) That class or series is not subject to a sales load or a 
deferred sales load; and
    (ii) Total charges against net assets of that class or series of the 
investment company's securities for sales or sales promotion expenses, 
for personal service, or for the maintenance of shareholder accounts do 
not exceed 0.25 of 1% of average net assets annually.
    (2) For purposes of this definition, charges for the following will 
not be considered charges against net assets of a class or series of an 
investment company's securities for sales or sales promotion expenses, 
for personal service, or for the maintenance of shareholder accounts:
    (i) Providing transfer agent or sub-transfer agent services for 
beneficial owners of investment company shares;
    (ii) Aggregating and processing purchase and redemption orders for 
investment company shares;
    (iii) Providing beneficial owners with account statements showing 
their purchases, sales, and positions in the investment company;
    (iv) Processing dividend payments for the investment company;
    (v) Providing sub-accounting services to the investment company for 
shares held beneficially;
    (vi) Forwarding communications from the investment company to the 
beneficial owners, including proxies, shareholder reports, dividend and 
tax notices, and updated prospectuses; or
    (vii) Receiving, tabulating, and transmitting proxies executed by 
beneficial owners of investment company shares.
    (d) Open-end company has the same meaning as in section 5(a)(1) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-5(a)(1)).
    (e) Sales load has the same meaning as in section 2(a)(35) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(35)).



Sec.247.741  Exemption for banks effecting transactions in money 
market funds.

    (a) A bank is exempt from the definition of the term ``broker'' 
under section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) to the extent 
that it effects transactions on behalf of a customer in securities 
issued by a money market fund, provided that:
    (1) The bank either
    (i) Provides the customer, directly or indirectly, any other product 
or service, the provision of which would not, in and of itself, require 
the bank to register as a broker or dealer under section 15(a) of the 
Act (15 U.S.C. 78o(a)); or
    (ii) Effects the transactions on behalf of another bank as part of a 
program for the investment or reinvestment of deposit funds of, or 
collected by, the other bank; and
    (2)(i) The class or series of securities is no-load; or
    (ii) If the class or series of securities is not no-load
    (A) The bank or, if applicable, the other bank described in 
paragraph

[[Page 945]]

(a)(1)(B) of this section provides the customer, not later than at the 
time the customer authorizes the securities transactions, a prospectus 
for the securities; and
    (B) The bank and, if applicable, the other bank described in 
paragraph (a)(1)(B) of this section do not characterize or refer to the 
class or series of securities as no-load.
    (b) Definitions. For purposes of this section:
    (1) Money market fund has the same meaning as in Sec.247.740(b).
    (2) No-load has the same meaning as in Sec.247.740(c).

[72 FR 56554, Oct. 3, 2007, as amended at 73 FR 20780, Apr. 17, 2008]



Sec.247.760  Exemption from definition of ``broker'' for banks 
accepting orders to effect transactions in securities from or 
on behalf of custody accounts.

    (a) Employee benefit plan accounts and individual retirement 
accounts or similar accounts. A bank is exempt from the definition of 
the term ``broker'' under section 3(a)(4) of the Act (15 U.S.C. 
78c(a)(4)) to the extent that, as part of its customary banking 
activities, the bank accepts orders to effect transactions in securities 
for an employee benefit plan account or an individual retirement account 
or similar account for which the bank acts as a custodian if:
    (1) Employee compensation restriction and additional conditions. The 
bank complies with the employee compensation restrictions in paragraph 
(c) of this section and the other conditions in paragraph (d) of this 
section;
    (2) Advertisements. Advertisements by or on behalf of the bank do 
not:
    (i) Advertise that the bank accepts orders for securities 
transactions for employee benefit plan accounts or individual retirement 
accounts or similar accounts, except as part of advertising the other 
custodial or safekeeping services the bank provides to these accounts; 
or
    (ii) Advertise that such accounts are securities brokerage accounts 
or that the bank's safekeeping and custody services substitute for a 
securities brokerage account; and
    (3) Advertisements and sales literature for individual retirement or 
similar accounts. Advertisements and sales literature issued by or on 
behalf of the bank do not describe the securities order-taking services 
provided by the bank to individual retirement accounts or similar 
accounts more prominently than the other aspects of the custody or 
safekeeping services provided by the bank to these accounts.
    (b) Accommodation trades for other custodial accounts. A bank is 
exempt from the definition of the term ``broker'' under section 3(a)(4) 
of the Act (15 U.S.C. 78c(a)(4)) to the extent that, as part of its 
customary banking activities, the bank accepts orders to effect 
transactions in securities for an account for which the bank acts as 
custodian other than an employee benefit plan account or an individual 
retirement account or similar account if:
    (1) Accommodation. The bank accepts orders to effect transactions in 
securities for the account only as an accommodation to the customer;
    (2) Employee compensation restriction and additional conditions. The 
bank complies with the employee compensation restrictions in paragraph 
(c) of this section and the other conditions in paragraph (d) of this 
section;
    (3) Bank fees. Any fee charged or received by the bank for effecting 
a securities transaction for the account does not vary based on:
    (i) Whether the bank accepted the order for the transaction; or
    (ii) The quantity or price of the securities to be bought or sold;
    (4) Advertisements. Advertisements by or on behalf of the bank do 
not state that the bank accepts orders for securities transactions for 
the account;
    (5) Sales literature. Sales literature issued by or on behalf of the 
bank:
    (i) Does not state that the bank accepts orders for securities 
transactions for the account except as part of describing the other 
custodial or safekeeping services the bank provides to the account; and
    (ii) Does not describe the securities order-taking services provided 
to the account more prominently than the other aspects of the custody or 
safekeeping services provided by the bank to the account; and

[[Page 946]]

    (6) Investment advice and recommendations. The bank does not provide 
investment advice or research concerning securities to the account, make 
recommendations to the account concerning securities or otherwise 
solicit securities transactions from the account; provided, however, 
that nothing in this paragraph (b)(6) shall prevent a bank from:
    (i) Publishing, using or disseminating advertisements and sales 
literature in accordance with paragraphs (b)(4) and (b)(5) of this 
section; and
    (ii) Responding to customer inquiries regarding the bank's 
safekeeping and custody services by providing:
    (A) Advertisements or sales literature consistent with the 
provisions of paragraphs (b)(4) and (b)(5) of this section describing 
the safekeeping, custody and related services that the bank offers;
    (B) A prospectus prepared by a registered investment company, or 
sales literature prepared by a registered investment company or by the 
broker or dealer that is the principal underwriter of the registered 
investment company pertaining to the registered investment company's 
products;
    (C) Information based on the materials described in paragraphs 
(b)(6)(ii)(A) and (B) of this section; or
    (iii) Responding to inquiries regarding the bank's safekeeping, 
custody or other services, such as inquiries concerning the customer's 
account or the availability of sweep or other services, so long as the 
bank does not provide investment advice or research concerning 
securities to the account or make a recommendation to the account 
concerning securities.
    (c) Employee compensation restriction. A bank may accept orders 
pursuant to this section for a securities transaction for an account 
described in paragraph (a) or (b) of this section only if no bank 
employee receives compensation, including a fee paid pursuant to a plan 
under 17 CFR 270.12b-1, from the bank, the executing broker or dealer, 
or any other person that is based on whether a securities transaction is 
executed for the account or that is based on the quantity, price, or 
identity of securities purchased or sold by such account, provided that 
nothing in this paragraph shall prohibit a bank employee from receiving 
compensation that would not be considered incentive compensation under 
Sec.247.700(b)(1) as if a referral had been made by the bank employee, 
or any compensation described in Sec.247.700(b)(2).
    (d) Other conditions. A bank may accept orders for a securities 
transaction for an account for which the bank acts as a custodian under 
this section only if the bank:
    (1) Does not act in a trustee or fiduciary capacity (as defined in 
section 3(a)(4)(D) of the Act (15 U.S.C. 78c(a)(4)(D)) with respect to 
the account, other than as a directed trustee;
    (2) Complies with section 3(a)(4)(C) of the Act (15 U.S.C. 
78c(a)(4)(C)) in handling any order for a securities transaction for the 
account; and
    (3) Complies with section 3(a)(4)(B)(viii)(II) of the Act (15 U.S.C. 
78c(a)(4)(B)(viii)(II)) regarding carrying broker activities.
    (e) Non-fiduciary administrators and recordkeepers. A bank that acts 
as a non-fiduciary and non-custodial administrator or recordkeeper for 
an employee benefit plan account for which another bank acts as 
custodian may rely on the exemption provided in this section if:
    (1) Both the custodian bank and the administrator or recordkeeper 
bank comply with paragraphs (a), (c) and (d) of this section; and
    (2) The administrator or recordkeeper bank does not execute a cross-
trade with or for the employee benefit plan account or net orders for 
securities for the employee benefit plan account, other than:
    (i) Crossing or netting orders for shares of open-end investment 
companies not traded on an exchange, or
    (ii) Crossing orders between or netting orders for accounts of the 
custodian bank that contracted with the administrator or recordkeeper 
bank for services.
    (f) Subcustodians. A bank that acts as a subcustodian for an account 
for which another bank acts as custodian may rely on the exemptions 
provided in this section if:
    (1) For employee benefit plan accounts and individual retirement 
accounts or similar accounts, both the

[[Page 947]]

custodian bank and the subcustodian bank meet the requirements of 
paragraphs (a), (c) and (d) of this section;
    (2) For other custodial accounts, both the custodian bank and the 
subcustodian bank meet the requirements of paragraphs (b), (c) and (d) 
of this section; and
    (3) The subcustodian bank does not execute a cross-trade with or for 
the account or net orders for securities for the account, other than:
    (i) Crossing or netting orders for shares of open-end investment 
companies not traded on an exchange, or
    (ii) Crossing orders between or netting orders for accounts of the 
custodian bank.
    (g) Evasions. In considering whether a bank meets the terms of this 
section, both the form and substance of the relevant account(s), 
transaction(s) and activities (including advertising activities) of the 
bank will be considered in order to prevent evasions of the requirements 
of this section.
    (h) Definitions. When used in this section:
    (1) Account for which the bank acts as a custodian means an account 
that is:
    (i) An employee benefit plan account for which the bank acts as a 
custodian;
    (ii) An individual retirement account or similar account for which 
the bank acts as a custodian;
    (iii) An account established by a written agreement between the bank 
and the customer that sets forth the terms that will govern the fees 
payable to, and rights and obligations of, the bank regarding the 
safekeeping or custody of securities; or
    (iv) An account for which the bank acts as a directed trustee.
    (2) Advertisement means any material that is published or used in 
any electronic or other public media, including any Web site, newspaper, 
magazine or other periodical, radio, television, telephone or tape 
recording, videotape display, signs or billboards, motion pictures, or 
telephone directories (other than routine listings).
    (3) Directed trustee means a trustee that does not exercise 
investment discretion with respect to the account.
    (4) Employee benefit plan account means a pension plan, retirement 
plan, profit sharing plan, bonus plan, thrift savings plan, incentive 
plan, or other similar plan, including, without limitation, an employer-
sponsored plan qualified under section 401(a) of the Internal Revenue 
Code (26 U.S.C. 401(a)), a governmental or other plan described in 
section 457 of the Internal Revenue Code (26 U.S.C. 457), a tax-deferred 
plan described in section 403(b) of the Internal Revenue Code (26 U.S.C. 
403(b)), a church plan, governmental, multiemployer or other plan 
described in section 414(d), (e) or (f) of the Internal Revenue Code (26 
U.S.C. 414(d), (e) or (f)), an incentive stock option plan described in 
section 422 of the Internal Revenue Code (26 U.S.C. 422); a Voluntary 
Employee Beneficiary Association Plan described in section 501(c)(9) of 
the Internal Revenue Code (26 U.S.C. 501(c)(9)), a non-qualified 
deferred compensation plan (including a rabbi or secular trust), a 
supplemental or mirror plan, and a supplemental unemployment benefit 
plan.
    (5) Individual retirement account or similar account means an 
individual retirement account as defined in section 408 of the Internal 
Revenue Code (26 U.S.C. 408), Roth IRA as defined in section 408A of the 
Internal Revenue Code (26 U.S.C. 408A), health savings account as 
defined in section 223(d) of the Internal Revenue Code (26 U.S.C. 
223(d)), Archer medical savings account as defined in section 220(d) of 
the Internal Revenue Code (26 U.S.C. 220(d)), Coverdell education 
savings account as defined in section 530 of the Internal Revenue Code 
(26 U.S.C. 530), or other similar account.
    (6) Sales literature means any written or electronic communication, 
other than an advertisement, that is generally distributed or made 
generally available to customers of the bank or the public, including 
circulars, form letters, brochures, telemarketing scripts, seminar 
texts, published articles, and press releases concerning the bank's 
products or services.
    (7) Principal underwriter has the same meaning as in section 
2(a)(29) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(29)).

[[Page 948]]



Sec.247.771  Exemption from the definition of ``broker'' for banks 
effecting transactions in securities issued pursuant to Regulation S.

    (a) A bank is exempt from the definition of the term ``broker'' 
under section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)), to the extent 
that, as agent, the bank:
    (1) Effects a sale in compliance with the requirements of 17 CFR 
230.903 of an eligible security to a purchaser who is not in the United 
States;
    (2) Effects, by or on behalf of a person who is not a U.S. person 
under 17 CFR 230.902(k), a resale of an eligible security after its 
initial sale with a reasonable belief that the eligible security was 
initially sold outside of the United States within the meaning of and in 
compliance with the requirements of 17 CFR 230.903 to a purchaser who is 
not in the United States or a registered broker or dealer, provided that 
if the resale is made prior to the expiration of any applicable 
distribution compliance period specified in 17 CFR 230.903(b)(2) or 
(b)(3), the resale is made in compliance with the requirements of 17 CFR 
230.904; or
    (3) Effects, by or on behalf of a registered broker or dealer, a 
resale of an eligible security after its initial sale with a reasonable 
belief that the eligible security was initially sold outside of the 
United States within the meaning of and in compliance with the 
requirements of 17 CFR 230.903 to a purchaser who is not in the United 
States, provided that if the resale is made prior to the expiration of 
any applicable distribution compliance period specified in 17 CFR 
230.903(b)(2) or (b)(3), the resale is made in compliance with the 
requirements of 17 CFR 230.904.
    (b) Definitions. For purposes of this section:
    (1) Distributor has the same meaning as in 17 CFR 230.902(d).
    (2) Eligible security means a security that:
    (i) Is not being sold from the inventory of the bank or an affiliate 
of the bank; and
    (ii) Is not being underwritten by the bank or an affiliate of the 
bank on a firm-commitment basis, unless the bank acquired the security 
from an unaffiliated distributor that did not purchase the security from 
the bank or an affiliate of the bank.
    (3) Purchaser means a person who purchases an eligible security and 
who is not a U.S. person under 17 CFR 230.902(k).



Sec.247.772  Exemption from the definition of ``broker'' for banks 
engaging in securities lending transactions.

    (a) A bank is exempt from the definition of the term ``broker'' 
under section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)), to the extent 
that, as an agent, it engages in or effects securities lending 
transactions, and any securities lending services in connection with 
such transactions, with or on behalf of a person the bank reasonably 
believes to be:
    (1) A qualified investor as defined in section 3(a)(54)(A) of the 
Act (15 U.S.C. 78c(a)(54)(A)); or
    (2) Any employee benefit plan that owns and invests on a 
discretionary basis, not less than $ 25,000,000 in investments.
    (b) Securities lending transaction means a transaction in which the 
owner of a security lends the security temporarily to another party 
pursuant to a written securities lending agreement under which the 
lender retains the economic interests of an owner of such securities, 
and has the right to terminate the transaction and to recall the loaned 
securities on terms agreed by the parties.
    (c) Securities lending services means:
    (1) Selecting and negotiating with a borrower and executing, or 
directing the execution of the loan with the borrower;
    (2) Receiving, delivering, or directing the receipt or delivery of 
loaned securities;
    (3) Receiving, delivering, or directing the receipt or delivery of 
collateral;
    (4) Providing mark-to-market, corporate action, recordkeeping or 
other services incidental to the administration of the securities 
lending transaction;
    (5) Investing, or directing the investment of, cash collateral; or
    (6) Indemnifying the lender of securities with respect to various 
matters.

[[Page 949]]



Sec.247.775  Exemption from the definition of ``broker'' for banks
effecting certain excepted or exempted transactions in investment 
company securities.

    (a) A bank that meets the conditions for an exception or exemption 
from the definition of the term ``broker'' except for the condition in 
section 3(a)(4)(C)(i) of the Act (15 U.S.C. 78c(a)(4)(C)(i)), is exempt 
from such condition to the extent that it effects a transaction in a 
covered security, if:
    (1) Any such security is neither traded on a national securities 
exchange nor through the facilities of a national securities association 
or an interdealer quotation system;
    (2) The security is distributed by a registered broker or dealer, or 
the sales charge is no more than the amount permissible for a security 
sold by a registered broker or dealer pursuant to any applicable rules 
adopted pursuant to section 22(b)(1) of the Investment Company Act of 
1940 (15 U.S.C. 80a-22(b)(1)) by a securities association registered 
under section 15A of the Act (15 U.S.C. 78o-3); and
    (3) Any such transaction is effected:
    (i) Through the National Securities Clearing Corporation; or
    (ii) Directly with a transfer agent or with an insurance company or 
separate account that is excluded from the definition of transfer agent 
in Section 3(a)(25) of the Act.
    (b) Definitions. For purposes of this section:
    (1) Covered security means:
    (i) Any security issued by an open-end company, as defined by 
section 5(a)(1) of the Investment Company Act (15 U.S.C. 80a-5(a)(1)), 
that is registered under that Act; and
    (ii) Any variable insurance contract funded by a separate account, 
as defined by section 2(a)(37) of the Investment Company Act (15 U.S.C. 
80a-2(a)(37)), that is registered under that Act.
    (2) Interdealer quotation system has the same meaning as in 17 CFR 
240.15c2-11.
    (3) Insurance company has the same meaning as in 15 U.S.C. 
77b(a)(13).

[72 FR 56554, Oct. 3, 2007, as amended at 73 FR 20780, Apr. 17, 2008]



Sec.247.776  Exemption from the definition of ``broker'' for banks
effecting certain excepted or exempted transactions in a company's 
securities for its employee benefit plans.

          
    (a) A bank that meets the conditions for an exception or exemption 
from the definition of the term ``broker'' except for the condition in 
section 3(a)(4)(C)(i) of the Act (15 U.S.C. 78c(a)(4)(C)(i)), is exempt 
from such condition to the extent that it effects a transaction in the 
securities of a company directly with a transfer agent acting for the 
company that issued the security, if:
    (1) No commission is charged with respect to the transaction;
    (2) The transaction is conducted by the bank solely for the benefit 
of an employee benefit plan account;
    (3) Any such security is obtained directly from:
    (i) The company; or
    (ii) An employee benefit plan of the company; and
    (4) Any such security is transferred only to:
    (i) The company; or
    (ii) An employee benefit plan of the company.
    (b) For purposes of this section, the term employee benefit plan 
account has the same meaning as in Sec.247.760(h)(4).



Sec.247.780  Exemption for banks from liability under section 29 of 
the Securities Exchange Act of 1934.

    (a) No contract entered into before March 31, 2009, shall be void or 
considered voidable by reason of section 29(b) of the Act (15 U.S.C. 
78cc(b)) because any bank that is a party to the contract violated the 
registration requirements of section 15(a) of the Act (15 U.S.C. 
78o(a)), any other applicable provision of the Act, or the rules and 
regulations thereunder based solely on the bank's status as a broker 
when the contract was created.
    (b) No contract shall be void or considered voidable by reason of 
section 29(b) of the Act (15 U.S.C. 78cc(b)) because any bank that is a 
party to the contract violated the registration requirements of section 
15(a) of the Act (15 U.S.C. 78o(a)) or the rules and regulations 
thereunder based solely on the bank's status as a broker when the 
contract was created, if:

[[Page 950]]

    (1) At the time the contract was created, the bank acted in good 
faith and had reasonable policies and procedures in place to comply with 
section 3(a)(4)(B) of the Act (15 U.S.C. 78c(a)(4)(B)) and the rules and 
regulations thereunder; and
    (2) At the time the contract was created, any violation of the 
registration requirements of section 15(a) of the Act by the bank did 
not result in any significant harm or financial loss or cost to the 
person seeking to void the contract.



Sec.247.781  Exemption from the definition of ``broker'' for banks
for a limited period of time.

    A bank is exempt from the definition of the term ``broker'' under 
section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) until the first day of 
its first fiscal year commencing after September 30, 2008.



PART 248_REGULATIONS S	P, S	AM, AND S	ID--Table of Contents



Subpart A_Regulation S-P: Privacy of Consumer Financial Information and 
                    Safeguarding Personal Information

Sec.
248.1 Purpose and scope.
248.2 Model privacy form: rule of construction.
248.3 Definitions.

                       Privacy and Opt Out Notices

248.4 Initial privacy notice to consumers required.
248.5 Annual privacy notice to customers required.
248.6 Information to be included in privacy notices.
248.7 Form of opt out notice to consumers; opt out methods.
248.8 Revised privacy notices.
248.9 Delivering privacy and opt out notices.

                          Limits on Disclosures

248.10 Limits on disclosure of nonpublic personal information to 
          nonaffiliated third parties.
248.11 Limits on redisclosure and reuse of information.
248.12 Limits on sharing account number information for marketing 
          purposes.

                               Exceptions

248.13 Exception to opt out requirements for service providers and joint 
          marketing.
248.14 Exceptions to notice and opt out requirements for processing and 
          servicing transactions.
248.15 Other exceptions to notice and opt out requirements.

                 Relation to Other Laws; Effective Date

248.16 Protection of Fair Credit Reporting Act.
248.17 Relation to State laws.
248.18 Effective date; transition rule.
248.19-248.29 [Reserved]
248.30 Procedures to safeguard customer records and information.
248.31-248.100 [Reserved]

Appendix A to Subpart A of Part 248--Forms

      Subpart B_Regulation S-AM: Limitations on Affiliate Marketing

248.101 Purpose and scope.
248.102 Examples.
248.103-248.119 [Reserved]
248.120 Definitions.
248.121 Affiliate marketing opt out and exceptions.
248.122 Scope and duration of opt out.
248.123 Contents of opt out notice; consolidated and equivalent notices.
248.124 Reasonable opportunity to opt out.
248.125 Reasonable and simple methods of opting out.
248.126 Delivery of opt out notices.
248.127 Renewal of opt out elections.
248.128 Effective date, compliance date, and prospective application.

Appendix to Subpart B of Part 248--Model Forms

           Subpart C_Regulation S	ID: Identity Theft Red Flags

248.201 Duties regarding the detection, prevention, and mitigation of 
          identity theft.
248.202 Duties of card issuers regarding changes of address.

Appendix A to Subpart C of Part 248--Interagency Guidelines on Identity 
          Theft Detection, Prevention, and Mitigation

    Authority: 15 U.S.C. 78q, 78q-1, 78o-4, 78o-5, 78w, 78mm, 80a-30, 
80a-37, 80b-4, 80b-11, 1681m(e), 1681s(b), 1681s-3 and note, 
1681w(a)(1), 6801-6809, and 6825; Pub. L. 111-203, secs. 1088(a)(8), 
(a)(10), and Sec.1088(b), 124 Stat. 1376 (2010).

    Source: 65 FR 40362, June 29, 2000, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 248 appear at 74 FR 
40431, Aug. 11, 2009.

[[Page 951]]



Subpart A_Regulation S-P: Privacy of Consumer Financial Information and 
                    Safeguarding Personal Information



Sec.248.1  Purpose and scope.

    (a) Purpose. This subpart governs the treatment of nonpublic 
personal information about consumers by the financial institutions 
listed in paragraph (b) of this section. This subpart:
    (1) Requires a financial institution to provide notice to customers 
about its privacy policies and practices;
    (2) Describes the conditions under which a financial institution may 
disclose nonpublic personal information about consumers to nonaffiliated 
third parties; and
    (3) Provides a method for consumers to prevent a financial 
institution from disclosing that information to most nonaffiliated third 
parties by ``opting out'' of that disclosure, subject to the exceptions 
in Sec.Sec.248.13, 248.14, and 248.15.
    (b) Scope. Except with respect to Sec.248.30(b), this subpart 
applies only to nonpublic personal information about individuals who 
obtain financial products or services primarily for personal, family, or 
household purposes from the institutions listed below. This subpart does 
not apply to information about companies or about individuals who obtain 
financial products or services primarily for business, commercial, or 
agricultural purposes. This part applies to brokers, dealers, and 
investment companies, as well as to investment advisers that are 
registered with the Commission. It also applies to foreign (non-
resident) brokers, dealers, investment companies and investment advisers 
that are registered with the Commission. These entities are referred to 
in this subpart as ``you.'' This subpart does not apply to foreign (non-
resident) brokers, dealers, investment companies and investment advisers 
that are not registered with the Commission. Nothing in this subpart 
modifies, limits, or supersedes the standards governing individually 
identifiable health information promulgated by the Secretary of Health 
and Human Services under the authority of sections 262 and 264 of the 
Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. 
1320d-1320d-8).

[65 FR 40362, June 29, 2000, as amended at 69 FR 71329, Dec. 8, 2004]



Sec.248.2  Model privacy form: rule of construction.

    (a) Model privacy form. Use of the model privacy form in appendix A 
to subpart A of this part, consistent with the instructions in appendix 
A to subpart A, constitutes compliance with the notice content 
requirements of Sec.Sec.248.6 and 248.7 of this part, although use of 
the model privacy form is not required.
    (b) Examples. The examples in this part provide guidance concerning 
the rule's application in ordinary circumstances. The facts and 
circumstances of each individual situation, however, will determine 
whether compliance with an example, to the extent practicable, 
constitutes compliance with this part.
    (c) Substituted compliance with CFTC financial privacy rules by 
futures commission merchants and introducing brokers. Except with 
respect to Sec.248.30(b), any futures commission merchant or 
introducing broker (as those terms are defined in the Commodity Exchange 
Act (7 U.S.C. 1, et seq.)) registered by notice with the Commission for 
the purpose of conducting business in security futures products pursuant 
to section 15(b)(11)(A) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o(b)(11)(A)) that is subject to and in compliance with the 
financial privacy rules of the Commodity Futures Trading Commission (17 
CFR part 160) will be deemed to be in compliance with this part.

[74 FR 62984, Dec. 1, 2009]



Sec.248.3  Definitions.

    As used in this subpart, unless the context requires otherwise:
    (a) Affiliate of a broker, dealer, or investment company, or an 
investment adviser registered with the Commission means any company that 
controls, is controlled by, or is under common control with the broker, 
dealer, or investment company, or investment adviser registered with the 
Commission. In addition, a broker, dealer, or investment

[[Page 952]]

company, or an investment adviser registered with the Commission will be 
deemed an affiliate of a company for purposes of this subpart if:
    (1) That company is regulated under Title V of the GLBA by the 
Federal Trade Commission or by a Federal functional regulator other than 
the Commission; and
    (2) Rules adopted by the Federal Trade Commission or another federal 
functional regulator under Title V of the GLBA treat the broker, dealer, 
or investment company, or investment adviser registered with the 
Commission as an affiliate of that company.
    (b) Broker has the same meaning as in section 3(a)(4) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)).
    (c)(1) Clear and conspicuous means that a notice is reasonably 
understandable and designed to call attention to the nature and 
significance of the information in the notice.
    (2) Examples--(i) Reasonably understandable. You make your notice 
reasonably understandable if you:
    (A) Present the information in the notice in clear, concise 
sentences, paragraphs, and sections;
    (B) Use short explanatory sentences or bullet lists whenever 
possible;
    (C) Use definite, concrete, everyday words and active voice whenever 
possible;
    (D) Avoid multiple negatives;
    (E) Avoid legal and highly technical business terminology whenever 
possible; and
    (F) Avoid explanations that are imprecise and readily subject to 
different interpretations.
    (ii) Designed to call attention. You design your notice to call 
attention to the nature and significance of the information in it if 
you:
    (A) Use a plain-language heading to call attention to the notice;
    (B) Use a typeface and type size that are easy to read;
    (C) Provide wide margins and ample line spacing;
    (D) Use boldface or italics for key words; and
    (E) Use distinctive type size, style, and graphic devices, such as 
shading or sidebars when you combine your notice with other information.
    (iii) Notices on web sites. If you provide a notice on a web page, 
you design your notice to call attention to the nature and significance 
of the information in it if you use text or visual cues to encourage 
scrolling down the page if necessary to view the entire notice and 
ensure that other elements on the web site (such as text, graphics, 
hyperlinks, or sound) do not distract attention from the notice, and you 
either:
    (A) Place the notice on a screen that consumers frequently access, 
such as a page on which transactions are conducted; or
    (B) Place a link on a screen that consumers frequently access, such 
as a page on which transactions are conducted, that connects directly to 
the notice and is labeled appropriately to convey the importance, 
nature, and relevance of the notice.
    (d) Collect means to obtain information that you organize or can 
retrieve by the name of an individual or by identifying number, symbol, 
or other identifying particular assigned to the individual, irrespective 
of the source of the underlying information.
    (e) Commission means the Securities and Exchange Commission.
    (f) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association, or similar 
organization.
    (g)(1) Consumer means an individual who obtains or has obtained a 
financial product or service from you that is to be used primarily for 
personal, family, or household purposes, or that individual's legal 
representative.
    (2) Examples. (i) An individual is your consumer if he or she 
provides nonpublic personal information to you in connection with 
obtaining or seeking to obtain brokerage services or investment advisory 
services, whether or not you provide brokerage services to the 
individual or establish a continuing relationship with the individual.
    (ii) An individual is not your consumer if he or she provides you 
only with his or her name, address, and general areas of investment 
interest in connection with a request for a prospectus, an investment 
adviser brochure, or other information about financial products or 
services.

[[Page 953]]

    (iii) An individual is not your consumer if he or she has an account 
with another broker or dealer (the introducing broker-dealer) that 
carries securities for the individual in a special omnibus account with 
you (the clearing broker-dealer) in the name of the introducing broker-
dealer, and when you receive only the account numbers and transaction 
information of the introducing broker-dealer's consumers in order to 
clear transactions.
    (iv) If you are an investment company, an individual is not your 
consumer when the individual purchases an interest in shares you have 
issued only through a broker or dealer or investment adviser who is the 
record owner of those shares.
    (v) An individual who is a consumer of another financial institution 
is not your consumer solely because you act as agent for, or provide 
processing or other services to, that financial institution.
    (vi) An individual is not your consumer solely because he or she has 
designated you as trustee for a trust.
    (vii) An individual is not your consumer solely because he or she is 
a beneficiary of a trust for which you are a trustee.
    (viii) An individual is not your consumer solely because he or she 
is a participant or a beneficiary of an employee benefit plan that you 
sponsor or for which you act as a trustee or fiduciary.
    (h) Consumer reporting agency has the same meaning as in section 
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
    (i) Control of a company means the power to exercise a controlling 
influence over the management or policies of a company whether through 
ownership of securities, by contract, or otherwise. Any person who owns 
beneficially, either directly or through one or more controlled 
companies, more than 25 percent of the voting securities of any company 
is presumed to control the company. Any person who does not own more 
than 25 percent of the voting securities of any company will be presumed 
not to control the company. Any presumption regarding control may be 
rebutted by evidence, but, in the case of an investment company, will 
continue until the Commission makes a decision to the contrary according 
to the procedures described in section 2(a)(9) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-2(a)(9)).
    (j) Customer means a consumer who has a customer relationship with 
you.
    (k)(1) Customer relationship means a continuing relationship between 
a consumer and you under which you provide one or more financial 
products or services to the consumer that are to be used primarily for 
personal, family, or household purposes.
    (2) Examples--(i) Continuing relationship. A consumer has a 
continuing relationship with you if:
    (A) The consumer has a brokerage account with you, or if a 
consumer's account is transferred to you from another broker-dealer;
    (B) The consumer has an investment advisory contract with you 
(whether written or oral);
    (C) The consumer is the record owner of securities you have issued 
if you are an investment company;
    (D) The consumer holds an investment product through you, such as 
when you act as a custodian for securities or for assets in an 
Individual Retirement Arrangement;
    (E) The consumer purchases a variable annuity from you;
    (F) The consumer has an account with an introducing broker or dealer 
that clears transactions with and for its customers through you on a 
fully disclosed basis;
    (G) You hold securities or other assets as collateral for a loan 
made to the consumer, even if you did not make the loan or do not effect 
any transactions on behalf of the consumer; or
    (H) You regularly effect or engage in securities transactions with 
or for a consumer even if you do not hold any assets of the consumer.
    (ii) No continuing relationship. A consumer does not, however, have 
a continuing relationship with you if you open an account for the 
consumer solely for the purpose of liquidating or purchasing securities 
as an accommodation, i.e., on a one time basis, without the expectation 
of engaging in other transactions.

[[Page 954]]

    (l) Dealer has the same meaning as in section 3(a)(5) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)).
    (m) Federal functional regulator means:
    (1) The Board of Governors of the Federal Reserve System;
    (2) The Office of the Comptroller of the Currency;
    (3) The Board of Directors of the Federal Deposit Insurance 
Corporation;
    (4) The Director of the Office of Thrift Supervision;
    (5) The National Credit Union Administration Board
    (6) The Securities and Exchange Commission; and
    (7) The Commodity Futures Trading Commission.
    (n)(1) Financial institution means any institution the business of 
which is engaging in activities that are financial in nature or 
incidental to such financial activities as described in section 4(k) of 
the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
    (2) Financial institution does not include:
    (i) The Federal Agricultural Mortgage Corporation or any entity 
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C. 
2001 et seq.); or
    (ii) Institutions chartered by Congress specifically to engage in 
securitizations, secondary market sales (including sales of servicing 
rights), or similar transactions related to a transaction of a consumer, 
as long as such institutions do not sell or transfer nonpublic personal 
information to a nonaffiliated third party.
    (o)(1) Financial product or service means any product or service 
that a financial holding company could offer by engaging in an activity 
that is financial in nature or incidental to such a financial activity 
under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1843(k)).
    (2) Financial service includes your evaluation or brokerage of 
information that you collect in connection with a request or an 
application from a consumer for a financial product or service.
    (p) GLBA means the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 
Stat. 1338 (1999)).
    (q) Investment adviser has the same meaning as in section 202(a)(11) 
of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)).
    (r) Investment company has the same meaning as in section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3), and includes a 
separate series of the investment company.
    (s)(1) Nonaffiliated third party means any person except:
    (i) Your affiliate; or
    (ii) A person employed jointly by you and any company that is not 
your affiliate (but nonaffiliated third party includes the other company 
that jointly employs the person).
    (2) Nonaffiliated third party includes any company that is an 
affiliate solely by virtue of your or your affiliate's direct or 
indirect ownership or control of the company in conducting merchant 
banking or investment banking activities of the type described in 
section 4(k)(4)(H) or insurance company investment activities of the 
type described in section 4(k)(4)(I) of the Bank Holding Company Act (12 
U.S.C. 1843(k)(4)(H) and (I)).
    (t)(1) Nonpublic personal information means:
    (i) Personally identifiable financial information; and
    (ii) Any list, description, or other grouping of consumers (and 
publicly available information pertaining to them) that is derived using 
any personally identifiable financial information that is not publicly 
available information.
    (2) Nonpublic personal information does not include:
    (i) Publicly available information, except as included on a list 
described in paragraph (t)(1)(ii) of this section or when the publicly 
available information is disclosed in a manner that indicates the 
individual is or has been your consumer; or
    (ii) Any list, description, or other grouping of consumers (and 
publicly available information pertaining to them) that is derived 
without using any personally identifiable financial information that is 
not publicly available information.
    (3) Examples of lists. (i) Nonpublic personal information includes 
any list of individuals' names and street addresses

[[Page 955]]

that is derived in whole or in part using personally identifiable 
financial information that is not publicly available information, such 
as account numbers.
    (ii) Nonpublic personal information does not include any list of 
individuals' names and addresses that contains only publicly available 
information, is not derived in whole or in part using personally 
identifiable financial information that is not publicly available 
information, and is not disclosed in a manner that indicates that any of 
the individuals on the list is a consumer of a financial institution.
    (u)(1) Personally identifiable financial information means any 
information:
    (i) A consumer provides to you to obtain a financial product or 
service from you;
    (ii) About a consumer resulting from any transaction involving a 
financial product or service between you and a consumer; or
    (iii) You otherwise obtain about a consumer in connection with 
providing a financial product or service to that consumer.
    (2) Examples--(i) Information included. Personally identifiable 
financial information includes:
    (A) Information a consumer provides to you on an application to 
obtain a loan, credit card, or other financial product or service;
    (B) Account balance information, payment history, overdraft history, 
and credit or debit card purchase information;
    (C) The fact that an individual is or has been one of your customers 
or has obtained a financial product or service from you;
    (D) Any information about your consumer if it is disclosed in a 
manner that indicates that the individual is or has been your consumer;
    (E) Any information that a consumer provides to you or that you or 
your agent otherwise obtain in connection with collecting on a loan or 
servicing a loan;
    (F) Any information you collect through an Internet ``cookie'' (an 
information collecting device from a web server); and
    (G) Information from a consumer report.
    (ii) Information not included. Personally identifiable financial 
information does not include:
    (A) A list of names and addresses of customers of an entity that is 
not a financial institution; or
    (B) Information that does not identify a consumer, such as aggregate 
information or blind data that does not contain personal identifiers 
such as account numbers, names, or addresses.
    (v)(1) Publicly available information means any information that you 
reasonably believe is lawfully made available to the general public 
from:
    (i) Federal, State, or local government records;
    (ii) Widely distributed media; or
    (iii) Disclosures to the general public that are required to be made 
by federal, State, or local law.
    (2) Examples--(i) Reasonable belief. (A) You have a reasonable 
belief that information about your consumer is made available to the 
general public if you have confirmed, or your consumer has represented 
to you, that the information is publicly available from a source 
described in paragraphs (v)(1)(i)-(iii) of this section;
    (B) You have a reasonable belief that information about your 
consumer is made available to the general public if you have taken steps 
to submit the information, in accordance with your internal procedures 
and policies and with applicable law, to a keeper of federal, State, or 
local government records that is required by law to make the information 
publicly available.
    (C) You have a reasonable belief that an individual's telephone 
number is lawfully made available to the general public if you have 
located the telephone number in the telephone book or the consumer has 
informed you that the telephone number is not unlisted.
    (D) You do not have a reasonable belief that information about a 
consumer is publicly available solely because that information would 
normally be recorded with a keeper of federal, State, or local 
government records that is required by law to make the information 
publicly available, if the consumer has the ability in accordance with 
applicable law to keep that information nonpublic, such as where a 
consumer may

[[Page 956]]

record a deed in the name of a blind trust.
    (ii) Government records. Publicly available information in 
government records includes information in government real estate 
records and security interest filings.
    (iii) Widely distributed media. Publicly available information from 
widely distributed media includes information from a telephone book, a 
television or radio program, a newspaper, or a web site that is 
available to the general public on an unrestricted basis. A web site is 
not restricted merely because an Internet service provider or a site 
operator requires a fee or a password, so long as access is available to 
the general public.
    (w) You means:
    (1) Any broker or dealer;
    (2) Any investment company; and
    (3) Any investment adviser registered with the Commission under the 
Investment Advisers Act of 1940.

[65 FR 40362, June 29, 2000, as amended at 66 FR 45147, Aug. 27, 2001; 
74 FR 40431, Aug. 11, 2009]

                       Privacy and Opt Out Notices



Sec.248.4  Initial privacy notice to consumers required.

    (a) Initial notice requirement. You must provide a clear and 
conspicuous notice that accurately reflects your privacy policies and 
practices to:
    (1) Customer. An individual who becomes your customer, not later 
than when you establish a customer relationship, except as provided in 
paragraph (e) of this section; and
    (2) Consumer. A consumer, before you disclose any nonpublic personal 
information about the consumer to any nonaffiliated third party, if you 
make such a disclosure other than as authorized by Sec.Sec.248.14 and 
248.15.
    (b) When initial notice to a consumer is not required. You are not 
required to provide an initial notice to a consumer under paragraph (a) 
of this section if:
    (1) You do not disclose any nonpublic personal information about the 
consumer to any nonaffiliated third party, other than as authorized by 
Sec.Sec.248.14 and 248.15; and
    (2) You do not have a customer relationship with the consumer.
    (c) When you establish a customer relationship--(1) General rule. 
You establish a customer relationship when you and the consumer enter 
into a continuing relationship.
    (2) Special rule for loans. You do not have a customer relationship 
with a consumer if you buy a loan made to the consumer but do not have 
the servicing rights for that loan.
    (3) Examples of establishing customer relationship. You establish a 
customer relationship when the consumer:
    (i) Effects a securities transaction with you or opens a brokerage 
account with you under your procedures;
    (ii) Opens a brokerage account with an introducing broker or dealer 
that clears transactions with and for its customers through you on a 
fully disclosed basis;
    (iii) Enters into an advisory contract with you (whether in writing 
or orally); or
    (iv) Purchases shares you have issued (and the consumer is the 
record owner of the shares), if you are an investment company.
    (d) Existing customers. When an existing customer obtains a new 
financial product or service from you that is to be used primarily for 
personal, family, or household purposes, you satisfy the initial notice 
requirements of paragraph (a) of this section as follows:
    (1) You may provide a revised privacy notice, under Sec.248.8, 
that covers the customer's new financial product or service; or
    (2) If the initial, revised, or annual notice that you most recently 
provided to that customer was accurate with respect to the new financial 
product or service, you do not need to provide a new privacy notice 
under paragraph (a) of this section.
    (e) Exceptions to allow subsequent delivery of notice. (1) You may 
provide the initial notice required by paragraph (a)(1) of this section 
within a reasonable time after you establish a customer relationship if:
    (i) Establishing the customer relationship is not at the customer's 
election;
    (ii) Providing notice not later than when you establish a customer 
relationship would substantially delay the

[[Page 957]]

customer's transaction and the customer agrees to receive the notice at 
a later time; or
    (iii) A nonaffiliated broker or dealer or investment adviser 
establishes a customer relationship between you and a consumer without 
your prior knowledge.
    (2) Examples of exceptions--(i) Not at customer's election. 
Establishing a customer relationship is not at the customer's election 
if the customer's account is transferred to you by a trustee selected by 
the Securities Investor Protection Corporation (``SIPC'') and appointed 
by a United States Court.
    (ii) Substantial delay of customer's transaction. Providing notice 
not later than when you establish a customer relationship would 
substantially delay the customer's transaction when you and the 
individual agree over the telephone to enter into a customer 
relationship involving prompt delivery of the financial product or 
service.
    (iii) No substantial delay of customer's transaction. Providing 
notice not later than when you establish a customer relationship would 
not substantially delay the customer's transaction when the relationship 
is initiated in person at your office or through other means by which 
the customer may view the notice, such as on a web site.
    (f) Delivery. When you are required to deliver an initial privacy 
notice by this section, you must deliver it according to Sec.248.9. If 
you use a short-form initial notice for non-customers according to Sec.
248.6(d), you may deliver your privacy notice according to Sec.
248.6(d)(3).



Sec.248.5  Annual privacy notice to customers required.

    (a)(1) General rule. You must provide a clear and conspicuous notice 
to customers that accurately reflects your privacy policies and 
practices not less than annually during the continuation of the customer 
relationship. Annually means at least once in any period of 12 
consecutive months during which that relationship exists. You may define 
the 12-consecutive-month period, but you must apply it to the customer 
on a consistent basis.
    (2) Example. You provide a notice annually if you define the 12-
consecutive-month period as a calendar year and provide the annual 
notice to the customer once in each calendar year following the calendar 
year in which you provided the initial notice. For example, if a 
customer opens an account on any day of year 1, you must provide an 
annual notice to that customer by December 31 of year 2.
    (b)(1) Termination of customer relationship. You are not required to 
provide an annual notice to a former customer.
    (2) Examples. Your customer becomes a former customer when:
    (i) The individual's brokerage account is closed;
    (ii) The individual's investment advisory contract is terminated;
    (iii) You are an investment company and the individual is no longer 
the record owner of securities you have issued; or
    (iv) You are an investment company and your customer has been 
determined to be a lost securityholder as defined in 17 CFR 240.17a-
24(b).
    (c) Special rule for loans. If you do not have a customer 
relationship with a consumer under the special provision for loans in 
Sec.248.4(c)(2), then you need not provide an annual notice to that 
consumer under this section.
    (d) Delivery. When you are required to deliver an annual privacy 
notice by this section, you must deliver it according to Sec.248.9.



Sec.248.6  Information to be included in privacy notices.

    (a) General rule. The initial, annual, and revised privacy notices 
that you provide under Sec.Sec.248.4, 248.5, and 248.8 must include 
each of the following items of information that applies to you or to the 
consumers to whom you send your privacy notice, in addition to any other 
information you wish to provide:
    (1) The categories of nonpublic personal information that you 
collect;
    (2) The categories of nonpublic personal information that you 
disclose;
    (3) The categories of affiliates and nonaffiliated third parties to 
whom you disclose nonpublic personal information, other than those 
parties to whom you disclose information under Sec.Sec.248.14 and 
248.15;
    (4) The categories of nonpublic personal information about your 
former

[[Page 958]]

customers that you disclose and the categories of affiliates and 
nonaffiliated third parties to whom you disclose nonpublic personal 
information about your former customers, other than those parties to 
whom you disclose information under Sec.Sec.248.14 and 248.15;
    (5) If you disclose nonpublic personal information to a 
nonaffiliated third party under Sec.248.13 (and no other exception 
applies to that disclosure), a separate statement of the categories of 
information you disclose and the categories of third parties with whom 
you have contracted;
    (6) An explanation of the consumer's right under Sec.248.10(a) to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right at that time;
    (7) Any disclosures that you make under section 603(d)(2)(A)(iii) of 
the Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) (that is, 
notices regarding the ability to opt out of disclosures of information 
among affiliates);
    (8) Your policies and practices with respect to protecting the 
confidentiality and security of nonpublic personal information; and
    (9) Any disclosure that you make under paragraph (b) of this 
section.
    (b) Description of nonaffiliated third parties subject to 
exceptions. If you disclose nonpublic personal information to third 
parties as authorized under Sec.Sec.248.14 and 248.15, you are not 
required to list those exceptions in the initial or annual privacy 
notices required by Sec.Sec.248.4 and 248.5. When describing the 
categories with respect to those parties, it is sufficient to state that 
you make disclosures to other nonaffiliated companies:
    (1) For your everyday business purposes such as [include all that 
apply] to process transactions, maintain account(s), respond to court 
orders and legal investigations, or report to credit bureaus; or
    (2) As permitted by law.
    (c) Examples--(1) Categories of nonpublic personal information that 
you collect. You satisfy the requirement to categorize the nonpublic 
personal information that you collect if you list the following 
categories, as applicable:
    (i) Information from the consumer;
    (ii) Information about the consumer's transactions with you or your 
affiliates;
    (iii) Information about the consumer's transactions with 
nonaffiliated third parties; and
    (iv) Information from a consumer-reporting agency.
    (2) Categories of nonpublic personal information you disclose. (i) 
You satisfy the requirement to categorize the nonpublic personal 
information that you disclose if you list the categories described in 
paragraph (e)(1) of this section, as applicable, and a few examples to 
illustrate the types of information in each category.
    (ii) If you reserve the right to disclose all of the nonpublic 
personal information about consumers that you collect, you may simply 
state that fact without describing the categories or examples of the 
nonpublic personal information you disclose.
    (3) Categories of affiliates and nonaffiliated third parties to whom 
you disclose. You satisfy the requirement to categorize the affiliates 
and nonaffiliated third parties to whom you disclose nonpublic personal 
information if you list the following categories, as applicable, and a 
few examples to illustrate the types of third parties in each category:
    (i) Financial service providers;
    (ii) Non-financial companies; and
    (iii) Others.
    (4) Disclosures under exception for service providers and joint 
marketers. If you disclose nonpublic personal information under the 
exception in Sec.248.13 to a nonaffiliated third party to market 
products or services that you offer alone or jointly with another 
financial institution, you satisfy the disclosure requirement of 
paragraph (a)(5) of this section if you:
    (i) List the categories of nonpublic personal information you 
disclose, using the same categories and examples you used to meet the 
requirements of paragraph (a)(2) of this section, as applicable; and
    (ii) State whether the third party is:
    (A) A service provider that performs marketing services on your 
behalf or

[[Page 959]]

on behalf of you and another financial institution; or
    (B) A financial institution with which you have a joint marketing 
agreement.
    (5) Simplified notices. If you do not disclose, and do not wish to 
reserve the right to disclose, nonpublic personal information to 
affiliates or nonaffiliated third parties except as authorized under 
Sec.Sec.248.14 and 248.15, you may simply state that fact, in 
addition to the information you must provide under paragraphs (a)(1), 
(a)(8), (a)(9), and (b) of this section.
    (6) Confidentiality and security. You describe your policies and 
practices with respect to protecting the confidentiality and security of 
nonpublic personal information if you do both of the following:
    (i) Describe in general terms who is authorized to have access to 
the information; and
    (ii) State whether you have security practices and procedures in 
place to ensure the confidentiality of the information in accordance 
with your policy. You are not required to describe technical information 
about the safeguards you use.
    (d) Short-form initial notice with opt out notice for non-customers. 
(1) You may satisfy the initial notice requirements in Sec.Sec.
248.4(a)(2), 248.7(b), and 248.7(c) for a consumer who is not a customer 
by providing a short-form initial notice at the same time as you deliver 
an opt out notice as required in Sec.248.7.
    (2) A short-form initial notice must:
    (i) Be clear and conspicuous;
    (ii) State that your privacy notice is available upon request; and
    (iii) Explain a reasonable means by which the consumer may obtain 
the privacy notice.
    (3) You must deliver your short-form initial notice according to 
Sec.248.9. You are not required to deliver your privacy notice with 
your short-form initial notice. You instead may simply provide the 
consumer a reasonable means to obtain your privacy notice. If a consumer 
who receives your short-form notice requests your privacy notice, you 
must deliver your privacy notice according to Sec.248.9.
    (4) Examples of obtaining privacy notice. You provide a reasonable 
means by which a consumer may obtain a copy of your privacy notice if 
you:
    (i) Provide a toll-free telephone number that the consumer may call 
to request the notice; or
    (ii) For a consumer who conducts business in person at your office, 
maintain copies of the notice on hand that you provide to the consumer 
immediately upon request.
    (e) Future disclosures. Your notice may include:
    (1) Categories of nonpublic personal information that you reserve 
the right to disclose in the future, but do not currently disclose; and
    (2) Categories of affiliates or nonaffiliated third parties to whom 
you reserve the right in the future to disclose, but to whom you do not 
currently disclose, nonpublic personal information.
    (f) Model privacy form. Pursuant to Sec.248.2(a) and appendix A to 
subpart A of this part, Form S-P meets the notice content requirements 
of this section.

[65 FR 40362, June 29, 2000, as amended at 74 FR 62985, Dec. 1, 2009]



Sec.248.7  Form of opt out notice to consumers; opt out methods.

    (a)(1) Form of opt out notice. If you are required to provide an opt 
out notice under Sec.248.10(a), you must provide a clear and 
conspicuous notice to each of your consumers that accurately explains 
the right to opt out under that section. The notice must state:
    (i) That you disclose or reserve the right to disclose nonpublic 
personal information about your consumer to a nonaffiliated third party;
    (ii) That the consumer has the right to opt out of that disclosure; 
and
    (iii) A reasonable means by which the consumer may exercise the opt 
out right.
    (2) Examples--(i) Adequate opt out notice. You provide adequate 
notice that the consumer can opt out of the disclosure of nonpublic 
personal information to a nonaffiliated third party if you:
    (A) Identify all of the categories of nonpublic personal information 
that

[[Page 960]]

you disclose or reserve the right to disclose, and all of the categories 
of nonaffiliated third parties to which you disclose the information, as 
described in Sec.248.6(a)(2) and (3) and state that the consumer can 
opt out of the disclosure of that information; and
    (B) Identify the financial products or services that the consumer 
obtains from you, either singly or jointly, to which the opt out 
direction would apply.
    (ii) Reasonable opt out means. You provide a reasonable means to 
exercise an opt out right if you:
    (A) Designate check-off boxes in a prominent position on the 
relevant forms with the opt out notice;
    (B) Include a reply form together with the opt out notice;
    (C) Provide an electronic means to opt out, such as a form that can 
be sent via electronic mail or a process at your web site, if the 
consumer agrees to the electronic delivery of information; or
    (D) Provide a toll-free telephone number that consumers may call to 
opt out.
    (iii) Unreasonable opt out means. You do not provide a reasonable 
means of opting out if:
    (A) The only means of opting out is for the consumer to write his or 
her own letter to exercise that opt out right; or
    (B) The only means of opting out as described in any notice 
subsequent to the initial notice is to use a check-off box that you 
provided with the initial notice but did not include with the subsequent 
notice.
    (iv) Specific opt out means. You may require each consumer to opt 
out through a specific means, as long as that means is reasonable for 
that consumer.
    (b) Same form as initial notice permitted. You may provide the opt 
out notice together with or on the same written or electronic form as 
the initial notice you provide in accordance with Sec.248.4.
    (c) Initial notice required when opt out notice delivered subsequent 
to initial notice. If you provide the opt out notice after the initial 
notice in accordance with Sec.248.4, you must also include a copy of 
the initial notice with the opt out notice in writing or, if the 
consumer agrees, electronically.
    (d) Joint relationships. (1) If two or more consumers jointly obtain 
a financial product or service from you, you may provide a single opt 
out notice. Your opt out notice must explain how you will treat an opt 
out direction by a joint consumer.
    (2) Any of the joint consumers may exercise the right to opt out. 
You may either:
    (i) Treat an opt out direction by a joint consumer as applying to 
all of the associated joint consumers; or
    (ii) Permit each joint consumer to opt out separately.
    (3) If you permit each joint consumer to opt out separately, you 
must permit one of the joint consumers to opt out on behalf of all of 
the joint consumers.
    (4) You may not require all joint consumers to opt out before you 
implement any opt out direction.
    (5) Example. If John and Mary have a joint brokerage account with 
you and arrange for you to send statements to John's address, you may do 
any of the following, but you must explain in your opt out notice which 
opt out policy you will follow:
    (i) Send a single opt out notice to John's address, but you must 
accept an opt out direction from either John or Mary;
    (ii) Treat an opt out direction by either John or Mary as applying 
to the entire account. If you do so, and John opts out, you may not 
require Mary to opt out as well before implementing John's opt out 
direction; or
    (iii) Permit John and Mary to make different opt out directions. If 
you do so:
    (A) You must permit John and Mary to opt out for each other.
    (B) If both opt out, you must permit both to notify you in a single 
response (such as on a form or through a telephone call).
    (C) If John opts out and Mary does not, you may only disclose 
nonpublic personal information about Mary, but not about John and not 
about John and Mary jointly.
    (e) Time to comply with opt out. You must comply with a consumer's 
opt out direction as soon as reasonably practicable after you receive 
it.

[[Page 961]]

    (f) Continuing right to opt out. A consumer may exercise the right 
to opt out at any time.
    (g) Duration of consumer's opt out direction. (1) A consumer's 
direction to opt out under this section is effective until the consumer 
revokes it in writing or, if the consumer agrees, electronically.
    (2) When a customer relationship terminates, the customer's opt out 
direction continues to apply to the nonpublic personal information that 
you collected during or related to that relationship. If the individual 
subsequently establishes a new customer relationship with you, the opt 
out direction that applied to the former relationship does not apply to 
the new relationship.
    (h) Delivery. When you are required to deliver an opt out notice by 
this section, you must deliver it according to Sec.248.9.
    (i) Model privacy form. Pursuant to Sec.248.2(a) and appendix A to 
subpart A of this part, Form S-P meets the notice content requirements 
of this section.

[65 FR 40362, June 29, 2000, as amended at 74 FR 62985, Dec. 1, 2009]



Sec.248.8  Revised privacy notices.

    (a) General rule. Except as otherwise authorized in this subpart, 
you must not, directly or through any affiliate, disclose any nonpublic 
personal information about a consumer to a nonaffiliated third party 
other than as described in the initial notice that you provided to that 
consumer under Sec.248.4, unless:
    (1) You have provided to the consumer a clear and conspicuous 
revised notice that accurately describes your policies and practices;
    (2) You have provided to the consumer a new opt out notice;
    (3) You have given the consumer a reasonable opportunity, before you 
disclose the information to the nonaffiliated third party, to opt out of 
the disclosure; and
    (4) The consumer does not opt out.
    (b) Examples. (1) Except as otherwise permitted by Sec.Sec.
248.13, 248.14, and 248.15, you must provide a revised notice before 
you:
    (i) Disclose a new category of nonpublic personal information to any 
nonaffiliated third party;
    (ii) Disclose nonpublic personal information to a new category of 
nonaffiliated third party; or
    (iii) Disclose nonpublic personal information about a former 
customer to a nonaffiliated third party, if that former customer has not 
had the opportunity to exercise an opt out right regarding that 
disclosure.
    (2) A revised notice is not required if you disclose nonpublic 
personal information to a new nonaffiliated third party that you 
adequately described in your prior notice.
    (c) Delivery. When you are required to deliver a revised privacy 
notice by this section, you must deliver it according to Sec.248.9.



Sec.248.9  Delivering privacy and opt out notices.

    (a) How to provide notices. You must provide any privacy notices and 
opt out notices, including short-form initial notices that this subpart 
requires so that each consumer can reasonably be expected to receive 
actual notice in writing or, if the consumer agrees, electronically.
    (b)(1) Examples of reasonable expectation of actual notice. You may 
reasonably expect that a consumer will receive actual notice if you:
    (i) Hand-deliver a printed copy of the notice to the consumer;
    (ii) Mail a printed copy of the notice to the last known address of 
the consumer;
    (iii) For the consumer who conducts transactions electronically, 
post the notice on the electronic site and require the consumer to 
acknowledge receipt of the notice as a necessary step to obtaining a 
particular financial product or service; or
    (iv) For an isolated transaction with the consumer, such as an ATM 
transaction, post the notice on the ATM screen and require the consumer 
to acknowledge receipt of the notice as a necessary step to obtaining 
the particular financial product or service.
    (2) Examples of unreasonable expectation of actual notice. You may 
not, however, reasonably expect that a consumer will receive actual 
notice of

[[Page 962]]

your privacy policies and practices if you:
    (i) Only post a sign in your branch or office or generally publish 
advertisements of your privacy policies and practices; or
    (ii) Send the notice via electronic mail to a consumer who does not 
obtain a financial product or service from you electronically.
    (c) Annual notices only. (1) You may reasonably expect that a 
customer will receive actual notice of your annual privacy notice if:
    (i) The customer uses your web site to access financial products and 
services electronically and agrees to receive notices at the web site 
and you post your current privacy notice continuously in a clear and 
conspicuous manner on the web site; or
    (ii) The customer has requested that you refrain from sending any 
information regarding the customer relationship, and your current 
privacy notice remains available to the customer upon request.
    (2) Example of reasonable expectation of receipt of annual privacy 
notice. You may reasonably expect that consumers who share an address 
will receive actual notice of your annual privacy notice if you deliver 
the notice with or in a stockholder or shareholder report under the 
conditions in 17 CFR 270.30d-1(f) or 17 CFR 270.30d-2(b), or with or in 
a prospectus under the conditions in 17 CFR 230.154.
    (d) Oral description of notice insufficient. You may not provide any 
notice required by this subpart solely by orally explaining the notice, 
either in person or over the telephone.
    (e) Retention or accessibility of notices for customers. (1) For 
customers only, you must provide the initial notice required by Sec.
248.4(a)(1), the annual notice required by Sec.248.5(a), and the 
revised notice required by Sec.248.8, so that the customer can retain 
them or obtain them later in writing or, if the customer agrees, 
electronically.
    (2) Examples of retention or accessibility. You provide a privacy 
notice to the customer so that the customer can retain it or obtain it 
later if you:
    (i) Hand-deliver a printed copy of the notice to the customer;
    (ii) Mail a printed copy of the notice to the last known address of 
the customer; or
    (iii) Make your current privacy notice available on a web site (or a 
link to another web site) for the customer who obtains a financial 
product or service electronically and agrees to receive the notice at 
the web site.
    (f) Joint notice with other financial institutions. You may provide 
a joint notice from you and one or more of your affiliates or other 
financial institutions, as identified in the notice, as long as the 
notice is accurate with respect to you and the other institutions.
    (g) Joint relationships. If two or more consumers jointly obtain a 
financial product or service from you, you may satisfy the initial, 
annual, and revised notice requirements of paragraph (a) of this section 
by providing one notice to those consumers jointly.

                          Limits on Disclosures



Sec.248.10  Limits on disclosure of nonpublic personal information
to nonaffiliated third parties.

    (a)(1) Conditions for disclosure. Except as otherwise authorized in 
this subpart, you may not, directly or through any affiliate, disclose 
any nonpublic personal information about a consumer to a nonaffiliated 
third party unless:
    (i) You have provided to the consumer an initial notice as required 
under Sec.248.4;
    (ii) You have provided to the consumer an opt out notice as required 
in Sec.248.7;
    (iii) You have given the consumer a reasonable opportunity, before 
you disclose the information to the nonaffiliated third party, to opt 
out of the disclosure; and
    (iv) The consumer does not opt out.
    (2) Opt out definition. Opt out means a direction by the consumer 
that you not disclose nonpublic personal information about that consumer 
to a nonaffiliated third party, other than as permitted by Sec.Sec.
248.13, 248.14, and 248.15.
    (3) Examples of reasonable opportunity to opt out. You provide a 
consumer with a reasonable opportunity to opt out if:
    (i) By mail. You mail the notices required in paragraph (a)(1) of 
this section to the consumer and allow the consumer to opt out by 
mailing a form,

[[Page 963]]

calling a toll-free telephone number, or any other reasonable means 
within 30 days after the date you mailed the notices.
    (ii) By electronic means. A customer opens an on-line account with 
you and agrees to receive the notices required in paragraph (a)(1) of 
this section electronically, and you allow the customer to opt out by 
any reasonable means within 30 days after the date that the customer 
acknowledges receipt of the notices in conjunction with opening the 
account.
    (iii) Isolated transaction with consumer. For an isolated 
transaction, such as the provision of brokerage services to a consumer 
as an accommodation, you provide the consumer with a reasonable 
opportunity to opt out if you provide the notices required in paragraph 
(a)(1) of this section at the time of the transaction and request that 
the consumer decide, as a necessary part of the transaction, whether to 
opt out before completing the transaction.
    (b) Application of opt out to all consumers and all nonpublic 
personal information. (1) You must comply with this section, regardless 
of whether you and the consumer have established a customer 
relationship.
    (2) Unless you comply with this section, you may not, directly or 
through any affiliate, disclose any nonpublic personal information about 
a consumer that you have collected, regardless of whether you collected 
it before or after receiving the direction to opt out from the consumer.
    (c) Partial opt out. You may allow a consumer to select certain 
nonpublic personal information or certain nonaffiliated third parties 
with respect to which the consumer wishes to opt out.



Sec.248.11  Limits on redisclosure and reuse of information.

    (a)(1) Information you receive under an exception. If you receive 
nonpublic personal information from a nonaffiliated financial 
institution under an exception in Sec.248.14 or Sec.248.15, your 
disclosure and use of that information is limited as follows:
    (i) You may disclose the information to the affiliates of the 
financial institution from which you received the information;
    (ii) You may disclose the information to your affiliates, but your 
affiliates may, in turn, disclose and use the information only to the 
extent that you may disclose and use the information; and
    (iii) You may disclose and use the information pursuant to an 
exception in Sec.248.14 or Sec.248.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
you received the information.
    (2) Example. If you receive a customer list from a nonaffiliated 
financial institution in order to provide account-processing services 
under the exception in Sec.248.14(a), you may disclose that 
information under any exception in Sec.248.14 or Sec.248.15 in the 
ordinary course of business in order to provide those services. You 
could also disclose that information in response to a properly 
authorized subpoena or in the ordinary course of business to your 
attorneys, accountants, and auditors. You could not disclose that 
information to a third party for marketing purposes or use that 
information for your own marketing purposes.
    (b)(1) Information you receive outside of an exception. If you 
receive nonpublic personal information from a nonaffiliated financial 
institution other than under an exception in Sec.248.14 or Sec.
248.15, you may disclose the information only:
    (i) To the affiliates of the financial institution from which you 
received the information;
    (ii) To your affiliates, but your affiliates may, in turn, disclose 
the information only to the extent that you can disclose the 
information; and
    (iii) To any other person, if the disclosure would be lawful if made 
directly to that person by the financial institution from which you 
received the information.
    (2) Example. If you obtain a customer list from a nonaffiliated 
financial institution outside of the exceptions in Sec.Sec.248.14 and 
248.15:
    (i) You may use that list for your own purposes;
    (ii) You may disclose that list to another nonaffiliated third party 
only if the financial institution from which

[[Page 964]]

you purchased the list could have lawfully disclosed the list to that 
third party. That is, you may disclose the list in accordance with the 
privacy policy of the financial institution from which you received the 
list, as limited by the opt out direction of each consumer whose 
nonpublic personal information you intend to disclose, and you may 
disclose the list in accordance with an exception in Sec.248.14 or 
Sec.248.15, such as in the ordinary course of business to your 
attorneys, accountants, or auditors.
    (c) Information you disclose under an exception. If you disclose 
nonpublic personal information to a nonaffiliated third party under an 
exception in Sec.248.14 or Sec.248.15, the third party may disclose 
and use that information only as follows:
    (1) The third party may disclose the information to your affiliates;
    (2) The third party may disclose the information to its affiliates, 
but its affiliates may, in turn, disclose and use the information only 
to the extent that the third party may disclose and use the information; 
and
    (3) The third party may disclose and use the information pursuant to 
an exception in Sec.248.14 or Sec.248.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
it received the information.
    (d) Information you disclose outside of an exception. If you 
disclose nonpublic personal information to a nonaffiliated third party 
other than under an exception in Sec.248.14 or Sec.248.15, the third 
party may disclose the information only:
    (1) To your affiliates;
    (2) To its affiliates, but its affiliates, in turn, may disclose the 
information only to the extent the third party can disclose the 
information; and
    (3) To any other person, if the disclosure would be lawful if you 
made it directly to that person.



Sec.248.12  Limits on sharing account number information for marketing
purposes.

    (a) General prohibition on disclosure of account numbers. You must 
not, directly or through an affiliate, disclose, other than to a 
consumer reporting agency, an account number or similar form of access 
number or access code for a consumer's credit card account, deposit 
account, or transaction account to any nonaffiliated third party for use 
in telemarketing, direct mail marketing, or other marketing through 
electronic mail to the consumer.
    (b) Exceptions. Paragraph (a) of this section does not apply if you 
disclose an account number or similar form of access number or access 
code:
    (1) To your agent or service provider solely in order to perform 
marketing for your own products or services, as long as the agent or 
service provider is not authorized to directly initiate charges to the 
account; or
    (2) To a participant in a private label credit card program or an 
affinity or similar program where the participants in the program are 
identified to the customer when the customer enters into the program.
    (c) Example--Account number. An account number, or similar form of 
access number or access code, does not include a number or code in an 
encrypted form, as long as you do not provide the recipient with a means 
to decode the number or code.

                               Exceptions



Sec.248.13  Exception to opt out requirements for service providers
and joint marketing.

    (a) General rule. (1) The opt out requirements in Sec.Sec.248.7 
and 248.10 do not apply when you provide nonpublic personal information 
to a nonaffiliated third party to perform services for you or functions 
on your behalf, if you:
    (i) Provide the initial notice in accordance with Sec.248.4; and
    (ii) Enter into a contractual agreement with the third party that 
prohibits the third party from disclosing or using the information other 
than to carry out the purposes for which you disclosed the information, 
including use under an exception in Sec.248.14 or Sec.248.15 in the 
ordinary course of business to carry out those purposes.
    (2) Example. If you disclose nonpublic personal information under 
this section to a financial institution with which you perform joint 
marketing, your contractual agreement with that

[[Page 965]]

institution meets the requirements of paragraph (a)(1)(ii) of this 
section if it prohibits the institution from disclosing or using the 
nonpublic personal information except as necessary to carry out the 
joint marketing or under an exception in Sec.248.14 or Sec.248.15 in 
the ordinary course of business to carry out that joint marketing.
    (b) Service may include joint marketing. The services a 
nonaffiliated third party performs for you under paragraph (a) of this 
section may include marketing of your own products or services or 
marketing of financial products or services offered pursuant to joint 
agreements between you and one or more financial institutions.
    (c) Definition of joint agreement. For purposes of this section, 
joint agreement means a written contract pursuant to which you and one 
or more financial institutions jointly offer, endorse, or sponsor a 
financial product or service.



Sec.248.14  Exceptions to notice and opt out requirements for
processing and servicing transactions.

    (a) Exceptions for processing and servicing transactions at 
consumer's request. The requirements for initial notice in Sec.
248.4(a)(2), for the opt out in Sec.Sec.248.7 and 248.10, and for 
initial notice in Sec.248.13 in connection with service providers and 
joint marketing, do not apply if you disclose nonpublic personal 
information as necessary to effect, administer, or enforce a transaction 
that a consumer requests or authorizes, or in connection with:
    (1) Processing or servicing a financial product or service that a 
consumer requests or authorizes;
    (2) Maintaining or servicing the consumer's account with you, or 
with another entity as part of a private label credit card program or 
other extension of credit on behalf of such entity; or
    (3) A proposed or actual securitization, secondary market sale 
(including sales of servicing rights), or similar transaction related to 
a transaction of the consumer.
    (b) Necessary to effect, administer, or enforce a transaction means 
that the disclosure is:
    (1) Required, or is one of the lawful or appropriate methods, to 
enforce your rights or the rights of other persons engaged in carrying 
out the financial transaction or providing the product or service; or
    (2) Required, or is a usual, appropriate, or acceptable method:
    (i) To carry out the transaction or the product or service business 
of which the transaction is a part, and record, service, or maintain the 
consumer's account in the ordinary course of providing the financial 
service or financial product;
    (ii) To administer or service benefits or claims relating to the 
transaction or the product or service business of which it is a part;
    (iii) To provide a confirmation, statement, or other record of the 
transaction, or information on the status or value of the financial 
service or financial product to the consumer or the consumer's agent or 
broker;
    (iv) To accrue or recognize incentives or bonuses associated with 
the transaction that are provided by you or any other party;
    (v) To underwrite insurance at the consumer's request or for 
reinsurance purposes, or for any of the following purposes as they 
relate to a consumer's insurance: Account administration, reporting, 
investigating, or preventing fraud or material misrepresentation, 
processing premium payments, processing insurance claims, administering 
insurance benefits (including utilization review activities), 
participating in research projects, or as otherwise required or 
specifically permitted by federal or State law; or
    (vi) In connection with:
    (A) The authorization, settlement, billing, processing, clearing, 
transferring, reconciling or collection of amounts charged, debited, or 
otherwise paid using a debit, credit, or other payment card, check, or 
account number, or by other payment means;
    (B) The transfer of receivables, accounts, or interests therein; or
    (C) The audit of debit, credit, or other payment information.



Sec.248.15  Other exceptions to notice and opt out requirements.

    (a) Exceptions to notice and opt out requirements. The requirements 
for initial notice in Sec.248.4(a)(2), for the opt out in Sec.Sec.
248.7 and 248.10, and for initial notice

[[Page 966]]

in Sec.248.13 in connection with service providers and joint marketing 
do not apply when you disclose nonpublic personal information:
    (1) With the consent or at the direction of the consumer, provided 
that the consumer has not revoked the consent or direction;
    (2)(i) To protect the confidentiality or security of your records 
pertaining to the consumer, service, product, or transaction;
    (ii) To protect against or prevent actual or potential fraud, 
unauthorized transactions, claims, or other liability;
    (iii) For required institutional risk control or for resolving 
consumer disputes or inquiries;
    (iv) To persons holding a legal or beneficial interest relating to 
the consumer; or
    (v) To persons acting in a fiduciary or representative capacity on 
behalf of the consumer;
    (3) To provide information to insurance rate advisory organizations, 
guaranty funds or agencies, agencies that are rating you, persons that 
are assessing your compliance with industry standards, and your 
attorneys, accountants, and auditors;
    (4) To the extent specifically permitted or required under other 
provisions of law and in accordance with the Right to Financial Privacy 
Act of 1978 (12 U.S.C. 3401 et seq.), to law enforcement agencies 
(including a federal functional regulator, the Secretary of the 
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records 
and Reports on Monetary Instruments and Transactions) and 12 U.S.C. 
Chapter 21 (Financial Recordkeeping), a State insurance authority, with 
respect to any person domiciled in that insurance authority's State that 
is engaged in providing insurance, and the Federal Trade Commission), 
self-regulatory organizations, or for an investigation on a matter 
related to public safety;
    (5)(i) To a consumer reporting agency in accordance with the Fair 
Credit Reporting Act (15 U.S.C. 1681 et seq.), or
    (ii) From a consumer report reported by a consumer reporting agency;
    (6) In connection with a proposed or actual sale, merger, transfer, 
or exchange of all or a portion of a business or operating unit if the 
disclosure of nonpublic personal information concerns solely consumers 
of such business or unit; or
    (7)(i) To comply with federal, State, or local laws, rules and other 
applicable legal requirements;
    (ii) To comply with a properly authorized civil, criminal, or 
regulatory investigation, or subpoena or summons by federal, State, or 
local authorities; or
    (iii) To respond to judicial process or government regulatory 
authorities having jurisdiction over you for examination, compliance, or 
other purposes as authorized by law.
    (b) Examples of consent and revocation of consent. (1) A consumer 
may specifically consent to your disclosure to a nonaffiliated mortgage 
lender of the value of the assets in the consumer's brokerage or 
investment advisory account so that the lender can evaluate the 
consumer's application for a mortgage loan.
    (2) A consumer may revoke consent by subsequently exercising the 
right to opt out of future disclosures of nonpublic personal information 
as permitted under Sec.248.7(f).

                 Relation to Other Laws; Effective Date



Sec.248.16  Protection of Fair Credit Reporting Act.

    Nothing in this subpart shall be construed to modify, limit, or 
supersede the operation of the Fair Credit Reporting Act (15 U.S.C. 1681 
et seq.), and no inference shall be drawn on the basis of the provisions 
of this subpart regarding whether information is transaction or 
experience information under section 603 of that Act.



Sec.248.17  Relation to State laws.

    (a) In general. This subpart shall not be construed as superseding, 
altering, or affecting any statute, regulation, order, or interpretation 
in effect in any State, except to the extent that such State statute, 
regulation, order, or interpretation is inconsistent with the provisions 
of this subpart, and then only to the extent of the inconsistency.
    (b) Greater protection under State law. For purposes of this 
section, a State

[[Page 967]]

statute, regulation, order, or interpretation is not inconsistent with 
the provisions of this subpart if the protection such statute, 
regulation, order, or interpretation affords any consumer is greater 
than the protection provided under this subpart, as determined by the 
Federal Trade Commission, after consultation with the Commission, on the 
Federal Trade Commission's own motion, or upon the petition of any 
interested party.



Sec.248.18  Effective date; transition rule.

    (a) Effective date. This subpart is effective November 13, 2000. In 
order to provide sufficient time for you to establish policies and 
systems to comply with the requirements of this subpart, the compliance 
date for this subpart is July 1, 2001.
    (b)(1) Notice requirement for consumers who are your customers on 
the compliance date. By July 1, 2001, you must have provided an initial 
notice, as required by Sec.248.4, to consumers who are your customers 
on July 1, 2001.
    (2) Example. You provide an initial notice to consumers who are your 
customers on July 1, 2001, if, by that date, you have established a 
system for providing an initial notice to all new customers and have 
mailed the initial notice to all your existing customers.
    (c) Two-year grandfathering of service agreements. Until July 1, 
2002, a contract that you have entered into with a nonaffiliated third 
party to perform services for you or functions on your behalf satisfies 
the provisions of Sec.248.13(a)(2), even if the contract does not 
include a requirement that the third party maintain the confidentiality 
of nonpublic personal information, as long as you entered into the 
agreement on or before July 1, 2000.



Sec.Sec.248.19-248.29  [Reserved]



Sec.248.30  Procedures to safeguard customer records and information;
disposal of consumer report information.

    (a) Every broker, dealer, and investment company, and every 
investment adviser registered with the Commission must adopt written 
policies and procedures that address administrative, technical, and 
physical safeguards for the protection of customer records and 
information. These written policies and procedures must be reasonably 
designed to:
    (1) Insure the security and confidentiality of customer records and 
information;
    (2) Protect against any anticipated threats or hazards to the 
security or integrity of customer records and information; and
    (3) Protect against unauthorized access to or use of customer 
records or information that could result in substantial harm or 
inconvenience to any customer.
    (b) Disposal of consumer report information and records--(1) 
Definitions (i) Consumer report has the same meaning as in section 
603(d) of the Fair Credit Reporting Act (15 U.S.C. 1681a(d)).
    (ii) Consumer report information means any record about an 
individual, whether in paper, electronic or other form, that is a 
consumer report or is derived from a consumer report. Consumer report 
information also means a compilation of such records. Consumer report 
information does not include information that does not identify 
individuals, such as aggregate information or blind data.
    (iii) Disposal means:
    (A) The discarding or abandonment of consumer report information; or
    (B) The sale, donation, or transfer of any medium, including 
computer equipment, on which consumer report information is stored.
    (iv) Notice-registered broker-dealers means a broker or dealer 
registered by notice with the Commission under section 15(b)(11) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)(11)).
    (v) Transfer agent has the same meaning as in section 3(a)(25) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(25)).
    (2) Proper disposal requirements--(i) Standard. Every broker and 
dealer other than notice-registered broker-dealers, every investment 
company, and every investment adviser and transfer agent registered with 
the Commission, that maintains or otherwise possesses consumer report 
information for a business purpose must properly dispose of the 
information by taking reasonable measures to protect against 
unauthorized access to or use

[[Page 968]]

of the information in connection with its disposal.
    (ii) Relation to other laws. Nothing in this section shall be 
construed:
    (A) To require any broker, dealer, or investment company, or any 
investment adviser or transfer agent registered with the Commission to 
maintain or destroy any record pertaining to an individual that is not 
imposed under other law; or
    (B) To alter or affect any requirement imposed under any other 
provision of law to maintain or destroy any of those records.

[65 FR 40362, June 29, 2000, as amended at 69 FR 71329, Dec. 8, 2004]



Sec.Sec.248.31-248.100  [Reserved]



             Sec.Appendix A to Subpart A of Part 248--Forms

    A. Any person may view and print this form at: http://www.sec.gov/
about/forms/secforms.htm.
    B. Use of Form S-P by brokers, dealers, and investment companies, 
and investment advisers registered with the Commission constitutes 
compliance with the notice content requirements of Sec.Sec.248.6 and 
248.7 of this part.

                      FORM S-P--Model Privacy Form

                        A. The Model Privacy Form

[[Page 969]]

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[[Page 970]]


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[GRAPHIC] [TIFF OMITTED] TR01DE09.055

                         B. General Instructions

                  1. How the Model Privacy Form is Used

    (a) The model form may be used, at the option of a financial 
institution, including a group of financial institutions that use a 
common privacy notice, to meet the content requirements of the privacy 
notice and opt-out notice set forth in Sec.Sec.248.6 and 248.7 of 
this part.
    (b) The model form is a standardized form, including page layout, 
content, format, style, pagination, and shading. Institutions seeking to 
obtain the safe harbor through use of the model form may modify it only 
as described in these instructions.
    (c) Note that disclosure of certain information, such as assets, 
income, and information from a consumer reporting agency, may give rise 
to obligations under the Fair Credit Reporting Act [15 U.S.C. 1681-
1681x] (FCRA), such as a requirement to permit a consumer to opt out of 
disclosures to affiliates or designation as a consumer reporting agency 
if disclosures are made to nonaffiliated third parties.
    (d) The word ``customer'' may be replaced by the word ``member'' 
whenever it appears in the model form, as appropriate.

                2. The Contents of the Model Privacy Form

    The model form consists of two pages, which may be printed on both 
sides of a single sheet of paper, or may appear on two separate pages. 
Where an institution provides a long list of institutions at the end of 
the model form in accordance with Instruction C.3(a)(1), or provides 
additional information in accordance with Instruction C.3(c), and such 
list or additional information exceeds the space available on page two 
of the model form, such list or additional information may extend to a 
third page.
    (a) Page One. The first page consists of the following components:
    (1) Date last revised (upper right-hand corner).
    (2) Title.
    (3) Key frame (Why?, What?, How?).
    (4) Disclosure table (``Reasons we can share your personal 
information'').
    (5) ``To limit our sharing'' box, as needed, for the financial 
institution's opt-out information.
    (6) ``Questions'' box, for customer service contact information.
    (7) Mail-in opt-out form, as needed.
    (b) Page Two. The second page consists of the following components:
    (1) Heading (Page 2).
    (2) Frequently Asked Questions (``Who we are'' and ``What we do'').
    (3) Definitions.
    (4) ``Other important information'' box, as needed.

                 3. The Format of the Model Privacy Form

    The format of the model form may be modified only as described 
below.
    (a) Easily readable type font. Financial institutions that use the 
model form must use an easily readable type font. While a number of 
factors together produce easily readable type font, institutions are 
required to use a minimum of 10-point font (unless otherwise expressly 
permitted in these Instructions) and sufficient spacing between the 
lines of type.
    (b) Logo. A financial institution may include a corporate logo on 
any page of the notice, so long as it does not interfere with the

[[Page 976]]

readability of the model form or the space constraints of each page.
    (c) Page size and orientation. Each page of the model form must be 
printed on paper in portrait orientation, the size of which must be 
sufficient to meet the layout and minimum font size requirements, with 
sufficient white space on the top, bottom, and sides of the content.
    (d) Color. The model form must be printed on white or light color 
paper (such as cream) with black or other contrasting ink color. Spot 
color may be used to achieve visual interest, so long as the color 
contrast is distinctive and the color does not detract from the 
readability of the model form. Logos may also be printed in color.
    (e) Languages. The model form may be translated into languages other 
than English.

            C. Information Required in the Model Privacy Form

    The information in the model form may be modified only as described 
below:

1. Name of the Institution or Group of Affiliated Institutions Providing 
                               the Notice

    Insert the name of the financial institution providing the notice or 
a common identity of affiliated institutions jointly providing the 
notice on the form wherever [name of financial institution] appears.

                               2. Page One

    (a) Last revised date. The financial institution must insert in the 
upper right-hand corner the date on which the notice was last revised. 
The information shall appear in minimum 8-point font as ``rev. [month/
year]'' using either the name or number of the month, such as ``rev. 
July 2009'' or ``rev. 7/09''.
    (b) General instructions for the ``What?'' box. (1) The bulleted 
list identifies the types of personal information that the institution 
collects and shares. All institutions must use the term ``Social 
Security number'' in the first bullet.
    (2) Institutions must use five (5) of the following terms to 
complete the bulleted list: income; account balances; payment history; 
transaction history; transaction or loss history; credit history; credit 
scores; assets; investment experience; credit-based insurance scores; 
insurance claim history; medical information; overdraft history; 
purchase history; account transactions; risk tolerance; medical-related 
debts; credit card or other debt; mortgage rates and payments; 
retirement assets; checking account information; employment information; 
wire transfer instructions.
    (c) General instructions for the disclosure table. The left column 
lists reasons for sharing or using personal information. Each reason 
correlates to a specific legal provision described in paragraph C.2(d) 
of this Instruction. In the middle column, each institution must provide 
a ``Yes'' or ``No'' response that accurately reflects its information 
sharing policies and practices with respect to the reason listed on the 
left. In the right column, each institution must provide in each box one 
of the following three (3) responses, as applicable, that reflects 
whether a consumer can limit such sharing: ``Yes'' if it is required to 
or voluntarily provides an opt-out; ``No'' if it does not provide an 
opt-out; or ``We don't share'' if it answers ``No'' in the middle 
column. Only the sixth row (``For our affiliates to market to you'') may 
be omitted at the option of the institution. See paragraph C.2(d)(6) of 
this Instruction.
    (d) Specific disclosures and corresponding legal provisions. (1) For 
our everyday business purposes. This reason incorporates sharing 
information under Sec.Sec.248.14 and 248.15 and with service 
providers pursuant to Sec.248.13 of this part other than the purposes 
specified in paragraphs C.2(d)(2) or C.2(d)(3) of these Instructions.
    (2) For our marketing purposes. This reason incorporates sharing 
information with service providers by an institution for its own 
marketing pursuant to Sec.248.13 of this part. An institution that 
shares for this reason may choose to provide an opt-out.
    (3) For joint marketing with other financial companies. This reason 
incorporates sharing information under joint marketing agreements 
between two or more financial institutions and with any service provider 
used in connection with such agreements pursuant to Sec.248.13 of this 
part. An institution that shares for this reason may choose to provide 
an opt-out.
    (4) For our affiliates' everyday business purposes--information 
about transactions and experiences. This reason incorporates sharing 
information specified in sections 603(d)(2)(A)(i) and (ii) of the FCRA. 
An institution that shares for this reason may choose to provide an opt-
out.
    (5) For our affiliates' everyday business purposes--information 
about creditworthiness. This reason incorporates sharing information 
pursuant to section 603(d)(2)(A)(iii) of the FCRA. An institution that 
shares for this reason must provide an opt-out.
    (6) For our affiliates to market to you. This reason incorporates 
sharing information specified in section 624 of the FCRA. This reason 
may be omitted from the disclosure table when: the institution does not 
have affiliates (or does not disclose personal information to its 
affiliates); the institution's affiliates do not use personal 
information in a manner that requires an opt-out; or the institution 
provides the affiliate marketing notice separately. Institutions that 
include

[[Page 977]]

this reason must provide an opt-out of indefinite duration. An 
institution that is required to provide an affiliate marketing opt-out, 
but does not include that opt-out in the model form under this part, 
must comply with section 624 of the FCRA and 17 CFR part 248, subpart B, 
with respect to the initial notice and opt-out and any subsequent 
renewal notice and opt-out. An institution not required to provide an 
opt-out under this subparagraph may elect to include this reason in the 
model form.
    (7) For nonaffiliates to market to you. This reason incorporates 
sharing described in Sec.Sec.248.7 and 248.10(a) of this part. An 
institution that shares personal information for this reason must 
provide an opt-out.
    (e) To limit our sharing: A financial institution must include this 
section of the model form only if it provides an opt-out. The word 
``choice'' may be written in either the singular or plural, as 
appropriate. Institutions must select one or more of the applicable opt-
out methods described: telephone, such as by a toll-free number; a Web 
site; or use of a mail-in opt-out form. Institutions may include the 
words ``toll-free'' before telephone, as appropriate. An institution 
that allows consumers to opt out online must provide either a specific 
Web address that takes consumers directly to the opt-out page or a 
general Web address that provides a clear and conspicuous direct link to 
the opt-out page. The opt-out choices made available to the consumer who 
contacts the institution through these methods must correspond 
accurately to the ``Yes'' responses in the third column of the 
disclosure table. In the part titled ``Please note'' institutions may 
insert a number that is 30 or greater in the space marked ``[30].'' 
Instructions on voluntary or state privacy law opt-out information are 
in paragraph C.2(g)(5) of these Instructions.
    (f) Questions box. Customer service contact information must be 
inserted as appropriate, where [phone number] or [Web site] appear. 
Institutions may elect to provide either a phone number, such as a toll-
free number, or a Web address, or both. Institutions may include the 
words ``toll-free'' before the telephone number, as appropriate.
    (g) Mail-in opt-out form. Financial institutions must include this 
mail-in form only if they state in the ``To limit our sharing'' box that 
consumers can opt out by mail. The mail-in form must provide opt-out 
options that correspond accurately to the ``Yes'' responses in the third 
column in the disclosure table. Institutions that require customers to 
provide only name and address may omit the section identified as 
``[account ].'' Institutions that require additional or different 
information, such as a random opt-out number or a truncated account 
number, to implement an opt-out election should modify the ``[account 
]'' reference accordingly. This includes institutions that require 
customers with multiple accounts to identify each account to which the 
opt-out should apply. An institution must enter its opt-out mailing 
address: in the far right of this form (see version 3); or below the 
form (see version 4). The reverse side of the mail-in opt-out form must 
not include any content of the model form.
    (1) Joint accountholder. Only institutions that provide their joint 
accountholders the choice to opt out for only one accountholder, in 
accordance with paragraph C.3(a)(5) of these Instructions, must include 
in the far left column of the mail-in form the following statement: ``If 
you have a joint account, your choice(s) will apply to everyone on your 
account unless you mark below. [square] Apply my choice(s) only to me.'' 
The word ``choice'' may be written in either the singular or plural, as 
appropriate. Financial institutions that provide insurance products or 
services, provide this option, and elect to use the model form may 
substitute the word ``policy'' for ``account'' in this statement. 
Institutions that do not provide this option may eliminate this left 
column from the mail-in form.
    (2) FCRA Section 603(d)(2)(A)(iii) opt-out. If the institution 
shares personal information pursuant to section 603(d)(2)(A)(iii) of the 
FCRA, it must include in the mail-in opt-out form the following 
statement: ``[square] Do not share information about my creditworthiness 
with your affiliates for their everyday business purposes.''
    (3) FCRA Section 624 opt-out. If the institution incorporates 
section 624 of the FCRA in accord with paragraph C.2(d)(6) of these 
Instructions, it must include in the mail-in opt-out form the following 
statement: ``[square] Do not allow your affiliates to use my personal 
information to market to me.''
    (4) Nonaffiliate opt-out. If the financial institution shares 
personal information pursuant to Sec.248.10(a) of this part, it must 
include in the mail-in opt-out form the following statement: ``[square] 
Do not share my personal information with nonaffiliates to market their 
products and services to me.''
    (5) Additional opt-outs. Financial institutions that use the 
disclosure table to provide opt-out options beyond those required by 
Federal law must provide those opt-outs in this section of the model 
form. A financial institution that chooses to offer an opt-out for its 
own marketing in the mail-in opt-out form must include one of the two 
following statements: ``[square] Do not share my personal information to 
market to me.'' or ``[square] Do not use my personal information to 
market to me.'' A financial institution that chooses to offer an opt-out 
for joint marketing must include the following statement: ``[square] Do 
not share my personal information with other financial institutions to 
jointly market to me.''

[[Page 978]]

    (h) Barcodes. A financial institution may elect to include a barcode 
and/or ``tagline'' (an internal identifier) in 6-point font at the 
bottom of page one, as needed for information internal to the 
institution, so long as these do not interfere with the clarity or text 
of the form.

                               3. Page Two

    (a) General Instructions for the Questions. Certain of the Questions 
may be customized as follows:
    (1) ``Who is providing this notice?'' This question may be omitted 
where only one financial institution provides the model form and that 
institution is clearly identified in the title on page one. Two or more 
financial institutions that jointly provide the model form must use this 
question to identify themselves as required by Sec.248.9(f) of this 
part. Where the list of institutions exceeds four (4) lines, the 
institution must describe in the response to this question the general 
types of institutions jointly providing the notice and must separately 
identify those institutions, in minimum 8-point font, directly following 
the ``Other important information'' box, or, if that box is not included 
in the institution's form, directly following the ``Definitions.'' The 
list may appear in a multi-column format.
    (2) ``How does [name of financial institution] protect my personal 
information?'' The financial institution may only provide additional 
information pertaining to its safeguards practices following the 
designated response to this question. Such information may include 
information about the institution's use of cookies or other measures it 
uses to safeguard personal information. Institutions are limited to a 
maximum of 30 additional words.
    (3) ``How does [name of financial institution] collect my personal 
information?'' Institutions must use five (5) of the following terms to 
complete the bulleted list for this question: open an account; deposit 
money; pay your bills; apply for a loan; use your credit or debit card; 
seek financial or tax advice; apply for insurance; pay insurance 
premiums; file an insurance claim; seek advice about your investments; 
buy securities from us; sell securities to us; direct us to buy 
securities; direct us to sell your securities; make deposits or 
withdrawals from your account; enter into an investment advisory 
contract; give us your income information; provide employment 
information; give us your employment history; tell us about your 
investment or retirement portfolio; tell us about your investment or 
retirement earnings; apply for financing; apply for a lease; provide 
account information; give us your contact information; pay us by check; 
give us your wage statements; provide your mortgage information; make a 
wire transfer; tell us who receives the money; tell us where to send the 
money; show your government-issued ID; show your driver's license; order 
a commodity futures or option trade. Institutions that collect personal 
information from their affiliates and/or credit bureaus must include 
after the bulleted list the following statement: ``We also collect your 
personal information from others, such as credit bureaus, affiliates, or 
other companies.'' Institutions that do not collect personal information 
from their affiliates or credit bureaus but do collect information from 
other companies must include the following statement instead: ``We also 
collect your personal information from other companies.'' Only 
institutions that do not collect any personal information from 
affiliates, credit bureaus, or other companies can omit both statements.
    (4) ``Why can't I limit all sharing?'' Institutions that describe 
state privacy law provisions in the ``Other important information'' box 
must use the bracketed sentence: ``See below for more on your rights 
under state law.'' Other institutions must omit this sentence.
    (5) ``What happens when I limit sharing for an account I hold 
jointly with someone else?'' Only financial institutions that provide 
opt-out options must use this question. Other institutions must omit 
this question. Institutions must choose one of the following two 
statements to respond to this question: ``Your choices will apply to 
everyone on your account.'' or ``Your choices will apply to everyone on 
your account--unless you tell us otherwise.'' Financial institutions 
that provide insurance products or services and elect to use the model 
form may substitute the word ``policy'' for ``account'' in these 
statements.
    (b) General Instructions for the Definitions. The financial 
institution must customize the space below the responses to the three 
definitions in this section. This specific information must be in 
italicized lettering to set off the information from the standardized 
definitions.
    (1) Affiliates. As required by Sec.248.6(a)(3) of this part, where 
[affiliate information] appears, the financial institution must:
    (i) If it has no affiliates, state: ``[name of financial 
institution] has no affiliates;''
    (ii) If it has affiliates but does not share personal information, 
state: ``[name of financial institution] does not share with our 
affiliates;'' or
    (iii) If it shares with its affiliates, state, as applicable: ``Our 
affiliates include companies with a [common corporate identity of 
financial institution] name; financial companies such as [insert 
illustrative list of companies]; nonfinancial companies, such as [insert 
illustrative list of companies] and others, such as [insert illustrative 
list].''
    (2) Nonaffiliates. As required by Sec.248.6(c)(3) of this part, 
where [nonaffiliate information] appears, the financial institution 
must:

[[Page 979]]

    (i) If it does not share with nonaffiliated third parties, state: 
``[name of financial institution] does not share with nonaffiliates so 
they can market to you;'' or
    (ii) If it shares with nonaffiliated third parties, state, as 
applicable: ``Nonaffiliates we share with can include [list categories 
of companies such as mortgage companies, insurance companies, direct 
marketing companies, and nonprofit organizations].''
    (3) Joint Marketing. As required by Sec.248.13 of this part, where 
[joint marketing] appears, the financial institution must:
    (i) If it does not engage in joint marketing, state: ``[name of 
financial institution] doesn't jointly market;'' or
    (ii) If it shares personal information for joint marketing, state, 
as applicable: ``Our joint marketing partners include [list categories 
of companies such as credit card companies].''
    (c) General instructions for the ``Other important information'' 
box. This box is optional. The space provided for information in this 
box is not limited. Only the following types of information can appear 
in this box.
    (1) State and/or international privacy law information; and/or
    (2) Acknowledgment of receipt form.

[74 FR 62985, Dec. 1, 2009]



      Subpart B_Regulation S-AM: Limitations on Affiliate Marketing

    Source: 74 FR 40431, Aug. 11, 2009, unless otherwise noted.



Sec.248.101  Purpose and scope.

    (a) Purpose. The purpose of this subpart is to implement section 624 
of the Fair Credit Reporting Act, 15 U.S.C. 1681, et seq. (``FCRA''). 
Section 624, which was added to the FCRA by section 214 of the Fair and 
Accurate Credit Transactions Act of 2003, Public Law 108-159, 117 Stat. 
1952 (2003) (``FACT Act'' or ``Act''), regulates the use of consumer 
information received from an affiliate to make marketing solicitations.
    (b) Scope. This subpart applies to any broker or dealer other than a 
notice-registered broker or dealer, to any investment company, and to 
any investment adviser or transfer agent registered with the Commission. 
These entities are referred to in this subpart as ``you.''



Sec.248.102  Examples.

    The examples in this subpart are not exclusive. The examples in this 
subpart provide guidance concerning the rules' application in ordinary 
circumstances. The facts and circumstances of each individual situation, 
however, will determine whether compliance with an example, to the 
extent applicable, constitutes compliance with this subpart. Examples in 
a paragraph illustrate only the issue described in the paragraph and do 
not illustrate any other issue that may arise under this subpart. 
Similarly, the examples do not illustrate any issues that may arise 
under other laws or regulations.



Sec.Sec.248.103-248.119  [Reserved]



Sec.248.120  Definitions.

    As used in this subpart, unless the context requires otherwise:
    (a) Affiliate of a broker, dealer, or investment company, or an 
investment adviser or transfer agent registered with the Commission 
means any person that is related by common ownership or common control 
with the broker, dealer, or investment company, or the investment 
adviser or transfer agent registered with the Commission. In addition, a 
broker, dealer, or investment company, or an investment adviser or 
transfer agent registered with the Commission will be deemed an 
affiliate of a company for purposes of this subpart if:
    (1) That company is regulated under section 214 of the FACT Act, 
Public Law 108-159, 117 Stat. 1952 (2003), by a government regulator 
other than the Commission; and
    (2) Rules adopted by the other government regulator under section 
214 of the FACT Act treat the broker, dealer, or investment company, or 
investment adviser or transfer agent registered with the Commission as 
an affiliate of that company.
    (b) Broker has the same meaning as in section 3(a)(4) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)). A ``broker'' does 
not include a broker registered by notice with the Commission under 
section 15(b)(11) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(b)(11)).
    (c) Clear and conspicuous means reasonably understandable and 
designed to call attention to the nature and significance of the 
information presented.

[[Page 980]]

    (d) Commission means the Securities and Exchange Commission.
    (e) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association, or similar 
organization.
    (f) Concise--(1) In general. The term ``concise'' means a reasonably 
brief expression or statement.
    (2) Combination with other required disclosures. A notice required 
by this subpart may be concise even if it is combined with other 
disclosures required or authorized by Federal or State law.
    (g) Consumer means an individual.
    (h) Control of a company means the power to exercise a controlling 
influence over the management or policies of a company whether through 
ownership of securities, by contract, or otherwise. Any person who owns 
beneficially, either directly or through one or more controlled 
companies, more than 25 percent of the voting securities of any company 
is presumed to control the company. Any person who does not own more 
than 25 percent of the voting securities of any company will be presumed 
not to control the company. Any presumption regarding control may be 
rebutted by evidence, but, in the case of an investment company, will 
continue until the Commission makes a decision to the contrary according 
to the procedures described in section 2(a)(9) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-2(a)(9)).
    (i) Dealer has the same meaning as in section 3(a)(5) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)). A ``dealer'' does 
not include a dealer registered by notice with the Commission under 
section 15(b)(11) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(b)(11)).
    (j) Eligibility information means any information the communication 
of which would be a consumer report if the exclusions from the 
definition of ``consumer report'' in section 603(d)(2)(A) of the FCRA 
did not apply. Eligibility information does not include aggregate or 
blind data that does not contain personal identifiers such as account 
numbers, names, or addresses.
    (k) FCRA means the Fair Credit Reporting Act (15 U.S.C. 1681, et 
seq.).
    (l) GLBA means the Gramm-Leach-Bliley Act (15 U.S.C. 6801, et seq.).
    (m) Investment adviser has the same meaning as in section 202(a)(11) 
of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)).
    (n) Investment company has the same meaning as in section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3) and includes a separate 
series of the investment company.
    (o) Marketing solicitation--(1) In general. The term ``marketing 
solicitation'' means the marketing of a product or service initiated by 
a person to a particular consumer that is:
    (i) Based on eligibility information communicated to that person by 
its affiliate as described in this subpart; and
    (ii) Intended to encourage the consumer to purchase or obtain such 
product or service.
    (2) Exclusion of marketing directed at the general public. A 
marketing solicitation does not include marketing communications that 
are directed at the general public. For example, television, general 
circulation magazine, billboard advertisements and publicly available 
Web sites that are not directed to particular consumers would not 
constitute marketing solicitations, even if those communications are 
intended to encourage consumers to purchase products and services from 
the person initiating the communications.
    (3) Examples of marketing solicitations. A marketing solicitation 
would include, for example, a telemarketing call, direct mail, e-mail, 
or other form of marketing communication directed to a particular 
consumer that is based on eligibility information received from an 
affiliate.
    (p) Person means any individual, partnership, corporation, trust, 
estate, cooperative, association, government or governmental subdivision 
or agency, or other entity.
    (q) Pre-existing business relationship--(1) In general. The term 
``pre-existing business relationship'' means a relationship between a 
person, or a person's licensed agent, and a consumer based on:
    (i) A financial contract between the person and the consumer which 
is in force on the date on which the consumer is sent a solicitation 
covered by this subpart;

[[Page 981]]

    (ii) The purchase, rental, or lease by the consumer of the person's 
goods or services, or a financial transaction (including holding an 
active account or a policy in force or having another continuing 
relationship) between the consumer and the person, during the 18-month 
period immediately preceding the date on which the consumer is sent a 
solicitation covered by this subpart; or
    (iii) An inquiry or application by the consumer regarding a product 
or service offered by that person during the three-month period 
immediately preceding the date on which the consumer is sent a 
solicitation covered by this subpart.
    (2) Examples of pre-existing business relationships. (i) If a 
consumer has a brokerage account with a broker-dealer that is currently 
in force, the broker-dealer has a pre-existing business relationship 
with the consumer and can use eligibility information it receives from 
its affiliates to make solicitations to the consumer about its products 
or services.
    (ii) If a consumer has an investment advisory contract with a 
registered investment adviser, the investment adviser has a pre-existing 
business relationship with the consumer and can use eligibility 
information it receives from its affiliates to make solicitations to the 
consumer about its products or services.
    (iii) If a consumer was the record owner of securities issued by an 
investment company, but the consumer redeems these securities, the 
investment company has a pre-existing business relationship with the 
consumer and can use eligibility information it receives from its 
affiliates to make solicitations to the consumer about its products or 
services for 18 months after the date the consumer redeemed the 
investment company's securities.
    (iv) If a consumer applies for a margin account offered by a broker-
dealer, but does not obtain a product or service from or enter into a 
financial contract or transaction with the broker-dealer, the broker-
dealer has a pre-existing business relationship with the consumer and 
can therefore use eligibility information it receives from its 
affiliates to make solicitations to the consumer about its products or 
services for three months after the date of the application.
    (v) If a consumer makes a telephone inquiry to a broker-dealer about 
its products or services and provides contact information to the broker-
dealer, but does not obtain a product or service from or enter into a 
financial contract or transaction with the institution, the broker-
dealer has a pre-existing business relationship with the consumer and 
can therefore use eligibility information it receives from its 
affiliates to make solicitations to the consumer about its products or 
services for three months after the date of the inquiry.
    (vi) If a consumer makes an inquiry by e-mail to a broker-dealer 
about one of its affiliated investment company's products or services 
but does not obtain a product or service from, or enter into a financial 
contract or transaction with the broker-dealer or the investment 
company, the broker-dealer and the investment company both have a pre-
existing business relationship with the consumer and can therefore use 
eligibility information they receive from their affiliates to make 
solicitations to the consumer about their products or services for three 
months after the date of the inquiry.
    (vii) If a consumer who has a pre-existing business relationship 
with an investment company that is part of a group of affiliated 
companies makes a telephone call to the centralized call center for the 
affiliated companies to inquire about products or services offered by a 
broker-dealer affiliated with the investment company, and provides 
contact information to the call center, the call constitutes an inquiry 
to the broker-dealer. In these circumstances, the broker-dealer has a 
pre-existing business relationship with the consumer and can therefore 
use eligibility information it receives from the investment company to 
make solicitations to the consumer about its products or services for 
three months after the date of the inquiry.
    (3) Examples where no pre-existing business relationship is created. 
(i) If a consumer makes a telephone call to a centralized call center 
for a group of affiliated companies to inquire about the

[[Page 982]]

consumer's existing account at a broker-dealer, the call does not 
constitute an inquiry to any affiliate other than the broker-dealer that 
holds the consumer's account and does not establish a pre-existing 
business relationship between the consumer and any affiliate of the 
account-holding broker-dealer.
    (ii) If a consumer who has an advisory contract with a registered 
investment adviser makes a telephone call to an affiliate of the 
investment adviser to ask about the affiliate's retail locations and 
hours, but does not make an inquiry about the affiliate's products or 
services, the call does not constitute an inquiry and does not establish 
a pre-existing business relationship between the consumer and the 
affiliate. Also, the affiliate's capture of the consumer's telephone 
number does not constitute an inquiry and does not establish a pre-
existing business relationship between the consumer and the affiliate.
    (iii) If a consumer makes a telephone call to a broker-dealer in 
response to an advertisement offering a free promotional item to 
consumers who call a toll-free number, but the advertisement does not 
indicate that the broker-dealer's products or services will be marketed 
to consumers who call in response, the call does not create a pre-
existing business relationship between the consumer and the broker-
dealer because the consumer has not made an inquiry about a product or 
service offered by the institution, but has merely responded to an offer 
for a free promotional item.
    (r) Transfer agent has the same meaning as in section 3(a)(25) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(25)).
    (s) You means:
    (1) Any broker or dealer other than a broker or dealer registered by 
notice with the Commission under section 15(b)(11) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o(b)(11));
    (2) Any investment company;
    (3) Any investment adviser registered with the Commission under the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-1, et seq.); and
    (4) Any transfer agent registered with the Commission under section 
17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1).



Sec.248.121  Affiliate marketing opt out and exceptions.

    (a) Initial notice and opt out requirement--(1) In general. You may 
not use eligibility information about a consumer that you receive from 
an affiliate to make a marketing solicitation to the consumer, unless:
    (i) It is clearly and conspicuously disclosed to the consumer in 
writing or, if the consumer agrees, electronically, in a concise notice 
that you may use eligibility information about that consumer received 
from an affiliate to make marketing solicitations to the consumer;
    (ii) The consumer is provided a reasonable opportunity and a 
reasonable and simple method to ``opt out,'' or the consumer prohibits 
you from using eligibility information to make marketing solicitations 
to the consumer; and
    (iii) The consumer has not opted out.
    (2) Example. A consumer has a brokerage account with a broker-
dealer. The broker-dealer furnishes eligibility information about the 
consumer to its affiliated investment adviser. Based on that eligibility 
information, the investment adviser wants to make a marketing 
solicitation to the consumer about its discretionary advisory accounts. 
The investment adviser does not have a pre-existing business 
relationship with the consumer and none of the other exceptions apply. 
The investment adviser is prohibited from using eligibility information 
received from its broker-dealer affiliate to make marketing 
solicitations to the consumer about its discretionary advisory accounts 
unless the consumer is given a notice and opportunity to opt out and the 
consumer does not opt out.
    (3) Affiliates who may provide the notice. The notice required by 
this paragraph must be provided:
    (i) By an affiliate that has or has previously had a pre-existing 
business relationship with the consumer; or
    (ii) As part of a joint notice from two or more members of an 
affiliated group of companies, provided that at least one of the 
affiliates on the joint notice

[[Page 983]]

has or has previously had a pre-existing business relationship with the 
consumer.
    (b) Making marketing solicitations--(1) In general. For purposes of 
this subpart, you make a marketing solicitation if:
    (i) You receive eligibility information from an affiliate;
    (ii) You use that eligibility information to do one or more of the 
following:
    (A) Identify the consumer or type of consumer to receive a marketing 
solicitation;
    (B) Establish criteria used to select the consumer to receive a 
marketing solicitation; or
    (C) Decide which of your products or services to market to the 
consumer or tailor your marketing solicitation to that consumer; and
    (iii) As a result of your use of the eligibility information, the 
consumer is provided a marketing solicitation.
    (2) Receiving eligibility information from an affiliate, including 
through a common database. You may receive eligibility information from 
an affiliate in various ways, including when the affiliate places that 
information into a common database that you may access.
    (3) Receipt or use of eligibility information by your service 
provider. Except as provided in paragraph (b)(5) of this section, you 
receive or use an affiliate's eligibility information if a service 
provider acting on your behalf (whether an affiliate or a nonaffiliated 
third party) receives or uses that information in the manner described 
in paragraph (b)(1)(i) or (b)(1)(ii) of this section. All relevant facts 
and circumstances will determine whether a person is acting as your 
service provider when it receives or uses an affiliate's eligibility 
information in connection with marketing your products and services.
    (4) Use by an affiliate of its own eligibility information. Unless 
you have used eligibility information that you receive from an affiliate 
in the manner described in paragraph (b)(1)(ii) of this section, you do 
not make a marketing solicitation subject to this subpart if your 
affiliate:
    (i) Uses its own eligibility information that it obtained in 
connection with a pre-existing business relationship it has or had with 
the consumer to market your products or services to the affiliate's 
consumer; or
    (ii) Directs its service provider to use the affiliate's own 
eligibility information that it obtained in connection with a pre-
existing business relationship it has or had with the consumer to market 
your products or services to the consumer, and you do not communicate 
directly with the service provider regarding that use.
    (5) Use of eligibility information by a service provider--(i) In 
general. You do not make a marketing solicitation subject to this 
subpart if a service provider (including an affiliated or third-party 
service provider that maintains or accesses a common database that you 
may access) receives eligibility information from your affiliate that 
your affiliate obtained in connection with a pre-existing business 
relationship it has or had with the consumer and uses that eligibility 
information to market your products or services to that affiliate's 
consumer, so long as:
    (A) Your affiliate controls access to and use of its eligibility 
information by the service provider (including the right to establish 
the specific terms and conditions under which the service provider may 
use such information to market your products or services);
    (B) Your affiliate establishes specific terms and conditions under 
which the service provider may access and use your affiliate's 
eligibility information to market your products and services (or those 
of affiliates generally) to your affiliate's consumers, such as the 
identity of the affiliated companies whose products or services may be 
marketed to the affiliate's consumers by the service provider, the types 
of products or services of affiliated companies that may be marketed, 
and the number of times your affiliate's consumers may receive marketing 
materials, and periodically evaluates the service provider's compliance 
with those terms and conditions;
    (C) Your affiliate requires the service provider to implement 
reasonable policies and procedures designed to ensure that the service 
provider uses your affiliate's eligibility information in accordance 
with the terms and conditions established by your affiliate relating to

[[Page 984]]

the marketing of your products or services;
    (D) Your affiliate is identified on or with the marketing materials 
provided to the consumer; and
    (E) You do not directly use your affiliate's eligibility information 
in the manner described in paragraph (b)(1)(ii) of this section.
    (ii) Writing requirements. (A) The requirements of paragraphs 
(b)(5)(i)(A) and (C) of this section must be set forth in a written 
agreement between your affiliate and the service provider; and
    (B) The specific terms and conditions established by your affiliate 
as provided in paragraph (b)(5)(i)(B) of this section must be set forth 
in writing.
    (6) Examples of making marketing solicitations. (i) A consumer has 
an investment advisory contract with a registered investment adviser 
that is affiliated with a broker-dealer. The broker-dealer receives 
eligibility information about the consumer from the investment adviser. 
The broker-dealer uses that eligibility information to identify the 
consumer to receive a marketing solicitation about brokerage products 
and services, and, as a result, the broker-dealer provides a marketing 
solicitation to the consumer about its brokerage services. Pursuant to 
paragraph (b)(1) of this section, the broker-dealer has made a marketing 
solicitation to the consumer.
    (ii) The same facts as in the example in paragraph (b)(6)(i) of this 
section, except that after using the eligibility information to identify 
the consumer to receive a marketing solicitation about brokerage 
products and services, the broker-dealer asks the registered investment 
adviser to send the marketing solicitation to the consumer and the 
investment adviser does so. Pursuant to paragraph (b)(1) of this 
section, the broker-dealer has made a marketing solicitation to the 
consumer because it used eligibility information about the consumer that 
it received from an affiliate to identify the consumer to receive a 
marketing solicitation about its products or services, and, as a result, 
a marketing solicitation was provided to the consumer about the broker-
dealer's products and services.
    (iii) The same facts as in the example in paragraph (b)(6)(i) of 
this section, except that eligibility information about consumers who 
have an investment advisory contract with a registered investment 
adviser is placed into a common database that all members of the 
affiliated group of companies may independently access and use. Without 
using the investment adviser's eligibility information, the broker-
dealer develops selection criteria and provides those criteria, 
marketing materials, and related instructions to the investment adviser. 
The investment adviser reviews eligibility information about its own 
consumers using the selection criteria provided by the broker-dealer to 
determine which consumers should receive the broker-dealer's marketing 
materials and sends the broker-dealer's marketing materials to those 
consumers. Even though the broker-dealer has received eligibility 
information through the common database as provided in paragraph (b)(2) 
of this section, it did not use that information to identify consumers 
or establish selection criteria; instead, the investment adviser used 
its own eligibility information. Therefore, pursuant to paragraph 
(b)(4)(i) of this section, the broker-dealer has not made a marketing 
solicitation to the consumer.
    (iv) The same facts as in the example in paragraph (b)(6)(iii) of 
this section, except that the registered investment adviser provides the 
broker-dealer's criteria to the investment adviser's service provider 
and directs the service provider to use the investment adviser's 
eligibility information to identify investment adviser consumers who 
meet the criteria and to send the broker-dealer's marketing materials to 
those consumers. The broker-dealer does not communicate directly with 
the service provider regarding the use of the investment adviser's 
information to market its products or services to the investment 
adviser's consumers. Pursuant to paragraph (b)(4)(ii) of this section, 
the broker-dealer has not made a marketing solicitation to the consumer.
    (v) An affiliated group of companies includes an investment company, 
a principal underwriter for the investment company, a retail broker-
dealer,

[[Page 985]]

and a transfer agent that also acts as a service provider. Each 
affiliate in the group places information about its consumers into a 
common database. The service provider has access to all information in 
the common database. The investment company controls access to and use 
of its eligibility information by the service provider. This control is 
set forth in a written agreement between the investment company and the 
service provider. The written agreement also requires the service 
provider to establish reasonable policies and procedures designed to 
ensure that the service provider uses the investment company's 
eligibility information in accordance with specific terms and conditions 
established by the investment company relating to the marketing of the 
products and services of all affiliates, including the principal 
underwriter and the retail broker-dealer. In a separate written 
communication, the investment company specifies the terms and conditions 
under which the service provider may use the investment company's 
eligibility information to market the retail broker-dealer's products 
and services to the investment company's consumers. The specific terms 
and conditions are: a list of affiliated companies (including the retail 
broker-dealer) whose products or services may be marketed to the 
investment company's consumers by the service provider; the specific 
products or services or types of products or services that may be 
marketed to the investment company's consumers by the service provider; 
the categories of eligibility information that may be used by the 
service provider in marketing products or services to the investment 
company's consumers; the types or categories of the investment company's 
consumers to whom the service provider may market products or services 
of investment company affiliates; the number and types of marketing 
communications that the service provider may send to the investment 
company's consumers; and the length of time during which the service 
provider may market the products or services of the investment company's 
affiliates to its consumers. The investment company periodically 
evaluates the service provider's compliance with these terms and 
conditions. The retail broker-dealer asks the service provider to market 
brokerage services to certain of the investment company's consumers. 
Without using the investment company's eligibility information, the 
retail broker-dealer develops selection criteria and provides those 
criteria, its marketing materials, and related instructions to the 
service provider. The service provider uses the investment company's 
eligibility information from the common database to identify the 
investment company's consumers to whom brokerage services will be 
marketed. When the retail broker-dealer's marketing materials are 
provided to the identified consumers, the name of the investment company 
is displayed on the retail broker-dealer's marketing materials, an 
introductory letter that accompanies the marketing materials, an account 
statement that accompanies the marketing materials, or the envelope 
containing the marketing materials. The requirements of paragraph (b)(5) 
of this section have been satisfied, and the retail broker-dealer has 
not made a marketing solicitation to the consumer.
    (vi) The same facts as in the example in paragraph (b)(6)(v) of this 
section, except that the terms and conditions permit the service 
provider to use the investment company's eligibility information to 
market the products and services of other affiliates to the investment 
company's consumers whenever the service provider deems it appropriate 
to do so. The service provider uses the investment company's eligibility 
information in accordance with the discretion afforded to it by the 
terms and conditions. Because the terms and conditions are not specific, 
the requirements of paragraph (b)(5) of this section have not been 
satisfied.
    (c) Exceptions. The provisions of this subpart do not apply to you 
if you use eligibility information that you receive from an affiliate:
    (1) To make a marketing solicitation to a consumer with whom you 
have a pre-existing business relationship;
    (2) To facilitate communications to an individual for whose benefit 
you provide employee benefit or other services pursuant to a contract 
with an employer related to and arising out of the

[[Page 986]]

current employment relationship or status of the individual as a 
participant or beneficiary of an employee benefit plan;
    (3) To perform services on behalf of an affiliate, except that this 
paragraph shall not be construed as permitting you to send marketing 
solicitations on behalf of an affiliate if the affiliate would not be 
permitted to send the marketing solicitation as a result of the election 
of the consumer to opt out under this subpart;
    (4) In response to a communication about your products or services 
initiated by the consumer;
    (5) In response to an authorization or request by the consumer to 
receive solicitations; or
    (6) If your compliance with this subpart would prevent you from 
complying with any provision of State insurance laws pertaining to 
unfair discrimination in any State in which you are lawfully doing 
business.
    (d) Examples of exceptions--(1) Example of the pre-existing business 
relationship exception. A consumer has a brokerage account with a 
broker-dealer. The consumer also has a deposit account with the broker-
dealer's affiliated depository institution. The broker-dealer receives 
eligibility information about the consumer from its depository 
institution affiliate and uses that information to make a marketing 
solicitation to the consumer about the broker-dealer's college savings 
accounts. The broker-dealer may make this marketing solicitation even if 
the consumer has not been given a notice and opportunity to opt out 
because the broker-dealer has a pre-existing business relationship with 
the consumer.
    (2) Examples of service provider exception. (i) A consumer has a 
brokerage account with a broker-dealer. The broker-dealer furnishes 
eligibility information about the consumer to its affiliate, a 
registered investment adviser. Based on that eligibility information, 
the investment adviser wants to make a marketing solicitation to the 
consumer about its advisory services. The investment adviser does not 
have a pre-existing business relationship with the consumer and none of 
the other exceptions in paragraph (c) of this section apply. The 
consumer has been given an opt out notice and has elected to opt out of 
receiving such marketing solicitations. The investment adviser asks a 
service provider to send the marketing solicitation to the consumer on 
its behalf. The service provider may not send the marketing solicitation 
on behalf of the investment adviser because, as a result of the 
consumer's opt out election, the investment adviser is not permitted to 
make the marketing solicitation.
    (ii) The same facts as in paragraph (d)(2)(i) of this section, 
except the consumer has been given an opt out notice, but has not 
elected to opt out. The investment adviser asks a service provider to 
send the solicitation to the consumer on its behalf. The service 
provider may send the marketing solicitation on behalf of the investment 
adviser because, as a result of the consumer's not opting out, the 
investment adviser is permitted to make the marketing solicitation.
    (3) Examples of consumer-initiated communications. (i) A consumer 
who is the record owner of shares in an investment company initiates a 
communication with an affiliated registered investment adviser about 
advisory services. The affiliated investment adviser may use eligibility 
information about the consumer it obtains from the investment company or 
any other affiliate to make marketing solicitations regarding the 
affiliated investment adviser's services in response to the consumer-
initiated communication.
    (ii) A consumer who has a brokerage account with a broker-dealer 
contacts the broker-dealer to request information about how to save and 
invest for a child's college education without specifying the type of 
savings or investment vehicle in which the consumer may be interested. 
Information about a range of different products or services offered by 
the broker-dealer and one or more of its affiliates may be responsive to 
that communication. Such products, services, and investments may include 
the following: investments in affiliated investment companies; 
investments in section 529 plans offered by the broker-dealer; or trust 
services offered by a different financial institution in the affiliated 
group. Any affiliate offering

[[Page 987]]

products or services that would be responsive to the consumer's request 
for information about saving and investing for a child's college 
education may use eligibility information to make marketing 
solicitations to the consumer in response to this communication.
    (iii) A registered investment adviser makes a marketing call to the 
consumer without using eligibility information received from an 
affiliate. The investment adviser leaves a voice-mail message that 
invites the consumer to call a toll-free number to receive information 
about services offered by the investment adviser. If the consumer calls 
the toll-free number to inquire about the investment advisory services, 
the call is a consumer-initiated communication about a product or 
service, and the investment adviser may now use eligibility information 
it receives from its affiliates to make marketing solicitations to the 
consumer.
    (iv) A consumer calls a broker-dealer to ask about retail locations 
and hours, but does not request information about its products or 
services. The broker-dealer may not use eligibility information it 
receives from an affiliate to make marketing solicitations to the 
consumer because the consumer-initiated communication does not relate to 
the broker-dealer's products or services. Thus, the use of eligibility 
information received from an affiliate would not be responsive to the 
communication and the exception does not apply.
    (v) A consumer calls a broker-dealer to ask about retail locations 
and hours. The customer service representative asks the consumer if 
there is a particular product or service about which the consumer is 
seeking information. The consumer responds that the consumer wants to 
stop in and find out about mutual funds (i.e., registered open-end 
investment companies). The customer service representative offers to 
provide that information by telephone and mail additional information to 
the consumer. The consumer agrees and provides or confirms contact 
information for receipt of the materials to be mailed. The broker-dealer 
may use eligibility information it receives from an affiliate to make 
marketing solicitations to the consumer about mutual funds because such 
marketing solicitations would respond to the consumer-initiated 
communication about mutual funds.
    (4) Examples of consumer authorization or request for marketing 
solicitations. (i) A consumer who has a brokerage account with a broker-
dealer authorizes or requests information about life insurance offered 
by the broker-dealer's insurance affiliate. The authorization or 
request, whether given to the broker-dealer or the insurance affiliate, 
would permit the insurance affiliate to use eligibility information 
about the consumer it obtains from the broker-dealer or any other 
affiliate to make marketing solicitations to the consumer about life 
insurance.
    (ii) A consumer completes an online application to open an online 
brokerage account with a broker-dealer. The broker-dealer's online 
application contains a blank check box that the consumer may check to 
authorize or request information from the broker-dealer's affiliates. 
The consumer checks the box. The consumer has authorized or requested 
marketing solicitations from the broker-dealer's affiliates.
    (iii) A consumer completes an online application to open an online 
brokerage account with a broker-dealer. The broker-dealer's online 
application contains a check box indicating that the consumer authorizes 
or requests information from the broker-dealer's affiliates. The 
consumer does not deselect the check box. The consumer has not 
authorized or requested marketing solicitations from the broker-dealer's 
affiliates.
    (iv) The terms and conditions of a brokerage account agreement 
contain preprinted boilerplate language stating that by applying to open 
an account the consumer authorizes or requests to receive solicitations 
from the broker-dealer's affiliates. The consumer has not authorized or 
requested marketing solicitations from the broker-dealer's affiliates.
    (e) Relation to affiliate-sharing notice and opt out. Nothing in 
this subpart limits the responsibility of a person to comply with the 
notice and opt out provisions of Section 603(d)(2)(A)(iii) of

[[Page 988]]

the FCRA (15 U.S.C. 1681a(d)(2)(A)(iii)) where applicable.



Sec.248.122  Scope and duration of opt out.

    (a) Scope of opt out--(1) In general. Except as otherwise provided 
in this section, the consumer's election to opt out prohibits any 
affiliate covered by the opt out notice from using eligibility 
information received from another affiliate as described in the notice 
to make marketing solicitations to the consumer.
    (2) Continuing relationship--(i) In general. If the consumer 
establishes a continuing relationship with you or your affiliate, an opt 
out notice may apply to eligibility information obtained in connection 
with:
    (A) A single continuing relationship or multiple continuing 
relationships that the consumer establishes with you or your affiliates, 
including continuing relationships established subsequent to delivery of 
the opt out notice, so long as the notice adequately describes the 
continuing relationships covered by the opt out; or
    (B) Any other transaction between the consumer and you or your 
affiliates as described in the notice.
    (ii) Examples of continuing relationships. A consumer has a 
continuing relationship with you or your affiliate if the consumer:
    (A) Opens a brokerage account or enters into an advisory contract 
with you or your affiliate;
    (B) Obtains a loan for which you or your affiliate owns the 
servicing rights;
    (C) Purchases investment company shares in his or her own name;
    (D) Holds an investment through you or your affiliate; such as when 
you act or your affiliate acts as a custodian for securities or for 
assets in an individual retirement arrangement;
    (E) Enters into an agreement or understanding with you or your 
affiliate whereby you or your affiliate undertakes to arrange or broker 
a home mortgage loan for the consumer;
    (F) Enters into a lease of personal property with you or your 
affiliate; or
    (G) Obtains financial, investment, or economic advisory services 
from you or your affiliate for a fee.
    (3) No continuing relationship--(i) In general. If there is no 
continuing relationship between a consumer and you or your affiliate, 
and you or your affiliate obtain eligibility information about a 
consumer in connection with a transaction with the consumer, such as an 
isolated transaction or an application that is denied, an opt out notice 
provided to the consumer only applies to eligibility information 
obtained in connection with that transaction.
    (ii) Examples of isolated transactions. An isolated transaction 
occurs if:
    (A) The consumer uses your or your affiliate's ATM to withdraw cash 
from an account at another financial institution; or
    (B) A broker-dealer opens a brokerage account for the consumer 
solely for the purpose of liquidating or purchasing securities as an 
accommodation, i.e., on a one-time basis, without the expectation of 
engaging in other transactions.
    (4) Menu of alternatives. A consumer may be given the opportunity to 
choose from a menu of alternatives when electing to prohibit 
solicitations, such as by electing to prohibit solicitations from 
certain types of affiliates covered by the opt out notice but not other 
types of affiliates covered by the notice, electing to prohibit 
marketing solicitations based on certain types of eligibility 
information but not other types of eligibility information, or electing 
to prohibit marketing solicitations by certain methods of delivery but 
not other methods of delivery. However, one of the alternatives must 
allow the consumer to prohibit all marketing solicitations from all of 
the affiliates that are covered by the notice.
    (5) Special rule for a notice following termination of all 
continuing relationships--(i) In general. A consumer must be given a new 
opt out notice if, after all continuing relationships with you or your 
affiliate(s) are terminated, the consumer subsequently establishes 
another continuing relationship with you or your affiliate(s) and the 
consumer's eligibility information is to be used to make a marketing 
solicitation. The new opt out notice must apply, at a minimum, to 
eligibility information obtained in connection with the new continuing 
relationship. Consistent

[[Page 989]]

with paragraph (b) of this section, the consumer's decision not to opt 
out after receiving the new opt out notice would not override a prior 
opt out election by the consumer that applies to eligibility information 
obtained in connection with a terminated relationship, regardless of 
whether the new opt out notice applies to eligibility information 
obtained in connection with the terminated relationship.
    (ii) Example. A consumer has an advisory contract with a company 
that is registered with the Commission as both a broker-dealer and an 
investment adviser, and that is part of an affiliated group. The 
consumer terminates the advisory contract. One year after terminating 
the advisory contract, the consumer opens a brokerage account with the 
same company. The consumer must be given a new notice and opportunity to 
opt out before the company's affiliates may make marketing solicitations 
to the consumer using eligibility information obtained by the company in 
connection with the new brokerage account relationship, regardless of 
whether the consumer opted out in connection with the advisory contract.
    (b) Duration of opt out. The election of a consumer to opt out must 
be effective for a period of at least five years (the ``opt out 
period'') beginning when the consumer's opt out election is received and 
implemented, unless the consumer subsequently revokes the opt out in 
writing or, if the consumer agrees, electronically. An opt out period of 
more than five years may be established, including an opt out period 
that does not expire unless revoked by the consumer.
    (c) Time of opt out. A consumer may opt out at any time.



Sec.248.123  Contents of opt out notice; consolidated and equivalent
notices.

    (a) Contents of opt out notice--(1) In general. A notice must be 
clear, conspicuous, and concise, and must accurately disclose:
    (i) The name of the affiliate(s) providing the notice. If the notice 
is provided jointly by multiple affiliates and each affiliate shares a 
common name, such as ``ABC,'' then the notice may indicate that it is 
being provided by multiple companies with the ABC name or multiple 
companies in the ABC group or family of companies, for example, by 
stating that the notice is provided by ``all of the ABC companies,'' 
``the ABC banking, credit card, insurance, and securities companies,'' 
or by listing the name of each affiliate providing the notice. But if 
the affiliates providing the joint notice do not all share a common 
name, then the notice must either separately identify each affiliate by 
name or identify each of the common names used by those affiliates, for 
example, by stating that the notice is provided by ``all of the ABC and 
XYZ companies'' or by ``the ABC bank and securities companies and the 
XYZ insurance companies'';
    (ii) A list of the affiliates or types of affiliates whose use of 
eligibility information is covered by the notice, which may include 
companies that become affiliates after the notice is provided to the 
consumer. If each affiliate covered by the notice shares a common name, 
such as ``ABC,'' then the notice may indicate that it applies to 
multiple companies with the ABC name or multiple companies in the ABC 
group or family of companies, for example, by stating that the notice is 
provided by ``all of the ABC companies,'' ``the ABC banking, credit 
card, insurance, and securities companies,'' or by listing the name of 
each affiliate providing the notice. But if the affiliates covered by 
the notice do not all share a common name, then the notice must either 
separately identify each covered affiliate by name or identify each of 
the common names used by those affiliates, for example, by stating that 
the notice applies to ``all of the ABC and XYZ companies'' or to ``the 
ABC banking and securities companies and the XYZ insurance companies'';
    (iii) A general description of the types of eligibility information 
that may be used to make marketing solicitations to the consumer;
    (iv) That the consumer may elect to limit the use of eligibility 
information to make marketing solicitations to the consumer;
    (v) That the consumer's election will apply for the specified period 
of time stated in the notice and, if applicable,

[[Page 990]]

that the consumer will be allowed to renew the election once that period 
expires;
    (vi) If the notice is provided to consumers who may have previously 
opted out, such as if a notice is provided to consumers annually, that 
the consumer who has chosen to limit marketing solicitations does not 
need to act again until the consumer receives a renewal notice; and
    (vii) A reasonable and simple method for the consumer to opt out.
    (2) Joint relationships. (i) If two or more consumers jointly obtain 
a product or service, a single opt out notice may be provided to the 
joint consumers. Any of the joint consumers may exercise the right to 
opt out.
    (ii) The opt out notice must explain how an opt out direction by a 
joint consumer will be treated. An opt out direction by a joint consumer 
may be treated as applying to all of the associated joint consumers, or 
each joint consumer may be permitted to opt out separately. If each 
joint consumer is permitted to opt out separately, one of the joint 
consumers must be permitted to opt out on behalf of all of the joint 
consumers and the joint consumers must be permitted to exercise their 
separate rights to opt out in a single response.
    (iii) It is impermissible to require all joint consumers to opt out 
before implementing any opt out direction.
    (3) Alternative contents. If the consumer is afforded a broader 
right to opt out of receiving marketing than is required by this 
subpart, the requirements of this section may be satisfied by providing 
the consumer with a clear, conspicuous, and concise notice that 
accurately discloses the consumer's opt out rights.
    (4) Model notices. Model notices are provided in the Appendix to 
this subpart.
    (b) Coordinated and consolidated notices. A notice required by this 
subpart may be coordinated and consolidated with any other notice or 
disclosure required to be issued under any other provision of law by the 
entity providing the notice, including but not limited to the notice 
described in section 603(d)(2)(A)(iii) of the FCRA (15 U.S.C. 
1681a(d)(2)(A)(iii)) and the GLBA privacy notice.
    (c) Equivalent notices. A notice or other disclosure that is 
equivalent to the notice required by this subpart, and that is provided 
to a consumer together with disclosures required by any other provision 
of law, satisfies the requirements of this section.



Sec.248.124  Reasonable opportunity to opt out.

    (a) In general. You must not use eligibility information that you 
receive from an affiliate to make marketing solicitations to a consumer 
about your products or services unless the consumer is provided a 
reasonable opportunity to opt out, as required by Sec.
248.121(a)(1)(ii).
    (b) Examples of a reasonable opportunity to opt out. The consumer is 
given a reasonable opportunity to opt out if:
    (1) By mail. The opt out notice is mailed to the consumer. The 
consumer is given 30 days from the date the notice is mailed to elect to 
opt out by any reasonable means.
    (2) By electronic means. (i) The opt out notice is provided 
electronically to the consumer, such as by posting the notice at an 
Internet Web site at which the consumer has obtained a product or 
service. The consumer acknowledges receipt of the electronic notice. The 
consumer is given 30 days after the date the consumer acknowledges 
receipt to elect to opt out by any reasonable means.
    (ii) The opt out notice is provided to the consumer by e-mail where 
the consumer has agreed to receive disclosures by e-mail from the person 
sending the notice. The consumer is given 30 days after the e-mail is 
sent to elect to opt out by any reasonable means.
    (3) At the time of an electronic transaction. The opt out notice is 
provided to the consumer at the time of an electronic transaction, such 
as a transaction conducted on an Internet Web site. The consumer is 
required to decide, as a necessary part of proceeding with the 
transaction, whether to opt out before completing the transaction. There 
is a simple process that the consumer may use to opt out at that time 
using the same mechanism through which the transaction is conducted.

[[Page 991]]

    (4) At the time of an in-person transaction. The opt out notice is 
provided to the consumer in writing at the time of an in-person 
transaction. The consumer is required to decide, as a necessary part of 
proceeding with the transaction, whether to opt out before completing 
the transaction, and is not permitted to complete the transaction 
without making a choice. There is a simple process that the consumer may 
use during the course of the in-person transaction to opt out, such as 
completing a form that requires consumers to write a ``yes'' or ``no'' 
to indicate their opt out preference or that requires the consumer to 
check one of two blank check boxes--one that allows consumers to 
indicate that they want to opt out and one that allows consumers to 
indicate that they do not want to opt out.
    (5) By including in a privacy notice. The opt out notice is included 
in a GLBA privacy notice. The consumer is allowed to exercise the opt 
out within a reasonable period of time and in the same manner as the opt 
out under that privacy notice.



Sec.248.125  Reasonable and simple methods of opting out.

    (a) In general. You must not use eligibility information about a 
consumer that you receive from an affiliate to make a marketing 
solicitation to the consumer about your products or services, unless the 
consumer is provided a reasonable and simple method to opt out, as 
required by Sec.248.121(a)(1)(ii).
    (b) Examples--(1) Reasonable and simple opt out methods. Reasonable 
and simple methods for exercising the opt out right include:
    (i) Designating a check-off box in a prominent position on the opt 
out form;
    (ii) Including a reply form and a self-addressed envelope together 
with the opt out notice;
    (iii) Providing an electronic means to opt out, such as a form that 
can be electronically mailed or processed at an Internet Web site, if 
the consumer agrees to the electronic delivery of information;
    (iv) Providing a toll-free telephone number that consumers may call 
to opt out; or
    (v) Allowing consumers to exercise all of their opt out rights 
described in a consolidated opt out notice that includes the GLBA 
privacy, FCRA affiliate sharing, and FCRA affiliate marketing opt outs, 
by a single method, such as by calling a single toll-free telephone 
number.
    (2) Opt out methods that are not reasonable and simple. Reasonable 
and simple methods for exercising an opt out right do not include:
    (i) Requiring the consumer to write his or her own letter;
    (ii) Requiring the consumer to call or write to obtain a form for 
opting out, rather than including the form with the opt out notice; or
    (iii) Requiring the consumer who receives the opt out notice in 
electronic form only, such as through posting at an Internet Web site, 
to opt out solely by paper mail or by visiting a different Web site 
without providing a link to that site.
    (c) Specific opt out means. Each consumer may be required to opt out 
through a specific means, as long as that means is reasonable and simple 
for that consumer.



Sec.248.126  Delivery of opt out notices.

    (a) In general. The opt out notice must be provided so that each 
consumer can reasonably be expected to receive actual notice. For opt 
out notices provided electronically, the notice may be provided in 
compliance with either the electronic disclosure provisions in this 
subpart or the provisions in section 101 of the Electronic Signatures in 
Global and National Commerce Act, 15 U.S.C. 7001, et seq.
    (b) Examples of reasonable expectation of actual notice. A consumer 
may reasonably be expected to receive actual notice if the affiliate 
providing the notice:
    (1) Hand-delivers a printed copy of the notice to the consumer;
    (2) Mails a printed copy of the notice to the last known mailing 
address of the consumer;
    (3) Provides a notice by e-mail to a consumer who has agreed to 
receive electronic disclosures by e-mail from the affiliate providing 
the notice; or

[[Page 992]]

    (4) Posts the notice on the Internet Web site at which the consumer 
obtained a product or service electronically and requires the consumer 
to acknowledge receipt of the notice.
    (c) Examples of no reasonable expectation of actual notice. A 
consumer may not reasonably be expected to receive actual notice if the 
affiliate providing the notice:
    (1) Only posts the notice on a sign in a branch or office or 
generally publishes the notice in a newspaper;
    (2) Sends the notice by e-mail to a consumer who has not agreed to 
receive electronic disclosures by e-mail from the affiliate providing 
the notice; or
    (3) Posts the notice on an Internet Web site without requiring the 
consumer to acknowledge receipt of the notice.



Sec.248.127  Renewal of opt out elections.

    (a) Renewal notice and opt out requirement--(1) In general. After 
the opt out period expires, you may not make marketing solicitations to 
a consumer who previously opted out, unless:
    (i) The consumer has been given a renewal notice that complies with 
the requirements of this section and Sec.Sec.248.124 through 248.126, 
and a reasonable opportunity and a reasonable and simple method to renew 
the opt out, and the consumer does not renew the opt out; or
    (ii) An exception in Sec.248.121(c) applies.
    (2) Renewal period. Each opt out renewal must be effective for a 
period of at least five years as provided in Sec.248.122(b).
    (3) Affiliates who may provide the notice. The notice required by 
this paragraph must be provided:
    (i) By the affiliate that provided the previous opt out notice, or 
its successor; or
    (ii) As part of a joint renewal notice from two or more members of 
an affiliated group of companies, or their successors, that jointly 
provided the previous opt out notice.
    (b) Contents of renewal notice. The renewal notice must be clear, 
conspicuous, and concise, and must accurately disclose:
    (1) The name of the affiliate(s) providing the notice. If the notice 
is provided jointly by multiple affiliates and each affiliate shares a 
common name, such as ``ABC,'' then the notice may indicate it is being 
provided by multiple companies with the ABC name or multiple companies 
in the ABC group or family of companies, for example, by stating that 
the notice is provided by ``all of the ABC companies,'' ``the ABC 
banking, credit card, insurance, and securities companies,'' or by 
listing the name of each affiliate providing the notice. But if the 
affiliates providing the joint notice do not all share a common name, 
then the notice must either separately identify each affiliate by name 
or identify each of the common names used by those affiliates, for 
example, by stating that the notice is provided by ``all of the ABC and 
XYZ companies'' or by ``the ABC banking and securities companies and the 
XYZ insurance companies'';
    (2) A list of the affiliates or types of affiliates whose use of 
eligibility information is covered by the notice, which may include 
companies that become affiliates after the notice is provided to the 
consumer. If each affiliate covered by the notice shares a common name, 
such as ``ABC,'' then the notice may indicate that it applies to 
multiple companies with the ABC name or multiple companies in the ABC 
group or family of companies, for example, by stating that the notice is 
provided by ``all of the ABC companies,'' ``the ABC banking, credit 
card, insurance, and securities companies,'' or by listing the name of 
each affiliate providing the notice. But if the affiliates covered by 
the notice do not all share a common name, then the notice must either 
separately identify each covered affiliate by name or identify each of 
the common names used by those affiliates, for example, by stating that 
the notice applies to ``all of the ABC and XYZ companies'' or to ``the 
ABC banking and securities companies and the XYZ insurance companies'';
    (3) A general description of the types of eligibility information 
that may be used to make marketing solicitations to the consumer;

[[Page 993]]

    (4) That the consumer previously elected to limit the use of certain 
information to make marketing solicitations to the consumer;
    (5) That the consumer's election has expired or is about to expire;
    (6) That the consumer may elect to renew the consumer's previous 
election;
    (7) If applicable, that the consumer's election to renew will apply 
for the specified period of time stated in the notice and that the 
consumer will be allowed to renew the election once that period expires; 
and
    (8) A reasonable and simple method for the consumer to opt out.
    (c) Timing of the renewal notice--(1) In general. A renewal notice 
may be provided to the consumer either:
    (i) A reasonable period of time before the expiration of the opt out 
period; or
    (ii) Any time after the expiration of the opt out period but before 
marketing solicitations that would have been prohibited by the expired 
opt out are made to the consumer.
    (2) Combination with annual privacy notice. If you provide an annual 
privacy notice under the GLBA, providing a renewal notice with the last 
annual privacy notice provided to the consumer before expiration of the 
opt out period is a reasonable period of time before expiration of the 
opt out in all cases.
    (d) No effect on opt out period. An opt out period may not be 
shortened by sending a renewal notice to the consumer before expiration 
of the opt out period, even if the consumer does not renew the opt out.



Sec.248.128  Effective date, compliance date, and prospective 
application.

    (a) Effective date. This subpart is effective September 10, 2009.
    (b) Mandatory compliance date. Compliance with this subpart is 
required not later than January 1, 2010.
    (c) Prospective application. The provisions of this subpart do not 
prohibit you from using eligibility information that you receive from an 
affiliate to make a marketing solicitation to a consumer if you receive 
such information prior to January 1, 2010. For purposes of this section, 
you are deemed to receive eligibility information when such information 
is placed into a common database and is accessible by you.



           Sec.Appendix to Subpart B of Part 248--Model Forms

    a. Although you and your affiliates are not required to use the 
model forms in this Appendix, use of a model form (if applicable to each 
person that uses it) complies with the requirement in section 624 of the 
FCRA for clear, conspicuous, and concise notices.
    b. Although you may need to change the language or format of a model 
form to reflect your actual policies and procedures, any such changes 
may not be so extensive as to affect the substance, clarity, or 
meaningful sequence of the language in the model forms. Acceptable 
changes include, for example:
    1. Rearranging the order of the references to ``your income,'' 
``your account history,'' and ``your credit score.''
    2. Substituting other types of information for ``income,'' ``account 
history,'' or ``credit score'' for accuracy, such as ``payment 
history,'' ``credit history,'' ``payoff status,'' or ``claims history.''
    3. Substituting a clearer and more accurate description of the 
affiliates providing or covered by the notice for phrases such as ``the 
[ABC] group of companies.''
    4. Substituting other types of affiliates covered by the notice for 
``credit card,'' ``insurance,'' or ``securities'' affiliates.
    5. Omitting items that are not accurate or applicable. For example, 
if a person does not limit the duration of the opt out period, the 
notice may omit information about the renewal notice.
    6. Adding a statement informing the consumer how much time they have 
to opt out before shared eligibility information may be used to make 
solicitations to them.
    7. Adding a statement that the consumer may exercise the right to 
opt out at any time.
    8. Adding the following statement, if accurate: ``If you previously 
opted out, you do not need to do so again.''
    9. Providing a place on the form for the consumer to fill in 
identifying information, such as his or her name and address.
    10. Adding disclosures regarding the treatment of opt-outs by joint 
consumers to comply with Sec.248.123(a)(2), if applicable.

[[Page 994]]

  A-1--Model Form for Initial Opt Out Notice (Single-Affiliate Notice)

        A-2--Model Form for Initial Opt Out Notice (Joint Notice)

      A-3--Model Form for Renewal Notice (Single-Affiliate Notice)

            A-4--Model Form for Renewal Notice (Joint Notice)

          A-5--Model Form for Voluntary ``No Marketing'' Notice

 A-1--Model Form for Initial Opt Out Notice (Single-Affiliate Notice)--
          [Your Choice to Limit Marketing]/[Marketing Opt Out]

     [Name of Affiliate] is providing this notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from our affiliates. Federal law also 
requires us to give you this notice to tell you about your choice to 
limit marketing from our affiliates.]
     You may limit our affiliates in the [ABC] group 
of companies, such as our [investment adviser, broker, transfer agent, 
and investment company] affiliates, from marketing their products or 
services to you based on your personal information that we collect and 
share with them. This information includes your [income], your [account 
history with us], and your [credit score].
     Your choice to limit marketing offers from our 
affiliates will apply [until you tell us to change your choice]/[for x 
years from when you tell us your choice]/[for at least 5 years from when 
you tell us your choice]. [Include if the opt out period expires.] Once 
that period expires, you will receive a renewal notice that will allow 
you to continue to limit marketing offers from our affiliates for 
[another x years]/[at least another 5 years].
     [Include, if applicable, in a subsequent notice, 
including an annual notice, for consumers who may have previously opted 
out.] If you have already made a choice to limit marketing offers from 
our affiliates, you do not need to act again until you receive the 
renewal notice.
    To limit marketing offers, contact us [include all that apply]:
     By telephone: 1-877--
     On the Web: www.--.com
     By mail: check the box and complete the form 
below, and send the form to:

[Company name]

[Company address]

     Do not allow your affiliates to use my personal information to 
market to me.

A-2--Model Form for Initial Opt Out Notice (Joint Notice)--[Your Choice 
                 to Limit Marketing]/[Marketing Opt Out]

     The [ABC group of companies] is providing this 
notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from the [ABC] companies. Federal law 
also requires us to give you this notice to tell you about your choice 
to limit marketing from the [ABC] companies.]
     You may limit the [ABC] companies, such as the 
[ABC investment companies, investment advisers, transfer agents, and 
broker-dealers] affiliates, from marketing their products or services to 
you based on your personal information that they receive from other 
[ABC] companies. This information includes your [income], your [account 
history], and your [credit score].
     Your choice to limit marketing offers from the 
[ABC] companies will apply [until you tell us to change your choice]/
[for x years from when you tell us your choice]/[for at least 5 years 
from when you tell us your choice]. [Include if the opt out period 
expires.] Once that period expires, you will receive a renewal notice 
that will allow you to continue to limit marketing offers from the [ABC] 
companies for [another x years]/[at least another 5 years].
     [Include, if applicable, in a subsequent notice, 
including an annual notice, for consumers who may have previously opted 
out.] If you have already made a choice to limit marketing offers from 
the [ABC] companies, you do not need to act again until you receive the 
renewal notice.
    To limit marketing offers, contact us [include all that apply]:
     By telephone: 1-877--
     On the Web: www.--.com
     By mail: check the box and complete the form 
below, and send the form to:

[Company name]

[Company address]

     Do not allow any company [in the ABC group of companies] to use my 
personal information to market to me.

A-3--Model Form for Renewal Notice (Single-Affiliate Notice)--[Renewing 
    Your Choice to Limit Marketing]/[Renewing Your Marketing Opt Out]

     [Name of Affiliate] is providing this notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from our affiliates. Federal law also 
requires us to give you this notice to tell you about your choice to 
limit marketing from our affiliates.]
     You previously chose to limit our affiliates in 
the [ABC] group of companies, such

[[Page 995]]

as our [investment adviser, investment company, transfer agent, and 
broker-dealer] affiliates, from marketing their products or services to 
you based on your personal information that we share with them. This 
information includes your [income], your [account history with us], and 
your [credit score].
     Your choice has expired or is about to expire.
    To renew your choice to limit marketing for [x] more years, contact 
us [include all that apply]:
     By telephone: 1-877--
     On the Web: www.--.com
     By mail: check the box and complete the form 
below, and send the form to:

[Company name]

[Company address]

     Renew my choice to limit marketing for [x] more years.

A-4--Model Form for Renewal Notice (Joint Notice)--[Renewing Your Choice 
          to Limit Marketing]/[Renewing Your Marketing Opt Out]

     The [ABC group of companies] is providing this 
notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from the [ABC] companies. Federal law 
also requires us to give you this notice to tell you about your choice 
to limit marketing from the [ABC] companies.]
     You previously chose to limit the [ABC] 
companies, such as the [ABC investment adviser, investment company, 
transfer agent, and broker-dealer] affiliates, from marketing their 
products or services to you based on your personal information that they 
receive from other ABC companies. This information includes your 
[income], your [account history], and your [credit score].
     Your choice has expired or is about to expire.
    To renew your choice to limit marketing for [x] more years, contact 
us [include all that apply]:
     By telephone: 1-877--
     On the Web: www.--.com
     By mail: check the box and complete the form 
below, and send the form to:

[Company name]

[Company address]

     Renew my choice to limit marketing for [x] more years.

 A-5--Model Form for Voluntary ``No Marketing'' Notice--Your Choice to 
                             Stop Marketing

     [Name of Affiliate] is providing this notice.
     You may choose to stop all marketing from us and 
our affiliates.
     [Your choice to stop marketing from us and our 
affiliates will apply until you tell us to change your choice.]
    To stop all marketing, contact us [include all that apply]:
     By telephone: 1-877--
     On the Web: www.--.com
     By mail: check the box and complete the form 
below, and send the form to:

[Company name]

[Company address]

     Do not market to me.



           Subpart C_Regulation S	ID: Identity Theft Red Flags

    Source: 78 FR 23663, Apr. 17, 2013, unless otherwise noted.



Sec.248.201  Duties regarding the detection, prevention, 
and mitigation of identity theft.

    (a) Scope. This section applies to a financial institution or 
creditor, as defined in the Fair Credit Reporting Act (15 U.S.C. 1681), 
that is:
    (1) A broker, dealer or any other person that is registered or 
required to be registered under the Securities Exchange Act of 1934;
    (2) An investment company that is registered or required to be 
registered under the Investment Company Act of 1940, that has elected to 
be regulated as a business development company under that Act, or that 
operates as an employees' securities company under that Act; or
    (3) An investment adviser that is registered or required to be 
registered under the Investment Advisers Act of 1940.
    (b) Definitions. For purposes of this subpart, and Appendix A of 
this subpart, the following definitions apply:
    (1) Account means a continuing relationship established by a person 
with a financial institution or creditor to obtain a product or service 
for personal, family, household or business purposes. Account includes a 
brokerage account, a mutual fund account (i.e., an account with an open-
end investment company), and an investment advisory account.
    (2) The term board of directors includes:
    (i) In the case of a branch or agency of a foreign financial 
institution or

[[Page 996]]

creditor, the managing official of that branch or agency; and
    (ii) In the case of a financial institution or creditor that does 
not have a board of directors, a designated employee at the level of 
senior management.
    (3) Covered account means:
    (i) An account that a financial institution or creditor offers or 
maintains, primarily for personal, family, or household purposes, that 
involves or is designed to permit multiple payments or transactions, 
such as a brokerage account with a broker-dealer or an account 
maintained by a mutual fund (or its agent) that permits wire transfers 
or other payments to third parties; and
    (ii) Any other account that the financial institution or creditor 
offers or maintains for which there is a reasonably foreseeable risk to 
customers or to the safety and soundness of the financial institution or 
creditor from identity theft, including financial, operational, 
compliance, reputation, or litigation risks.
    (4) Credit has the same meaning as in 15 U.S.C. 1681a(r)(5).
    (5) Creditor has the same meaning as in 15 U.S.C. 1681m(e)(4).
    (6) Customer means a person that has a covered account with a 
financial institution or creditor.
    (7) Financial institution has the same meaning as in 15 U.S.C. 
1681a(t).
    (8) Identifying information means any name or number that may be 
used, alone or in conjunction with any other information, to identify a 
specific person, including any--
    (i) Name, Social Security number, date of birth, official State or 
government issued driver's license or identification number, alien 
registration number, government passport number, employer or taxpayer 
identification number;
    (ii) Unique biometric data, such as fingerprint, voice print, retina 
or iris image, or other unique physical representation;
    (iii) Unique electronic identification number, address, or routing 
code; or
    (iv) Telecommunication identifying information or access device (as 
defined in 18 U.S.C. 1029(e)).
    (9) Identity theft means a fraud committed or attempted using the 
identifying information of another person without authority.
    (10) Red Flag means a pattern, practice, or specific activity that 
indicates the possible existence of identity theft.
    (11) Service provider means a person that provides a service 
directly to the financial institution or creditor.
    (12) Other definitions.
    (i) Broker has the same meaning as in section 3(a)(4) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)).
    (ii) Commission means the Securities and Exchange Commission.
    (iii) Dealer has the same meaning as in section 3(a)(5) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)).
    (iv) Investment adviser has the same meaning as in section 
202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
2(a)(11)).
    (v) Investment company has the same meaning as in section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3), and includes a 
separate series of the investment company.
    (vi) Other terms not defined in this subpart have the same meaning 
as in the Fair Credit Reporting Act (15 U.S.C. 1681 et seq.).
    (c) Periodic identification of covered accounts. Each financial 
institution or creditor must periodically determine whether it offers or 
maintains covered accounts. As a part of this determination, a financial 
institution or creditor must conduct a risk assessment to determine 
whether it offers or maintains covered accounts described in paragraph 
(b)(3)(ii) of this section, taking into consideration:
    (1) The methods it provides to open its accounts;
    (2) The methods it provides to access its accounts; and
    (3) Its previous experiences with identity theft.
    (d) Establishment of an Identity Theft Prevention Program--
    (1) Program requirement. Each financial institution or creditor that 
offers or maintains one or more covered accounts must develop and 
implement a written Identity Theft Prevention Program (Program) that is 
designed to detect, prevent, and mitigate identity theft in connection 
with the opening of

[[Page 997]]

a covered account or any existing covered account. The Program must be 
appropriate to the size and complexity of the financial institution or 
creditor and the nature and scope of its activities.
    (2) Elements of the Program. The Program must include reasonable 
policies and procedures to:
    (i) Identify relevant Red Flags for the covered accounts that the 
financial institution or creditor offers or maintains, and incorporate 
those Red Flags into its Program;
    (ii) Detect Red Flags that have been incorporated into the Program 
of the financial institution or creditor;
    (iii) Respond appropriately to any Red Flags that are detected 
pursuant to paragraph (d)(2)(ii) of this section to prevent and mitigate 
identity theft; and
    (iv) Ensure the Program (including the Red Flags determined to be 
relevant) is updated periodically, to reflect changes in risks to 
customers and to the safety and soundness of the financial institution 
or creditor from identity theft.
    (e) Administration of the Program. Each financial institution or 
creditor that is required to implement a Program must provide for the 
continued administration of the Program and must:
    (1) Obtain approval of the initial written Program from either its 
board of directors or an appropriate committee of the board of 
directors;
    (2) Involve the board of directors, an appropriate committee 
thereof, or a designated employee at the level of senior management in 
the oversight, development, implementation and administration of the 
Program;
    (3) Train staff, as necessary, to effectively implement the Program; 
and
    (4) Exercise appropriate and effective oversight of service provider 
arrangements.
    (f) Guidelines. Each financial institution or creditor that is 
required to implement a Program must consider the guidelines in Appendix 
A to this subpart and include in its Program those guidelines that are 
appropriate.



Sec.248.202  Duties of card issuers regarding changes of address.

    (a) Scope. This section applies to a person described in Sec.
248.201(a) that issues a credit or debit card (card issuer).
    (b) Definitions. For purposes of this section:
    (1) Cardholder means a consumer who has been issued a credit card or 
debit card as defined in 15 U.S.C. 1681a(r).
    (2) Clear and conspicuous means reasonably understandable and 
designed to call attention to the nature and significance of the 
information presented.
    (3) Other terms not defined in this subpart have the same meaning as 
in the Fair Credit Reporting Act (15 U.S.C. 1681 et seq.).
    (c) Address validation requirements. A card issuer must establish 
and implement reasonable written policies and procedures to assess the 
validity of a change of address if it receives notification of a change 
of address for a consumer's debit or credit card account and, within a 
short period of time afterwards (during at least the first 30 days after 
it receives such notification), the card issuer receives a request for 
an additional or replacement card for the same account. Under these 
circumstances, the card issuer may not issue an additional or 
replacement card, until, in accordance with its reasonable policies and 
procedures and for the purpose of assessing the validity of the change 
of address, the card issuer:
    (1)(i) Notifies the cardholder of the request:
    (A) At the cardholder's former address; or
    (B) By any other means of communication that the card issuer and the 
cardholder have previously agreed to use; and
    (ii) Provides to the cardholder a reasonable means of promptly 
reporting incorrect address changes; or
    (2) Otherwise assesses the validity of the change of address in 
accordance with the policies and procedures the card issuer has 
established pursuant to Sec.248.201.
    (d) Alternative timing of address validation. A card issuer may 
satisfy the requirements of paragraph (c) of this section if it 
validates an address pursuant to the methods in paragraph (c)(1) or

[[Page 998]]

(c)(2) of this section when it receives an address change notification, 
before it receives a request for an additional or replacement card.
    (e) Form of notice. Any written or electronic notice that the card 
issuer provides under this paragraph must be clear and conspicuous and 
be provided separately from its regular correspondence with the 
cardholder.



  Sec.Appendix A to Subpart C of Part 248--Interagency Guidelines on 
          Identity Theft Detection, Prevention, and Mitigation

    Section 248.201 requires each financial institution and creditor 
that offers or maintains one or more covered accounts, as defined in 
Sec.248.201(b)(3), to develop and provide for the continued 
administration of a written Program to detect, prevent, and mitigate 
identity theft in connection with the opening of a covered account or 
any existing covered account. These guidelines are intended to assist 
financial institutions and creditors in the formulation and maintenance 
of a Program that satisfies the requirements of Sec.248.201.

                             I. The Program

    In designing its Program, a financial institution or creditor may 
incorporate, as appropriate, its existing policies, procedures, and 
other arrangements that control reasonably foreseeable risks to 
customers or to the safety and soundness of the financial institution or 
creditor from identity theft.

                   II. Identifying Relevant Red Flags

    (a) Risk Factors. A financial institution or creditor should 
consider the following factors in identifying relevant Red Flags for 
covered accounts, as appropriate:
    (1) The types of covered accounts it offers or maintains;
    (2) The methods it provides to open its covered accounts;
    (3) The methods it provides to access its covered accounts; and
    (4) Its previous experiences with identity theft.
    (b) Sources of Red Flags. Financial institutions and creditors 
should incorporate relevant Red Flags from sources such as:
    (1) Incidents of identity theft that the financial institution or 
creditor has experienced;
    (2) Methods of identity theft that the financial institution or 
creditor has identified that reflect changes in identity theft risks; 
and
    (3) Applicable regulatory guidance.
    (c) Categories of Red Flags. The Program should include relevant Red 
Flags from the following categories, as appropriate. Examples of Red 
Flags from each of these categories are appended as Supplement A to this 
Appendix A.
    (1) Alerts, notifications, or other warnings received from consumer 
reporting agencies or service providers, such as fraud detection 
services;
    (2) The presentation of suspicious documents;
    (3) The presentation of suspicious personal identifying information, 
such as a suspicious address change;
    (4) The unusual use of, or other suspicious activity related to, a 
covered account; and
    (5) Notice from customers, victims of identity theft, law 
enforcement authorities, or other persons regarding possible identity 
theft in connection with covered accounts held by the financial 
institution or creditor.

                        III. Detecting Red Flags

    The Program's policies and procedures should address the detection 
of Red Flags in connection with the opening of covered accounts and 
existing covered accounts, such as by:
    (a) Obtaining identifying information about, and verifying the 
identity of, a person opening a covered account, for example, using the 
policies and procedures regarding identification and verification set 
forth in the Customer Identification Program rules implementing 31 
U.S.C. 5318(l) (31 CFR 1023.220 (broker-dealers) and 1024.220 (mutual 
funds)); and
    (b) Authenticating customers, monitoring transactions, and verifying 
the validity of change of address requests, in the case of existing 
covered accounts.

              IV. Preventing and Mitigating Identity Theft

    The Program's policies and procedures should provide for appropriate 
responses to the Red Flags the financial institution or creditor has 
detected that are commensurate with the degree of risk posed. In 
determining an appropriate response, a financial institution or creditor 
should consider aggravating factors that may heighten the risk of 
identity theft, such as a data security incident that results in 
unauthorized access to a customer's account records held by the 
financial institution, creditor, or third party, or notice that a 
customer has provided information related to a covered account held by 
the financial institution or creditor to someone fraudulently claiming 
to represent the financial institution or creditor or to a fraudulent 
Web site. Appropriate responses may include the following:
    (a) Monitoring a covered account for evidence of identity theft;
    (b) Contacting the customer;

[[Page 999]]

    (c) Changing any passwords, security codes, or other security 
devices that permit access to a covered account;
    (d) Reopening a covered account with a new account number;
    (e) Not opening a new covered account;
    (f) Closing an existing covered account;
    (g) Not attempting to collect on a covered account or not selling a 
covered account to a debt collector;
    (h) Notifying law enforcement; or
    (i) Determining that no response is warranted under the particular 
circumstances.

                         V. Updating the Program

    Financial institutions and creditors should update the Program 
(including the Red Flags determined to be relevant) periodically, to 
reflect changes in risks to customers or to the safety and soundness of 
the financial institution or creditor from identity theft, based on 
factors such as:
    (a) The experiences of the financial institution or creditor with 
identity theft;
    (b) Changes in methods of identity theft;
    (c) Changes in methods to detect, prevent, and mitigate identity 
theft;
    (d) Changes in the types of accounts that the financial institution 
or creditor offers or maintains; and
    (e) Changes in the business arrangements of the financial 
institution or creditor, including mergers, acquisitions, alliances, 
joint ventures, and service provider arrangements.

                VI. Methods for Administering the Program

    (a) Oversight of Program. Oversight by the board of directors, an 
appropriate committee of the board, or a designated employee at the 
level of senior management should include:
    (1) Assigning specific responsibility for the Program's 
implementation;
    (2) Reviewing reports prepared by staff regarding compliance by the 
financial institution or creditor with Sec.248.201; and
    (3) Approving material changes to the Program as necessary to 
address changing identity theft risks.
    (b) Reports. (1) In general. Staff of the financial institution or 
creditor responsible for development, implementation, and administration 
of its Program should report to the board of directors, an appropriate 
committee of the board, or a designated employee at the level of senior 
management, at least annually, on compliance by the financial 
institution or creditor with Sec.248.201.
    (2) Contents of report. The report should address material matters 
related to the Program and evaluate issues such as: The effectiveness of 
the policies and procedures of the financial institution or creditor in 
addressing the risk of identity theft in connection with the opening of 
covered accounts and with respect to existing covered accounts; service 
provider arrangements; significant incidents involving identity theft 
and management's response; and recommendations for material changes to 
the Program.
    (c) Oversight of service provider arrangements. Whenever a financial 
institution or creditor engages a service provider to perform an 
activity in connection with one or more covered accounts the financial 
institution or creditor should take steps to ensure that the activity of 
the service provider is conducted in accordance with reasonable policies 
and procedures designed to detect, prevent, and mitigate the risk of 
identity theft. For example, a financial institution or creditor could 
require the service provider by contract to have policies and procedures 
to detect relevant Red Flags that may arise in the performance of the 
service provider's activities, and either report the Red Flags to the 
financial institution or creditor, or to take appropriate steps to 
prevent or mitigate identity theft.

                VII. Other Applicable Legal Requirements

    Financial institutions and creditors should be mindful of other 
related legal requirements that may be applicable, such as:
    (a) For financial institutions and creditors that are subject to 31 
U.S.C. 5318(g), filing a Suspicious Activity Report in accordance with 
applicable law and regulation;
    (b) Implementing any requirements under 15 U.S.C. 1681c-1(h) 
regarding the circumstances under which credit may be extended when the 
financial institution or creditor detects a fraud or active duty alert;
    (c) Implementing any requirements for furnishers of information to 
consumer reporting agencies under 15 U.S.C. 1681s-2, for example, to 
correct or update inaccurate or incomplete information, and to not 
report information that the furnisher has reasonable cause to believe is 
inaccurate; and
    (d) Complying with the prohibitions in 15 U.S.C. 1681m on the sale, 
transfer, and placement for collection of certain debts resulting from 
identity theft.

                       Supplement A to Appendix A

    In addition to incorporating Red Flags from the sources recommended 
in section II.b. of the Guidelines in Appendix A to this subpart, each 
financial institution or creditor may consider incorporating into its 
Program, whether singly or in combination, Red Flags from the following 
illustrative examples in connection with covered accounts:

   Alerts, Notifications or Warnings From a Consumer Reporting Agency

    1. A fraud or active duty alert is included with a consumer report.

[[Page 1000]]

    2. A consumer reporting agency provides a notice of credit freeze in 
response to a request for a consumer report.
    3. A consumer reporting agency provides a notice of address 
discrepancy, as referenced in Sec.605(h) of the Fair Credit Reporting 
Act (15 U.S.C. 1681c(h)).
    4. A consumer report indicates a pattern of activity that is 
inconsistent with the history and usual pattern of activity of an 
applicant or customer, such as:
    a. A recent and significant increase in the volume of inquiries;
    b. An unusual number of recently established credit relationships;
    c. A material change in the use of credit, especially with respect 
to recently established credit relationships; or
    d. An account that was closed for cause or identified for abuse of 
account privileges by a financial institution or creditor.

                          Suspicious Documents

    5. Documents provided for identification appear to have been altered 
or forged.
    6. The photograph or physical description on the identification is 
not consistent with the appearance of the applicant or customer 
presenting the identification.
    7. Other information on the identification is not consistent with 
information provided by the person opening a new covered account or 
customer presenting the identification.
    8. Other information on the identification is not consistent with 
readily accessible information that is on file with the financial 
institution or creditor, such as a signature card or a recent check.
    9. An application appears to have been altered or forged, or gives 
the appearance of having been destroyed and reassembled.

               Suspicious Personal Identifying Information

    10. Personal identifying information provided is inconsistent when 
compared against external information sources used by the financial 
institution or creditor. For example:
    a. The address does not match any address in the consumer report; or
    b. The Social Security Number (SSN) has not been issued, or is 
listed on the Social Security Administration's Death Master File.
    11. Personal identifying information provided by the customer is not 
consistent with other personal identifying information provided by the 
customer. For example, there is a lack of correlation between the SSN 
range and date of birth.
    12. Personal identifying information provided is associated with 
known fraudulent activity as indicated by internal or third-party 
sources used by the financial institution or creditor. For example:
    a. The address on an application is the same as the address provided 
on a fraudulent application; or
    b. The phone number on an application is the same as the number 
provided on a fraudulent application.
    13. Personal identifying information provided is of a type commonly 
associated with fraudulent activity as indicated by internal or third-
party sources used by the financial institution or creditor. For 
example:
    a. The address on an application is fictitious, a mail drop, or a 
prison; or
    b. The phone number is invalid, or is associated with a pager or 
answering service.
    14. The SSN provided is the same as that submitted by other persons 
opening an account or other customers.
    15. The address or telephone number provided is the same as or 
similar to the address or telephone number submitted by an unusually 
large number of other persons opening accounts or by other customers.
    16. The person opening the covered account or the customer fails to 
provide all required personal identifying information on an application 
or in response to notification that the application is incomplete.
    17. Personal identifying information provided is not consistent with 
personal identifying information that is on file with the financial 
institution or creditor.
    18. For financial institutions and creditors that use challenge 
questions, the person opening the covered account or the customer cannot 
provide authenticating information beyond that which generally would be 
available from a wallet or consumer report.

 Unusual Use of, or Suspicious Activity Related to, the Covered Account

    19. Shortly following the notice of a change of address for a 
covered account, the institution or creditor receives a request for a 
new, additional, or replacement means of accessing the account or for 
the addition of an authorized user on the account.
    20. A covered account is used in a manner that is not consistent 
with established patterns of activity on the account. There is, for 
example:
    a. Nonpayment when there is no history of late or missed payments;
    b. A material increase in the use of available credit;
    c. A material change in purchasing or spending patterns; or
    d. A material change in electronic fund transfer patterns in 
connection with a deposit account.
    21. A covered account that has been inactive for a reasonably 
lengthy period of time is used (taking into consideration the type of 
account, the expected pattern of usage and other relevant factors).
    22. Mail sent to the customer is returned repeatedly as 
undeliverable although transactions continue to be conducted in 
connection with the customer's covered account.

[[Page 1001]]

    23. The financial institution or creditor is notified that the 
customer is not receiving paper account statements.
    24. The financial institution or creditor is notified of 
unauthorized charges or transactions in connection with a customer's 
covered account.

   Notice From Customers, Victims of Identity Theft, Law Enforcement 
   Authorities, or Other Persons Regarding Possible Identity Theft in 
 Connection With Covered Accounts Held by the Financial Institution or 
                                Creditor

    25. The financial institution or creditor is notified by a customer, 
a victim of identity theft, a law enforcement authority, or any other 
person that it has opened a fraudulent account for a person engaged in 
identity theft.



PART 249_FORMS, SECURITIES EXCHANGE ACT OF 1934--Table of Contents



Sec.
249.0-1 Availability of forms.

 Subpart A_Forms for Registration or Exemption of, and Notification of 
             Action Taken by, National Securities Exchanges

249.1 Form 1, for application for, and amendments to applications for, 
          registration as a national securities exchange or exemption 
          from registration pursuant to Section 5 of the Exchange Act.
249.10 Form 1-N for notice registration as a national securities 
          exchange.
249.11 Form R31 for reporting covered sales and covered round turn 
          transactions under section 31 of the Act.
249.25 Form 25, for notification of removal from listing and/or 
          registration.
249.26 Form 26, for notification of the admission to trading of a 
          substituted or additional class of security under Rule 12a-5 
          (Sec.240.12a-5 of this chapter).

  Subpart B_Forms for Reports To Be Filed by Officers, Directors, and 
                            Security Holders

249.103 Form 3, initial statement of beneficial ownership of securities.
249.104 Form 4, statement of changes in beneficial ownership of 
          securities.
249.105 Form 5, annual statement of beneficial ownership of securities.

   Subpart C_Forms for Applications for Registration of Securities on 
            National Securities Exchanges and Similar Matters

249.208 [Reserved]
249.208a Form 8-A, for registration of certain classes of securities 
          pursuant to section 12(b) or (g) of the Securities Exchange 
          Act of 1934.
249.208b-249.208c [Reserved]
249.210 Form 10, general form for registration of securities pursuant to 
          section 12(b) or (g) of the Securities Exchange Act of 1934.
249.210b [Reserved]
249.218 Form 18, for foreign governments and political subdivisions 
          thereof.
249.220f Form 20-F, registration of securities of foreign private 
          issuers pursuant to section 12(b) or (g), annual and 
          transition reports pursuant to sections 13 and 15(d), and 
          shell company reports required under Rule 13a-19 or 15d-19 
          (Sec.240.13a-19 or Sec.240.15d-19 of this chapter).
249.240f Form 40-F, for registration of securities of certain Canadian 
          issuers pursuant to section 12(b) or (g) and for reports 
          pursuant to section 15(d) and Rule 15d-4 (Sec.240.15d-4 of 
          this chapter).
249.250 Form F-X, for appointment of agent for service of process by 
          issuers registering securities on Form F-8, F-9, F-10 or F-80 
          (Sec.239.38, 239.39, 239.40 or 239.41 of this chapter), or 
          registering securities or filing periodic reports on Form 40-F 
          (Sec.249.240f of this chapter), or by any issuer or other 
          non-U.S. person filing tender offer documents on Schedule 13E-
          4F, 14D-1F or 14D-9F (Sec.240.13e-102, 240.14d-102 or 
          240.14d-103 of this chapter), or by any non-U.S. person acting 
          as trustee with respect to securities registered on Form F-7 
          (Sec.249.37 of this chapter), F-8, F-9, F-10 or F-80.

 Subpart D_Forms for Annual and Other Reports of Issuers Required Under 
      Sections 13 and 15(d) of the Securities Exchange Act of 1934

249.306 Form 6-K report of foreign issuer pursuant to Rules 13a-16 
          (Sec.240.13a-16 of this chapter) and 15d-16 (Sec.240.15d-
          16 of this chapter) under the Securities Exchange Act of 1934.
249.308 Form 8-K, for current reports.
249.308a Form 10-Q, for quarterly and transition reports under sections 
          13 or 15(d) of the Securities Exchange Act of 1934.
249.310 Form 10-K, for annual and transition reports pursuant to 
          sections 13 or 15(d) of the Securities Exchange Act of 1934.
249.310b-249.310c [Reserved]
249.311 Form 11-K, for annual reports of employee stock purchase, 
          savings and similar plans pursuant to section 15(d) of the 
          Securities Exchange Act of 1934.
249.312 Form 10-D, periodic distribution reports by asset-backed 
          issuers.
249.318 Form 18-K, annual report for foreign governments and political 
          subdivisions thereof.
249.322 Form 12b-25--Notification of late filing.

[[Page 1002]]

249.323 Form 15, certification of termination of registration of a class 
          of security under section 12(g) or notice of suspension of 
          duty to file reports pursuant to sections 13 and 15(d) of the 
          Act.
249.324 Form 15F, certification by a foreign private issuer regarding 
          the termination of registration of a class of securities under 
          section 12(g) or the duty to file reports under section 13(a) 
          or section 15(d).
249.325 Form 13F, report of institutional investment manager pursuant to 
          section 13(f) of the Securities Exchange Act of 1934.
249.327 Form 13H, Information required on large traders pursuant to 
          Section 13(h) of the Securities Exchange Act of 1934 and rules 
          thereunder.
249.328T Form 17-H, Risk assessment report for brokers and dealers 
          pursuant to section 17(h) of the Securities Exchange Act of 
          1934 and rules thereunder.
249.330 Form N-CEN, annual report of registered investment companies.
249.331 Form N-CSR, certified shareholder report.
249.332 Form N-Q, quarterly schedule of portfolio holdings of registered 
          management investment company
249.444 Form SE, form for submission of paper format exhibits by 
          electronic filers.
249.445 [Reserved]
249.446 Form ID, uniform application for access codes to file on EDGAR.
249.447 Form TH--Notification of reliance on temporary hardship 
          exemption.

  Subpart E_Forms for Statements Made in Connection With Exempt Tender 
                                 Offers

249.480 Form CB, tender offer statement in connection with a tender 
          offer for a foreign private issuer.

  Subpart F_Forms for Registration of Brokers and Dealers Transacting 
                  Business on Over-the-Counter Markets

249.501 Form BD, for application for registration as a broker and dealer 
          or to amend or supplement such an application.
249.501a Form BDW, notice of withdrawal from registration as broker-
          dealer pursuant to Sec.240.15b6-1, Sec.240.15Bc3-1, or 
          Sec.240.15Cc1-1 of this chapter.
249.501b Form BD-N for notice registration as a broker-dealer.
249.507 Form 7-M, consent to service of process by an individual 
          nonresident broker-dealer.
249.508 Form 8-M, consent to service of process by a corporation which 
          is a nonresident broker-dealer.
249.509 Form 9-M, consent to service of process by a partnership 
          nonresident broker-dealer.
249.510 Form 10-M, consent to service of process by a nonresident 
          general partner of a broker-dealer firm.

  Subpart G_Forms for Reports To Be Made by Certain Exchange Members, 
Brokers, Dealers, Security-Based Swap Dealers, and Major Security-Based 
                            Swap Participants

249.617 Form X-17A-5, information required of certain brokers, dealers, 
          security-based swap dealers, and major security-based swap 
          participants pursuant to sections 15F and 17 of the Securities 
          Exchange Act of 1934 and Sec.Sec.240.17a-5, 240.17a-10, 
          240.17a-11, 240.17a-12, and 240.18a-79 of this chapter, as 
          applicable.
249.618 Form BD-Y2K, information required of broker-dealers pursuant to 
          section 17 of the Securities Exchange Act of 1934 and Sec.
          240.17a-5 of this chapter.
249.619 Form TA-Y2K, information required of transfer agents pursuant to 
          section 17 of the Securities Exchange Act of 1934 and Sec.
          240.17Ad-18 of this chapter.
249.620-249.634 [Reserved]
249.635 Form X-17A-19, report by national securities exchanges and 
          registered national securities associations of changes in the 
          membership status of any of their members.
249.636 [Reserved]
249.637 Form ATS, information required of alternative trading systems 
          pursuant to Sec.242.301(b)(2) of this chapter.
249.638 Form ATS-R, information required of alternative trading systems 
          pursuant to Sec.242.301(b)(8) of this chapter.
249.639 Form custody.
249.640 Form ATS-N, information required of NMS Stock ATSs pursuant to 
          Sec.242.304(a) of this chapter.
249.641 Form CRS, Relationship Summary for Brokers and Dealers Providing 
          Services to Retail Investors, pursuant to Sec.240.17a-14 of 
          this chapter.

             Subpart H_Forms for Reports as to Stabilization

249.709 [Reserved]

Subpart I_Forms for Self-Regulatory Organization Rule Changes and Forms 
 for Registration of and Reporting by National Securities Associations 
                 and Affiliated Securities Associations

249.801 Form X-15AA-1, for application for registration as a national 
          securities association or affiliated securities association.

[[Page 1003]]

249.802 Form X-15AJ-1, for amendatory and/or supplementary statements to 
          registration statement of a national securities association or 
          an affiliated securities association.
249.803 Form X-15AJ-2, for annual consolidated supplement of a national 
          securities association or an affiliated securities 
          association.
249.819 Form 19b-4, for electronic filings with respect to proposed rule 
          changes, advance notices and security-based swap submissions 
          by all self-regulatory organizations.
249.820 Form 19b-4(e) for the listing and trading of new derivative 
          securities products by self-regulatory organizations that are 
          not deemed proposed rule changes pursuant to Rule 19b-
          4(e)(Sec.240.19b-4(e)).
249.821 Form PILOT, information required of self-regulatory 
          organizations operating pilot trading systems pursuant to 
          Sec.240.19b-5 of this chapter.
249.822 Form 19b-7, for electronic filing with respect to proposed rule 
          changes by self-regulatory organizations under Section 
          19(b)(7)(A) of the Securities Exchange Act of 1934.

Subpart J [Reserved]

    Subpart K_Forms for Registration of, and Reporting by Securities 
                         Information Processors

249.1001 Form SIP, for application for registration as a securities 
          information processor or to amend such an application or 
          registration.

    Subpart L_Forms for Registration of Municipal Securities Dealers

249.1100 Form MSD, application for registration as a municipal 
          securities dealer pursuant to rule 15Ba2-1 under the 
          Securities Exchange Act of 1934 or amendment to such 
          application.
249.1110 Form MSDW, notice of withdrawal from registration as a 
          municipal securities dealer pursuant to Rule 15Bc3-1 (17 CFR 
          240.15Bc3-1).

Subpart M_Forms for Reporting and Inquiry With Respect to Missing, Lost, 
                    Stolen, or Counterfeit Securities

249.1200 Form X-17F-1A--Report for missing, lost, stolen or counterfeit 
          securities.

Subpart N_Forms for Registration of Municipal Advisors and for Providing 
              Information Regarding Certain Natural Persons

249.1300 Form MA, for registration as a municipal advisor, and for 
          amendments to registration.
249.1300T Form MA-T, for temporary registration as a municipal advisor, 
          and for amendments to, and withdrawals from, temporary 
          registration.
249.1310 Form MA-I, for providing information regarding natural person 
          municipal advisors, and for amendments to such information.
249.1320 Form MA-W, for withdrawal from registration as a municipal 
          advisor.
249.1330 Form MA-NR, for appointment of agent for service of process by 
          non-resident municipal advisor, non-resident general partner 
          or managing agent of a municipal advisor, and non-resident 
          natural person associated with a municipal advisor.

               Subpart O_Forms for Asset-Backed Securities

249.1400 Form ABS-15G, Asset-backed securitizer report pursuant to 
          Section 15G of the Securities Exchange Act of 1934.
249.1401 Form ABS-EE, for submission of the asset-data file exhibits and 
          related documents.

      Subpart P_Forms for Registration of Security-Based Swap Data 
                              Repositories

249.1500 Form SDR, for application for registration as a security-based 
          swap data repository, amendments thereto, or withdrawal from 
          registration.

    Subpart Q_Registration of Security-Based Swap Dealers and Major 
                    Security-Based Swap Participants

249.1600 Form SBSE, for application for registration as a security-based 
          swap dealer or major security-based swap participant or to 
          amend such an application for registration.
249.1600a Form SBSE-A, for application for registration as a security-
          based swap

[[Page 1004]]

          dealer or major security-based swap participant or to amend 
          such an application for registration by firms registered or 
          registering with the Commodity Futures Trading Commission as a 
          swap dealer or major swap participant that are not also 
          registered or registering with the Commission as a broker or 
          dealer.
249.1600b Form SBSE-BD, for application for registration as a security-
          based swap dealer or major security-based swap participant or 
          to amend such an application for registration by firms 
          registered or registering with the Commission as a broker or 
          dealer.
249.1600c Form SBSE-C, for certification by security-based swap dealers 
          and major security-based swap participants.
249.1601 Form SBSE-W, for withdrawal from registration as a security-
          based swap dealer or major security-based swap participant or 
          to amend such an application for registration.

                      Subpart S_Whistleblower Forms

249.1800 Form TCR, tip, complaint or referral.
249.1801 Form WB-APP, Application for award for original information 
          submitted pursuant to Section 21F of the Securities Exchange 
          Act of 1934.

   Subpart T_Form SCI, for filing notices and reports as required by 
                             Regulation SCI.

249.1900 Form SCI, for filing notices and reports as required by 
          Regulation SCI.

           Subpart U_Forms for Registration of Funding Portals

249.2000 Form Funding Portal.

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 5461 et 
seq.; 18 U.S.C. 1350; Sec.953(b), Pub. L. 111-203, 124 Stat. 1904; Sec.
102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012); Sec.107, Pub. L. 112-
106, 126 Stat. 313 (2012), and Sec.72001, Pub. L. 114-94, 129 Stat. 
1312 (2015), unless otherwise noted.
    Section 249.220f is also issued under secs. 3(a), 202, 208, 302, 
306(a), 401(a), 401(b), 406 and 407, Pub. L. 107-204, 116 Stat. 745.
    Section 249.240f is also issued under secs. 3(a), 202, 208, 302, 
306(a), 401(a), 406 and 407, Pub. L. 107-204, 116 Stat. 745.
    Section 249.308 is also issued under 15 U.S.C. 80a-29 and 80a-37.
    Section 249.308a is also issued under secs. 3(a) and 302, Pub. L. 
107-204, 116 Stat. 745.
    Section 249.308b is also issued under secs. 3(a) and 302, Pub. L. 
107-204, 116 Stat. 745.
    Section 249.310 is also issued under secs. 3(a), 202, 208, 302, 406 
and 407, Pub. L. 107-204, 116 Stat. 745.
    Section 249.326(T) also issued under section 13(f)(1) (15 U.S.C. 
78m(f)(1)).
    Section 249.330 is also issued under 15 U.S.C. 80a-29(a).
    Section 249.331 is also issued under 15 U.S.C. 78j-1, 7202, 7233, 
7241, 7264, 7265; and 18 U.S.C. 1350.
    Section 249.617 is also issued under Pub. L. 111-203, Sec.939, 
939A, 124. Stat. 1376 (2010) (15 U.S.C. 78c, 15 U.S.C. 78o-7 note).
    Section 249.640 is also issued under Public Law 111-203, Sec.913, 
124 Stat. 1376 (2010).
    Section 249.819 is also issued under 12 U.S.C. 5465(e).
    Section 249.1400 is also issued under Sec.943, Pub. L. 111-203, 124 
Stat. 1376.
    Section 249.1800 is also issued under Pub. L. 111.203, Sec.922(a), 
124 Stat 1841 (2010).
    Section 249.1801 is also issued under Pub. L. 111.203, Sec.922(a), 
124 Stat 1841 (2010).

    Editorial Note: Nomenclature changes to part 249 appear at 57 FR 
36501, Aug. 13, 1992, and 57 FR 47409, Oct. 16, 1992.



Sec.249.0-1  Availability of forms.

    (a) This part identifies and describes the forms prescribed for use 
under the Securities Exchange Act of 1934.
    (b) Any person may obtain a copy of any form prescribed for use in 
this part by written request to the Securities and Exchange Commission, 
100 F Street, NE, Washington, DC 20549. Any person may inspect the forms 
at this address and at the Commission's regional offices. (See Sec.
200.11 of this chapter for the addresses of SEC regional offices).

[46 FR 17757, Mar. 20, 1981, as amended at 47 FR 26820, June 22, 1982; 
59 FR 5946, Feb. 9, 1994; 73 FR 979, Jan. 4, 2008]



 Subpart A_Forms for Registration or Exemption of, and Notification of 
             Action Taken by, National Securities Exchanges



Sec.249.1  Form 1, for application for, and amendments to applications
for, registration as a national securities exchange or exemption 
from registration pursuant to Section 5 of the Exchange Act.
          

    The form shall be used for application for, and amendments to 
applications for, registration as a national securities exchange or 
exemption from registration pursuant to Section 5 of the Act, (15 U.S.C. 
78e).

[63 FR 70925, Dec. 22, 1998]

    Editorial Note: For Federal Register citations affecting Form 1, see 
the List of CFR

[[Page 1005]]

Sections Affected, which appears in the Finding Aids section of the 
printed volume and at www.govinfo.gov.



Sec.249.10  Form 1-N for notice registration as a national securities
exchange.

    This form shall be used for notice, and amendments to the notice, to 
permit an exchange to register as a national securities exchange solely 
for the purposes of trading security futures products pursuant to 
Section 6(g) of the Act (15 U.S.C. 78f(g)).

[66 FR 43743, Aug. 20, 2001]

    Editorial Note: For Federal Register citations affecting Form 1-10, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.11  Form R31 for reporting covered sales and covered round turn
transactions under section 31 of the Act.

    This form shall be used by each national securities exchange to 
report to the Commission within ten business days after the end of every 
month the aggregate dollar amount of sales of securities that occurred 
on the exchange, had a charge date in the month of the report, and are 
subject to fees pursuant to section 31(b) of the Act (15 U.S.C. 78ee) 
and Sec.240.31 of this chapter; and the total number of round turn 
transactions in security futures that occurred on the exchange, had a 
charge date in the month of the report, and are subject to assessments 
pursuant to section 31(d) of the Act and Sec.240.31 of this chapter. 
This form also shall be used by a national securities association to 
report to the Commission within ten business days after the end of every 
month the aggregate dollar amount of sales of securities that occurred 
by or through a member of the association otherwise than on a national 
securities exchange, had a charge date in the month of the report, and 
are subject to fees pursuant to section 31(c) of the Act and Sec.
240.31 of this chapter; and the total number of round turn transactions 
in security futures that occurred by or through any member of the 
association otherwise than on a national securities exchange, had a 
charge date in the month of the report, and are subject to assessments 
pursuant to section 31(d) of the Act and Sec.240.31 of this chapter.

[69 FR 41080, July 7, 2004]

    Editorial Note: For Federal Register citations affecting Form R31, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.25  Form 25, for notification of removal from listing and/
or registration.

    This form shall be used by registered national securities exchanges 
and issuers for notification of removal of a class of securities from 
listing on a national securities exchange and/or withdrawal of 
registration under section 12(b) of the Act (15 U.S.C. 78l(b)).

[70 FR 42469, July 22, 2005]

    Editorial Note: For Federal Register citations affecting Form 25, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.26  Form 26, for notification of the admission to trading of 
a substituted or additional class of security under Rule 12a-5 
(Sec.240.12a-5 of this 
          chapter).

    This form shall be used by a registered national securities exchange 
for notification of the admission to trading of a substituted or 
additional class of security under Rule 12a-5.

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form 26, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



  Subpart B_Forms for Reports To Be Filed by Officers, Directors, and 
                            Security Holders



Sec.249.103  Form 3, initial statement of beneficial ownership 
of securities.

    This Form shall be filed pursuant to Rule 16a-3 (Sec.240.16a-3 of 
this chapter) for initial statements of beneficial ownership of 
securities. The Commission is authorized to solicit the information 
required by this Form pursuant to sections 16(a) and 23(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78p(a) and 78w(a)); and 
sections 30(h)

[[Page 1006]]

and 38 of the Investment Company Act of 1940 (15 U.S.C. 80a-29(h) and 
80a-37), and the rules and regulations thereunder. Disclosure of 
information specified on this Form is mandatory. The information will be 
used for the primary purpose of disclosing the holdings of directors, 
officers and beneficial owners of registered companies. Information 
disclosed will be a matter of public record and available for inspection 
by members of the public. The Commission can use the information in 
investigations or litigation involving the federal securities laws or 
other civil, criminal, or regulatory statutes or provisions, as well as 
for referral to other governmental authorities and self-regulatory 
organizations. Failure to disclose required information may result in 
civil or criminal action against persons involved for violations of the 
federal securities laws and rules.

[56 FR 7274, Feb. 21, 1991, as amended at 72 FR 45112, Aug. 10, 2007]

    Editorial Note: For Federal Register citations affecting Form 3, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.104  Form 4, statement of changes in beneficial ownership
of securities.

    This Form shall be filed pursuant to Rule 16a-3 (Sec.240.16a-3 of 
this chapter) for statements of changes in beneficial ownership of 
securities. The Commission is authorized to solicit the information 
required by this Form pursuant to sections 16(a) and 23(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78p(a) and 78w(a)); and 
sections 30(h) and 38 of the Investment Company Act of 1940 (15 U.S.C. 
80a-29(h) and 80a-37), and the rules and regulations thereunder. 
Disclosure of information specified on this Form is mandatory. The 
information will be used for the primary purpose of disclosing the 
holdings of directors, officers and beneficial owners of registered 
companies. Information disclosed will be a matter of public record and 
available for inspection by members of the public. The Commission can 
use the information in investigations or litigation involving the 
federal securities laws or other civil, criminal, or regulatory statutes 
or provisions, as well as for referral to other governmental authorities 
and self-regulatory organizations. Failure to disclose required 
information may result in civil or criminal action against persons 
involved for violations of the federal securities laws and rules.

[56 FR 7274, Feb. 21, 1991, as amended at 72 FR 45112, Aug. 10, 2007]

    Editorial Note: For Federal Register citations affecting Form 4, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.105  Form 5, annual statement of beneficial ownership 
of securities.

    This Form shall be filed pursuant to Rule 16a-3 (Sec.240.16a-3 of 
this chapter) for annual statements of beneficial ownership of 
securities. The Commission is authorized to solicit the information 
required by this Form pursuant to sections 16(a) and 23(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78p(a) and 78w(a)); and 
sections 30(h) and 38 of the Investment Company Act of 1940 (15 U.S.C. 
80a-29(h) and 80a-37), and the rules and regulations thereunder. 
Disclosure of information specified on this Form is mandatory. The 
information will be used for the primary purpose of disclosing the 
holdings of directors, officers and beneficial owners of registered 
companies. Information disclosed will be a matter of public record and 
available for inspection by members of the public. The Commission can 
use the information in investigations or litigation involving the 
federal securities laws or other civil, criminal, or regulatory statutes 
or provisions, as well as for referral to other governmental authorities 
and self-regulatory organizations. Failure to disclose required 
information may result in civil or criminal action against persons 
involved for violations of the federal securities laws and rules.

[56 FR 7274, Feb. 21, 1991, as amended at 72 FR 45112, Aug. 10, 2007]

    Editorial Note: For Federal Register citations affecting Form 5, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

[[Page 1007]]



   Subpart C_Forms for Applications for Registration of Securities on 
            National Securities Exchanges and Similar Matters



Sec.249.208  [Reserved]



Sec.249.208a  Form 8-A, for registration of certain classes of 
securities pursuant to section 12 (b) or (g) of the Securities 
Exchange Act of 1934.

    (a) Subject to paragraph (b) of this section, this form may be used 
for registration pursuant to section 12(b) or (g) of the Securities 
Exchange Act of 1934 of any class of securities of any issuer which:
    (1) Is required to file reports pursuant to sections 13 and 15(d) of 
that Act;
    (2) Is concurrently qualifying a Tier 2 offering statement relating 
to that class of securities using the Form S-1 or Form S-11 disclosure 
models; or
    (3) Pursuant to an order exempting the exchange on which the issuer 
has securities listed from registration as a national securities 
exchange.
    (b) If the registrant would be required to file an annual report 
pursuant to section 15(d) of the Act for its last fiscal year, except 
for the fact that the registration statement on this form will become 
effective before such report is required to be filed, an annual report 
for such fiscal year shall nevertheless be filed within the period 
specified in the appropriate annual report form.
    (c) If this form is used for the registration of a class of 
securities under Section 12(b) of the Act (15 U.S.C. 78l(b)), it shall 
become effective;
    (1) If a class of securities is not concurrently being registered 
under the Securities Act of 1933 (15 U.S.C. 77a et seq.)(``Securities 
Act''), upon the later of receipt by the Commission of certification 
from the national securities exchange listed on the form or the filing 
of the Form 8-A with the Commission; or
    (2) If a class of securities is concurrently being registered under 
the Securities Act, upon the later of the Filing of the Form 8-A with 
the Commission, receipt by the Commission of certification from the 
national securities exchange listed on the form, or the effectiveness of 
the Securities Act registration statement relating to the class of 
securities.
    (d) If this form is used for the registration of a class of 
securities under Section 12(g) of the Act (15 U.S.C. 78l(g)), it shall 
become effective:
    (1) If a class of securities is not concurrently being registered 
under the Securities Act, upon the filing of the Form 8-A with the 
Commission; or
    (2) If a class of securities is concurrently being registered under 
the Securities Act, upon the later of the filing of the Form 8-A with 
the Commission or the effectiveness of the Securities registration 
statement relating to the class of securities.
    (e) Notwithstanding the foregoing in paragraphs (c) and (d) of this 
section, if the form is used for registration of a class of securities 
being offered under Regulation A, it shall become effective:
    (1) For the registration of a class of securities under Section 
12(b), upon the latest of the filing of the form with the Commission, 
the qualification of the Regulation A offering statement or the receipt 
by the Commission of certification from the national securities exchange 
listed on the form; or
    (2) For the registration of a class of securities under Section 
12(g), upon the later of the filing of the form and qualification of 
that Regulation A offering statement.

[43 FR 21663, May 19, 1978]

    Editorial Note: For Federal Register citations affecting Form 8-A, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.Sec.249.208b-249.208c  [Reserved]

    Editorial Note: Amended Form 8-A replaces former Form 8-C; see Sec.
249.208a of this chapter.



Sec.249.210  Form 10, general form for registration of securities 
pursuant to section 12(b) or (g) of the Securities Exchange Act 
of 1934.

    This form shall be used for registration pursuant to section 12 (b) 
or (g) of the Securities Exchange Act of 1934 of

[[Page 1008]]

classes of securities of issuers for which no other form is prescribed.

(Secs. 7, 10, 19(a), 48 Stat. 78, 81, 85; secs. 205, 209, 48 Stat. 906, 
908; Sec.8, 68 Stat. 685; 15 U.S.C. 77g, 77j, 77s(a); secs. 12, 13, 14, 
15(d), 23, 48 Stat. 892, 894, 895, 901; Sec.203(a), 49 Stat. 704; secs. 
1, 3, 8, 49 Stat. 1375, 1377, 1379; Sec.202, 68 Stat. 686; secs. 3, 4, 
5, 6, 10, 78 Stat. 565-568, 569, 570-574, 88a; secs. 1, 2, 3, 82 Stat. 
454, 455; secs.1, 2, 3-5, 28(c), 84 Stat. 1435, 1479; Sec.105(b), 88 
Stat. 1503; secs. 8, 9, 10, 18, 89 Stat. 117, 118, 119, 155 (15 U.S.C. 
78l, 78m, 78n, 78o(d), 78w))

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form 10 see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.210b  [Reserved]



Sec.249.218  Form 18, for foreign governments and political 
subdivisions thereof.

    This form shall be used for the registration of securities of any 
foreign government or political subdivision thereof.

[47 FR 54781, Dec. 6, 1982]

    Editorial Note: For Federal Register citations affecting Form 18, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.220f  Form 20-F, registration of securities of foreign private
issuers pursuant to section 12(b) or (g), annual and transition reports
pursuant to sections 13 and 15(d), and shell company reports required
under Rule 13a-19 or 15d-19 (Sec.240.13a-19 or Sec.240.15d-19 of this
chapter)
          
          .

    (a) Any foreign private issuer, other than an asset-backed issuer 
(as defined in Sec.229.1101 of this chapter), may use this form as a 
registration statement under section 12 (15 U.S.C. 78l) of the 
Securities Exchange Act of 1934 (the ``Exchange Act'') (15 U.S.C. 78a et 
seq.), as an annual or transition report filed under section 13(a) or 
15(d) of the Exchange Act (15 U.S.C. 78m(a) or 78o(d)), or as a shell 
company report required under Rule 13a-19 or Rule 15d-19 under the 
Exchange Act (Sec.240.13a-19 or 240.15d-19 of this chapter).
    (b) An annual report on this form shall be filed within six months 
after the end of the fiscal year covered by such report.
    (c) A transition report on this form shall be filed in accordance 
with the requirements set forth in Sec.240.13a-10 or Sec.240.15d-10 
applicable when the issuer changes its fiscal year end.

[47 FR 54781, Dec. 6, 1982, as amended at 70 FR 1625, Jan. 7, 2005; 70 
FR 42248, July 21, 2005]

    Editorial Note: For Federal Register citations affecting Form 20-F, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.240f  Form 40-F, for registration of securities of certain
Canadian issuers pursuant to section 12(b) or (g) and for reports 
pursuant to section 15(d) and Rule 15d-4 (Sec.240.15d-4 of this 
chapter).
          

    (a) Form 40-F may be used to file reports with the Commission 
pursuant to section 15(d) of the Securities Exchange Act of 1934 (the 
``Exchange Act'') and Rule 15d-4 (17 CFR 240.15d-4) thereunder by 
registrants that are subject to the reporting requirements of that 
section solely by reason of their having filed a registration statement 
on Form F-7, F-8, F-10 or F-80 under the Securities Act of 1933 (the 
``Securities Act'').

    Note to paragraph (a): No reporting obligation arises under section 
15(d) of the Securities Act from the registration of securities on Form 
F-7, F-8 or F-80 if the issuer, at the time of filing such Form, is 
exempt from the requirements of section 12(g) of the Exchange Act 
pursuant to Rule 12g3-2(b). See Rule 12h-4 under the Exchange Act.

    (b) Form 40-F may be used to register securities with the Commission 
pursuant to section 12(b) or 12(g) of the Exchange Act, to file reports 
with the Commission pursuant to section 13(a) of the Exchange Act and 
Rule 13a-3 (17 CFR 240.13a-3) thereunder, and to file reports with the 
Commission pursuant to section 15(d) of the Exchange Act if:
    (1) The registrant is incorporated or organized under the laws of 
Canada or any Canadian province or territory;
    (2) The registrant is a foreign private issuer or a crown 
corporation;

[[Page 1009]]

    (3) The registrant has been subject to the periodic reporting 
requirements of any securities commission or equivalent regulatory 
authority in Canada for a period of at least 12 calendar months 
immediately preceding the filing of this Form and is currently in 
compliance with such obligations; and
    (4) The aggregate market value of the public float of the 
registrant's outstanding equity shares is $75 million or more.

                              Instructions

    1. For purposes of this Form, ``foreign private issuer'' shall be 
construed in accordance with Rule 405 under the Securities Act.
    2. For purposes of this Form, the term ``crown corporation'' shall 
mean a corporation all of whose common shares or comparable equity is 
owned directly or indirectly by the Government of Canada or a Province 
or Territory of Canada.
    3. For purposes of this Form, the ``public float'' of specified 
securities shall mean only such securities held by persons other than 
affiliates of the issuer.
    4. For the purposes of this Form, an ``affiliate'' of a person is 
anyone who beneficially owns directly or indirectly, or exercises 
control or direction over, more than 10 percent of the outstanding 
equity shares of such person. The determination of a person's affiliates 
shall be made as of the end of such person's most recently completed 
fiscal year.
    5. For purposes of this Form, ``equity shares'' shall mean common 
shares, non-voting equity shares and subordinate or restricted voting 
equity shares, but shall not include preferred shares.
    6. For purposes of this Form, the market value of outstanding equity 
shares (whether or not held by affiliates) shall be computed by use of 
the price at which the shares were last sold, or the average of the bid 
and asked prices of such shares, in the principal market for such shares 
as of a date within 60 days prior to the date of filing. If there is no 
market for any of such securities, the book value of such securities 
computed as of the latest practicable date prior to the filing of this 
Form shall be used for purposes of calculating the market value, unless 
the issuer of such securities is in bankruptcy or receivership or has an 
accumulated capital deficit, in which case one-third of the principal 
amount, par value or stated value of such securities shall be used.

    (c) If the registrant is a successor registrant subsisting after a 
business combination, it shall be deemed to meet the 12-month reporting 
requirement of paragraph (b)(3) of this section if:
    (1) The time the successor registrant has been subject to the 
continuous disclosure requirements of any securities commission or 
equivalent regulatory authority in Canada, when added separately to the 
time each predecessor had been subject to such requirements at the time 
of the business combination, in each case equals at least 12 calendar 
months, provided, however, that any predecessor need not be considered 
for purposes of the reporting history calculation if the reporting 
histories of predecessors whose assets and gross revenues, respectively, 
would contribute at least 80 percent of the total assets and gross 
revenues from continuing operations of the successor registrant, as 
measured based on pro forma combination of such participating companies' 
most recently completed fiscal years immediately prior to the business 
combination, when combined with the reporting history of the successor 
registrant in each case satisfy such 12-month reporting requirement; and
    (2) The successor registrant has been subject to such continuous 
disclosure requirements since the business combination, and is currently 
in compliance with its obligations thereunder.
    (d) This Form shall not be used if the registrant is an investment 
company registered or required to be registered under the Investment 
Company Act of 1940.
    (e) Registrants registering securities on this Form, and registrants 
filing annual reports on this Form who have not previously filed a Form 
F-X (Sec.249.250 of this chapter) in connection with the class of 
securities in relation to which the obligation to file this report 
arises, shall file a Form F-X with the Commission together with this 
Form.

[56 FR 30075, July 1, 1991]

    Editorial Note: For Federal Register citations affecting Form 40-F, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

[[Page 1010]]



Sec.249.250  Form F-X, for appointment of agent for service of process
by issuers registering securities on Form F-8, F-9, F-10 or F-80 
(Sec.239.38, 239.39, 239.40 or 239.41 of this chapter), or registering
securities or filing periodic reports on Form 40-F (Sec.249.240f of 
this chapter), or by any issuer or other non-U.S. person 
filing tender offer documents on Schedule 13E-4F, 14D-1F or 
14D-9F (Sec.240.13e-102, 240.14d-102 or 240.14d-103 of this 
chapter), or by any non-U.S. person acting as trustee with 
respect to securities registered on Form F-7 (Sec.249.37 of 
this chapter), F-8, F-9, F-10 or F-80.

    Form F-X shall be filed with the Commission:
    (a) By any issuer registering securities on Form F-8, F-9, F-10 or 
F-80 under the Securities Act of 1933;
    (b) By any issuer registering securities on Form 40-F under the 
Securities Exchange Act of 1934;
    (c) By any issuer filing a periodic report on Form 40-F, if it has 
not previously filed a Form F-X in connection with the class of 
securities in relation to which the obligation to file a report on Form 
40-F arises;
    (d) By any issuer or other non-U.S. person filing tender offer 
documents on Schedule 13E-4F, 14D-1F or 14D-9F; and
    (e) By any non-U.S. person acting as trustee with respect to 
securities registered on Form F-7, F-8, F-9, F-10 or F-80.

[56 FR 30076, July 1, 1991]

    Editorial Note: For Federal Register citations affecting Form F-X, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



 Subpart D_Forms for Annual and Other Reports of Issuers Required Under 
      Sections 13 and 15(d) of the Securities Exchange Act of 1934



Sec.249.306  Form 6-K, report of foreign issuer pursuant to Rules
13a-16 (Sec.240.13a-16 of this chapter) and 15d-16 (Sec.240.15d-16 
of this chapter) under the Securities Exchange Act of 1934.

    This form shall be used by foreign issuers which are required to 
furnish reports pursuant to Rule 13a-16 (Sec.240.13a-16 of this 
chapter) or 15d-16 (Sec.240.15d-16 of this chapter) under the 
Securities Exchange Act of 1934.

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form 6-K, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.308  Form 8-K, for current reports.

    This form shall be used for the current reports required by Rule 
13a-11 or Rule 15d-11 (Sec.240.13a-11 or Sec.240.15d-11 of this 
chapter) and for reports of nonpublic information required to be 
disclosed by Regulation FD (Sec.Sec.243.100 and 243.101 of this 
chapter).

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form 8-K, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.308a  Form 10-Q, for quarterly and transition reports under
sections 13 or 15(d) of the Securities Exchange Act of 1934.

    (a) Form 10-Q shall be used for quarterly reports under section 13 
or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 
78o(d)), required to be filed pursuant to Sec.240.13a-13 or Sec.
240.15d-13 of this chapter. A quarterly report on this form pursuant to 
Sec.240.13a-13 or Sec.240.15d-13 of this chapter shall be filed 
within the following period after the end of the first three fiscal 
quarters of each fiscal year, but no quarterly report need be filed for 
the fourth quarter of any fiscal year:
    (1) 40 days after the end of the fiscal quarter for large 
accelerated filers and accelerated filers (as defined in Sec.240.12b-2 
of this chapter); and
    (2) 45 days after the end of the fiscal quarter for all other 
registrants.
    (b) Form 10-Q also shall be used for transition and quarterly 
reports filed pursuant to Sec.240.13a-10 or Sec.240.15d-10 of this 
chapter. Such transition or quarterly reports shall be filed in 
accordance with the requirements set forth in Sec.240.13a-10 or Sec.
240.15d-10 of this chapter

[[Page 1011]]

applicable when the registrant changes its fiscal year end.

[67 FR 58506, Sept. 16, 2002, as amended at 69 FR 68236, Nov. 23, 2004; 
70 FR 76642, Dec. 27, 2005]

    Editorial Note: For Federal Register citations affecting Form 10-Q, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.310  Form 10-K, for annual and transition reports pursuant 
to sections 13 or 15(d) of the Securities Exchange Act of 1934.

    (a) This form shall be used for annual reports pursuant to sections 
13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 
78o(d)) for which no other form is prescribed. This form also shall be 
used for transition reports filed pursuant to section 13 or 15(d) of the 
Securities Exchange Act of 1934.
    (b) Annual reports on this form shall be filed within the following 
period:
    (1) 60 days after the end of the fiscal year covered by the report 
(75 days for fiscal years ending before December 15, 2006) for large 
accelerated filers (as defined in Sec.240.12b-2 of this chapter);
    (2) 75 days after the end of the fiscal year covered by the report 
for accelerated filers (as defined in Sec.240.12b-2 of this chapter); 
and
    (3) 90 days after the end of the fiscal year covered by the report 
for all other registrants.
    (c) Transition reports on this form shall be filed in accordance 
with the requirements set forth in Sec.240.13a-10 or Sec.240.15d-10 
of this chapter applicable when the registrant changes its fiscal year 
end.
    (d) Notwithstanding paragraphs (b) and (c) of this section, all 
schedules required by Article 12 of Regulation S-X (Sec.Sec.210.12-
01-210.12-29 of this chapter) may, at the option of the registrant, be 
filed as an amendment to the report not later than 30 days after the 
applicable due date of the report.

[70 FR 76642, Dec. 27, 2005]

    Editorial Note: For Federal Register citations affecting Form 10-K, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.Sec.249.310b-249.310c  [Reserved]



Sec.249.311  Form 11-K, for annual reports of employee stock purchase,
savings and similar plans pursuant to section 15(d) of the Securities
Exchange Act of 1934.

    This form shall be used for annual reports pursuant to section 15(d) 
of the Securities Exchange Act of 1934 with respect to employee stock 
purchase, savings and similar plans, interests in which constitute 
securities which have been registered under the Securities Act of 1933. 
Such a report is required to be filed even though the issuer of the 
securities offered to employees pursuant to the plan also files annual 
reports pursuant to section 13 or 15(d) of the Securities Exchange Act 
of 1934. However, attention is directed to Rule 15d-21 (Sec.240.15d-21 
of this chapter) which provides that in certain cases the information 
required by this form may be furnished with respect to the plan as a 
part of the annual report of such issuer. Reports on this form shall be 
filed within 90 days after the end of the fiscal year of the plan, or, 
in the case of a plan subject to the Employee Retirement Income Security 
Act of 1974, within 180 days after the plan's fiscal year end.

[43 FR 21663, May 19, 1978]

    Editorial Note: For Federal Register citations affecting Form 11-K, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.312  Form 10-D, periodic distribution reports by asset-backed 
issuers.

    This form shall be used by asset-backed issuers to file periodic 
distribution reports pursuant to Sec.240.13a-17 or Sec.240.15d-17 of 
this chapter. A distribution report on this form pursuant to Sec.
240.13a-17 or Sec.240.15d-17 of this chapter shall be filed within 15 
days after each required distribution date on the asset-backed 
securities, as specified in the governing documents for such securities.

[70 FR 1626, Jan. 7, 2005]

    Editorial Note: For Federal Register citations affecting Form 10-D, 
see the List of CFR Sections Affected, which appears in the

[[Page 1012]]

Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.249.318  Form 18-K, annual report for foreign governments 
and political subdivisions thereof.

    This form shall be used for the annual reports of foreign 
governments or political subdivisions thereof.

[47 FR 54790, Dec. 6, 1982]

    Editorial Note: For Federal Register citations affecting Form 18-K, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.322  Form 12b-25--Notification of late filing.

    (a) This form shall be filed pursuant to Sec.240.12b-25 of this 
chapter by issuers who are unable to file timely all or any required 
portion of an annual or transition report on Form 10-K and Form 10-KSB, 
20-F, or 11-K (Sec.249.310, 249.310b, 249.220f or 249.311), a 
quarterly or transition report on Form 10-Q and Form 10-QSB (Sec.Sec.
249.308a and 249.308b), or a distribution report on Form 10-D (Sec.
249.312) pursuant to section 13 or 15(d) of the Act (15 U.S.C. 78m or 
78o(d)) or an annual report on Form N-CEN (Sec.Sec.249.330; 274.101) 
or a semi-annual or annual report on Form N-CSR (Sec.Sec.249.331; 
274.128) pursuant to section 13 or 15(d) of the Act or section 30 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-29). The filing shall 
consist of a signed original and three conformed copies, and shall be 
filed with the Commission at Washington, DC 20549, no later than one 
business day after the due date for the periodic report in question. 
Copies of this form may be obtained from ``Publications,'' Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549 and at 
our Web site at http://www.sec.gov.
    (b) This form shall not be used by electronic filers unable to 
timely file a report solely due to electronic difficulties. Filers 
unable to submit a report within the time period prescribed due to 
electronic difficulties should comply with either Rule 201 or Rule 202 
of Regulation S-T (Sec.232.201 or Sec.232.202 of this chapter), or 
apply for an adjustment in filing date pursuant to Rule 13(b) of 
Regulation S-T (Sec.232.13(b) of this chapter).
    (c) Interactive data submissions. This form shall not be used by 
electronic filers with respect to the submission or posting of an 
Interactive Data File (Sec.232.11 of this chapter). Electronic filers 
unable to submit or post an Interactive Data File within the time period 
prescribed should comply with either Rule 201 or 202 of Regulation S-T 
(Sec.Sec.232.201 and 232.202 of this chapter).

[50 FR 1449, Jan. 11, 1985, as amended at 70 FR 1630, Jan. 7, 2005; 73 
FR 32228, June 5, 2008; 74 FR 6821, Feb. 10, 2009; 81 FR 82020, June 1, 
2018]

    Editorial Note: For Federal Register citations affecting Form 12b-
25, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.249.323  Form 15, certification of termination of registration
of a class of security under section 12(g) or notice of suspension
of duty to file reports pursuant to sections 13 and 15(d) of the Act.
          

    (a) This form shall be filed by each issuer to certify that the 
number of holders of record of a class of security registered under 
section 12(g) of the Act is reduced to less than 300 persons, or that 
the number of holders of record of a class of security registered under 
section 12(g) of the Act is reduced to less than 500 persons and the 
total assets of the issuer have not exceeded $10 million on the last day 
of each of the issuer's most recent three fiscal years. Registration 
terminates 90 days after the filing of the certificate or within such 
shorter time as the Commission may direct.
    (b) This form shall also be filed by each issuer required to file 
reports pursuant to section 15(d) of the Act, as a notification that the 
duty to file such reports is suspended pursuant to section 15(d) of the 
Act because all securities of each class of such issuer registered under 
the Securities Act of 1933 are held of record by less than 300 persons 
at the beginning of its fiscal year,

[[Page 1013]]

or otherwise pursuant to the provisions of Rule 12h-3 (17 CFR 240.12h-
3).

(Secs. 12(g)(4), 12(h), 13(a), 15(d), 23(a), 48 Stat. 892, 894, 895, 
901; Sec.203(a), 49 Stat. 704; secs. 3, 8, 49 Stat. 1377, 1379; secs. 
3, 4, 6, 78 Stat. 565-568, 569, 570-574; Sec.18, 89 Stat. 155; Sec.
204, 91 Stat. 1500; 15 U.S.C. 78l(g)(4), 78l(h), 78m(a), 78o(d), 78w(a))

[49 FR 12690, Mar. 30, 1984, as amended at 51 FR 25362, July 14, 1986; 
61 FR 21356, May 9, 1996]

    Editorial Note: For Federal Register citations affecting Form 15, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.324  Form 15F, certification by a foreign private issuer 
regarding the termination of registration of a class of securities 
under section 12(g) or the duty to file reports under section 13(a)
or section 15(d).

    This form shall be filed by a foreign private issuer to disclose and 
certify the information on the basis of which it meets the requirements 
specified in Rule 12h-6 (Sec.240.12h-6 of this chapter) to terminate 
the registration of a class of securities under section 12(g) of the Act 
(15 U.S.C. 78l(g)) or the duty to file reports under section 13(a) of 
the Act (15 U.S.C. 78m(a)) or section 15(d) of the Act (15 U.S.C. 
78(o)(d)). In each instance, unless the Commission objects, termination 
occurs 90 days, or such shorter time as the Commission may direct, after 
the filing of Form 15F.

[72 FR 16958, Apr. 5, 2007]

    Editorial Note: For Federal Register citations affecting Form 15F, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.325  Form 13F, report of institutional investment manager
pursuant to section 13(f) of the Securities Exchange Act of 1934.

    This form shall be used by institutional investment managers which 
are required to furnish reports pursuant to section 13(f) of the 
Securities Exchange Act of 1934. (15 U.S.C. 78m(f)) and Rule 13f-1 
thereunder (Sec.240.13f-1 of this chapter).

[43 FR 26705, June 22, 1978]

    Editorial Note: For Federal Register citations affecting Form 13F, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.327  Form 13H, Information required on large traders pursuant
to Section 13(h) of the Securities Exchange Act of 1934 and rules 
thereunder.

    This form shall be used by persons that are large traders required 
to furnish identifying information to the Commission pursuant to Section 
13(h)(1) of the Securities Exchange Act of 1934 [15 U.S.C. 78m(h)(1)] 
and Sec.240.13h-1(b) of this chapter.

[76 FR 47004, Aug. 3, 2011]

    Editorial Note: For Federal Register citations affecting Form 13H, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.328T  Form 17-H, Risk assessment report for brokers and 
dealers pursuant to section 17(h) of the Securities Exchange Act 
of 1934 and rules thereunder.

    This form shall be used by brokers and dealers in reporting 
information to the Commission concerning certain of their associated 
persons pursuant to section 17(h) of the Securities Exchange Act of 1934 
[15 U.S.C. 78q(h)] and Rules 17h-1T and 17h-2T thereunder [Sec.Sec.
240.17h-1T and 240.17h-2T of this chapter].

[57 FR 32171, July 21, 1992]

    Editorial Note: For Federal Register citations affecting Form 17-H, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.330  Form N-CEN, annual report of registered investment 
companies.

    This form shall be used by registered unit investment trusts and 
small business investment companies for annual reports to be filed 
pursuant to Sec.270.30a-1 of this chapter in satisfaction of the 
requirement of section 30(a) of the Investment Company Act of 1940 (15 
U.S.C. 80a-29(a)) that every registered investment company must file 
annually with the Commission such information, documents, and reports as 
investment companies having securities registered on a national 
securities exchange are required to file annually

[[Page 1014]]

pursuant to section 13(a) of the Securities Exchange Act of 1934 (15 
U.S.C. 78m(a)) and the rules and regulations thereunder.
    Note: The text of Form N-CEN will not appear in the Code of Federal 
Regulations.

[81 FR 82020, Nov. 18, 2016]

    Editorial Note: For Federal Register citations affecting Form N-CEN, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.331  Form N-CSR, certified shareholder report.

    This form shall be used by registered management investment 
companies to file reports pursuant to Sec.270.30b2-1(a) of this 
chapter not later than 10 days after the transmission to stockholders of 
any report that is required to be transmitted to stockholders under 
Sec.270.30e-1 of this chapter.

[68 FR 5365, Feb. 3, 2003]

    Editorial Note: For Federal Register citations affecting Form N-CSR, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.332  Form N-Q, quarterly schedule of portfolio holdings
of registered management investment company.

    This form shall be used by registered management investment 
companies, other than small business investment companies registered on 
Form N-5 (Sec.Sec.239.24 and 274.5 of this chapter), to file reports 
pursuant to Sec.270.30b1-5 of this chapter not later than 60 days 
after the close of the first and third quarters of each fiscal year.

[69 FR 11263, Mar. 9, 2004]

    Editorial Note: For Federal Register citations affecting Form N-Q, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

    Effective Date Note: At 81 FR 82020, Nov. 18, 2016, Sec.249.332 
was removed, effective Aug. 1, 2019. At 82 FR 58731, Dec. 14, 2017, this 
amendment was delayed until May 1, 2020.



Sec.249.444  Form SE, form for submission of paper format exhibits
by electronic filers.

    This form shall be used by an electronic filer for the submission of 
any paper format document relating to an otherwise electronic filing, as 
provided in Rule 311 of Regulation S-T (Sec.232.311 of this chapter).

[58 FR 14686, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form SE, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.445  [Reserved]



Sec.249.446  Form ID, uniform application for access codes to file
on EDGAR.

    Form ID must be filed by registrants, third party filers, or their 
agents, to whom the Commission previously has not assigned a Central 
Index Key (CIK) code, to request the following access codes to permit 
filing on EDGAR:
    (a) Central Index Key (CIK)--uniquely identifies each filer, filing 
agent, and training agent.
    (b) CIK Confirmation Code (CCC)--used in the header of a filing in 
conjunction with the CIK of the filer to ensure that the filing has been 
authorized by the filer.
    (c) Password (PW)--allows a filer, filing agent or training agent to 
log on to the EDGAR system, submit filings, and change its CCC.
    (d) Password Modification Authorization Code (PMAC)--allows a filer, 
filing agent or training agent to change its Password.

[69 FR 22710, Apr. 26, 2004]

    Editorial Note: For Federal Register citations affecting Form ID, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.447  Form TH--Notification of reliance on temporary hardship
exemption.

    Form TH shall be filed by any electronic filer who submits to the 
Commission, pursuant to a temporary hardship exemption, a document in 
paper format that otherwise would be required to be submitted 
electronically, as prescribed by Rule 201(a) of Regulation S-T (Sec.
232.201(a) of this chapter).

[58 FR 14686, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form TH, 
see the List of

[[Page 1015]]

CFR Sections Affected, which appears in the Finding Aids section of the 
printed volume and at www.govinfo.gov.



  Subpart E_Forms for Statements Made in Connection With Exempt Tender 
                                 Offers

    Source: 64 FR 61406, Nov. 10, 1999, unless otherwise noted.



Sec.249.480  Form CB, tender offer statement in connection with
a tender offer for a foreign private issuer.

    This form is used to report an issuer tender offer conducted in 
compliance with Sec.240.13e-4(h)(8) of this chapter and a third-party 
tender offer conducted in compliance with Sec.240.14d-1(c) of this 
chapter. This report also is used by a subject company pursuant to Sec.
240.14e-2(d) of this chapter.

[64 FR 61406, Nov. 10, 1999]

    Editorial Note: For Federal Register citations affecting Form CB, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



  Subpart F_Forms for Registration of Brokers and Dealers Transacting 
                  Business on Over-the-Counter Markets



Sec.249.501  Form BD, for application for registration as a broker 
and dealer or to amend or supplement such an application.

    (a) This form shall be used for application for registration as a 
broker-dealer under the Securities Exchange Act of 1934, or to amend 
such application.
    (b) Interim Form BD shall be used for application for registration 
as broker-dealer under the Securities Exchange Act of 1934, or to amend 
such application, only by order of the Commission. In the event broker-
dealers are required to comply with their filing obligations on Interim 
Form BD, the form will be made available at the Commission's Publication 
Office at (202) 942-4040.

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form BD, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.501a  Form BDW, notice of withdrawal from registration as
broker-dealer pursuant to Sec.240.15b6-1, Sec.240.15Bc3-1, or
Sec.240.15Cc1-1 of this chapter.
          

    (a) This form shall be used for filing a notice of withdrawal as 
broker-dealer pursuant to Rule 15b6-1 (Sec.240.15b6-1 of this 
chapter), Rule 15Bc3-1 Sec.240.15B3-1 of this chapter), or Rule 15Cc1-
1 (Sec.240.15Cc1-1 of this chapter). Under sections 15(b), 15B, 15C, 
17(a), and 23(a) of the Securities Exchange Act of 1934 (17 CFR part 
240), and the rules and regulations thereunder, the Commission is 
authorized to solicit the information required to be supplied by this 
form from registrants desiring to withdraw their registration as a 
broker-dealer. Disclosure of the information specified in this form is 
mandatory prior to processing of applications for withdrawal, except for 
social security account numbers, disclosure of which is voluntary. The 
information will be used for the primary purpose of determining whether 
it is in the public interest to permit a broker-dealer to withdraw his 
registration. This notice will be made a matter of public record. 
Therefore, any information, given will be available for inspection by 
any member of the public. Because of the public nature of the 
information the Commission can utilize it for a variety of purposes, 
including referral to other governmental authorities or securities self-
regulatory organizations for investigatory purposes or in connection 
with litigation involving the Federal securities laws and other civil, 
criminal or regulatory statutes or provisions. Social security account 
numbers, if furnished, will assist the Commission in identifying 
registrants and, therefore, in promptly processing applications for 
withdrawal. Failure to disclose the information requested by Form BDW, 
except for social security account numbers, may result in the registrant 
not being permitted to withdraw his registration.
    (b) Interim Form BDW shall be used for application for registration 
as broker-dealer under the Securities Exchange Act of 1934, or to amend 
such

[[Page 1016]]

application, only by order of the Commission. In the event broker-
dealers are required to comply with their filing obligations on Interim 
Form BD, the form will be made available at the Commission's Publication 
Office at (202) 942-4040.

[52 FR 16844, May 6, 1987]

    Editorial Note: For Federal Register citations affecting Form BDW, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.501b  Form BD-N for notice registration as a broker-dealer.

    This form shall be used for notice of registration as a broker-
dealer pursuant to Section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) for the limited purpose of trading security futures 
products, or to amend such notice.

[66 FR 45147, Aug. 27, 2001]

    Editorial Note: For Federal Register citations affecting Form BD-N, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.507  Form 7-M, consent to service of process by an individual
nonresident broker-dealer.

    This form shall be filed pursuant to Rule 15b1-5 (Sec.240.15b1-5 
of this chapter) by each individual nonresident broker-dealer registered 
or applying for registration pursuant to section 15 of the Act.

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form 7-M, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.508  Form 8-M, consent to service of process by a corporation
which is a nonresident broker-dealer.

    This form shall be filed pursuant to Rule 15b1-5 (Sec.240.15b1-5 
of this chapter) by each corporate nonresident broker-dealer registered 
or applying for registration pursuant to section 15 of the Act.

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form 8-M, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.509  Form 9-M, consent to service of process by a partnership 
nonresident broker-dealer.

    This form shall be filed pursuant to Rule 15b1-5 (Sec.240.15b1-5 
of this chapter) by each partnership nonresident broker-dealer 
registered or applying for registration pursuant to section 15 of the 
Act.

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form 9-M, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.510  Form 10-M, consent to service of process by a nonresident
general partner of a broker-dealer firm.

    This form shall be filed pursuant to Rule 15b1-5 (Sec.240.15b1-5 
of this chapter) by each nonresident general partner of a broker-dealer 
firm registered or applying for registration pursuant to section 15 of 
the Act.

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form 10-M, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



  Subpart G_Forms for Reports To Be Made by Certain Exchange Members, 
Brokers, Dealers, Security-Based Swap Dealers, and Major Security-Based 
                            Swap Participants



Sec.249.617  Form X-17A-5, information required of certain brokers,
dealers, security-based swap dealers, and major security-based swap
participants pursuant  to sections 15F and 17 of the Securities 
Exchange Act of 1934 and Sec.Sec.240.17a-5, 240.17a-10, 240.17a-11,
240.17a-12, and 240.18a-79 of this chapter, as applicable.

    Appropriate parts of Form X-17A-5, as applicable, shall be used by 
brokers, dealers, security-based swap dealers, and major security-based 
swap participants required to file reports under Sec.Sec.240.17a-5, 
240.17a-10, 240.17a-11,

[[Page 1017]]

240.17a-12, and 240.18a-7 of this chapter, as applicable.

[84 FR 68669, Dec. 16, 2019]

    Editorial Note: For Federal Register citations affecting Form X-17A-
5, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.249.618  Form BD-Y2K, information required of broker-dealers 
pursuant to section 17 of the Securities Exchange Act of 1934 
and Sec.240.17a-5 of this chapter
          .

    This form shall be used by every broker-dealer required to file 
reports under Sec.240.17a-5(e) of this chapter.

[63 FR 37674, July 13, 1998]

    Editorial Note: For Federal Register citations affecting Form BD-
Y2K, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.249.619  Form TA-Y2K, information required of transfer agents 
pursuant to section 17 of the Securities Exchange Act of 1934 and 
Sec.240.17Ad-18 of this chapter.
          

    This form shall be used by every registered transfer agent required
     
to file reports under Sec.240.17Ad-18 of this chapter.

[63 FR 37694, July 13, 1998]

    Editorial Note: For Federal Register citations affecting Form TA-
Y2K, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.Sec.249.620-249.634  [Reserved]



Sec.249.635  Form X-17A-19, report by national securities exchanges
and registered national securities associations of changes in the
membership status of any of their members
          .

    This form shall be completed and filed by each national securities 
exchange or registered national securities association as required by 
Sec.240.17a-19 of this chapter within 5 business days of the 
occurrence of the initiation of the membership of any person or the 
suspension or termination of the membership of any of its members.

[45 FR 39841, June 12, 1980]

    Editorial Note: For Federal Register citations affecting Form X-17A-
19, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.249.636  [Reserved]



Sec.249.637  Form ATS, information required of alternative trading
systems pursuant to Sec.242.301(b)(2) of this chapter.

    This form shall be used by every alternative trading system to file 
required notices, reports and amendments under Sec.242.301(b)(2) of 
this chapter.

[63 FR 70933, Dec. 22, 1998]

    Editorial Note: For Federal Register citations affecting Form ATS, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.638  Form ATS-R, information required of alternative trading 
systems pursuant to Sec.242.301(b)(8) of this chapter.

    This form shall be used by every alternative trading system to file 
required reports under Sec.242.301(b)(8) of this chapter.

[63 FR 70943, Dec. 22, 1998]

    Editorial Note: For Federal Register citations affecting Form ATS-R, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.639  Form custody.

    This form shall be used for reports of information required by Sec.
240.17a-5 of this chapter.

    Editorial Note: For Federal Register citations affecting Form 
Custody, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.

[78 FR 51994, Aug. 21, 2013]



Sec.249.640  Form ATS-N, information required of NMS Stock ATSs
pursuant to Sec.242.304(a) of this chapter.

    This form shall be used by every NMS Stock ATS to file required 
reports under Sec.242.304(a) of this chapter.

[83 FR 38913, Aug. 7, 2018]

    Editorial Note: For Federal Register citations affecting Form ATS-N, 
see the List of CFR Sections Affected, which appears in

[[Page 1018]]

the Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.249.641  Form CRS, Relationship Summary for Brokers and Dealers 
Providing Services to Retail Investors, pursuant to Sec.240.17a-14 
of this chapter.

    This form shall be prepared and filed by brokers and dealers 
registered with the Securities and Exchange Commission pursuant to 
Section 15 of the Act that offer services to a retail investor pursuant 
to Sec.240.17a-14 of this chapter.

[84 FR 33630, July 12, 2019]

    Editorial Note: For Federal Register citations affecting Form CRS, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



             Subpart H_Forms For Reports as to Stabilization



Sec.249.709  [Reserved]



Subpart I_Forms for Self-Regulatory Organization Rule Changes and Forms 
 for Registration of and Reporting by National Securities Associations 
                 and Affiliated Securities Associations



Sec.249.801  Form X-15AA-1, for application for registration as a 
national securities association or affiliated securities association.

    This form shall be filed as an application for registration as a 
national securities association or as an affiliated securities 
association pursuant to Rule 15Aa-1 (Sec.240.15Aa-1 of this chapter).

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form X-
15AA-1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.249.802  Form X-15AJ-1, for amendatory and/or supplementary 
statements to registration statement of a national securities 
association or an affiliated securities association.
          

    This form shall be filed pursuant to Rule 15Aj-1 (Sec.240.15Aj-1 
of this chapter) as amendatory and/or supplementary statements to 
registration statement of a national securities association or an 
affiliated securities association.

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form X-
15AJ-1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.249.803  Form X-15AJ-2, for annual consolidated supplement 
of a national securities association or an affiliated securities 
association.

    This form shall be filed pursuant to Rule 15Aj-1 (Sec.240.15Aj-1 
of this chapter) for the annual consolidated supplement to registration 
statement of a national securities association or an affiliated 
securities association.

[33 FR 18995, Dec. 20, 1968]

    Editorial Note: For Federal Register citations affecting Form X-
15AJ-2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.249.819  Form 19b-4, for electronic filings with respect to 
proposed rule changes, advance notices and security-based swap 
submissions by all self-regulatory organizations.
          

    This form shall be used by all self-regulatory organizations, as 
defined in Section 3(a)(26) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(26)), to file electronically proposed rule changes with 
the Commission pursuant to Section 19(b) of the Act (15 U.S.C. 78s(b)) 
and Sec.240.19b-4 of this chapter, advance notices with the Commission 
pursuant to Section 806(e) of the Payment, Clearing and Settlement 
Supervision Act (12 U.S.C. 5465(e)) and Sec.240.19b-4 of this chapter 
and security-based swap submissions with the Commission pursuant to 
Section 3C(b)(2) of the Act (15 U.S.C. 78c-3(b)(2)) and Sec.240.19b-4 
of this chapter.

[77 FR 41650, July 13, 2012]

    Editorial Note: Copies of Form 19b-4 have been filed with the Office 
of the Federal Register and will be forwarded to the self-regulatory 
organizations. Copies may be requested from the Commission.

[[Page 1019]]



Sec.249.820  Form 19b-4(e) for the listing and trading of new
derivative securities products by self-regulatory organizations
that are not deemed proposed rule changes pursuant to Rule 19b-4
(e)(Sec.240.19b-4(e)).
          

    This form shall be used by all self-regulatory organizations, as 
defined in section 3(a)(26) of the Act, to notify the Commission of a 
self-regulatory organization's listing and trading of a new derivative 
securities product that is not deemed a proposed rule change, pursuant 
to Rule 19b-4(e) under the Act (17 CFR 240.19b-4(e)).

[63 FR 70967, Dec. 22, 1998]

    Editorial Note: For Federal Register citations affecting Form 19b-
4(e), see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.249.821  Form PILOT, information required of self-regulatory 
organizations operating pilot trading systems pursuant to 
Sec.240.19b-5 of this chapter.

    This form shall be used by all self-regulatory organizations, as 
defined in section 3(a)(26) of the Act, (15 U.S.C 78c(a)(26)), to file 
required information and reports with regard to pilot trading systems 
pursuant to Sec.240.19b-5 of this chapter.

[63 FR 70946, Dec. 22, 1998]

    Editorial Note: For Federal Register citations affecting Form PILOT, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.822  Form 19b-7, for electronic filing with respect to
proposed rule changes by self-regulatory organizations under 
Section 19(b)(7)(A) of the Securities Exchange Act of 1934.
          

    This form shall be used by self-regulatory organizations, as defined 
in section 3(a)(25) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(25)), to file electronically proposed rule changes with the 
Commission pursuant to section 19(b)(7) of the Act (15 U.S.C. 78s(b)(7)) 
and Sec.240.19b-7 of this chapter.

[73 FR 16190, Mar. 27, 2008]

Subpart J [Reserved]



    Subpart K_Form for Registration of, and Reporting by Securities 
                         Information Processors



Sec.249.1001  Form SIP, for application for registration as a
securities information processor or to amend such an application 
or registration.

    This form shall be used for application for registration as a 
securities information processor, pursuant to section 11A(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78k-1(b)) and Sec.242.609 
of this chapter, or to amend such an application or registration.

[70 FR 37632, June 29, 2005]

    Editorial Note: For Federal Register citations affecting Form SIP, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



    Subpart L_Forms for Registration of Municipal Securities Dealers



Sec.249.1100  Form MSD, application for registration as a municipal 
securities dealer pursuant to rule 15Ba2-1 under the Securities 
Exchange Act of 1934 or amendment to such application.
          

    This Form is to be used by a bank or a separately identifiable 
department or division of a bank (as defined by the Municipal Securities 
Rulemaking Board) to apply for registration as a municipal securities 
dealer with the Securities and Exchange Commission pursuant to section 
15B(a) of the Securities Exchange Act of 1934 (the ``Act''), or to amend 
such application.

    Note: Copies of Form MSD have been filed with the Office of the 
Federal Register as part of this document. Copies of Forms BD and MSD 
may be obtained from the Office of Reports and Information Services; 
Securities and Exchange Commission, 500 North Capitol Street, 
Washington, DC, 20549. Only printed copies of Form MSD should be used to 
apply for registration with the Commission.

[40 FR 49777, Oct. 24, 1975; 40 FR 54425, Nov. 24, 1975]

    Editorial Note: For Federal Register citations affecting Form MSD, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

[[Page 1020]]



Sec.249.1110  Form MSDW, notice of withdrawal from registration as 
a municipal securities dealer pursuant to Rule 15Bc3-1 
(17 CFR 240.15Bc3-1).

    This form is to be used by a bank or a separately identifiable 
department or division of a bank (as defined by the Municipal Securities 
Rulemaking Board) to withdraw from registration with the Securities and 
Exchange Commission as a municipal securities dealer pursuant to section 
15B(c) of the Securities Exchange Act of 1934.

    Note: Copies of Form MSDW have been filed with the Office of the 
Federal Register as part of this document. Copies of Form MSDW may be 
obtained from the Publications Section, Securities and Exchange 
Commission, 500 North Capitol Street, Washington, DC 20549.

[41 FR 28949, July 14, 1976]

    Editorial Note: For Federal Register citations affecting Form MSDW, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Subpart M_Forms for Reporting and Inquiry With Respect to Missing, Lost, 
                    Stolen, or Counterfeit Securities



Sec.249.1200  Form X-17F-1A--Report for missing, lost, stolen 
or counterfeit securities.

    This form is to be filed with the Commission or its designee 
pursuant to paragraph (c) of Sec.240.17f-1 of this chapter by all 
reporting institutions subject to section 17(f)(1) of the Securities 
Exchange Act of 1934.

[44 FR 31504, May 31, 1979]

    Editorial Note: For Federal Register citations affecting Form X-17F-
1A, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Subpart N_Forms for Registration of Municipal Advisors and for Providing 
              Information Regarding Certain Natural Persons

    Source: 78 FR 67639, Nov. 12, 2013, unless otherwise noted.



Sec.249.1300  Form MA, for registration as a municipal advisor, 
and for amendments to registration.

    The form shall be used for registration as a municipal advisor 
pursuant to section 15B of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-4) and for amendments to registrations.

    Editorial Note: For Federal Register citations affecting Form MA-T, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.1300T  Form MA-T, for temporary registration as a municipal 
advisor, and for amendments to, and withdrawals from, temporary 
registration.

    The form shall be used for temporary registration as a municipal 
advisor, and for amendments to, and withdrawals from, temporary 
registration pursuant to Section 15B of the Exchange Act, (15 U.S.C. 
78o-4).

    Editorial Note: For Federal Register citations affecting Form MA-T, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.1310  Form MA-I, for providing information regarding natural
person municipal advisors, and for amendments to such information.

    The form shall be used for providing information regarding natural 
person municipal advisors, and for amendments to such information.

    Editorial Note: For Federal Register citations affecting Form MA-I, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.1320  Form MA-W, for withdrawal from registration as a 
municipal advisor.

    The form shall be used for filing a notice of withdrawal from 
registration as a municipal advisor pursuant to section 15B of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-4).

    Editorial Note: For Federal Register citations affecting Form MA-W, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

[[Page 1021]]



Sec.249.1330  Form MA-NR, for appointment of agent for service 
of process by non-resident municipal advisor, non-resident general 
partner or managing agent of a municipal advisor, and non-resident 
natural person associated with a municipal advisor
          .

    The form shall be used to furnish information pertaining to the 
appointment of agent for service of process by a non-resident municipal 
advisor and by registered municipal advisors to furnish the same for 
each of its non-resident general partner or managing agent, or non-
resident natural person associated with a municipal advisor pursuant to 
section 15B of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4).

    Editorial Note: For Federal Register citations affecting Form MA-NR, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



               Subpart O_Forms for Asset-Backed Securities



Sec.249.1400  Form ABS-15G, Asset-backed securitizer report pursuant
to Section 15G of the Securities Exchange Act of 1934.

    This form shall be used for reports of information required by Rule 
15Ga-1 (Sec.240.15Ga-1 of this chapter).

[76 FR 4515, Jan. 26, 2011]

    Editorial Note: For Federal Register citations affecting Form ABS-
15G, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.249.1401  Form ABS-EE, for submission of the asset-data file 
exhibits and related documents.

    This Form shall be used by an electronic filer for the submission of 
information required by Item 1111(h) (Sec.229.1111(h) of this 
chapter).

[79 FR 57346, Sept. 24, 2014]

    Editorial Note: For Federal Register citations affecting Form ABS-
EE, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



      Subpart P_Forms for Registration of Security-Based Swap Data 
                              Repositories



Sec.249.1500  Form SDR, for application for registration as a 
security-based swap data repository, amendments thereto, 
or withdrawal from registration.

    The form shall be used for registration as a security-based swap 
data repository, and for the amendments to and withdrawal from such 
registration pursuant to section 13(n) of the Exchange Act (15 U.S.C. 
78m(n)).

[80 FR 14557, Mar. 19, 2015]

    Editorial Note: For Federal Register citations affecting Form SDR, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



    Subpart Q_Registration of Security-Based Swap Dealers and Major 
                    Security-Based Swap Participants

    Source: 80 FR 49017 Aug. 14, 2015, unless otherwise noted.



Sec.249.1600  Form SBSE, for application for registration as a 
security-based swap dealer or major security-based swap participant
or to amend such an application for registration.
          

    This form shall be used for application for registration as a 
security-based swap dealer or major security-based swap participant by 
firms that are not registered with the Commission as a broker or dealer 
and that are not registered or registering with the Commodity Futures 
Trading Commission as a swap dealer or major swap participant, pursuant 
to Section 15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
10(b)) and to amend such an application for registration.

    Editorial Note: For Federal Register citations affecting Form SBSE, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

[[Page 1022]]



Sec.249.1600a  Form SBSE-A, for application for registration as a 
security-based swap dealer or major security-based swap participant 
or to amend such an application for registration by firms registered or 
registering with the Commodity Futures Trading Commission as a 
swap dealer or major swap participant that are not also 
registered or registering with the Commission as a broker or 
dealer.

    This form shall be used instead of Form SBSE (Sec.249.1600) to 
apply for registration as a security-based swap dealer or major 
security-based swap participant by firms that are not registered or 
registering with the Commission as a broker or dealer but that are 
registered or registering with the Commodity Futures Trading Commission 
as a swap dealer or major swap participant, pursuant to Section 15F(b) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) and to 
amend such an application for registration. An entity that is registered 
or registering with the Commission as a broker or dealer and is also 
registered or registering with the Commodity Futures Trading Commission 
as a swap dealer or major swap participant shall apply for registration 
as a security-based swap dealer or major security-based swap participant 
on Form SBSE-BD (Sec.249.1600b) and not on this Form SBSE-A.

    Editorial Note: For Federal Register citations affecting Form SBSE-
A, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.249.1600b  Form SBSE-BD, for application for registration as
a security-based swap dealer or major security-based swap participan
t or to amend such an application for registration by firms registered
or registering with the Commission as a broker or dealer.

    This form shall be used instead of either Form SBSE (Sec.249.1600) 
or SBSE-A (Sec.249.1600a) to apply for registration as a security-
based swap dealer or major security-based swap participant solely by 
firms registered or registering with the Commission as a broker or 
dealer, pursuant to Section 15F(b) of the Securities Exchange Act of 
1934 (15 U.S.C. 78o-10(b)) and to amend such an application for 
registration. An entity that is registered or registering with the 
Commission as a broker or dealer and is also registered or registering 
with the Commodity Futures Trading Commission as a swap dealer or major 
swap participant, shall apply for registration as a security-based swap 
dealer or major security-based swap participant on this Form SBSE-BD and 
not on Form SBSE-A.

    Editorial Note: For Federal Register citations affecting Form SBSE-
BD, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.249.1600c  Form SBSE-C, for certification by security-based swap
dealers and major security-based swap participants.

    This form shall be used to file required certifications on Form 
SBSE-C pursuant to Sec.240.15Fb2-1(a) of this chapter.

    Editorial Note: For Federal Register citations affecting Form SBSE-
C, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.249.1601  Form SBSE-W, for withdrawal from registration as a 
security-based swap dealer or major security-based swap participant
or to amend such an application for registration
          .

    This form shall be used to withdraw from registration as a security-
based swap dealer or major security-based swap participant, pursuant to 
Section 15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
10(b)).

    Editorial Note: For Federal Register citations affecting Form SBSE-
W, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



                      Subpart S_Whistleblower Forms

    Source: 76 FR 34371, June 13, 2011, unless otherwise noted.



Sec.249.1800  Form TCR, tip, complaint or referral.

    This form may be used by anyone wishing to provide the SEC with 
information concerning a violation of the

[[Page 1023]]

Federal securities laws. The information provided may be disclosed to 
Federal, state, local, or foreign agencies responsible for 
investigating, prosecuting, enforcing, or implementing the Federal 
securities laws, rules, or regulations consistent with the 
confidentiality requirements set forth in Section 21F(h)(2) of the 
Exchange Act (15 U.S.C. 78u-6(h)(2)) and Sec.240.21F-7 of this 
chapter.

    Editorial Note: For Federal Register citations affecting Form TCR, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249.1801  Form WB-APP, Application for award for original 
information submitted pursuant to Section 21F of the Securities Exchange Act of 1934.

    This form must be used by persons making a claim for a whistleblower 
award in connection with information provided to the SEC or to another 
agency in a related action. The information provided will enable the 
Commission to determine your eligibility for payment of an award 
pursuant to Section 21F of the Securities Exchange Act of 1934 (15 
U.S.C. 78u-6). This information may be disclosed to Federal, state, 
local, or foreign agencies responsible for investigating, prosecuting, 
enforcing, or implementing the Federal securities laws, rules, or 
regulations consistent with the confidentiality requirements set forth 
in Section 21F(h)(2) of the Exchange Act (15 U.S.C. 78u-6(h)(2)) and 
Sec.240.21F-7 of this chapter. Furnishing the information is 
voluntary, but a decision not to do so may result in you not being 
eligible for award consideration.

    Editorial Note: For Federal Register citations affecting Form WB-
APP, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



   Subpart T_Form SCI, for filing notices and reports as required by 
                             Regulation SCI.



Sec.249.1900.  Form SCI, for filing notices and reports as required
by Regulation SCI.

    Form SCI shall be used to file notices and reports as required by 
Regulation SCI (Sec.Sec.242.1000 through 242.1007).

[79 FR 72440, Dec. 5, 2014]

    Editorial Note: For Federal Register citations affecting Form SCI, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



           Subpart U_Forms for Registration of Funding Portals



Sec.249.2000  Form Funding Portal.

    This form shall be used for filings by funding portals under 
Regulation Crowdfunding (part 227 of this chapter).

[80 FR 71570, Nov. 16, 2015]

    Editorial Note: For Federal Register citations affecting Form 
Funding Portal, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.govinfo.gov.

 PART 249a_FORMS, SECURITIES INVESTOR PROTECTION ACT OF 1970 [RESERVED]



PART 249b_FURTHER FORMS, SECURITIES EXCHANGE ACT OF 1934--
Table of Contents



Sec.
249b.1-249b.99 [Reserved]
249b.100 Form TA-1, uniform form for registration as a transfer agent 
          pursuant to section 17A of the Securities Exchange Act of 
          1934.
249b.101 Form TA-W, notice of withdrawal from registration as transfer 
          agent.
249b.102 Form TA-2, form to be used by transfer agents registered 
          pursuant to section 17A of the Securities Exchange Act of 1934 
          for the annual report of transfer agent activities.
249b.200 Form CA-1, form for registration or for exemption from 
          registration as a clearing agency and for amendment to 
          registration as a clearing agency pursuant to section 17A of 
          the Securities Exchange Act of 1934.

[[Page 1024]]

249b.300 FORM NRSRO, application for registration as a nationally 
          recognized statistical rating organization pursuant to section 
          15E of the Securities Exchange Act of 1934 and Sec.240.17g-1 
          of this chapter.
249b.400 Form SD, specialized disclosure report.

    Authority: 15 U.S.C. 78a et seq., unless otherwise noted;
    Sections 249b.100 and 249b.102 also issued under secs. 17, 17A and 
23(a); 48 Stat. 897, as amended, 89 Stat. 137, 141 and 48 Stat. 901 (15 
U.S.C. 78q, 78q-1, 78w(a)).
    Section 249b.400 is also issued under secs. 1502 and 1504, Pub. L. 
111-203, 124 Stat. 2213 and 2220.



Sec.Sec.249b.1-249b.99  [Reserved]



Sec.249b.100  Form TA-1, \1\ uniform form for registration as a 
transfer agent pursuant to section 17A of the Securities Exchange
Act of 1934.
---------------------------------------------------------------------------

    \1\ Copies of the form may be obtained from the Publications 
Section, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549 and from each of the Commission's regional offices.
---------------------------------------------------------------------------

    This form shall be used for application for registration as a 
transfer agent and for amendment to registration as a transfer agent 
pursuant to section 17A of the Securities Exchange Act of 1934.

[40 FR 51184, Nov. 4, 1975, as amended at 51 FR 12127, Apr. 9, 1986; 73 
FR 32228, June 5, 2008]

    Editorial Note: For Federal Register citations affecting Form TA-1, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249b.101  Form TA-W, notice of withdrawal from registration as
transfer agent.

    This form shall be used for withdrawing, pursuant to section 17A of 
the Securities Exchange Act of 1934, the registration of transfer agents 
registered with the Commission.

(Secs. 2, 17, 17A and 23(a); (15 U.S.C. 78b, 78a, 78a-1 and 78w(a)))

[42 FR 44984, Sept. 8, 1977]

    Editorial Note: For Federal Register citations affecting Form TA-W, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249b.102  Form TA-2, \1\ form to be used by transfer agents 
registered pursuant to section 17A of the Securities Exchange Act 
of 1934 for the annual report of transfer agent activities.
          
---------------------------------------------------------------------------

    \1\ Copies of the form may be obtained from the Publication Section, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549 and from each of the Commission's regional offices.
---------------------------------------------------------------------------

    This form shall be used on an annual basis for registered transfer 
agents for reporting their business activities.

[51 FR 12134, Apr. 9, 1986, as amended at 73 FR 32228, June 5, 2008]

    Editorial Note: For Federal Register citations affecting Form TA-2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249b.200  Form CA-1, \1\ form for registration or for exemption
from registration as a clearing agency and for amendment to 
registration as a clearing agency pursuant to section 17A of the 
Securities Exchange Act of 1934.
          
---------------------------------------------------------------------------

    \1\ Copies of the form may be obtained from the Publication Section, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549 and from each of the Commission's regional offices.
---------------------------------------------------------------------------

    This form shall be used for application for registration or for 
exemption from registration as a clearing agency and for amendment to 
registration as a clearing agency pursuant to section 17A of the 
Securities Exchange Act of 1934.

[40 FR 52359, Nov. 10, 1975, as amended at 51 FR 12134, Apr. 9, 1986; 73 
FR 32228, June 5, 2008]

    Editorial Note: For Federal Register citations affecting Form CA-1, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249b.300  FORM NRSRO, application for registration as a nationally
recognized statistical rating organization pursuant to section 15E
of the Securities Exchange Act of 1934 and Sec.240.17g-1 of this chapter.

    This Form shall be used for an initial application for and an 
application to add a class of credit ratings to, a supplement to an 
initial application for

[[Page 1025]]

and an application to add a class of credit ratings to, an update and 
amendment to an application for, and a withdrawal from a registration as 
a nationally recognized statistical rating organization pursuant to 
section 15E of the Securities Exchange Act of 1934 (15 U.S.C. 78o-7) and 
Sec.240.17g-1 of this chapter.

[72 FR 33624, June 18, 2007]

    Editorial Note: For Federal Register citations affecting Form NRSRO, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.249b.400  Form SD, specialized disclosure report.

    (a) This Form shall be filed pursuant to Sec.240.13p-1 of this 
chapter by registrants that file reports with the Commission pursuant to 
Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 and are 
required to disclose the information required by Section 13(p) under the 
Securities Exchange Act of 1934 and Rule 13p-1 (Sec.240.13p-1) of this 
chapter.
    (b) This Form shall be filed pursuant to Rule 13q-1 (Sec.240.13q-
1) of this chapter by resource extraction issuers that are required to 
disclose the information required by Section 13(q) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(q)) and Rule 13q-1 of this chapter.

[77 FR 56362, Sept. 12, 2012, as amended at 77 FR 56418, Sept. 12, 2012]

    Editorial Note: For Federal Register citations affecting Form SD, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



PART 250_CROSS-BORDER ANTIFRAUD LAW-ENFORCEMENT AUTHORITY--
Table of Contents



    Authority: 15 U.S.C. 77s, 77v(c), 78w, 78aa(b), 80b-11, and 80b-
14(b).

    Source: 79 FR 47372, Aug. 12, 2014, unless otherwise noted.



Sec.250.1  Cross-border antifraud law-enforcement authority.

    (a) Notwithstanding any other Commission rule or regulation, the 
antifraud provisions of the securities laws apply to:
    (1) Conduct within the United States that constitutes significant 
steps in furtherance of the violation; or
    (2) Conduct occurring outside the United States that has a 
foreseeable substantial effect within the United States.
    (b) The antifraud provisions of the securities laws apply to conduct 
described in paragraph (a)(1) of this section even if:
    (1) The violation relates to a securities transaction or securities 
transactions occurring outside the United States that involves only 
foreign investors; or
    (2) The violation is committed by a foreign adviser and involves 
only foreign investors.
    (c) Violations of the antifraud provisions of the securities laws 
described in this section may be pursued in judicial proceedings brought 
by the Commission or the United States.

                        PARTS 251	254 [RESERVED]



PART 255_PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND 
RELATIONSHIPS WITH COVERED FUNDS--Table of Contents



                   Subpart A_Authority and Definitions

Sec.
255.1 Authority, purpose, scope, and relationship to other authorities
255.2 Definitions.

                      Subpart B_Proprietary Trading

255.3 Prohibition on proprietary trading.
255.4 Permitted underwriting and market making-related activities.
255.5 Permitted risk-mitigating hedging activities.
255.6 Other permitted proprietary trading activities.
255.7 Limitations on permitted proprietary trading activities.
255.8-255.9 [Reserved]

            Subpart C_Covered Fund Activities and Investments

255.10 Prohibition on acquiring or retaining an ownership interest in 
          and having certain relationships with a covered fund.

[[Page 1026]]

255.11 Permitted organizing and offering, underwriting, and market 
          making with respect to a covered fund.
255.12 Permitted investment in a covered fund.
255.13 Other permitted covered fund activities and investments.
255.14 Limitations on relationships with a covered fund.
255.15 Other limitations on permitted covered fund activities and 
          investments.
255.16 Ownership of interests in and sponsorship of issuers of certain 
          collateralized debt obligations backed by trust-preferred 
          securities.
255.17-255.19 [Reserved]

          Subpart D_Compliance Program Requirement; Violations

255.20 Program for compliance; reporting.
255.21 Termination of activities or investments; penalties for 
          violations.

Appendix A to Part 255--Reporting and Recordkeeping Requirements for 
          Covered Trading Activities
Appendix Z to Part 255--Proprietary Trading and Certain Interests in and 
          Relationships With Covered Funds (Alternative Compliance)

    Authority: 12 U.S.C. 1851.

    Source: 79 FR 5779, 5805, Jan. 31, 2014, unless otherwise noted.



                   Subpart A_Authority and Definitions



Sec.255.1  Authority, purpose, scope, and relationship to other
authorities.

    (a) Authority. This part is issued by the SEC under section 13 of 
the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1851).
    (b) Purpose. Section 13 of the Bank Holding Company Act establishes 
prohibitions and restrictions on proprietary trading and investments in 
or relationships with covered funds by certain banking entities, 
including registered broker-dealers, registered investment advisers, and 
registered security-based swap dealers, among others identified in 
section 2(12)(B) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (12 U.S.C. 5301(12)(B)). This part implements 
section 13 of the Bank Holding Company Act by defining terms used in the 
statute and related terms, establishing prohibitions and restrictions on 
proprietary trading and investments in or relationships with covered 
funds, and explaining the statute's requirements.
    (c) Scope. This part implements section 13 of the Bank Holding 
Company Act with respect to banking entities for which the SEC is the 
primary financial regulatory agency, as defined in this part, but does 
not include such entities to the extent they are not within the 
definition of banking entity in Sec.255.2(c).
    (d) Relationship to other authorities. Except as otherwise provided 
under section 13 of the Bank Holding Company Act, and notwithstanding 
any other provision of law, the prohibitions and restrictions under 
section 13 of Bank Holding Company Act shall apply to the activities and 
investments of a banking entity identified in paragraph (c) of this 
section, even if such activities and investments are authorized for the 
banking entity under other applicable provisions of law.
    (e) Preservation of authority. Nothing in this part limits in any 
way the authority of the SEC to impose on a banking entity identified in 
paragraph (c) of this section additional requirements or restrictions 
with respect to any activity, investment, or relationship covered under 
section 13 of the Bank Holding Company Act or this part, or additional 
penalties for violation of this part provided under any other applicable 
provision of law.

[79 FR 5805, Jan. 31, 2014, as amended at 84 FR 35022, July 22, 2019]



Sec.255.2  Definitions.

    Unless otherwise specified, for purposes of this part:
    (a) Affiliate has the same meaning as in section 2(k) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
    (b) Bank holding company has the same meaning as in section 2 of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1841).
    (c) Banking entity. (1) Except as provided in paragraph (c)(2) of 
this section, banking entity means:
    (i) Any insured depository institution;
    (ii) Any company that controls an insured depository institution;
    (iii) Any company that is treated as a bank holding company for 
purposes

[[Page 1027]]

of section 8 of the International Banking Act of 1978 (12 U.S.C. 3106); 
and
    (iv) Any affiliate or subsidiary of any entity described in 
paragraph (c)(1)(i), (ii), or (iii) of this section.
    (2) Banking entity does not include:
    (i) A covered fund that is not itself a banking entity under 
paragraph (c)(1)(i), (ii), or (iii) of this section;
    (ii) A portfolio company held under the authority contained in 
section 4(k)(4)(H) or (I) of the BHC Act (12 U.S.C. 1843(k)(4)(H), (I)), 
or any portfolio concern, as defined under 13 CFR 107.50, that is 
controlled by a small business investment company, as defined in section 
103(3) of the Small Business Investment Act of 1958 (15 U.S.C. 662), so 
long as the portfolio company or portfolio concern is not itself a 
banking entity under paragraph (c)(1)(i), (ii), or (iii) of this 
section; or
    (iii) The FDIC acting in its corporate capacity or as conservator or 
receiver under the Federal Deposit Insurance Act or Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act.
    (d) Board means the Board of Governors of the Federal Reserve 
System.
    (e) CFTC means the Commodity Futures Trading Commission.
    (f) Dealer has the same meaning as in section 3(a)(5) of the 
Exchange Act (15 U.S.C. 78c(a)(5)).
    (g) Depository institution has the same meaning as in section 3(c) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    (h) Derivative. (1) Except as provided in paragraph (h)(2) of this 
section, derivative means:
    (i) Any swap, as that term is defined in section 1a(47) of the 
Commodity Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as 
that term is defined in section 3(a)(68) of the Exchange Act (15 U.S.C. 
78c(a)(68));
    (ii) Any purchase or sale of a commodity, that is not an excluded 
commodity, for deferred shipment or delivery that is intended to be 
physically settled;
    (iii) Any foreign exchange forward (as that term is defined in 
section 1a(24) of the Commodity Exchange Act (7 U.S.C. 1a(24)) or 
foreign exchange swap (as that term is defined in section 1a(25) of the 
Commodity Exchange Act (7 U.S.C. 1a(25));
    (iv) Any agreement, contract, or transaction in foreign currency 
described in section 2(c)(2)(C)(i) of the Commodity Exchange Act (7 
U.S.C. 2(c)(2)(C)(i));
    (v) Any agreement, contract, or transaction in a commodity other 
than foreign currency described in section 2(c)(2)(D)(i) of the 
Commodity Exchange Act (7 U.S.C. 2(c)(2)(D)(i)); and
    (vi) Any transaction authorized under section 19 of the Commodity 
Exchange Act (7 U.S.C. 23(a) or (b));
    (2) A derivative does not include:
    (i) Any consumer, commercial, or other agreement, contract, or 
transaction that the CFTC and SEC have further defined by joint 
regulation, interpretation, or other action as not within the definition 
of swap, as that term is defined in section 1a(47) of the Commodity 
Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as that term is 
defined in section 3(a)(68) of the Exchange Act (15 U.S.C. 78c(a)(68)); 
or
    (ii) Any identified banking product, as defined in section 402(b) of 
the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27(b)), that 
is subject to section 403(a) of that Act (7 U.S.C. 27a(a)).
    (i) Employee includes a member of the immediate family of the 
employee.
    (j) Exchange Act means the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.).
    (k) Excluded commodity has the same meaning as in section 1a(19) of 
the Commodity Exchange Act (7 U.S.C. 1a(19)).
    (l) FDIC means the Federal Deposit Insurance Corporation.
    (m) Federal banking agencies means the Board, the Office of the 
Comptroller of the Currency, and the FDIC.
    (n) Foreign banking organization has the same meaning as in Sec.
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)), but does not 
include a foreign bank, as defined in section 1(b)(7) of the 
International Banking Act of 1978 (12 U.S.C. 3101(7)), that is organized 
under the laws of the Commonwealth of Puerto Rico, Guam, American Samoa, 
the United States Virgin Islands, or the Commonwealth of the Northern 
Mariana Islands.

[[Page 1028]]

    (o) Foreign insurance regulator means the insurance commissioner, or 
a similar official or agency, of any country other than the United 
States that is engaged in the supervision of insurance companies under 
foreign insurance law.
    (p) General account means all of the assets of an insurance company 
except those allocated to one or more separate accounts.
    (q) Insurance company means a company that is organized as an 
insurance company, primarily and predominantly engaged in writing 
insurance or reinsuring risks underwritten by insurance companies, 
subject to supervision as such by a state insurance regulator or a 
foreign insurance regulator, and not operated for the purpose of evading 
the provisions of section 13 of the BHC Act (12 U.S.C. 1851).
    (r) Insured depository institution has the same meaning as in 
section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)), 
but does not include:
    (1) An insured depository institution that is described in section 
2(c)(2)(D) of the BHC Act (12 U.S.C. 1841(c)(2)(D)); or
    (2) An insured depository institution if it has, and if every 
company that controls it has, total consolidated assets of $10 billion 
or less and total trading assets and trading liabilities, on a 
consolidated basis, that are 5 percent or less of total consolidated 
assets.
    (s) Limited trading assets and liabilities means with respect to a 
banking entity that:
    (1)(i) The banking entity has, together with its affiliates and 
subsidiaries, trading assets and liabilities (excluding trading assets 
and liabilities attributable to trading activities permitted pursuant to 
Sec.255.6(a)(1) and (2) of subpart B) the average gross sum of which 
over the previous consecutive four quarters, as measured as of the last 
day of each of the four previous calendar quarters, is less than $1 
billion; and
    (ii) The SEC has not determined pursuant to Sec.255.20(g) or (h) 
of this part that the banking entity should not be treated as having 
limited trading assets and liabilities.
    (2) With respect to a banking entity other than a banking entity 
described in paragraph (s)(3) of this section, trading assets and 
liabilities for purposes of this paragraph (s) means trading assets and 
liabilities (excluding trading assets and liabilities attributable to 
trading activities permitted pursuant to Sec.255.6(a)(1) and (2) of 
subpart B) on a worldwide consolidated basis.
    (3)(i) With respect to a banking entity that is a foreign banking 
organization or a subsidiary of a foreign banking organization, trading 
assets and liabilities for purposes of this paragraph (s) means the 
trading assets and liabilities (excluding trading assets and liabilities 
attributable to trading activities permitted pursuant to Sec.
255.6(a)(1) and (2) of subpart B) of the combined U.S. operations of the 
top-tier foreign banking organization (including all subsidiaries, 
affiliates, branches, and agencies of the foreign banking organization 
operating, located, or organized in the United States).
    (ii) For purposes of paragraph (s)(3)(i) of this section, a U.S. 
branch, agency, or subsidiary of a banking entity is located in the 
United States; however, the foreign bank that operates or controls that 
branch, agency, or subsidiary is not considered to be located in the 
United States solely by virtue of operating or controlling the U.S. 
branch, agency, or subsidiary. For purposes of paragraph (s)(3)(i) of 
this section, all foreign operations of a U.S. agency, branch, or 
subsidiary of a foreign banking organization are considered to be 
located in the United States, including branches outside the United 
States that are managed or controlled by a U.S. branch or agency of the 
foreign banking organization, for purposes of calculating the banking 
entity's U.S. trading assets and liabilities.
    (t) Loan means any loan, lease, extension of credit, or secured or 
unsecured receivable that is not a security or derivative.
    (u) Moderate trading assets and liabilities means, with respect to a 
banking entity, that the banking entity does not have significant 
trading assets and liabilities or limited trading assets and 
liabilities.
    (v) Primary financial regulatory agency has the same meaning as in 
section 2(12) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (12 U.S.C. 5301(12)).

[[Page 1029]]

    (w) Purchase includes any contract to buy, purchase, or otherwise 
acquire. For security futures products, purchase includes any contract, 
agreement, or transaction for future delivery. With respect to a 
commodity future, purchase includes any contract, agreement, or 
transaction for future delivery. With respect to a derivative, purchase 
includes the execution, termination (prior to its scheduled maturity 
date), assignment, exchange, or similar transfer or conveyance of, or 
extinguishing of rights or obligations under, a derivative, as the 
context may require.
    (x) Qualifying foreign banking organization means a foreign banking 
organization that qualifies as such under Sec.211.23(a), (c) or (e) of 
the Board's Regulation K (12 CFR 211.23(a), (c), or (e)).
    (y) SEC means the Securities and Exchange Commission.
    (z) Sale and sell each include any contract to sell or otherwise 
dispose of. For security futures products, such terms include any 
contract, agreement, or transaction for future delivery. With respect to 
a commodity future, such terms include any contract, agreement, or 
transaction for future delivery. With respect to a derivative, such 
terms include the execution, termination (prior to its scheduled 
maturity date), assignment, exchange, or similar transfer or conveyance 
of, or extinguishing of rights or obligations under, a derivative, as 
the context may require.
    (aa) Security has the meaning specified in section 3(a)(10) of the 
Exchange Act (15 U.S.C. 78c(a)(10)).
    (bb) Security-based swap dealer has the same meaning as in section 
3(a)(71) of the Exchange Act (15 U.S.C. 78c(a)(71)).
    (cc) Security future has the meaning specified in section 3(a)(55) 
of the Exchange Act (15 U.S.C. 78c(a)(55)).
    (dd) Separate account means an account established and maintained by 
an insurance company in connection with one or more insurance contracts 
to hold assets that are legally segregated from the insurance company's 
other assets, under which income, gains, and losses, whether or not 
realized, from assets allocated to such account, are, in accordance with 
the applicable contract, credited to or charged against such account 
without regard to other income, gains, or losses of the insurance 
company.
    (ee) Significant trading assets and liabilities means with respect 
to a banking entity that: (1)(i) The banking entity has, together with 
its affiliates and subsidiaries, trading assets and liabilities the 
average gross sum of which over the previous consecutive four quarters, 
as measured as of the last day of each of the four previous calendar 
quarters, equals or exceeds $20 billion; or
    (ii) The SEC has determined pursuant to Sec.255.20(h) of this part 
that the banking entity should be treated as having significant trading 
assets and liabilities.
    (2) With respect to a banking entity, other than a banking entity 
described in paragraph (ee)(3) of this section, trading assets and 
liabilities for purposes of this paragraph (ee) means trading assets and 
liabilities (excluding trading assets and liabilities attributable to 
trading activities permitted pursuant to Sec.255.6(a)(1) and (2) of 
subpart B) on a worldwide consolidated basis.
    (3)(i) With respect to a banking entity that is a foreign banking 
organization or a subsidiary of a foreign banking organization, trading 
assets and liabilities for purposes of this paragraph (ee) means the 
trading assets and liabilities (excluding trading assets and liabilities 
attributable to trading activities permitted pursuant to Sec.
255.6(a)(1) and (2) of subpart B) of the combined U.S. operations of the 
top-tier foreign banking organization (including all subsidiaries, 
affiliates, branches, and agencies of the foreign banking organization 
operating, located, or organized in the United States as well as 
branches outside the United States that are managed or controlled by a 
branch or agency of the foreign banking entity operating, located or 
organized in the United States).
    (ii) For purposes of paragraph (ee)(3)(i) of this section, a U.S. 
branch, agency, or subsidiary of a banking entity is located in the 
United States; however, the foreign bank that operates or controls that 
branch, agency, or subsidiary is not considered to be located in the 
United States solely by

[[Page 1030]]

virtue of operating or controlling the U.S. branch, agency, or 
subsidiary. For purposes of paragraph (ee)(3)(i) of this section, all 
foreign operations of a U.S. agency, branch, or subsidiary of a foreign 
banking organization are considered to be located in the United States 
for purposes of calculating the banking entity's U.S. trading assets and 
liabilities.
    (ff) State means any State, the District of Columbia, the 
Commonwealth of Puerto Rico, Guam, American Samoa, the United States 
Virgin Islands, and the Commonwealth of the Northern Mariana Islands.
    (gg) Subsidiary has the same meaning as in section 2(d) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(d)).
    (hh) State insurance regulator means the insurance commissioner, or 
a similar official or agency, of a State that is engaged in the 
supervision of insurance companies under State insurance law.
    (ii) Swap dealer has the same meaning as in section 1(a)(49) of the 
Commodity Exchange Act (7 U.S.C. 1a(49)).

[84 FR 62237, Nov. 14, 2019]



                      Subpart B_Proprietary Trading



Sec.255.3  Prohibition on proprietary trading.

    (a) Prohibition. Except as otherwise provided in this subpart, a 
banking entity may not engage in proprietary trading. Proprietary 
trading means engaging as principal for the trading account of the 
banking entity in any purchase or sale of one or more financial 
instruments.
    (b) Definition of trading account. (1) Trading account. Trading 
account means:
    (i) Any account that is used by a banking entity to purchase or sell 
one or more financial instruments principally for the purpose of short-
term resale, benefitting from actual or expected short-term price 
movements, realizing short-term arbitrage profits, or hedging one or 
more of the positions resulting from the purchases or sales of financial 
instruments described in this paragraph;
    (ii) Any account that is used by a banking entity to purchase or 
sell one or more financial instruments that are both market risk capital 
rule covered positions and trading positions (or hedges of other market 
risk capital rule covered positions), if the banking entity, or any 
affiliate with which the banking entity is consolidated for regulatory 
reporting purposes, calculates risk-based capital ratios under the 
market risk capital rule; or
    (iii) Any account that is used by a banking entity to purchase or 
sell one or more financial instruments, if the banking entity:
    (A) Is licensed or registered, or is required to be licensed or 
registered, to engage in the business of a dealer, swap dealer, or 
security-based swap dealer, to the extent the instrument is purchased or 
sold in connection with the activities that require the banking entity 
to be licensed or registered as such; or
    (B) Is engaged in the business of a dealer, swap dealer, or 
security-based swap dealer outside of the United States, to the extent 
the instrument is purchased or sold in connection with the activities of 
such business.
    (2) Trading account application for certain banking entities. (i) A 
banking entity that is subject to paragraph (b)(1)(ii) of this section 
in determining the scope of its trading account is not subject to 
paragraph (b)(1)(i) of this section.
    (ii) A banking entity that does not calculate risk-based capital 
ratios under the market risk capital rule and is not a consolidated 
affiliate for regulatory reporting purposes of a banking entity that 
calculates risk based capital ratios under the market risk capital rule 
may elect to apply paragraph (b)(1)(ii) of this section in determining 
the scope of its trading account as if it were subject to that 
paragraph. A banking entity that elects under this section to apply 
paragraph (b)(1)(ii) of this section in determining the scope of its 
trading account as if it were subject to that paragraph is not required 
to apply paragraph (b)(1)(i) of this section.
    (3) Consistency of account election for certain banking entities. 
(i) Any election or change to an election under paragraph (b)(2)(ii) of 
this section must apply to the electing banking entity and all of its 
wholly owned subsidiaries. The primary financial regulatory

[[Page 1031]]

agency of a banking entity that is affiliated with but is not a wholly 
owned subsidiary of such electing banking entity may require that the 
banking entity be subject to this uniform application requirement if the 
primary financial regulatory agency determines that it is necessary to 
prevent evasion of the requirements of this part after notice and 
opportunity for response as provided in subpart D.
    (ii) A banking entity that does not elect under paragraph (b)(2)(ii) 
of this section to be subject to the trading account definition in 
(b)(1)(ii) may continue to apply the trading account definition in 
paragraph (b)(1)(i) of this section for one year from the date on which 
it becomes, or becomes a consolidated affiliate for regulatory reporting 
purposes with, a banking entity that calculates risk-based capital 
ratios under the market risk capital rule.
    (4) Rebuttable presumption for certain purchases and sales. The 
purchase (or sale) of a financial instrument by a banking entity shall 
be presumed not to be for the trading account of the banking entity 
under paragraph (b)(1)(i) of this section if the banking entity holds 
the financial instrument for sixty days or longer and does not transfer 
substantially all of the risk of the financial instrument within sixty 
days of the purchase (or sale).
    (c) Financial instrument. (1) Financial instrument means:
    (i) A security, including an option on a security;
    (ii) A derivative, including an option on a derivative; or
    (iii) A contract of sale of a commodity for future delivery, or 
option on a contract of sale of a commodity for future delivery.
    (2) A financial instrument does not include:
    (i) A loan;
    (ii) A commodity that is not:
    (A) An excluded commodity (other than foreign exchange or currency);
    (B) A derivative;
    (C) A contract of sale of a commodity for future delivery; or
    (D) An option on a contract of sale of a commodity for future 
delivery; or
    (iii) Foreign exchange or currency.
    (d) Proprietary trading. Proprietary trading does not include:
    (1) Any purchase or sale of one or more financial instruments by a 
banking entity that arises under a repurchase or reverse repurchase 
agreement pursuant to which the banking entity has simultaneously 
agreed, in writing, to both purchase and sell a stated asset, at stated 
prices, and on stated dates or on demand with the same counterparty;
    (2) Any purchase or sale of one or more financial instruments by a 
banking entity that arises under a transaction in which the banking 
entity lends or borrows a security temporarily to or from another party 
pursuant to a written securities lending agreement under which the 
lender retains the economic interests of an owner of such security, and 
has the right to terminate the transaction and to recall the loaned 
security on terms agreed by the parties;
    (3) Any purchase or sale of a security, foreign exchange forward (as 
that term is defined in section 1a(24) of the Commodity Exchange Act (7 
U.S.C. 1a(24)), foreign exchange swap (as that term is defined in 
section 1a(25) of the Commodity Exchange Act (7 U.S.C. 1a(25)), or 
cross-currency swap by a banking entity for the purpose of liquidity 
management in accordance with a documented liquidity management plan of 
the banking entity that:
    (i) Specifically contemplates and authorizes the particular 
financial instruments to be used for liquidity management purposes, the 
amount, types, and risks of these financial instruments that are 
consistent with liquidity management, and the liquidity circumstances in 
which the particular financial instruments may or must be used;
    (ii) Requires that any purchase or sale of financial instruments 
contemplated and authorized by the plan be principally for the purpose 
of managing the liquidity of the banking entity, and not for the purpose 
of short-term resale, benefitting from actual or expected short-term 
price movements, realizing short-term arbitrage profits, or hedging a 
position taken for such short-term purposes;

[[Page 1032]]

    (iii) Requires that any financial instruments purchased or sold for 
liquidity management purposes be highly liquid and limited to financial 
instruments the market, credit, and other risks of which the banking 
entity does not reasonably expect to give rise to appreciable profits or 
losses as a result of short-term price movements;
    (iv) Limits any financial instruments purchased or sold for 
liquidity management purposes, together with any other financial 
instruments purchased or sold for such purposes, to an amount that is 
consistent with the banking entity's near-term funding needs, including 
deviations from normal operations of the banking entity or any affiliate 
thereof, as estimated and documented pursuant to methods specified in 
the plan;
    (v) Includes written policies and procedures, internal controls, 
analysis, and independent testing to ensure that the purchase and sale 
of financial instruments that are not permitted under Sec.255.6(a) or 
(b) of this subpart are for the purpose of liquidity management and in 
accordance with the liquidity management plan described in this 
paragraph (d)(3); and
    (vi) Is consistent with the SEC's regulatory requirements regarding 
liquidity management;
    (4) Any purchase or sale of one or more financial instruments by a 
banking entity that is a derivatives clearing organization or a clearing 
agency in connection with clearing financial instruments;
    (5) Any excluded clearing activities by a banking entity that is a 
member of a clearing agency, a member of a derivatives clearing 
organization, or a member of a designated financial market utility;
    (6) Any purchase or sale of one or more financial instruments by a 
banking entity, so long as:
    (i) The purchase (or sale) satisfies an existing delivery obligation 
of the banking entity or its customers, including to prevent or close 
out a failure to deliver, in connection with delivery, clearing, or 
settlement activity; or
    (ii) The purchase (or sale) satisfies an obligation of the banking 
entity in connection with a judicial, administrative, self-regulatory 
organization, or arbitration proceeding;
    (7) Any purchase or sale of one or more financial instruments by a 
banking entity that is acting solely as agent, broker, or custodian;
    (8) Any purchase or sale of one or more financial instruments by a 
banking entity through a deferred compensation, stock-bonus, profit-
sharing, or pension plan of the banking entity that is established and 
administered in accordance with the law of the United States or a 
foreign sovereign, if the purchase or sale is made directly or 
indirectly by the banking entity as trustee for the benefit of persons 
who are or were employees of the banking entity;
    (9) Any purchase or sale of one or more financial instruments by a 
banking entity in the ordinary course of collecting a debt previously 
contracted in good faith, provided that the banking entity divests the 
financial instrument as soon as practicable, and in no event may the 
banking entity retain such instrument for longer than such period 
permitted by the SEC;
    (10) Any purchase or sale of one or more financial instruments that 
was made in error by a banking entity in the course of conducting a 
permitted or excluded activity or is a subsequent transaction to correct 
such an error;
    (11) Contemporaneously entering into a customer-driven swap or 
customer-driven security-based swap and a matched swap or security-based 
swap if:
    (i) The banking entity retains no more than minimal price risk; and
    (ii) The banking entity is not a registered dealer, swap dealer, or 
security-based swap dealer;
    (12) Any purchase or sale of one or more financial instruments that 
the banking entity uses to hedge mortgage servicing rights or mortgage 
servicing assets in accordance with a documented hedging strategy; or
    (13) Any purchase or sale of a financial instrument that does not 
meet the definition of trading asset or trading liability under the 
applicable reporting form for a banking entity as of January 1, 2020.
    (e) Definition of other terms related to proprietary trading. For 
purposes of this subpart:

[[Page 1033]]

    (1) Anonymous means that each party to a purchase or sale is unaware 
of the identity of the other party(ies) to the purchase or sale.
    (2) Clearing agency has the same meaning as in section 3(a)(23) of 
the Exchange Act (15 U.S.C. 78c(a)(23)).
    (3) Commodity has the same meaning as in section 1a(9) of the 
Commodity Exchange Act (7 U.S.C. 1a(9)), except that a commodity does 
not include any security;
    (4) Contract of sale of a commodity for future delivery means a 
contract of sale (as that term is defined in section 1a(13) of the 
Commodity Exchange Act (7 U.S.C. 1a(13)) for future delivery (as that 
term is defined in section 1a(27) of the Commodity Exchange Act (7 
U.S.C. 1a(27))).
    (5) Cross-currency swap means a swap in which one party exchanges 
with another party principal and interest rate payments in one currency 
for principal and interest rate payments in another currency, and the 
exchange of principal occurs on the date the swap is entered into, with 
a reversal of the exchange of principal at a later date that is agreed 
upon when the swap is entered into.
    (6) Derivatives clearing organization means:
    (i) A derivatives clearing organization registered under section 5b 
of the Commodity Exchange Act (7 U.S.C. 7a-1);
    (ii) A derivatives clearing organization that, pursuant to CFTC 
regulation, is exempt from the registration requirements under section 
5b of the Commodity Exchange Act (7 U.S.C. 7a-1); or
    (iii) A foreign derivatives clearing organization that, pursuant to 
CFTC regulation, is permitted to clear for a foreign board of trade that 
is registered with the CFTC.
    (7) Exchange, unless the context otherwise requires, means any 
designated contract market, swap execution facility, or foreign board of 
trade registered with the CFTC, or, for purposes of securities or 
security-based swaps, an exchange, as defined under section 3(a)(1) of 
the Exchange Act (15 U.S.C. 78c(a)(1)), or security-based swap execution 
facility, as defined under section 3(a)(77) of the Exchange Act (15 
U.S.C. 78c(a)(77)).
    (8) Excluded clearing activities means:
    (i) With respect to customer transactions cleared on a derivatives 
clearing organization, a clearing agency, or a designated financial 
market utility, any purchase or sale necessary to correct trading errors 
made by or on behalf of a customer provided that such purchase or sale 
is conducted in accordance with, for transactions cleared on a 
derivatives clearing organization, the Commodity Exchange Act, CFTC 
regulations, and the rules or procedures of the derivatives clearing 
organization, or, for transactions cleared on a clearing agency, the 
rules or procedures of the clearing agency, or, for transactions cleared 
on a designated financial market utility that is neither a derivatives 
clearing organization nor a clearing agency, the rules or procedures of 
the designated financial market utility;
    (ii) Any purchase or sale in connection with and related to the 
management of a default or threatened imminent default of a customer 
provided that such purchase or sale is conducted in accordance with, for 
transactions cleared on a derivatives clearing organization, the 
Commodity Exchange Act, CFTC regulations, and the rules or procedures of 
the derivatives clearing organization, or, for transactions cleared on a 
clearing agency, the rules or procedures of the clearing agency, or, for 
transactions cleared on a designated financial market utility that is 
neither a derivatives clearing organization nor a clearing agency, the 
rules or procedures of the designated financial market utility;
    (iii) Any purchase or sale in connection with and related to the 
management of a default or threatened imminent default of a member of a 
clearing agency, a member of a derivatives clearing organization, or a 
member of a designated financial market utility;
    (iv) Any purchase or sale in connection with and related to the 
management of the default or threatened default of a clearing agency, a 
derivatives clearing organization, or a designated financial market 
utility; and
    (v) Any purchase or sale that is required by the rules or procedures 
of a clearing agency, a derivatives clearing organization, or a 
designated financial

[[Page 1034]]

market utility to mitigate the risk to the clearing agency, derivatives 
clearing organization, or designated financial market utility that would 
result from the clearing by a member of security-based swaps that 
reference the member or an affiliate of the member.
    (9) Designated financial market utility has the same meaning as in 
section 803(4) of the Dodd-Frank Act (12 U.S.C. 5462(4)).
    (10) Issuer has the same meaning as in section 2(a)(4) of the 
Securities Act of 1933 (15 U.S.C. 77b(a)(4)).
    (11) Market risk capital rule covered position and trading position 
means a financial instrument that meets the criteria to be a covered 
position and a trading position, as those terms are respectively 
defined, without regard to whether the financial instrument is reported 
as a covered position or trading position on any applicable regulatory 
reporting forms:
    (i) In the case of a banking entity that is a bank holding company, 
savings and loan holding company, or insured depository institution, 
under the market risk capital rule that is applicable to the banking 
entity; and
    (ii) In the case of a banking entity that is affiliated with a bank 
holding company or savings and loan holding company, other than a 
banking entity to which a market risk capital rule is applicable, under 
the market risk capital rule that is applicable to the affiliated bank 
holding company or savings and loan holding company.
    (12) Market risk capital rule means the market risk capital rule 
that is contained in 12 CFR part 3, subpart F, with respect to a banking 
entity for which the OCC is the primary financial regulatory agency, 12 
CFR part 217 with respect to a banking entity for which the Board is the 
primary financial regulatory agency, or 12 CFR part 324 with respect to 
a banking entity for which the FDIC is the primary financial regulatory 
agency.
    (13) Municipal security means a security that is a direct obligation 
of or issued by, or an obligation guaranteed as to principal or interest 
by, a State or any political subdivision thereof, or any agency or 
instrumentality of a State or any political subdivision thereof, or any 
municipal corporate instrumentality of one or more States or political 
subdivisions thereof.
    (14) Trading desk means a unit of organization of a banking entity 
that purchases or sells financial instruments for the trading account of 
the banking entity or an affiliate thereof that is:
    (i)(A) Structured by the banking entity to implement a well-defined 
business strategy;
    (B) Organized to ensure appropriate setting, monitoring, and 
management review of the desk's trading and hedging limits, current and 
potential future loss exposures, and strategies; and
    (C) Characterized by a clearly defined unit that:
    (1) Engages in coordinated trading activity with a unified approach 
to its key elements;
    (2) Operates subject to a common and calibrated set of risk metrics, 
risk levels, and joint trading limits;
    (3) Submits compliance reports and other information as a unit for 
monitoring by management; and
    (4) Books its trades together; or
    (ii) For a banking entity that calculates risk-based capital ratios 
under the market risk capital rule, or a consolidated affiliate for 
regulatory reporting purposes of a banking entity that calculates risk-
based capital ratios under the market risk capital rule, established by 
the banking entity or its affiliate for purposes of market risk capital 
calculations under the market risk capital rule.

[79 FR 5779, 5805, Jan. 31, 2014, as amended at 84 FR 62239, Nov. 14, 
2019]



Sec.255.4  Permitted underwriting and market making-related activities.

    (a) Underwriting activities--(1) Permitted underwriting activities. 
The prohibition contained in Sec.255.3(a) does not apply to a banking 
entity's underwriting activities conducted in accordance with this 
paragraph (a).
    (2) Requirements. The underwriting activities of a banking entity 
are permitted under paragraph (a)(1) of this section only if:
    (i) The banking entity is acting as an underwriter for a 
distribution of securities and the trading desk's underwriting position 
is related to such distribution;

[[Page 1035]]

    (ii)(A) The amount and type of the securities in the trading desk's 
underwriting position are designed not to exceed the reasonably expected 
near term demands of clients, customers, or counterparties, taking into 
account the liquidity, maturity, and depth of the market for the 
relevant types of securities; and
    (B) Reasonable efforts are made to sell or otherwise reduce the 
underwriting position within a reasonable period, taking into account 
the liquidity, maturity, and depth of the market for the relevant types 
of securities;
    (iii) In the case of a banking entity with significant trading 
assets and liabilities, the banking entity has established and 
implements, maintains, and enforces an internal compliance program 
required by subpart D of this part that is reasonably designed to ensure 
the banking entity's compliance with the requirements of paragraph (a) 
of this section, including reasonably designed written policies and 
procedures, internal controls, analysis and independent testing 
identifying and addressing:
    (A) The products, instruments or exposures each trading desk may 
purchase, sell, or manage as part of its underwriting activities;
    (B) Limits for each trading desk, in accordance with paragraph 
(a)(2)(ii)(A) of this section;
    (C) Written authorization procedures, including escalation 
procedures that require review and approval of any trade that would 
exceed a trading desk's limit(s), demonstrable analysis of the basis for 
any temporary or permanent increase to a trading desk's limit(s), and 
independent review of such demonstrable analysis and approval; and
    (D) Internal controls and ongoing monitoring and analysis of each 
trading desk's compliance with its limits.
    (iv) A banking entity with significant trading assets and 
liabilities may satisfy the requirements in paragraphs (a)(2)(iii)(B) 
and (C) of this section by complying with the requirements set forth 
below in paragraph (c) of this section;
    (v) The compensation arrangements of persons performing the 
activities described in this paragraph (a) are designed not to reward or 
incentivize prohibited proprietary trading; and
    (vi) The banking entity is licensed or registered to engage in the 
activity described in this paragraph (a) in accordance with applicable 
law.
    (3) Definition of distribution. For purposes of this paragraph (a), 
a distribution of securities means:
    (i) An offering of securities, whether or not subject to 
registration under the Securities Act of 1933, that is distinguished 
from ordinary trading transactions by the presence of special selling 
efforts and selling methods; or
    (ii) An offering of securities made pursuant to an effective 
registration statement under the Securities Act of 1933.
    (4) Definition of underwriter. For purposes of this paragraph (a), 
underwriter means:
    (i) A person who has agreed with an issuer or selling security 
holder to:
    (A) Purchase securities from the issuer or selling security holder 
for distribution;
    (B) Engage in a distribution of securities for or on behalf of the 
issuer or selling security holder; or
    (C) Manage a distribution of securities for or on behalf of the 
issuer or selling security holder; or
    (ii) A person who has agreed to participate or is participating in a 
distribution of such securities for or on behalf of the issuer or 
selling security holder.
    (5) Definition of selling security holder. For purposes of this 
paragraph (a), selling security holder means any person, other than an 
issuer, on whose behalf a distribution is made.
    (6) Definition of underwriting position. For purposes of this 
section, underwriting position means the long or short positions in one 
or more securities held by a banking entity or its affiliate, and 
managed by a particular trading desk, in connection with a particular 
distribution of securities for which such banking entity or affiliate is 
acting as an underwriter.
    (7) Definition of client, customer, and counterparty. For purposes 
of this paragraph (a), the terms client, customer, and counterparty, on 
a collective or individual basis, refer to market participants that may 
transact with the

[[Page 1036]]

banking entity in connection with a particular distribution for which 
the banking entity is acting as underwriter.
    (b) Market making-related activities--(1) Permitted market making-
related activities. The prohibition contained in Sec.255.3(a) does not 
apply to a banking entity's market making-related activities conducted 
in accordance with this paragraph (b).
    (2) Requirements. The market making-related activities of a banking 
entity are permitted under paragraph (b)(1) of this section only if:
    (i) The trading desk that establishes and manages the financial 
exposure, routinely stands ready to purchase and sell one or more types 
of financial instruments related to its financial exposure, and is 
willing and available to quote, purchase and sell, or otherwise enter 
into long and short positions in those types of financial instruments 
for its own account, in commercially reasonable amounts and throughout 
market cycles on a basis appropriate for the liquidity, maturity, and 
depth of the market for the relevant types of financial instruments;
    (ii) The trading desk's market-making related activities are 
designed not to exceed, on an ongoing basis, the reasonably expected 
near term demands of clients, customers, or counterparties, taking into 
account the liquidity, maturity, and depth of the market for the 
relevant types of financial instruments;
    (iii) In the case of a banking entity with significant trading 
assets and liabilities, the banking entity has established and 
implements, maintains, and enforces an internal compliance program 
required by subpart D of this part that is reasonably designed to ensure 
the banking entity's compliance with the requirements of paragraph (b) 
of this section, including reasonably designed written policies and 
procedures, internal controls, analysis and independent testing 
identifying and addressing:
    (A) The financial instruments each trading desk stands ready to 
purchase and sell in accordance with paragraph (b)(2)(i) of this 
section;
    (B) The actions the trading desk will take to demonstrably reduce or 
otherwise significantly mitigate promptly the risks of its financial 
exposure consistent with the limits required under paragraph 
(b)(2)(iii)(C) of this section; the products, instruments, and exposures 
each trading desk may use for risk management purposes; the techniques 
and strategies each trading desk may use to manage the risks of its 
market making-related activities and positions; and the process, 
strategies, and personnel responsible for ensuring that the actions 
taken by the trading desk to mitigate these risks are and continue to be 
effective;
    (C) Limits for each trading desk, in accordance with paragraph 
(b)(2)(ii) of this section;
    (D) Written authorization procedures, including escalation 
procedures that require review and approval of any trade that would 
exceed a trading desk's limit(s), demonstrable analysis of the basis for 
any temporary or permanent increase to a trading desk's limit(s), and 
independent review of such demonstrable analysis and approval; and
    (E) Internal controls and ongoing monitoring and analysis of each 
trading desk's compliance with its limits.
    (iv) A banking entity with significant trading assets and 
liabilities may satisfy the requirements in paragraphs (b)(2)(iii)(C) 
and (D) of this section by complying with the requirements set forth 
below in paragraph (c) of this section;
    (v) The compensation arrangements of persons performing the 
activities described in this paragraph (b) are designed not to reward or 
incentivize prohibited proprietary trading; and
    (vi) The banking entity is licensed or registered to engage in 
activity described in this paragraph (b) in accordance with applicable 
law.
    (3) Definition of client, customer, and counterparty. For purposes 
of paragraph (b) of this section, the terms client, customer, and 
counterparty, on a collective or individual basis refer to market 
participants that make use of the banking entity's market making-related 
services by obtaining such services, responding to quotations, or 
entering into a continuing relationship with respect to such services, 
provided that:

[[Page 1037]]

    (i) A trading desk or other organizational unit of another banking 
entity is not a client, customer, or counterparty of the trading desk if 
that other entity has trading assets and liabilities of $50 billion or 
more as measured in accordance with the methodology described in Sec.
255.2(ee) of this part, unless:
    (A) The trading desk documents how and why a particular trading desk 
or other organizational unit of the entity should be treated as a 
client, customer, or counterparty of the trading desk for purposes of 
paragraph (b)(2) of this section; or
    (B) The purchase or sale by the trading desk is conducted 
anonymously on an exchange or similar trading facility that permits 
trading on behalf of a broad range of market participants.
    (ii) [Reserved]
    (4) Definition of financial exposure. For purposes of this section, 
financial exposure means the aggregate risks of one or more financial 
instruments and any associated loans, commodities, or foreign exchange 
or currency, held by a banking entity or its affiliate and managed by a 
particular trading desk as part of the trading desk's market making-
related activities.
    (5) Definition of market-maker positions. For the purposes of this 
section, market-maker positions means all of the positions in the 
financial instruments for which the trading desk stands ready to make a 
market in accordance with paragraph (b)(2)(i) of this section, that are 
managed by the trading desk, including the trading desk's open positions 
or exposures arising from open transactions.
    (c) Rebuttable presumption of compliance--(1) Internal limits. (i) A 
banking entity shall be presumed to meet the requirement in paragraph 
(a)(2)(ii)(A) or (b)(2)(ii) of this section with respect to the purchase 
or sale of a financial instrument if the banking entity has established 
and implements, maintains, and enforces the internal limits for the 
relevant trading desk as described in paragraph (c)(1)(ii) of this 
section.
    (ii)(A) With respect to underwriting activities conducted pursuant 
to paragraph (a) of this section, the presumption described in paragraph 
(c)(1)(i) of this section shall be available to each trading desk that 
establishes, implements, maintains, and enforces internal limits that 
should take into account the liquidity, maturity, and depth of the 
market for the relevant types of securities and are designed not to 
exceed the reasonably expected near term demands of clients, customers, 
or counterparties, based on the nature and amount of the trading desk's 
underwriting activities, on the:
    (1) Amount, types, and risk of its underwriting position;
    (2) Level of exposures to relevant risk factors arising from its 
underwriting position; and
    (3) Period of time a security may be held.
    (B) With respect to market making-related activities conducted 
pursuant to paragraph (b) of this section, the presumption described in 
paragraph (c)(1)(i) of this section shall be available to each trading 
desk that establishes, implements, maintains, and enforces internal 
limits that should take into account the liquidity, maturity, and depth 
of the market for the relevant types of financial instruments and are 
designed not to exceed the reasonably expected near term demands of 
clients, customers, or counterparties, based on the nature and amount of 
the trading desk's market-making related activities, that address the:
    (1) Amount, types, and risks of its market-maker positions;
    (2) Amount, types, and risks of the products, instruments, and 
exposures the trading desk may use for risk management purposes;
    (3) Level of exposures to relevant risk factors arising from its 
financial exposure; and
    (4) Period of time a financial instrument may be held.
    (2) Supervisory review and oversight. The limits described in 
paragraph (c)(1) of this section shall be subject to supervisory review 
and oversight by the SEC on an ongoing basis.
    (3) Limit breaches and increases. (i) With respect to any limit set 
pursuant to paragraphs (c)(1)(ii)(A) or (c)(1)(ii)(B) of this section, a 
banking entity shall maintain and make available to the SEC upon request 
records regarding any limit that is exceeded

[[Page 1038]]

and any temporary or permanent increase to any limit(s), in each case in 
the form and manner as directed by the SEC.
    (ii) In the event of a breach or increase of any limit set pursuant 
to paragraph (c)(1)(ii)(A) or (B) of this section, the presumption 
described in paragraph (c)(1)(i) of this section shall continue to be 
available only if the banking entity:
    (A) Takes action as promptly as possible after a breach to bring the 
trading desk into compliance; and
    (B) Follows established written authorization procedures, including 
escalation procedures that require review and approval of any trade that 
exceeds a trading desk's limit(s), demonstrable analysis of the basis 
for any temporary or permanent increase to a trading desk's limit(s), 
and independent review of such demonstrable analysis and approval.
    (4) Rebutting the presumption. The presumption in paragraph 
(c)(1)(i) of this section may be rebutted by the SEC if the SEC 
determines, taking into account the liquidity, maturity, and depth of 
the market for the relevant types of financial instruments and based on 
all relevant facts and circumstances, that a trading desk is engaging in 
activity that is not based on the reasonably expected near term demands 
of clients, customers, or counterparties. The SEC's rebuttal of the 
presumption in paragraph (c)(1)(i) must be made in accordance with the 
notice and response procedures in subpart D of this part.

[84 FR 62241, Nov. 14, 2019]



Sec.255.5  Permitted risk-mitigating hedging activities.

    (a) Permitted risk-mitigating hedging activities. The prohibition 
contained in Sec.255.3(a) does not apply to the risk-mitigating 
hedging activities of a banking entity in connection with and related to 
individual or aggregated positions, contracts, or other holdings of the 
banking entity and designed to reduce the specific risks to the banking 
entity in connection with and related to such positions, contracts, or 
other holdings.
    (b) Requirements. (1) The risk-mitigating hedging activities of a 
banking entity that has significant trading assets and liabilities are 
permitted under paragraph (a) of this section only if:
    (i) The banking entity has established and implements, maintains and 
enforces an internal compliance program required by subpart D of this 
part that is reasonably designed to ensure the banking entity's 
compliance with the requirements of this section, including:
    (A) Reasonably designed written policies and procedures regarding 
the positions, techniques and strategies that may be used for hedging, 
including documentation indicating what positions, contracts or other 
holdings a particular trading desk may use in its risk-mitigating 
hedging activities, as well as position and aging limits with respect to 
such positions, contracts or other holdings;
    (B) Internal controls and ongoing monitoring, management, and 
authorization procedures, including relevant escalation procedures; and
    (C) The conduct of analysis and independent testing designed to 
ensure that the positions, techniques and strategies that may be used 
for hedging may reasonably be expected to reduce or otherwise 
significantly mitigate the specific, identifiable risk(s) being hedged;
    (ii) The risk-mitigating hedging activity:
    (A) Is conducted in accordance with the written policies, 
procedures, and internal controls required under this section;
    (B) At the inception of the hedging activity, including, without 
limitation, any adjustments to the hedging activity, is designed to 
reduce or otherwise significantly mitigate one or more specific, 
identifiable risks, including market risk, counterparty or other credit 
risk, currency or foreign exchange risk, interest rate risk, commodity 
price risk, basis risk, or similar risks, arising in connection with and 
related to identified positions, contracts, or other holdings of the 
banking entity, based upon the facts and circumstances of the identified 
underlying and hedging positions, contracts or other holdings and the 
risks and liquidity thereof;
    (C) Does not give rise, at the inception of the hedge, to any 
significant

[[Page 1039]]

new or additional risk that is not itself hedged contemporaneously in 
accordance with this section;
    (D) Is subject to continuing review, monitoring and management by 
the banking entity that:
    (1) Is consistent with the written hedging policies and procedures 
required under paragraph (b)(1)(i) of this section;
    (2) Is designed to reduce or otherwise significantly mitigate the 
specific, identifiable risks that develop over time from the risk-
mitigating hedging activities undertaken under this section and the 
underlying positions, contracts, and other holdings of the banking 
entity, based upon the facts and circumstances of the underlying and 
hedging positions, contracts and other holdings of the banking entity 
and the risks and liquidity thereof; and
    (3) Requires ongoing recalibration of the hedging activity by the 
banking entity to ensure that the hedging activity satisfies the 
requirements set out in paragraph (b)(1)(ii) of this section and is not 
prohibited proprietary trading; and
    (iii) The compensation arrangements of persons performing risk-
mitigating hedging activities are designed not to reward or incentivize 
prohibited proprietary trading.
    (2) The risk-mitigating hedging activities of a banking entity that 
does not have significant trading assets and liabilities are permitted 
under paragraph (a) of this section only if the risk-mitigating hedging 
activity:
    (i) At the inception of the hedging activity, including, without 
limitation, any adjustments to the hedging activity, is designed to 
reduce or otherwise significantly mitigate one or more specific, 
identifiable risks, including market risk, counterparty or other credit 
risk, currency or foreign exchange risk, interest rate risk, commodity 
price risk, basis risk, or similar risks, arising in connection with and 
related to identified positions, contracts, or other holdings of the 
banking entity, based upon the facts and circumstances of the identified 
underlying and hedging positions, contracts or other holdings and the 
risks and liquidity thereof; and
    (ii) Is subject, as appropriate, to ongoing recalibration by the 
banking entity to ensure that the hedging activity satisfies the 
requirements set out in paragraph (b)(2) of this section and is not 
prohibited proprietary trading.
    (c) Documentation requirement. (1) A banking entity that has 
significant trading assets and liabilities must comply with the 
requirements of paragraphs (c)(2) and (3) of this section, unless the 
requirements of paragraph (c)(4) of this section are met, with respect 
to any purchase or sale of financial instruments made in reliance on 
this section for risk-mitigating hedging purposes that is:
    (i) Not established by the specific trading desk establishing or 
responsible for the underlying positions, contracts, or other holdings 
the risks of which the hedging activity is designed to reduce;
    (ii) Established by the specific trading desk establishing or 
responsible for the underlying positions, contracts, or other holdings 
the risks of which the purchases or sales are designed to reduce, but 
that is effected through a financial instrument, exposure, technique, or 
strategy that is not specifically identified in the trading desk's 
written policies and procedures established under paragraph (b)(1) of 
this section or under Sec.255.4(b)(2)(iii)(B) of this subpart as a 
product, instrument, exposure, technique, or strategy such trading desk 
may use for hedging; or
    (iii) Established to hedge aggregated positions across two or more 
trading desks.
    (2) In connection with any purchase or sale identified in paragraph 
(c)(1) of this section, a banking entity must, at a minimum, and 
contemporaneously with the purchase or sale, document:
    (i) The specific, identifiable risk(s) of the identified positions, 
contracts, or other holdings of the banking entity that the purchase or 
sale is designed to reduce;
    (ii) The specific risk-mitigating strategy that the purchase or sale 
is designed to fulfill; and
    (iii) The trading desk or other business unit that is establishing 
and responsible for the hedge.
    (3) A banking entity must create and retain records sufficient to 
demonstrate compliance with the requirements of this paragraph (c) for a 
period

[[Page 1040]]

that is no less than five years in a form that allows the banking entity 
to promptly produce such records to the SEC on request, or such longer 
period as required under other law or this part.
    (4) The requirements of paragraphs (c)(2) and (3) of this section do 
not apply to the purchase or sale of a financial instrument described in 
paragraph (c)(1) of this section if:
    (i) The financial instrument purchased or sold is identified on a 
written list of pre-approved financial instruments that are commonly 
used by the trading desk for the specific type of hedging activity for 
which the financial instrument is being purchased or sold; and
    (ii) At the time the financial instrument is purchased or sold, the 
hedging activity (including the purchase or sale of the financial 
instrument) complies with written, pre-approved limits for the trading 
desk purchasing or selling the financial instrument for hedging 
activities undertaken for one or more other trading desks. The limits 
shall be appropriate for the:
    (A) Size, types, and risks of the hedging activities commonly 
undertaken by the trading desk;
    (B) Financial instruments purchased and sold for hedging activities 
by the trading desk; and
    (C) Levels and duration of the risk exposures being hedged.

[79 FR 5779, 5805, Jan. 31, 2014, as amended at 84 FR 62243, Nov. 14, 
2019]



Sec.255.6  Other permitted proprietary trading activities.

    (a) Permitted trading in domestic government obligations. The 
prohibition contained in Sec.255.3(a) does not apply to the purchase 
or sale by a banking entity of a financial instrument that is:
    (1) An obligation of, or issued or guaranteed by, the United States;
    (2) An obligation, participation, or other instrument of, or issued 
or guaranteed by, an agency of the United States, the Government 
National Mortgage Association, the Federal National Mortgage 
Association, the Federal Home Loan Mortgage Corporation, a Federal Home 
Loan Bank, the Federal Agricultural Mortgage Corporation or a Farm 
Credit System institution chartered under and subject to the provisions 
of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.);
    (3) An obligation of any State or any political subdivision thereof, 
including any municipal security; or
    (4) An obligation of the FDIC, or any entity formed by or on behalf 
of the FDIC for purpose of facilitating the disposal of assets acquired 
or held by the FDIC in its corporate capacity or as conservator or 
receiver under the Federal Deposit Insurance Act or Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act.
    (b) Permitted trading in foreign government obligations--(1) 
Affiliates of foreign banking entities in the United States. The 
prohibition contained in Sec.255.3(a) does not apply to the purchase 
or sale of a financial instrument that is an obligation of, or issued or 
guaranteed by, a foreign sovereign (including any multinational central 
bank of which the foreign sovereign is a member), or any agency or 
political subdivision of such foreign sovereign, by a banking entity, so 
long as:
    (i) The banking entity is organized under or is directly or 
indirectly controlled by a banking entity that is organized under the 
laws of a foreign sovereign and is not directly or indirectly controlled 
by a top-tier banking entity that is organized under the laws of the 
United States;
    (ii) The financial instrument is an obligation of, or issued or 
guaranteed by, the foreign sovereign under the laws of which the foreign 
banking entity referred to in paragraph (b)(1)(i) of this section is 
organized (including any multinational central bank of which the foreign 
sovereign is a member), or any agency or political subdivision of that 
foreign sovereign; and
    (iii) The purchase or sale as principal is not made by an insured 
depository institution.
    (2) Foreign affiliates of a U.S. banking entity. The prohibition 
contained in Sec.255.3(a) does not apply to the purchase or sale of a 
financial instrument that is an obligation of, or issued or guaranteed 
by, a foreign sovereign (including any multinational central bank of

[[Page 1041]]

which the foreign sovereign is a member), or any agency or political 
subdivision of that foreign sovereign, by a foreign entity that is owned 
or controlled by a banking entity organized or established under the 
laws of the United States or any State, so long as:
    (i) The foreign entity is a foreign bank, as defined in section 
211.2(j) of the Board's Regulation K (12 CFR 211.2(j)), or is regulated 
by the foreign sovereign as a securities dealer;
    (ii) The financial instrument is an obligation of, or issued or 
guaranteed by, the foreign sovereign under the laws of which the foreign 
entity is organized (including any multinational central bank of which 
the foreign sovereign is a member), or any agency or political 
subdivision of that foreign sovereign; and
    (iii) The financial instrument is owned by the foreign entity and is 
not financed by an affiliate that is located in the United States or 
organized under the laws of the United States or of any State.
    (c) Permitted trading on behalf of customers--(1) Fiduciary 
transactions. The prohibition contained in Sec.255.3(a) does not apply 
to the purchase or sale of financial instruments by a banking entity 
acting as trustee or in a similar fiduciary capacity, so long as:
    (i) The transaction is conducted for the account of, or on behalf 
of, a customer; and
    (ii) The banking entity does not have or retain beneficial ownership 
of the financial instruments.
    (2) Riskless principal transactions. The prohibition contained in 
Sec.255.3(a) does not apply to the purchase or sale of financial 
instruments by a banking entity acting as riskless principal in a 
transaction in which the banking entity, after receiving an order to 
purchase (or sell) a financial instrument from a customer, purchases (or 
sells) the financial instrument for its own account to offset a 
contemporaneous sale to (or purchase from) the customer.
    (d) Permitted trading by a regulated insurance company. The 
prohibition contained in Sec.255.3(a) does not apply to the purchase 
or sale of financial instruments by a banking entity that is an 
insurance company or an affiliate of an insurance company if:
    (1) The insurance company or its affiliate purchases or sells the 
financial instruments solely for:
    (i) The general account of the insurance company; or
    (ii) A separate account established by the insurance company;
    (2) The purchase or sale is conducted in compliance with, and 
subject to, the insurance company investment laws, regulations, and 
written guidance of the State or jurisdiction in which such insurance 
company is domiciled; and
    (3) The appropriate Federal banking agencies, after consultation 
with the Financial Stability Oversight Council and the relevant 
insurance commissioners of the States and foreign jurisdictions, as 
appropriate, have not jointly determined, after notice and comment, that 
a particular law, regulation, or written guidance described in paragraph 
(d)(2) of this section is insufficient to protect the safety and 
soundness of the covered banking entity, or the financial stability of 
the United States.
    (e) Permitted trading activities of foreign banking entities. (1) 
The prohibition contained in Sec.255.3(a) does not apply to the 
purchase or sale of financial instruments by a banking entity if:
    (i) The banking entity is not organized or directly or indirectly 
controlled by a banking entity that is organized under the laws of the 
United States or of any State;
    (ii) The purchase or sale by the banking entity is made pursuant to 
paragraph (9) or (13) of section 4(c) of the BHC Act; and
    (iii) The purchase or sale meets the requirements of paragraph 
(e)(3) of this section.
    (2) A purchase or sale of financial instruments by a banking entity 
is made pursuant to paragraph (9) or (13) of section 4(c) of the BHC Act 
for purposes of paragraph (e)(1)(ii) of this section only if:
    (i) The purchase or sale is conducted in accordance with the 
requirements of paragraph (e) of this section; and
    (ii)(A) With respect to a banking entity that is a foreign banking 
organization, the banking entity meets the qualifying foreign banking 
organization requirements of section 211.23(a), (c) or (e) of the 
Board's Regulation K

[[Page 1042]]

(12 CFR 211.23(a), (c) or (e)), as applicable; or
    (B) With respect to a banking entity that is not a foreign banking 
organization, the banking entity is not organized under the laws of the 
United States or of any State and the banking entity, on a fully-
consolidated basis, meets at least two of the following requirements:
    (1) Total assets of the banking entity held outside of the United 
States exceed total assets of the banking entity held in the United 
States;
    (2) Total revenues derived from the business of the banking entity 
outside of the United States exceed total revenues derived from the 
business of the banking entity in the United States; or
    (3) Total net income derived from the business of the banking entity 
outside of the United States exceeds total net income derived from the 
business of the banking entity in the United States.
    (3) A purchase or sale by a banking entity is permitted for purposes 
of this paragraph (e) if:
    (i) The banking entity engaging as principal in the purchase or sale 
(including relevant personnel) is not located in the United States or 
organized under the laws of the United States or of any State;
    (ii) The banking entity (including relevant personnel) that makes 
the decision to purchase or sell as principal is not located in the 
United States or organized under the laws of the United States or of any 
State; and
    (iii) The purchase or sale, including any transaction arising from 
risk-mitigating hedging related to the instruments purchased or sold, is 
not accounted for as principal directly or on a consolidated basis by 
any branch or affiliate that is located in the United States or 
organized under the laws of the United States or of any State.
    (4) For purposes of this paragraph (e), a U.S. branch, agency, or 
subsidiary of a foreign banking entity is considered to be located in 
the United States; however, the foreign bank that operates or controls 
that branch, agency, or subsidiary is not considered to be located in 
the United States solely by virtue of operating or controlling the U.S. 
branch, agency, or subsidiary.

[79 FR 5779, 5805, Jan. 31, 2014, as amended at 84 FR 62244, Nov. 14, 
2019]



Sec.255.7  Limitations on permitted proprietary trading activities.

    (a) No transaction, class of transactions, or activity may be deemed 
permissible under Sec.Sec.255.4 through 255.6 if the transaction, 
class of transactions, or activity would:
    (1) Involve or result in a material conflict of interest between the 
banking entity and its clients, customers, or counterparties;
    (2) Result, directly or indirectly, in a material exposure by the 
banking entity to a high-risk asset or a high-risk trading strategy; or
    (3) Pose a threat to the safety and soundness of the banking entity 
or to the financial stability of the United States.
    (b) Definition of material conflict of interest. (1) For purposes of 
this section, a material conflict of interest between a banking entity 
and its clients, customers, or counterparties exists if the banking 
entity engages in any transaction, class of transactions, or activity 
that would involve or result in the banking entity's interests being 
materially adverse to the interests of its client, customer, or 
counterparty with respect to such transaction, class of transactions, or 
activity, and the banking entity has not taken at least one of the 
actions in paragraph (b)(2) of this section.
    (2) Prior to effecting the specific transaction or class or type of 
transactions, or engaging in the specific activity, the banking entity:
    (i) Timely and effective disclosure. (A) Has made clear, timely, and 
effective disclosure of the conflict of interest, together with other 
necessary information, in reasonable detail and in a manner sufficient 
to permit a reasonable client, customer, or counterparty to meaningfully 
understand the conflict of interest; and
    (B) Such disclosure is made in a manner that provides the client, 
customer, or counterparty the opportunity to negate, or substantially 
mitigate, any materially adverse effect on the client,

[[Page 1043]]

customer, or counterparty created by the conflict of interest; or
    (ii) Information barriers. Has established, maintained, and enforced 
information barriers that are memorialized in written policies and 
procedures, such as physical separation of personnel, or functions, or 
limitations on types of activity, that are reasonably designed, taking 
into consideration the nature of the banking entity's business, to 
prevent the conflict of interest from involving or resulting in a 
materially adverse effect on a client, customer, or counterparty. A 
banking entity may not rely on such information barriers if, in the case 
of any specific transaction, class or type of transactions or activity, 
the banking entity knows or should reasonably know that, notwithstanding 
the banking entity's establishment of information barriers, the conflict 
of interest may involve or result in a materially adverse effect on a 
client, customer, or counterparty.
    (c) Definition of high-risk asset and high-risk trading strategy. 
For purposes of this section:
    (1) High-risk asset means an asset or group of related assets that 
would, if held by a banking entity, significantly increase the 
likelihood that the banking entity would incur a substantial financial 
loss or would pose a threat to the financial stability of the United 
States.
    (2) High-risk trading strategy means a trading strategy that would, 
if engaged in by a banking entity, significantly increase the likelihood 
that the banking entity would incur a substantial financial loss or 
would pose a threat to the financial stability of the United States.



Sec.Sec.255.8-255.9  [Reserved]



           Subpart C_Covered Funds Activities and Investments



Sec.255.10  Prohibition on acquiring or retaining an ownership
interest in and having certain relationships with a covered fund.

    (a) Prohibition. (1) Except as otherwise provided in this subpart, a 
banking entity may not, as principal, directly or indirectly, acquire or 
retain any ownership interest in or sponsor a covered fund.
    (2) Paragraph (a)(1) of this section does not include acquiring or 
retaining an ownership interest in a covered fund by a banking entity:
    (i) Acting solely as agent, broker, or custodian, so long as;
    (A) The activity is conducted for the account of, or on behalf of, a 
customer; and
    (B) The banking entity and its affiliates do not have or retain 
beneficial ownership of such ownership interest;
    (ii) Through a deferred compensation, stock-bonus, profit-sharing, 
or pension plan of the banking entity (or an affiliate thereof) that is 
established and administered in accordance with the law of the United 
States or a foreign sovereign, if the ownership interest is held or 
controlled directly or indirectly by the banking entity as trustee for 
the benefit of persons who are or were employees of the banking entity 
(or an affiliate thereof);
    (iii) In the ordinary course of collecting a debt previously 
contracted in good faith, provided that the banking entity divests the 
ownership interest as soon as practicable, and in no event may the 
banking entity retain such ownership interest for longer than such 
period permitted by the SEC; or
    (iv) On behalf of customers as trustee or in a similar fiduciary 
capacity for a customer that is not a covered fund, so long as:
    (A) The activity is conducted for the account of, or on behalf of, 
the customer; and
    (B) The banking entity and its affiliates do not have or retain 
beneficial ownership of such ownership interest.
    (b) Definition of covered fund. (1) Except as provided in paragraph 
(c) of this section, covered fund means:
    (i) An issuer that would be an investment company, as defined in the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), but for 
section 3(c)(1) or 3(c)(7) of that Act (15 U.S.C. 80a-3(c)(1) or (7));
    (ii) Any commodity pool under section 1a(10) of the Commodity 
Exchange Act (7 U.S.C. 1a(10)) for which:
    (A) The commodity pool operator has claimed an exemption under 17 
CFR 4.7; or

[[Page 1044]]

    (B)(1) A commodity pool operator is registered with the CFTC as a 
commodity pool operator in connection with the operation of the 
commodity pool;
    (2) Substantially all participation units of the commodity pool are 
owned by qualified eligible persons under 17 CFR 4.7(a)(2) and (3); and
    (3) Participation units of the commodity pool have not been publicly 
offered to persons who are not qualified eligible persons under 17 CFR 
4.7(a)(2) and (3); or
    (iii) For any banking entity that is, or is controlled directly or 
indirectly by a banking entity that is, located in or organized under 
the laws of the United States or of any State, an entity that:
    (A) Is organized or established outside the United States and the 
ownership interests of which are offered and sold solely outside the 
United States;
    (B) Is, or holds itself out as being, an entity or arrangement that 
raises money from investors primarily for the purpose of investing in 
securities for resale or other disposition or otherwise trading in 
securities; and
    (C)(1) Has as its sponsor that banking entity (or an affiliate 
thereof); or
    (2) Has issued an ownership interest that is owned directly or 
indirectly by that banking entity (or an affiliate thereof).
    (2) An issuer shall not be deemed to be a covered fund under 
paragraph (b)(1)(iii) of this section if, were the issuer subject to 
U.S. securities laws, the issuer could rely on an exclusion or exemption 
from the definition of ``investment company'' under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.) other than the exclusions 
contained in section 3(c)(1) and 3(c)(7) of that Act.
    (3) For purposes of paragraph (b)(1)(iii) of this section, a U.S. 
branch, agency, or subsidiary of a foreign banking entity is located in 
the United States; however, the foreign bank that operates or controls 
that branch, agency, or subsidiary is not considered to be located in 
the United States solely by virtue of operating or controlling the U.S. 
branch, agency, or subsidiary.
    (c) Notwithstanding paragraph (b) of this section, unless the 
appropriate Federal banking agencies, the SEC, and the CFTC jointly 
determine otherwise, a covered fund does not include:
    (1) Foreign public funds. (i) Subject to paragraphs (ii) and (iii) 
below, an issuer that:
    (A) Is organized or established outside of the United States;
    (B) Is authorized to offer and sell ownership interests to retail 
investors in the issuer's home jurisdiction; and
    (C) Sells ownership interests predominantly through one or more 
public offerings outside of the United States.
    (ii) With respect to a banking entity that is, or is controlled 
directly or indirectly by a banking entity that is, located in or 
organized under the laws of the United States or of any State and any 
issuer for which such banking entity acts as sponsor, the sponsoring 
banking entity may not rely on the exemption in paragraph (c)(1)(i) of 
this section for such issuer unless ownership interests in the issuer 
are sold predominantly to persons other than:
    (A) Such sponsoring banking entity;
    (B) Such issuer;
    (C) Affiliates of such sponsoring banking entity or such issuer; and
    (D) Directors and employees of such entities.
    (iii) For purposes of paragraph (c)(1)(i)(C) of this section, the 
term ``public offering'' means a distribution (as defined in Sec.
255.4(a)(3) of subpart B) of securities in any jurisdiction outside the 
United States to investors, including retail investors, provided that:
    (A) The distribution complies with all applicable requirements in 
the jurisdiction in which such distribution is being made;
    (B) The distribution does not restrict availability to investors 
having a minimum level of net worth or net investment assets; and
    (C) The issuer has filed or submitted, with the appropriate 
regulatory authority in such jurisdiction, offering disclosure documents 
that are publicly available.
    (2) Wholly-owned subsidiaries. An entity, all of the outstanding 
ownership interests of which are owned directly or indirectly by the 
banking entity (or an affiliate thereof), except that:
    (i) Up to five percent of the entity's outstanding ownership 
interests, less

[[Page 1045]]

any amounts outstanding under paragraph (c)(2)(ii) of this section, may 
be held by employees or directors of the banking entity or such 
affiliate (including former employees or directors if their ownership 
interest was acquired while employed by or in the service of the banking 
entity); and
    (ii) Up to 0.5 percent of the entity's outstanding ownership 
interests may be held by a third party if the ownership interest is 
acquired or retained by the third party for the purpose of establishing 
corporate separateness or addressing bankruptcy, insolvency, or similar 
concerns.
    (3) Joint ventures. A joint venture between a banking entity or any 
of its affiliates and one or more unaffiliated persons, provided that 
the joint venture:
    (i) Is comprised of no more than 10 unaffiliated co-venturers;
    (ii) Is in the business of engaging in activities that are 
permissible for the banking entity or affiliate, other than investing in 
securities for resale or other disposition; and
    (iii) Is not, and does not hold itself out as being, an entity or 
arrangement that raises money from investors primarily for the purpose 
of investing in securities for resale or other disposition or otherwise 
trading in securities.
    (4) Acquisition vehicles. An issuer:
    (i) Formed solely for the purpose of engaging in a bona fide merger 
or acquisition transaction; and
    (ii) That exists only for such period as necessary to effectuate the 
transaction.
    (5) Foreign pension or retirement funds. A plan, fund, or program 
providing pension, retirement, or similar benefits that is:
    (i) Organized and administered outside the United States;
    (ii) A broad-based plan for employees or citizens that is subject to 
regulation as a pension, retirement, or similar plan under the laws of 
the jurisdiction in which the plan, fund, or program is organized and 
administered; and
    (iii) Established for the benefit of citizens or residents of one or 
more foreign sovereigns or any political subdivision thereof.
    (6) Insurance company separate accounts. A separate account, 
provided that no banking entity other than the insurance company 
participates in the account's profits and losses.
    (7) Bank owned life insurance. A separate account that is used 
solely for the purpose of allowing one or more banking entities to 
purchase a life insurance policy for which the banking entity or 
entities is beneficiary, provided that no banking entity that purchases 
the policy:
    (i) Controls the investment decisions regarding the underlying 
assets or holdings of the separate account; or
    (ii) Participates in the profits and losses of the separate account 
other than in compliance with applicable requirements regarding bank 
owned life insurance.
    (8) Loan securitizations. (i) Scope. An issuing entity for asset-
backed securities that satisfies all the conditions of this paragraph 
(c)(8) and the assets or holdings of which are comprised solely of:
    (A) Loans as defined in Sec.255.2(t) of subpart A;
    (B) Rights or other assets designed to assure the servicing or 
timely distribution of proceeds to holders of such securities and rights 
or other assets that are related or incidental to purchasing or 
otherwise acquiring and holding the loans, provided that each asset 
meets the requirements of paragraph (c)(8)(iii) of this section;
    (C) Interest rate or foreign exchange derivatives that meet the 
requirements of paragraph (c)(8)(iv) of this section; and
    (D) Special units of beneficial interest and collateral certificates 
that meet the requirements of paragraph (c)(8)(v) of this section.
    (ii) Impermissible assets. For purposes of this paragraph (c)(8), 
the assets or holdings of the issuing entity shall not include any of 
the following:
    (A) A security, including an asset-backed security, or an interest 
in an equity or debt security other than as permitted in paragraph 
(c)(8)(iii) of this section;
    (B) A derivative, other than a derivative that meets the 
requirements of paragraph (c)(8)(iv) of this section; or
    (C) A commodity forward contract.
    (iii) Permitted securities. Notwithstanding paragraph (c)(8)(ii)(A) 
of this

[[Page 1046]]

section, the issuing entity may hold securities if those securities are:
    (A) Cash equivalents for purposes of the rights and assets in 
paragraph (c)(8)(i)(B) of this section; or
    (B) Securities received in lieu of debts previously contracted with 
respect to the loans supporting the asset-backed securities.
    (iv) Derivatives. The holdings of derivatives by the issuing entity 
shall be limited to interest rate or foreign exchange derivatives that 
satisfy all of the following conditions:
    (A) The written terms of the derivative directly relate to the 
loans, the asset-backed securities, or the contractual rights of other 
assets described in paragraph (c)(8)(i)(B) of this section; and
    (B) The derivatives reduce the interest rate and/or foreign exchange 
risks related to the loans, the asset-backed securities, or the 
contractual rights or other assets described in paragraph (c)(8)(i)(B) 
of this section.
    (v) Special units of beneficial interest and collateral 
certificates. The assets or holdings of the issuing entity may include 
collateral certificates and special units of beneficial interest issued 
by a special purpose vehicle, provided that:
    (A) The special purpose vehicle that issues the special unit of 
beneficial interest or collateral certificate meets the requirements in 
this paragraph (c)(8);
    (B) The special unit of beneficial interest or collateral 
certificate is used for the sole purpose of transferring to the issuing 
entity for the loan securitization the economic risks and benefits of 
the assets that are permissible for loan securitizations under this 
paragraph (c)(8) and does not directly or indirectly transfer any 
interest in any other economic or financial exposure;
    (C) The special unit of beneficial interest or collateral 
certificate is created solely to satisfy legal requirements or otherwise 
facilitate the structuring of the loan securitization; and
    (D) The special purpose vehicle that issues the special unit of 
beneficial interest or collateral certificate and the issuing entity are 
established under the direction of the same entity that initiated the 
loan securitization.
    (9) Qualifying asset-backed commercial paper conduits. (i) An 
issuing entity for asset-backed commercial paper that satisfies all of 
the following requirements:
    (A) The asset-backed commercial paper conduit holds only:
    (1) Loans and other assets permissible for a loan securitization 
under paragraph (c)(8)(i) of this section; and
    (2) Asset-backed securities supported solely by assets that are 
permissible for loan securitizations under paragraph (c)(8)(i) of this 
section and acquired by the asset-backed commercial paper conduit as 
part of an initial issuance either directly from the issuing entity of 
the asset-backed securities or directly from an underwriter in the 
distribution of the asset-backed securities;
    (B) The asset-backed commercial paper conduit issues only asset-
backed securities, comprised of a residual interest and securities with 
a legal maturity of 397 days or less; and
    (C) A regulated liquidity provider has entered into a legally 
binding commitment to provide full and unconditional liquidity coverage 
with respect to all of the outstanding asset-backed securities issued by 
the asset-backed commercial paper conduit (other than any residual 
interest) in the event that funds are required to redeem maturing asset-
backed securities.
    (ii) For purposes of this paragraph (c)(9), a regulated liquidity 
provider means:
    (A) A depository institution, as defined in section 3(c) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(c));
    (B) A bank holding company, as defined in section 2(a) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(a)), or a subsidiary 
thereof;
    (C) A savings and loan holding company, as defined in section 10a of 
the Home Owners' Loan Act (12 U.S.C. 1467a), provided all or 
substantially all of the holding company's activities are permissible 
for a financial holding company under section 4(k) of the Bank Holding 
Company Act of 1956 (12 U.S.C. 1843(k)), or a subsidiary thereof;
    (D) A foreign bank whose home country supervisor, as defined in 
Sec.211.21(q) of the Board's Regulation K (12 CFR

[[Page 1047]]

211.21(q)), has adopted capital standards consistent with the Capital 
Accord for the Basel Committee on banking Supervision, as amended, and 
that is subject to such standards, or a subsidiary thereof; or
    (E) The United States or a foreign sovereign.
    (10) Qualifying covered bonds--(i) Scope. An entity owning or 
holding a dynamic or fixed pool of loans or other assets as provided in 
paragraph (c)(8) of this section for the benefit of the holders of 
covered bonds, provided that the assets in the pool are comprised solely 
of assets that meet the conditions in paragraph (c)(8)(i) of this 
section.
    (ii) Covered bond. For purposes of this paragraph (c)(10), a covered 
bond means:
    (A) A debt obligation issued by an entity that meets the definition 
of foreign banking organization, the payment obligations of which are 
fully and unconditionally guaranteed by an entity that meets the 
conditions set forth in paragraph (c)(10)(i) of this section; or
    (B) A debt obligation of an entity that meets the conditions set 
forth in paragraph (c)(10)(i) of this section, provided that the payment 
obligations are fully and unconditionally guaranteed by an entity that 
meets the definition of foreign banking organization and the entity is a 
wholly-owned subsidiary, as defined in paragraph (c)(2) of this section, 
of such foreign banking organization.
    (11) SBICs and public welfare investment funds. An issuer:
    (i) That is a small business investment company, as defined in 
section 103(3) of the Small Business Investment Act of 1958 (15 U.S.C. 
662), or that has received from the Small Business Administration notice 
to proceed to qualify for a license as a small business investment 
company, which notice or license has not been revoked; or
    (ii) The business of which is to make investments that are:
    (A) Designed primarily to promote the public welfare, of the type 
permitted under paragraph (11) of section 5136 of the Revised Statutes 
of the United States (12 U.S.C. 24), including the welfare of low- and 
moderate-income communities or families (such as providing housing, 
services, or jobs); or
    (B) Qualified rehabilitation expenditures with respect to a 
qualified rehabilitated building or certified historic structure, as 
such terms are defined in section 47 of the Internal Revenue Code of 
1986 or a similar State historic tax credit program.
    (12) Registered investment companies and excluded entities. An 
issuer:
    (i) That is registered as an investment company under section 8 of 
the Investment Company Act of 1940 (15 U.S.C. 80a-8), or that is formed 
and operated pursuant to a written plan to become a registered 
investment company as described in Sec.255.20(e)(3) of subpart D and 
that complies with the requirements of section 18 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-18);
    (ii) That may rely on an exclusion or exemption from the definition 
of ``investment company'' under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.) other than the exclusions contained in section 
3(c)(1) and 3(c)(7) of that Act; or
    (iii) That has elected to be regulated as a business development 
company pursuant to section 54(a) of that Act (15 U.S.C. 80a-53) and has 
not withdrawn its election, or that is formed and operated pursuant to a 
written plan to become a business development company as described in 
Sec.255.20(e)(3) of subpart D and that complies with the requirements 
of section 61 of the Investment Company Act of 1940 (15 U.S.C. 80a-60).
    (13) Issuers in conjunction with the FDIC's receivership or 
conservatorship operations. An issuer that is an entity formed by or on 
behalf of the FDIC for the purpose of facilitating the disposal of 
assets acquired in the FDIC's capacity as conservator or receiver under 
the Federal Deposit Insurance Act or Title II of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act.
    (14) Other excluded issuers. (i) Any issuer that the appropriate 
Federal banking agencies, the SEC, and the CFTC jointly determine the 
exclusion of which is consistent with the purposes of section 13 of the 
BHC Act.
    (ii) A determination made under paragraph (c)(14)(i) of this section 
will be promptly made public.

[[Page 1048]]

    (d) Definition of other terms related to covered funds. For purposes 
of this subpart:
    (1) Applicable accounting standards means U.S. generally accepted 
accounting principles, or such other accounting standards applicable to 
a banking entity that the SEC determines are appropriate and that the 
banking entity uses in the ordinary course of its business in preparing 
its consolidated financial statements.
    (2) Asset-backed security has the meaning specified in Section 
3(a)(79) of the Exchange Act (15 U.S.C. 78c(a)(79).
    (3) Director has the same meaning as provided in section 215.2(d)(1) 
of the Board's Regulation O (12 CFR 215.2(d)(1)).
    (4) Issuer has the same meaning as in section 2(a)(22) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(22)).
    (5) Issuing entity means with respect to asset-backed securities the 
special purpose vehicle that owns or holds the pool assets underlying 
asset-backed securities and in whose name the asset-backed securities 
supported or serviced by the pool assets are issued.
    (6) Ownership interest--(i) Ownership interest means any equity, 
partnership, or other similar interest. An ``other similar interest'' 
means an interest that:
    (A) Has the right to participate in the selection or removal of a 
general partner, managing member, member of the board of directors or 
trustees, investment manager, investment adviser, or commodity trading 
advisor of the covered fund (excluding the rights of a creditor to 
exercise remedies upon the occurrence of an event of default or an 
acceleration event);
    (B) Has the right under the terms of the interest to receive a share 
of the income, gains or profits of the covered fund;
    (C) Has the right to receive the underlying assets of the covered 
fund after all other interests have been redeemed and/or paid in full 
(excluding the rights of a creditor to exercise remedies upon the 
occurrence of an event of default or an acceleration event);
    (D) Has the right to receive all or a portion of excess spread (the 
positive difference, if any, between the aggregate interest payments 
received from the underlying assets of the covered fund and the 
aggregate interest paid to the holders of other outstanding interests);
    (E) Provides under the terms of the interest that the amounts 
payable by the covered fund with respect to the interest could be 
reduced based on losses arising from the underlying assets of the 
covered fund, such as allocation of losses, write-downs or charge-offs 
of the outstanding principal balance, or reductions in the amount of 
interest due and payable on the interest;
    (F) Receives income on a pass-through basis from the covered fund, 
or has a rate of return that is determined by reference to the 
performance of the underlying assets of the covered fund; or
    (G) Any synthetic right to have, receive, or be allocated any of the 
rights in paragraphs (d)(6)(i)(A) through (F) of this section.
    (ii) Ownership interest does not include: Restricted profit 
interest. An interest held by an entity (or an employee or former 
employee thereof) in a covered fund for which the entity (or employee 
thereof) serves as investment manager, investment adviser, commodity 
trading advisor, or other service provider so long as:
    (A) The sole purpose and effect of the interest is to allow the 
entity (or employee or former employee thereof) to share in the profits 
of the covered fund as performance compensation for the investment 
management, investment advisory, commodity trading advisory, or other 
services provided to the covered fund by the entity (or employee or 
former employee thereof), provided that the entity (or employee or 
former employee thereof) may be obligated under the terms of such 
interest to return profits previously received;
    (B) All such profit, once allocated, is distributed to the entity 
(or employee or former employee thereof) promptly after being earned or, 
if not so distributed, is retained by the covered fund for the sole 
purpose of establishing a reserve amount to satisfy contractual 
obligations with respect to subsequent losses of the covered fund and 
such undistributed profit of the entity (or employee or former employee 
thereof)

[[Page 1049]]

does not share in the subsequent investment gains of the covered fund;
    (C) Any amounts invested in the covered fund, including any amounts 
paid by the entity (or employee or former employee thereof) in 
connection with obtaining the restricted profit interest, are within the 
limits of Sec.255.12 of this subpart; and
    (D) The interest is not transferable by the entity (or employee or 
former employee thereof) except to an affiliate thereof (or an employee 
of the banking entity or affiliate), to immediate family members, or 
through the intestacy, of the employee or former employee, or in 
connection with a sale of the business that gave rise to the restricted 
profit interest by the entity (or employee or former employee thereof) 
to an unaffiliated party that provides investment management, investment 
advisory, commodity trading advisory, or other services to the fund.
    (7) Prime brokerage transaction means any transaction that would be 
a covered transaction, as defined in section 23A(b)(7) of the Federal 
Reserve Act (12 U.S.C. 371c(b)(7)), that is provided in connection with 
custody, clearance and settlement, securities borrowing or lending 
services, trade execution, financing, or data, operational, and 
administrative support.
    (8) Resident of the United States means a person that is a ``U.S. 
person'' as defined in rule 902(k) of the SEC's Regulation S (17 CFR 
230.902(k)).
    (9) Sponsor means, with respect to a covered fund:
    (i) To serve as a general partner, managing member, or trustee of a 
covered fund, or to serve as a commodity pool operator with respect to a 
covered fund as defined in (b)(1)(ii) of this section;
    (ii) In any manner to select or to control (or to have employees, 
officers, or directors, or agents who constitute) a majority of the 
directors, trustees, or management of a covered fund; or
    (iii) To share with a covered fund, for corporate, marketing, 
promotional, or other purposes, the same name or a variation of the same 
name, except as permitted under Sec.255.11(a)(6).
    (10) Trustee. (i) For purposes of paragraph (d)(9) of this section 
and Sec.255.11 of subpart C, a trustee does not include:
    (A) A trustee that does not exercise investment discretion with 
respect to a covered fund, including a trustee that is subject to the 
direction of an unaffiliated named fiduciary who is not a trustee 
pursuant to section 403(a)(1) of the Employee's Retirement Income 
Security Act (29 U.S.C. 1103(a)(1)); or
    (B) A trustee that is subject to fiduciary standards imposed under 
foreign law that are substantially equivalent to those described in 
paragraph (d)(10)(i)(A) of this section;
    (ii) Any entity that directs a person described in paragraph 
(d)(10)(i) of this section, or that possesses authority and discretion 
to manage and control the investment decisions of a covered fund for 
which such person serves as trustee, shall be considered to be a trustee 
of such covered fund.

[79 FR 5779, 5805, Jan. 31, 2014, as amended at 84 FR 35022, July 22, 
2019; 84 FR 62244, Nov. 14, 2019]



Sec.255.11  Permitted organizing and offering, underwriting, 
and market making with respect to a covered fund.

    (a) Organizing and offering a covered fund in general. 
Notwithstanding Sec.255.10(a) of this subpart, a banking entity is not 
prohibited from acquiring or retaining an ownership interest in, or 
acting as sponsor to, a covered fund in connection with, directly or 
indirectly, organizing and offering a covered fund, including serving as 
a general partner, managing member, trustee, or commodity pool operator 
of the covered fund and in any manner selecting or controlling (or 
having employees, officers, directors, or agents who constitute) a 
majority of the directors, trustees, or management of the covered fund, 
including any necessary expenses for the foregoing, only if:
    (1) The banking entity (or an affiliate thereof) provides bona fide 
trust, fiduciary, investment advisory, or commodity trading advisory 
services;
    (2) The covered fund is organized and offered only in connection 
with the provision of bona fide trust, fiduciary, investment advisory, 
or commodity trading advisory services and only to persons that are 
customers of such

[[Page 1050]]

services of the banking entity (or an affiliate thereof), pursuant to a 
written plan or similar documentation outlining how the banking entity 
or such affiliate intends to provide advisory or similar services to its 
customers through organizing and offering such fund;
    (3) The banking entity and its affiliates do not acquire or retain 
an ownership interest in the covered fund except as permitted under 
Sec.255.12 of this subpart;
    (4) The banking entity and its affiliates comply with the 
requirements of Sec.255.14 of this subpart;
    (5) The banking entity and its affiliates do not, directly or 
indirectly, guarantee, assume, or otherwise insure the obligations or 
performance of the covered fund or of any covered fund in which such 
covered fund invests;
    (6) The covered fund, for corporate, marketing, promotional, or 
other purposes:
    (i) Does not share the same name or a variation of the same name 
with the banking entity (or an affiliate thereof) except that a covered 
fund may share the same name or a variation of the same name with a 
banking entity that is an investment adviser to the covered fund if:
    (A) The investment adviser is not an insured depository institution, 
a company that controls an insured depository institution, or a company 
that is treated as a bank holding company for purposes of section 8 of 
the International Banking Act of 1978 (12 U.S.C. 3106); and
    (B) The investment adviser does not share the same name or a 
variation of the same name as an insured depository institution, a 
company that controls an insured depository institution, or a company 
that is treated as a bank holding company for purposes of section 8 of 
the International Banking Act of 1978 (12 U.S.C. 3106); and
    (ii) Does not use the word ``bank'' in its name;
    (7) No director or employee of the banking entity (or an affiliate 
thereof) takes or retains an ownership interest in the covered fund, 
except for any director or employee of the banking entity or such 
affiliate who is directly engaged in providing investment advisory, 
commodity trading advisory, or other services to the covered fund at the 
time the director or employee takes the ownership interest; and
    (8) The banking entity:
    (i) Clearly and conspicuously discloses, in writing, to any 
prospective and actual investor in the covered fund (such as through 
disclosure in the covered fund's offering documents):
    (A) That ``any losses in [such covered fund] will be borne solely by 
investors in [the covered fund] and not by [the banking entity] or its 
affiliates; therefore, [the banking entity's] losses in [such covered 
fund] will be limited to losses attributable to the ownership interests 
in the covered fund held by [the banking entity] and any affiliate in 
its capacity as investor in the [covered fund] or as beneficiary of a 
restricted profit interest held by [the banking entity] or any 
affiliate'';
    (B) That such investor should read the fund offering documents 
before investing in the covered fund;
    (C) That the ``ownership interests in the covered fund are not 
insured by the FDIC, and are not deposits, obligations of, or endorsed 
or guaranteed in any way, by any banking entity'' (unless that happens 
to be the case); and
    (D) The role of the banking entity and its affiliates and employees 
in sponsoring or providing any services to the covered fund; and
    (ii) Complies with any additional rules of the appropriate Federal 
banking agencies, the SEC, or the CFTC, as provided in section 13(b)(2) 
of the BHC Act, designed to ensure that losses in such covered fund are 
borne solely by investors in the covered fund and not by the covered 
banking entity and its affiliates.
    (b) Organizing and offering an issuing entity of asset-backed 
securities. (1) Notwithstanding Sec.255.10(a) of this subpart, a 
banking entity is not prohibited from acquiring or retaining an 
ownership interest in, or acting as sponsor to, a covered fund that is 
an issuing entity of asset-backed securities in connection with, 
directly or indirectly, organizing and offering that issuing entity, so 
long as the banking entity and its affiliates comply with all of the 
requirements of paragraph (a)(3) through (8) of this section.

[[Page 1051]]

    (2) For purposes of this paragraph (b), organizing and offering a 
covered fund that is an issuing entity of asset-backed securities means 
acting as the securitizer, as that term is used in section 15G(a)(3) of 
the Exchange Act (15 U.S.C. 78o-11(a)(3)) of the issuing entity, or 
acquiring or retaining an ownership interest in the issuing entity as 
required by section 15G of that Act (15 U.S.C.78o-11) and the 
implementing regulations issued thereunder.
    (c) Underwriting and market making in ownership interests of a 
covered fund. The prohibition contained in Sec.255.10(a) of this 
subpart does not apply to a banking entity's underwriting activities or 
market making-related activities involving a covered fund so long as:
    (1) Those activities are conducted in accordance with the 
requirements of Sec.255.4(a) or Sec.255.4(b) of subpart B, 
respectively; and
    (2) With respect to any banking entity (or any affiliate thereof) 
that: Acts as a sponsor, investment adviser or commodity trading advisor 
to a particular covered fund or otherwise acquires and retains an 
ownership interest in such covered fund in reliance on paragraph (a) of 
this section; or acquires and retains an ownership interest in such 
covered fund and is either a securitizer, as that term is used in 
section 15G(a)(3) of the Exchange Act (15 U.S.C. 78o-11(a)(3)), or is 
acquiring and retaining an ownership interest in such covered fund in 
compliance with section 15G of that Act (15 U.S.C.78o-11) and the 
implementing regulations issued thereunder each as permitted by 
paragraph (b) of this section, then in each such case any ownership 
interests acquired or retained by the banking entity and its affiliates 
in connection with underwriting and market making related activities for 
that particular covered fund are included in the calculation of 
ownership interests permitted to be held by the banking entity and its 
affiliates under the limitations of Sec.255.12(a)(2)(ii); Sec.
255.12(a)(2)(iii), and Sec.255.12(d) of this subpart.

[79 FR 5779, 5805, Jan. 31, 2014, as amended at 84 FR 35022, July 22, 
2019; 84 FR 62244, Nov. 14, 2019]



Sec.255.12  Permitted investment in a covered fund.

    (a) Authority and limitations on permitted investments in covered 
funds. (1) Notwithstanding the prohibition contained in Sec.255.10(a) 
of this subpart, a banking entity may acquire and retain an ownership 
interest in a covered fund that the banking entity or an affiliate 
thereof organizes and offers pursuant to Sec.255.11, for the purposes 
of:
    (i) Establishment. Establishing the fund and providing the fund with 
sufficient initial equity for investment to permit the fund to attract 
unaffiliated investors, subject to the limits contained in paragraphs 
(a)(2)(i) and (iii) of this section; or
    (ii) De minimis investment. Making and retaining an investment in 
the covered fund subject to the limits contained in paragraphs 
(a)(2)(ii) and (iii) of this section.
    (2) Investment limits--(i) Seeding period. With respect to an 
investment in any covered fund made or held pursuant to paragraph 
(a)(1)(i) of this section, the banking entity and its affiliates:
    (A) Must actively seek unaffiliated investors to reduce, through 
redemption, sale, dilution, or other methods, the aggregate amount of 
all ownership interests of the banking entity in the covered fund to the 
amount permitted in paragraph (a)(2)(i)(B) of this section; and
    (B) Must, no later than 1 year after the date of establishment of 
the fund (or such longer period as may be provided by the Board pursuant 
to paragraph (e) of this section), conform its ownership interest in the 
covered fund to the limits in paragraph (a)(2)(ii) of this section;
    (ii) Per-fund limits. (A) Except as provided in paragraph 
(a)(2)(ii)(B) of this section, an investment by a banking entity and its 
affiliates in any covered fund made or held pursuant to paragraph 
(a)(1)(ii) of this section may not exceed 3 percent of the total number 
or value of the outstanding ownership interests of the fund.
    (B) An investment by a banking entity and its affiliates in a 
covered fund that is an issuing entity of asset-backed securities may 
not exceed 3 percent of the total fair market value of

[[Page 1052]]

the ownership interests of the fund measured in accordance with 
paragraph (b)(3) of this section, unless a greater percentage is 
retained by the banking entity and its affiliates in compliance with the 
requirements of section 15G of the Exchange Act (15 U.S.C. 78o-11) and 
the implementing regulations issued thereunder, in which case the 
investment by the banking entity and its affiliates in the covered fund 
may not exceed the amount, number, or value of ownership interests of 
the fund required under section 15G of the Exchange Act and the 
implementing regulations issued thereunder.
    (iii) Aggregate limit. The aggregate value of all ownership 
interests of the banking entity and its affiliates in all covered funds 
acquired or retained under this section may not exceed 3 percent of the 
tier 1 capital of the banking entity, as provided under paragraph (c) of 
this section, and shall be calculated as of the last day of each 
calendar quarter.
    (iv) Date of establishment. For purposes of this section, the date 
of establishment of a covered fund shall be:
    (A) In general. The date on which the investment adviser or similar 
entity to the covered fund begins making investments pursuant to the 
written investment strategy for the fund;
    (B) Issuing entities of asset-backed securities. In the case of an 
issuing entity of asset-backed securities, the date on which the assets 
are initially transferred into the issuing entity of asset-backed 
securities.
    (b) Rules of construction--(1) Attribution of ownership interests to 
a covered banking entity. (i) For purposes of paragraph (a)(2) of this 
section, the amount and value of a banking entity's permitted investment 
in any single covered fund shall include any ownership interest held 
under Sec.255_.12 directly by the banking entity, including any 
affiliate of the banking entity.
    (ii) Treatment of registered investment companies, SEC-regulated 
business development companies and foreign public funds. For purposes of 
paragraph (b)(1)(i) of this section, a registered investment company, 
SEC-regulated business development companies or foreign public fund as 
described in Sec.255_.10(c)(1) of this subpart will not be considered 
to be an affiliate of the banking entity so long as the banking entity:
    (A) Does not own, control, or hold with the power to vote 25 percent 
or more of the voting shares of the company or fund; and
    (B) Provides investment advisory, commodity trading advisory, 
administrative, and other services to the company or fund in compliance 
with the limitations under applicable regulation, order, or other 
authority.
    (iii) Covered funds. For purposes of paragraph (b)(1)(i) of this 
section, a covered fund will not be considered to be an affiliate of a 
banking entity so long as the covered fund is held in compliance with 
the requirements of this subpart.
    (iv) Treatment of employee and director investments financed by the 
banking entity. For purposes of paragraph (b)(1)(i) of this section, an 
investment by a director or employee of a banking entity who acquires an 
ownership interest in his or her personal capacity in a covered fund 
sponsored by the banking entity will be attributed to the banking entity 
if the banking entity, directly or indirectly, extends financing for the 
purpose of enabling the director or employee to acquire the ownership 
interest in the fund and the financing is used to acquire such ownership 
interest in the covered fund.
    (2) Calculation of permitted ownership interests in a single covered 
fund. Except as provided in paragraph (b)(3) or (4), for purposes of 
determining whether an investment in a single covered fund complies with 
the restrictions on ownership interests under paragraphs (a)(2)(i)(B) 
and (a)(2)(ii)(A) of this section:
    (i) The aggregate number of the outstanding ownership interests held 
by the banking entity shall be the total number of ownership interests 
held under this section by the banking entity in a covered fund divided 
by the total number of ownership interests held by all entities in that 
covered fund, as of the last day of each calendar quarter (both measured 
without regard to committed funds not yet called for investment);
    (ii) The aggregate value of the outstanding ownership interests held 
by

[[Page 1053]]

the banking entity shall be the aggregate fair market value of all 
investments in and capital contributions made to the covered fund by the 
banking entity, divided by the value of all investments in and capital 
contributions made to that covered fund by all entities, as of the last 
day of each calendar quarter (all measured without regard to committed 
funds not yet called for investment). If fair market value cannot be 
determined, then the value shall be the historical cost basis of all 
investments in and contributions made by the banking entity to the 
covered fund;
    (iii) For purposes of the calculation under paragraph (b)(2)(ii) of 
this section, once a valuation methodology is chosen, the banking entity 
must calculate the value of its investment and the investments of all 
others in the covered fund in the same manner and according to the same 
standards.
    (3) Issuing entities of asset-backed securities. In the case of an 
ownership interest in an issuing entity of asset-backed securities, for 
purposes of determining whether an investment in a single covered fund 
complies with the restrictions on ownership interests under paragraphs 
(a)(2)(i)(B) and (a)(2)(ii)(B) of this section:
    (i) For securitizations subject to the requirements of section 15G 
of the Exchange Act (15 U.S.C. 78o-11), the calculations shall be made 
as of the date and according to the valuation methodology applicable 
pursuant to the requirements of section 15G of the Exchange Act (15 
U.S.C. 78o-11) and the implementing regulations issued thereunder; or
    (ii) For securitization transactions completed prior to the 
compliance date of such implementing regulations (or as to which such 
implementing regulations do not apply), the calculations shall be made 
as of the date of establishment as defined in paragraph (a)(2)(iv)(B) of 
this section or such earlier date on which the transferred assets have 
been valued for purposes of transfer to the covered fund, and thereafter 
only upon the date on which additional securities of the issuing entity 
of asset-backed securities are priced for purposes of the sales of 
ownership interests to unaffiliated investors.
    (iii) For securitization transactions completed prior to the 
compliance date of such implementing regulations (or as to which such 
implementing regulations do not apply), the aggregate value of the 
outstanding ownership interests in the covered fund shall be the fair 
market value of the assets transferred to the issuing entity of the 
securitization and any other assets otherwise held by the issuing entity 
at such time, determined in a manner that is consistent with its 
determination of the fair market value of those assets for financial 
statement purposes.
    (iv) For purposes of the calculation under paragraph (b)(3)(iii) of 
this section, the valuation methodology used to calculate the fair 
market value of the ownership interests must be the same for both the 
ownership interests held by a banking entity and the ownership interests 
held by all others in the covered fund in the same manner and according 
to the same standards.
    (4) Multi-tier fund investments--(i) Master-feeder fund investments. 
If the principal investment strategy of a covered fund (the ``feeder 
fund'') is to invest substantially all of its assets in another single 
covered fund (the ``master fund''), then for purposes of the investment 
limitations in paragraphs (a)(2)(i)(B) and (a)(2)(ii) of this section, 
the banking entity's permitted investment in such funds shall be 
measured only by reference to the value of the master fund. The banking 
entity's permitted investment in the master fund shall include any 
investment by the banking entity in the master fund, as well as the 
banking entity's pro-rata share of any ownership interest of the master 
fund that is held through the feeder fund; and
    (ii) Fund-of-funds investments. If a banking entity organizes and 
offers a covered fund pursuant to Sec.255.11 of this subpart for the 
purpose of investing in other covered funds (a ``fund of funds'') and 
that fund of funds itself invests in another covered fund that the 
banking entity is permitted to own, then the banking entity's permitted 
investment in that other fund shall include any investment by the 
banking entity in that

[[Page 1054]]

other fund, as well as the banking entity's pro-rata share of any 
ownership interest of the fund that is held through the fund of funds. 
The investment of the banking entity may not represent more than 3 
percent of the amount or value of any single covered fund.
    (c) Aggregate permitted investments in all covered funds. (1) For 
purposes of paragraph (a)(2)(iii) of this section, the aggregate value 
of all ownership interests held by a banking entity shall be the sum of 
all amounts paid or contributed by the banking entity in connection with 
acquiring or retaining an ownership interest in covered funds (together 
with any amounts paid by the entity (or employee thereof) in connection 
with obtaining a restricted profit interest under Sec.
255_.10(d)(6)(ii) of this subpart), on a historical cost basis.
    (2) Calculation of tier 1 capital. For purposes of paragraph 
(a)(2)(iii) of this section:
    (i) Entities that are required to hold and report tier 1 capital. If 
a banking entity is required to calculate and report tier 1 capital, the 
banking entity's tier 1 capital shall be equal to the amount of tier 1 
capital of the banking entity as of the last day of the most recent 
calendar quarter, as reported to its primary financial regulatory 
agency; and
    (ii) If a banking entity is not required to calculate and report 
tier 1 capital, the banking entity's tier 1 capital shall be determined 
to be equal to:
    (A) In the case of a banking entity that is controlled, directly or 
indirectly, by a depository institution that calculates and reports tier 
1 capital, be equal to the amount of tier 1 capital reported by such 
controlling depository institution in the manner described in paragraph 
(c)(2)(i) of this section;
    (B) In the case of a banking entity that is not controlled, directly 
or indirectly, by a depository institution that calculates and reports 
tier 1 capital:
    (1) Bank holding company subsidiaries. If the banking entity is a 
subsidiary of a bank holding company or company that is treated as a 
bank holding company, be equal to the amount of tier 1 capital reported 
by the top-tier affiliate of such covered banking entity that calculates 
and reports tier 1 capital in the manner described in paragraph 
(c)(2)(i) of this section; and
    (2) Other holding companies and any subsidiary or affiliate thereof. 
If the banking entity is not a subsidiary of a bank holding company or a 
company that is treated as a bank holding company, be equal to the total 
amount of shareholders' equity of the top-tier affiliate within such 
organization as of the last day of the most recent calendar quarter that 
has ended, as determined under applicable accounting standards.
    (iii) Treatment of foreign banking entities--(A) Foreign banking 
entities. Except as provided in paragraph (c)(2)(iii)(B) of this 
section, with respect to a banking entity that is not itself, and is not 
controlled directly or indirectly by, a banking entity that is located 
or organized under the laws of the United States or of any State, the 
tier 1 capital of the banking entity shall be the consolidated tier 1 
capital of the entity as calculated under applicable home country 
standards.
    (B) U.S. affiliates of foreign banking entities. With respect to a 
banking entity that is located or organized under the laws of the United 
States or of any State and is controlled by a foreign banking entity 
identified under paragraph (c)(2)(iii)(A) of this section, the banking 
entity's tier 1 capital shall be as calculated under paragraphs 
(c)(2)(i) or (ii) of this section.
    (d) Capital treatment for a permitted investment in a covered fund. 
For purposes of calculating compliance with the applicable regulatory 
capital requirements, a banking entity shall deduct from the banking 
entity's tier 1 capital (as determined under paragraph (c)(2) of this 
section) the greater of:
    (1) The sum of all amounts paid or contributed by the banking entity 
in connection with acquiring or retaining an ownership interest 
(together with any amounts paid by the entity (or employee thereof) in 
connection with obtaining a restricted profit interest under Sec.
255_.10(d)(6)(ii) of subpart C), on a historical cost basis, plus any 
earnings received; and
    (2) The fair market value of the banking entity's ownership 
interests in the covered fund as determined under

[[Page 1055]]

paragraph (b)(2)(ii) or (b)(3) of this section (together with any 
amounts paid by the entity (or employee thereof) in connection with 
obtaining a restricted profit interest under Sec.255_.10(d)(6)(ii) of 
subpart C), if the banking entity accounts for the profits (or losses) 
of the fund investment in its financial statements.
    (e) Extension of time to divest an ownership interest. (1) Upon 
application by a banking entity, the Board may extend the period under 
paragraph (a)(2)(i) of this section for up to 2 additional years if the 
Board finds that an extension would be consistent with safety and 
soundness and not detrimental to the public interest. An application for 
extension must:
    (i) Be submitted to the Board at least 90 days prior to the 
expiration of the applicable time period;
    (ii) Provide the reasons for application, including information that 
addresses the factors in paragraph (e)(2) of this section; and
    (iii) Explain the banking entity's plan for reducing the permitted 
investment in a covered fund through redemption, sale, dilution or other 
methods as required in paragraph (a)(2) of this section.
    (2) Factors governing Board determinations. In reviewing any 
application under paragraph (e)(1) of this section, the Board may 
consider all the facts and circumstances related to the permitted 
investment in a covered fund, including:
    (i) Whether the investment would result, directly or indirectly, in 
a material exposure by the banking entity to high-risk assets or high-
risk trading strategies;
    (ii) The contractual terms governing the banking entity's interest 
in the covered fund;
    (iii) The date on which the covered fund is expected to have 
attracted sufficient investments from investors unaffiliated with the 
banking entity to enable the banking entity to comply with the 
limitations in paragraph (a)(2)(i) of this section;
    (iv) The total exposure of the covered banking entity to the 
investment and the risks that disposing of, or maintaining, the 
investment in the covered fund may pose to the banking entity and the 
financial stability of the United States;
    (v) The cost to the banking entity of divesting or disposing of the 
investment within the applicable period;
    (vi) Whether the investment or the divestiture or conformance of the 
investment would involve or result in a material conflict of interest 
between the banking entity and unaffiliated parties, including clients, 
customers or counterparties to which it owes a duty;
    (vii) The banking entity's prior efforts to reduce through 
redemption, sale, dilution, or other methods its ownership interests in 
the covered fund, including activities related to the marketing of 
interests in such covered fund;
    (viii) Market conditions; and
    (ix) Any other factor that the Board believes appropriate.
    (3) Authority to impose restrictions on activities or investment 
during any extension period. The Board may impose such conditions on any 
extension approved under paragraph (e)(1) of this section as the Board 
determines are necessary or appropriate to protect the safety and 
soundness of the banking entity or the financial stability of the United 
States, address material conflicts of interest or other unsound banking 
practices, or otherwise further the purposes of section 13 of the BHC 
Act and this part.
    (4) Consultation. In the case of a banking entity that is primarily 
regulated by another Federal banking agency, the SEC, or the CFTC, the 
Board will consult with such agency prior to acting on an application by 
the banking entity for an extension under paragraph (e)(1) of this 
section.

[79 FR 5779, 5805, Jan. 31, 2014, as amended at 84 FR 62244, Nov. 14, 
2019]



Sec.255.13  Other permitted covered fund activities and investments.

    (a) Permitted risk-mitigating hedging activities. (1) The 
prohibition contained in Sec.255.10(a) of this subpart does not apply 
with respect to an ownership interest in a covered fund acquired or 
retained by a banking entity that is designed to reduce or otherwise 
significantly mitigate the specific, identifiable risks to the banking 
entity in connection with:

[[Page 1056]]

    (i) A compensation arrangement with an employee of the banking 
entity or an affiliate thereof that directly provides investment 
advisory, commodity trading advisory or other services to the covered 
fund; or
    (ii) A position taken by the banking entity when acting as 
intermediary on behalf of a customer that is not itself a banking entity 
to facilitate the exposure by the customer to the profits and losses of 
the covered fund.
    (2) The risk-mitigating hedging activities of a banking entity are 
permitted under this paragraph (a) only if:
    (i) The banking entity has established and implements, maintains and 
enforces an internal compliance program in accordance with subpart D of 
this part that is reasonably designed to ensure the banking entity's 
compliance with the requirements of this section, including:
    (A) Reasonably designed written policies and procedures; and
    (B) Internal controls and ongoing monitoring, management, and 
authorization procedures, including relevant escalation procedures; and
    (ii) The acquisition or retention of the ownership interest:
    (A) Is made in accordance with the written policies, procedures, and 
internal controls required under this section;
    (B) At the inception of the hedge, is designed to reduce or 
otherwise significantly mitigate one or more specific, identifiable 
risks arising:
    (1) Out of a transaction conducted solely to accommodate a specific 
customer request with respect to the covered fund; or
    (2) In connection with the compensation arrangement with the 
employee that directly provides investment advisory, commodity trading 
advisory, or other services to the covered fund;
    (C) Does not give rise, at the inception of the hedge, to any 
significant new or additional risk that is not itself hedged 
contemporaneously in accordance with this section; and
    (D) Is subject to continuing review, monitoring and management by 
the banking entity.
    (iii) With respect to risk-mitigating hedging activity conducted 
pursuant to paragraph (a)(1)(i) of this section, the compensation 
arrangement relates solely to the covered fund in which the banking 
entity or any affiliate has acquired an ownership interest pursuant to 
paragraph (a)(1)(i) and such compensation arrangement provides that any 
losses incurred by the banking entity on such ownership interest will be 
offset by corresponding decreases in amounts payable under such 
compensation arrangement.
    (b) Certain permitted covered fund activities and investments 
outside of the United States. (1) The prohibition contained in Sec.
255.10(a) of this subpart does not apply to the acquisition or retention 
of any ownership interest in, or the sponsorship of, a covered fund by a 
banking entity only if:
    (i) The banking entity is not organized or directly or indirectly 
controlled by a banking entity that is organized under the laws of the 
United States or of one or more States;
    (ii) The activity or investment by the banking entity is pursuant to 
paragraph (9) or (13) of section 4(c) of the BHC Act;
    (iii) No ownership interest in the covered fund is offered for sale 
or sold to a resident of the United States; and
    (iv) The activity or investment occurs solely outside of the United 
States.
    (2) An activity or investment by the banking entity is pursuant to 
paragraph (9) or (13) of section 4(c) of the BHC Act for purposes of 
paragraph (b)(1)(ii) of this section only if:
    (i) The activity or investment is conducted in accordance with the 
requirements of this section; and
    (ii)(A) With respect to a banking entity that is a foreign banking 
organization, the banking entity meets the qualifying foreign banking 
organization requirements of section 211.23(a), (c) or (e) of the 
Board's Regulation K (12 CFR 211.23(a), (c) or (e)), as applicable; or
    (B) With respect to a banking entity that is not a foreign banking 
organization, the banking entity is not organized under the laws of the 
United States or of one or more States and the banking entity, on a 
fully-consolidated basis, meets at least two of the following 
requirements:

[[Page 1057]]

    (1) Total assets of the banking entity held outside of the United 
States exceed total assets of the banking entity held in the United 
States;
    (2) Total revenues derived from the business of the banking entity 
outside of the United States exceed total revenues derived from the 
business of the banking entity in the United States; or
    (3) Total net income derived from the business of the banking entity 
outside of the United States exceeds total net income derived from the 
business of the banking entity in the United States.
    (3) An ownership interest in a covered fund is not offered for sale 
or sold to a resident of the United States for purposes of paragraph 
(b)(1)(iii) of this section only if it is not sold and has not been sold 
pursuant to an offering that targets residents of the United States in 
which the banking entity or any affiliate of the banking entity 
participates. If the banking entity or an affiliate sponsors or serves, 
directly or indirectly, as the investment manager, investment adviser, 
commodity pool operator or commodity trading advisor to a covered fund, 
then the banking entity or affiliate will be deemed for purposes of this 
paragraph (b)(3) to participate in any offer or sale by the covered fund 
of ownership interests in the covered fund.
    (4) An activity or investment occurs solely outside of the United 
States for purposes of paragraph (b)(1)(iv) of this section only if:
    (i) The banking entity acting as sponsor, or engaging as principal 
in the acquisition or retention of an ownership interest in the covered 
fund, is not itself, and is not controlled directly or indirectly by, a 
banking entity that is located in the United States or organized under 
the laws of the United States or of any State;
    (ii) The banking entity (including relevant personnel) that makes 
the decision to acquire or retain the ownership interest or act as 
sponsor to the covered fund is not located in the United States or 
organized under the laws of the United States or of any State; and
    (iii) The investment or sponsorship, including any transaction 
arising from risk-mitigating hedging related to an ownership interest, 
is not accounted for as principal directly or indirectly on a 
consolidated basis by any branch or affiliate that is located in the 
United States or organized under the laws of the United States or of any 
State.
    (5) For purposes of this section, a U.S. branch, agency, or 
subsidiary of a foreign bank, or any subsidiary thereof, is located in 
the United States; however, a foreign bank of which that branch, agency, 
or subsidiary is a part is not considered to be located in the United 
States solely by virtue of operation of the U.S. branch, agency, or 
subsidiary.
    (c) Permitted covered fund interests and activities by a regulated 
insurance company. The prohibition contained in Sec.255.10(a) of this 
subpart does not apply to the acquisition or retention by an insurance 
company, or an affiliate thereof, of any ownership interest in, or the 
sponsorship of, a covered fund only if:
    (1) The insurance company or its affiliate acquires and retains the 
ownership interest solely for the general account of the insurance 
company or for one or more separate accounts established by the 
insurance company;
    (2) The acquisition and retention of the ownership interest is 
conducted in compliance with, and subject to, the insurance company 
investment laws and regulations of the State or jurisdiction in which 
such insurance company is domiciled; and
    (3) The appropriate Federal banking agencies, after consultation 
with the Financial Stability Oversight Council and the relevant 
insurance commissioners of the States and foreign jurisdictions, as 
appropriate, have not jointly determined, after notice and comment, that 
a particular law or regulation described in paragraph (c)(2) of this 
section is insufficient to protect the safety and soundness of the 
banking entity, or the financial stability of the United States.

[79 FR 5779, 5805, Jan. 31, 2014, as amended at 84 FR 62244, Nov. 14, 
2019]



Sec.255.14  Limitations on relationships with a covered fund.

    (a) Relationships with a covered fund. (1) Except as provided for in 
paragraph

[[Page 1058]]

(a)(2) of this section, no banking entity that serves, directly or 
indirectly, as the investment manager, investment adviser, commodity 
trading advisor, or sponsor to a covered fund, that organizes and offers 
a covered fund pursuant to Sec.255.11 of this subpart, or that 
continues to hold an ownership interest in accordance with Sec.
255.11(b) of this subpart, and no affiliate of such entity, may enter 
into a transaction with the covered fund, or with any other covered fund 
that is controlled by such covered fund, that would be a covered 
transaction as defined in section 23A of the Federal Reserve Act (12 
U.S.C. 371c(b)(7)), as if such banking entity and the affiliate thereof 
were a member bank and the covered fund were an affiliate thereof.
    (2) Notwithstanding paragraph (a)(1) of this section, a banking 
entity may:
    (i) Acquire and retain any ownership interest in a covered fund in 
accordance with the requirements of Sec.255.11, Sec.255.12, or Sec.
255.13 of this subpart; and
    (ii) Enter into any prime brokerage transaction with any covered 
fund in which a covered fund managed, sponsored, or advised by such 
banking entity (or an affiliate thereof) has taken an ownership 
interest, if:
    (A) The banking entity is in compliance with each of the limitations 
set forth in Sec.255.11 of this subpart with respect to a covered fund 
organized and offered by such banking entity (or an affiliate thereof);
    (B) The chief executive officer (or equivalent officer) of the 
banking entity certifies in writing annually no later than March 31 to 
the SEC (with a duty to update the certification if the information in 
the certification materially changes) that the banking entity does not, 
directly or indirectly, guarantee, assume, or otherwise insure the 
obligations or performance of the covered fund or of any covered fund in 
which such covered fund invests; and
    (C) The Board has not determined that such transaction is 
inconsistent with the safe and sound operation and condition of the 
banking entity.
    (b) Restrictions on transactions with covered funds. A banking 
entity that serves, directly or indirectly, as the investment manager, 
investment adviser, commodity trading advisor, or sponsor to a covered 
fund, or that organizes and offers a covered fund pursuant to Sec.
255.11 of this subpart, or that continues to hold an ownership interest 
in accordance with Sec.255.11(b) of this subpart, shall be subject to 
section 23B of the Federal Reserve Act (12 U.S.C. 371c-1), as if such 
banking entity were a member bank and such covered fund were an 
affiliate thereof.
    (c) Restrictions on prime brokerage transactions. A prime brokerage 
transaction permitted under paragraph (a)(2)(ii) of this section shall 
be subject to section 23B of the Federal Reserve Act (12 U.S.C. 371c-1) 
as if the counterparty were an affiliate of the banking entity.

[79 FR 5779, 5805, Jan. 31, 2014, as amended at 84 FR 62245, Nov. 14, 
2019]



Sec.255.15  Other limitations on permitted covered fund activities.

    (a) No transaction, class of transactions, or activity may be deemed 
permissible under Sec.Sec.255.11 through 255.13 of this subpart if 
the transaction, class of transactions, or activity would:
    (1) Involve or result in a material conflict of interest between the 
banking entity and its clients, customers, or counterparties;
    (2) Result, directly or indirectly, in a material exposure by the 
banking entity to a high-risk asset or a high-risk trading strategy; or
    (3) Pose a threat to the safety and soundness of the banking entity 
or to the financial stability of the United States.
    (b) Definition of material conflict of interest. (1) For purposes of 
this section, a material conflict of interest between a banking entity 
and its clients, customers, or counterparties exists if the banking 
entity engages in any transaction, class of transactions, or activity 
that would involve or result in the banking entity's interests being 
materially adverse to the interests of its client, customer, or 
counterparty with respect to such transaction, class of transactions, or 
activity, and the banking entity has not taken at least one of the 
actions in paragraph (b)(2) of this section.

[[Page 1059]]

    (2) Prior to effecting the specific transaction or class or type of 
transactions, or engaging in the specific activity, the banking entity:
    (i) Timely and effective disclosure. (A) Has made clear, timely, and 
effective disclosure of the conflict of interest, together with other 
necessary information, in reasonable detail and in a manner sufficient 
to permit a reasonable client, customer, or counterparty to meaningfully 
understand the conflict of interest; and
    (B) Such disclosure is made in a manner that provides the client, 
customer, or counterparty the opportunity to negate, or substantially 
mitigate, any materially adverse effect on the client, customer, or 
counterparty created by the conflict of interest; or
    (ii) Information barriers. Has established, maintained, and enforced 
information barriers that are memorialized in written policies and 
procedures, such as physical separation of personnel, or functions, or 
limitations on types of activity, that are reasonably designed, taking 
into consideration the nature of the banking entity's business, to 
prevent the conflict of interest from involving or resulting in a 
materially adverse effect on a client, customer, or counterparty. A 
banking entity may not rely on such information barriers if, in the case 
of any specific transaction, class or type of transactions or activity, 
the banking entity knows or should reasonably know that, notwithstanding 
the banking entity's establishment of information barriers, the conflict 
of interest may involve or result in a materially adverse effect on a 
client, customer, or counterparty.
    (c) Definition of high-risk asset and high-risk trading strategy. 
For purposes of this section:
    (1) High-risk asset means an asset or group of related assets that 
would, if held by a banking entity, significantly increase the 
likelihood that the banking entity would incur a substantial financial 
loss or would pose a threat to the financial stability of the United 
States.
    (2) High-risk trading strategy means a trading strategy that would, 
if engaged in by a banking entity, significantly increase the likelihood 
that the banking entity would incur a substantial financial loss or 
would pose a threat to the financial stability of the United States.



Sec.255.16  Ownership of interests in and sponsorship of issuers 
of certain collateralized debt obligations backed by trust-preferred
securities.

    (a) The prohibition contained in Sec.255.10(a)(1) does not apply 
to the ownership by a banking entity of an interest in, or sponsorship 
of, any issuer if:
    (1) The issuer was established, and the interest was issued, before 
May 19, 2010;
    (2) The banking entity reasonably believes that the offering 
proceeds received by the issuer were invested primarily in Qualifying 
TruPS Collateral; and
    (3) The banking entity acquired such interest on or before December 
10, 2013 (or acquired such interest in connection with a merger with or 
acquisition of a banking entity that acquired the interest on or before 
December 10, 2013).
    (b) For purposes of this Sec.255.16, Qualifying TruPS Collateral 
shall mean any trust preferred security or subordinated debt instrument 
issued prior to May 19, 2010 by a depository institution holding company 
that, as of the end of any reporting period within 12 months immediately 
preceding the issuance of such trust preferred security or subordinated 
debt instrument, had total consolidated assets of less than 
$15,000,000,000 or issued prior to May 19, 2010 by a mutual holding 
company.
    (c) Notwithstanding paragraph (a)(3) of this section, a banking 
entity may act as a market maker with respect to the interests of an 
issuer described in paragraph (a) of this section in accordance with the 
applicable provisions of Sec.Sec.255.4 and 255.11.
    (d) Without limiting the applicability of paragraph (a) of this 
section, the Board, the FDIC and the OCC will make public a non-
exclusive list of issuers that meet the requirements of paragraph (a). A 
banking entity may rely on the list published by the Board, the FDIC and 
the OCC.

[79 FR 5228, Jan. 31, 2014]

[[Page 1060]]



Sec.Sec.255.17-255.19  [Reserved]



          Subpart D_Compliance Program Requirement; Violations



Sec.255.20  Program for compliance; reporting

    (a) Program requirement. Each banking entity (other than a banking 
entity with limited trading assets and liabilities) shall develop and 
provide for the continued administration of a compliance program 
reasonably designed to ensure and monitor compliance with the 
prohibitions and restrictions on proprietary trading and covered fund 
activities and investments set forth in section 13 of the BHC Act and 
this part. The terms, scope, and detail of the compliance program shall 
be appropriate for the types, size, scope, and complexity of activities 
and business structure of the banking entity.
    (b) Banking entities with significant trading assets and 
liabilities. With respect to a banking entity with significant trading 
assets and liabilities, the compliance program required by paragraph (a) 
of this section, at a minimum, shall include:
    (1) Written policies and procedures reasonably designed to document, 
describe, monitor and limit trading activities subject to subpart B 
(including those permitted under Sec.Sec.255.3 to 255.6 of subpart 
B), including setting, monitoring and managing required limits set out 
in Sec.2554 and Sec.2555, and activities and investments with 
respect to a covered fund subject to subpart C (including those 
permitted under Sec.Sec.255.11 through 255.14 of subpart C) conducted 
by the banking entity to ensure that all activities and investments 
conducted by the banking entity that are subject to section 13 of the 
BHC Act and this part comply with section 13 of the BHC Act and this 
part;
    (2) A system of internal controls reasonably designed to monitor 
compliance with section 13 of the BHC Act and this part and to prevent 
the occurrence of activities or investments that are prohibited by 
section 13 of the BHC Act and this part;
    (3) A management framework that clearly delineates responsibility 
and accountability for compliance with section 13 of the BHC Act and 
this part and includes appropriate management review of trading limits, 
strategies, hedging activities, investments, incentive compensation and 
other matters identified in this part or by management as requiring 
attention;
    (4) Independent testing and audit of the effectiveness of the 
compliance program conducted periodically by qualified personnel of the 
banking entity or by a qualified outside party;
    (5) Training for trading personnel and managers, as well as other 
appropriate personnel, to effectively implement and enforce the 
compliance program; and
    (6) Records sufficient to demonstrate compliance with section 13 of 
the BHC Act and this part, which a banking entity must promptly provide 
to the SEC upon request and retain for a period of no less than 5 years 
or such longer period as required by the SEC.
    (c) CEO attestation. The CEO of a banking entity that has 
significant trading assets and liabilities must, based on a review by 
the CEO of the banking entity, attest in writing to the SEC, each year 
no later than March 31, that the banking entity has in place processes 
to establish, maintain, enforce, review, test and modify the compliance 
program required by paragraph (b) of this section in a manner reasonably 
designed to achieve compliance with section 13 of the BHC Act and this 
part. In the case of a U.S. branch or agency of a foreign banking 
entity, the attestation may be provided for the entire U.S. operations 
of the foreign banking entity by the senior management officer of the 
U.S. operations of the foreign banking entity who is located in the 
United States.
    (d) Reporting requirements under appendix A to this part. (1) A 
banking entity engaged in proprietary trading activity permitted under 
subpart B of this part shall comply with the reporting requirements 
described in appendix A to this part, if:
    (i) The banking entity has significant trading assets and 
liabilities; or
    (ii) The SEC notifies the banking entity in writing that it must 
satisfy the reporting requirements contained in appendix A to this part.
    (2) Frequency of reporting: Unless the SEC notifies the banking 
entity in

[[Page 1061]]

writing that it must report on a different basis, a banking entity 
subject to appendix A to this part shall report the information required 
by appendix A for each quarter within 30 days of the end of the quarter.
    (e) Additional documentation for covered funds. A banking entity 
with significant trading assets and liabilities shall maintain records 
that include:
    (1) Documentation of the exclusions or exemptions other than 
sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 
relied on by each fund sponsored by the banking entity (including all 
subsidiaries and affiliates) in determining that such fund is not a 
covered fund;
    (2) For each fund sponsored by the banking entity (including all 
subsidiaries and affiliates) for which the banking entity relies on one 
or more of the exclusions from the definition of covered fund provided 
by Sec.Sec.255.10(c)(1),255.10(c)(5), 255.10(c)(8), 255.10(c)(9), or 
255.10(c)(10) of subpart C, documentation supporting the banking 
entity's determination that the fund is not a covered fund pursuant to 
one or more of those exclusions;
    (3) For each seeding vehicle described in Sec.255.10(c)(12)(i) or 
(iii) of subpart C that will become a registered investment company or 
SEC-regulated business development company, a written plan documenting 
the banking entity's determination that the seeding vehicle will become 
a registered investment company or SEC-regulated business development 
company; the period of time during which the vehicle will operate as a 
seeding vehicle; and the banking entity's plan to market the vehicle to 
third-party investors and convert it into a registered investment 
company or SEC-regulated business development company within the time 
period specified in Sec.255.12(a)(2)(i)(B) of subpart C;
    (4) For any banking entity that is, or is controlled directly or 
indirectly by a banking entity that is, located in or organized under 
the laws of the United States or of any State, if the aggregate amount 
of ownership interests in foreign public funds that are described in 
Sec.255.10(c)(1) of subpart C owned by such banking entity (including 
ownership interests owned by any affiliate that is controlled directly 
or indirectly by a banking entity that is located in or organized under 
the laws of the United States or of any State) exceeds $50 million at 
the end of two or more consecutive calendar quarters, beginning with the 
next succeeding calendar quarter, documentation of the value of the 
ownership interests owned by the banking entity (and such affiliates) in 
each foreign public fund and each jurisdiction in which any such foreign 
public fund is organized, calculated as of the end of each calendar 
quarter, which documentation must continue until the banking entity's 
aggregate amount of ownership interests in foreign public funds is below 
$50 million for two consecutive calendar quarters; and
    (5) For purposes of paragraph (e)(4) of this section, a U.S. branch, 
agency, or subsidiary of a foreign banking entity is located in the 
United States; however, the foreign bank that operates or controls that 
branch, agency, or subsidiary is not considered to be located in the 
United States solely by virtue of operating or controlling the U.S. 
branch, agency, or subsidiary.
    (f) Simplified programs for less active banking entities--(1) 
Banking entities with no covered activities. A banking entity that does 
not engage in activities or investments pursuant to subpart B or subpart 
C (other than trading activities permitted pursuant to Sec.255.6(a) of 
subpart B) may satisfy the requirements of this section by establishing 
the required compliance program prior to becoming engaged in such 
activities or making such investments (other than trading activities 
permitted pursuant to Sec.255.6(a) of subpart B).
    (2) Banking entities with moderate trading assets and liabilities. A 
banking entity with moderate trading assets and liabilities may satisfy 
the requirements of this section by including in its existing compliance 
policies and procedures appropriate references to the requirements of 
section 13 of the BHC Act and this part and adjustments as appropriate 
given the activities, size, scope, and complexity of the banking entity.
    (g) Rebuttable presumption of compliance for banking entities with 
limited trading assets and liabilities--(1) Rebuttable presumption. 
Except as otherwise provided in this paragraph, a banking entity with 
limited trading assets and

[[Page 1062]]

liabilities shall be presumed to be compliant with subpart B and subpart 
C of this part and shall have no obligation to demonstrate compliance 
with this part on an ongoing basis.
    (2) Rebuttal of presumption. If upon examination or audit, the SEC 
determines that the banking entity has engaged in proprietary trading or 
covered fund activities that are otherwise prohibited under subpart B or 
subpart C of this part, the SEC may require the banking entity to be 
treated under this part as if it did not have limited trading assets and 
liabilities. The SEC's rebuttal of the presumption in this paragraph 
must be made in accordance with the notice and response procedures in 
paragraph (i) of this section.
    (h) Reservation of authority. Notwithstanding any other provision of 
this part, the SEC retains its authority to require a banking entity 
without significant trading assets and liabilities to apply any 
requirements of this part that would otherwise apply if the banking 
entity had significant or moderate trading assets and liabilities if the 
SEC determines that the size or complexity of the banking entity's 
trading or investment activities, or the risk of evasion of subpart B or 
subpart C of this part, does not warrant a presumption of compliance 
under paragraph (g) of this section or treatment as a banking entity 
with moderate trading assets and liabilities, as applicable. The SEC's 
exercise of this reservation of authority must be made in accordance 
with the notice and response procedures in paragraph (i) of this 
section.
    (i) Notice and response procedures--(1) Notice. The SEC will notify 
the banking entity in writing of any determination requiring notice 
under this part and will provide an explanation of the determination.
    (2) Response. The banking entity may respond to any or all items in 
the notice described in paragraph (i)(1) of this section. The response 
should include any matters that the banking entity would have the SEC 
consider in deciding whether to make the determination. The response 
must be in writing and delivered to the designated SEC official within 
30 days after the date on which the banking entity received the notice. 
The SEC may shorten the time period when, in the opinion of the SEC, the 
activities or condition of the banking entity so requires, provided that 
the banking entity is informed of the time period at the time of notice, 
or with the consent of the banking entity. In its discretion, the SEC 
may extend the time period for good cause.
    (3) Waiver. Failure to respond within 30 days or such other time 
period as may be specified by the SEC shall constitute a waiver of any 
objections to the SEC's determination.
    (4) Decision. The SEC will notify the banking entity of the decision 
in writing. The notice will include an explanation of the decision.

[79 FR 5779, 5805, Jan. 31, 2014, as amended at 84 FR 62245, Nov. 14, 
2019]



Sec.255.21  Termination of activities or investments; penalties 
for violations.

    (a) Any banking entity that engages in an activity or makes an 
investment in violation of section 13 of the BHC Act or this part, or 
acts in a manner that functions as an evasion of the requirements of 
section 13 of the BHC Act or this part, including through an abuse of 
any activity or investment permitted under subparts B or C, or otherwise 
violates the restrictions and requirements of section 13 of the BHC Act 
or this part, shall, upon discovery, promptly terminate the activity 
and, as relevant, dispose of the investment.
    (b) Whenever the SEC finds reasonable cause to believe any banking 
entity has engaged in an activity or made an investment in violation of 
section 13 of the BHC Act or this part, or engaged in any activity or 
made any investment that functions as an evasion of the requirements of 
section 13 of the BHC Act or this part, the SEC may take any action 
permitted by law to enforce compliance with section 13 of the BHC Act 
and this part, including directing the banking entity to restrict, 
limit, or terminate any or all activities under this part and dispose of 
any investment.



[[Page 1063]]



 Sec.Appendix A to Part 255--Reporting and Recordkeeping Requirements 
                     for Covered Trading Activities

                               I. Purpose

    a. This appendix sets forth reporting and recordkeeping requirements 
that certain banking entities must satisfy in connection with the 
restrictions on proprietary trading set forth in subpart B 
(``proprietary trading restrictions''). Pursuant to Sec.255.20(d), 
this appendix applies to a banking entity that, together with its 
affiliates and subsidiaries, has significant trading assets and 
liabilities. These entities are required to (i) furnish periodic reports 
to the SEC regarding a variety of quantitative measurements of their 
covered trading activities, which vary depending on the scope and size 
of covered trading activities, and (ii) create and maintain records 
documenting the preparation and content of these reports. The 
requirements of this appendix must be incorporated into the banking 
entity's internal compliance program under Sec.255.20.
    b. The purpose of this appendix is to assist banking entities and 
the SEC in:
    (1) Better understanding and evaluating the scope, type, and profile 
of the banking entity's covered trading activities;
    (2) Monitoring the banking entity's covered trading activities;
    (3) Identifying covered trading activities that warrant further 
review or examination by the banking entity to verify compliance with 
the proprietary trading restrictions;
    (4) Evaluating whether the covered trading activities of trading 
desks engaged in market making-related activities subject to Sec.
255.4(b) are consistent with the requirements governing permitted market 
making-related activities;
    (5) Evaluating whether the covered trading activities of trading 
desks that are engaged in permitted trading activity subject to Sec.
255.4, Sec.255.5, or Sec.255.6(a) and (b) (i.e., underwriting and 
market making-related activity, risk-mitigating hedging, or trading in 
certain government obligations) are consistent with the requirement that 
such activity not result, directly or indirectly, in a material exposure 
to high-risk assets or high-risk trading strategies;
    (6) Identifying the profile of particular covered trading activities 
of the banking entity, and the individual trading desks of the banking 
entity, to help establish the appropriate frequency and scope of 
examination by SEC of such activities; and
    (7) Assessing and addressing the risks associated with the banking 
entity's covered trading activities.
    c. Information that must be furnished pursuant to this appendix is 
not intended to serve as a dispositive tool for the identification of 
permissible or impermissible activities.
    d. In addition to the quantitative measurements required in this 
appendix, a banking entity may need to develop and implement other 
quantitative measurements in order to effectively monitor its covered 
trading activities for compliance with section 13 of the BHC Act and 
this part and to have an effective compliance program, as required by 
Sec.255.20. The effectiveness of particular quantitative measurements 
may differ based on the profile of the banking entity's businesses in 
general and, more specifically, of the particular trading desk, 
including types of instruments traded, trading activities and 
strategies, and history and experience (e.g., whether the trading desk 
is an established, successful market maker or a new entrant to a 
competitive market). In all cases, banking entities must ensure that 
they have robust measures in place to identify and monitor the risks 
taken in their trading activities, to ensure that the activities are 
within risk tolerances established by the banking entity, and to monitor 
and examine for compliance with the proprietary trading restrictions in 
this part.
    e. On an ongoing basis, banking entities must carefully monitor, 
review, and evaluate all furnished quantitative measurements, as well as 
any others that they choose to utilize in order to maintain compliance 
with section 13 of the BHC Act and this part. All measurement results 
that indicate a heightened risk of impermissible proprietary trading, 
including with respect to otherwise-permitted activities under 
Sec.Sec.255.4 through 255.6(a) and (b), or that result in a material 
exposure to high-risk assets or high-risk trading strategies, must be 
escalated within the banking entity for review, further analysis, 
explanation to SEC, and remediation, where appropriate. The quantitative 
measurements discussed in this appendix should be helpful to banking 
entities in identifying and managing the risks related to their covered 
trading activities.

                             II. Definitions

    The terms used in this appendix have the same meanings as set forth 
in Sec.Sec.255.2 and 255.3. In addition, for purposes of this 
appendix, the following definitions apply:
    Applicability identifies the trading desks for which a banking 
entity is required to calculate and report a particular quantitative 
measurement based on the type of covered trading activity conducted by 
the trading desk.
    Calculation period means the period of time for which a particular 
quantitative measurement must be calculated.
    Comprehensive profit and loss means the net profit or loss of a 
trading desk's material

[[Page 1064]]

sources of trading revenue over a specific period of time, including, 
for example, any increase or decrease in the market value of a trading 
desk's holdings, dividend income, and interest income and expense.
    Covered trading activity means trading conducted by a trading desk 
under Sec.255.4, Sec.255.5, Sec.255.6(a), or Sec.255.6(b). A 
banking entity may include in its covered trading activity trading 
conducted under Sec.255.3(d), Sec.255.6(c), Sec.255.6(d), or Sec.
255.6(e).
    Measurement frequency means the frequency with which a particular 
quantitative metric must be calculated and recorded.
    Trading day means a calendar day on which a trading desk is open for 
trading.

                    III. Reporting and Recordkeeping

                     a. Scope of Required Reporting

    1. Quantitative measurements. Each banking entity made subject to 
this appendix by Sec.255.20 must furnish the following quantitative 
measurements, as applicable, for each trading desk of the banking entity 
engaged in covered trading activities and calculate these quantitative 
measurements in accordance with this appendix:
    i. Internal Limits and Usage;
    ii. Value-at-Risk;
    iii. Comprehensive Profit and Loss Attribution;
    iv. Positions; and
    v. Transaction Volumes.
    2. Trading desk information. Each banking entity made subject to 
this appendix by Sec.255.20 must provide certain descriptive 
information, as further described in this appendix, regarding each 
trading desk engaged in covered trading activities.
    3. Quantitative measurements identifying information. Each banking 
entity made subject to this appendix by Sec.255.20 must provide 
certain identifying and descriptive information, as further described in 
this appendix, regarding its quantitative measurements.
    4. Narrative statement. Each banking entity made subject to this 
appendix by Sec.255.20 may provide an optional narrative statement, as 
further described in this appendix.
    5. File identifying information. Each banking entity made subject to 
this appendix by Sec.255.20 must provide file identifying information 
in each submission to the SEC pursuant to this appendix, including the 
name of the banking entity, the RSSD ID assigned to the top-tier banking 
entity by the Board, and identification of the reporting period and 
creation date and time.

                       b. Trading Desk Information

    1. Each banking entity must provide descriptive information 
regarding each trading desk engaged in covered trading activities, 
including:
    i. Name of the trading desk used internally by the banking entity 
and a unique identification label for the trading desk;
    ii. Identification of each type of covered trading activity in which 
the trading desk is engaged;
    iii. Brief description of the general strategy of the trading desk;
    v. A list identifying each Agency receiving the submission of the 
trading desk;
    2. Indication of whether each calendar date is a trading day or not 
a trading day for the trading desk; and
    3. Currency reported and daily currency conversion rate.

          c. Quantitative Measurements Identifying Information

    Each banking entity must provide the following information regarding 
the quantitative measurements:
    1. An Internal Limits Information Schedule that provides identifying 
and descriptive information for each limit reported pursuant to the 
Internal Limits and Usage quantitative measurement, including the name 
of the limit, a unique identification label for the limit, a description 
of the limit, the unit of measurement for the limit, the type of limit, 
and identification of the corresponding risk factor attribution in the 
particular case that the limit type is a limit on a risk factor 
sensitivity and profit and loss attribution to the same risk factor is 
reported; and
    2. A Risk Factor Attribution Information Schedule that provides 
identifying and descriptive information for each risk factor attribution 
reported pursuant to the Comprehensive Profit and Loss Attribution 
quantitative measurement, including the name of the risk factor or other 
factor, a unique identification label for the risk factor or other 
factor, a description of the risk factor or other factor, and the risk 
factor or other factor's change unit.

                         d. Narrative Statement

    Each banking entity made subject to this appendix by Sec.255.20 
may submit in a separate electronic document a Narrative Statement to 
the SEC with any information the banking entity views as relevant for 
assessing the information reported. The Narrative Statement may include 
further description of or changes to calculation methods, identification 
of material events, description of and reasons for changes in the 
banking entity's trading desk structure or trading desk strategies, and 
when any such changes occurred.

      e. Frequency and Method of Required Calculation and Reporting

    A banking entity must calculate any applicable quantitative 
measurement for each trading day. A banking entity must report

[[Page 1065]]

the Trading Desk Information, the Quantitative Measurements Identifying 
Information, and each applicable quantitative measurement electronically 
to the SEC on the reporting schedule established in Sec.255.20 unless 
otherwise requested by the Sec.A banking entity must report the Trading 
Desk Information, the Quantitative Measurements Identifying Information, 
and each applicable quantitative measurement to the SEC in accordance 
with the XML Schema specified and published on the SEC's website.

                            f. Recordkeeping

    A banking entity must, for any quantitative measurement furnished to 
the SEC pursuant to this appendix and Sec.255.20(d), create and 
maintain records documenting the preparation and content of these 
reports, as well as such information as is necessary to permit the SEC 
to verify the accuracy of such reports, for a period of five years from 
the end of the calendar year for which the measurement was taken. A 
banking entity must retain the Narrative Statement, the Trading Desk 
Information, and the Quantitative Measurements Identifying Information 
for a period of five years from the end of the calendar year for which 
the information was reported to the SEC.

                      IV. Quantitative Measurements

                     a. Risk-Management Measurements

                      1. Internal Limits and Usage

    i. Description: For purposes of this appendix, Internal Limits are 
the constraints that define the amount of risk and the positions that a 
trading desk is permitted to take at a point in time, as defined by the 
banking entity for a specific trading desk. Usage represents the value 
of the trading desk's risk or positions that are accounted for by the 
current activity of the desk. Internal limits and their usage are key 
compliance and risk management tools used to control and monitor risk 
taking and include, but are not limited to, the limits set out in 
Sec.Sec.255.4 and 255.5. A trading desk's risk limits, commonly 
including a limit on ``Value-at-Risk,'' are useful in the broader 
context of the trading desk's overall activities, particularly for the 
market making activities under Sec.255.4(b) and hedging activity under 
Sec.255.5. Accordingly, the limits required under Sec.Sec.
255.4(b)(2)(iii)(C) and 255.5(b)(1)(i)(A) must meet the applicable 
requirements under Sec.Sec.255.4(b)(2)(iii)(C) and 255.5(b)(1)(i)(A) 
and also must include appropriate metrics for the trading desk limits 
including, at a minimum, ``Value-at-Risk'' except to the extent the 
``Value-at-Risk'' metric is demonstrably ineffective for measuring and 
monitoring the risks of a trading desk based on the types of positions 
traded by, and risk exposures of, that desk.
    A. A banking entity must provide the following information for each 
limit reported pursuant to this quantitative measurement: The unique 
identification label for the limit reported in the Internal Limits 
Information Schedule, the limit size (distinguishing between an upper 
and a lower limit), and the value of usage of the limit.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks engaged in covered trading 
activities.

                            2. Value-at-Risk

    i. Description: For purposes of this appendix, Value-at-Risk 
(``VaR'') is the measurement of the risk of future financial loss in the 
value of a trading desk's aggregated positions at the ninety-nine 
percent confidence level over a one-day period, based on current market 
conditions.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks engaged in covered trading 
activities.

                    b. Source-of-Revenue Measurements

              1. Comprehensive Profit and Loss Attribution

    i. Description: For purposes of this appendix, Comprehensive Profit 
and Loss Attribution is an analysis that attributes the daily 
fluctuation in the value of a trading desk's positions to various 
sources. First, the daily profit and loss of the aggregated positions is 
divided into two categories: (i) Profit and loss attributable to a 
trading desk's existing positions that were also positions held by the 
trading desk as of the end of the prior day (``existing positions''); 
and (ii) profit and loss attributable to new positions resulting from 
the current day's trading activity (``new positions'').
    A. The comprehensive profit and loss associated with existing 
positions must reflect changes in the value of these positions on the 
applicable day. The comprehensive profit and loss from existing 
positions must be further attributed, as applicable, to (i) changes in 
the specific risk factors and other factors that are monitored and 
managed as part of the trading desk's overall risk management policies 
and procedures; and (ii) any other applicable elements, such as cash 
flows, carry, changes in reserves, and the correction, cancellation, or 
exercise of a trade.
    B. For the attribution of comprehensive profit and loss from 
existing positions to specific risk factors and other factors, a banking 
entity must provide the following information for the factors that 
explain the preponderance of the profit or loss changes due

[[Page 1066]]

to risk factor changes: The unique identification label for the risk 
factor or other factor listed in the Risk Factor Attribution Information 
Schedule, and the profit or loss due to the risk factor or other factor 
change.
    C. The comprehensive profit and loss attributed to new positions 
must reflect commissions and fee income or expense and market gains or 
losses associated with transactions executed on the applicable day. New 
positions include purchases and sales of financial instruments and other 
assets/liabilities and negotiated amendments to existing positions. The 
comprehensive profit and loss from new positions may be reported in the 
aggregate and does not need to be further attributed to specific 
sources.
    D. The portion of comprehensive profit and loss from existing 
positions that is not attributed to changes in specific risk factors and 
other factors must be allocated to a residual category. Significant 
unexplained profit and loss must be escalated for further investigation 
and analysis.
    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks engaged in covered trading 
activities.

            c. Positions and Transaction Volumes Measurements

                              1. Positions

    i. Description: For purposes of this appendix, Positions is the 
value of securities and derivatives positions managed by the trading 
desk. For purposes of the Positions quantitative measurement, do not 
include in the Positions calculation for ``securities'' those securities 
that are also ``derivatives,'' as those terms are defined under subpart 
A; instead, report those securities that are also derivatives as 
``derivatives.'' \1\ A banking entity must separately report the trading 
desk's market value of long securities positions, short securities 
positions, derivatives receivables, and derivatives payables.
---------------------------------------------------------------------------

    \1\ See Sec.255.2(h), (aa). For example, under this part, a 
security-based swap is both a ``security'' and a ``derivative.'' For 
purposes of the Positions quantitative measurement, security-based swaps 
are reported as derivatives rather than securities.
---------------------------------------------------------------------------

    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks that rely on Sec.255.4(a) or 
(b) to conduct underwriting activity or market-making-related activity, 
respectively.

                         2. Transaction Volumes

    i. Description: For purposes of this appendix, Transaction Volumes 
measures three exclusive categories of covered trading activity 
conducted by a trading desk. A banking entity is required to report the 
value and number of security and derivative transactions conducted by 
the trading desk with: (i) Customers, excluding internal transactions; 
(ii) non-customers, excluding internal transactions; and (iii) trading 
desks and other organizational units where the transaction is booked 
into either the same banking entity or an affiliated banking entity. For 
securities, value means gross market value. For derivatives, value means 
gross notional value. For purposes of calculating the Transaction 
Volumes quantitative measurement, do not include in the Transaction 
Volumes calculation for ``securities'' those securities that are also 
``derivatives,'' as those terms are defined under subpart A; instead, 
report those securities that are also derivatives as ``derivatives.'' 
\2\ Further, for purposes of the Transaction Volumes quantitative 
measurement, a customer of a trading desk that relies on Sec.255.4(a) 
to conduct underwriting activity is a market participant identified in 
Sec.255.4(a)(7), and a customer of a trading desk that relies on Sec.
255.4(b) to conduct market making-related activity is a market 
participant identified in Sec.255.4(b)(3).
---------------------------------------------------------------------------

    \2\ See Sec.255.2(h), (aa).
---------------------------------------------------------------------------

    ii. Calculation Period: One trading day.
    iii. Measurement Frequency: Daily.
    iv. Applicability: All trading desks that rely on Sec.255.4(a) or 
(b) to conduct underwriting activity or market-making-related activity, 
respectively.

[84 FR 62246, Nov. 14, 2019]



 Sec.Appendix Z to Part 255--Proprietary Trading and Certain Interests 
    in and Relationships With Covered Funds (Alternative Compliance)

    Note: The content of this appendix reproduces the regulation 
implementing Section 13 of the Bank Holding Company Act as of November 
13, 2019.

                  Subpart A--Authority and Definitions

Sec.255.1 Authority, purpose, scope, and relationship to other 
          authorities.
    (a) Authority. This part is issued by the SEC under section 13 of 
the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1851).
    (b) Purpose. Section 13 of the Bank Holding Company Act establishes 
prohibitions and restrictions on proprietary trading and investments in 
or relationships with covered funds by certain banking entities, 
including registered broker-dealers, registered investment advisers, and 
registered security-based swap dealers, among others identified in 
section 2(12)(B) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (12 U.S.C. 5301(12)(B)). This part implements

[[Page 1067]]

section 13 of the Bank Holding Company Act by defining terms used in the 
statute and related terms, establishing prohibitions and restrictions on 
proprietary trading and investments in or relationships with covered 
funds, and explaining the statute's requirements.
    (c) Scope. This part implements section 13 of the Bank Holding 
Company Act with respect to banking entities for which the SEC is the 
primary financial regulatory agency, as defined in this part, but does 
not include such entities to the extent they are not within the 
definition of banking entity in Sec.255.2(c).
    (d) Relationship to other authorities. Except as otherwise provided 
under section 13 of the Bank Holding Company Act, and notwithstanding 
any other provision of law, the prohibitions and restrictions under 
section 13 of Bank Holding Company Act shall apply to the activities and 
investments of a banking entity identified in paragraph (c) of this 
section, even if such activities and investments are authorized for the 
banking entity under other applicable provisions of law.
    (e) Preservation of authority. Nothing in this part limits in any 
way the authority of the SEC to impose on a banking entity identified in 
paragraph (c) of this section additional requirements or restrictions 
with respect to any activity, investment, or relationship covered under 
section 13 of the Bank Holding Company Act or this part, or additional 
penalties for violation of this part provided under any other applicable 
provision of law.

Sec.255.2 Definitions.
    Unless otherwise specified, for purposes of this part:
    (a) Affiliate has the same meaning as in section 2(k) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
    (b) Bank holding company has the same meaning as in section 2 of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1841).
    (c) Banking entity. (1) Except as provided in paragraph (c)(2) of 
this section, banking entity means:
    (i) Any insured depository institution;
    (ii) Any company that controls an insured depository institution;
    (iii) Any company that is treated as a bank holding company for 
purposes of section 8 of the International Banking Act of 1978 (12 
U.S.C. 3106); and
    (iv) Any affiliate or subsidiary of any entity described in 
paragraphs (c)(1)(i), (ii), or (iii) of this section.
    (2) Banking entity does not include:
    (i) A covered fund that is not itself a banking entity under 
paragraphs (c)(1)(i), (ii), or (iii) of this section;
    (ii) A portfolio company held under the authority contained in 
section 4(k)(4)(H) or (I) of the BHC Act (12 U.S.C. 1843(k)(4)(H), (I)), 
or any portfolio concern, as defined under 13 CFR 107.50, that is 
controlled by a small business investment company, as defined in section 
103(3) of the Small Business Investment Act of 1958 (15 U.S.C. 662), so 
long as the portfolio company or portfolio concern is not itself a 
banking entity under paragraphs (c)(1)(i), (ii), or (iii) of this 
section; or
    (iii) The FDIC acting in its corporate capacity or as conservator or 
receiver under the Federal Deposit Insurance Act or Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act.
    (d) Board means the Board of Governors of the Federal Reserve 
System.
    (e) CFTC means the Commodity Futures Trading Commission.
    (f) Dealer has the same meaning as in section 3(a)(5) of the 
Exchange Act (15 U.S.C. 78c(a)(5)).
    (g) Depository institution has the same meaning as in section 3(c) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    (h) Derivative. (1) Except as provided in paragraph (h)(2) of this 
section, derivative means:
    (i) Any swap, as that term is defined in section 1a(47) of the 
Commodity Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as 
that term is defined in section 3(a)(68) of the Exchange Act (15 U.S.C. 
78c(a)(68));
    (ii) Any purchase or sale of a commodity, that is not an excluded 
commodity, for deferred shipment or delivery that is intended to be 
physically settled;
    (iii) Any foreign exchange forward (as that term is defined in 
section 1a(24) of the Commodity Exchange Act (7 U.S.C. 1a(24)) or 
foreign exchange swap (as that term is defined in section 1a(25) of the 
Commodity Exchange Act (7 U.S.C. 1a(25));
    (iv) Any agreement, contract, or transaction in foreign currency 
described in section 2(c)(2)(C)(i) of the Commodity Exchange Act (7 
U.S.C. 2(c)(2)(C)(i));
    (v) Any agreement, contract, or transaction in a commodity other 
than foreign currency described in section 2(c)(2)(D)(i) of the 
Commodity Exchange Act (7 U.S.C. 2(c)(2)(D)(i)); and
    (vi) Any transaction authorized under section 19 of the Commodity 
Exchange Act (7 U.S.C. 23(a) or (b));
    (2) A derivative does not include:
    (i) Any consumer, commercial, or other agreement, contract, or 
transaction that the CFTC and the SEC have further defined by joint 
regulation, interpretation, guidance, or other action as not within the 
definition of swap, as that term is defined in section 1a(47) of the 
Commodity Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as 
that term is defined in section 3(a)(68) of the Exchange Act (15 U.S.C. 
78c(a)(68)); or
    (ii) Any identified banking product, as defined in section 402(b) of 
the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27(b)), that 
is subject to section 403(a) of that Act (7 U.S.C. 27a(a)).

[[Page 1068]]

    (i) Employee includes a member of the immediate family of the 
employee.
    (j) Exchange Act means the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.).
    (k) Excluded commodity has the same meaning as in section 1a(19) of 
the Commodity Exchange Act (7 U.S.C. 1a(19)).
    (l) FDIC means the Federal Deposit Insurance Corporation.
    (m) Federal banking agencies means the Board, the Office of the 
Comptroller of the Currency, and the FDIC.
    (n) Foreign banking organization has the same meaning as in section 
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)), but does not 
include a foreign bank, as defined in section 1(b)(7) of the 
International Banking Act of 1978 (12 U.S.C. 3101(7)), that is organized 
under the laws of the Commonwealth of Puerto Rico, Guam, American Samoa, 
the United States Virgin Islands, or the Commonwealth of the Northern 
Mariana Islands.
    (o) Foreign insurance regulator means the insurance commissioner, or 
a similar official or agency, of any country other than the United 
States that is engaged in the supervision of insurance companies under 
foreign insurance law.
    (p) General account means all of the assets of an insurance company 
except those allocated to one or more separate accounts.
    (q) Insurance company means a company that is organized as an 
insurance company, primarily and predominantly engaged in writing 
insurance or reinsuring risks underwritten by insurance companies, 
subject to supervision as such by a state insurance regulator or a 
foreign insurance regulator, and not operated for the purpose of evading 
the provisions of section 13 of the BHC Act (12 U.S.C. 1851).
    (r) Insured depository institution, unless otherwise indicated, has 
the same meaning as in section 3(c) of the Federal Deposit Insurance Act 
(12 U.S.C. 1813(c)), but does not include:
    (1) An insured depository institution that is described in section 
2(c)(2)(D) of the BHC Act (12 U.S.C. 1841(c)(2)(D)); or
    (2) An insured depository institution if it has, and if every 
company that controls it has, total consolidated assets of $10 billion 
or less and total trading assets and trading liabilities, on a 
consolidated basis, that are 5 percent or less of total consolidated 
assets.
    (s) Loan means any loan, lease, extension of credit, or secured or 
unsecured receivable that is not a security or derivative.
    (t) Primary financial regulatory agency has the same meaning as in 
section 2(12) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (12 U.S.C. 5301(12)).
    (u) Purchase includes any contract to buy, purchase, or otherwise 
acquire. For security futures products, purchase includes any contract, 
agreement, or transaction for future delivery. With respect to a 
commodity future, purchase includes any contract, agreement, or 
transaction for future delivery. With respect to a derivative, purchase 
includes the execution, termination (prior to its scheduled maturity 
date), assignment, exchange, or similar transfer or conveyance of, or 
extinguishing of rights or obligations under, a derivative, as the 
context may require.
    (v) Qualifying foreign banking organization means a foreign banking 
organization that qualifies as such under section 211.23(a), (c) or (e) 
of the Board's Regulation K (12 CFR 211.23(a), (c), or (e)).
    (w) SEC means the Securities and Exchange Commission.
    (x) Sale and sell each include any contract to sell or otherwise 
dispose of. For security futures products, such terms include any 
contract, agreement, or transaction for future delivery. With respect to 
a commodity future, such terms include any contract, agreement, or 
transaction for future delivery. With respect to a derivative, such 
terms include the execution, termination (prior to its scheduled 
maturity date), assignment, exchange, or similar transfer or conveyance 
of, or extinguishing of rights or obligations under, a derivative, as 
the context may require.
    (y) Security has the meaning specified in section 3(a)(10) of the 
Exchange Act (15 U.S.C. 78c(a)(10)).
    (z) Security-based swap dealer has the same meaning as in section 
3(a)(71) of the Exchange Act (15 U.S.C. 78c(a)(71)).
    (aa) Security future has the meaning specified in section 3(a)(55) 
of the Exchange Act (15 U.S.C. 78c(a)(55)).
    (bb) Separate account means an account established and maintained by 
an insurance company in connection with one or more insurance contracts 
to hold assets that are legally segregated from the insurance company's 
other assets, under which income, gains, and losses, whether or not 
realized, from assets allocated to such account, are, in accordance with 
the applicable contract, credited to or charged against such account 
without regard to other income, gains, or losses of the insurance 
company.
    (cc) State means any State, the District of Columbia, the 
Commonwealth of Puerto Rico, Guam, American Samoa, the United States 
Virgin Islands, and the Commonwealth of the Northern Mariana Islands.
    (dd) Subsidiary has the same meaning as in section 2(d) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(d)).
    (ee) State insurance regulator means the insurance commissioner, or 
a similar official or agency, of a State that is engaged in the 
supervision of insurance companies under State insurance law.
    (ff) Swap dealer has the same meaning as in section 1(a)(49) of the 
Commodity Exchange Act (7 U.S.C. 1a(49)).

[[Page 1069]]

                     Subpart B--Proprietary Trading

Sec.255.3 Prohibition on proprietary trading.
    (a) Prohibition. Except as otherwise provided in this subpart, a 
banking entity may not engage in proprietary trading. Proprietary 
trading means engaging as principal for the trading account of the 
banking entity in any purchase or sale of one or more financial 
instruments.
    (b) Definition of trading account. (1) Trading account means any 
account that is used by a banking entity to:
    (i) Purchase or sell one or more financial instruments principally 
for the purpose of:
    (A) Short-term resale;
    (B) Benefitting from actual or expected short-term price movements;
    (C) Realizing short-term arbitrage profits; or
    (D) Hedging one or more positions resulting from the purchases or 
sales of financial instruments described in paragraphs (b)(1)(i)(A), 
(B), or (C) of this section;
    (ii) Purchase or sell one or more financial instruments that are 
both market risk capital rule covered positions and trading positions 
(or hedges of other market risk capital rule covered positions), if the 
banking entity, or any affiliate of the banking entity, is an insured 
depository institution, bank holding company, or savings and loan 
holding company, and calculates risk-based capital ratios under the 
market risk capital rule; or
    (iii) Purchase or sell one or more financial instruments for any 
purpose, if the banking entity:
    (A) Is licensed or registered, or is required to be licensed or 
registered, to engage in the business of a dealer, swap dealer, or 
security-based swap dealer, to the extent the instrument is purchased or 
sold in connection with the activities that require the banking entity 
to be licensed or registered as such; or
    (B) Is engaged in the business of a dealer, swap dealer, or 
security-based swap dealer outside of the United States, to the extent 
the instrument is purchased or sold in connection with the activities of 
such business.
    (2) Rebuttable presumption for certain purchases and sales. The 
purchase (or sale) of a financial instrument by a banking entity shall 
be presumed to be for the trading account of the banking entity under 
paragraph (b)(1)(i) of this section if the banking entity holds the 
financial instrument for fewer than sixty days or substantially 
transfers the risk of the financial instrument within sixty days of the 
purchase (or sale), unless the banking entity can demonstrate, based on 
all relevant facts and circumstances, that the banking entity did not 
purchase (or sell) the financial instrument principally for any of the 
purposes described in paragraph (b)(1)(i) of this section.
    (c) Financial instrument. (1) Financial instrument means:
    (i) A security, including an option on a security;
    (ii) A derivative, including an option on a derivative; or
    (iii) A contract of sale of a commodity for future delivery, or 
option on a contract of sale of a commodity for future delivery.
    (2) A financial instrument does not include:
    (i) A loan;
    (ii) A commodity that is not:
    (A) An excluded commodity (other than foreign exchange or currency);
    (B) A derivative;
    (C) A contract of sale of a commodity for future delivery; or
    (D) An option on a contract of sale of a commodity for future 
delivery; or
    (iii) Foreign exchange or currency.
    (d) Proprietary trading. Proprietary trading does not include:
    (1) Any purchase or sale of one or more financial instruments by a 
banking entity that arises under a repurchase or reverse repurchase 
agreement pursuant to which the banking entity has simultaneously 
agreed, in writing, to both purchase and sell a stated asset, at stated 
prices, and on stated dates or on demand with the same counterparty;
    (2) Any purchase or sale of one or more financial instruments by a 
banking entity that arises under a transaction in which the banking 
entity lends or borrows a security temporarily to or from another party 
pursuant to a written securities lending agreement under which the 
lender retains the economic interests of an owner of such security, and 
has the right to terminate the transaction and to recall the loaned 
security on terms agreed by the parties;
    (3) Any purchase or sale of a security by a banking entity for the 
purpose of liquidity management in accordance with a documented 
liquidity management plan of the banking entity that:
    (i) Specifically contemplates and authorizes the particular 
securities to be used for liquidity management purposes, the amount, 
types, and risks of these securities that are consistent with liquidity 
management, and the liquidity circumstances in which the particular 
securities may or must be used;
    (ii) Requires that any purchase or sale of securities contemplated 
and authorized by the plan be principally for the purpose of managing 
the liquidity of the banking entity, and not for the purpose of short-
term resale, benefitting from actual or expected short-term price 
movements, realizing short-term arbitrage profits, or hedging a position 
taken for such short-term purposes;
    (iii) Requires that any securities purchased or sold for liquidity 
management purposes be highly liquid and limited to securities the 
market, credit, and other risks of which the banking entity does not 
reasonably expect to

[[Page 1070]]

give rise to appreciable profits or losses as a result of short-term 
price movements;
    (iv) Limits any securities purchased or sold for liquidity 
management purposes, together with any other instruments purchased or 
sold for such purposes, to an amount that is consistent with the banking 
entity's near-term funding needs, including deviations from normal 
operations of the banking entity or any affiliate thereof, as estimated 
and documented pursuant to methods specified in the plan;
    (v) Includes written policies and procedures, internal controls, 
analysis, and independent testing to ensure that the purchase and sale 
of securities that are not permitted under Sec.Sec.255.6(a) or (b) of 
this subpart are for the purpose of liquidity management and in 
accordance with the liquidity management plan described in paragraph 
(d)(3) of this section; and
    (vi) Is consistent with the SEC's supervisory requirements, 
guidance, and expectations regarding liquidity management;
    (4) Any purchase or sale of one or more financial instruments by a 
banking entity that is a derivatives clearing organization or a clearing 
agency in connection with clearing financial instruments;
    (5) Any excluded clearing activities by a banking entity that is a 
member of a clearing agency, a member of a derivatives clearing 
organization, or a member of a designated financial market utility;
    (6) Any purchase or sale of one or more financial instruments by a 
banking entity, so long as:
    (i) The purchase (or sale) satisfies an existing delivery obligation 
of the banking entity or its customers, including to prevent or close 
out a failure to deliver, in connection with delivery, clearing, or 
settlement activity; or
    (ii) The purchase (or sale) satisfies an obligation of the banking 
entity in connection with a judicial, administrative, self-regulatory 
organization, or arbitration proceeding;
    (7) Any purchase or sale of one or more financial instruments by a 
banking entity that is acting solely as agent, broker, or custodian;
    (8) Any purchase or sale of one or more financial instruments by a 
banking entity through a deferred compensation, stock-bonus, profit-
sharing, or pension plan of the banking entity that is established and 
administered in accordance with the law of the United States or a 
foreign sovereign, if the purchase or sale is made directly or 
indirectly by the banking entity as trustee for the benefit of persons 
who are or were employees of the banking entity; or
    (9) Any purchase or sale of one or more financial instruments by a 
banking entity in the ordinary course of collecting a debt previously 
contracted in good faith, provided that the banking entity divests the 
financial instrument as soon as practicable, and in no event may the 
banking entity retain such instrument for longer than such period 
permitted by the SEC.
    (e) Definition of other terms related to proprietary trading. For 
purposes of this subpart:
    (1) Anonymous means that each party to a purchase or sale is unaware 
of the identity of the other party(ies) to the purchase or sale.
    (2) Clearing agency has the same meaning as in section 3(a)(23) of 
the Exchange Act (15 U.S.C. 78c(a)(23)).
    (3) Commodity has the same meaning as in section 1a(9) of the 
Commodity Exchange Act (7 U.S.C. 1a(9)), except that a commodity does 
not include any security;
    (4) Contract of sale of a commodity for future delivery means a 
contract of sale (as that term is defined in section 1a(13) of the 
Commodity Exchange Act (7 U.S.C. 1a(13)) for future delivery (as that 
term is defined in section 1a(27) of the Commodity Exchange Act (7 
U.S.C. 1a(27))).
    (5) Derivatives clearing organization means:
    (i) A derivatives clearing organization registered under section 5b 
of the Commodity Exchange Act (7 U.S.C. 7a-1);
    (ii) A derivatives clearing organization that, pursuant to CFTC 
regulation, is exempt from the registration requirements under section 
5b of the Commodity Exchange Act (7 U.S.C. 7a-1); or
    (iii) A foreign derivatives clearing organization that, pursuant to 
CFTC regulation, is permitted to clear for a foreign board of trade that 
is registered with the CFTC.
    (6) Exchange, unless the context otherwise requires, means any 
designated contract market, swap execution facility, or foreign board of 
trade registered with the CFTC, or, for purposes of securities or 
security-based swaps, an exchange, as defined under section 3(a)(1) of 
the Exchange Act (15 U.S.C. 78c(a)(1)), or security-based swap execution 
facility, as defined under section 3(a)(77) of the Exchange Act (15 
U.S.C. 78c(a)(77)).
    (7) Excluded clearing activities means:
    (i) With respect to customer transactions cleared on a derivatives 
clearing organization, a clearing agency, or a designated financial 
market utility, any purchase or sale necessary to correct trading errors 
made by or on behalf of a customer provided that such purchase or sale 
is conducted in accordance with, for transactions cleared on a 
derivatives clearing organization, the Commodity Exchange Act, CFTC 
regulations, and the rules or procedures of the derivatives clearing 
organization, or, for transactions cleared on a clearing agency, the 
rules or procedures of the clearing agency, or, for transactions cleared 
on a designated financial market utility that is neither a derivatives 
clearing organization nor a clearing agency, the rules or procedures of 
the designated financial market utility;

[[Page 1071]]

    (ii) Any purchase or sale in connection with and related to the 
management of a default or threatened imminent default of a customer 
provided that such purchase or sale is conducted in accordance with, for 
transactions cleared on a derivatives clearing organization, the 
Commodity Exchange Act, CFTC regulations, and the rules or procedures of 
the derivatives clearing organization, or, for transactions cleared on a 
clearing agency, the rules or procedures of the clearing agency, or, for 
transactions cleared on a designated financial market utility that is 
neither a derivatives clearing organization nor a clearing agency, the 
rules or procedures of the designated financial market utility;
    (iii) Any purchase or sale in connection with and related to the 
management of a default or threatened imminent default of a member of a 
clearing agency, a member of a derivatives clearing organization, or a 
member of a designated financial market utility;
    (iv) Any purchase or sale in connection with and related to the 
management of the default or threatened default of a clearing agency, a 
derivatives clearing organization, or a designated financial market 
utility; and
    (v) Any purchase or sale that is required by the rules or procedures 
of a clearing agency, a derivatives clearing organization, or a 
designated financial market utility to mitigate the risk to the clearing 
agency, derivatives clearing organization, or designated financial 
market utility that would result from the clearing by a member of 
security-based swaps that reference the member or an affiliate of the 
member.
    (8) Designated financial market utility has the same meaning as in 
section 803(4) of the Dodd-Frank Act (12 U.S.C. 5462(4)).
    (9) Issuer has the same meaning as in section 2(a)(4) of the 
Securities Act of 1933 (15 U.S.C. 77b(a)(4)).
    (10) Market risk capital rule covered position and trading position 
means a financial instrument that is both a covered position and a 
trading position, as those terms are respectively defined:
    (i) In the case of a banking entity that is a bank holding company, 
savings and loan holding company, or insured depository institution, 
under the market risk capital rule that is applicable to the banking 
entity; and
    (ii) In the case of a banking entity that is affiliated with a bank 
holding company or savings and loan holding company, other than a 
banking entity to which a market risk capital rule is applicable, under 
the market risk capital rule that is applicable to the affiliated bank 
holding company or savings and loan holding company.
    (11) Market risk capital rule means the market risk capital rule 
that is contained in subpart F of 12 CFR part 3, 12 CFR parts 208 and 
225, or 12 CFR part 324, as applicable.
    (12) Municipal security means a security that is a direct obligation 
of or issued by, or an obligation guaranteed as to principal or interest 
by, a State or any political subdivision thereof, or any agency or 
instrumentality of a State or any political subdivision thereof, or any 
municipal corporate instrumentality of one or more States or political 
subdivisions thereof.
    (13) Trading desk means the smallest discrete unit of organization 
of a banking entity that purchases or sells financial instruments for 
the trading account of the banking entity or an affiliate thereof.

Sec.255.4 Permitted underwriting and market making-related activities.
    (a) Underwriting activities--(1) Permitted underwriting activities. 
The prohibition contained in Sec.255.3(a) does not apply to a banking 
entity's underwriting activities conducted in accordance with this 
paragraph (a).
    (2) Requirements. The underwriting activities of a banking entity 
are permitted under paragraph (a)(1) of this section only if:
    (i) The banking entity is acting as an underwriter for a 
distribution of securities and the trading desk's underwriting position 
is related to such distribution;
    (ii) The amount and type of the securities in the trading desk's 
underwriting position are designed not to exceed the reasonably expected 
near term demands of clients, customers, or counterparties, and 
reasonable efforts are made to sell or otherwise reduce the underwriting 
position within a reasonable period, taking into account the liquidity, 
maturity, and depth of the market for the relevant type of security;
    (iii) The banking entity has established and implements, maintains, 
and enforces an internal compliance program required by subpart D of 
this part that is reasonably designed to ensure the banking entity's 
compliance with the requirements of paragraph (a) of this section, 
including reasonably designed written policies and procedures, internal 
controls, analysis and independent testing identifying and addressing:
    (A) The products, instruments or exposures each trading desk may 
purchase, sell, or manage as part of its underwriting activities;
    (B) Limits for each trading desk, based on the nature and amount of 
the trading desk's underwriting activities, including the reasonably 
expected near term demands of clients, customers, or counterparties, on 
the:
    (1) Amount, types, and risk of its underwriting position;
    (2) Level of exposures to relevant risk factors arising from its 
underwriting position; and
    (3) Period of time a security may be held;
    (C) Internal controls and ongoing monitoring and analysis of each 
trading desk's compliance with its limits; and

[[Page 1072]]

    (D) Authorization procedures, including escalation procedures that 
require review and approval of any trade that would exceed a trading 
desk's limit(s), demonstrable analysis of the basis for any temporary or 
permanent increase to a trading desk's limit(s), and independent review 
of such demonstrable analysis and approval;
    (iv) The compensation arrangements of persons performing the 
activities described in this paragraph (a) are designed not to reward or 
incentivize prohibited proprietary trading; and
    (v) The banking entity is licensed or registered to engage in the 
activity described in this paragraph (a) in accordance with applicable 
law.
    (3) Definition of distribution. For purposes of this paragraph (a), 
a distribution of securities means:
    (i) An offering of securities, whether or not subject to 
registration under the Securities Act of 1933, that is distinguished 
from ordinary trading transactions by the presence of special selling 
efforts and selling methods; or
    (ii) An offering of securities made pursuant to an effective 
registration statement under the Securities Act of 1933.
    (4) Definition of underwriter. For purposes of this paragraph (a), 
underwriter means:
    (i) A person who has agreed with an issuer or selling security 
holder to:
    (A) Purchase securities from the issuer or selling security holder 
for distribution;
    (B) Engage in a distribution of securities for or on behalf of the 
issuer or selling security holder; or
    (C) Manage a distribution of securities for or on behalf of the 
issuer or selling security holder; or
    (ii) A person who has agreed to participate or is participating in a 
distribution of such securities for or on behalf of the issuer or 
selling security holder.
    (5) Definition of selling security holder. For purposes of this 
paragraph (a), selling security holder means any person, other than an 
issuer, on whose behalf a distribution is made.
    (6) Definition of underwriting position. For purposes of this 
paragraph (a), underwriting position means the long or short positions 
in one or more securities held by a banking entity or its affiliate, and 
managed by a particular trading desk, in connection with a particular 
distribution of securities for which such banking entity or affiliate is 
acting as an underwriter.
    (7) Definition of client, customer, and counterparty. For purposes 
of this paragraph (a), the terms client, customer, and counterparty, on 
a collective or individual basis, refer to market participants that may 
transact with the banking entity in connection with a particular 
distribution for which the banking entity is acting as underwriter.
    (b) Market making-related activities--(1) Permitted market making-
related activities. The prohibition contained in Sec.255.3(a) does not 
apply to a banking entity's market making-related activities conducted 
in accordance with this paragraph (b).
    (2) Requirements. The market making-related activities of a banking 
entity are permitted under paragraph (b)(1) of this section only if:
    (i) The trading desk that establishes and manages the financial 
exposure routinely stands ready to purchase and sell one or more types 
of financial instruments related to its financial exposure and is 
willing and available to quote, purchase and sell, or otherwise enter 
into long and short positions in those types of financial instruments 
for its own account, in commercially reasonable amounts and throughout 
market cycles on a basis appropriate for the liquidity, maturity, and 
depth of the market for the relevant types of financial instruments;
    (ii) The amount, types, and risks of the financial instruments in 
the trading desk's market-maker inventory are designed not to exceed, on 
an ongoing basis, the reasonably expected near term demands of clients, 
customers, or counterparties, based on:
    (A) The liquidity, maturity, and depth of the market for the 
relevant types of financial instrument(s); and
    (B) Demonstrable analysis of historical customer demand, current 
inventory of financial instruments, and market and other factors 
regarding the amount, types, and risks, of or associated with financial 
instruments in which the trading desk makes a market, including through 
block trades;
    (iii) The banking entity has established and implements, maintains, 
and enforces an internal compliance program required by subpart D of 
this part that is reasonably designed to ensure the banking entity's 
compliance with the requirements of paragraph (b) of this section, 
including reasonably designed written policies and procedures, internal 
controls, analysis and independent testing identifying and addressing:
    (A) The financial instruments each trading desk stands ready to 
purchase and sell in accordance with paragraph (b)(2)(i) of this 
section;
    (B) The actions the trading desk will take to demonstrably reduce or 
otherwise significantly mitigate promptly the risks of its financial 
exposure consistent with the limits required under paragraph 
(b)(2)(iii)(C) of this section; the products, instruments, and exposures 
each trading desk may use for risk management purposes; the techniques 
and strategies each trading desk may use to manage the risks of its 
market making-related activities and inventory; and the process, 
strategies, and personnel responsible for

[[Page 1073]]

ensuring that the actions taken by the trading desk to mitigate these 
risks are and continue to be effective;
    (C) Limits for each trading desk, based on the nature and amount of 
the trading desk's market making-related activities, that address the 
factors prescribed by paragraph (b)(2)(ii) of this section, on:
    (1) The amount, types, and risks of its market-maker inventory;
    (2) The amount, types, and risks of the products, instruments, and 
exposures the trading desk may use for risk management purposes;
    (3) The level of exposures to relevant risk factors arising from its 
financial exposure; and
    (4) The period of time a financial instrument may be held;
    (D) Internal controls and ongoing monitoring and analysis of each 
trading desk's compliance with its limits; and
    (E) Authorization procedures, including escalation procedures that 
require review and approval of any trade that would exceed a trading 
desk's limit(s), demonstrable analysis that the basis for any temporary 
or permanent increase to a trading desk's limit(s) is consistent with 
the requirements of this paragraph (b), and independent review of such 
demonstrable analysis and approval;
    (iv) To the extent that any limit identified pursuant to paragraph 
(b)(2)(iii)(C) of this section is exceeded, the trading desk takes 
action to bring the trading desk into compliance with the limits as 
promptly as possible after the limit is exceeded;
    (v) The compensation arrangements of persons performing the 
activities described in this paragraph (b) are designed not to reward or 
incentivize prohibited proprietary trading; and
    (vi) The banking entity is licensed or registered to engage in 
activity described in this paragraph (b) in accordance with applicable 
law.
    (3) Definition of client, customer, and counterparty. For purposes 
of paragraph (b) of this section, the terms client, customer, and 
counterparty, on a collective or individual basis refer to market 
participants that make use of the banking entity's market making-related 
services by obtaining such services, responding to quotations, or 
entering into a continuing relationship with respect to such services, 
provided that:
    (i) A trading desk or other organizational unit of another banking 
entity is not a client, customer, or counterparty of the trading desk if 
that other entity has trading assets and liabilities of $50 billion or 
more as measured in accordance with Sec.255.20(d)(1) of subpart D, 
unless:
    (A) The trading desk documents how and why a particular trading desk 
or other organizational unit of the entity should be treated as a 
client, customer, or counterparty of the trading desk for purposes of 
paragraph (b)(2) of this section; or
    (B) The purchase or sale by the trading desk is conducted 
anonymously on an exchange or similar trading facility that permits 
trading on behalf of a broad range of market participants.
    (4) Definition of financial exposure. For purposes of this paragraph 
(b), financial exposure means the aggregate risks of one or more 
financial instruments and any associated loans, commodities, or foreign 
exchange or currency, held by a banking entity or its affiliate and 
managed by a particular trading desk as part of the trading desk's 
market making-related activities.
    (5) Definition of market-maker inventory. For the purposes of this 
paragraph (b), market-maker inventory means all of the positions in the 
financial instruments for which the trading desk stands ready to make a 
market in accordance with paragraph (b)(2)(i) of this section, that are 
managed by the trading desk, including the trading desk's open positions 
or exposures arising from open transactions.

Sec.255.5 Permitted risk-mitigating hedging activities.
    (a) Permitted risk-mitigating hedging activities. The prohibition 
contained in Sec.255.3(a) does not apply to the risk-mitigating 
hedging activities of a banking entity in connection with and related to 
individual or aggregated positions, contracts, or other holdings of the 
banking entity and designed to reduce the specific risks to the banking 
entity in connection with and related to such positions, contracts, or 
other holdings.
    (b) Requirements. The risk-mitigating hedging activities of a 
banking entity are permitted under paragraph (a) of this section only 
if:
    (1) The banking entity has established and implements, maintains and 
enforces an internal compliance program required by subpart D of this 
part that is reasonably designed to ensure the banking entity's 
compliance with the requirements of this section, including:
    (i) Reasonably designed written policies and procedures regarding 
the positions, techniques and strategies that may be used for hedging, 
including documentation indicating what positions, contracts or other 
holdings a particular trading desk may use in its risk-mitigating 
hedging activities, as well as position and aging limits with respect to 
such positions, contracts or other holdings;
    (ii) Internal controls and ongoing monitoring, management, and 
authorization procedures, including relevant escalation procedures; and
    (iii) The conduct of analysis, including correlation analysis, and 
independent testing designed to ensure that the positions, techniques 
and strategies that may be used for

[[Page 1074]]

hedging may reasonably be expected to demonstrably reduce or otherwise 
significantly mitigate the specific, identifiable risk(s) being hedged, 
and such correlation analysis demonstrates that the hedging activity 
demonstrably reduces or otherwise significantly mitigates the specific, 
identifiable risk(s) being hedged;
    (2) The risk-mitigating hedging activity:
    (i) Is conducted in accordance with the written policies, 
procedures, and internal controls required under this section;
    (ii) At the inception of the hedging activity, including, without 
limitation, any adjustments to the hedging activity, is designed to 
reduce or otherwise significantly mitigate and demonstrably reduces or 
otherwise significantly mitigates one or more specific, identifiable 
risks, including market risk, counterparty or other credit risk, 
currency or foreign exchange risk, interest rate risk, commodity price 
risk, basis risk, or similar risks, arising in connection with and 
related to identified positions, contracts, or other holdings of the 
banking entity, based upon the facts and circumstances of the identified 
underlying and hedging positions, contracts or other holdings and the 
risks and liquidity thereof;
    (iii) Does not give rise, at the inception of the hedge, to any 
significant new or additional risk that is not itself hedged 
contemporaneously in accordance with this section;
    (iv) Is subject to continuing review, monitoring and management by 
the banking entity that:
    (A) Is consistent with the written hedging policies and procedures 
required under paragraph (b)(1) of this section;
    (B) Is designed to reduce or otherwise significantly mitigate and 
demonstrably reduces or otherwise significantly mitigates the specific, 
identifiable risks that develop over time from the risk-mitigating 
hedging activities undertaken under this section and the underlying 
positions, contracts, and other holdings of the banking entity, based 
upon the facts and circumstances of the underlying and hedging 
positions, contracts and other holdings of the banking entity and the 
risks and liquidity thereof; and
    (C) Requires ongoing recalibration of the hedging activity by the 
banking entity to ensure that the hedging activity satisfies the 
requirements set out in paragraph (b)(2) of this section and is not 
prohibited proprietary trading; and
    (3) The compensation arrangements of persons performing risk-
mitigating hedging activities are designed not to reward or incentivize 
prohibited proprietary trading.
    (c) Documentation requirement--(1) A banking entity must comply with 
the requirements of paragraphs (c)(2) and (3) of this section with 
respect to any purchase or sale of financial instruments made in 
reliance on this section for risk-mitigating hedging purposes that is:
    (i) Not established by the specific trading desk establishing or 
responsible for the underlying positions, contracts, or other holdings 
the risks of which the hedging activity is designed to reduce;
    (ii) Established by the specific trading desk establishing or 
responsible for the underlying positions, contracts, or other holdings 
the risks of which the purchases or sales are designed to reduce, but 
that is effected through a financial instrument, exposure, technique, or 
strategy that is not specifically identified in the trading desk's 
written policies and procedures established under paragraph (b)(1) of 
this section or under Sec.255.4(b)(2)(iii)(B) of this subpart as a 
product, instrument, exposure, technique, or strategy such trading desk 
may use for hedging; or
    (iii) Established to hedge aggregated positions across two or more 
trading desks.
    (2) In connection with any purchase or sale identified in paragraph 
(c)(1) of this section, a banking entity must, at a minimum, and 
contemporaneously with the purchase or sale, document:
    (i) The specific, identifiable risk(s) of the identified positions, 
contracts, or other holdings of the banking entity that the purchase or 
sale is designed to reduce;
    (ii) The specific risk-mitigating strategy that the purchase or sale 
is designed to fulfill; and
    (iii) The trading desk or other business unit that is establishing 
and responsible for the hedge.
    (3) A banking entity must create and retain records sufficient to 
demonstrate compliance with the requirements of this paragraph (c) for a 
period that is no less than five years in a form that allows the banking 
entity to promptly produce such records to the SEC on request, or such 
longer period as required under other law or this part.

Sec.255.6 Other permitted proprietary trading activities.
    (a) Permitted trading in domestic government obligations. The 
prohibition contained in Sec.255.3(a) does not apply to the purchase 
or sale by a banking entity of a financial instrument that is:
    (1) An obligation of, or issued or guaranteed by, the United States;
    (2) An obligation, participation, or other instrument of, or issued 
or guaranteed by, an agency of the United States, the Government 
National Mortgage Association, the Federal National Mortgage 
Association, the Federal Home Loan Mortgage Corporation, a Federal Home 
Loan Bank, the Federal Agricultural Mortgage Corporation or a Farm 
Credit System institution chartered under and subject to the provisions 
of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.);

[[Page 1075]]

    (3) An obligation of any State or any political subdivision thereof, 
including any municipal security; or
    (4) An obligation of the FDIC, or any entity formed by or on behalf 
of the FDIC for purpose of facilitating the disposal of assets acquired 
or held by the FDIC in its corporate capacity or as conservator or 
receiver under the Federal Deposit Insurance Act or Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act.
    (b) Permitted trading in foreign government obligations--(1) 
Affiliates of foreign banking entities in the United States. The 
prohibition contained in Sec.255.3(a) does not apply to the purchase 
or sale of a financial instrument that is an obligation of, or issued or 
guaranteed by, a foreign sovereign (including any multinational central 
bank of which the foreign sovereign is a member), or any agency or 
political subdivision of such foreign sovereign, by a banking entity, so 
long as:
    (i) The banking entity is organized under or is directly or 
indirectly controlled by a banking entity that is organized under the 
laws of a foreign sovereign and is not directly or indirectly controlled 
by a top-tier banking entity that is organized under the laws of the 
United States;
    (ii) The financial instrument is an obligation of, or issued or 
guaranteed by, the foreign sovereign under the laws of which the foreign 
banking entity referred to in paragraph (b)(1)(i) of this section is 
organized (including any multinational central bank of which the foreign 
sovereign is a member), or any agency or political subdivision of that 
foreign sovereign; and
    (iii) The purchase or sale as principal is not made by an insured 
depository institution.
    (2) Foreign affiliates of a U.S. banking entity. The prohibition 
contained in Sec.255.3(a) does not apply to the purchase or sale of a 
financial instrument that is an obligation of, or issued or guaranteed 
by, a foreign sovereign (including any multinational central bank of 
which the foreign sovereign is a member), or any agency or political 
subdivision of that foreign sovereign, by a foreign entity that is owned 
or controlled by a banking entity organized or established under the 
laws of the United States or any State, so long as:
    (i) The foreign entity is a foreign bank, as defined in section 
211.2(j) of the Board's Regulation K (12 CFR 211.2(j)), or is regulated 
by the foreign sovereign as a securities dealer;
    (ii) The financial instrument is an obligation of, or issued or 
guaranteed by, the foreign sovereign under the laws of which the foreign 
entity is organized (including any multinational central bank of which 
the foreign sovereign is a member), or any agency or political 
subdivision of that foreign sovereign; and
    (iii) The financial instrument is owned by the foreign entity and is 
not financed by an affiliate that is located in the United States or 
organized under the laws of the United States or of any State.
    (c) Permitted trading on behalf of customers--(1) Fiduciary 
transactions. The prohibition contained in Sec.255.3(a) does not apply 
to the purchase or sale of financial instruments by a banking entity 
acting as trustee or in a similar fiduciary capacity, so long as:
    (i) The transaction is conducted for the account of, or on behalf 
of, a customer; and
    (ii) The banking entity does not have or retain beneficial ownership 
of the financial instruments.
    (2) Riskless principal transactions. The prohibition contained in 
Sec.255.3(a) does not apply to the purchase or sale of financial 
instruments by a banking entity acting as riskless principal in a 
transaction in which the banking entity, after receiving an order to 
purchase (or sell) a financial instrument from a customer, purchases (or 
sells) the financial instrument for its own account to offset a 
contemporaneous sale to (or purchase from) the customer.
    (d) Permitted trading by a regulated insurance company. The 
prohibition contained in Sec.255.3(a) does not apply to the purchase 
or sale of financial instruments by a banking entity that is an 
insurance company or an affiliate of an insurance company if:
    (1) The insurance company or its affiliate purchases or sells the 
financial instruments solely for:
    (i) The general account of the insurance company; or
    (ii) A separate account established by the insurance company;
    (2) The purchase or sale is conducted in compliance with, and 
subject to, the insurance company investment laws, regulations, and 
written guidance of the State or jurisdiction in which such insurance 
company is domiciled; and
    (3) The appropriate Federal banking agencies, after consultation 
with the Financial Stability Oversight Council and the relevant 
insurance commissioners of the States and foreign jurisdictions, as 
appropriate, have not jointly determined, after notice and comment, that 
a particular law, regulation, or written guidance described in paragraph 
(d)(2) of this section is insufficient to protect the safety and 
soundness of the covered banking entity, or the financial stability of 
the United States.
    (e) Permitted trading activities of foreign banking entities. (1) 
The prohibition contained in Sec.255.3(a) does not apply to the 
purchase or sale of financial instruments by a banking entity if:
    (i) The banking entity is not organized or directly or indirectly 
controlled by a banking entity that is organized under the laws of the 
United States or of any State;

[[Page 1076]]

    (ii) The purchase or sale by the banking entity is made pursuant to 
paragraph (9) or (13) of section 4(c) of the BHC Act; and
    (iii) The purchase or sale meets the requirements of paragraph 
(e)(3) of this section.
    (2) A purchase or sale of financial instruments by a banking entity 
is made pursuant to paragraph (9) or (13) of section 4(c) of the BHC Act 
for purposes of paragraph (e)(1)(ii) of this section only if:
    (i) The purchase or sale is conducted in accordance with the 
requirements of paragraph (e) of this section; and
    (ii)(A) With respect to a banking entity that is a foreign banking 
organization, the banking entity meets the qualifying foreign banking 
organization requirements of section 211.23(a), (c) or (e) of the 
Board's Regulation K (12 CFR 211.23(a), (c) or (e)), as applicable; or
    (B) With respect to a banking entity that is not a foreign banking 
organization, the banking entity is not organized under the laws of the 
United States or of any State and the banking entity, on a fully-
consolidated basis, meets at least two of the following requirements:
    (1) Total assets of the banking entity held outside of the United 
States exceed total assets of the banking entity held in the United 
States;
    (2) Total revenues derived from the business of the banking entity 
outside of the United States exceed total revenues derived from the 
business of the banking entity in the United States; or
    (3) Total net income derived from the business of the banking entity 
outside of the United States exceeds total net income derived from the 
business of the banking entity in the United States.
    (3) A purchase or sale by a banking entity is permitted for purposes 
of this paragraph (e) if:
    (i) The banking entity engaging as principal in the purchase or sale 
(including any personnel of the banking entity or its affiliate that 
arrange, negotiate or execute such purchase or sale) is not located in 
the United States or organized under the laws of the United States or of 
any State;
    (ii) The banking entity (including relevant personnel) that makes 
the decision to purchase or sell as principal is not located in the 
United States or organized under the laws of the United States or of any 
State;
    (iii) The purchase or sale, including any transaction arising from 
risk-mitigating hedging related to the instruments purchased or sold, is 
not accounted for as principal directly or on a consolidated basis by 
any branch or affiliate that is located in the United States or 
organized under the laws of the United States or of any State;
    (iv) No financing for the banking entity's purchases or sales is 
provided, directly or indirectly, by any branch or affiliate that is 
located in the United States or organized under the laws of the United 
States or of any State; and
    (v) The purchase or sale is not conducted with or through any U.S. 
entity, other than:
    (A) A purchase or sale with the foreign operations of a U.S. entity 
if no personnel of such U.S. entity that are located in the United 
States are involved in the arrangement, negotiation, or execution of 
such purchase or sale;
    (B) A purchase or sale with an unaffiliated market intermediary 
acting as principal, provided the purchase or sale is promptly cleared 
and settled through a clearing agency or derivatives clearing 
organization acting as a central counterparty; or
    (C) A purchase or sale through an unaffiliated market intermediary 
acting as agent, provided the purchase or sale is conducted anonymously 
on an exchange or similar trading facility and is promptly cleared and 
settled through a clearing agency or derivatives clearing organization 
acting as a central counterparty.
    (4) For purposes of this paragraph (e), a U.S. entity is any entity 
that is, or is controlled by, or is acting on behalf of, or at the 
direction of, any other entity that is, located in the United States or 
organized under the laws of the United States or of any State.
    (5) For purposes of this paragraph (e), a U.S. branch, agency, or 
subsidiary of a foreign banking entity is considered to be located in 
the United States; however, the foreign bank that operates or controls 
that branch, agency, or subsidiary is not considered to be located in 
the United States solely by virtue of operating or controlling the U.S. 
branch, agency, or subsidiary.
    (6) For purposes of this paragraph (e), unaffiliated market 
intermediary means an unaffiliated entity, acting as an intermediary, 
that is:
    (i) A broker or dealer registered with the SEC under section 15 of 
the Exchange Act or exempt from registration or excluded from regulation 
as such;
    (ii) A swap dealer registered with the CFTC under section 4s of the 
Commodity Exchange Act or exempt from registration or excluded from 
regulation as such;
    (iii) A security-based swap dealer registered with the SEC under 
section 15F of the Exchange Act or exempt from registration or excluded 
from regulation as such; or
    (iv) A futures commission merchant registered with the CFTC under 
section 4f of the Commodity Exchange Act or exempt from registration or 
excluded from regulation as such.

Sec.255.7 Limitations on permitted proprietary trading activities.
    (a) No transaction, class of transactions, or activity may be deemed 
permissible under

[[Page 1077]]

Sec.Sec.255.4 through 255.6 if the transaction, class of 
transactions, or activity would:
    (1) Involve or result in a material conflict of interest between the 
banking entity and its clients, customers, or counterparties;
    (2) Result, directly or indirectly, in a material exposure by the 
banking entity to a high-risk asset or a high-risk trading strategy; or
    (3) Pose a threat to the safety and soundness of the banking entity 
or to the financial stability of the United States.
    (b) Definition of material conflict of interest. (1) For purposes of 
this section, a material conflict of interest between a banking entity 
and its clients, customers, or counterparties exists if the banking 
entity engages in any transaction, class of transactions, or activity 
that would involve or result in the banking entity's interests being 
materially adverse to the interests of its client, customer, or 
counterparty with respect to such transaction, class of transactions, or 
activity, and the banking entity has not taken at least one of the 
actions in paragraph (b)(2) of this section.
    (2) Prior to effecting the specific transaction or class or type of 
transactions, or engaging in the specific activity, the banking entity:
    (i) Timely and effective disclosure. (A) Has made clear, timely, and 
effective disclosure of the conflict of interest, together with other 
necessary information, in reasonable detail and in a manner sufficient 
to permit a reasonable client, customer, or counterparty to meaningfully 
understand the conflict of interest; and
    (B) Such disclosure is made in a manner that provides the client, 
customer, or counterparty the opportunity to negate, or substantially 
mitigate, any materially adverse effect on the client, customer, or 
counterparty created by the conflict of interest; or
    (ii) Information barriers. Has established, maintained, and enforced 
information barriers that are memorialized in written policies and 
procedures, such as physical separation of personnel, or functions, or 
limitations on types of activity, that are reasonably designed, taking 
into consideration the nature of the banking entity's business, to 
prevent the conflict of interest from involving or resulting in a 
materially adverse effect on a client, customer, or counterparty. A 
banking entity may not rely on such information barriers if, in the case 
of any specific transaction, class or type of transactions or activity, 
the banking entity knows or should reasonably know that, notwithstanding 
the banking entity's establishment of information barriers, the conflict 
of interest may involve or result in a materially adverse effect on a 
client, customer, or counterparty.
    (c) Definition of high-risk asset and high-risk trading strategy. 
For purposes of this section:
    (1) High-risk asset means an asset or group of related assets that 
would, if held by a banking entity, significantly increase the 
likelihood that the banking entity would incur a substantial financial 
loss or would pose a threat to the financial stability of the United 
States.
    (2) High-risk trading strategy means a trading strategy that would, 
if engaged in by a banking entity, significantly increase the likelihood 
that the banking entity would incur a substantial financial loss or 
would pose a threat to the financial stability of the United States.

Sec.Sec.255.8-255.9 [Reserved]

           Subpart C--Covered Funds Activities and Investments

Sec.255.10 Prohibition on acquiring or retaining an ownership interest 
          in and having certain relationships with a covered fund.
    (a) Prohibition. (1) Except as otherwise provided in this subpart, a 
banking entity may not, as principal, directly or indirectly, acquire or 
retain any ownership interest in or sponsor a covered fund.
    (2) Paragraph (a)(1) of this section does not include acquiring or 
retaining an ownership interest in a covered fund by a banking entity:
    (i) Acting solely as agent, broker, or custodian, so long as;
    (A) The activity is conducted for the account of, or on behalf of, a 
customer; and
    (B) The banking entity and its affiliates do not have or retain 
beneficial ownership of such ownership interest;
    (ii) Through a deferred compensation, stock-bonus, profit-sharing, 
or pension plan of the banking entity (or an affiliate thereof) that is 
established and administered in accordance with the law of the United 
States or a foreign sovereign, if the ownership interest is held or 
controlled directly or indirectly by the banking entity as trustee for 
the benefit of persons who are or were employees of the banking entity 
(or an affiliate thereof);
    (iii) In the ordinary course of collecting a debt previously 
contracted in good faith, provided that the banking entity divests the 
ownership interest as soon as practicable, and in no event may the 
banking entity retain such ownership interest for longer than such 
period permitted by the SEC; or
    (iv) On behalf of customers as trustee or in a similar fiduciary 
capacity for a customer that is not a covered fund, so long as:
    (A) The activity is conducted for the account of, or on behalf of, 
the customer; and
    (B) The banking entity and its affiliates do not have or retain 
beneficial ownership of such ownership interest.

[[Page 1078]]

    (b) Definition of covered fund. (1) Except as provided in paragraph 
(c) of this section, covered fund means:
    (i) An issuer that would be an investment company, as defined in the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), but for 
section 3(c)(1) or 3(c)(7) of that Act (15 U.S.C. 80a-3(c)(1) or (7));
    (ii) Any commodity pool under section 1a(10) of the Commodity 
Exchange Act (7 U.S.C. 1a(10)) for which:
    (A) The commodity pool operator has claimed an exemption under 17 
CFR 4.7; or
    (B)(1) A commodity pool operator is registered with the CFTC as a 
commodity pool operator in connection with the operation of the 
commodity pool;
    (2) Substantially all participation units of the commodity pool are 
owned by qualified eligible persons under 17 CFR 4.7(a)(2) and (3); and
    (3) Participation units of the commodity pool have not been publicly 
offered to persons who are not qualified eligible persons under 17 CFR 
4.7(a)(2) and (3); or
    (iii) For any banking entity that is, or is controlled directly or 
indirectly by a banking entity that is, located in or organized under 
the laws of the United States or of any State, an entity that:
    (A) Is organized or established outside the United States and the 
ownership interests of which are offered and sold solely outside the 
United States;
    (B) Is, or holds itself out as being, an entity or arrangement that 
raises money from investors primarily for the purpose of investing in 
securities for resale or other disposition or otherwise trading in 
securities; and
    (C)(1) Has as its sponsor that banking entity (or an affiliate 
thereof); or
    (2) Has issued an ownership interest that is owned directly or 
indirectly by that banking entity (or an affiliate thereof).
    (2) An issuer shall not be deemed to be a covered fund under 
paragraph (b)(1)(iii) of this section if, were the issuer subject to 
U.S. securities laws, the issuer could rely on an exclusion or exemption 
from the definition of ``investment company'' under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.) other than the exclusions 
contained in section 3(c)(1) and 3(c)(7) of that Act.
    (3) For purposes of paragraph (b)(1)(iii) of this section, a U.S. 
branch, agency, or subsidiary of a foreign banking entity is located in 
the United States; however, the foreign bank that operates or controls 
that branch, agency, or subsidiary is not considered to be located in 
the United States solely by virtue of operating or controlling the U.S. 
branch, agency, or subsidiary.
    (c) Notwithstanding paragraph (b) of this section, unless the 
appropriate Federal banking agencies, the SEC, and the CFTC jointly 
determine otherwise, a covered fund does not include:
    (1) Foreign public funds. (i) Subject to paragraphs (ii) and (iii) 
below, an issuer that:
    (A) Is organized or established outside of the United States;
    (B) Is authorized to offer and sell ownership interests to retail 
investors in the issuer's home jurisdiction; and
    (C) Sells ownership interests predominantly through one or more 
public offerings outside of the United States.
    (ii) With respect to a banking entity that is, or is controlled 
directly or indirectly by a banking entity that is, located in or 
organized under the laws of the United States or of any State and any 
issuer for which such banking entity acts as sponsor, the sponsoring 
banking entity may not rely on the exemption in paragraph (c)(1)(i) of 
this section for such issuer unless ownership interests in the issuer 
are sold predominantly to persons other than:
    (A) Such sponsoring banking entity;
    (B) Such issuer;
    (C) Affiliates of such sponsoring banking entity or such issuer; and
    (D) Directors and employees of such entities.
    (iii) For purposes of paragraph (c)(1)(i)(C) of this section, the 
term ``public offering'' means a distribution (as defined in Sec.
255.4(a)(3) of subpart B) of securities in any jurisdiction outside the 
United States to investors, including retail investors, provided that:
    (A) The distribution complies with all applicable requirements in 
the jurisdiction in which such distribution is being made;
    (B) The distribution does not restrict availability to investors 
having a minimum level of net worth or net investment assets; and
    (C) The issuer has filed or submitted, with the appropriate 
regulatory authority in such jurisdiction, offering disclosure documents 
that are publicly available.
    (2) Wholly-owned subsidiaries. An entity, all of the outstanding 
ownership interests of which are owned directly or indirectly by the 
banking entity (or an affiliate thereof), except that:
    (i) Up to five percent of the entity's outstanding ownership 
interests, less any amounts outstanding under paragraph (c)(2)(ii) of 
this section, may be held by employees or directors of the banking 
entity or such affiliate (including former employees or directors if 
their ownership interest was acquired while employed by or in the 
service of the banking entity); and
    (ii) Up to 0.5 percent of the entity's outstanding ownership 
interests may be held by a third party if the ownership interest is 
acquired or retained by the third party for the purpose of establishing 
corporate separateness or addressing bankruptcy, insolvency, or similar 
concerns.

[[Page 1079]]

    (3) Joint ventures. A joint venture between a banking entity or any 
of its affiliates and one or more unaffiliated persons, provided that 
the joint venture:
    (i) Is comprised of no more than 10 unaffiliated co-venturers;
    (ii) Is in the business of engaging in activities that are 
permissible for the banking entity or affiliate, other than investing in 
securities for resale or other disposition; and
    (iii) Is not, and does not hold itself out as being, an entity or 
arrangement that raises money from investors primarily for the purpose 
of investing in securities for resale or other disposition or otherwise 
trading in securities.
    (4) Acquisition vehicles. An issuer:
    (i) Formed solely for the purpose of engaging in a bona fide merger 
or acquisition transaction; and
    (ii) That exists only for such period as necessary to effectuate the 
transaction.
    (5) Foreign pension or retirement funds. A plan, fund, or program 
providing pension, retirement, or similar benefits that is:
    (i) Organized and administered outside the United States;
    (ii) A broad-based plan for employees or citizens that is subject to 
regulation as a pension, retirement, or similar plan under the laws of 
the jurisdiction in which the plan, fund, or program is organized and 
administered; and
    (iii) Established for the benefit of citizens or residents of one or 
more foreign sovereigns or any political subdivision thereof.
    (6) Insurance company separate accounts. A separate account, 
provided that no banking entity other than the insurance company 
participates in the account's profits and losses.
    (7) Bank owned life insurance. A separate account that is used 
solely for the purpose of allowing one or more banking entities to 
purchase a life insurance policy for which the banking entity or 
entities is beneficiary, provided that no banking entity that purchases 
the policy:
    (i) Controls the investment decisions regarding the underlying 
assets or holdings of the separate account; or
    (ii) Participates in the profits and losses of the separate account 
other than in compliance with applicable supervisory guidance regarding 
bank owned life insurance.
    (8) Loan securitizations. (i) Scope. An issuing entity for asset-
backed securities that satisfies all the conditions of this paragraph 
(c)(8) and the assets or holdings of which are comprised solely of:
    (A) Loans as defined in Sec.255.2(s) of subpart A;
    (B) Rights or other assets designed to assure the servicing or 
timely distribution of proceeds to holders of such securities and rights 
or other assets that are related or incidental to purchasing or 
otherwise acquiring and holding the loans, provided that each asset 
meets the requirements of paragraph (c)(8)(iii) of this section;
    (C) Interest rate or foreign exchange derivatives that meet the 
requirements of paragraph (c)(8)(iv) of this section; and
    (D) Special units of beneficial interest and collateral certificates 
that meet the requirements of paragraph (c)(8)(v) of this section.
    (ii) Impermissible assets. For purposes of this paragraph (c)(8), 
the assets or holdings of the issuing entity shall not include any of 
the following:
    (A) A security, including an asset-backed security, or an interest 
in an equity or debt security other than as permitted in paragraph 
(c)(8)(iii) of this section;
    (B) A derivative, other than a derivative that meets the 
requirements of paragraph (c)(8)(iv) of this section; or
    (C) A commodity forward contract.
    (iii) Permitted securities. Notwithstanding paragraph (c)(8)(ii)(A) 
of this section, the issuing entity may hold securities if those 
securities are:
    (A) Cash equivalents for purposes of the rights and assets in 
paragraph (c)(8)(i)(B) of this section; or
    (B) Securities received in lieu of debts previously contracted with 
respect to the loans supporting the asset-backed securities.
    (iv) Derivatives. The holdings of derivatives by the issuing entity 
shall be limited to interest rate or foreign exchange derivatives that 
satisfy all of the following conditions:
    (A) The written terms of the derivative directly relate to the 
loans, the asset-backed securities, or the contractual rights of other 
assets described in paragraph (c)(8)(i)(B) of this section; and
    (B) The derivatives reduce the interest rate and/or foreign exchange 
risks related to the loans, the asset-backed securities, or the 
contractual rights or other assets described in paragraph (c)(8)(i)(B) 
of this section.
    (v) Special units of beneficial interest and collateral 
certificates. The assets or holdings of the issuing entity may include 
collateral certificates and special units of beneficial interest issued 
by a special purpose vehicle, provided that:
    (A) The special purpose vehicle that issues the special unit of 
beneficial interest or collateral certificate meets the requirements in 
this paragraph (c)(8);
    (B) The special unit of beneficial interest or collateral 
certificate is used for the sole purpose of transferring to the issuing 
entity for the loan securitization the economic risks and benefits of 
the assets that are permissible for loan securitizations under this 
paragraph (c)(8) and does not directly or indirectly transfer any 
interest in any other economic or financial exposure;
    (C) The special unit of beneficial interest or collateral 
certificate is created solely to

[[Page 1080]]

satisfy legal requirements or otherwise facilitate the structuring of 
the loan securitization; and
    (D) The special purpose vehicle that issues the special unit of 
beneficial interest or collateral certificate and the issuing entity are 
established under the direction of the same entity that initiated the 
loan securitization.
    (9) Qualifying asset-backed commercial paper conduits. (i) An 
issuing entity for asset-backed commercial paper that satisfies all of 
the following requirements:
    (A) The asset-backed commercial paper conduit holds only:
    (1) Loans and other assets permissible for a loan securitization 
under paragraph (c)(8)(i) of this section; and
    (2) Asset-backed securities supported solely by assets that are 
permissible for loan securitizations under paragraph (c)(8)(i) of this 
section and acquired by the asset-backed commercial paper conduit as 
part of an initial issuance either directly from the issuing entity of 
the asset-backed securities or directly from an underwriter in the 
distribution of the asset-backed securities;
    (B) The asset-backed commercial paper conduit issues only asset-
backed securities, comprised of a residual interest and securities with 
a legal maturity of 397 days or less; and
    (C) A regulated liquidity provider has entered into a legally 
binding commitment to provide full and unconditional liquidity coverage 
with respect to all of the outstanding asset-backed securities issued by 
the asset-backed commercial paper conduit (other than any residual 
interest) in the event that funds are required to redeem maturing asset-
backed securities.
    (ii) For purposes of this paragraph (c)(9), a regulated liquidity 
provider means:
    (A) A depository institution, as defined in section 3(c) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(c));
    (B) A bank holding company, as defined in section 2(a) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(a)), or a subsidiary 
thereof;
    (C) A savings and loan holding company, as defined in section 10a of 
the Home Owners' Loan Act (12 U.S.C. 1467a), provided all or 
substantially all of the holding company's activities are permissible 
for a financial holding company under section 4(k) of the Bank Holding 
Company Act of 1956 (12 U.S.C. 1843(k)), or a subsidiary thereof;
    (D) A foreign bank whose home country supervisor, as defined in 
Sec.211.21(q) of the Board's Regulation K (12 CFR 211.21(q)), has 
adopted capital standards consistent with the Capital Accord for the 
Basel Committee on banking Supervision, as amended, and that is subject 
to such standards, or a subsidiary thereof; or
    (E) The United States or a foreign sovereign.
    (10) Qualifying covered bonds--(i) Scope. An entity owning or 
holding a dynamic or fixed pool of loans or other assets as provided in 
paragraph (c)(8) of this section for the benefit of the holders of 
covered bonds, provided that the assets in the pool are comprised solely 
of assets that meet the conditions in paragraph (c)(8)(i) of this 
section.
    (ii) Covered bond. For purposes of this paragraph (c)(10), a covered 
bond means:
    (A) A debt obligation issued by an entity that meets the definition 
of foreign banking organization, the payment obligations of which are 
fully and unconditionally guaranteed by an entity that meets the 
conditions set forth in paragraph (c)(10)(i) of this section; or
    (B) A debt obligation of an entity that meets the conditions set 
forth in paragraph (c)(10)(i) of this section, provided that the payment 
obligations are fully and unconditionally guaranteed by an entity that 
meets the definition of foreign banking organization and the entity is a 
wholly-owned subsidiary, as defined in paragraph (c)(2) of this section, 
of such foreign banking organization.
    (11) SBICs and public welfare investment funds. An issuer:
    (i) That is a small business investment company, as defined in 
section 103(3) of the Small Business Investment Act of 1958 (15 U.S.C. 
662), or that has received from the Small Business Administration notice 
to proceed to qualify for a license as a small business investment 
company, which notice or license has not been revoked; or
    (ii) The business of which is to make investments that are:
    (A) Designed primarily to promote the public welfare, of the type 
permitted under paragraph (11) of section 5136 of the Revised Statutes 
of the United States (12 U.S.C. 24), including the welfare of low- and 
moderate-income communities or families (such as providing housing, 
services, or jobs); or
    (B) Qualified rehabilitation expenditures with respect to a 
qualified rehabilitated building or certified historic structure, as 
such terms are defined in section 47 of the Internal Revenue Code of 
1986 or a similar State historic tax credit program.
    (12) Registered investment companies and excluded entities. An 
issuer:
    (i) That is registered as an investment company under section 8 of 
the Investment Company Act of 1940 (15 U.S.C. 80a-8), or that is formed 
and operated pursuant to a written plan to become a registered 
investment company as described in Sec.255.20(e)(3) of subpart D and 
that complies with the requirements of section 18 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-18);
    (ii) That may rely on an exclusion or exemption from the definition 
of ``investment company'' under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.) other than

[[Page 1081]]

the exclusions contained in section 3(c)(1) and 3(c)(7) of that Act; or
    (iii) That has elected to be regulated as a business development 
company pursuant to section 54(a) of that Act (15 U.S.C. 80a-53) and has 
not withdrawn its election, or that is formed and operated pursuant to a 
written plan to become a business development company as described in 
Sec.255.20(e)(3) of subpart D and that complies with the requirements 
of section 61 of the Investment Company Act of 1940 (15 U.S.C. 80a-60).
    (13) Issuers in conjunction with the FDIC's receivership or 
conservatorship operations. An issuer that is an entity formed by or on 
behalf of the FDIC for the purpose of facilitating the disposal of 
assets acquired in the FDIC's capacity as conservator or receiver under 
the Federal Deposit Insurance Act or Title II of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act.
    (14) Other excluded issuers. (i) Any issuer that the appropriate 
Federal banking agencies, the SEC, and the CFTC jointly determine the 
exclusion of which is consistent with the purposes of section 13 of the 
BHC Act.
    (ii) A determination made under paragraph (c)(14)(i) of this section 
will be promptly made public.
    (d) Definition of other terms related to covered funds. For purposes 
of this subpart:
    (1) Applicable accounting standards means U.S. generally accepted 
accounting principles, or such other accounting standards applicable to 
a banking entity that the SEC determines are appropriate and that the 
banking entity uses in the ordinary course of its business in preparing 
its consolidated financial statements.
    (2) Asset-backed security has the meaning specified in Section 
3(a)(79) of the Exchange Act (15 U.S.C. 78c(a)(79)).
    (3) Director has the same meaning as provided in section 215.2(d)(1) 
of the Board's Regulation O (12 CFR 215.2(d)(1)).
    (4) Issuer has the same meaning as in section 2(a)(22) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(22)).
    (5) Issuing entity means with respect to asset-backed securities the 
special purpose vehicle that owns or holds the pool assets underlying 
asset-backed securities and in whose name the asset-backed securities 
supported or serviced by the pool assets are issued.
    (6) Ownership interest--(i) Ownership interest means any equity, 
partnership, or other similar interest. An ``other similar interest'' 
means an interest that:
    (A) Has the right to participate in the selection or removal of a 
general partner, managing member, member of the board of directors or 
trustees, investment manager, investment adviser, or commodity trading 
advisor of the covered fund (excluding the rights of a creditor to 
exercise remedies upon the occurrence of an event of default or an 
acceleration event);
    (B) Has the right under the terms of the interest to receive a share 
of the income, gains or profits of the covered fund;
    (C) Has the right to receive the underlying assets of the covered 
fund after all other interests have been redeemed and/or paid in full 
(excluding the rights of a creditor to exercise remedies upon the 
occurrence of an event of default or an acceleration event);
    (D) Has the right to receive all or a portion of excess spread (the 
positive difference, if any, between the aggregate interest payments 
received from the underlying assets of the covered fund and the 
aggregate interest paid to the holders of other outstanding interests);
    (E) Provides under the terms of the interest that the amounts 
payable by the covered fund with respect to the interest could be 
reduced based on losses arising from the underlying assets of the 
covered fund, such as allocation of losses, write-downs or charge-offs 
of the outstanding principal balance, or reductions in the amount of 
interest due and payable on the interest;
    (F) Receives income on a pass-through basis from the covered fund, 
or has a rate of return that is determined by reference to the 
performance of the underlying assets of the covered fund; or
    (G) Any synthetic right to have, receive, or be allocated any of the 
rights in paragraphs (d)(6)(i)(A) through (F) of this section.
    (ii) Ownership interest does not include: Restricted profit 
interest. An interest held by an entity (or an employee or former 
employee thereof) in a covered fund for which the entity (or employee 
thereof) serves as investment manager, investment adviser, commodity 
trading advisor, or other service provider so long as:
    (A) The sole purpose and effect of the interest is to allow the 
entity (or employee or former employee thereof) to share in the profits 
of the covered fund as performance compensation for the investment 
management, investment advisory, commodity trading advisory, or other 
services provided to the covered fund by the entity (or employee or 
former employee thereof), provided that the entity (or employee or 
former employee thereof) may be obligated under the terms of such 
interest to return profits previously received;
    (B) All such profit, once allocated, is distributed to the entity 
(or employee or former employee thereof) promptly after being earned or, 
if not so distributed, is retained by the covered fund for the sole 
purpose of establishing a reserve amount to satisfy contractual 
obligations with respect to subsequent losses of the covered fund and 
such undistributed profit of the entity (or employee or former employee 
thereof) does not share

[[Page 1082]]

in the subsequent investment gains of the covered fund;
    (C) Any amounts invested in the covered fund, including any amounts 
paid by the entity (or employee or former employee thereof) in 
connection with obtaining the restricted profit interest, are within the 
limits of Sec.255.12 of this subpart; and
    (D) The interest is not transferable by the entity (or employee or 
former employee thereof) except to an affiliate thereof (or an employee 
of the banking entity or affiliate), to immediate family members, or 
through the intestacy, of the employee or former employee, or in 
connection with a sale of the business that gave rise to the restricted 
profit interest by the entity (or employee or former employee thereof) 
to an unaffiliated party that provides investment management, investment 
advisory, commodity trading advisory, or other services to the fund.
    (7) Prime brokerage transaction means any transaction that would be 
a covered transaction, as defined in section 23A(b)(7) of the Federal 
Reserve Act (12 U.S.C. 371c(b)(7)), that is provided in connection with 
custody, clearance and settlement, securities borrowing or lending 
services, trade execution, financing, or data, operational, and 
administrative support.
    (8) Resident of the United States means a person that is a ``U.S. 
person'' as defined in rule 902(k) of the SEC's Regulation S (17 CFR 
230.902(k)).
    (9) Sponsor means, with respect to a covered fund:
    (i) To serve as a general partner, managing member, or trustee of a 
covered fund, or to serve as a commodity pool operator with respect to a 
covered fund as defined in (b)(1)(ii) of this section;
    (ii) In any manner to select or to control (or to have employees, 
officers, or directors, or agents who constitute) a majority of the 
directors, trustees, or management of a covered fund; or
    (iii) To share with a covered fund, for corporate, marketing, 
promotional, or other purposes, the same name or a variation of the same 
name, except as permitted under Sec.255.11(a)(6).
    (10) Trustee. (i) For purposes of paragraph (d)(9) of this section 
and Sec.255.11 of subpart C, a trustee does not include:
    (A) A trustee that does not exercise investment discretion with 
respect to a covered fund, including a trustee that is subject to the 
direction of an unaffiliated named fiduciary who is not a trustee 
pursuant to section 403(a)(1) of the Employee's Retirement Income 
Security Act (29 U.S.C. 1103(a)(1)); or
    (B) A trustee that is subject to fiduciary standards imposed under 
foreign law that are substantially equivalent to those described in 
paragraph (d)(10)(i)(A) of this section;
    (ii) Any entity that directs a person described in paragraph 
(d)(10)(i) of this section, or that possesses authority and discretion 
to manage and control the investment decisions of a covered fund for 
which such person serves as trustee, shall be considered to be a trustee 
of such covered fund.

Sec.255.11 Permitted organizing and offering, underwriting, and market 
          making with respect to a covered fund.
    (a) Organizing and offering a covered fund in general. 
Notwithstanding Sec.255.10(a) of this subpart, a banking entity is not 
prohibited from acquiring or retaining an ownership interest in, or 
acting as sponsor to, a covered fund in connection with, directly or 
indirectly, organizing and offering a covered fund, including serving as 
a general partner, managing member, trustee, or commodity pool operator 
of the covered fund and in any manner selecting or controlling (or 
having employees, officers, directors, or agents who constitute) a 
majority of the directors, trustees, or management of the covered fund, 
including any necessary expenses for the foregoing, only if:
    (1) The banking entity (or an affiliate thereof) provides bona fide 
trust, fiduciary, investment advisory, or commodity trading advisory 
services;
    (2) The covered fund is organized and offered only in connection 
with the provision of bona fide trust, fiduciary, investment advisory, 
or commodity trading advisory services and only to persons that are 
customers of such services of the banking entity (or an affiliate 
thereof), pursuant to a written plan or similar documentation outlining 
how the banking entity or such affiliate intends to provide advisory or 
similar services to its customers through organizing and offering such 
fund;
    (3) The banking entity and its affiliates do not acquire or retain 
an ownership interest in the covered fund except as permitted under 
Sec.255.12 of this subpart;
    (4) The banking entity and its affiliates comply with the 
requirements of Sec.255.14 of this subpart;
    (5) The banking entity and its affiliates do not, directly or 
indirectly, guarantee, assume, or otherwise insure the obligations or 
performance of the covered fund or of any covered fund in which such 
covered fund invests;
    (6) The covered fund, for corporate, marketing, promotional, or 
other purposes:
    (i) Does not share the same name or a variation of the same name 
with the banking entity (or an affiliate thereof) except that a covered 
fund may share the same name or a variation of the same name with a 
banking entity that is an investment adviser to the covered fund if:
    (A) The investment adviser is not an insured depository institution, 
a company that controls an insured depository institution,

[[Page 1083]]

or a company that is treated as a bank holding company for purposes of 
section 8 of the International Banking Act of 1978 (12 U.S.C. 3106); and
    (B) The investment adviser does not share the same name or a 
variation of the same name as an insured depository institution, a 
company that controls an insured depository institution, or a company 
that is treated as a bank holding company for purposes of section 8 of 
the International Banking Act of 1978 (12 U.S.C. 3106); and
    (ii) Does not use the word ``bank'' in its name;
    (7) No director or employee of the banking entity (or an affiliate 
thereof) takes or retains an ownership interest in the covered fund, 
except for any director or employee of the banking entity or such 
affiliate who is directly engaged in providing investment advisory, 
commodity trading advisory, or other services to the covered fund at the 
time the director or employee takes the ownership interest; and
    (8) The banking entity:
    (i) Clearly and conspicuously discloses, in writing, to any 
prospective and actual investor in the covered fund (such as through 
disclosure in the covered fund's offering documents):
    (A) That ``any losses in [such covered fund] will be borne solely by 
investors in [the covered fund] and not by [the banking entity] or its 
affiliates; therefore, [the banking entity's] losses in [such covered 
fund] will be limited to losses attributable to the ownership interests 
in the covered fund held by [the banking entity] and any affiliate in 
its capacity as investor in the [covered fund] or as beneficiary of a 
restricted profit interest held by [the banking entity] or any 
affiliate'';
    (B) That such investor should read the fund offering documents 
before investing in the covered fund;
    (C) That the ``ownership interests in the covered fund are not 
insured by the FDIC, and are not deposits, obligations of, or endorsed 
or guaranteed in any way, by any banking entity'' (unless that happens 
to be the case); and
    (D) The role of the banking entity and its affiliates and employees 
in sponsoring or providing any services to the covered fund; and
    (ii) Complies with any additional rules of the appropriate Federal 
banking agencies, the SEC, or the CFTC, as provided in section 13(b)(2) 
of the BHC Act, designed to ensure that losses in such covered fund are 
borne solely by investors in the covered fund and not by the covered 
banking entity and its affiliates.
    (b) Organizing and offering an issuing entity of asset-backed 
securities. (1) Notwithstanding Sec.255.10(a) of this subpart, a 
banking entity is not prohibited from acquiring or retaining an 
ownership interest in, or acting as sponsor to, a covered fund that is 
an issuing entity of asset-backed securities in connection with, 
directly or indirectly, organizing and offering that issuing entity, so 
long as the banking entity and its affiliates comply with all of the 
requirements of paragraph (a)(3) through (8) of this section.
    (2) For purposes of this paragraph (b), organizing and offering a 
covered fund that is an issuing entity of asset-backed securities means 
acting as the securitizer, as that term is used in section 15G(a)(3) of 
the Exchange Act (15 U.S.C. 78o-11(a)(3)) of the issuing entity, or 
acquiring or retaining an ownership interest in the issuing entity as 
required by section 15G of that Act (15 U.S.C.78o-11) and the 
implementing regulations issued thereunder.
    (c) Underwriting and market making in ownership interests of a 
covered fund. The prohibition contained in Sec.255.10(a) of this 
subpart does not apply to a banking entity's underwriting activities or 
market making-related activities involving a covered fund so long as:
    (1) Those activities are conducted in accordance with the 
requirements of Sec.255.4(a) or Sec.255.4(b) of subpart B, 
respectively;
    (2) With respect to any banking entity (or any affiliate thereof) 
that: Acts as a sponsor, investment adviser or commodity trading advisor 
to a particular covered fund or otherwise acquires and retains an 
ownership interest in such covered fund in reliance on paragraph (a) of 
this section; acquires and retains an ownership interest in such covered 
fund and is either a securitizer, as that term is used in section 
15G(a)(3) of the Exchange Act (15 U.S.C. 78o-11(a)(3)), or is acquiring 
and retaining an ownership interest in such covered fund in compliance 
with section 15G of that Act (15 U.S.C.78o-11) and the implementing 
regulations issued thereunder each as permitted by paragraph (b) of this 
section; or, directly or indirectly, guarantees, assumes, or otherwise 
insures the obligations or performance of the covered fund or of any 
covered fund in which such fund invests, then in each such case any 
ownership interests acquired or retained by the banking entity and its 
affiliates in connection with underwriting and market making related 
activities for that particular covered fund are included in the 
calculation of ownership interests permitted to be held by the banking 
entity and its affiliates under the limitations of Sec.
255.12(a)(2)(ii) and Sec.255.12(d) of this subpart; and
    (3) With respect to any banking entity, the aggregate value of all 
ownership interests of the banking entity and its affiliates in all 
covered funds acquired and retained under Sec.255.11 of this subpart, 
including all covered funds in which the banking entity holds an

[[Page 1084]]

ownership interest in connection with underwriting and market making 
related activities permitted under this paragraph (c), are included in 
the calculation of all ownership interests under Sec.255.12(a)(2)(iii) 
and Sec.255.12(d) of this subpart.

Sec.255.12 Permitted investment in a covered fund.
    (a) Authority and limitations on permitted investments in covered 
funds. (1) Notwithstanding the prohibition contained in Sec.255.10(a) 
of this subpart, a banking entity may acquire and retain an ownership 
interest in a covered fund that the banking entity or an affiliate 
thereof organizes and offers pursuant to Sec.255.11, for the purposes 
of:
    (i) Establishment. Establishing the fund and providing the fund with 
sufficient initial equity for investment to permit the fund to attract 
unaffiliated investors, subject to the limits contained in paragraphs 
(a)(2)(i) and (iii) of this section; or
    (ii) De minimis investment. Making and retaining an investment in 
the covered fund subject to the limits contained in paragraphs 
(a)(2)(ii) and (iii) of this section.
    (2) Investment limits--(i) Seeding period. With respect to an 
investment in any covered fund made or held pursuant to paragraph 
(a)(1)(i) of this section, the banking entity and its affiliates:
    (A) Must actively seek unaffiliated investors to reduce, through 
redemption, sale, dilution, or other methods, the aggregate amount of 
all ownership interests of the banking entity in the covered fund to the 
amount permitted in paragraph (a)(2)(i)(B) of this section; and
    (B) Must, no later than 1 year after the date of establishment of 
the fund (or such longer period as may be provided by the Board pursuant 
to paragraph (e) of this section), conform its ownership interest in the 
covered fund to the limits in paragraph (a)(2)(ii) of this section;
    (ii) Per-fund limits. (A) Except as provided in paragraph 
(a)(2)(ii)(B) of this section, an investment by a banking entity and its 
affiliates in any covered fund made or held pursuant to paragraph 
(a)(1)(ii) of this section may not exceed 3 percent of the total number 
or value of the outstanding ownership interests of the fund.
    (B) An investment by a banking entity and its affiliates in a 
covered fund that is an issuing entity of asset-backed securities may 
not exceed 3 percent of the total fair market value of the ownership 
interests of the fund measured in accordance with paragraph (b)(3) of 
this section, unless a greater percentage is retained by the banking 
entity and its affiliates in compliance with the requirements of section 
15G of the Exchange Act (15 U.S.C. 78o-11) and the implementing 
regulations issued thereunder, in which case the investment by the 
banking entity and its affiliates in the covered fund may not exceed the 
amount, number, or value of ownership interests of the fund required 
under section 15G of the Exchange Act and the implementing regulations 
issued thereunder.
    (iii) Aggregate limit. The aggregate value of all ownership 
interests of the banking entity and its affiliates in all covered funds 
acquired or retained under this section may not exceed 3 percent of the 
tier 1 capital of the banking entity, as provided under paragraph (c) of 
this section, and shall be calculated as of the last day of each 
calendar quarter.
    (iv) Date of establishment. For purposes of this section, the date 
of establishment of a covered fund shall be:
    (A) In general. The date on which the investment adviser or similar 
entity to the covered fund begins making investments pursuant to the 
written investment strategy for the fund;
    (B) Issuing entities of asset-backed securities. In the case of an 
issuing entity of asset-backed securities, the date on which the assets 
are initially transferred into the issuing entity of asset-backed 
securities.
    (b) Rules of construction--(1) Attribution of ownership interests to 
a covered banking entity. (i) For purposes of paragraph (a)(2) of this 
section, the amount and value of a banking entity's permitted investment 
in any single covered fund shall include any ownership interest held 
under Sec.255__.12 directly by the banking entity, including any 
affiliate of the banking entity.
    (ii) Treatment of registered investment companies, SEC-regulated 
business development companies and foreign public funds. For purposes of 
paragraph (b)(1)(i) of this section, a registered investment company, 
SEC-regulated business development companies or foreign public fund as 
described in Sec.255__.10(c)(1) of this subpart will not be considered 
to be an affiliate of the banking entity so long as the banking entity:
    (A) Does not own, control, or hold with the power to vote 25 percent 
or more of the voting shares of the company or fund; and
    (B) Provides investment advisory, commodity trading advisory, 
administrative, and other services to the company or fund in compliance 
with the limitations under applicable regulation, order, or other 
authority.
    (iii) Covered funds. For purposes of paragraph (b)(1)(i) of this 
section, a covered fund will not be considered to be an affiliate of a 
banking entity so long as the covered fund is held in compliance with 
the requirements of this subpart.
    (iv) Treatment of employee and director investments financed by the 
banking entity. For purposes of paragraph (b)(1)(i) of this section, an 
investment by a director or employee of a banking entity who acquires an 
ownership interest in his or her personal capacity in a

[[Page 1085]]

covered fund sponsored by the banking entity will be attributed to the 
banking entity if the banking entity, directly or indirectly, extends 
financing for the purpose of enabling the director or employee to 
acquire the ownership interest in the fund and the financing is used to 
acquire such ownership interest in the covered fund.
    (2) Calculation of permitted ownership interests in a single covered 
fund. Except as provided in paragraph (b)(3) or (4), for purposes of 
determining whether an investment in a single covered fund complies with 
the restrictions on ownership interests under paragraphs (a)(2)(i)(B) 
and (a)(2)(ii)(A) of this section:
    (i) The aggregate number of the outstanding ownership interests held 
by the banking entity shall be the total number of ownership interests 
held under this section by the banking entity in a covered fund divided 
by the total number of ownership interests held by all entities in that 
covered fund, as of the last day of each calendar quarter (both measured 
without regard to committed funds not yet called for investment);
    (ii) The aggregate value of the outstanding ownership interests held 
by the banking entity shall be the aggregate fair market value of all 
investments in and capital contributions made to the covered fund by the 
banking entity, divided by the value of all investments in and capital 
contributions made to that covered fund by all entities, as of the last 
day of each calendar quarter (all measured without regard to committed 
funds not yet called for investment). If fair market value cannot be 
determined, then the value shall be the historical cost basis of all 
investments in and contributions made by the banking entity to the 
covered fund;
    (iii) For purposes of the calculation under paragraph (b)(2)(ii) of 
this section, once a valuation methodology is chosen, the banking entity 
must calculate the value of its investment and the investments of all 
others in the covered fund in the same manner and according to the same 
standards.
    (3) Issuing entities of asset-backed securities. In the case of an 
ownership interest in an issuing entity of asset-backed securities, for 
purposes of determining whether an investment in a single covered fund 
complies with the restrictions on ownership interests under paragraphs 
(a)(2)(i)(B) and (a)(2)(ii)(B) of this section:
    (i) For securitizations subject to the requirements of section 15G 
of the Exchange Act (15 U.S.C. 78o-11), the calculations shall be made 
as of the date and according to the valuation methodology applicable 
pursuant to the requirements of section 15G of the Exchange Act (15 
U.S.C. 78o-11) and the implementing regulations issued thereunder; or
    (ii) For securitization transactions completed prior to the 
compliance date of such implementing regulations (or as to which such 
implementing regulations do not apply), the calculations shall be made 
as of the date of establishment as defined in paragraph (a)(2)(iv)(B) of 
this section or such earlier date on which the transferred assets have 
been valued for purposes of transfer to the covered fund, and thereafter 
only upon the date on which additional securities of the issuing entity 
of asset-backed securities are priced for purposes of the sales of 
ownership interests to unaffiliated investors.
    (iii) For securitization transactions completed prior to the 
compliance date of such implementing regulations (or as to which such 
implementing regulations do not apply), the aggregate value of the 
outstanding ownership interests in the covered fund shall be the fair 
market value of the assets transferred to the issuing entity of the 
securitization and any other assets otherwise held by the issuing entity 
at such time, determined in a manner that is consistent with its 
determination of the fair market value of those assets for financial 
statement purposes.
    (iv) For purposes of the calculation under paragraph (b)(3)(iii) of 
this section, the valuation methodology used to calculate the fair 
market value of the ownership interests must be the same for both the 
ownership interests held by a banking entity and the ownership interests 
held by all others in the covered fund in the same manner and according 
to the same standards.
    (4) Multi-tier fund investments--(i) Master-feeder fund investments. 
If the principal investment strategy of a covered fund (the ``feeder 
fund'') is to invest substantially all of its assets in another single 
covered fund (the ``master fund''), then for purposes of the investment 
limitations in paragraphs (a)(2)(i)(B) and (a)(2)(ii) of this section, 
the banking entity's permitted investment in such funds shall be 
measured only by reference to the value of the master fund. The banking 
entity's permitted investment in the master fund shall include any 
investment by the banking entity in the master fund, as well as the 
banking entity's pro-rata share of any ownership interest of the master 
fund that is held through the feeder fund; and
    (ii) Fund-of-funds investments. If a banking entity organizes and 
offers a covered fund pursuant to Sec.255.11 of this subpart for the 
purpose of investing in other covered funds (a ``fund of funds'') and 
that fund of funds itself invests in another covered fund that the 
banking entity is permitted to own, then the banking entity's permitted 
investment in that other fund shall include any investment by the 
banking entity in that other fund, as well as the banking entity's pro-
rata share of any ownership interest of the fund that is held through 
the fund of funds. The investment of the banking entity may not

[[Page 1086]]

represent more than 3 percent of the amount or value of any single 
covered fund.
    (c) Aggregate permitted investments in all covered funds. (1) For 
purposes of paragraph (a)(2)(iii) of this section, the aggregate value 
of all ownership interests held by a banking entity shall be the sum of 
all amounts paid or contributed by the banking entity in connection with 
acquiring or retaining an ownership interest in covered funds (together 
with any amounts paid by the entity (or employee thereof) in connection 
with obtaining a restricted profit interest under Sec.
255__.10(d)(6)(ii) of this subpart), on a historical cost basis.
    (2) Calculation of tier 1 capital. For purposes of paragraph 
(a)(2)(iii) of this section:
    (i) Entities that are required to hold and report tier 1 capital. If 
a banking entity is required to calculate and report tier 1 capital, the 
banking entity's tier 1 capital shall be equal to the amount of tier 1 
capital of the banking entity as of the last day of the most recent 
calendar quarter, as reported to its primary financial regulatory 
agency; and
    (ii) If a banking entity is not required to calculate and report 
tier 1 capital, the banking entity's tier 1 capital shall be determined 
to be equal to:
    (A) In the case of a banking entity that is controlled, directly or 
indirectly, by a depository institution that calculates and reports tier 
1 capital, be equal to the amount of tier 1 capital reported by such 
controlling depository institution in the manner described in paragraph 
(c)(2)(i) of this section;
    (B) In the case of a banking entity that is not controlled, directly 
or indirectly, by a depository institution that calculates and reports 
tier 1 capital:
    (1) Bank holding company subsidiaries. If the banking entity is a 
subsidiary of a bank holding company or company that is treated as a 
bank holding company, be equal to the amount of tier 1 capital reported 
by the top-tier affiliate of such covered banking entity that calculates 
and reports tier 1 capital in the manner described in paragraph 
(c)(2)(i) of this section; and
    (2) Other holding companies and any subsidiary or affiliate thereof. 
If the banking entity is not a subsidiary of a bank holding company or a 
company that is treated as a bank holding company, be equal to the total 
amount of shareholders' equity of the top-tier affiliate within such 
organization as of the last day of the most recent calendar quarter that 
has ended, as determined under applicable accounting standards.
    (iii) Treatment of foreign banking entities--(A) Foreign banking 
entities. Except as provided in paragraph (c)(2)(iii)(B) of this 
section, with respect to a banking entity that is not itself, and is not 
controlled directly or indirectly by, a banking entity that is located 
or organized under the laws of the United States or of any State, the 
tier 1 capital of the banking entity shall be the consolidated tier 1 
capital of the entity as calculated under applicable home country 
standards.
    (B) U.S. affiliates of foreign banking entities. With respect to a 
banking entity that is located or organized under the laws of the United 
States or of any State and is controlled by a foreign banking entity 
identified under paragraph (c)(2)(iii)(A) of this section, the banking 
entity's tier 1 capital shall be as calculated under paragraphs 
(c)(2)(i) or (ii) of this section.
    (d) Capital treatment for a permitted investment in a covered fund. 
For purposes of calculating compliance with the applicable regulatory 
capital requirements, a banking entity shall deduct from the banking 
entity's tier 1 capital (as determined under paragraph (c)(2) of this 
section) the greater of:
    (1) The sum of all amounts paid or contributed by the banking entity 
in connection with acquiring or retaining an ownership interest 
(together with any amounts paid by the entity (or employee thereof) in 
connection with obtaining a restricted profit interest under Sec.
255__.10(d)(6)(ii) of subpart C), on a historical cost basis, plus any 
earnings received; and
    (2) The fair market value of the banking entity's ownership 
interests in the covered fund as determined under paragraph (b)(2)(ii) 
or (b)(3) of this section (together with any amounts paid by the entity 
(or employee thereof) in connection with obtaining a restricted profit 
interest under Sec.255__.10(d)(6)(ii) of subpart C), if the banking 
entity accounts for the profits (or losses) of the fund investment in 
its financial statements.
    (e) Extension of time to divest an ownership interest. (1) Upon 
application by a banking entity, the Board may extend the period under 
paragraph (a)(2)(i) of this section for up to 2 additional years if the 
Board finds that an extension would be consistent with safety and 
soundness and not detrimental to the public interest. An application for 
extension must:
    (i) Be submitted to the Board at least 90 days prior to the 
expiration of the applicable time period;
    (ii) Provide the reasons for application, including information that 
addresses the factors in paragraph (e)(2) of this section; and
    (iii) Explain the banking entity's plan for reducing the permitted 
investment in a covered fund through redemption, sale, dilution or other 
methods as required in paragraph (a)(2) of this section.
    (2) Factors governing Board determinations. In reviewing any 
application under paragraph (e)(1) of this section, the Board may 
consider all the facts and circumstances related to the permitted 
investment in a covered fund, including:

[[Page 1087]]

    (i) Whether the investment would result, directly or indirectly, in 
a material exposure by the banking entity to high-risk assets or high-
risk trading strategies;
    (ii) The contractual terms governing the banking entity's interest 
in the covered fund;
    (iii) The date on which the covered fund is expected to have 
attracted sufficient investments from investors unaffiliated with the 
banking entity to enable the banking entity to comply with the 
limitations in paragraph (a)(2)(i) of this section;
    (iv) The total exposure of the covered banking entity to the 
investment and the risks that disposing of, or maintaining, the 
investment in the covered fund may pose to the banking entity and the 
financial stability of the United States;
    (v) The cost to the banking entity of divesting or disposing of the 
investment within the applicable period;
    (vi) Whether the investment or the divestiture or conformance of the 
investment would involve or result in a material conflict of interest 
between the banking entity and unaffiliated parties, including clients, 
customers or counterparties to which it owes a duty;
    (vi) The banking entity's prior efforts to reduce through 
redemption, sale, dilution, or other methods its ownership interests in 
the covered fund, including activities related to the marketing of 
interests in such covered fund;
    (viii) Market conditions; and
    (ix) Any other factor that the Board believes appropriate.
    (3) Authority to impose restrictions on activities or investment 
during any extension period. The Board may impose such conditions on any 
extension approved under paragraph (e)(1) of this section as the Board 
determines are necessary or appropriate to protect the safety and 
soundness of the banking entity or the financial stability of the United 
States, address material conflicts of interest or other unsound banking 
practices, or otherwise further the purposes of section 13 of the BHC 
Act and this part.
    (4) Consultation. In the case of a banking entity that is primarily 
regulated by another Federal banking agency, the SEC, or the CFTC, the 
Board will consult with such agency prior to acting on an application by 
the banking entity for an extension under paragraph (e)(1) of this 
section.

Sec.255.13 Other permitted covered fund activities and investments.
    (a) Permitted risk-mitigating hedging activities. (1) The 
prohibition contained in Sec.255.10(a) of this subpart does not apply 
with respect to an ownership interest in a covered fund acquired or 
retained by a banking entity that is designed to demonstrably reduce or 
otherwise significantly mitigate the specific, identifiable risks to the 
banking entity in connection with a compensation arrangement with an 
employee of the banking entity or an affiliate thereof that directly 
provides investment advisory, commodity trading advisory or other 
services to the covered fund.
    (2) Requirements. The risk-mitigating hedging activities of a 
banking entity are permitted under this paragraph (a) only if:
    (i) The banking entity has established and implements, maintains and 
enforces an internal compliance program required by subpart D of this 
part that is reasonably designed to ensure the banking entity's 
compliance with the requirements of this section, including:
    (A) Reasonably designed written policies and procedures; and
    (B) Internal controls and ongoing monitoring, management, and 
authorization procedures, including relevant escalation procedures; and
    (ii) The acquisition or retention of the ownership interest:
    (A) Is made in accordance with the written policies, procedures and 
internal controls required under this section;
    (B) At the inception of the hedge, is designed to reduce or 
otherwise significantly mitigate and demonstrably reduces or otherwise 
significantly mitigates one or more specific, identifiable risks arising 
in connection with the compensation arrangement with the employee that 
directly provides investment advisory, commodity trading advisory, or 
other services to the covered fund;
    (C) Does not give rise, at the inception of the hedge, to any 
significant new or additional risk that is not itself hedged 
contemporaneously in accordance with this section; and
    (D) Is subject to continuing review, monitoring and management by 
the banking entity.
    (iii) The compensation arrangement relates solely to the covered 
fund in which the banking entity or any affiliate has acquired an 
ownership interest pursuant to this paragraph and such compensation 
arrangement provides that any losses incurred by the banking entity on 
such ownership interest will be offset by corresponding decreases in 
amounts payable under such compensation arrangement.
    (b) Certain permitted covered fund activities and investments 
outside of the United States. (1) The prohibition contained in Sec.
255.10(a) of this subpart does not apply to the acquisition or retention 
of any ownership interest in, or the sponsorship of, a covered fund by a 
banking entity only if:
    (i) The banking entity is not organized or directly or indirectly 
controlled by a banking entity that is organized under the laws of the 
United States or of one or more States;

[[Page 1088]]

    (ii) The activity or investment by the banking entity is pursuant to 
paragraph (9) or (13) of section 4(c) of the BHC Act;
    (iii) No ownership interest in the covered fund is offered for sale 
or sold to a resident of the United States; and
    (iv) The activity or investment occurs solely outside of the United 
States.
    (2) An activity or investment by the banking entity is pursuant to 
paragraph (9) or (13) of section 4(c) of the BHC Act for purposes of 
paragraph (b)(1)(ii) of this section only if:
    (i) The activity or investment is conducted in accordance with the 
requirements of this section; and
    (ii)(A) With respect to a banking entity that is a foreign banking 
organization, the banking entity meets the qualifying foreign banking 
organization requirements of section 211.23(a), (c) or (e) of the 
Board's Regulation K (12 CFR 211.23(a), (c) or (e)), as applicable; or
    (B) With respect to a banking entity that is not a foreign banking 
organization, the banking entity is not organized under the laws of the 
United States or of one or more States and the banking entity, on a 
fully-consolidated basis, meets at least two of the following 
requirements:
    (1) Total assets of the banking entity held outside of the United 
States exceed total assets of the banking entity held in the United 
States;
    (2) Total revenues derived from the business of the banking entity 
outside of the United States exceed total revenues derived from the 
business of the banking entity in the United States; or
    (3) Total net income derived from the business of the banking entity 
outside of the United States exceeds total net income derived from the 
business of the banking entity in the United States.
    (3) An ownership interest in a covered fund is not offered for sale 
or sold to a resident of the United States for purposes of paragraph 
(b)(1)(iii) of this section only if it is sold or has been sold pursuant 
to an offering that does not target residents of the United States.
    (4) An activity or investment occurs solely outside of the United 
States for purposes of paragraph (b)(1)(iv) of this section only if:
    (i) The banking entity acting as sponsor, or engaging as principal 
in the acquisition or retention of an ownership interest in the covered 
fund, is not itself, and is not controlled directly or indirectly by, a 
banking entity that is located in the United States or organized under 
the laws of the United States or of any State;
    (ii) The banking entity (including relevant personnel) that makes 
the decision to acquire or retain the ownership interest or act as 
sponsor to the covered fund is not located in the United States or 
organized under the laws of the United States or of any State;
    (iii) The investment or sponsorship, including any transaction 
arising from risk-mitigating hedging related to an ownership interest, 
is not accounted for as principal directly or indirectly on a 
consolidated basis by any branch or affiliate that is located in the 
United States or organized under the laws of the United States or of any 
State; and
    (iv) No financing for the banking entity's ownership or sponsorship 
is provided, directly or indirectly, by any branch or affiliate that is 
located in the United States or organized under the laws of the United 
States or of any State.
    (5) For purposes of this section, a U.S. branch, agency, or 
subsidiary of a foreign bank, or any subsidiary thereof, is located in 
the United States; however, a foreign bank of which that branch, agency, 
or subsidiary is a part is not considered to be located in the United 
States solely by virtue of operation of the U.S. branch, agency, or 
subsidiary.
    (c) Permitted covered fund interests and activities by a regulated 
insurance company. The prohibition contained in Sec.255.10(a) of this 
subpart does not apply to the acquisition or retention by an insurance 
company, or an affiliate thereof, of any ownership interest in, or the 
sponsorship of, a covered fund only if:
    (1) The insurance company or its affiliate acquires and retains the 
ownership interest solely for the general account of the insurance 
company or for one or more separate accounts established by the 
insurance company;
    (2) The acquisition and retention of the ownership interest is 
conducted in compliance with, and subject to, the insurance company 
investment laws, regulations, and written guidance of the State or 
jurisdiction in which such insurance company is domiciled; and
    (3) The appropriate Federal banking agencies, after consultation 
with the Financial Stability Oversight Council and the relevant 
insurance commissioners of the States and foreign jurisdictions, as 
appropriate, have not jointly determined, after notice and comment, that 
a particular law, regulation, or written guidance described in paragraph 
(c)(2) of this section is insufficient to protect the safety and 
soundness of the banking entity, or the financial stability of the 
United States.

Sec.255.14 Limitations on relationships with a covered fund.
    (a) Relationships with a covered fund. (1) Except as provided for in 
paragraph (a)(2) of this section, no banking entity that serves, 
directly or indirectly, as the investment manager, investment adviser, 
commodity trading advisor, or sponsor to a covered fund,

[[Page 1089]]

that organizes and offers a covered fund pursuant to Sec.255.11 of 
this subpart, or that continues to hold an ownership interest in 
accordance with Sec.255.11(b) of this subpart, and no affiliate of 
such entity, may enter into a transaction with the covered fund, or with 
any other covered fund that is controlled by such covered fund, that 
would be a covered transaction as defined in section 23A of the Federal 
Reserve Act (12 U.S.C. 371c(b)(7)), as if such banking entity and the 
affiliate thereof were a member bank and the covered fund were an 
affiliate thereof.
    (2) Notwithstanding paragraph (a)(1) of this section, a banking 
entity may:
    (i) Acquire and retain any ownership interest in a covered fund in 
accordance with the requirements of Sec.255.11, Sec.255.12, or Sec.
255.13 of this subpart; and
    (ii) Enter into any prime brokerage transaction with any covered 
fund in which a covered fund managed, sponsored, or advised by such 
banking entity (or an affiliate thereof) has taken an ownership 
interest, if:
    (A) The banking entity is in compliance with each of the limitations 
set forth in Sec.255.11 of this subpart with respect to a covered fund 
organized and offered by such banking entity (or an affiliate thereof);
    (B) The chief executive officer (or equivalent officer) of the 
banking entity certifies in writing annually to the SEC (with a duty to 
update the certification if the information in the certification 
materially changes) that the banking entity does not, directly or 
indirectly, guarantee, assume, or otherwise insure the obligations or 
performance of the covered fund or of any covered fund in which such 
covered fund invests; and
    (C) The Board has not determined that such transaction is 
inconsistent with the safe and sound operation and condition of the 
banking entity.
    (b) Restrictions on transactions with covered funds. A banking 
entity that serves, directly or indirectly, as the investment manager, 
investment adviser, commodity trading advisor, or sponsor to a covered 
fund, or that organizes and offers a covered fund pursuant to Sec.
255.11 of this subpart, or that continues to hold an ownership interest 
in accordance with Sec.255.11(b) of this subpart, shall be subject to 
section 23B of the Federal Reserve Act (12 U.S.C. 371c-1), as if such 
banking entity were a member bank and such covered fund were an 
affiliate thereof.
    (c) Restrictions on prime brokerage transactions. A prime brokerage 
transaction permitted under paragraph (a)(2)(ii) of this section shall 
be subject to section 23B of the Federal Reserve Act (12 U.S.C. 371c-1) 
as if the counterparty were an affiliate of the banking entity.

Sec.255.15 Other limitations on permitted covered fund activities.
    (a) No transaction, class of transactions, or activity may be deemed 
permissible under Sec.Sec.255.11 through 255.13 of this subpart if 
the transaction, class of transactions, or activity would:
    (1) Involve or result in a material conflict of interest between the 
banking entity and its clients, customers, or counterparties;
    (2) Result, directly or indirectly, in a material exposure by the 
banking entity to a high-risk asset or a high-risk trading strategy; or
    (3) Pose a threat to the safety and soundness of the banking entity 
or to the financial stability of the United States.
    (b) Definition of material conflict of interest. (1) For purposes of 
this section, a material conflict of interest between a banking entity 
and its clients, customers, or counterparties exists if the banking 
entity engages in any transaction, class of transactions, or activity 
that would involve or result in the banking entity's interests being 
materially adverse to the interests of its client, customer, or 
counterparty with respect to such transaction, class of transactions, or 
activity, and the banking entity has not taken at least one of the 
actions in paragraph (b)(2) of this section.
    (2) Prior to effecting the specific transaction or class or type of 
transactions, or engaging in the specific activity, the banking entity:
    (i) Timely and effective disclosure. (A) Has made clear, timely, and 
effective disclosure of the conflict of interest, together with other 
necessary information, in reasonable detail and in a manner sufficient 
to permit a reasonable client, customer, or counterparty to meaningfully 
understand the conflict of interest; and
    (B) Such disclosure is made in a manner that provides the client, 
customer, or counterparty the opportunity to negate, or substantially 
mitigate, any materially adverse effect on the client, customer, or 
counterparty created by the conflict of interest; or
    (ii) Information barriers. Has established, maintained, and enforced 
information barriers that are memorialized in written policies and 
procedures, such as physical separation of personnel, or functions, or 
limitations on types of activity, that are reasonably designed, taking 
into consideration the nature of the banking entity's business, to 
prevent the conflict of interest from involving or resulting in a 
materially adverse effect on a client, customer, or counterparty. A 
banking entity may not rely on such information barriers if, in the case 
of any specific transaction, class or type of transactions or activity, 
the banking entity knows or should reasonably know that, notwithstanding 
the

[[Page 1090]]

banking entity's establishment of information barriers, the conflict of 
interest may involve or result in a materially adverse effect on a 
client, customer, or counterparty.
    (c) Definition of high-risk asset and high-risk trading strategy. 
For purposes of this section:
    (1) High-risk asset means an asset or group of related assets that 
would, if held by a banking entity, significantly increase the 
likelihood that the banking entity would incur a substantial financial 
loss or would pose a threat to the financial stability of the United 
States.
    (2) High-risk trading strategy means a trading strategy that would, 
if engaged in by a banking entity, significantly increase the likelihood 
that the banking entity would incur a substantial financial loss or 
would pose a threat to the financial stability of the United States.

Sec.255.16 Ownership of interests in and sponsorship of issuers of 
          certain collateralized debt obligations backed by trust-
          preferred securities.
    (a) The prohibition contained in Sec.255.10(a)(1) does not apply 
to the ownership by a banking entity of an interest in, or sponsorship 
of, any issuer if:
    (1) The issuer was established, and the interest was issued, before 
May 19, 2010;
    (2) The banking entity reasonably believes that the offering 
proceeds received by the issuer were invested primarily in Qualifying 
TruPS Collateral; and
    (3) The banking entity acquired such interest on or before December 
10, 2013 (or acquired such interest in connection with a merger with or 
acquisition of a banking entity that acquired the interest on or before 
December 10, 2013).
    (b) For purposes of this Sec.255.16, Qualifying TruPS Collateral 
shall mean any trust preferred security or subordinated debt instrument 
issued prior to May 19, 2010 by a depository institution holding company 
that, as of the end of any reporting period within 12 months immediately 
preceding the issuance of such trust preferred security or subordinated 
debt instrument, had total consolidated assets of less than 
$15,000,000,000 or issued prior to May 19, 2010 by a mutual holding 
company.
    (c) Notwithstanding paragraph (a)(3) of this section, a banking 
entity may act as a market maker with respect to the interests of an 
issuer described in paragraph (a) of this section in accordance with the 
applicable provisions of Sec.Sec.255.4 and 255.11.
    (d) Without limiting the applicability of paragraph (a) of this 
section, the Board, the FDIC and the OCC will make public a non-
exclusive list of issuers that meet the requirements of paragraph (a). A 
banking entity may rely on the list published by the Board, the FDIC and 
the OCC.

Sec.Sec.255.17-255.19 [Reserved]

          Subpart D--Compliance Program Requirement; Violations

Sec.255.20 Program for compliance; reporting.
    (a) Program requirement. Each banking entity shall develop and 
provide for the continued administration of a compliance program 
reasonably designed to ensure and monitor compliance with the 
prohibitions and restrictions on proprietary trading and covered fund 
activities and investments set forth in section 13 of the BHC Act and 
this part. The terms, scope and detail of the compliance program shall 
be appropriate for the types, size, scope and complexity of activities 
and business structure of the banking entity.
    (b) Contents of compliance program. Except as provided in paragraph 
(f) of this section, the compliance program required by paragraph (a) of 
this section, at a minimum, shall include:
    (1) Written policies and procedures reasonably designed to document, 
describe, monitor and limit trading activities subject to subpart B 
(including those permitted under Sec.Sec.255.3 to 255.6 of subpart 
B), including setting, monitoring and managing required limits set out 
in Sec.2554 and Sec.2555, and activities and investments with 
respect to a covered fund subject to subpart C (including those 
permitted under Sec.Sec.255.11 through 255.14 of subpart C) conducted 
by the banking entity to ensure that all activities and investments 
conducted by the banking entity that are subject to section 13 of the 
BHC Act and this part comply with section 13 of the BHC Act and this 
part;
    (2) A system of internal controls reasonably designed to monitor 
compliance with section 13 of the BHC Act and this part and to prevent 
the occurrence of activities or investments that are prohibited by 
section 13 of the BHC Act and this part;
    (3) A management framework that clearly delineates responsibility 
and accountability for compliance with section 13 of the BHC Act and 
this part and includes appropriate management review of trading limits, 
strategies, hedging activities, investments, incentive compensation and 
other matters identified in this part or by management as requiring 
attention;
    (4) Independent testing and audit of the effectiveness of the 
compliance program conducted periodically by qualified personnel of the 
banking entity or by a qualified outside party;
    (5) Training for trading personnel and managers, as well as other 
appropriate personnel, to effectively implement and enforce the 
compliance program; and
    (6) Records sufficient to demonstrate compliance with section 13 of 
the BHC Act and this part, which a banking entity must promptly provide 
to the SEC upon request

[[Page 1091]]

and retain for a period of no less than 5 years or such longer period as 
required by the SEC.
    (c) Additional standards. In addition to the requirements in 
paragraph (b) of this section, the compliance program of a banking 
entity must satisfy the requirements and other standards contained in 
Appendix B, if:
    (1) The banking entity engages in proprietary trading permitted 
under subpart B and is required to comply with the reporting 
requirements of paragraph (d) of this section;
    (2) The banking entity has reported total consolidated assets as of 
the previous calendar year end of $50 billion or more or, in the case of 
a foreign banking entity, has total U.S. assets as of the previous 
calendar year end of $50 billion or more (including all subsidiaries, 
affiliates, branches and agencies of the foreign banking entity 
operating, located or organized in the United States); or
    (3) The SEC notifies the banking entity in writing that it must 
satisfy the requirements and other standards contained in Appendix B to 
this part.
    (d) Reporting requirements under Appendix A to this part. (1) A 
banking entity engaged in proprietary trading activity permitted under 
subpart B shall comply with the reporting requirements described in 
Appendix A, if:
    (i) The banking entity (other than a foreign banking entity as 
provided in paragraph (d)(1)(ii) of this section) has, together with its 
affiliates and subsidiaries, trading assets and liabilities (excluding 
trading assets and liabilities involving obligations of or guaranteed by 
the United States or any agency of the United States) the average gross 
sum of which (on a worldwide consolidated basis) over the previous 
consecutive four quarters, as measured as of the last day of each of the 
four prior calendar quarters, equals or exceeds the threshold 
established in paragraph (d)(2) of this section;
    (ii) In the case of a foreign banking entity, the average gross sum 
of the trading assets and liabilities of the combined U.S. operations of 
the foreign banking entity (including all subsidiaries, affiliates, 
branches and agencies of the foreign banking entity operating, located 
or organized in the United States and excluding trading assets and 
liabilities involving obligations of or guaranteed by the United States 
or any agency of the United States) over the previous consecutive four 
quarters, as measured as of the last day of each of the four prior 
calendar quarters, equals or exceeds the threshold established in 
paragraph (d)(2) of this section; or
    (iii) The SEC notifies the banking entity in writing that it must 
satisfy the reporting requirements contained in Appendix A.
    (2) The threshold for reporting under paragraph (d)(1) of this 
section shall be $50 billion beginning on June 30, 2014; $25 billion 
beginning on April 30, 2016; and $10 billion beginning on December 31, 
2016.
    (3) Frequency of reporting: Unless the SEC notifies the banking 
entity in writing that it must report on a different basis, a banking 
entity with $50 billion or more in trading assets and liabilities (as 
calculated in accordance with paragraph (d)(1) of this section) shall 
report the information required by Appendix A for each calendar month 
within 30 days of the end of the relevant calendar month; beginning with 
information for the month of January 2015, such information shall be 
reported within 10 days of the end of each calendar month. Any other 
banking entity subject to Appendix A shall report the information 
required by Appendix A for each calendar quarter within 30 days of the 
end of that calendar quarter unless the SEC notifies the banking entity 
in writing that it must report on a different basis.
    (e) Additional documentation for covered funds. Any banking entity 
that has more than $10 billion in total consolidated assets as reported 
on December 31 of the previous two calendar years shall maintain records 
that include:
    (1) Documentation of the exclusions or exemptions other than 
sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 
relied on by each fund sponsored by the banking entity (including all 
subsidiaries and affiliates) in determining that such fund is not a 
covered fund;
    (2) For each fund sponsored by the banking entity (including all 
subsidiaries and affiliates) for which the banking entity relies on one 
or more of the exclusions from the definition of covered fund provided 
by Sec.Sec.255.10(c)(1), 255.10(c)(5), 255.10(c)(8), 255.10(c)(9), or 
255.10(c)(10) of subpart C, documentation supporting the banking 
entity's determination that the fund is not a covered fund pursuant to 
one or more of those exclusions;
    (3) For each seeding vehicle described in Sec.255.10(c)(12)(i) or 
(iii) of subpart C that will become a registered investment company or 
SEC-regulated business development company, a written plan documenting 
the banking entity's determination that the seeding vehicle will become 
a registered investment company or SEC-regulated business development 
company; the period of time during which the vehicle will operate as a 
seeding vehicle; and the banking entity's plan to market the vehicle to 
third-party investors and convert it into a registered investment 
company or SEC-regulated business development company within the time 
period specified in Sec.255.12(a)(2)(i)(B) of subpart C;
    (4) For any banking entity that is, or is controlled directly or 
indirectly by a banking entity that is, located in or organized under 
the laws of the United States or of any State, if the aggregate amount 
of ownership interests in foreign public funds that are described in 
Sec.255.10(c)(1) of subpart C owned by

[[Page 1092]]

such banking entity (including ownership interests owned by any 
affiliate that is controlled directly or indirectly by a banking entity 
that is located in or organized under the laws of the United States or 
of any State) exceeds $50 million at the end of two or more consecutive 
calendar quarters, beginning with the next succeeding calendar quarter, 
documentation of the value of the ownership interests owned by the 
banking entity (and such affiliates) in each foreign public fund and 
each jurisdiction in which any such foreign public fund is organized, 
calculated as of the end of each calendar quarter, which documentation 
must continue until the banking entity's aggregate amount of ownership 
interests in foreign public funds is below $50 million for two 
consecutive calendar quarters; and
    (5) For purposes of paragraph (e)(4) of this section, a U.S. branch, 
agency, or subsidiary of a foreign banking entity is located in the 
United States; however, the foreign bank that operates or controls that 
branch, agency, or subsidiary is not considered to be located in the 
United States solely by virtue of operating or controlling the U.S. 
branch, agency, or subsidiary.
    (f) Simplified programs for less active banking entities--(1) 
Banking entities with no covered activities. A banking entity that does 
not engage in activities or investments pursuant to subpart B or subpart 
C (other than trading activities permitted pursuant to Sec.255.6(a) of 
subpart B) may satisfy the requirements of this section by establishing 
the required compliance program prior to becoming engaged in such 
activities or making such investments (other than trading activities 
permitted pursuant to Sec.255.6(a) of subpart B).
    (2) Banking entities with modest activities. A banking entity with 
total consolidated assets of $10 billion or less as reported on December 
31 of the previous two calendar years that engages in activities or 
investments pursuant to subpart B or subpart C (other than trading 
activities permitted under Sec.255.6(a) of subpart B) may satisfy the 
requirements of this section by including in its existing compliance 
policies and procedures appropriate references to the requirements of 
section 13 of the BHC Act and this part and adjustments as appropriate 
given the activities, size, scope and complexity of the banking entity.

Sec.255.21 Termination of activities or investments; penalties for 
          violations.
    (a) Any banking entity that engages in an activity or makes an 
investment in violation of section 13 of the BHC Act or this part, or 
acts in a manner that functions as an evasion of the requirements of 
section 13 of the BHC Act or this part, including through an abuse of 
any activity or investment permitted under subparts B or C, or otherwise 
violates the restrictions and requirements of section 13 of the BHC Act 
or this part, shall, upon discovery, promptly terminate the activity 
and, as relevant, dispose of the investment.
    (b) Whenever the SEC finds reasonable cause to believe any banking 
entity has engaged in an activity or made an investment in violation of 
section 13 of the BHC Act or this part, or engaged in any activity or 
made any investment that functions as an evasion of the requirements of 
section 13 of the BHC Act or this part, the SEC may take any action 
permitted by law to enforce compliance with section 13 of the BHC Act 
and this part, including directing the banking entity to restrict, 
limit, or terminate any or all activities under this part and dispose of 
any investment.

  Appendix A to Part 255--Reporting and Recordkeeping Requirements for 
                       Covered Trading Activities

                               I. Purpose

    a. This appendix sets forth reporting and recordkeeping requirements 
that certain banking entities must satisfy in connection with the 
restrictions on proprietary trading set forth in subpart B 
(``proprietary trading restrictions''). Pursuant to Sec.255.20(d), 
this appendix generally applies to a banking entity that, together with 
its affiliates and subsidiaries, has significant trading assets and 
liabilities. These entities are required to (i) furnish periodic reports 
to the SEC regarding a variety of quantitative measurements of their 
covered trading activities, which vary depending on the scope and size 
of covered trading activities, and (ii) create and maintain records 
documenting the preparation and content of these reports. The 
requirements of this appendix must be incorporated into the banking 
entity's internal compliance program under Sec.255.20 and Appendix B.
    b. The purpose of this appendix is to assist banking entities and 
the SEC in:
    (i) Better understanding and evaluating the scope, type, and profile 
of the banking entity's covered trading activities;
    (ii) Monitoring the banking entity's covered trading activities;
    (iii) Identifying covered trading activities that warrant further 
review or examination by the banking entity to verify compliance with 
the proprietary trading restrictions;
    (iv) Evaluating whether the covered trading activities of trading 
desks engaged in market making-related activities subject to Sec.
255.4(b) are consistent with the requirements governing permitted market 
making-related activities;
    (v) Evaluating whether the covered trading activities of trading 
desks that are engaged in permitted trading activity subject to 
Sec.Sec.255.4, 255.5, or 255.6(a)-(b) (i.e., underwriting and market 
making-related related activity,

[[Page 1093]]

risk-mitigating hedging, or trading in certain government obligations) 
are consistent with the requirement that such activity not result, 
directly or indirectly, in a material exposure to high-risk assets or 
high-risk trading strategies;
    (vi) Identifying the profile of particular covered trading 
activities of the banking entity, and the individual trading desks of 
the banking entity, to help establish the appropriate frequency and 
scope of examination by the SEC of such activities; and
    (vii) Assessing and addressing the risks associated with the banking 
entity's covered trading activities.
    c. The quantitative measurements that must be furnished pursuant to 
this appendix are not intended to serve as a dispositive tool for the 
identification of permissible or impermissible activities.
    d. In order to allow banking entities and the Agencies to evaluate 
the effectiveness of these metrics, banking entities must collect and 
report these metrics for all trading desks beginning on the dates 
established in Sec.255.20 of the final rule. The Agencies will review 
the data collected and revise this collection requirement as appropriate 
based on a review of the data collected prior to September 30, 2015.
    e. In addition to the quantitative measurements required in this 
appendix, a banking entity may need to develop and implement other 
quantitative measurements in order to effectively monitor its covered 
trading activities for compliance with section 13 of the BHC Act and 
this part and to have an effective compliance program, as required by 
Sec.255.20 and Appendix B to this part. The effectiveness of 
particular quantitative measurements may differ based on the profile of 
the banking entity's businesses in general and, more specifically, of 
the particular trading desk, including types of instruments traded, 
trading activities and strategies, and history and experience (e.g., 
whether the trading desk is an established, successful market maker or a 
new entrant to a competitive market). In all cases, banking entities 
must ensure that they have robust measures in place to identify and 
monitor the risks taken in their trading activities, to ensure that the 
activities are within risk tolerances established by the banking entity, 
and to monitor and examine for compliance with the proprietary trading 
restrictions in this part.
    f. On an ongoing basis, banking entities must carefully monitor, 
review, and evaluate all furnished quantitative measurements, as well as 
any others that they choose to utilize in order to maintain compliance 
with section 13 of the BHC Act and this part. All measurement results 
that indicate a heightened risk of impermissible proprietary trading, 
including with respect to otherwise-permitted activities under 
Sec.Sec.255.4 through 255.6(a) and (b), or that result in a material 
exposure to high-risk assets or high-risk trading strategies, must be 
escalated within the banking entity for review, further analysis, 
explanation to the SEC, and remediation, where appropriate. The 
quantitative measurements discussed in this appendix should be helpful 
to banking entities in identifying and managing the risks related to 
their covered trading activities.

                             II. Definitions

    The terms used in this appendix have the same meanings as set forth 
in Sec.Sec.255.2 and 255.3. In addition, for purposes of this 
appendix, the following definitions apply:
    Calculation period means the period of time for which a particular 
quantitative measurement must be calculated.
    Comprehensive profit and loss means the net profit or loss of a 
trading desk's material sources of trading revenue over a specific 
period of time, including, for example, any increase or decrease in the 
market value of a trading desk's holdings, dividend income, and interest 
income and expense.
    Covered trading activity means trading conducted by a trading desk 
under Sec.Sec.255.4, 255.5, 255.6(a), or 255.6(b). A banking entity 
may include trading under Sec.Sec.255.3(d), 255.6(c), 255.6(d) or 
255.6(e).
    Measurement frequency means the frequency with which a particular 
quantitative metric must be calculated and recorded.
    Trading desk means the smallest discrete unit of organization of a 
banking entity that purchases or sells financial instruments for the 
trading account of the banking entity or an affiliate thereof.

      III. Reporting and Recordkeeping of Quantitative Measurements

                     a. Scope of Required Reporting

    General scope. Each banking entity made subject to this part by 
Sec.255.20 must furnish the following quantitative measurements for 
each trading desk of the banking entity, calculated in accordance with 
this appendix:
     Risk and Position Limits and Usage;
     Risk Factor Sensitivities;
     Value-at-Risk and Stress VaR;
     Comprehensive Profit and Loss Attribution;
     Inventory Turnover;
     Inventory Aging; and
     Customer-Facing Trade Ratio

           b. Frequency of Required Calculation and Reporting

    A banking entity must calculate any applicable quantitative 
measurement for each trading day. A banking entity must report each 
applicable quantitative measurement to the SEC on the reporting schedule 
established in Sec.255.20 unless otherwise requested

[[Page 1094]]

by the Sec.All quantitative measurements for any calendar month must be 
reported within the time period required by Sec.255.20.

                            c. Recordkeeping

    A banking entity must, for any quantitative measurement furnished to 
the SEC pursuant to this appendix and Sec.255.20(d), create and 
maintain records documenting the preparation and content of these 
reports, as well as such information as is necessary to permit the SEC 
to verify the accuracy of such reports, for a period of 5 years from the 
end of the calendar year for which the measurement was taken.

                      IV. Quantitative Measurements

                     a. Risk-Management Measurements

                  1. Risk and Position Limits and Usage

    i. Description: For purposes of this appendix, Risk and Position 
Limits are the constraints that define the amount of risk that a trading 
desk is permitted to take at a point in time, as defined by the banking 
entity for a specific trading desk. Usage represents the portion of the 
trading desk's limits that are accounted for by the current activity of 
the desk. Risk and position limits and their usage are key risk 
management tools used to control and monitor risk taking and include, 
but are not limited, to the limits set out in Sec.255.4 and Sec.
255.5. A number of the metrics that are described below, including 
``Risk Factor Sensitivities'' and ``Value-at-Risk and Stress Value-at-
Risk,'' relate to a trading desk's risk and position limits and are 
useful in evaluating and setting these limits in the broader context of 
the trading desk's overall activities, particularly for the market 
making activities under Sec.255.4(b) and hedging activity under Sec.
255.5. Accordingly, the limits required under Sec.255.4(b)(2)(iii) and 
Sec.255.5(b)(1)(i) must meet the applicable requirements under Sec.
255.4(b)(2)(iii) and Sec.255.5(b)(1)(i) and also must include 
appropriate metrics for the trading desk limits including, at a minimum, 
the ``Risk Factor Sensitivities'' and ``Value-at-Risk and Stress Value-
at-Risk'' metrics except to the extent any of the ``Risk Factor 
Sensitivities'' or ``Value-at-Risk and Stress Value-at-Risk'' metrics 
are demonstrably ineffective for measuring and monitoring the risks of a 
trading desk based on the types of positions traded by, and risk 
exposures of, that desk.
    ii. General Calculation Guidance: Risk and Position Limits must be 
reported in the format used by the banking entity for the purposes of 
risk management of each trading desk. Risk and Position Limits are often 
expressed in terms of risk measures, such as VaR and Risk Factor 
Sensitivities, but may also be expressed in terms of other observable 
criteria, such as net open positions. When criteria other than VaR or 
Risk Factor Sensitivities are used to define the Risk and Position 
Limits, both the value of the Risk and Position Limits and the value of 
the variables used to assess whether these limits have been reached must 
be reported.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

                      2. Risk Factor Sensitivities

    i. Description: For purposes of this appendix, Risk Factor 
Sensitivities are changes in a trading desk's Comprehensive Profit and 
Loss that are expected to occur in the event of a change in one or more 
underlying variables that are significant sources of the trading desk's 
profitability and risk.
    ii. General Calculation Guidance: A banking entity must report the 
Risk Factor Sensitivities that are monitored and managed as part of the 
trading desk's overall risk management policy. The underlying data and 
methods used to compute a trading desk's Risk Factor Sensitivities will 
depend on the specific function of the trading desk and the internal 
risk management models employed. The number and type of Risk Factor 
Sensitivities that are monitored and managed by a trading desk, and 
furnished to the SEC, will depend on the explicit risks assumed by the 
trading desk. In general, however, reported Risk Factor Sensitivities 
must be sufficiently granular to account for a preponderance of the 
expected price variation in the trading desk's holdings.
    A. Trading desks must take into account any relevant factors in 
calculating Risk Factor Sensitivities, including, for example, the 
following with respect to particular asset classes:
     Commodity derivative positions: Risk factors with 
respect to the related commodities set out in 17 CFR 20.2, the maturity 
of the positions, volatility and/or correlation sensitivities (expressed 
in a manner that demonstrates any significant non-linearities), and the 
maturity profile of the positions;
     Credit positions: Risk factors with respect to 
credit spreads that are sufficiently granular to account for specific 
credit sectors and market segments, the maturity profile of the 
positions, and risk factors with respect to interest rates of all 
relevant maturities;
     Credit-related derivative positions: Risk factor 
sensitivities, for example credit spreads, shifts (parallel and non-
parallel) in credit spreads--volatility, and/or correlation 
sensitivities (expressed in a manner that demonstrates any significant 
non-linearities), and the maturity profile of the positions;
     Equity derivative positions: Risk factor 
sensitivities such as equity positions, volatility, and/or correlation 
sensitivities (expressed in a manner that demonstrates any significant 
non-linearities), and the maturity profile of the positions;

[[Page 1095]]

     Equity positions: Risk factors for equity prices 
and risk factors that differentiate between important equity market 
sectors and segments, such as a small capitalization equities and 
international equities;
     Foreign exchange derivative positions: Risk 
factors with respect to major currency pairs and maturities, exposure to 
interest rates at relevant maturities, volatility, and/or correlation 
sensitivities (expressed in a manner that demonstrates any significant 
non-linearities), as well as the maturity profile of the positions; and
     Interest rate positions, including interest rate 
derivative positions: Risk factors with respect to major interest rate 
categories and maturities and volatility and/or correlation 
sensitivities (expressed in a manner that demonstrates any significant 
non-linearities), and shifts (parallel and non-parallel) in the interest 
rate curve, as well as the maturity profile of the positions.
    B. The methods used by a banking entity to calculate sensitivities 
to a common factor shared by multiple trading desks, such as an equity 
price factor, must be applied consistently across its trading desks so 
that the sensitivities can be compared from one trading desk to another.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

                3. Value-at-Risk and Stress Value-at-Risk

    i. Description: For purposes of this appendix, Value-at-Risk 
(``VaR'') is the commonly used percentile measurement of the risk of 
future financial loss in the value of a given set of aggregated 
positions over a specified period of time, based on current market 
conditions. For purposes of this appendix, Stress Value-at-Risk 
(``Stress VaR'') is the percentile measurement of the risk of future 
financial loss in the value of a given set of aggregated positions over 
a specified period of time, based on market conditions during a period 
of significant financial stress.
    ii. General Calculation Guidance: Banking entities must compute and 
report VaR and Stress VaR by employing generally accepted standards and 
methods of calculation. VaR should reflect a loss in a trading desk that 
is expected to be exceeded less than one percent of the time over a one-
day period. For those banking entities that are subject to regulatory 
capital requirements imposed by a Federal banking agency, VaR and Stress 
VaR must be computed and reported in a manner that is consistent with 
such regulatory capital requirements. In cases where a trading desk does 
not have a standalone VaR or Stress VaR calculation but is part of a 
larger aggregation of positions for which a VaR or Stress VaR 
calculation is performed, a VaR or Stress VaR calculation that includes 
only the trading desk's holdings must be performed consistent with the 
VaR or Stress VaR model and methodology used for the larger aggregation 
of positions.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

                    b. Source-of-Revenue Measurements

              1. Comprehensive Profit and Loss Attribution

    i. Description: For purposes of this appendix, Comprehensive Profit 
and Loss Attribution is an analysis that attributes the daily 
fluctuation in the value of a trading desk's positions to various 
sources. First, the daily profit and loss of the aggregated positions is 
divided into three categories: (i) Profit and loss attributable to a 
trading desk's existing positions that were also positions held by the 
trading desk as of the end of the prior day (``existing positions''); 
(ii) profit and loss attributable to new positions resulting from the 
current day's trading activity (``new positions''); and (iii) residual 
profit and loss that cannot be specifically attributed to existing 
positions or new positions. The sum of (i), (ii), and (iii) must equal 
the trading desk's comprehensive profit and loss at each point in time. 
In addition, profit and loss measurements must calculate volatility of 
comprehensive profit and loss (i.e., the standard deviation of the 
trading desk's one-day profit and loss, in dollar terms) for the 
reporting period for at least a 30-, 60- and 90-day lag period, from the 
end of the reporting period, and any other period that the banking 
entity deems necessary to meet the requirements of the rule.
    A. The comprehensive profit and loss associated with existing 
positions must reflect changes in the value of these positions on the 
applicable day. The comprehensive profit and loss from existing 
positions must be further attributed, as applicable, to changes in (i) 
the specific Risk Factors and other factors that are monitored and 
managed as part of the trading desk's overall risk management policies 
and procedures; and (ii) any other applicable elements, such as cash 
flows, carry, changes in reserves, and the correction, cancellation, or 
exercise of a trade.
    B. The comprehensive profit and loss attributed to new positions 
must reflect commissions and fee income or expense and market gains or 
losses associated with transactions executed on the applicable day. New 
positions include purchases and sales of financial instruments and other 
assets/liabilities and negotiated amendments to existing positions. The 
comprehensive profit and loss from new positions may be reported in the 
aggregate and does not need to be further attributed to specific 
sources.
    C. The portion of comprehensive profit and loss that cannot be 
specifically attributed to known sources must be allocated to a residual 
category identified as an unexplained

[[Page 1096]]

portion of the comprehensive profit and loss. Significant unexplained 
profit and loss must be escalated for further investigation and 
analysis.
    ii. General Calculation Guidance: The specific categories used by a 
trading desk in the attribution analysis and amount of detail for the 
analysis should be tailored to the type and amount of trading activities 
undertaken by the trading desk. The new position attribution must be 
computed by calculating the difference between the prices at which 
instruments were bought and/or sold and the prices at which those 
instruments are marked to market at the close of business on that day 
multiplied by the notional or principal amount of each purchase or sale. 
Any fees, commissions, or other payments received (paid) that are 
associated with transactions executed on that day must be added 
(subtracted) from such difference. These factors must be measured 
consistently over time to facilitate historical comparisons.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

                c. Customer-Facing Activity Measurements

                          1. Inventory Turnover

    i. Description: For purposes of this appendix, Inventory Turnover is 
a ratio that measures the turnover of a trading desk's inventory. The 
numerator of the ratio is the absolute value of all transactions over 
the reporting period. The denominator of the ratio is the value of the 
trading desk's inventory at the beginning of the reporting period.
    ii. General Calculation Guidance: For purposes of this appendix, for 
derivatives, other than options and interest rate derivatives, value 
means gross notional value, for options, value means delta adjusted 
notional value, and for interest rate derivatives, value means 10-year 
bond equivalent value.
    iii. Calculation Period: 30 days, 60 days, and 90 days.
    iv. Measurement Frequency: Daily.

                           2. Inventory Aging

    i. Description: For purposes of this appendix, Inventory Aging 
generally describes a schedule of the trading desk's aggregate assets 
and liabilities and the amount of time that those assets and liabilities 
have been held. Inventory Aging should measure the age profile of the 
trading desk's assets and liabilities.
    ii. General Calculation Guidance: In general, Inventory Aging must 
be computed using a trading desk's trading activity data and must 
identify the value of a trading desk's aggregate assets and liabilities. 
Inventory Aging must include two schedules, an asset-aging schedule and 
a liability-aging schedule. Each schedule must record the value of 
assets or liabilities held over all holding periods. For derivatives, 
other than options, and interest rate derivatives, value means gross 
notional value, for options, value means delta adjusted notional value 
and, for interest rate derivatives, value means 10-year bond equivalent 
value.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

    3. Customer-Facing Trade Ratio--Trade Count Based and Value Based

    i. Description: For purposes of this appendix, the Customer-Facing 
Trade Ratio is a ratio comparing (i) the transactions involving a 
counterparty that is a customer of the trading desk to (ii) the 
transactions involving a counterparty that is not a customer of the 
trading desk. A trade count based ratio must be computed that records 
the number of transactions involving a counterparty that is a customer 
of the trading desk and the number of transactions involving a 
counterparty that is not a customer of the trading desk. A value based 
ratio must be computed that records the value of transactions involving 
a counterparty that is a customer of the trading desk and the value of 
transactions involving a counterparty that is not a customer of the 
trading desk.
    ii. General Calculation Guidance: For purposes of calculating the 
Customer-Facing Trade Ratio, a counterparty is considered to be a 
customer of the trading desk if the counterparty is a market participant 
that makes use of the banking entity's market making-related services by 
obtaining such services, responding to quotations, or entering into a 
continuing relationship with respect to such services. However, a 
trading desk or other organizational unit of another banking entity 
would not be a client, customer, or counterparty of the trading desk if 
the other entity has trading assets and liabilities of $50 billion or 
more as measured in accordance with Sec.255.20(d)(1) unless the 
trading desk documents how and why a particular trading desk or other 
organizational unit of the entity should be treated as a client, 
customer, or counterparty of the trading desk. Transactions conducted 
anonymously on an exchange or similar trading facility that permits 
trading on behalf of a broad range of market participants would be 
considered transactions with customers of the trading desk. For 
derivatives, other than options, and interest rate derivatives, value 
means gross notional value, for options, value means delta adjusted 
notional value, and for interest rate derivatives, value means 10-year 
bond equivalent value.
    iii. Calculation Period: 30 days, 60 days, and 90 days.
    iv. Measurement Frequency: Daily.

[[Page 1097]]

   Appendix B to Part 255--Enhanced Minimum Standards for Compliance 
                                Programs

                               I. Overview

    Section 255.20(c) requires certain banking entities to establish, 
maintain, and enforce an enhanced compliance program that includes the 
requirements and standards in this Appendix as well as the minimum 
written policies and procedures, internal controls, management 
framework, independent testing, training, and recordkeeping provisions 
outlined in Sec.255.20. This Appendix sets forth additional minimum 
standards with respect to the establishment, oversight, maintenance, and 
enforcement by these banking entities of an enhanced internal compliance 
program for ensuring and monitoring compliance with the prohibitions and 
restrictions on proprietary trading and covered fund activities and 
investments set forth in section 13 of the BHC Act and this part.
    a. This compliance program must:
    1. Be reasonably designed to identify, document, monitor, and report 
the permitted trading and covered fund activities and investments of the 
banking entity; identify, monitor and promptly address the risks of 
these covered activities and investments and potential areas of 
noncompliance; and prevent activities or investments prohibited by, or 
that do not comply with, section 13 of the BHC Act and this part;
    2. Establish and enforce appropriate limits on the covered 
activities and investments of the banking entity, including limits on 
the size, scope, complexity, and risks of the individual activities or 
investments consistent with the requirements of section 13 of the BHC 
Act and this part;
    3. Subject the effectiveness of the compliance program to periodic 
independent review and testing, and ensure that the entity's internal 
audit, corporate compliance and internal control functions involved in 
review and testing are effective and independent;
    4. Make senior management, and others as appropriate, accountable 
for the effective implementation of the compliance program, and ensure 
that the board of directors and chief executive officer (or equivalent) 
of the banking entity review the effectiveness of the compliance 
program; and
    5. Facilitate supervision and examination by the Agencies of the 
banking entity's permitted trading and covered fund activities and 
investments.

                     II. Enhanced Compliance Program

    a. Proprietary Trading Activities. A banking entity must establish, 
maintain and enforce a compliance program that includes written policies 
and procedures that are appropriate for the types, size, and complexity 
of, and risks associated with, its permitted trading activities. The 
compliance program may be tailored to the types of trading activities 
conducted by the banking entity, and must include a detailed description 
of controls established by the banking entity to reasonably ensure that 
its trading activities are conducted in accordance with the requirements 
and limitations applicable to those trading activities under section 13 
of the BHC Act and this part, and provide for appropriate revision of 
the compliance program before expansion of the trading activities of the 
banking entity. A banking entity must devote adequate resources and use 
knowledgeable personnel in conducting, supervising and managing its 
trading activities, and promote consistency, independence and rigor in 
implementing its risk controls and compliance efforts. The compliance 
program must be updated with a frequency sufficient to account for 
changes in the activities of the banking entity, results of independent 
testing of the program, identification of weaknesses in the program, and 
changes in legal, regulatory or other requirements.
    1. Trading Desks: The banking entity must have written policies and 
procedures governing each trading desk that include a description of:
    i. The process for identifying, authorizing and documenting 
financial instruments each trading desk may purchase or sell, with 
separate documentation for market making-related activities conducted in 
reliance on Sec.255.4(b) and for hedging activity conducted in 
reliance on Sec.255.5;
    ii. A mapping for each trading desk to the division, business line, 
or other organizational structure that is responsible for managing and 
overseeing the trading desk's activities;
    iii. The mission (i.e., the type of trading activity, such as 
market-making, trading in sovereign debt, etc.) and strategy (i.e., 
methods for conducting authorized trading activities) of each trading 
desk;
    iv. The activities that the trading desk is authorized to conduct, 
including (i) authorized instruments and products, and (ii) authorized 
hedging strategies, techniques and instruments;
    v. The types and amount of risks allocated by the banking entity to 
each trading desk to implement the mission and strategy of the trading 
desk, including an enumeration of material risks resulting from the 
activities in which the trading desk is authorized to engage (including 
but not limited to price risks, such as basis, volatility and 
correlation risks, as well as counterparty credit risk). Risk 
assessments must take into account both the risks inherent in the 
trading activity and the strength and effectiveness of controls designed 
to mitigate those risks;
    vi. How the risks allocated to each trading desk will be measured;

[[Page 1098]]

    vii. Why the allocated risks levels are appropriate to the 
activities authorized for the trading desk;
    viii. The limits on the holding period of, and the risk associated 
with, financial instruments under the responsibility of the trading 
desk;
    ix. The process for setting new or revised limits, as well as 
escalation procedures for granting exceptions to any limits or to any 
policies or procedures governing the desk, the analysis that will be 
required to support revising limits or granting exceptions, and the 
process for independently reviewing and documenting those exceptions and 
the underlying analysis;
    x. The process for identifying, documenting and approving new 
products, trading strategies, and hedging strategies;
    xi. The types of clients, customers, and counterparties with whom 
the trading desk may trade; and
    xii. The compensation arrangements, including incentive 
arrangements, for employees associated with the trading desk, which may 
not be designed to reward or incentivize prohibited proprietary trading 
or excessive or imprudent risk-taking.
    2. Description of risks and risk management processes: The 
compliance program for the banking entity must include a comprehensive 
description of the risk management program for the trading activity of 
the banking entity. The compliance program must also include a 
description of the governance, approval, reporting, escalation, review 
and other processes the banking entity will use to reasonably ensure 
that trading activity is conducted in compliance with section 13 of the 
BHC Act and this part. Trading activity in similar financial instruments 
should be subject to similar governance, limits, testing, controls, and 
review, unless the banking entity specifically determines to establish 
different limits or processes and documents those differences. 
Descriptions must include, at a minimum, the following elements:
    i. A description of the supervisory and risk management structure 
governing all trading activity, including a description of processes for 
initial and senior-level review of new products and new strategies;
    ii. A description of the process for developing, documenting, 
testing, approving and reviewing all models used for valuing, 
identifying and monitoring the risks of trading activity and related 
positions, including the process for periodic independent testing of the 
reliability and accuracy of those models;
    iii. A description of the process for developing, documenting, 
testing, approving and reviewing the limits established for each trading 
desk;
    iv. A description of the process by which a security may be 
purchased or sold pursuant to the liquidity management plan, including 
the process for authorizing and monitoring such activity to ensure 
compliance with the banking entity's liquidity management plan and the 
restrictions on liquidity management activities in this part;
    v. A description of the management review process, including 
escalation procedures, for approving any temporary exceptions or 
permanent adjustments to limits on the activities, positions, 
strategies, or risks associated with each trading desk; and
    vi. The role of the audit, compliance, risk management and other 
relevant units for conducting independent testing of trading and hedging 
activities, techniques and strategies.
    3. Authorized risks, instruments, and products. The banking entity 
must implement and enforce limits and internal controls for each trading 
desk that are reasonably designed to ensure that trading activity is 
conducted in conformance with section 13 of the BHC Act and this part 
and with the banking entity's written policies and procedures. The 
banking entity must establish and enforce risk limits appropriate for 
the activity of each trading desk. These limits should be based on 
probabilistic and non-probabilistic measures of potential loss (e.g., 
Value-at-Risk and notional exposure, respectively), and measured under 
normal and stress market conditions. At a minimum, these internal 
controls must monitor, establish and enforce limits on:
    i. The financial instruments (including, at a minimum, by type and 
exposure) that the trading desk may trade;
    ii. The types and levels of risks that may be taken by each trading 
desk; and
    iii. The types of hedging instruments used, hedging strategies 
employed, and the amount of risk effectively hedged.
    4. Hedging policies and procedures. The banking entity must 
establish, maintain, and enforce written policies and procedures 
regarding the use of risk-mitigating hedging instruments and strategies 
that, at a minimum, describe:
    i. The positions, techniques and strategies that each trading desk 
may use to hedge the risk of its positions;
    ii. The manner in which the banking entity will identify the risks 
arising in connection with and related to the individual or aggregated 
positions, contracts or other holdings of the banking entity that are to 
be hedged and determine that those risks have been properly and 
effectively hedged;
    iii. The level of the organization at which hedging activity and 
management will occur;
    iv. The manner in which hedging strategies will be monitored and the 
personnel responsible for such monitoring;
    v. The risk management processes used to control unhedged or 
residual risks; and
    vi. The process for developing, documenting, testing, approving and 
reviewing

[[Page 1099]]

all hedging positions, techniques and strategies permitted for each 
trading desk and for the banking entity in reliance on Sec.255.5.
    5. Analysis and quantitative measurements. The banking entity must 
perform robust analysis and quantitative measurement of its trading 
activities that is reasonably designed to ensure that the trading 
activity of each trading desk is consistent with the banking entity's 
compliance program; monitor and assist in the identification of 
potential and actual prohibited proprietary trading activity; and 
prevent the occurrence of prohibited proprietary trading. Analysis and 
models used to determine, measure and limit risk must be rigorously 
tested and be reviewed by management responsible for trading activity to 
ensure that trading activities, limits, strategies, and hedging 
activities do not understate the risk and exposure to the banking entity 
or allow prohibited proprietary trading. This review should include 
periodic and independent back-testing and revision of activities, 
limits, strategies and hedging as appropriate to contain risk and ensure 
compliance. In addition to the quantitative measurements reported by any 
banking entity subject to Appendix A to this part, each banking entity 
must develop and implement, to the extent appropriate to facilitate 
compliance with this part, additional quantitative measurements 
specifically tailored to the particular risks, practices, and strategies 
of its trading desks. The banking entity's analysis and quantitative 
measurements must incorporate the quantitative measurements reported by 
the banking entity pursuant to Appendix A (if applicable) and include, 
at a minimum, the following:
    i. Internal controls and written policies and procedures reasonably 
designed to ensure the accuracy and integrity of quantitative 
measurements;
    ii. Ongoing, timely monitoring and review of calculated quantitative 
measurements;
    iii. The establishment of numerical thresholds and appropriate 
trading measures for each trading desk and heightened review of trading 
activity not consistent with those thresholds to ensure compliance with 
section 13 of the BHC Act and this part, including analysis of the 
measurement results or other information, appropriate escalation 
procedures, and documentation related to the review; and
    iv. Immediate review and compliance investigation of the trading 
desk's activities, escalation to senior management with oversight 
responsibilities for the applicable trading desk, timely notification to 
the SEC, appropriate remedial action (e.g., divesting of impermissible 
positions, cessation of impermissible activity, disciplinary actions), 
and documentation of the investigation findings and remedial action 
taken when quantitative measurements or other information, considered 
together with the facts and circumstances, or findings of internal 
audit, independent testing or other review suggest a reasonable 
likelihood that the trading desk has violated any part of section 13 of 
the BHC Act or this part.
    6. Other Compliance Matters. In addition to the requirements 
specified above, the banking entity's compliance program must:
    i. Identify activities of each trading desk that will be conducted 
in reliance on exemptions contained in Sec.Sec.255.4 through 255.6, 
including an explanation of:
    A. How and where in the organization the activity occurs; and
    B. Which exemption is being relied on and how the activity meets the 
specific requirements for reliance on the applicable exemption;
    ii. Include an explanation of the process for documenting, approving 
and reviewing actions taken pursuant to the liquidity management plan, 
where in the organization this activity occurs, the securities 
permissible for liquidity management, the process for ensuring that 
liquidity management activities are not conducted for the purpose of 
prohibited proprietary trading, and the process for ensuring that 
securities purchased as part of the liquidity management plan are highly 
liquid and conform to the requirements of this part;
    iii. Describe how the banking entity monitors for and prohibits 
potential or actual material exposure to high-risk assets or high-risk 
trading strategies presented by each trading desk that relies on the 
exemptions contained in Sec.Sec.255.3(d)(3), and 255.4 through 255.6, 
which must take into account potential or actual exposure to:
    A. Assets whose values cannot be externally priced or, where 
valuation is reliant on pricing models, whose model inputs cannot be 
externally validated;
    B. Assets whose changes in value cannot be adequately mitigated by 
effective hedging;
    C. New products with rapid growth, including those that do not have 
a market history;
    D. Assets or strategies that include significant embedded leverage;
    E. Assets or strategies that have demonstrated significant 
historical volatility;
    F. Assets or strategies for which the application of capital and 
liquidity standards would not adequately account for the risk; and
    G. Assets or strategies that result in large and significant 
concentrations to sectors, risk factors, or counterparties;
    iv. Establish responsibility for compliance with the reporting and 
recordkeeping requirements of subpart B and Sec.255.20; and
    v. Establish policies for monitoring and prohibiting potential or 
actual material conflicts of interest between the banking entity and its 
clients, customers, or counterparties.

[[Page 1100]]

    7. Remediation of violations. The banking entity's compliance 
program must be reasonably designed and established to effectively 
monitor and identify for further analysis any trading activity that may 
indicate potential violations of section 13 of the BHC Act and this part 
and to prevent actual violations of section 13 of the BHC Act and this 
part. The compliance program must describe procedures for identifying 
and remedying violations of section 13 of the BHC Act and this part, and 
must include, at a minimum, a requirement to promptly document, address 
and remedy any violation of section 13 of the BHC Act or this part, and 
document all proposed and actual remediation efforts. The compliance 
program must include specific written policies and procedures that are 
reasonably designed to assess the extent to which any activity indicates 
that modification to the banking entity's compliance program is 
warranted and to ensure that appropriate modifications are implemented. 
The written policies and procedures must provide for prompt notification 
to appropriate management, including senior management and the board of 
directors, of any material weakness or significant deficiencies in the 
design or implementation of the compliance program of the banking 
entity.
    b. Covered Fund Activities or Investments. A banking entity must 
establish, maintain and enforce a compliance program that includes 
written policies and procedures that are appropriate for the types, 
size, complexity and risks of the covered fund and related activities 
conducted and investments made, by the banking entity.
    1. Identification of covered funds. The banking entity's compliance 
program must provide a process, which must include appropriate 
management review and independent testing, for identifying and 
documenting covered funds that each unit within the banking entity's 
organization sponsors or organizes and offers, and covered funds in 
which each such unit invests. In addition to the documentation 
requirements for covered funds, as specified under Sec.255.20(e), the 
documentation must include information that identifies all pools that 
the banking entity sponsors or has an interest in and the type of 
exemption from the Commodity Exchange Act (whether or not the pool 
relies on section 4.7 of the regulations under the Commodity Exchange 
Act), and the amount of ownership interest the banking entity has in 
those pools.
    2. Identification of covered fund activities and investments. The 
banking entity's compliance program must identify, document and map each 
unit within the organization that is permitted to acquire or hold an 
interest in any covered fund or sponsor any covered fund and map each 
unit to the division, business line, or other organizational structure 
that will be responsible for managing and overseeing that unit's 
activities and investments.
    3. Explanation of compliance. The banking entity's compliance 
program must explain how:
    i. The banking entity monitors for and prohibits potential or actual 
material conflicts of interest between the banking entity and its 
clients, customers, or counterparties related to its covered fund 
activities and investments;
    ii. The banking entity monitors for and prohibits potential or 
actual transactions or activities that may threaten the safety and 
soundness of the banking entity related to its covered fund activities 
and investments; and
    iii. The banking entity monitors for and prohibits potential or 
actual material exposure to high-risk assets or high-risk trading 
strategies presented by its covered fund activities and investments, 
taking into account potential or actual exposure to:
    A. Assets whose values cannot be externally priced or, where 
valuation is reliant on pricing models, whose model inputs cannot be 
externally validated;
    B. Assets whose changes in values cannot be adequately mitigated by 
effective hedging;
    C. New products with rapid growth, including those that do not have 
a market history;
    D. Assets or strategies that include significant embedded leverage;
    E. Assets or strategies that have demonstrated significant 
historical volatility;
    F. Assets or strategies for which the application of capital and 
liquidity standards would not adequately account for the risk; and
    G. Assets or strategies that expose the banking entity to large and 
significant concentrations with respect to sectors, risk factors, or 
counterparties;
    4. Description and documentation of covered fund activities and 
investments. For each organizational unit engaged in covered fund 
activities and investments, the banking entity's compliance program must 
document:
    i. The covered fund activities and investments that the unit is 
authorized to conduct;
    ii. The banking entity's plan for actively seeking unaffiliated 
investors to ensure that any investment by the banking entity conforms 
to the limits contained in Sec.255.12 or registered in compliance with 
the securities laws and thereby exempt from those limits within the time 
periods allotted inSec.255.12; and
    iii. How it complies with the requirements of subpart C.
    5. Internal Controls. A banking entity must establish, maintain, and 
enforce internal controls that are reasonably designed to ensure that 
its covered fund activities or investments comply with the requirements 
of section 13 of the BHC Act and this part and

[[Page 1101]]

are appropriate given the limits on risk established by the banking 
entity. These written internal controls must be reasonably designed and 
established to effectively monitor and identify for further analysis any 
covered fund activity or investment that may indicate potential 
violations of section 13 of the BHC Act or this part. The internal 
controls must, at a minimum require:
    i. Monitoring and limiting the banking entity's individual and 
aggregate investments in covered funds;
    ii. Monitoring the amount and timing of seed capital investments for 
compliance with the limitations under subpart C (including but not 
limited to the redemption, sale or disposition requirements) of Sec.
255.12, and the effectiveness of efforts to seek unaffiliated investors 
to ensure compliance with those limits;
    iii. Calculating the individual and aggregate levels of ownership 
interests in one or more covered fund required by Sec.255.12;
    iv. Attributing the appropriate instruments to the individual and 
aggregate ownership interest calculations above;
    v. Making disclosures to prospective and actual investors in any 
covered fund organized and offered or sponsored by the banking entity, 
as provided under Sec.255.11(a)(8);
    vi. Monitoring for and preventing any relationship or transaction 
between the banking entity and a covered fund that is prohibited under 
Sec.255.14, including where the banking entity has been designated as 
the sponsor, investment manager, investment adviser, or commodity 
trading advisor to a covered fund by another banking entity; and
    vii. Appropriate management review and supervision across legal 
entities of the banking entity to ensure that services and products 
provided by all affiliated entities comply with the limitation on 
services and products contained in Sec.255.14.
    6. Remediation of violations. The banking entity's compliance 
program must be reasonably designed and established to effectively 
monitor and identify for further analysis any covered fund activity or 
investment that may indicate potential violations of section 13 of the 
BHC Act or this part and to prevent actual violations of section 13 of 
the BHC Act and this part. The banking entity's compliance program must 
describe procedures for identifying and remedying violations of section 
13 of the BHC Act and this part, and must include, at a minimum, a 
requirement to promptly document, address and remedy any violation of 
section 13 of the BHC Act or this part, including Sec.255.21, and 
document all proposed and actual remediation efforts. The compliance 
program must include specific written policies and procedures that are 
reasonably designed to assess the extent to which any activity or 
investment indicates that modification to the banking entity's 
compliance program is warranted and to ensure that appropriate 
modifications are implemented. The written policies and procedures must 
provide for prompt notification to appropriate management, including 
senior management and the board of directors, of any material weakness 
or significant deficiencies in the design or implementation of the 
compliance program of the banking entity.

    III. Responsibility and Accountability for the Compliance Program

    a. A banking entity must establish, maintain, and enforce a 
governance and management framework to manage its business and employees 
with a view to preventing violations of section 13 of the BHC Act and 
this part. A banking entity must have an appropriate management 
framework reasonably designed to ensure that: Appropriate personnel are 
responsible and accountable for the effective implementation and 
enforcement of the compliance program; a clear reporting line with a 
chain of responsibility is delineated; and the compliance program is 
reviewed periodically by senior management. The board of directors (or 
equivalent governance body) and senior management should have the 
appropriate authority and access to personnel and information within the 
organizations as well as appropriate resources to conduct their 
oversight activities effectively.
    1. Corporate governance. The banking entity must adopt a written 
compliance program approved by the board of directors, an appropriate 
committee of the board, or equivalent governance body, and senior 
management.
    2. Management procedures. The banking entity must establish, 
maintain, and enforce a governance framework that is reasonably designed 
to achieve compliance with section 13 of the BHC Act and this part, 
which, at a minimum, provides for:
    i. The designation of appropriate senior management or committee of 
senior management with authority to carry out the management 
responsibilities of the banking entity for each trading desk and for 
each organizational unit engaged in covered fund activities;
    ii. Written procedures addressing the management of the activities 
of the banking entity that are reasonably designed to achieve compliance 
with section 13 of the BHC Act and this part, including:
    A. A description of the management system, including the titles, 
qualifications, and locations of managers and the specific 
responsibilities of each person with respect to the banking entity's 
activities governed by section 13 of the BHC Act and this part; and
    B. Procedures for determining compensation arrangements for traders 
engaged in underwriting or market making-related activities under Sec.
255.4 or risk-mitigating hedging

[[Page 1102]]

activities under Sec.255.5 so that such compensation arrangements are 
designed not to reward or incentivize prohibited proprietary trading and 
appropriately balance risk and financial results in a manner that does 
not encourage employees to expose the banking entity to excessive or 
imprudent risk.
    3. Business line managers. Managers with responsibility for one or 
more trading desks of the banking entity are accountable for the 
effective implementation and enforcement of the compliance program with 
respect to the applicable trading desk(s).
    4. Board of directors, or similar corporate body, and senior 
management. The board of directors, or similar corporate body, and 
senior management are responsible for setting and communicating an 
appropriate culture of compliance with section 13 of the BHC Act and 
this part and ensuring that appropriate policies regarding the 
management of trading activities and covered fund activities or 
investments are adopted to comply with section 13 of the BHC Act and 
this part. The board of directors or similar corporate body (such as a 
designated committee of the board or an equivalent governance body) must 
ensure that senior management is fully capable, qualified, and properly 
motivated to manage compliance with this part in light of the 
organization's business activities and the expectations of the board of 
directors. The board of directors or similar corporate body must also 
ensure that senior management has established appropriate incentives and 
adequate resources to support compliance with this part, including the 
implementation of a compliance program meeting the requirements of this 
appendix into management goals and compensation structures across the 
banking entity.
    5. Senior management. Senior management is responsible for 
implementing and enforcing the approved compliance program. Senior 
management must also ensure that effective corrective action is taken 
when failures in compliance with section 13 of the BHC Act and this part 
are identified. Senior management and control personnel charged with 
overseeing compliance with section 13 of the BHC Act and this part 
should review the compliance program for the banking entity periodically 
and report to the board, or an appropriate committee thereof, on the 
effectiveness of the compliance program and compliance matters with a 
frequency appropriate to the size, scope, and risk profile of the 
banking entity's trading activities and covered fund activities or 
investments, which shall be at least annually.
    6. CEO attestation. Based on a review by the CEO of the banking 
entity, the CEO of the banking entity must, annually, attest in writing 
to the SEC that the banking entity has in place processes to establish, 
maintain, enforce, review, test and modify the compliance program 
established under this Appendix and Sec.255.20 of this part in a 
manner reasonably designed to achieve compliance with section 13 of the 
BHC Act and this part. In the case of a U.S. branch or agency of a 
foreign banking entity, the attestation may be provided for the entire 
U.S. operations of the foreign banking entity by the senior management 
officer of the United States operations of the foreign banking entity 
who is located in the United States.

                         IV. Independent Testing

    a. Independent testing must occur with a frequency appropriate to 
the size, scope, and risk profile of the banking entity's trading and 
covered fund activities or investments, which shall be at least 
annually. This independent testing must include an evaluation of:
    1. The overall adequacy and effectiveness of the banking entity's 
compliance program, including an analysis of the extent to which the 
program contains all the required elements of this appendix;
    2. The effectiveness of the banking entity's internal controls, 
including an analysis and documentation of instances in which such 
internal controls have been breached, and how such breaches were 
addressed and resolved; and
    3. The effectiveness of the banking entity's management procedures.
    b. A banking entity must ensure that independent testing regarding 
the effectiveness of the banking entity's compliance program is 
conducted by a qualified independent party, such as the banking entity's 
internal audit department, compliance personnel or risk managers 
independent of the organizational unit being tested, outside auditors, 
consultants, or other qualified independent parties. A banking entity 
must promptly take appropriate action to remedy any significant 
deficiencies or material weaknesses in its compliance program and to 
terminate any violations of section 13 of the BHC Act or this part.

                               V. Training

    Banking entities must provide adequate training to personnel and 
managers of the banking entity engaged in activities or investments 
governed by section 13 of the BHC Act or this part, as well as other 
appropriate supervisory, risk, independent testing, and audit personnel, 
in order to effectively implement and enforce the compliance program. 
This training should occur with a frequency appropriate to the size and 
the risk profile of the banking entity's trading activities and covered 
fund activities or investments.

                            VI. Recordkeeping

    Banking entities must create and retain records sufficient to 
demonstrate compliance

[[Page 1103]]

and support the operations and effectiveness of the compliance program. 
A banking entity must retain these records for a period that is no less 
than 5 years or such longer period as required by the SEC in a form that 
allows it to promptly produce such records to the SEC on request.

    Effective Date Note: At 84 FR 62248, Nov. 14, 2019, appendix Z to 
part 255 was added, effective Jan. 1, 2020 through Dec. 31, 2020.

                        PARTS 256	259 [RESERVED]



PART 260_GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 1939
--Table of Contents



                 Terms Used in the Rules and Regulations

Sec.
260.0-1 Application of definitions contained in the act.
260.0-2 Definitions of terms used in the rules and regulations.
260.0-3 Definition of ``rules and regulations'' as used in certain 
          sections of the Act.
260.0-4 Sequential numbering of documents filed with the Commission.

                        Office of the Commission

260.0-5 Business hours of the Commission.
260.0-6 Nondisclosure of information obtained in the course of 
          examinations and investigations.
260.0-7 Small entities for purposes of the Regulatory Flexibility Act.
260.0-11 Liability for certain statements by issuers.

                         Rules Under Section 303

260.3(4)-1 Definition of ``commission from an underwriter or dealer not 
          in excess of the usual and customary distributors' or sellers' 
          commissions'' in section 303(4), for certain transactions.
260.3(4)-2 Definition of ``distribution'' in section 303(4) for certain 
          transactions.
260.3(4)-3 Definitions of ``participates'' and ``participation'' as used 
          in section 303(4), in relation to certain transactions.

                         Rules Under Section 304

260.4a-1 Exempted securities under section 304(a)(8).
260.4a-2 Exempted securities under section 304(d).
260.4a-3 Exempted securities under section 304(a)(9).
260.4c-1 Form for applications under section 304(c).
260.4c-2 General requirements as to form and content of applications.
260.4c-3 Number of copies; filing; signatures; binding.
260.4c-4 Applications under section 304(c)(1).
260.4c-5 Applications under section 304(c)(2).
260.4d-7 Application for exemption from one or more provisions of the 
          Act.
260.4d-8 Content.
260.4d-9 Exemption for Canadian Trust Indentures from Specified 
          Provisions of the Act.
260.4d-10 Exemption for securities issued pursuant to Sec.230.802 of 
          this chapter.
260.4d-11 Exemption for security-based swaps offered and sold in 
          reliance on Rule 239 under the Securities Act of 1933 (17 CFR 
          230.239).
260.4d-12 Exemption for security-based swaps offered and sold in 
          reliance on Securities Act of 1933 Rule 240 (Sec.230.240).

                         Rules Under Section 305

260.5a-1 Forms for statements of eligibility and qualification.
260.5a-2 General requirements as to form and content of statements of 
          eligibility and qualification.
260.5a-3 Number of copies; filing; signatures; binding.
260.5b-1 Application pursuant to section 305(b)(2) of the Trust 
          Indenture Act for determining eligibility of a person 
          designated as trustee for offerings on a delayed basis.
260.5b-2 General requirements as to form and content of applications.
260.5b-3 Number of copies--Filing--Signatures.

                         Rules Under Section 307

              Applications for Qualification of Indentures

260.7a-1 Form for application.
260.7a-2 Powers of agent for service named in application.
260.7a-3 Number of copies; filing; signatures; binding.
260.7a-4 Calculation of time.
260.7a-5 Filing of amendments; number of copies.
260.7a-6 Telegraphic delaying amendments.
260.7a-7 Effective date of amendment filed under section 8(a) of the 
          Securities Act with the consent of the Commission.
260.7a-8 Effective date of amendment filed under section 8(a) of the 
          Securities Act pursuant to order of Commission.
260.7a-9 Delaying amendments.

General Requirements as to Form and Content of Applications, Statements 
                               and Reports

                                 General

260.7a-15 Scope of Sec.Sec.260.7a-15 to 260.7a-37.

[[Page 1104]]

                           Formal Requirements

260.7a-16 Inclusion of items, differentiation between items and answers, 
          omission of instructions.
260.7a-17 Quality, color and size of paper.
260.7a-18 Legibility.
260.7a-19 Margin for binding.
260.7a-20 Riders; inserts.

                   General Requirements as to Contents

260.7a-21 Clarity.
260.7a-22 Information unknown or not reasonably available.
260.7a-23 Statements required where item is inapplicable or where answer 
          is ``none''.
260.7a-24 Words relating to periods of time in the past.
260.7a-25 Words relating to the future.
260.7a-26 Disclaimer of control.
260.7a-27 Title of securities.

                       Incorporation by Reference

260.7a-28 Incorporation of matter in application, statement or report, 
          other than exhibits, as answer to item.
260.7a-29 Incorporation of exhibits as such.
260.7a-30 Identification of material incorporated; form of 
          incorporation.
260.7a-31 Incorporation by reference of contested material.
260.7a-32 Incorporation by reference rendering document incomplete, 
          unclear, or confusing.

                                Exhibits

260.7a-33 Additional exhibits.
260.7a-34 Omission of substantially identical documents.

                               Amendments

260.7a-35 Formal requirements as to amendments.
260.7a-36 Signatures to amendments.

   Inspection and Publication of Applications, Statements and Reports

260.7a-37 Inspection of applications, statements and reports.

                         Rules Under Section 310

260.10a-1 Application for determining eligibility of a foreign person to 
          act as sole trustee pursuant to section 310(a)(1) of the Act.
260.10a-2 General requirements as to form and content of applications.
260.10a-3 Number of copies--Filing--Signatures.
260.10a-4 Consent of trustee to service of process.
260.10a-5 Eligibility of Canadian Trustees.
260.10b-1 Calculation of percentages.
260.10b-2 Applications under section 310(b)(1)(ii).
260.10b-3 Applications relative to affiliations between trustees and 
          underwriters.
260.10b-4 Application for stay of trustee's duty to resign pursuant to 
          section 310(b) of the Act.
260.10b-5 Content.
260.10b-6 Notices--Exemptive Application Procedure.

                         Rules Under Section 311

260.11b-4 Definition of ``cash transaction'' in section 311(b)(4).
260.11b-6 Definition of ``self-liquidating paper'' in section 311(b)(6).

                         Rules Under Section 314

                            Periodic Reports

260.14a-1 Application of Sec.Sec.260.7a-15 to 260.7a-38.
260.19a-1 Compliance with Section 314(a)(1) of the Trust Indenture Act 
          for certain eligible indenture obligors.

    Authority: 15 U.S.C. 77c, 77ddd, 77eee, 77ggg, 77nnn, 77sss, 78ll 
(d), 80b-3, 80b-4, and 80b-11, unless otherwise noted.

    Source: 5 FR 293, Jan. 25, 1940, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 260 appear at 57 FR 
36501, Aug. 13, 1992, and 57 FR 47409, Oct. 16, 1992.
    Note: In Sec.Sec.260.0-1 to 260.14a-1 the numbers to the right of 
the decimal point correspond with the respective rule number of the 
general rules and regulations under the Trust Indenture Act of 1939.

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.

                 Terms Used in the Rules and Regulations



Sec.260.0-1  Application of definitions contained in the act.

    Unless the context otherwise requires, the terms defined in the act 
shall, when used in the rules and regulations, have the respective 
meanings given in the act.

[[Page 1105]]



Sec.260.0-2  Definitions of terms used in the rules and regulations.

    Unless the context otherwise requires, the following terms, when 
used in this part, shall have the respective meanings indicated in this 
section:
    (a) Act. The term ``act'' means the Trust Indenture Act of 1939. (53 
Stat. 1149; 15 U.S.C. 77aaa)
    (b) Affiliate. The term ``affiliate'' means a person controlling, 
controlled by, or under common control with, another person. The terms 
``affiliated'' and ``affiliation'' have meanings correlative to the 
foregoing.
    (c) Agent for service. The term ``agent for service'' means the 
person authorized to receive notices and communications from the 
Commission.
    (d) Amount. The term ``amount'' when used in regard to securities, 
shall have the meaning given in Sec.260.10b-1(c).
    (e) Class. The term ``class'', when used in regard to securities, 
shall have the meaning given in Sec.260.10b-1(e).
    (f) Control. The term ``control'' means the power to direct the 
management and policies of a person, directly or through one or more 
intermediaries, whether through the ownership of voting securities, by 
contract, or otherwise. The terms ``controlling'' and ``controlled'' 
have meanings correlative to the foregoing. (See Sec.260.a-26.)
    (g) Electronic filer. The term electronic filer means a person or an 
entity that submits filings electronically pursuant to Rules 100 and 101 
of Regulation S-T (Sec.Sec.232.100 and 232.101 of this chapter, 
respectively).
    (h) Electronic filing. The term electronic filing means a document 
under the federal securities laws that is transmitted or delivered to 
the Commission in electronic format.
    (i) Outstanding. The term ``outstanding'', when used in regard to 
securities, shall have the meaning given in Sec.260.10b-1(d).
    (j) Parent. The term ``parent'' means a person controlling one or 
more other persons.
    (k) Rules and regulations. The term ``rules and regulations'' means 
all rules and regulations adopted by the Commission pursuant to the act, 
including the forms and instructions thereto.
    (l) Section. The term ``section'' means a section of the act. \1\
---------------------------------------------------------------------------

    \1\ References to ``this section'' or to section number preceded by 
a section symbol are to sections in the Code of Federal Regulations.
---------------------------------------------------------------------------

    (m) Subsidiary. The term ``subsidiary'' means a person controlled by 
another person.

[5 FR 293, Jan. 25, 1940, as amended at 58 FR 14686, Mar. 18, 1993; 62 
FR 36459, July 8, 1997]



Sec.260.0-3  Definition of ``rules and regulations'' as used 
in certain sections of the Act.

    (a) The term rules and regulations as used in section 305 of the Act 
shall include the forms for registration of securities under the 
Securities Act of 1933 and the related instructions thereto, and the 
forms for information, documents and statements under section 305 of the 
Act.
    (b) The term rules and regulations as used in section 307 of the Act 
shall include the forms for applications under section 307 of the Act 
and the related instructions thereto.

[21 FR 1046, Feb. 15, 1956]



Sec.260.0-4  Sequential numbering of documents filed with the
Commission.

    The manually signed original (or in the case of duplicate originals, 
one duplicate original) of all registrations, applications, statements, 
reports, or other documents filed under the Trust Indenture Act of 1939 
shall be numbered sequentially (in addition to any internal numbering 
which otherwise may be present) by handwritten, typed, printed, or other 
legible form of notation from the facing page of the document through 
the last page of that document and any exhibits or attachments thereto. 
Further, the total number of pages contained in a numbered original 
shall be set forth on the first page of the document.

[44 FR 4666, Jan. 23, 1979, as amended at 76 FR 71877, Nov. 21, 2011]

                        Office of the Commission



Sec.260.0-5  Business hours of the Commission.

    (a) General. The principal office of the Commission, at 100 F 
Street, NE., Washington, DC 20549, is open each day,

[[Page 1106]]

except Saturdays, Sundays and federal holidays, from 9 a.m. to 5:30 
p.m., Eastern Standard Time or Eastern Daylight Saving Time, whichever 
is currently in effect, provided that the hours for the filing of 
documents with the Commission are as set forth in paragraphs (b) and (c) 
of this section.
    (b) Submissions made in paper. Paper documents filed with or 
otherwise furnished to the Commission may be submitted to the Commission 
each day, except Saturdays, Sundays and federal holidays, from 8 a.m. to 
5:30 p.m., Eastern Standard Time or Eastern Daylight Saving Time, 
whichever is currently in effect.
    (c) Electronic filings. Filings made by direct transmission may be 
submitted to the Commission each day, except Saturdays, Sundays and 
federal holidays, from 8 a.m. to 10 p.m., Eastern Standard Time or 
Eastern Daylight Saving Time, whichever is currently in effect.

[58 FR 14687, Mar. 18, 1993, as amended at 65 FR 24802, Apr. 27, 2000; 
68 FR 25800, May 13, 2003; 73 FR 32228, June 5, 2008]



Sec.260.0-6  Nondisclosure of information obtained in the course
of examinations and investigations.

    Information or documents obtained by officers or employees of the 
Commission in the course of any examination or investigation under 
section 8(e) of the Securities Act of 1933 (48 Stat. 79; 15 U.S.C. 77h), 
pursuant to section 307(c) of the Trust Indenture Act of 1939 (53 Stat. 
1156; 15 U.S.C. 77ggg), or any examination or investigation under 
section 20(a) of the Securities Act of 1933 (48 Stat. 86; 15 U.S.C. 
77t), pursuant to section 321(a) of the Trust Indenture Act of 1939 (53 
Stat. 1174; 15 U.S.C. 77uuu), shall, unless made a matter of public 
record, be deemed confidential. Except as provided by 17 CFR 203.2, 
officers and employees are hereby prohibited from making such 
confidential information or documents or any other non-public records of 
the Commission available to anyone other than a member, officer or 
employee of the Commission, unless the Commission or the General 
Counsel, pursuant to delegated authority, authorizes the disclosure of 
such information or the production of such documents as not being 
contrary to the public interest. Any officer or employee who is served 
with a subpoena requiring the disclosure of such information or the 
production of such documents shall appear in court and, unless the 
authorization described in the preceding sentence shall have been given, 
shall respectfully decline to disclose the information or produce the 
documents called for, basing his or her refusal upon this section. Any 
officer or employee who is served with such a subpoena shall promptly 
advise the General Counsel of the service of such subpoena, the nature 
of the information or documents sought, and any circumstances which may 
bear upon the desirability of making available such information or 
documents.

[44 FR 50836, Aug. 30, 1979, as amended at 53 FR 17459, May 17, 1988; 54 
FR 33501, Aug. 15, 1989; 76 FR 71877, Nov. 21, 2011]



Sec.260.0-7  Small entities for purposes of the Regulatory
Flexibility Act.

    For purposes of Commission rulemaking in accordance with the 
provisions of Chapter Six of the Administrative Procedure Act (5 U.S.C. 
601 et seq.), and unless otherwise defined for purposes of a particular 
rulemaking proceeding, the term ``small business'' or ``small 
organization,'' for purposes of the Trust Indenture Act of 1939 shall 
mean an issuer whose total assets on the last day of its most recent 
fiscal year were $5 million or less that is engaged or proposing to 
engage in small business financing. An issuer is considered to be 
engaged or proposing to be engaged in small business financing under 
this section if it is conducting or proposing to conduct an offering of 
securities which does not exceed the dollar limitation prescribed by 
Sec.260.4a-2.

[47 FR 5223, Feb. 4, 1982, as amended at 51 FR 25362, July 14, 1986]



Sec.260.0-11  Liability for certain statements by issuers.

    (a) A statement within the coverage of paragraph (b) below which is 
made by or on behalf of an issuer or by an outside reviewer retained by 
the issuer shall be deemed not to be a fraudulent statement (as defined 
in paragraph (d) of this section), unless it is shown that such 
statement was made or reaffirmed

[[Page 1107]]

without a reasonable basis or was disclosed other than in good faith.
    (b) This rule applies to the following statements:
    (1) A forward-looking statement (as defined in paragraph (c) of this 
section) made in a document filed with the Commission, in Part I of a 
quarterly report on Form 10-Q, Sec.249.308a of this chapter, or in an 
annual report to security holders meeting the requirements of Rules 14a-
3(b) and (c) or 14c-3(a) and (b) under the Securities Exchange Act of 
1934 (Sec.240.14a-3(b) and (c) or Sec.240.14c-3(a) and (b) of this 
chapter), a statement reaffirming such forward-looking statement after 
the date the document was filed or the annual report was made publicly 
available, or a forward-looking statement made before the date the 
document was filed or the date the annual report was made publicly 
available if such statement is reaffirmed in a filed document, in Part I 
of a quarterly report on Form 10-Q, or in an annual report made publicly 
available within a reasonable time after the making of such forward-
looking statement; Provided, that:
    (i) At the time such statements are made or reaffirmed, either the 
issuer is subject to the reporting requirements of section 13(a) or 
15(d) of the Securities Exchange Act of 1934 and has complied with the 
requirements of Rule 13a-1 or 15d-1 (Sec.240.13a-1 or Sec.240.15d-1 
of this chapter) thereunder, if applicable, to file its most recent 
annual report on Form 10-K, Form 20-F, or Form 40-F; or if the issuer is 
not subject to the reporting requirements of section 13(a) or 15(d) of 
the Securities Exchange Act of 1934, the statements are made in a 
registration statement filed under the Securities Act of 1933 or 
pursuant to section 12(b) or (g) of the Securities Exchange Act of 1934; 
and
    (ii) The statements are not made by or on behalf of an issuer that 
is an investment company registered under the Investment Company Act of 
1940; and
    (2) Information relating to the effects of changing prices on the 
business enterprise presented voluntarily or pursuant to Item 303 of 
Regulation S-K (Sec.229.303 of this chapter), Item 5 of Form 20-F 
(Sec.249.220f of this chapter), ``Operating and Financial Review and 
Prospects,'' Item 302 of Regulation S-K (Sec.229.302 of this chapter), 
``Supplementary Financial Information,'' or Rule 3-20(c) of Regulation 
S-X (Sec.210.3-20(c) of this chapter), and disclosed in a document 
filed with the Commission, in Part I of a quarterly report on Form 10-Q, 
or in an annual report to shareholders meeting the requirements of Rules 
14a-3(b) and (c) or 14c-3(a) and (b) (Sec.240.14a-3(b) and (c) or 
Sec.240.14c-3(a) and (b)) under the Securities Exchange Act of 1934.
    (c) For the purpose of this rule, the term forward-looking statement 
shall mean and shall be limited to:
    (1) A statement containing a projection of revenues, income (loss), 
earnings (loss) per share, capital expenditures, dividends, capital 
structure or other financial items;
    (2) A statement of management's plans and objectives for future 
operations;
    (3) A statement of future economic performance contained in 
management's discussion and analysis of financial condition and results 
of operations included pursuant to Item 303 of Regulation S-K (Sec.
229.303 of this chapter) or Item 5 of Form 20-F; or
    (4) Disclosed statements of the assumptions underlying or relating 
to any of the statements described in paragraphs (c) (1), (2), or (3) of 
this section.
    (d) For the purpose of this rule the term fraudulent statement shall 
mean a statement which is an untrue statement of a material fact, a 
statement false or misleading with respect to any material fact, an 
omission to state a material fact necessary to make a statement not 
misleading, or which constitutes the employment of a manipulative, 
deceptive, or fraudulent device, contrivance, scheme, transaction, act, 
practice, course of business, or an artifice to defraud, as those terms 
are used in the Trust Indenture Act of 1939 and other acts referred to 
in section 323(b) thereof or the rules or regulations promulgated 
thereunder.

[46 FR 19458, Mar. 31, 1981, as amended at 47 FR 54790, Dec. 26, 1982; 
56 FR 30077, July 1, 1991; 64 FR 53925, Oct. 5, 1999; 73 FR 982, Jan. 4, 
2008]

[[Page 1108]]

                         Rules Under Section 303



Sec.260.3(4)-1  Definition of ``commission from an underwriter
or dealer not in excess of the usual and customary distributors'
or sellers' commissions'' in section 303(4), for certain transactions.

    (a) The term commission in section 303(4) shall include such 
remuneration, commonly known as a spread, as may be received by a 
distributor or dealer as a consequence of reselling securities bought 
from an underwriter or dealer at a price below the offering price of 
such securities, where such resales afford the distributor or dealer a 
margin of profit not in excess of what is usual and customary in such 
transactions.
    (b) The term commission from an underwriter or dealer in section 
303(4) shall include commissions paid by an underwriter or dealer 
affiliated with the issuer.
    (c) The term usual and customary distributors' or sellers' 
commission in section 303(4) shall mean a commission or remuneration, 
commonly known as a spread, paid to or received by any person selling 
securities either for his own account or for the account of others, 
which is not in excess of the amount usual and customary in the 
distribution and sale of issues of similar type and size, and not in 
excess of the amount allowed to other persons, if any, for comparable 
service in the distribution of the particular issue; but such term shall 
not include amounts paid to any person whose function is the management 
of the distribution of all of a substantial part of the particular 
issue, or who performs the functions normally performed by an 
underwriter or underwriting syndicate.



Sec.260.3(4)-2  Definition of ``distribution'' in section 303(4) 
for certain transactions.

    A person, the chief part of the business of which consists in the 
purchase of the securities of any one issuer and/or its affiliate and in 
the sale of its own securities to furnish the proceeds with which to 
acquire the securities of such issuer and/or affiliate, is to be 
regarded as engaged in the distribution of the securities of such issuer 
and/or affiliate within the meaning of section 303(4).



Sec.260.3(4)-3  Definitions of ``participates'' and ``participation'' 
as used in section 303(4), in relation to certain transactions.

    (a) The terms participates and participation in section 303(4) shall 
not include the interest of a person (1) who is neither in privity of 
contract with the issuer nor affiliated with the issuer, and (2) who has 
no association with any principal underwriter of the securities being 
distributed, and (3) whose function in the distribution is confined to 
an undertaking to purchase all or some specified proportion of the 
securities remaining unsold after the lapse of some specified period of 
time, and (4) who purchases such securities for investment and not with 
a view to distribution.
    (b) As used in this section:
    (1) The term association shall include a relationship between two 
persons under which one (i) is affiliated with the other, or (ii) has, 
in common with the other, one or more partners, directors, officers, 
trustees, branch managers, or other persons occupying a similar status 
or performing similar functions or (iii) has a participation, direct or 
indirect, in the profits of the other, or has a financial stake, by 
debtor-creditor relationship, stock ownership, contract or otherwise, in 
the income or business of the other.
    (2) The term principal underwriter means an underwriter in privity 
of contract with the issuer of the securities as to which he is 
underwriter.

                         Rules Under Section 304



Sec.260.4a-1  Exempted securities under section 304(a)(8).

    The provisions of the Trust Indenture Act of 1939 shall not apply to 
any security that has been or will be issued otherwise than under an 
indenture. The same issuer may not claim this exemption within a period 
of twelve consecutive months for more than $50,000,000 aggregate 
principal amount of any securities.

[80 FR 21925, Apr. 20, 2015]

[[Page 1109]]



Sec.260.4a-2  Exempted securities under section 304(d).

    The provisions of the Trust Indenture Act of 1939 shall not apply to 
any security that has been issued or will be issued in accordance with 
the provisions of Regulation A (17 CFR 230.251 et seq.) under the 
Securities Act of 1933.

[57 FR 36501, Aug. 13, 1992]



Sec.260.4a-3  Exempted securities under section 304(a)(9).

    The provisions of the Trust Indenture Act of 1939 shall not apply to 
any security which has been or is to be issued under an indenture which 
limits the aggregate principal amount of securities at any time 
outstanding thereunder to $10,000,000 or less, but this exemption shall 
not be applied within a period of thirty-six consecutive months to more 
than $10,000,000 aggregate principal amount of securities of the same 
issuer.

(Secs. 304(a)(8) and 304(a)(9) of the Trust Indenture Act of 1939, (Sec.
302, Pub. L. 96-477; secs. 304(a)(8), 304(a)(9), 53 Stat. 1153; 15 
U.S.C. 77ddd(a)(8), 77ddd(a)(9)))

[46 FR 63256, Dec. 31, 1981. Redesignated and amended at 57 FR 36501, 
Aug. 13, 1992]



Sec.260.4c-1  Form for applications under section 304(c).

    Form T-4 shall be used for applications for exemption filed pursuant 
to section 304(c) of the act.

[6 FR 981, Feb. 15, 1941]



Sec.260.4c-2  General requirements as to form and content of 
applications.

    Sections 260.7a-15 to 260.7a-38 shall be applicable to applications 
on Form T-4.

[6 FR 981, Feb. 15, 1941]



Sec.260.4c-3  Number of copies; filing; signatures; binding.

    (a) Three copies of every application and of every amendment thereto 
shall be filed with the Commission at its principal office.
    (b) At least the original of each application or amendment filed 
with the Commission shall be signed in the manner prescribed by Form T-4 
(Sec.269.4 of this chapter).
    (c) The application proper and the exhibits thereto shall be bound 
on the left side in one or more parts, but without stiff covers.

[16 FR 8737, Aug. 29, 1951]



Sec.260.4c-4  Applications under section 304(c)(1).

    (a) An applicant under section 304(c)(1) may, if it so desires, 
waive a hearing and request the Commission to decide the application 
without a formal hearing on the basis of the application and such other 
information and documents as the Commission shall designate as a part of 
the record. However, a hearing may be called upon order of the 
Commission notwithstanding that the applicant shall have filed such a 
waiver and request whenever, in the judgment of the Commission, such a 
hearing is necessary or appropriate in the public interest.
    (b) If the applicant waives a hearing and requests the Commission to 
decide the application without a hearing and if no hearing has been 
ordered by the Commission:
    (1) The applicant shall, at the request of the Commission, furnish 
such additional information or documents as the Commission may deem 
necessary to decide the application.
    (2) The Commission may, with the consent of the applicant, make a 
part of the record any pertinent information or documents filed with the 
Commission by the applicant or by any other person.
    (3) The Commission shall, in its order deciding the application, 
designate and describe the information and documents comprising the 
record on which the decision is based.

[6 FR 981, Feb. 15, 1941]



Sec.260.4c-5  Applications under section 304(c)(2).

    A hearing shall be held upon every application filed pursuant to 
section 304(c)(2).

[6 FR 981, Feb. 15, 1941]



Sec.260.4d-7  Application for exemption from one or more provisions 
of the Act.

    (a) Three copies of every application for an order under section 
304(d) of the Act (15 U.S.C. 77ddd(d)) and of every

[[Page 1110]]

amendment thereto shall be filed with the Commission at its principal 
office.
    (b) One copy shall be manually signed by a duly authorized officer 
of the applicant (or individual customarily performing similar functions 
with respect to an organization, whether incorporated or 
unincorporated), or by a natural person seeking exemption under section 
304(d) of the Act.
    (c) Such applications shall be on paper no larger 8\1/2\ x 11 inches 
in size. If reduction of large documents would render them illegible, 
such documents may be filed on paper larger than 8\1/2\ x 11 inches in 
size. The left margin shall be at least 1\1/2\ inches wide and if the 
application is bound, it shall be bound on the left side.
    (d) The application shall be typed, printed, copied, or prepared by 
a process which produces copies suitable for repeated photocopying and 
microfilming. All typewritten or printed matter shall be set forth in 
black ink to permit photocopying. If printed, the application shall be 
in type not smaller than 10-point, roman type, at least two points 
leaded.
    (e) Rules 7a-28 through 7a-32 (Sec.Sec.260.7a-28 through 260.7a-
32 of this chapter) relating to incorporation by reference shall be 
applicable to applications for exemption pursuant to section 304(d) of 
the Act.

[56 FR 22319, May 15, 1991]



Sec.260.4d-8  Content.

    (a) Each application for an order under section 304(d) of the Act 
(15 U.S.C. 77ddd(d)) shall contain the name, address, and telephone 
number of each applicant and the name, address, and telephone number of 
any person to which such applicant wishes any questions regarding the 
application to be directed.
    (b) Each application shall contain a statement of the relevant facts 
on which the request for relief is based, including a justification for 
the exemption(s) requested and a discussion of any benefit expected for 
security holders, trustees and/or obligors.

[56 FR 22319, May 15, 1991]



Sec.260.4d-9  Exemption for Canadian Trust Indentures from Specified
Provisions of the Act.

    Any trust indenture filed in connection with offerings on a 
registration statement on Form S-1, (Sec.239.1 of this chapter) F-7, 
F-8, F-9, F-10 or F-80 (Sec.Sec.239.37 through 239.41 of this 
chapter) shall be exempt from the operation of sections 310(a)(3) and 
310(a)(4), sections 310(b) through 316(a), and sections 316(c) through 
318(a) of the Act; provided that the trust indenture is subject to:
    (a) The Canada Business Corporations Act, R. S. C. 1985;
    (b) The Bank Act, R. S. C. 1985;
    (c) The Business Corporations Act, 1982 (Ontario), S. O. 1982; or
    (d) The Company Act, R.S.B.C. 1979, C. 59.

[56 FR 30077, July 1, 1991, as amended at 57 FR 36501, Aug. 13, 1992; 58 
FR 33190, June 16, 1993; 73 FR 983, Jan. 4, 2008]



Sec.260.4d-10  Exemption for securities issued pursuant to
Sec.230.802 of this chapter.

    Any debt security, whether or not issued under an indenture, is 
exempt from the Act if made in compliance with Sec.230.802 of this 
chapter.

[64 FR 61406, Nov. 10, 1999]



Sec.260.4d-11  Exemption for security-based swaps offered and sold
in reliance on Rule 239 under the Securities Act of 1933 
(17 CFR 230.239).

    Any security-based swap offered and sold in reliance on Rule 239 
under the Securities Act of 1933 (17 CFR 230.239), whether or not issued 
under an indenture, is exempt from the Act.

[77 FR 20549, Apr. 5, 2012]



Sec.260.4d-12  Exemption for security-based swaps offered and sold
in reliance on Securities Act of 1933 Rule 240 (Sec.230.240).

    Any security-based swap offered and sold in reliance on Sec.
230.240 of this chapter, whether or not issued under an indenture, is 
exempt from the Act. This section will expire on February 11, 2018.

[82 FR 10707, Feb. 15, 2017]

[[Page 1111]]

                         Rules Under Section 305



Sec.260.5a-1  Forms for statements of eligibility and qualification.

    (a) Form T-1 shall be used for statements of eligibility and 
qualification of corporations designated to act as trustees under trust 
indentures to be qualified pursuant to section 305 or 307 of the Act.
    (b) Form T-2 shall be used for statements of eligibility and 
qualification of individuals designated to act as trustees under trust 
indentures to be qualified pursuant to section 305 or 307 of the Act.



Sec.260.5a-2  General requirements as to form and content of statements
of eligibility and qualification.

    Rules 7a-15 through 7a-37 (Sec.Sec.260.7a-15 through 260.7a-37 of 
this chapter) under section 307 under the Trust Indenture Act shall be 
applicable to statements filed on Forms T-1, T-2, and T-6.

[56 FR 22320, May 15, 1991]



Sec.260.5a-3  Number of copies; filing; signatures; binding.

    (a) Three copies of each statement of eligibility and qualification 
shall be filed with the registration statement or application for 
qualification.
    (b) At least the original of each statement of eligibility and 
qualification filed with the Commission shall be signed in the manner 
prescribed by the particular form.
    (c) Each statement of eligibility and qualification and the exhibits 
thereto shall be bound on the left-hand side in one or more parts, 
without stiff covers. The binding shall be made in such manner as to 
leave the reading matter legible.
    (d) The statement or statements shall be filed by the obligor upon 
the indenture securities as a separate part of the registration 
statement or application for qualification, as the case may be.

[6 FR 667, Jan. 30, 1941, as amended at 16 FR 8737, Aug. 29, 1951]



Sec.260.5b-1  Application pursuant to section 305(b)(2) of the Trust 
Indenture Act for determining eligibility of a person designated as 
trustee for offerings on a delayed basis.
          

    Forms T-1 and T-2 (17 CFR 269.1 and 269.2) shall be used for 
applications filed for the purpose of determining the eligibility under 
section 310(a) of the Act of a person designated as trustee for debt 
securities registered under the Securities Act of 1933 which are 
eligible to be issued, offered, or sold on a delayed basis by or on 
behalf of the registrant.

[56 FR 22320, May 15, 1991]



Sec.260.5b-2  General requirements as to form and content of
applications.

    Rule 5a-2 (Sec.260.5a-2 of this chapter) and rules 7a-15 through 
7a-37 [Sec.Sec.260.7a-15 through 260.7a-37 of this chapter] shall be 
applicable to applications pursuant to rule 5b-1 (Sec.260.56b-1 of 
this chapter).

[56 FR 22320, May 15, 1991]



Sec.260.5b-3  Number of copies--Filing--Signatures.

    (a) Three copies of every application pursuant to rule 5b-1 (Sec.
260.5b-1 of this chapter) and of every amendment thereto shall be filed 
with the Commission at its principal office by the issuer upon the 
indenture securities. Such application shall be filed no later than the 
second business day following the initial date of public offering or 
sales after effectiveness of the registration statement with respect to 
such securities, or transmitted by a means reasonably calculated to 
result in filing with the Commission by that date.
    (b) One copy shall be manually signed by the applicant's duly 
authorized officer (or individual customarily performing similar 
functions with respect to any organization, whether incorporated or 
unincorporated), or by the individual trustee, as applicable.

[56 FR 22320, May 15, 1991]

[[Page 1112]]

                         Rules Under Section 307

              Applications for Qualification of Indentures



Sec.260.7a-1  Form for application.

    Form T-3 shall be used for applications for qualification of 
indentures pursuant to section 307(a).



Sec.260.7a-2  Powers of agent for service named in application.

    Every applicant shall be deemed, in the absence of a statement to 
the contrary, to confer upon the agent for service the following powers:
    (a) A power to amend the application for qualification by altering 
the date of the proposed offering of the indenture securities.
    (b) A power to make application pursuant to Sec.260.7 for the 
Commission's consent to the filing of an amendment.
    (c) A power to withdraw the application for qualification or any 
amendment thereto.
    (d) A power to consent to the entry of an order under section 8(b) 
of the Securities Act of 1933 (48 Stat. 79; 15 U.S.C. 77l), waiving 
notice and hearing, such order being entered without prejudice to the 
right of the applicant thereafter to have the order vacated upon a 
showing to the Commission that the application for qualification, as 
amended, is no longer incomplete or inaccurate on its face in any 
material respect.



Sec.260.7a-3  Number of copies; filing; signatures; binding.

    (a) Three copies of the complete application shall be filed with the 
Commission at its principal office.
    (b) At least the original of each application filed with the 
Commission shall be signed in the manner prescribed by Form T-3 (Sec.
269.3 of this chapter).
    (c) The application proper and the exhibits thereto shall be bound 
on the left side in one or more parts, but without stiff covers. The 
binding shall be made in such manner as to leave the reading matter 
legible.

[16 FR 8737, Aug. 29, 1951]



Sec.260.7a-4  Calculation of time.

    Saturdays, Sundays and holidays shall be counted in computing the 
effective date of applications for qualification filed under section 
307(a) of the Act. The twentieth day shall be deemed to begin at the 
expiration of nineteen periods of twenty-four hours each from 5:30 p.m., 
eastern standard time or eastern daylight-saving time, whichever is in 
effect at the principal office of the Commission on the date of filing.

[12 FR 2941, May 2, 1947]



Sec.260.7a-5  Filing of amendments; number of copies.

    Except as provided in Sec.260.7a-6, three copies of every 
amendment to an application shall be filed with the Commission.

[16 FR 8737, Aug. 29, 1951]



Sec.260.7a-6  Telegraphic delaying amendments.

    An amendment altering the proposed date of the public offering may 
be made by the agent for service by telegram. In each case, such 
telegraphic amendment shall be confirmed within a reasonable time by the 
filing of three copies, one of which shall be signed by the agent for 
service. Such confirmation shall not be deemed an amendment.



Sec.260.7a-7  Effective date of amendment filed under section 8(a)
of the Securities Act with the consent of the Commission.

    An applicant desiring the Commission's consent to the filing of an 
amendment with the effect provided in section 8(a) of the Securities Act 
of 1933 may apply for such consent at or before the time of filing the 
amendment. The application shall be signed by the applicant or the agent 
for service and shall state fully the grounds upon which made. The 
Commission's consent shall be deemed to be given and the amendment shall 
be treated as a part of the application for qualification upon the 
sending of written or telegraphic notice to that effect.



Sec.260.7a-8  Effective date of amendment filed under section 8(a)
of the Securities Act pursuant to order of Commission.

    An amendment made prior to the effective date of the application of 
qualification shall be deemed to be made

[[Page 1113]]

pursuant to an order of the Commission within the meaning of section 
8(a) of the Securities Act of 1933 so as to be treated as part of the 
application for qualification only when the Commission shall, after the 
filing of such amendment, find that it has been filed pursuant to its 
order.



Sec.260.7a-9  Delaying amendments.

    (a) An amendment in the following form filed with an application for 
qualification, or as an amendment to such an application which has not 
become effective, shall be deemed to be filed on such date or dates as 
may be necessary to delay the effective date of such application for the 
period specified in such amendment:

    The obligor hereby amends this application for qualification on such 
date or dates as may be necessary to delay its effectiveness until (i) 
the 20th day after the filing of a further amendment which specifically 
states that it shall supersede this amendment, or (ii) such date as the 
Commission, acting pursuant to section 307(c) of the Act, may determine 
upon the written request of the obligor.

    (b) An amendment pursuant to paragraph (a) of this section which is 
filed with an application for qualification shall be set forth on the 
facing page thereof. Any such amendment filed after the filing of the 
application may be made by letter or telegram and may be signed by the 
agent for service. Any amendment filed to supersede an amendment filed 
pursuant to paragraph (a) of this section may also be made by letter or 
telegram. Every such telegraphic amendment shall be confirmed in writing 
within a reasonable time by filing a signed copy of the amendment. Such 
confirmation shall not be deemed an amendment.

[30 FR 12387, Sept. 29, 1965]

General Requirements as to Form and Content of Applications, Statements 
                               and Reports

                                 General



Sec.260.7a-15  Scope of Sec.Sec.260.7a-15 to 260.7a-37.

    The rules contained in Sec.Sec.260.7a-15 to 260.7a-37 shall 
govern applications for exemption filed pursuant to section 304(c) or 
304(d) of the Act, applications for qualification of indentures filed 
pursuant to section 307, statements of eligibility and qualifications of 
trustees filed pursuant to section 305, 307, or 310(a) of the Act, 
applications for the stay of the trustee's duty to resign filed pursuant 
to section 310(b) of the Act, and reports filed pursuant to section 
314(a) of the Act.

[56 FR 22320, May 15, 1991]

                           Formal Requirements



Sec.260.7a-16  Inclusion of items, differentiation between items and
answers, omission of instructions.

    Except as expressly provided otherwise in the particular form, the 
application, statement, or report shall contain all of the items of the 
form as well as the answers thereto. The items shall be made to stand 
out from the answers by variation in margin or type or by other means. 
All instructions shall be omitted.

[6 FR 981, Feb. 15, 1941]



Sec.260.7a-17  Quality, color and size of paper.

    The application, statement or report, including all amendments and, 
where practicable, all papers and documents filed as a part thereof, 
shall be on good quality, unglazed, white paper, no larger than 8\1/2\ x 
11 inches in size. To the extent that the reduction of larger documents 
would render them illegible, such documents may be filed on paper larger 
than 8\1/2\ x 11 inches in size.

[47 FR 58239, Dec. 30, 1982]



Sec.260.7a-18  Legibility.

    (a) The application, statement or report, including all amendments 
and, where practicable, all papers and documents filed as a part 
thereof, shall be clear, easily readable and shall be typewritten, 
mimeographed, printed or prepared by any similar process which, in the 
opinion of the Commission, produces copies suitable for repeated 
photocopying and microfilming.
    (b) If printed, the application, statement or report shall be in 
type not smaller than 10-point, roman type, at least two points leaded.
    (c) All printing, mimeographing, typing or other markings shall be 
in black

[[Page 1114]]

ink, except that debits in credit categories and credits in debit 
categories may be set forth in red or black ink, but shall in all cases 
be designated in such manner as to be clearly distinguishable as such on 
photocopies.

[5 FR 293, Jan. 25, 1940, as amended at 47 FR 58239, Dec. 30, 1982]



Sec.260.7a-19  Margin for binding.

    The application, statement or report, including all amendments and, 
where practicable, all papers and documents filed as a part thereof, 
shall have a back or stitching margin of at least 1\1/2\ inches for 
binding.



Sec.260.7a-20  Riders; inserts.

    Riders shall not be used. If the application, statement or report is 
typed on a printed form, and the space provided for the answer to any 
given item is insufficient, reference shall be made in such space to a 
full insert page or pages on which the item number and item shall be 
restated and a complete answer given.

                   General Requirements as to Contents



Sec.260.7a-21  Clarity.

    The answer to each item of the particular form shall be so worded as 
to be intelligible without the necessity of referring to the 
instructions or to this part.



Sec.260.7a-22  Information unknown or not reasonably available.

    Information required shall be given insofar as it is known or can be 
obtained by reasonable investigation. Responsibility for the accuracy or 
completeness of information obtained from persons other than affiliates 
may be disclaimed. As to information which is unknown and is unavailable 
after reasonable investigation, there shall be included a statement as 
to the nature of the investigation.



Sec.260.7a-23  Statements required where item is inapplicable 
or where answer is ``none''.

    If any item is inapplicable or the answer is ``none'', a statement 
to such effect shall be made.



Sec.260.7a-24  Words relating to periods of time in the past.

    Unless the context clearly shows otherwise, wherever any fixed 
period of time in the past is indicated, such period shall be computed 
from the date of filing with the Commission.



Sec.260.7a-25  Words relating to the future.

    Unless the context clearly shows otherwise, whenever words relate to 
the future, they have reference solely to present intention.



Sec.260.7a-26  Disclaimer of control.

    If the existence of control is open to reasonable doubt in any 
instance, the applicant or the trustee, as the case may be, may disclaim 
the existence of control and any admission thereof; in such case, 
however, a statement shall be made of the material facts pertinent to 
the possible existence of control.



Sec.260.7a-27  Title of securities.

    Where the title of securities is required to be furnished in an 
application, statement or report, the following requirements shall be 
met:
    (a) In the case of shares, there shall be given the full designation 
of the class of shares and, if not included therein, the par or stated 
value, if any, and the rate of dividends, if fixed, and whether 
cumulative or non-cumulative.
    (b) In the case of funded debt, there shall be given the full 
designation of the issue and, if not included therein, the rate of 
interest and the date of maturity. If the issue matures serially, a 
brief indication shall be given of the serial maturities: For example, 
``maturing serially from 1950 to 1960''. If the payment of interest or 
principal is contingent, such contingency shall be appropriately 
indicated. The rate of interest, however, may be omitted from the title 
of indenture securities on the facing page of Form T-1 and Form T-2, if 
the rate of interest is not determined at the time these forms are 
filed.
    (c) In the case of other securities, a similar designation shall be 
given.

[5 FR 293, Jan. 25, 1940, as amended at 9 FR 750, Jan. 20, 1944]

[[Page 1115]]

                       Incorporation by Reference



Sec.260.7a-28  Incorporation of matter in application, statement 
or report, other than exhibits, as answer to item.

    Matter contained in any part of the application, statement or 
report, other than exhibits, may be incorporated by reference as answer, 
or partial answer, to any item in the same application, statement or 
report.



Sec.260.7a-29  Incorporation of exhibits as such.

    (a) Any exhibit or part thereof previously or concurrently filed 
with the Commission pursuant to any Act administered by the Commission, 
may, subject to the limitations of Sec.228.10(f) and Sec.229.10(d) 
of this chapter, be incorporated by reference as an exhibit to any 
application, statement or report filed with the Commission by the same 
or any other person. Any exhibit or part thereof so filed with a trustee 
pursuant to the Trust Indenture Act of 1939 may be incorporated by 
reference as an exhibit to any report filed with such trustee pursuant 
to section 314(a) of that Act by the same or any other person.
    (b) If any modification has occurred in the text of any exhibit 
incorporated by reference since the filing thereof, there shall be filed 
with the reference a statement containing the text of any such 
modification and the date thereof.
    (c) If the number of copies of any exhibit previously or 
concurrently filed is less than the number required to be filed with the 
application, statement or report which incorporates such exhibit, there 
shall be filed with the application, statement or report as many 
additional copies of the exhibit as may be necessary to meet the 
requirements of such application, statement or report.

[6 FR 667, Jan. 30, 1941, as amended at 29 FR 2421, Feb. 13, 1964; 60 FR 
32825, June 23, 1995; 76 FR 71877, Nov. 21, 2011]



Sec.260.7a-30  Identification of material incorporated; form of 
incorporation.

    In each case of incorporation by reference, the matter incorporated 
shall be clearly identified in the reference. An express statement shall 
be made to the effect that the specified matter is incorporated in the 
application, statement or report at the particular place where the 
information is required.



Sec.260.7a-31  Incorporation by reference of contested material.

    Notwithstanding any particular provision permitting incorporation by 
reference, no application, statement or report shall incorporate by 
reference any matter which is subject, at the time of filing the 
application, statement or report, to pending proceedings under section 
8(b) or 8(d) of the Securities Act of 1933 (whether pursuant to the 
provisions of the Trust Indenture Act of 1939, or otherwise) or to an 
order entered under either of those sections.



Sec.260.7a-32  Incorporation by reference rendering document 
incomplete, unclear, or confusing.

    Notwithstanding any particular provision permitting incorporation by 
reference, the Commission may refuse to permit such incorporation in any 
case in which in its judgment such incorporation would render the 
application, statement or report incomplete, unclear or confusing.

                                Exhibits



Sec.260.7a-33  Additional exhibits.

    Any application, statement or report may include exhibits in 
addition to those required by the particular form. Such additional 
exhibits shall be so marked as to indicate clearly the items to which 
they refer.



Sec.260.7a-34  Omission of substantially identical documents.

    In any case where two or more documents required to be filed as 
exhibits are substantially identical in all material respects except as 
to the parties thereto, dates of execution or other details, a copy of 
only one of such documents need be filed, with a schedule identifying 
the documents omitted and setting forth the material details in which 
such documents differ from the document, a copy of which is filed: 
Provided, however, That the Commission may at any time in its discretion 
require the filing of copies of any documents so omitted.

[[Page 1116]]

                               Amendments



Sec.260.7a-35  Formal requirements as to amendments.

    (a) Amendments to an application, statement or report shall comply 
with Sec.Sec.260.7a-17 to 260.7a-19.
    (b) All amendments relating to a particular application, statements 
or report shall be numbered consecutively in the order in which they are 
filed with the Commission. Amendments shall be numbered separately for 
each separate application, statement or report.
    (c) Every amendment to an item of an application, statement or 
report shall contain the item number, the caption and the text of the 
item being amended and the complete amended answer thereto.
    (d) If at any time the application, statement or report becomes 
unclear or confusing because of the number of amendments filed or the 
length or complexity thereof, there may be filed, and at the written 
request of the Commission there shall be filed, a complete new 
application, statement or report, as amended, but no additional copies 
of exhibits need be filed.



Sec.260.7a-36  Signatures to amendments.

    Subject to Sec.260.7a-2, at least the original of every amendment 
to an application, statement or report shall be signed in the manner 
prescribed by the particular form on which the application, statement or 
report was filed.

[16 FR 8737, Aug. 29, 1951]

   Inspection and Publication of Applications, Statements and Reports



Sec.260.7a-37  Inspection of applications, statements and reports.

    All applications, statements and reports are available for public 
inspection during business hours at the principal office of the 
Commission.

[16 FR 8737, Aug. 29, 1951]

                         Rule Under Section 310



Sec.260.10a-1  Application for determining eligibility of a foreign
person to act as sole trustee pursuant to section 310(a)(1) of the 
Act.

    Form T-6 (17 CFR 269.9 of this chapter) shall be used for an 
application filed to obtain authorization for a corporation or other 
person organized and doing business under the laws of a foreign 
government to act as sole trustee under an indenture qualified or to be 
qualified under the Act.

[56 FR 22320, May 15, 1991]



Sec.260.10a-2  General requirements as to form and content of
applications.

    Rule 5a-2 (Sec.260.5a-2 of this chapter) and rules 7a-15 through 
7a-37 [Sec.Sec.260.7a-15 through 260.7a-37 of this chapter] under 
section 307 of the Act shall be applicable to applications on Form T-6 
pursuant to section 310(a)(1) of the Act and Rule 10a-1 (Sec.260.10a-1 
of this chapter).

[56 FR 22320, May 15, 1991]



Sec.260.10a-3  Number of copies--Filing--Signatures.

    (a) Three copies of every application pursuant to rule 10a-1 (Sec.
260.10a-1 of this chapter) and of every amendment thereto shall be filed 
with the Commission at its principal office.
    (b) One copy shall be manually signed by the applicant's duly 
authorized officer (or individual customarily performing similar 
functions with respect to any organization, whether incorporated or 
unincorporated).

[56 FR 22320, May 15, 1991]



Sec.260.10a-4  Consent of trustee to service of process.

    At the time of filing an application pursuant to Rule 10a-1 (Sec.
260.10a-1 of this chapter) and at such time as it files a statement of 
eligibility to act as trustee under an indenture qualified under the 
Act, an indenture trustee organized and doing business under the laws of 
a foreign government shall furnish to the Commission on Form F-X (Sec.
249.250 of this chapter) a written consent of the trustee and power of 
attorney designating a U. S. person with an address in the United States 
as agent

[[Page 1117]]

upon whom may be served any process, pleadings, subpoenas or other 
papers in any Commission investigation or administrative proceeding and 
any civil suit or action brought against the trustee or to which the 
trustee has been joined as defendant or respondent, in any appropriate 
court in any place subject to the jurisdiction of any state or of the 
United States, or of the District of Columbia or Puerto Rico, where the 
investigation, proceeding or cause of action arises out of or relates to 
or concerns the securities in relation to which the indenture trustee 
proposes to act as trustee pursuant to any rule or order under section 
310(a) of the Act and stipulates and agrees that any such suit, action 
or proceeding may be commenced by the service of process upon said agent 
for service of process, and that such service shall be taken and held in 
all courts to be as valid and binding as if due personal service thereof 
had been made.

[56 FR 30077, July 1, 1991]



Sec.260.10a-5  Eligibility of Canadian Trustees.

    (a) Subject to paragraph (b) of this section, any trust company, 
acting as trustee under an indenture qualified or to be qualified under 
the Act and filed in connection with offerings on a registration 
statement on Form S-1 (Sec.239.11 of this chapter) F-7, F-8, F-9, F-10 
or F-80 (Sec.Sec.239.37 through 239.41 of this chapter) that is 
incorporated and regulated as a trust company under the laws of Canada 
or any of its political subdivisions and that is subject to supervision 
or examination pursuant to the Trust Companies Act (Canada), R.S.C. 
1985, or the Canada Deposit Insurance Corporation Act, R.S.C. 1985 shall 
not be subject to the requirement of domicile in the United States under 
section 310(a) of the Act (15 U.S.C. 77jjj(a)).
    (b) Each trustee eligible for appointment under this section (17 CFR 
260.10a-5) shall file as part of the registration statement for the 
securities to which the trusteeship relates a consent to service of 
process and power of attorney on Form F-X (Sec.269.5 of this chapter).

[56 FR 30077, July 1, 1991, as amended at 57 FR 36501, Aug. 13, 1992; 58 
FR 33191, June 16, 1993; 73 FR 983, Jan. 4, 2008]



Sec.260.10b-1  Calculation of percentages.

    The percentages of voting securities and other securities specified 
in section 310(b) of the Act shall be calculated in accordance with the 
following provisions:
    (a) A specified percentage of the voting securities of a person 
means such amount of the outstanding voting securities of such person as 
entitles the holder or holders thereof to cast such specified percentage 
of the aggregate votes which the holders of all the outstanding voting 
securities of such person are entitled to cast in the direction or 
management of the affairs of such person.
    (b) A specified percentage of a class of securities of a person 
means such percentage of the aggregate amount of securities of the class 
outstanding.
    (c) The term amount, when used in regard to securities, means the 
principal amount if relating to evidences of indebtedness, the number of 
shares if relating to capital shares, and the number of units if 
relating to any other kind of security.
    (d) The term outstanding means issued and not held by or for the 
account of the issuer. The following securities shall not be deemed 
outstanding within the meaning of this definition:
    (1) Securities of an issuer held in a sinking fund relating to 
securities of the issuer of the same class;
    (2) Securities of an issuer held in a sinking fund relating to 
another class of securities of the issuer, if the obligation evidenced 
by such other class of securities is not in default as to principal or 
interest or otherwise;
    (3) Securities pledged by the issuer thereof as security for an 
obligation of the issuer not in default as to principal or interest or 
otherwise;
    (4) Securities held in escrow is placed in escrow by the issuer 
otherwise;

Provided, however, That any voting securities of an issuer shall be 
deemed outstanding if any person other than the issuer is entitled to 
exercise the voting rights thereof.

[[Page 1118]]

    (e) A security shall be deemed to be of the same class as another 
security if both securities confer upon the holder or holders thereof 
substantially the same rights and privileges: Provided, however, That, 
in the case of secured evidences of indebtedness, all of which are 
issued under a single indenture, differences in the interest rates or 
maturity dates of various series thereof shall not be deemed sufficient 
to constitute such series different classes: And, provided further, 
That, in the case of unsecured evidences of indebtedness, differences in 
the interest rates or maturity dates thereof shall not be deemed 
sufficient to constitute them securities of different classes, whether 
or not they are issued under a single indenture.



Sec.260.10b-2  Applications under section 310(b)(1)(ii).

    If an application filed with the Commission pursuant to clause (ii) 
of section 310(b)(1) (53 Stat. 1157; 15 U.S.C. 77jjj) of the Act is 
based upon the claim that no material conflict of interest will be 
involved because prior to or concurrently with the delivery of the 
securities to be issued under the indenture to be qualified all 
securities outstanding under the other indenture or indentures, under 
which the person designated to act as indenture trustee is also a 
trustee, will be discharged or:
    (a) Funds sufficient to discharge the securities will be deposited 
in trust for that purpose.
    (b) The securities, if not presently maturing, will be called for 
redemption or irrevocable power to make the call will be given to some 
third person.
    (c) All liens securing the securities will be released or all steps 
necessary to effect the release at the maturity or redemption date will 
be taken.

The application shall be deemed to have been granted unless, within 7 
days after it is filed, the Commission orders a hearing thereon.

[6 FR 808, Feb. 7, 1941]



Sec.260.10b-3  Applications relative to affiliations between trustees 
and underwriters.

    (a) Any person proposing to act as trustee under indentures to be 
qualified under the act may make application for a finding by the 
Commission as to whether such person is or is not an affiliate of any 
specified person who may be named as an underwriter for an obligor in 
any registration statement or application for qualification subsequently 
filed with the Commission.
    (b) Every application pursuant to this section shall be filed in 
triplicate and shall contain a statement of the material facts necessary 
to enable the Commission to make the finding request. The applicant may 
incorporate by reference in the application any information or documents 
contained in a statement of eligibility and qualification of the 
applicant filed with the Commission. The Commission may with the consent 
of the applicant or at the applicant's request, make a part of the 
record the record in any prior proceeding in which the same issues were 
involved.
    (c) A hearing will be held, after confirmed telegraphic notice to 
the applicant, upon every application filed pursuant to this section.
    (d) Every finding by the Commission pursuant to this section shall 
be limited to the facts disclosed in the application and in the hearing 
thereon, and shall be made solely for the purposes of sections 305(b) 
and 307(c) of the Act.

[6 FR 2376, May 13, 1941]



Sec.260.10b-4  Application for stay of trustee's duty to resign 
pursuant to section 310(b) of the Act.

    (a) Three copies of every application for a stay of a trustee's duty 
to resign under section 310(b) of the Act and of every amendment thereto 
shall be filed with the Commission at its principal office.
    (b) One copy shall be manually signed by a duly authorized officer 
of the applicant (or individual customarily performing similar functions 
with respect to an organization, whether incorporated or unincorporated) 
or by a natural person seeking a stay under section 310(b) of the Act.
    (c) Such applications shall be on paper no larger than 8\1/2\ x 11 
inches in size. If reduction of large documents would render them 
illegible, such documents may be filed on paper larger than 8\1/2\ x 11 
inches in size. The left margin shall be at least 1\1/2\ inches wide

[[Page 1119]]

and if the application is bound, it shall be bound on the left side.
    (d) The application shall be typed, printed, copied, or prepared by 
a process which produces copies suitable for repeated photocopying and 
microfilming. All typewritten or printed matter shall be set forth in 
black ink to permit photocopying. If printed, the application shall be 
in type not smaller than 10-point, roman type, at least two points 
leaded.
    (e) Rules 7a-28 through 7a-32 [Sec.Sec.260.7a-28 through 260.7a-
32 of this chapter] relating to incorporation by reference shall be 
applicable to applications for stay pursuant to section 310(b) of the 
Act.

[56 FR 22320, May 15, 1991]



Sec.260.10b-5  Content.

    (a) Each application for a stay of a trustee's duty to resign under 
section 310(b) of the Act shall contain the name, address, and telephone 
number of each applicant and the name, address, and telephone number of 
any person to which such applicant wishes any questions regarding the 
application to be directed.
    (b) Each application shall contain a statement of the reasons why 
the applicant is deemed to be entitled to a stay of resignation with 
reference to the provisions of section 310(b) of the Act. The statement 
shall address the nature of the default, the reasonableness of the 
period before the default will be cured or waived, the procedures to be 
used to cure or obtain a waiver of the default, and the reasons why a 
stay will not be inconsistent with the interests of the holders of the 
indenture securities.

[56 FR 22321, May 15, 1991]



Sec.260.10b-6  Notices--Exemptive Application Procedure.

    (a) A proposed notice of the proceeding indicated by the filing of 
the application shall accompany each application for a stay of a 
trustee's duty to resign under section 310(b) as an exhibit thereto and 
if necessary shall be modified to reflect any amendments to such 
application.
    (b) Notice of the initiation of the proceeding will be published in 
the Federal Register and will indicate the earliest date upon which an 
order disposing of the matter may be entered. The notice will also 
provide that any interested person may, within the period specified 
therein, submit to the Commission in writing any facts bearing upon the 
desirability of a hearing on the matter, and may request that a hearing 
be held stating the person's reasons therefore and the nature of his or 
her interest in the matter.
    (c) An order disposing of the matter will be issued following the 
expiration of the period of time referred to in paragraph (b) of this 
section, unless the Commission thereafter orders a hearing on the 
matter.
    (d) The Commission will order a hearing on the matter, if it appears 
that a hearing is necessary or appropriate in the public interest or for 
the protection of investors:
    (1) Upon the request of any interested person, or
    (2) Upon its own motion.

[56 FR 22321, May 15, 1991]

                         Rules Under Section 311



Sec.260.11b-4  Definition of ``cash transaction'' in section 311(b)(4).

    The term ``cash transaction'', as used in section 311(b)(4), means 
any transaction in which full payment for goods or securities sold is 
made within 7 days after delivery of the goods or securities in currency 
or in checks or other orders drawn upon banks or bankers and payable 
upon demand.



Sec.260.11b-6  Definition of ``self-liquidating paper'' in section 311
(b)(6).

    The term self-liquidating paper, as used in section 311(b)(6) of the 
Act, means any draft, bill of exchange, acceptance or obligation which 
is made, drawn, negotiated or incurred by the obligor for the purpose of 
financing the purchase, processing, manufacture, shipment, storage or 
sale of goods, wares or merchandise and which is secured by documents 
evidencing title to, possession of or a lien upon the goods, wares or 
merchandise or the receivables or proceeds arising from the sale of the 
goods, wares or merchandise previously constituting the security: 
Provided, The security is received by the

[[Page 1120]]

trustee simultaneously with the creation of the creditor relationship 
with the obligor arising from the making, drawing, negotiating or 
incurring of the draft, bill of exchange, acceptance or obligation.

                         Rules Under Section 314

                            Periodic Reports



Sec.260.14a-1  Application of Sec.Sec.260.7a-15 to 260.7a-38.

    Sections 260.7a-15 to 260.7a-38 shall be applicable to annual 
reports under section 314(a).



Sec.260.19a-1  Compliance with Section 314(a)(1) of the Trust
Indenture Act for certain eligible indenture obligors.

    (a) This section is applicable only to an ``eligible indenture 
obligor'' as defined in paragraph (b) of this section.
    (b) For purposes of paragraph (c) of this section, an ``eligible 
indenture obligor'' is any obligor that:
    (1) Is required to file reports with the Commission pursuant to 
Section 13 or Section 15(d) of the Securities Exchange of 1934 (15 
U.S.C. Sec.Sec.78m or 78o(d)) (the ``Exchange Act''); and
    (2) May rely on any of the provisions of Release No. 34-45589 (March 
18, 2002) (which may be viewed on the Commission's website at 
www.sec.gov) with regard to the filing of reports with the Commission 
pursuant to Section 13 or Section 15(d) of the Exchange Act (14 U.S.C. 
78m or 78o(d)).
    (c) An ``eligible indenture obligor'' that files with the indenture 
trustee those Exchange Act reports filed with the Commission in 
accordance with the Release referred to in paragraph (b)(2) of this 
section has met its duty under Section 314(a)(1) of the Act (15 U.S.C. 
77nnn(a)(1)) to file with the indenture trustee all reports required to 
be filed with the Commission pursuant to Section 13 or Section 15(d) of 
the Securities Exchange Act of 1934.

[67 FR 13538, Mar. 22, 2002, as amended at 76 FR 71877, Nov. 21, 2011]



          PART 261_INTERPRETATIVE RELEASES RELATING TO THE TRUST 
          INDENTURE ACT OF 1939 AND GENERAL RULES AND REGULATIONS 
          THEREUNDER--Table of Contents

----------------------------------------------------------------------------------------------------------------
                                                      Release
                      Subject                           No.         Date            Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Opinion of the General Counsel relating to                 16   Nov. 14, 1941  11 FR 10989.
 application of section 310(b) where trustee under
 one indenture is trustee under another indenture
 for securities of an affiliate of the obligor.
Opinion of the Chief Counsel to the Corporation            30   Aug. 28, 1944   Do.
 Finance Division relating to when-issued trading
 of securities the issuance of which is subject to
 approval by a Federal district court under Chapter
 X of the Bankruptcy Act.
Opinion of the Chief Counsel to the Corporation            31    Jan. 4, 1945  11 FR 10990.
 Finance Division relating to when-issued trading
 of securities the issuance of which has already
 been approved by a Federal district court under
 Chapter X of the Bankruptcy Act.
Interpretation with reference to the securities of         37   June 25, 1947  12 FR 4450.
 the International Bank for Reconstruction and
 Development.
Statement of the Commission to clarify the meaning        227   Jan. 25, 1966  31 FR 1005.
 of ``beneficial ownership of securities'' as
 relates to beneficial ownership of securities held
 by family members.
Statement of the Commission setting the date of May       229   Feb. 14, 1966  31 FR 3175.
 1, 1966 after which filings must reflect
 beneficial ownership of securities held by family
 members.
Commissions statement re exemption of certain             284    Nov. 6, 1970  35 FR 17990.
 industrial revenue bonds from registration, etc.
 requirements in view of amendment of Securities
 Act of 1933 and of Securities Exchange Act of 1934
 by ``section 401'' (Pub. L. 91-1037).
Publication of the Commission's procedure to be           289   Jan. 25, 1971  36 FR 2600.
 followed if requests are to be met for no action
 or interpretative letters and responses thereto to
 be made available for public use.
Offerings of debt securities pursuant to trust            524   Apr. 25, 1979  44 FR 26739.
 indentures.
No-action position respecting public offerings of         542   Oct. 16, 1979  44 FR 61941.
 debt securities registered on Form SB-2 without
 qualification of an indenture under the Trust
 Indenture Act.
Simplified form of trust indenture.................       605    Jan. 8, 1981  46 FR 3500.
Retail repurchase agreements by banks and Savings         658  Sept. 25, 1981  46 FR 48637.
 and Loan Associations.

[[Page 1121]]

 
Application of the registration provisions of the        2038  Sept. 23, 1986  51 FR 34462.
 Securities Act of 1933 to the offer and sale of
 securities by United States branches and agencies
 of foreign banks.
----------------------------------------------------------------------------------------------------------------



PART 269_FORMS PRESCRIBED UNDER THE TRUST INDENTURE ACT OF 1939--
Table of Contents



Sec.
269.0-1 Availability of forms.
269.1 Form T-1, for statement of eligibility and qualification for 
          corporate trustees.
269.2 Form T-2, for statement of eligibility and qualification for 
          individual trustees.
269.3 Form T-3, for application for qualification of trust indentures.
269.4 Form T-4, for application for exemption pursuant to section 304(c) 
          of the Act.
269.5 Form F-X, for appointment of agent for service of process by 
          issuers registering securities on Form F-8, F-9, F-10 or F-80 
          (Sec.Sec.239.38, 239.39, 239.40 or 239.41 of this chapter), 
          or registering securities or filing periodic reports on Form 
          40-F (Sec.249.240f of this chapter), or by any issuer or 
          other non-U.S. person filing tender offer documents on 
          Schedule 13E-4F, 14D-1F or 14D-9F (Sec.Sec.240.13e-102, 
          240.14d-102 or 240.14d-103 of this chapter), or by any non-
          U.S. person acting as trustee with respect to securities 
          registered on Form F-7 (Sec.239.37 of this chapter), F-8, F-
          9, F-10 or F-80.
269.6 [Reserved]
269.7 Form ID, uniform application for access codes to file on EDGAR.
269.8 Form SE, form for submission of paper format exhibits by 
          electronic filers.
269.9 Form T-6 for application under section 310(a)(1) of the Trust 
          Indenture Act for determination of the eligibility of a 
          foreign person to act as institutional trustee.
269.10 Form TH--Notification of reliance on temporary hardship 
          exemption.

    Authority: 15 U.S.C. 77ddd(c), 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77sss, and 78ll(d), unless otherwise noted.

    Source: 33 FR 19002, Dec. 20, 1968, unless otherwise noted.



Sec.269.0-1  Availability of forms.

    (a) This part identifies and describes the forms prescribed for use 
under the Trust Indenture Act of 1939.
    (b) Any person may obtain a copy of any form prescribed for use in 
this part by written request to the Securities and Exchange Commission, 
100 F Street, NE., Washington, DC 20549. Any person may inspect the 
forms at this address and at the Commission's regional offices. (See 
Sec.200.11 of this chapter for the addresses of SEC regional offices.)

[46 FR 17757, Mar. 20, 1981, as amended at 47 FR 26820, June 22, 1982; 
59 FR 5946, Feb. 9, 1994; 73 FR 983, Jan. 4, 2008]



Sec.269.1  Form T-1, for statement of eligibility and qualification
for corporate trustees.

    This form shall be filed pursuant to Rule 5a-1(a) (Sec.260.5a-1(a) 
of this chapter) for statements of eligibility and qualification of 
corporations designated to act as trustees under thrust indentures to be 
qualified pursuant to section 305 or 307 of the Trust Indenture Act of 
1939.

    Editorial Note: For Federal Register citations affecting Form T-1, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.269.2  Form T-2, for statement of eligibility and qualification
for individual trustees.

    This form shall be filed pursuant to Rule 5a-1(b) (Sec.260.5a-1(b) 
of this chapter) for statements of eligibility and qualification of 
individuals designated to act as trustees under trust indentures to be 
qualified pursuant to section 305 or 307 of the Trust Indenture Act of 
1939. Under sections 307, 308, 309, 310 and 319 of the Trust Indenture 
Act of 1939 (17 CFR part 260), the Commission is authorized to solicit 
the information required to be supplied by this form for statements of 
eligibility and qualification of individuals designated to act as 
trustees. Disclosure of the information specified in this form is 
mandatory before processing statements of eligibility and qualification. 
The information will be used for the primary purpose of determining 
relationships of trustees and whether there are any conflicting 
interests. This

[[Page 1122]]

statement will be made a matter of public record. Therefore, any 
information given will be available for inspection by any member of the 
public. Because of the public nature of the information, the Commission 
can utilize it for a variety of purposes, including referral to other 
governmental authorities or securities self-regulatory organizations for 
investigatory purposes or in connection with litigation involving the 
Federal securities laws or other civil, criminal or regulatory statutes 
or provisions. Failure to disclose the information requested by this 
form may result in enforcement action by the Commission to compel 
compliance with the Federal securities laws.

[40 FR 55320, Nov. 28, 1975, as amended at 62 FR 35342, July 1, 1997]

    Editorial Note: For Federal Register citations affecting Form T-2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.269.3  Form T-3, for application for qualification of trust 
indentures.

    This form shall be filed pursuant to Rule 7a-1 (Sec.260.7a-1 of 
this chapter) for applications for qualification of indentures pursuant 
to section 307(a) of the Trust Indenture Act of 1939, but only when 
securities to be issued thereunder are not required to be registered 
under the Securities Act of 1933 (15 U.S.C. 77a et seq.).

    Editorial Note: For Federal Register citations affecting Form T-3, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.269.4  Form T-4, for application for exemption pursuant to 
section 304(c) of the Act.

    This form shall be filed pursuant to Rule 4c-1 (Sec.260.4c-1 of 
this chapter) for applications for exemption filed pursuant to section 
304(c) of the Trust Indenture Act of 1939.

    Editorial Note: For Federal Register citations affecting Form T-4, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.269.5  Form F-X, for appointment of agent for service of process
by issuers registering securities on Form F-8, F-9, F-10 or F-80 
(Sec.Sec.239.38,239.39, 239.40 or 239.41 of this chapter) , or 
registering securities or filing periodic reports on Form 40-F (Sec.
249.240f of this chapter) , or by any issuer or other non-U.S. 
person filing tender offer documents on Schedule 13E-4F, 14D-
1F or 14D-9F (Sec.Sec.240.13e-102, 240.14d-102 or 240.14d-
103 of this chapter), or by any non-U.S. person acting as 
trustee with respect to securities registered on Form F-7 
(Sec.239.37 of this chapter) , F-8, F-9, F-10 or F-80.

    Form F-X shall be filed with the Commission:
    (a) By any issuer registering securities on Form F-8, F-9, F-10 or 
F-80 under the Securities Act of 1933;
    (b) By any issuer registering securities on Form 40-F under the 
Securities Exchange Act of 1934;
    (c) By any issuer filing a periodic report on Form 40-F, if it has 
not previously filed a Form F-X in connection with the class of 
securities in relation to which the obligation to file a report on Form 
40-F arises;
    (d) By any issuer or other non-U.S. person filing tender offer 
documents on Schedule 13E-4F, 14D-1F or 14D-9F; and
    (e) By non-U.S. person acting as trustee with respect to securities 
registered on Form F-7, F-8, F-9, F-10 or F-80.

[56 FR 30078, July 1, 1991]

    Editorial Note: For Federal Register citations affecting Form F-X, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.269.6  [Reserved]



Sec.269.7  Form ID, uniform application for access codes to file on EDGAR.

    Form ID must be filed by registrants, third party filers, or their 
agents, to whom the Commission previously has not assigned a Central 
Index Key (CIK) code, to request the following access codes to permit 
filing on EDGAR:
    (a) Central Index Key (CIK)--uniquely identifies each filer, filing 
agent, and training agent.

[[Page 1123]]

    (b) CIK Confirmation Code (CCC)--used in the header of a filing in 
conjunction with the CIK of the filer to ensure that the filing has been 
authorized by the filer.
    (c) Password (PW)--allows a filer, filing agent or training agent to 
log on to the EDGAR system, submit filings, and change its CCC.
    (d) Password Modification Authorization Code (PMAC)--allows a filer, 
filing agent or training agent to change its Password.

[69 FR 22710, Apr. 26, 2004]

    Editorial Note: For Federal Register citations affecting Form ID, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.269.8  Form SE, form for submission of paper format exhibits
by electronic filers.

    This form shall be used by an electronic filer for the submission of 
any paper format document relating to an otherwise electronic filing, as 
provided in Rule 311 of Regulation S-T (Sec.232.311 of this chapter).

[58 FR 14687, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form SE, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.269.9  Form T-6 for application under section 310(a)(1) of the 
Trust Indenture Act for determination of the eligibility of a foreign 
person to act as institutional trustee.
          

    This form shall be used for the filing of an application pursuant to 
rule 10a-1 [Sec.260.10a-1 of this chapter] to obtain authorization for 
a corporation or other person organized and doing business under the 
laws of a foreign government to act as sole trustee under an indenture 
qualified or to be qualified under the Act.

[56 FR 22321, May 15, 1991]

    Editorial Note: For Federal Register citations affecting Form T-6, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.269.10  Form TH--Notification of reliance on temporary hardship 
exemption.

    Form TH shall be filed by any electronic filer who submits to the 
Commission, pursuant to a temporary hardship exemption, a document in 
paper format that otherwise would be required to be submitted 
electronically, as prescribed by Rule 201(a) of Regulation S-T (Sec.
232.201(a) of this chapter).

[58 FR 14687, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form TH, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



PART 270_RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940--
Table of Contents



Sec.
270.0-1 Definition of terms used in this part.
270.0-2 General requirements of papers and applications.
270.0-3 Amendments to registration statements and reports.
270.0-4 Incorporation by reference.
270.0-5 Procedure with respect to applications and other matters.
270.0-8 Payment of fees.
270.0-9 [Reserved]
270.0-10 Small entities under the Investment Company Act for purposes of 
          the Regulatory Flexibility Act.
270.0-11 Customer identification programs.
270.2a-1 Valuation of portfolio securities in special cases.
270.2a-2 Effect of eliminations upon valuation of portfolio securities.
270.2a3-1 Investment company limited partners not deemed affiliated 
          persons.
270.2a-4 Definition of ``current net asset value'' for use in computing 
          periodically the current price of redeemable security.
270.2a-6 Certain transactions not deemed assignments.
270.2a-7 Money market funds.
270.2a19-2 Investment company general partners not deemed interested 
          persons.
270.2a19-3 Certain investment company directors not considered 
          interested persons because of ownership of index fund 
          securities.
270.2a41-1 Valuation of standby commitments by registered investment 
          companies.
270.2a-46 Certain issuers as eligible portfolio companies.
270.2a51-1 Definition of investments for purposes of section 2(a)(51) 
          (definition of

[[Page 1124]]

          ``qualified purchaser''); certain calculations.
270.2a51-2 Definitions of beneficial owner for certain purposes under 
          sections 2(a)(51) and 3(c)(7) and determining indirect 
          ownership interests.
270.2a51-3 Certain companies as qualified purchasers.
270.3a-1 Certain prima facie investment companies.
270.3a-2 Transient investment companies.
270.3a-3 Certain investment companies owned by companies which are not 
          investment companies.
270.3a-4 Status of investment advisory programs.
270.3a-5 Exemption for subsidiaries organized to finance the operations 
          of domestic or foreign companies.
270.3a-6 Foreign banks and foreign insurance companies.
270.3a-7 Issuers of asset-backed securities.
270.3a-8 Certain research and development companies.
270.3c-1 Definition of beneficial ownership for certain section 3(c)(1) 
          funds.
270.3c-2 Definition of beneficial ownership in small business investment 
          companies.
270.3c-3 Definition of certain terms used in section 3(c)(1) of the Act 
          with respect to certain debt securities offered by small 
          business investment companies.
270.3c-4 Definition of ``common trust fund'' as used in section 3(c)(3) 
          of the Act.
270.3c-5 Beneficial ownership by knowledgeable employees and certain 
          other persons.
270.3c-6 Certain transfers of interests in section 3(c)(1) and section 
          3(c)(7) funds.
270.5b-1 Definition of ``total assets.''
270.5b-2 Exclusion of certain guarantees as securities of the guarantor.
270.5b-3 Acquisition of repurchase agreement or refunded security 
          treated as acquisition of underlying securities.
270.6a-5 Purchase of certain debt securities by companies relying on 
          section 6(a)(5) of the Act.
270.6b-1 Exemption of employees' securities company pending 
          determination of application.
270.6c-3 Exemptions for certain registered variable life insurance 
          separate accounts.
270.6c-6 Exemption for certain registered separate accounts and other 
          persons.
270.6c-7 Exemptions from certain provisions of sections 22(e) and 27 for 
          registered separate accounts offering variable annuity 
          contracts to participants in the Texas Optional Retirement 
          Program.
270.6c-8 Exemptions for registered separate accounts to impose a 
          deferred sales load and to deduct certain administrative 
          charges.
270.6c-10 Exemption for certain open-end management investment companies 
          to impose deferred sales loads.
270.6c-11 Exchange-traded funds.
270.6d-1 Exemption for certain closed-end investment companies.
270.6e-2 Exemptions for certain variable life insurance separate 
          accounts.
270.6e-3(T) Temporary exemptions for flexible premium variable life 
          insurance separate accounts.
270.7d-1 Specification of conditions and arrangements for Canadian 
          management investment companies requesting order permitting 
          registration.
270.7d-2 Definition of ``public offering'' as used in section 7(d) of 
          the Act with respect to certain Canadian tax-deferred 
          retirement savings accounts.
270.8b-1 Scope of Sec.Sec.270.8b-1 to 270.8b-32.
270.8b-2 Definitions.
270.8b-3 Title of securities.
270.8b-4 Interpretation of requirements.
270.8b-5 Time of filing original registration statement.
270.8b-6 [Reserved]
270.8b-10 Requirements as to proper form.
270.8b-11 Number of copies; signatures; binding.
270.8b-12 Requirements as to paper, printing and language.
270.8b-13 Preparation of registration statement or report.
270.8b-14 Riders; inserts.
270.8b-15 Amendments.
270.8b-16 Amendments to registration statement.
270.8b-20 Additional information.
270.8b-21 Information unknown or not available.
270.8b-22 Disclaimer of control.
270.8b-23--270.8b-24 [Reserved]
270.8b-25 Extension of time for furnishing information.
270.8b-30 Additional exhibits.
270.8b-31 Omission of substantially identical documents.
270.8b-32 [Reserved]
270.8f-1 Deregistration of certain registered investment companies.
270.10b-1 Definition of regular broker or dealer.
270.10e-1 Death, disqualification, or bona fide resignation of 
          directors.
270.10f-1 Conditional exemption of certain underwriting transactions.
270.10f-2 Exercise of warrants or rights received on portfolio 
          securities.
270.10f-3 Exemption for the acquisition of securities during the 
          existence of an underwriting or selling syndicate.
270.11a-1 Definition of ``exchange'' for purposes of section 11 of the 
          Act.
270.11a-2 Offers of exchange by certain registered separate accounts or 
          others the terms of which do not require prior Commission 
          approval.

[[Page 1125]]

270.11a-3 Offers of exchange by open-end investment companies other than 
          separate accounts.
270.12b-1 Distribution of shares by registered open-end management 
          investment company.
270.12d1-1 Exemptions for investments in money market funds.
270.12d1-2 Exemptions for investment companies relying on section 
          12(d)(1)(G) of the Act.
270.12d1-3 Exemptions for investment companies relying on section 
          12(d)(1)(F) of the Act.
270.12d2-1 Definition of insurance company for purposes of sections 
          12(d)(2) and 12(g) of the Act.
270.12d3-1 Exemption of acquisitions of securities issued by persons 
          engaged in securities related businesses.
270.13a-1 Exemption for change of status by temporarily diversified 
          company.
270.14a-1 Use of notification pursuant to regulation E under the 
          Securities Act of 1933.
270.14a-2 Exemption from section 14(a) of the Act for certain registered 
          separate accounts and their principal underwriters.
270.14a-3 Exemption from section 14(a) of the Act for certain registered 
          unit investment trusts and their principal underwriters.
270.15a-1 Exemption from stockholders' approval of certain small 
          investment advisory contracts.
270.15a-2 Annual continuance of contracts.
270.15a-3 Exemption for initial period of investment adviser of certain 
          registered separate accounts from requirement of security 
          holder approval of investment advisory contract.
270.15a-4 Temporary exemption for certain investment advisers.
270.16a-1 Exemption for initial period of directors of certain 
          registered accounts from requirements of election by security 
          holders.
270.17a-1 Exemption of certain underwriting transactions exempted by 
          Sec.270.10f-1.
270.17a-2 Exemption of certain purchase, sale, or borrowing 
          transactions.
270.17a-3 Exemption of transactions with fully owned subsidiaries.
270.17a-4 Exemption of transactions pursuant to certain contracts.
270.17a-5 Pro rata distribution neither ``sale'' nor ``purchase.''
270.17a-6 Exemption for transactions with portfolio affiliates.
270.17a-7 Exemption of certain purchase or sale transactions between an 
          investment company and certain affiliated persons thereof.
270.17a-8 Mergers of affiliated companies.
270.17a-9 Purchase of certain securities from a money market fund by an 
          affiliate, or an affiliate of an affiliate.
270.17a-10 Exemption for transactions with certain subadvisory 
          affiliates.
270.17d-1 Applications regarding joint enterprises or arrangements and 
          certain profit-sharing plans.
270.17d-2 Form for report by small business investment company and 
          affiliated bank.
270.17d-3 Exemption relating to certain joint enterprises or 
          arrangements concerning payment for distribution of shares of 
          a registered open-end management investment company.
270.17e-1 Brokerage transactions on a securities exchange.
270.17f-1 Custody of securities with members of national securities 
          exchanges.
270.17f-2 Custody of investments by registered management investment 
          company.
270.17f-3 Free cash accounts for investment companies with bank 
          custodians.
270.17f-4 Custody of investment company assets with a securities 
          depository.
270.17f-5 Custody of investment company assets outside the United 
          States.
270.17f-6 Custody of investment company assets with Futures Commission 
          Merchants and Commodity Clearing Organizations.
270.17f-7 Custody of investment company assets with a foreign securities 
          depository.
270.17g-1 Bonding of officers and employees of registered management 
          investment companies.
270.17j-1 Personal investment activities of investment company 
          personnel.
270.18c-1 Exemption of privately held indebtedness.
270.18c-2 Exemptions of certain debentures issued by small business 
          investment companies.
270.18f-1 Exemption from certain requirements of section 18(f)(1) (of 
          the Act) for registered open-end investment companies which 
          have the right to redeem in kind.
270.18f-2 Fair and equitable treatment for holders of each class or 
          series of stock of series investment companies.
270.18f-3 Multiple class companies.
270.19a-1 Written statement to accompany dividend payments by management 
          companies.
270.19b-1 Frequency of distribution of capital gains.
270.20a-1 Solicitation of proxies, consents and authorizations.
270.20a-2--270.20a-4 [Reserved]
270.22c-1 Pricing of redeemable securities for distribution, redemption 
          and repurchase.
270.22c-2 Redemption fees for redeemable securities.

[[Page 1126]]

270.22d-1 Exemption from section 22(d) to permit sales of redeemable 
          securities at prices which reflect sales loads set pursuant to 
          a schedule.
270.22d-2 Exemption from section 22(d) for certain registered separate 
          accounts.
270.22e-1 Exemption from section 22(e) of the Act during annuity payment 
          period of variable annuity contracts participating in certain 
          registered separate accounts.
270.22e-2 Pricing of redemption requests in accordance with Rule 22c-1.
270.22e-3 Exemption for liquidation of money market funds.
270.22e-4 Liquidity risk management programs.
270.23c-1 Repurchase of securities by closed-end companies.
270.23c-2 Call and redemption of securities issued by registered closed-
          end companies.
270.23c-3 Repurchase offers by closed-end companies.
270.24b-1 Definitions.
270.24b-2 Filing copies of sales literature.
270.24b-3 Sales literature deemed filed.
270.24b-4 Filing copies of covered investment fund research reports.
270.24e-1 Filing of certain prospectuses as post-effective amendments to 
          registration statements under the Securities Act of 1933.
270.24f-2 Registration under the Securities Act of 1933 of certain 
          investment company securities.
270.26a-1 Payment of administrative fees to the depositor or principal 
          underwriter of a unit investment trust; exemptive relief for 
          separate accounts.
270.26a-2 Exemptions from certain provisions of sections 26 and 27 for 
          registered separate accounts and others regarding 
          custodianship of and deduction of certain fees and charges 
          from the assets of such accounts.
270.27a-1 Conditions for compliance with and exemptions from certain 
          provisions of section 27(a)(1) and section 27(h)(1) of the Act 
          for certain registered separate accounts.
270.27a-2 Exemption from section 27(a)(3) and section 27(h)(3) of the 
          Act for certain registered separate accounts.
270.27a-3 Exemption from section 27(a)(4) and section 27(h)(5) of the 
          Act for certain registered separate accounts.
270.27c-1 Exemption from section 27(c)(1) and section 27(d) of the Act 
          during annuity payment period of variable annuity contracts 
          participating in certain registered separate accounts.
270.27d-1 Reserve requirements for principal underwriters and depositors 
          to carry out the obligations to refund charges required by 
          section 27(d) and section 27(f) of the Act.
270.27d-2 Insurance company undertaking in lieu of segregated trust 
          account.
270.27e-1 Requirements for notice to be mailed to certain purchasers of 
          periodic payment plan certificates sold subject to section 
          27(d) of the Act.
270.27f-1 Notice of right of withdrawal required to be mailed to 
          periodic payment plan certificate holders and exemption from 
          section 27(f) for certain periodic payment plan certificates.
270.27g-1 Election to be governed by section 27(h).
270.27h-1 Exemptions from section 27(h)(4) for certain payments.
270.28b-1 Investment in loans partially or wholly guaranteed under the 
          Servicemen's Readjustment Act of 1944, as amended.
270.30a-1 Annual report for registered investment companies.
270.30a-2 Certification of Form N-CSR and Form N-Q.
270.30a-3 Controls and procedures.
270.30a-4 Annual report for wholly-owned registered management 
          investment company subsidiary of registered management 
          investment company.
270.30b1-1--270.30b1-3 [Reserved]
270.30b1-4 Report of proxy voting record.
270.30b1-5 Quarterly report.
270.30b1-7 Monthly report for money market funds.
270.30b1-8 Current report for money market funds.
270.30b1-9 Monthly report.
270.30b1-9(T) Temporary rule regarding monthly report.
270.30b1-10 Current report for open-end management investment companies.
270.30b2-1 Filing of reports to stockholders.
270.30d-1 Filing of copies of reports to shareholders.
270.30e-1 Reports to stockholders of management companies.
270.30e-2 Reports to shareholders of unit investment trusts.
270.30e-3 Internet availability of reports to shareholders.
270.30h-1 Applicability of section 16 of the Exchange Act to section 
          30(h).
270.31a-1 Records to be maintained by registered investment companies, 
          certain majority-owned subsidiaries thereof, and other persons 
          having transactions with registered investment companies.
270.31a-2 Records to be preserved by registered investment companies, 
          certain majority-owned subsidiaries thereof, and other persons 
          having transactions with registered investment companies.
270.31a-3 Records prepared or maintained by other than person required 
          to maintain and preserve them.
270.32a-1 Exemption of certain companies from affiliation provisions of 
          section 32(a).

[[Page 1127]]

270.32a-2 Exemption for initial period from vote of security holders on 
          independent public accountant for certain registered separate 
          accounts.
270.32a-3 Exemption from provision of section 32(a)(1) regarding the 
          time period during which a registered management investment 
          company must select an independent public accountant.
270.32a-4 Independent audit committees.
270.34b-1 Sales literature deemed to be misleading.
270.35d-1 Investment company names.
270.38a-1 Compliance procedures and practices of certain investment 
          companies.
270.45a-1 Confidential treatment of names and addresses of dealers of 
          registered investment company securities.
270.55a-1 Investment activities of business development companies.
270.57b-1 Exemption for downstream affiliates of business development 
          companies.
270.60a-1 Exemption for certain business development companies.

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, and 
Pub. L. 111-203, Sec.939A, 124 Stat. 1376 (2010), unless otherwise 
noted.
    Section 270.0-1 also issued under Sec.38(a) (15 U.S.C. 80a-37(a));
    Section 270.0-1(a)(7) is also issued under 15 U.S.C. 80a-10(e);
    Section 270.0-11 also issued under secs. 8, 24, 30 and 38, 
Investment Company Act (15 U.S.C. 80a-8, 80a-24, 80a-29 and 80a-37), 
secs. 6, 7, 8, 10 and 19(a), Securities Act (15 U.S.C. 77f, 77g, 77h, 
77j, 77s(a)) and secs. 3(b), 12, 13, 14, 15(d) and 23(a), Exchange Act 
(15 U.S.C. 78c(b), 78l, 78m, 78n, 78o(d) and 78w(a));
    Section 270.6a-5 is also issued under 15 U.S.C. 80a-
6(a)(5)(A)(iv)(I).
    Section 270.6c-9 is also issued under secs. 6(c) (15 U.S.C. 80a-
6(c)) and 38(a) (15 U.S.C. 80a-37(a));
    Section 270.6c-10 is also issued under Sec.6(c) (15 U.S.C. 80a-
6(c));
    Section 270.6c-11 is also issued under 15 U.S.C. 80a-6(c) and 80a-
37(a).
    Section 270.6e-3(T) is also issued under Sec.6(e), 15 U.S.C. 80a-
5(e);
    Section 270.8b-11 is also issued under 15 U.S.C. 77s, 80a-8, and 
80a-37;
    Section 270.10e-1 is also issued under 15 U.S.C. 80a-10(e);
    Sections 270.12d1-1, 270.12d1-2, and 270.12d1-3 are also issued 
under 15 U.S.C. 80a-6(c), 80a-12(d)(1)(J), and 80a-37(a).
    Section 270.12d3-1 is also issued under 15 U.S.C. 80a-6(c);
    Section 270.17a-8 is also issued under 15 U.S.C. 80a-6(c) and 80a-
37(a);
    Section 270.17d-1 is also issued under 15 U.S.C. 80a-6(c), 80a-
17(d), and 80a-37(a);
    Section 270.17e-1 is also issued under 15 U.S.C. 80a-6(c), 80a-
30(a), and 80a-37(a);
    Section 270.17f-5 also issued under Sec.6(c) (15 U.S.C. 80a-6(c);
    Section 270.17g-1 is also issued under 15 U.S.C. 80a-6(c), 80a-
17(d), 80a-17(g), and 80a-37(a);
    Section 270.17j-1 is also issued under secs. 206(4) and 211(a), 
Investment Advisers Act (15 U.S.C. 80b-6(4) and 80b-11(a));
    Section 270.19b-1 is also issued under secs. 6(c) (15 U.S.C. 80a-
6(c)), 19 (a) and (b) (15 U.S.C 80a-19 (a) and (b)), and 38(a) (15 
U.S.C. 80a-37(a));
    Section 270.22c-1 also issued under secs. 6(c), 22(c), and 38(a) (15 
U.S.C. 80a-6(c), 80a-22(c), and 80a-37(a));
    Section 270.23c-3 also issued under 15 U.S.C. 80a-23(c).
    Section 270.24f-2 also issued under 15 U.S.C. 80a-24(f)(4).
    Section 270.30a-1 is also issued under 15 U.S.C. 78m, 78o(d), 80a-8, 
and 80a-29.
    Section 270.30a-2 is also issued under 15 U.S.C. 78m, 78o(d), 80a-8, 
80a-29, 7202, and 7241; and 18 U.S.C. 1350, unless otherwise noted.
    Section 270.30a-3 is also issued under 15 U.S.C. 78m, 78o(d), 80a-8, 
and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 Stat. 745.
    Section 270.30b1-1 is also issued under 15 U.S.C. 78m, 78o(d), 80a-
8, and 80a-29.
    Section 270.30b2-1 is also issued under 15 U.S.C. 78m, 78o(d), 80a-
8, and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 Stat. 745.
    Section 270.30d-1 is also issued under 15 U.S.C. 78m, 78o(d), 80a-8, 
and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 Stat. 745.
    Section 270.30e-1 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 
77s, 78l, 78m, 78n, 78o(d), 78w(a), 80a-8, 80a-29, and 80a-37;
    Section 270.31a-2 is also issued under 15 U.S.C. 80a-30.

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec.270.0-1  Definition of terms used in this part.

    (a) As used in the rules and regulations prescribed by the 
Commission pursuant to the Investment Company Act of 1940, unless the 
context otherwise requires:
    (1) The term Commission means the Securities and Exchange 
Commission.

[[Page 1128]]

    (2) The term act means the Investment Company Act of 1940.
    (3) The term section refers to a section of the act.
    (4) The terms rule and regulations refer to the rules and 
regulations adopted by the Commission pursuant to the Act, including the 
forms for registration and reports and the accompanying instructions 
thereto.
    (5) The term administrator means any person who provides significant 
administrative or business affairs management services to an investment 
company.
    (6)(i) A person is an independent legal counsel with respect to the 
directors who are not interested persons of an investment company 
(``disinterested directors'') if:
    (A) A majority of the disinterested directors reasonably determine 
in the exercise of their judgment (and record the basis for that 
determination in the minutes of their meeting) that any representation 
by the person of the company's investment adviser, principal 
underwriter, administrator (``management organizations''), or any of 
their control persons, since the beginning of the fund's last two 
completed fiscal years, is or was sufficiently limited that it is 
unlikely to adversely affect the professional judgment of the person in 
providing legal representation to the disinterested directors; and
    (B) The disinterested directors have obtained an undertaking from 
such person to provide them with information necessary to make their 
determination and to update promptly that information when the person 
begins to represent, or materially increases his representation of, a 
management organization or control person.
    (ii) The disinterested directors are entitled to rely on the 
information obtained from the person, unless they know or have reason to 
believe that the information is materially false or incomplete. The 
disinterested directors must re-evaluate their determination no less 
frequently than annually (and record the basis accordingly), except as 
provided in paragraph (iii) of this section.
    (iii) After the disinterested directors obtain information that the 
person has begun to represent, or has materially increased his 
representation of, a management organization (or any of its control 
persons), the person may continue to be an independent legal counsel, 
for purposes of paragraph (a)(6)(i) of this section, for no longer than 
three months unless during that period the disinterested directors make 
a new determination under that paragraph.
    (iv) For purposes of paragraphs (a)(6)(i)-(iii) of this section:
    (A) The term person has the same meaning as in section 2(a)(28) of 
the Act (15 U.S.C. 80a-2(a)(28)) and, in addition, includes a partner, 
co-member, or employee of any person; and
    (B) The term control person means any person (other than an 
investment company) directly or indirectly controlling, controlled by, 
or under common control with any of the investment company's management 
organizations.
    (7) Fund governance standards. The board of directors of an 
investment company (``fund'') satisfies the fund governance standards 
if:
    (i) At least seventy-five percent of the directors of the fund are 
not interested persons of the fund (``disinterested directors'') or, if 
the fund has three directors, all but one are disinterested directors;
    (ii) The disinterested directors of the fund select and nominate any 
other disinterested director of the fund;
    (iii) Any person who acts as legal counsel for the disinterested 
directors of the fund is an independent legal counsel as defined in 
paragraph (a)(6) of this section;
    (iv) A disinterested director serves as chairman of the board of 
directors of the fund, presides over meetings of the board of directors 
and has substantially the same responsibilities as would a chairman of a 
board of directors;
    (v) The board of directors evaluates at least once annually the 
performance of the board of directors and the committees of the board of 
directors, which evaluation must include a consideration of the 
effectiveness of the committee structure of the fund board and the 
number of funds on whose boards each director serves;
    (vi) The disinterested directors meet at least once quarterly in a 
session at

[[Page 1129]]

which no directors who are interested persons of the fund are present; 
and
    (vii) The disinterested directors have been authorized to hire 
employees and to retain advisers and experts necessary to carry out 
their duties.
    (b) Unless otherwise specifically provided, the terms used in the 
rules and regulations in this part shall have the meaning defined in the 
Act. The terms ``EDGAR,'' ``EDGAR Filer Manual,'' ``electronic filer,'' 
``electronic filing,'' ``electronic format,'' ``electronic submission,'' 
``paper format,'' and ``signature'' shall have the meanings assigned to 
such terms in Regulation S-T--General Rules for Electronic Filings (Part 
232 of this chapter).
    (c) A rule or regulation which defines a term without express 
reference to the act or to the rules and regulations, or to a portion 
thereof, defines such terms for all purposes as used both in the act and 
in the rules and regulations in this part, unless the context otherwise 
requires.
    (d) Unless otherwise specified or the context otherwise requires, 
the term ``prospectus'' means a prospectus meeting the requirements of 
section 10(a) of the Securities Act of 1933 as amended.
    (e) Definition of separate account and conditions for availability 
of exemption under Sec.Sec.270.6c-6, 270.6c-7, 270.6c-8, 270.11a-2, 
270.14a-2, 270.15a-3, 270.16a-1, 270.22c-1, 270.22d-3, 270.22e-1, 
270.26a-1, 270.26a-2, 270.27a-1, 270.27a-2, 270.27a-3, 270.27c-1, and 
270.32a-2 of this chapter.
    (1) As used in the rules and regulations prescribed by the 
Commission pursuant to the Investment Company Act of 1940, unless 
otherwise specified or the context otherwise requires, the term 
``separate account'' shall mean an account established and maintained by 
an insurance company pursuant to the laws of any state or territory of 
the United States, or of Canada or any province thereof, under which 
income, gains and losses, whether or not realized, from assets allocated 
to such account, are, in accordance with the applicable contract, 
credited to or charged against such account without regard to other 
income, gains or losses of the insurance company and the term ``variable 
annuity contract'' shall mean any accumulation or annuity contract, any 
portion thereof, or any unit of interest or participation therein 
pursuant to which the value of the contract, either prior or subsequent 
to annuitization, or both, varies according to the investment experience 
of the separate account in which the contract participates.
    (2) As conditions to the availability of exemptive Rules 6c-6, 6c-7, 
6c-8, 11a-2, 14a-2, 15a-3, 16a-1, 22c-1, 22d-3, 22e-1, 26a-1, 26a-2, 
27a-1, 27a-2, 27a-3, 27c-1, and 32a-2, the separate account shall be 
legally segregated, the assets of the separate account shall, at the 
time during the year that adjustments in the reserves are made, have a 
value at least equal to the reserves and other contract liabilities with 
respect to such account, and at all other times, shall have a value 
approximately equal to or in excess of such reserves and liabilities; 
and that portion of such assets having a value equal to, or 
approximately equal to, such reserves and contract liabilities shall not 
be chargeable with liabilities arising out of any other business which 
the insurance company may conduct.

[Rule N-1, 5 FR 4316, Oct. 31, 1940, as amended at 19 FR 6730, Oct. 20, 
1954; 30 FR 829, Jan. 27, 1965; 48 FR 36098, Aug. 9, 1983; 50 FR 42682, 
Oct. 22, 1985; 58 FR 14859, Mar. 18, 1993; 66 FR 3757, Jan. 16, 2001; 69 
FR 46389, Aug. 2, 2004]



Sec.270.0-2  General requirements of papers and applications.

    (a) Filing of papers. All papers required to be filed with the 
Commission pursuant to the Act or the rules and regulations thereunder 
shall, unless otherwise provided by the rules and regulations in this 
part, be delivered through the mails or otherwise to the Securities and 
Exchange Commission, Washington, DC 20549. Except as otherwise provided 
by the rules and regulations, the date on which papers are actually 
received by the Commission shall be the date of filing thereof. If the 
last day for the timely filing of such papers falls on a Saturday, 
Sunday, or holiday, such papers may be filed on the first business day 
following.
    (b) Formal specifications respecting applications. Every application 
for an order under any provision of the Act, for which a form with 
instructions is not specifically prescribed, and every amendment to such 
application shall

[[Page 1130]]

be filed in quintuplicate. One copy shall be signed by the applicant but 
the other four copies may have facsimile or typed signatures. Such 
applications should be on paper no larger than 8\1/2\ x 11 inches in 
size. To the extent that the reduction of larger documents would render 
them illegible, such documents may be filed on paper larger than 8\1/2\ 
x 11 inches in size. The left margin should be at least 1\1/2\ inches 
wide and, if the application is bound, it should be bound on the left 
side. The application must be typed, printed, copied or prepared by any 
process which, in the opinion of the commission, produces copies 
suitable for microfilming. All typewritten or printed matter (including 
deficits in financial statements) should be set forth in black so as to 
permit photocopying.
    (c) Authorizations respecting applications. (1) Every application 
for an order under any provision of the act, for which a form with 
instructions is not specifically prescribed and which is executed by a 
corporation, partnership, or other company and filed with the 
Commission, shall contain a concise statement of the applicable 
provisions of the articles of incorporation, bylaws, or similar 
documents, relating to the right of the person signing and filing such 
application to take such action on behalf of the applicant, and a 
statement that all such requirements have been complied with and that 
the person signing and filing the same is fully authorized to do so. If 
such authorization is dependent on resolutions of stockholders, 
directors, or other bodies, such resolutions shall be attached as an 
exhibit to, or the pertinent provisions thereof shall be quoted in, the 
application.
    (2) If an amendment to any such application shall be filed, such 
amendment shall contain a similar statement or, in lieu thereof, shall 
state that the authorization described in the original application is 
applicable to the individual who signs such amendment and that such 
authorization still remains in effect.
    (3) When any such application or amendment is signed by an agent or 
attorney, the power of attorney evidencing his authority to sign shall 
contain similar statements and shall be filed with the Commission.
    (d) Verification of applications and statements of fact. Every 
application for an order under any provision of the Act, for which a 
form with instructions is not specifically prescribed and every 
amendment to such application, and every statement of fact formally 
filed in support of, or in opposition to, any application or declaration 
shall be verified by the person executing the same. An instrument 
executed on behalf of a corporation shall be verified in substantially 
the following form, but suitable changes may be made in such form for 
other kinds of companies and for individuals:

    The undersigned states that he or she has duly executed the attached 
______ dated ______, 20 ___ for and on behalf of (name of company); that 
he or she is (title of officer) of such company; and that all action by 
stockholders, directors, and other bodies necessary to authorize the 
undersigned to execute and file such instrument has been taken. The 
undersigned further states that he or she is familiar with such 
instrument, and the contents thereof, and that the facts therein set 
forth are true to the best of his or her knowledge, information and 
belief.
________________________________________________________________________

(Signature)

    (e) Statement of grounds for application. Each application should 
contain a brief statement of the reasons why the applicant is deemed to 
be entitled to the action requested with a reference to the provisions 
of the act and of the rules and regulations under which application is 
made.
    (f) Name and address. Every application shall contain the name and 
address of each applicant and the name and address of any person to whom 
any applicant wishes any question regarding the application to be 
directed.
    (g) The manually signed original (or in the case of duplicate 
originals, one duplicate original) of all registrations, applications, 
statements, reports, or other documents filed under the Investment 
Company Act of 1940, as amended, shall be numbered sequentially (in 
addition to any internal numbering which otherwise may be present) by 
handwritten, typed, printed, or other legible form of notation from the 
facing page of the document through the

[[Page 1131]]

last page of that document and any exhibits or attachments thereto. 
Further, the total number of pages contained in a numbered original 
shall be set forth on the first page of the document.

[Rule N-2, 5 FR 4316, Oct. 31, 1940, as amended at 33 FR 9391, June 27, 
1968; 33 FR 23325, Aug. 29, 1973; 44 FR 4666, Jan. 23, 1979; 47 FR 
58239, Dec. 30, 1982; 48 FR 17065, Apr. 21, 1983; 58 FR 14859, Mar. 18, 
1993; 73 FR 65525, Nov. 4, 2008]



Sec.270.0-3  Amendments to registration statements and reports.

    Registration statements filed with the Commission pursuant to 
section 8 (54 Stat. 803; 15 U.S.C. 80a-8) and reports filed with the 
Commission pursuant to section 30 (54 Stat. 836; 15 U.S.C. 80a-35) may 
be amended in the following manner:
    (a) Each amendment shall conform to the requirements for the 
registration statement or report it amends with regard to filing, number 
of copies filed, size, paper, ink, margins, binding, and similar formal 
matters.
    (b) Each amendment to a particular statement or report shall have a 
facing sheet as follows:

                   Securities and Exchange Commission

                          Washington, DC 20549

    Amendment No._____

                                   to

    Form______
    File No.______
(Describe the nature of the statement or report)
    Dated __________, 19__,
    Pursuant to Section _____ of the Investment Company Act of 1940
________________________________________________________________________
                                                      Name of Registrant
________________________________________________________________________
    Address of Principal Office of Registrant


The facing sheet shall contain in addition any other information 
required on the facing sheet of the form for the statement or report 
which is being amended. Amendments to a particular statement or report 
which is being consecutively in the order in which filed with the 
Commission.
    (c) Each amendment shall contain in the manner required in the 
original statement or report the text of every item to which it relates 
and shall set out a complete amended answer to each such item. However, 
amendments to financial statements may contain only the particular 
statements or schedules in fact amended.
    (d) Each amendment shall have a signature sheet containing the form 
of signature required in the statement or report it amends.

(Secs. 8, 30, 54 Stat. 803, 74 Stat. 201; 15 U.S.C. 80a-8, 80a-29)

[Rule N-3, 6 FR 3966, Aug. 8, 1941, as amended at 33 FR 3217, Feb. 21, 
1968]



Sec.270.0-4  Incorporation by reference.

    (a) Registration statements and reports. Except as provided by this 
section or in the appropriate form, information may be incorporated by 
reference in answer, or partial answer, to any item of a registration 
statement or report. Where an item requires a summary or outline of the 
provisions of any document, the summary or outline may incorporate by 
reference particular items, sections, or paragraphs of any exhibit and 
may be qualified in its entirety by such reference.
    (b) Financial information. Except as provided in the Commission's 
rules, financial information required to be given in comparative form 
for two or more fiscal years or periods must not be incorporated by 
reference unless the information incorporated by reference includes the 
entire period for which the comparative data is given. In the financial 
statements, incorporating by reference, or cross-referencing to, 
information outside of the financial statements is not permitted unless 
otherwise specifically permitted or required by the Commission's rules 
or by U.S. Generally Accepted Accounting Principles or International 
Financial Reporting Standards as issued by the International Accounting 
Standards Board, whichever is applicable.
    (c) Exhibits. Any document or part thereof, including any financial 
statement or part thereof, filed with the Commission pursuant to any Act 
administered by the Commission may be incorporated by reference as an 
exhibit to any registration statement, application, or report filed with 
the Commission by the same or any other person. If any modification has 
occurred in the text of any document incorporated by reference since the 
filing thereof, the

[[Page 1132]]

registrant must file with the reference a statement containing the text 
of any such modification and the date thereof.
    (d) Hyperlinks. Include an active hyperlink to information 
incorporated into a registration statement, application, or report by 
reference if such information is publicly available on the Commission's 
Electronic Data Gathering, Analysis and Retrieval System (``EDGAR'') at 
the time the registration statement, application, or report is filed. 
For hyperlinking to exhibits, please refer to the appropriate form.
    (e) General. Include an express statement clearly describing the 
specific location of the information you are incorporating by reference. 
The statement must identify the document where the information was 
originally filed or submitted and the location of the information within 
that document. The statement must be made at the particular place where 
the information is required, if applicable. Information must not be 
incorporated by reference in any case where such incorporation would 
render the disclosure incomplete, unclear, or confusing. For example, 
unless expressly permitted or required, disclosure must not be 
incorporated by reference from a second document if that second document 
incorporates information pertinent to such disclosure by reference to a 
third document.

[84 FR 12732, Apr. 2, 2019]



Sec.270.0-5  Procedure with respect to applications and other matters.

    The procedure herein below set forth will be followed with respect 
to any proceeding initiated by the filing of an application, or upon the 
Commission's own motion, pursuant to any section of the Act or any rule 
or regulation thereunder, unless in the particular case a different 
procedure is provided:
    (a) Notice of the initiation of the proceeding will be published in 
the Federal Register and will indicate the earliest date upon which an 
order disposing of the matter may be entered. The notice will also 
provide that any interested person may, within the period of time 
specified therein, submit to the Commission in writing any facts bearing 
upon the desirability of a hearing on the matter and may request that a 
hearing be held, stating his reasons therefor and the nature of his 
interest in the matter.
    (b) An order disposing of the matter will be issued as of course, 
following the expiration of the period of time referred to in paragraph 
(a) of this section, unless the Commission thereafter orders a hearing 
on the matter.
    (c) The Commission will order a hearing on the matter, if it appears 
that a hearing is necessary or appropriate in the public interest or for 
the protection of investors, (1) upon the request of an interested 
person or (2) upon its own motion.

[38 FR 23325, Aug. 29, 1973, as amended at 61 FR 49961, Sept. 24, 1996]



Sec.270.0-8  Payment of fees.

    All payment of fees shall be made by wire transfer, or by certified 
check, bank cashier's check, United States postal money order, or bank 
money order payable to the Securities and Exchange Commission, omitting 
the name or title of any official of the Commission. Payment of fees 
required by this section shall be made in accordance with the directions 
set forth in Sec.202.3a of this chapter.

[73 FR 6014, Feb. 1, 2008]



Sec.270.0-9  [Reserved]



Sec.270.0-10  Small entities under the Investment Company Act for 
purposes of the Regulatory Flexibility Act.

    (a) General. For purposes of Commission rulemaking in accordance 
with the provisions of Chapter Six of the Administrative Procedure Act 
(5 U.S.C. 601 et seq.) and unless otherwise defined for purposes of a 
particular rulemaking, the term small business or small organization for 
purposes of the Investment Company Act of 1940 shall mean an investment 
company that, together with other investment companies in the same group 
of related investment companies, has net assets of $50 million or less 
as of the end of its most recent fiscal year. For purposes of this 
section:
    (1) In the case of a management company, the term group of related 
investment companies shall mean two or more management companies 
(including series thereof) that:

[[Page 1133]]

    (i) Hold themselves out to investors as related companies for 
purposes of investment and investor services; and
    (ii) Either:
    (A) Have a common investment adviser or have investment advisers 
that are affiliated persons of each other; or
    (B) Have a common administrator; and
    (2) In the case of a unit investment trust, the term group of 
related investment companies shall mean two or more unit investment 
trusts (including series thereof) that have a common sponsor.
    (b) Special rule for insurance company separate accounts. In 
determining whether an insurance company separate account is a small 
business or small entity pursuant to paragraph (a) of this section, the 
assets of the separate account shall be cumulated with the assets of the 
general account and all other separate accounts of the insurance 
company.
    (c) Determination of net assets. The Commission may calculate its 
determination of the net assets of a group of related investment 
companies based on the net assets of each investment company in the 
group as of the end of such company's fiscal year.

[63 FR 35514, June 30, 1998]



Sec.270.0-11  Customer identification programs.

    Each registered open-end company is subject to the requirements of 
31 U.S.C. 5318(l) and the implementing regulation at 31 CFR 103.131, 
which requires a customer identification program to be implemented as 
part of the anti-money laundering program required under subchapter II 
of chapter 53 of title 31, United States Code and the implementing 
regulations issued by the Department of the Treasury at 31 CFR part 103. 
Where 31 CFR 103.131 and this chapter use different definitions for the 
same term, the definition in 31 CFR 103.131 shall be used for the 
purpose of compliance with 31 CFR 103.131. Where 31 CFR 103.131 and this 
chapter require the same records to be preserved for different periods 
of time, such records shall be preserved for the longer period of time.

[68 FR 25146, May 9, 2003]



Sec.270.2a-1  Valuation of portfolio securities in special cases.

    (a) Any investment company whose securities are qualified for sale, 
or for whose securities application for such qualification has been 
made, in any State in which the securities owned by such company are 
required by applicable State law or regulations to be valued at cost or 
on some other basis different from that prescribed by clause (A) of 
section 2(a)(41) of the Act for the purpose of determining the 
percentage of its assets invested in any particular type or 
classification of securities or in the securities of any one issuer, 
may, in valuing its securities for the purposes of sections 5 and 12 of 
the Act, use the same basis of valuation as that used in complying with 
such State law or regulations in lieu of the method of valuation 
prescribed by clause (A) of section 2(a)(41) of the Act.
    (b) Any open-end company which has heretofore valued its securities 
at cost for the purpose of qualifying as a ``mutual investment company'' 
under the Internal Revenue Code, prior to its amendment by the Revenue 
Act of 1942, shall henceforth, for the purposes of sections 5 and 12 of 
the Act, value its securities in accordance with the method prescribed 
in clause (A) of section 2(a)(41) of the Act unless such company is 
permitted under paragraph (a) of this section to use a different method 
of valuation.
    (c) A registered investment company which has adopted for the 
purposes of sections 5 and 12 of the Act a method of valuation permitted 
by paragraph (a) of this section, shall state in its registration 
statement filed pursuant to section 8 (54 Stat. 803; 15 U.S.C. 80a-8) of 
the Act, or in a report filed pursuant to section 30 (54 Stat. 836; 15 
U.S.C. 80a-30) of the Act, the method of valuation adopted and the facts 
which justify the adoption of such method. A registered investment 
company which has adopted for the purposes of sections 5 and 12 of the 
Act a method of valuation permitted by paragraph (a) of this section, 
unless it shall have adopted such method for the purpose or partly for 
the purpose of qualifying as a ``mutual investment company'' under the 
Internal Revenue Code, shall continue to use that method until it has 
notified the

[[Page 1134]]

Commission of its desire to use a different method, and has received 
from the Commission permission for such change. Such permission may be 
made effective on a fixed date or within such reasonable time thereafter 
as may be deemed advisable under the circumstances.
    (d) If at any time it appears that the method of valuation adopted 
by any company pursuant to paragraph (a) of this section is no longer 
justified by the facts, the Commission may require a change in the 
method of valuation within a reasonable period of time either to the 
method prescribed in clause (A) of section 2(a)(41) of the Act or to 
some other method permitted by paragraph (a) of this section which is 
justified by the existing facts.

[Rule N-2A-1, 8 FR 3567, Mar. 24, 1943, as amended at 38 FR 8593, Apr. 
4, 1973]



Sec.270.2a-2  Effect of eliminations upon valuation of portfolio
securities.

    During any fiscal quarter in which elimination of securities from 
the portfolio of an investment company occur, the securities remaining 
in the portfolio shall, for the purpose of sections 5 and 12 of the Act 
(54 Stat. 800, 808; 15 U.S.C. 80a-5, 80a-12), be so valued as to give 
effect to the eliminations in accordance with one of the following 
methods:
    (a) Specific certificate,
    (b) First in--first out,
    (c) Last in--first out, or
    (d) Average value.

For these purposes, a single method of elimination shall be used 
consistently with respect to all portfolio securities. In giving effect 
to eliminations pursuant to this section values shall be computed in 
accordance with section 2(a)(41)(A) of the Act (54 Stat. 790; 15 U.S.C. 
80a-2(a)(41)(A)).

[38 FR 8593, Apr. 4, 1973]



Sec.270.2a3-1  Investment company limited partners not deemed
affiliated persons.

    Preliminary Note to Sec.270.2a3-1: This Sec.270.2a3-1 excepts 
from the definition of affiliated person in section 2(a)(3)) (15 U.S.C. 
80a-2(a)(3)) those limited partners of investment companies organized in 
limited partnership form that are affiliated persons solely because they 
are partners under section 2(a)(3)(D) (15 U.S.C. 80a-2(a)(3)(D)). 
Reliance on this Sec.270.2a3-1 does not except a limited partner that 
is an affiliated person by virtue of any other provision.
    No limited partner of a registered management company or a business 
development company, organized as a limited partnership and relying on 
Sec.270.2a19-2, shall be deemed to be an affiliated person of such 
company, or any other partner of such company, solely by reason of being 
a limited partner of such company.

[58 FR 45838, Aug. 31, 1993]



Sec.270.2a-4  Definition of ``current net asset value'' for use in
computing periodically the current price of redeemable security.

    (a) The current net asset value of any redeemable security issued by 
a registered investment company used in computing periodically the 
current price for the purpose of distribution, redemption, and 
repurchase means an amount which reflects calculations, whether or not 
recorded in the books of account, made substantially in accordance with 
the following, with estimates used where necessary or appropriate.
    (1) Portfolio securities with respect to which market quotations are 
readily available shall be valued at current market value, and other 
securities and assets shall be valued at fair value as determined in 
good faith by the board of directors of the registered company.
    (2) Changes in holdings of portfolio securities shall be reflected 
no later than in the first calculation on the first business day 
following the trade date.
    (3) Changes in the number of outstanding shares of the registered 
company resulting from distributions, redemptions, and repurchases shall 
be reflected no later than in the first calculation on the first 
business day following such change.
    (4) Expenses, including any investment advisory fees, shall be 
included to date of calculation. Appropriate provision shall be made for 
Federal income taxes if required. Investment companies which retain 
realized capital gains designated as a distribution to shareholders 
shall comply with paragraph (h) of Sec.210.6-03 of Regulation S-X.
    (5) Dividends receivable shall be included to date of calculation 
either at

[[Page 1135]]

ex-dividend dates or record dates, as appropriate.
    (6) Interest income and other income shall be included to date of 
calculation.
    (b) The items which would otherwise be required to be reflected by 
paragraphs (a) (4) and (6) of this section need not be so reflected if 
cumulatively, when netted, they do not amount to as much as one cent per 
outstanding share.
    (c) Notwithstanding the requirements of paragraph (a) of this 
section, any interim determination of current net asset value between 
calculations made as of the close of the New York Stock Exchange on the 
preceding business day and the current business day may be estimated so 
as to reflect any change in current net asset value since the closing 
calculation on the preceding business day.

(Secs. 7, 19(a), 48 Stat. 78, 85, 908, 15 U.S.C. 77g, 77s(a); secs. 12, 
13, 15(d), 23(a), 48 Stat. 892, 894, 895, 901; secs. 3, 8, 49 Stat. 
1377, 1379, secs. 3, 4, 78 Stat. 569, 570, secs. 1, 2, 82 Stat. 454, 15 
U.S.C. 78l, 78m, 78o(d), 78w(a); secs. 8, 22, 30, 31(c), 38(a), 54 Stat. 
803, 823, 836, 838, 841, 15 U.S.C. 80a-8, 80a-22, 80a-29, 80a-30(c))

[29 FR 19101, Dec. 30, 1964, as amended at 35 FR 314, Jan. 8, 1970; 47 
FR 56844, Dec. 21, 1982]



Sec.270.2a-6  Certain transactions not deemed assignments.

    A transaction which does not result in a change of actual control or 
management of the investment adviser to, or principal underwriter of, an 
investment company is not an assignment for purposes of section 15(a)(4) 
or section 15(b)(2) of the act, respectively.

(Secs. 6(c) and 38(a) (15 U.S.C. 80a-6(c) and 80a-37(a)))

[45 FR 1861, Jan. 9, 1980]



Sec.270.2a-7  Money market funds.

    (a) Definitions--(1) Acquisition (or acquire) means any purchase or 
subsequent rollover (but does not include the failure to exercise a 
demand feature).
    (2) Amortized cost method of valuation means the method of 
calculating an investment company's net asset value whereby portfolio 
securities are valued at the fund's acquisition cost as adjusted for 
amortization of premium or accretion of discount rather than at their 
value based on current market factors.
    (3) Asset-backed security means a fixed income security (other than 
a government security) issued by a special purpose entity (as defined in 
this paragraph (a)(3)), substantially all of the assets of which consist 
of qualifying assets (as defined in this paragraph (a)(3)). Special 
purpose entity means a trust, corporation, partnership or other entity 
organized for the sole purpose of issuing securities that entitle their 
holders to receive payments that depend primarily on the cash flow from 
qualifying assets, but does not include a registered investment company. 
Qualifying assets means financial assets, either fixed or revolving, 
that by their terms convert into cash within a finite time period, plus 
any rights or other assets designed to assure the servicing or timely 
distribution of proceeds to security holders.
    (4) Business day means any day, other than Saturday, Sunday, or any 
customary business holiday.
    (5) Collateralized fully has the same meaning as defined in Sec.
270.5b-3(c)(1) except that Sec.270.5b-3(c)(1)(iv)(C) shall not apply.
    (6) Conditional demand feature means a demand feature that is not an 
unconditional demand feature. A conditional demand feature is not a 
guarantee.
    (7) Conduit security means a security issued by a municipal issuer 
(as defined in this paragraph (a)(7)) involving an arrangement or 
agreement entered into, directly or indirectly, with a person other than 
a municipal issuer, which arrangement or agreement provides for or 
secures repayment of the security. Municipal issuer means a state or 
territory of the United States (including the District of Columbia), or 
any political subdivision or public instrumentality of a state or 
territory of the United States. A conduit security does not include a 
security that is:
    (i) Fully and unconditionally guaranteed by a municipal issuer;
    (ii) Payable from the general revenues of the municipal issuer or 
other municipal issuers (other than those revenues derived from an 
agreement or arrangement with a person who is not a municipal issuer 
that provides for or

[[Page 1136]]

secures repayment of the security issued by the municipal issuer);
    (iii) Related to a project owned and operated by a municipal issuer; 
or
    (iv) Related to a facility leased to and under the control of an 
industrial or commercial enterprise that is part of a public project 
which, as a whole, is owned and under the control of a municipal issuer.
    (8) Daily liquid assets means:
    (i) Cash;
    (ii) Direct obligations of the U.S. Government;
    (iii) Securities that will mature, as determined without reference 
to the exceptions in paragraph (i) of this section regarding interest 
rate readjustments, or are subject to a demand feature that is 
exercisable and payable, within one business day; or
    (iv) Amounts receivable and due unconditionally within one business 
day on pending sales of portfolio securities.
    (9) Demand feature means a feature permitting the holder of a 
security to sell the security at an exercise price equal to the 
approximate amortized cost of the security plus accrued interest, if 
any, at the later of the time of exercise or the settlement of the 
transaction, paid within 397 calendar days of exercise.
    (10) Demand feature issued by a non-controlled person means a demand 
feature issued by:
    (i) A person that, directly or indirectly, does not control, and is 
not controlled by or under common control with the issuer of the 
security subject to the demand feature (control means ``control'' as 
defined in section 2(a)(9) of the Act) (15 U.S.C. 80a-2(a)(9)); or
    (ii) A sponsor of a special purpose entity with respect to an asset-
backed security.
    (11) Eligible security means a security:
    (i) With a remaining maturity of 397 calendar days or less that the 
fund's board of directors determines presents minimal credit risks to 
the fund, which determination must include an analysis of the capacity 
of the security's issuer or guarantor (including for this paragraph 
(a)(11)(i) the provider of a conditional demand feature, when 
applicable) to meet its financial obligations, and such analysis must 
include, to the extent appropriate, consideration of the following 
factors with respect to the security's issuer or guarantor:
    (A) Financial condition;
    (B) Sources of liquidity;
    (C) Ability to react to future market-wide and issuer- or guarantor-
specific events, including ability to repay debt in a highly adverse 
situation; and
    (D) Strength of the issuer or guarantor's industry within the 
economy and relative to economic trends, and issuer or guarantor's 
competitive position within its industry.
    (ii) That is issued by a registered investment company that is a 
money market fund; or
    (iii) That is a government security.
    Note to paragraph (a)(11): For a discussion of additional factors 
that may be relevant in evaluating certain specific asset types see 
Investment Company Act Release No. IC-31828 (9/16/15).
    (12) Event of insolvency has the same meaning as defined in Sec.
270.5b-3(c)(2).
    (13) Floating rate security means a security the terms of which 
provide for the adjustment of its interest rate whenever a specified 
interest rate changes and that, at any time until the final maturity of 
the instrument or the period remaining until the principal amount can be 
recovered through demand, can reasonably be expected to have a market 
value that approximates its amortized cost.
    (14) Government money market fund means a money market fund that 
invests 99.5 percent or more of its total assets in cash, government 
securities, and/or repurchase agreements that are collateralized fully.
    (15) Government security has the same meaning as defined in section 
2(a)(16) of the Act (15 U.S.C. 80a-2(a)(16)).
    (16) Guarantee:
    (i) Means an unconditional obligation of a person other than the 
issuer of the security to undertake to pay, upon presentment by the 
holder of the guarantee (if required), the principal amount of the 
underlying security plus accrued interest when due or upon default, or, 
in the case of an unconditional demand feature, an obligation that 
entitles the holder to receive upon the later of exercise or the 
settlement of the transaction the approximate amortized cost of the 
underlying security or securities, plus accrued interest, if

[[Page 1137]]

any. A guarantee includes a letter of credit, financial guaranty (bond) 
insurance, and an unconditional demand feature (other than an 
unconditional demand feature provided by the issuer of the security).
    (ii) The sponsor of a special purpose entity with respect to an 
asset-backed security shall be deemed to have provided a guarantee with 
respect to the entire principal amount of the asset-backed security for 
purposes of this section, except paragraphs (a)(11) (definition of 
eligible security), (d)(2)(ii) (credit substitution), (d)(3)(iv)(A) 
(fractional guarantees) and (e) (guarantees not relied on) of this 
section, unless the money market fund's board of directors has 
determined that the fund is not relying on the sponsor's financial 
strength or its ability or willingness to provide liquidity, credit or 
other support to determine the quality (pursuant to paragraph (d)(2) of 
this section) or liquidity (pursuant to paragraph (d)(4) of this 
section) of the asset-backed security, and maintains a record of this 
determination (pursuant to paragraphs (g)(7) and (h)(6) of this 
section).
    (17) Guarantee issued by a non-controlled person means a guarantee 
issued by:
    (i) A person that, directly or indirectly, does not control, and is 
not controlled by or under common control with the issuer of the 
security subject to the guarantee (control means ``control'' as defined 
in section 2(a)(9) of the Act) (15 U.S.C. 80a-2(a)(9))); or
    (ii) A sponsor of a special purpose entity with respect to an asset-
backed security.
    (18) Illiquid security means a security that cannot be sold or 
disposed of in the ordinary course of business within seven calendar 
days at approximately the value ascribed to it by the fund.
    (19) Penny-rounding method of pricing means the method of computing 
an investment company's price per share for purposes of distribution, 
redemption and repurchase whereby the current net asset value per share 
is rounded to the nearest one percent.
    (20) Refunded security has the same meaning as defined in Sec.
270.5b-3(c)(4).
    (21) Retail money market fund means a money market fund that has 
policies and procedures reasonably designed to limit all beneficial 
owners of the fund to natural persons.
    (22) Single state fund means a tax exempt fund that holds itself out 
as seeking to maximize the amount of its distributed income that is 
exempt from the income taxes or other taxes on investments of a 
particular state and, where applicable, subdivisions thereof.
    (23) Tax exempt fund means any money market fund that holds itself 
out as distributing income exempt from regular federal income tax.
    (24) Total assets means, with respect to a money market fund using 
the Amortized Cost Method, the total amortized cost of its assets and, 
with respect to any other money market fund, means the total value of 
the money market fund's assets, as defined in section 2(a)(41) of the 
Act (15 U.S.C. 80a-2(a)(41)) and the rules thereunder.
    (25) Unconditional demand feature means a demand feature that by its 
terms would be readily exercisable in the event of a default in payment 
of principal or interest on the underlying security or securities.
    (26) United States dollar-denominated means, with reference to a 
security, that all principal and interest payments on such security are 
payable to security holders in United States dollars under all 
circumstances and that the interest rate of, the principal amount to be 
repaid, and the timing of payments related to such security do not vary 
or float with the value of a foreign currency, the rate of interest 
payable on foreign currency borrowings, or with any other interest rate 
or index expressed in a currency other than United States dollars.
    (27) Variable rate security means a security the terms of which 
provide for the adjustment of its interest rate on set dates (such as 
the last day of a month or calendar quarter) and that, upon each 
adjustment until the final maturity of the instrument or the period 
remaining until the principal amount can be recovered through demand, 
can reasonably be expected to have a market value that approximates its 
amortized cost.
    (28) Weekly liquid assets means:
    (i) Cash;

[[Page 1138]]

    (ii) Direct obligations of the U.S. Government;
    (iii) Government securities that are issued by a person controlled 
or supervised by and acting as an instrumentality of the government of 
the United States pursuant to authority granted by the Congress of the 
United States that:
    (A) Are issued at a discount to the principal amount to be repaid at 
maturity without provision for the payment of interest; and
    (B) Have a remaining maturity date of 60 days or less.
    (iv) Securities that will mature, as determined without reference to 
the exceptions in paragraph (i) of this section regarding interest rate 
readjustments, or are subject to a demand feature that is exercisable 
and payable, within five business days; or
    (v) Amounts receivable and due unconditionally within five business 
days on pending sales of portfolio securities.
    (b) Holding out and use of names and titles--(1) Holding out. It 
shall be an untrue statement of material fact within the meaning of 
section 34(b) of the Act (15 U.S.C. 80a-33(b)) for a registered 
investment company, in any registration statement, application, report, 
account, record, or other document filed or transmitted pursuant to the 
Act, including any advertisement, pamphlet, circular, form letter, or 
other sales literature addressed to or intended for distribution to 
prospective investors that is required to be filed with the Commission 
by section 24(b) of the Act (15 U.S.C. 80a-24(b)), to hold itself out to 
investors as a money market fund or the equivalent of a money market 
fund, unless such registered investment company complies with this 
section.
    (2) Names. It shall constitute the use of a materially deceptive or 
misleading name or title within the meaning of section 35(d) of the Act 
(15 U.S.C. 80a-34(d)) for a registered investment company to adopt the 
term ``money market'' as part of its name or title or the name or title 
of any redeemable securities of which it is the issuer, or to adopt a 
name that suggests that it is a money market fund or the equivalent of a 
money market fund, unless such registered investment company complies 
with this section.
    (3) Titles. For purposes of paragraph (b)(2) of this section, a name 
that suggests that a registered investment company is a money market 
fund or the equivalent thereof includes one that uses such terms as 
``cash,'' ``liquid,'' ``money,'' ``ready assets'' or similar terms.
    (c) Pricing and Redeeming Shares--(1) Share price calculation.
    (i) The current price per share, for purposes of distribution, 
redemption and repurchase, of any redeemable security issued by a 
government money market fund or retail money market fund, 
notwithstanding the requirements of section 2(a)(41) of the Act (15 
U.S.C. 80a-2(a)(41)) and of Sec.Sec.270.2a-4 and 270.22c-1 
thereunder, may be computed by use of the amortized cost method and/or 
the penny-rounding method. To use these methods, the board of directors 
of the government or retail money market fund must determine, in good 
faith, that it is in the best interests of the fund and its shareholders 
to maintain a stable net asset value per share or stable price per 
share, by virtue of either the amortized cost method and/or the penny-
rounding method. The government or retail money market fund may continue 
to use such methods only so long as the board of directors believes that 
they fairly reflect the market-based net asset value per share and the 
fund complies with the other requirements of this section.
    (ii) Any money market fund that is not a government money market 
fund or a retail money market fund must compute its price per share for 
purposes of distribution, redemption and repurchase by rounding the 
fund's current net asset value per share to a minimum of the fourth 
decimal place in the case of a fund with a $1.0000 share price or an 
equivalent or more precise level of accuracy for money market funds with 
a different share price (e.g. $10.000 per share, or $100.00 per share).
    (2) Liquidity fees and temporary suspensions of redemptions. Except 
as provided in paragraphs (c)(2)(iii) and (v) of this section, and 
notwithstanding sections 22(e) and 27(i) of the Act (15 U.S.C. 80a-22(e) 
and 80a-27(i)) and Sec.270.22c-1:
    (i) Discretionary liquidity fees and temporary suspensions of 
redemptions. If, at

[[Page 1139]]

any time, the money market fund has invested less than thirty percent of 
its total assets in weekly liquid assets, the fund may institute a 
liquidity fee (not to exceed two percent of the value of the shares 
redeemed) or suspend the right of redemption temporarily, subject to 
paragraphs (c)(2)(i)(A) and (B) of this section, if the fund's board of 
directors, including a majority of the directors who are not interested 
persons of the fund, determines that the fee or suspension of 
redemptions is in the best interests of the fund.
    (A) Duration and application of discretionary liquidity fee. Once 
imposed, a discretionary liquidity fee must be applied to all shares 
redeemed and must remain in effect until the money market fund's board 
of directors, including a majority of the directors who are not 
interested persons of the fund, determines that imposing such liquidity 
fee is no longer in the best interests of the fund. Provided however, 
that if, at the end of a business day, the money market fund has 
invested thirty percent or more of its total assets in weekly liquid 
assets, the fund must cease charging the liquidity fee, effective as of 
the beginning of the next business day.
    (B) Duration of temporary suspension of redemptions. The temporary 
suspension of redemptions must apply to all shares and must remain in 
effect until the fund's board of directors, including a majority of the 
directors who are not interested persons of the fund, determines that 
the temporary suspension of redemptions is no longer in the best 
interests of the fund. Provided, however, that the fund must restore the 
right of redemption on the earlier of:
    (1) The beginning of the next business day following a business day 
that ended with the money market fund having invested thirty percent or 
more of its total assets in weekly liquid assets; or
    (2) The beginning of the next business day following ten business 
days after suspending redemptions. The money market fund may not suspend 
the right of redemption pursuant to this section for more than ten 
business days in any rolling ninety calendar day period.
    (ii) Default liquidity fees. If, at the end of a business day, the 
money market fund has invested less than ten percent of its total assets 
in weekly liquid assets, the fund must institute a liquidity fee, 
effective as of the beginning of the next business day, as described in 
paragraphs (c)(2)(ii)(A) and (B) of this section, unless the fund's 
board of directors, including a majority of the directors who are not 
interested persons of the fund, determines that imposing the fee is not 
in the best interests of the fund.
    (A) Amount of default liquidity fee. The default liquidity fee shall 
be one percent of the value of shares redeemed unless the money market 
fund's board of directors, including a majority of the directors who are 
not interested persons of the fund, determines, at the time of initial 
imposition or later, that a higher or lower fee level is in the best 
interests of the fund. A liquidity fee may not exceed two percent of the 
value of the shares redeemed.
    (B) Duration and application of default liquidity fee. Once imposed, 
the default liquidity fee must be applied to all shares redeemed and 
shall remain in effect until the money market fund's board of directors, 
including a majority of the directors who are not interested persons of 
the fund, determines that imposing such liquidity fee is not in the best 
interests of the fund. Provided however, that if, at the end of a 
business day, the money market fund has invested thirty percent or more 
of its total assets in weekly liquid assets, the fund must cease 
charging the liquidity fee, effective as of the beginning of the next 
business day.
    (iii) Government money market funds. The requirements of paragraphs 
(c)(2)(i) and (ii) of this section shall not apply to a government money 
market fund. A government money market fund may, however, choose to rely 
on the ability to impose liquidity fees and suspend redemptions 
consistent with the requirements of paragraph (c)(2)(i) and/or (ii) of 
this section and any other requirements that apply to liquidity fees and 
temporary suspensions of redemptions (e.g., Item 4(b)(1)(ii) of Form N-
1A (Sec.274.11A of this chapter)).
    (iv) Variable contracts. Notwithstanding section 27(i) of the Act 
(15 U.S.C. 80a-27(i)), a variable insurance

[[Page 1140]]

contract issued by a registered separate account funding variable 
insurance contracts or the sponsoring insurance company of such separate 
account may apply a liquidity fee or temporary suspension of redemptions 
pursuant to paragraph (c)(2) of this section to contract owners who 
allocate all or a portion of their contract value to a subaccount of the 
separate account that is either a money market fund or that invests all 
of its assets in shares of a money market fund.
    (v) Master feeder funds. Any money market fund (a ``feeder fund'') 
that owns, pursuant to section 12(d)(1)(E) of the Act (15 U.S.C. 80a-
12(d)(1)(E)), shares of another money market fund (a ``master fund'') 
may not impose liquidity fees or temporary suspensions of redemptions 
under paragraphs (c)(2)(i) and (ii) of this section, provided however, 
that if a master fund, in which the feeder fund invests, imposes a 
liquidity fee or temporary suspension of redemptions pursuant to 
paragraphs (c)(2)(i) and (ii) of this section, then the feeder fund 
shall pass through to its investors the fee or redemption suspension on 
the same terms and conditions as imposed by the master fund.
    (d) Risk-limiting conditions--(1) Portfolio maturity. The money 
market fund must maintain a dollar-weighted average portfolio maturity 
appropriate to its investment objective; provided, however, that the 
money market fund must not:
    (i) Acquire any instrument with a remaining maturity of greater than 
397 calendar days;
    (ii) Maintain a dollar-weighted average portfolio maturity (``WAM'') 
that exceeds 60 calendar days; or
    (iii) Maintain a dollar-weighted average portfolio maturity that 
exceeds 120 calendar days, determined without reference to the 
exceptions in paragraph (i) of this section regarding interest rate 
readjustments (``WAL'').
    (2) Portfolio quality--(i) General. The money market fund must limit 
its portfolio investments to those United States dollar-denominated 
securities that at the time of acquisition are eligible securities.
    (ii) Securities subject to guarantees. A security that is subject to 
a guarantee may be determined to be an eligible security based solely on 
whether the guarantee is an eligible security, provided however, that 
the issuer of the guarantee, or another institution, has undertaken to 
promptly notify the holder of the security in the event the guarantee is 
substituted with another guarantee (if such substitution is permissible 
under the terms of the guarantee).
    (iii) Securities subject to conditional demand features. A security 
that is subject to a conditional demand feature (``underlying 
security'') may be determined to be an eligible security only if:
    (A) The conditional demand feature is an eligible security;
    (B) The underlying security or any guarantee of such security is an 
eligible security, except that the underlying security or guarantee may 
have a remaining maturity of more than 397 calendar days.
    (C) At the time of the acquisition of the underlying security, the 
money market fund's board of directors has determined that there is 
minimal risk that the circumstances that would result in the conditional 
demand feature not being exercisable will occur; and
    (1) The conditions limiting exercise either can be monitored readily 
by the fund or relate to the taxability, under federal, state or local 
law, of the interest payments on the security; or
    (2) The terms of the conditional demand feature require that the 
fund will receive notice of the occurrence of the condition and the 
opportunity to exercise the demand feature in accordance with its terms; 
and
    (D) The issuer of the conditional demand feature, or another 
institution, has undertaken to promptly notify the holder of the 
security in the event the conditional demand feature is substituted with 
another conditional demand feature (if such substitution is permissible 
under the terms of the conditional demand feature).
    (3) Portfolio diversification--(i) Issuer diversification. The money 
market fund must be diversified with respect to issuers of securities 
acquired by the fund as provided in paragraphs (d)(3)(i) and (ii) of 
this section, other than with respect to government securities.

[[Page 1141]]

    (A) Taxable and national funds. Immediately after the acquisition of 
any security, a money market fund other than a single state fund must 
not have invested more than:
    (1) Five percent of its total assets in securities issued by the 
issuer of the security, provided, however, that with respect to 
paragraph (d)(3)(i)(A) of this section, such a fund may invest up to 
twenty-five percent of its total assets in the securities of a single 
issuer for a period of up to three business days after the acquisition 
thereof; provided, further, that the fund may not invest in the 
securities of more than one issuer in accordance with the foregoing 
proviso in this paragraph (d)(3)(i)(A)(1) at any time; and
    (2) Ten percent of its total assets in securities issued by or 
subject to demand features or guarantees from the institution that 
issued the demand feature or guarantee, provided, however, that a tax 
exempt fund need only comply with this paragraph (d)(3)(i)(A)(2) with 
respect to eighty-five percent of its total assets, subject to paragraph 
(d)(3)(iii) of this section.
    (B) Single state funds. Immediately after the acquisition of any 
security, a single state fund must not have invested:
    (1) With respect to seventy-five percent of its total assets, more 
than five percent of its total assets in securities issued by the issuer 
of the security; and
    (2) With respect to seventy-five percent of its total assets, more 
than ten percent of its total assets in securities issued by or subject 
to demand features or guarantees from the institution that issued the 
demand feature or guarantee, subject to paragraph (d)(3)(iii) of this 
section.
    (ii) Issuer diversification calculations. For purposes of making 
calculations under paragraph (d)(3)(i) of this section:
    (A) Repurchase agreements. The acquisition of a repurchase agreement 
may be deemed to be an acquisition of the underlying securities, 
provided the obligation of the seller to repurchase the securities from 
the money market fund is collateralized fully and the fund's board of 
directors has evaluated the seller's creditworthiness.
    (B) Refunded securities. The acquisition of a refunded security 
shall be deemed to be an acquisition of the escrowed government 
securities.
    (C) Conduit securities. A conduit security shall be deemed to be 
issued by the person (other than the municipal issuer) ultimately 
responsible for payments of interest and principal on the security.
    (D) Asset-backed securities--(1) General. An asset-backed security 
acquired by a fund (``primary ABS'') shall be deemed to be issued by the 
special purpose entity that issued the asset-backed security, provided, 
however:
    (i) Holdings of primary ABS. Any person whose obligations constitute 
ten percent or more of the principal amount of the qualifying assets of 
the primary ABS (``ten percent obligor'') shall be deemed to be an 
issuer of the portion of the primary ABS such obligations represent; and
    (ii) Holdings of secondary ABS. If a ten percent obligor of a 
primary ABS is itself a special purpose entity issuing asset-backed 
securities (``secondary ABS''), any ten percent obligor of such 
secondary ABS also shall be deemed to be an issuer of the portion of the 
primary ABS that such ten percent obligor represents.
    (2) Restricted special purpose entities. A ten percent obligor with 
respect to a primary or secondary ABS shall not be deemed to have issued 
any portion of the assets of a primary ABS as provided in paragraph 
(d)(3)(ii)(D)(1) of this section if that ten percent obligor is itself a 
special purpose entity issuing asset-backed securities (``restricted 
special purpose entity''), and the securities that it issues (other than 
securities issued to a company that controls, or is controlled by or 
under common control with, the restricted special purpose entity and 
which is not itself a special purpose entity issuing asset-backed 
securities) are held by only one other special purpose entity.
    ((3) Demand features and guarantees. In the case of a ten percent 
obligor deemed to be an issuer, the fund must satisfy the 
diversification requirements of paragraph (d)(3)(iii) of this section 
with respect to any demand feature or guarantee to which the ten

[[Page 1142]]

percent obligor's obligations are subject.
    (E) Shares of other money market funds. A money market fund that 
acquires shares issued by another money market fund in an amount that 
would otherwise be prohibited by paragraph (d)(3)(i) of this section 
shall nonetheless be deemed in compliance with this section if the board 
of directors of the acquiring money market fund reasonably believes that 
the fund in which it has invested is in compliance with this section.
    (F) Treatment of certain affiliated entities--(1) General. The money 
market fund, when calculating the amount of its total assets invested in 
securities issued by any particular issuer for purposes of paragraph 
(d)(3)(i) of this section, must treat as a single issuer two or more 
issuers of securities owned by the money market fund if one issuer 
controls the other, is controlled by the other issuer, or is under 
common control with the other issuer, provided that ``control'' for this 
purpose means ownership of more than 50 percent of the issuer's voting 
securities.
    (2) Equity owners of asset-backed commercial paper special purpose 
entities. The money market fund is not required to aggregate an asset-
backed commercial paper special purpose entity and its equity owners 
under paragraph (d)(3)(ii)(F)(1) of this section provided that a primary 
line of business of its equity owners is owning equity interests in 
special purpose entities and providing services to special purpose 
entities, the independent equity owners' activities with respect to the 
SPEs are limited to providing management or administrative services, and 
no qualifying assets of the special purpose entity were originated by 
the equity owners.
    (3) Ten percent obligors. For purposes of determining ten percent 
obligors pursuant to paragraph (d)(3)(ii)(D)(1)(i) of this section, the 
money market fund must treat as a single person two or more persons 
whose obligations in the aggregate constitute ten percent or more of the 
principal amount of the qualifying assets of the primary ABS if one 
person controls the other, is controlled by the other person, or is 
under common control with the person, provided that ``control'' for this 
purpose means ownership of more than 50 percent of the person's voting 
securities.
    (iii) Diversification rules for demand features and guarantees. The 
money market fund must be diversified with respect to demand features 
and guarantees acquired by the fund as provided in paragraphs (d)(3)(i), 
(iii), and (iv) of this section, other than with respect to a demand 
feature issued by the same institution that issued the underlying 
security, or with respect to a guarantee or demand feature that is 
itself a government security.
    (A) General. Immediately after the acquisition of any demand feature 
or guarantee, any security subject to a demand feature or guarantee, or 
a security directly issued by the issuer of a demand feature or 
guarantee, a money market fund must not have invested more than ten 
percent of its total assets in securities issued by or subject to demand 
features or guarantees from the institution that issued the demand 
feature or guarantee, subject to paragraphs (d)(3)(i) and (d)(3)(iii)(B) 
of this section.
    (B) Tax exempt funds. Immediately after the acquisition of any 
demand feature or guarantee, any security subject to a demand feature or 
guarantee, or a security directly issued by the issuer of a demand 
feature or guarantee (any such acquisition, a ``demand feature or 
guarantee acquisition''), a tax exempt fund, with respect to eighty-five 
percent of its total assets, must not have invested more than ten 
percent of its total assets in securities issued by or subject to demand 
features or guarantees from the institution that issued the demand 
feature or guarantee; provided that any demand feature or guarantee 
acquisition in excess of ten percent of the fund's total assets in 
accordance with this paragraph must be a demand feature or guarantee 
issued by a non-controlled person.
    (iv) Demand feature and guarantee diversification calculations--(A) 
Fractional demand features or guarantees. In the case of a security 
subject to a demand feature or guarantee from an institution by which 
the institution guarantees a specified portion of the value of the 
security, the institution shall be

[[Page 1143]]

deemed to guarantee the specified portion thereof.
    (B) Layered demand features or guarantees. In the case of a security 
subject to demand features or guarantees from multiple institutions that 
have not limited the extent of their obligations as described in 
paragraph (d)(3)(iv)(A) of this section, each institution shall be 
deemed to have provided the demand feature or guarantee with respect to 
the entire principal amount of the security.
    (v) Diversification safe harbor. A money market fund that satisfies 
the applicable diversification requirements of paragraphs (d)(3) and (e) 
of this section shall be deemed to have satisfied the diversification 
requirements of section 5(b)(1) of the Act (15 U.S.C. 80a-5(b)(1)) and 
the rules adopted thereunder.
    (4) Portfolio liquidity. The money market fund must hold securities 
that are sufficiently liquid to meet reasonably foreseeable shareholder 
redemptions in light of the fund's obligations under section 22(e) of 
the Act (15 U.S.C. 80a-22(e)) and any commitments the fund has made to 
shareholders; provided, however, that:
    (i) Illiquid securities. The money market fund may not acquire any 
illiquid security if, immediately after the acquisition, the money 
market fund would have invested more than five percent of its total 
assets in illiquid securities.
    (ii) Minimum daily liquidity requirement. The money market fund may 
not acquire any security other than a daily liquid asset if, immediately 
after the acquisition, the fund would have invested less than ten 
percent of its total assets in daily liquid assets. This provision does 
not apply to tax exempt funds.
    (iii) Minimum weekly liquidity requirement. The money market fund 
may not acquire any security other than a weekly liquid asset if, 
immediately after the acquisition, the fund would have invested less 
than thirty percent of its total assets in weekly liquid assets.
    (e) Demand features and guarantees not relied upon. If the fund's 
board of directors has determined that the fund is not relying on a 
demand feature or guarantee to determine the quality (pursuant to 
paragraph (d)(2) of this section), or maturity (pursuant to paragraph 
(i) of this section), or liquidity of a portfolio security (pursuant to 
paragraph (d)(4) of this section), and maintains a record of this 
determination (pursuant to paragraphs (g)(3) and (h)(7) of this 
section), then the fund may disregard such demand feature or guarantee 
for all purposes of this section.
    (f) Defaults and other events--(1) Adverse events. Upon the 
occurrence of any of the events specified in paragraphs (f)(1)(i) 
through (iii) of this section with respect to a portfolio security, the 
money market fund shall dispose of such security as soon as practicable 
consistent with achieving an orderly disposition of the security, by 
sale, exercise of any demand feature or otherwise, absent a finding by 
the board of directors that disposal of the portfolio security would not 
be in the best interests of the money market fund (which determination 
may take into account, among other factors, market conditions that could 
affect the orderly disposition of the portfolio security):
    (i) The default with respect to a portfolio security (other than an 
immaterial default unrelated to the financial condition of the issuer);
    (ii) A portfolio security ceases to be an eligible security (e.g., 
no longer presents minimal credit risks); or
    (iii) An event of insolvency occurs with respect to the issuer of a 
portfolio security or the provider of any demand feature or guarantee.
    (2) Notice to the Commission. The money market fund must notify the 
Commission of the occurrence of certain material events, as specified in 
Form N-CR (Sec.274.222 of this chapter).
    (3) Defaults for purposes of paragraphs (f)(1) and (2) of this 
section. For purposes of paragraphs (f)(1) and (2) of this section, an 
instrument subject to a demand feature or guarantee shall not be deemed 
to be in default (and an event of insolvency with respect to the 
security shall not be deemed to have occurred) if:
    (i) In the case of an instrument subject to a demand feature, the 
demand feature has been exercised and the fund

[[Page 1144]]

has recovered either the principal amount or the amortized cost of the 
instrument, plus accrued interest;
    (ii) The provider of the guarantee is continuing, without protest, 
to make payments as due on the instrument; or
    (iii) The provider of a guarantee with respect to an asset-backed 
security pursuant to paragraph (a)(16)(ii) of this section is 
continuing, without protest, to provide credit, liquidity or other 
support as necessary to permit the asset-backed security to make 
payments as due.
    (g) Required procedures. The money market fund's board of directors 
must adopt written procedures including the following:
    (1) Funds using amortized cost. In the case of a government or 
retail money market fund that uses the amortized cost method of 
valuation, in supervising the money market fund's operations and 
delegating special responsibilities involving portfolio management to 
the money market fund's investment adviser, the money market fund's 
board of directors, as a particular responsibility within the overall 
duty of care owed to its shareholders, shall establish written 
procedures reasonably designed, taking into account current market 
conditions and the money market fund's investment objectives, to 
stabilize the money market fund's net asset value per share, as computed 
for the purpose of distribution, redemption and repurchase, at a single 
value.
    (i) Specific procedures. Included within the procedures adopted by 
the board of directors shall be the following:
    (A) Shadow pricing. Written procedures shall provide:
    (1) That the extent of deviation, if any, of the current net asset 
value per share calculated using available market quotations (or an 
appropriate substitute that reflects current market conditions) from the 
money market fund's amortized cost price per share, shall be calculated 
at least daily, and at such other intervals that the board of directors 
determines appropriate and reasonable in light of current market 
conditions;
    (2) For the periodic review by the board of directors of the amount 
of the deviation as well as the methods used to calculate the deviation; 
and
    (3) For the maintenance of records of the determination of deviation 
and the board's review thereof.
    (B) Prompt consideration of deviation. In the event such deviation 
from the money market fund's amortized cost price per share exceeds \1/
2\ of 1 percent, the board of directors shall promptly consider what 
action, if any, should be initiated by the board of directors.
    (C) Material dilution or unfair results. Where the board of 
directors believes the extent of any deviation from the money market 
fund's amortized cost price per share may result in material dilution or 
other unfair results to investors or existing shareholders, it shall 
cause the fund to take such action as it deems appropriate to eliminate 
or reduce to the extent reasonably practicable such dilution or unfair 
results.
    (ii) [Reserved]
    (2) Funds using penny rounding. In the case of a government or 
retail money market fund that uses the penny rounding method of pricing, 
in supervising the money market fund's operations and delegating special 
responsibilities involving portfolio management to the money market 
fund's investment adviser, the money market fund's board of directors, 
as a particular responsibility within the overall duty of care owed to 
its shareholders, must establish written procedures reasonably designed, 
taking into account current market conditions and the money market 
fund's investment objectives, to assure to the extent reasonably 
practicable that the money market fund's price per share as computed for 
the purpose of distribution, redemption and repurchase, rounded to the 
nearest one percent, will not deviate from the single price established 
by the board of directors.
    (3) Ongoing Review of Credit Risks. The written procedures must 
require the adviser to provide ongoing review of whether each security 
(other than a government security) continues to present minimal credit 
risks. The review must:
    (i) Include an assessment of each security's credit quality, 
including the

[[Page 1145]]

capacity of the issuer or guarantor (including conditional demand 
feature provider, when applicable) to meet its financial obligations; 
and
    (ii) Be based on, among other things, financial data of the issuer 
of the portfolio security or provider of the guarantee or demand 
feature, as the case may be, and in the case of a security subject to a 
conditional demand feature, the issuer of the security whose financial 
condition must be monitored under paragraph (d)(2)(iii) of this section, 
whether such data is publicly available or provided under the terms of 
the security's governing documents.
    (4) Securities subject to demand features or guarantees. In the case 
of a security subject to one or more demand features or guarantees that 
the fund's board of directors has determined that the fund is not 
relying on to determine the quality (pursuant to paragraph (d)(2) of 
this section), maturity (pursuant to paragraph (i) of this section) or 
liquidity (pursuant to paragraph (d)(4) of this section) of the security 
subject to the demand feature or guarantee, written procedures must 
require periodic evaluation of such determination.
    (5) Adjustable rate securities without demand features. In the case 
of a variable rate or floating rate security that is not subject to a 
demand feature and for which maturity is determined pursuant to 
paragraph (i)(1), (i)(2) or (i)(4) of this section, written procedures 
shall require periodic review of whether the interest rate formula, upon 
readjustment of its interest rate, can reasonably be expected to cause 
the security to have a market value that approximates its amortized cost 
value.
    (6) Ten percent obligors of asset-backed securities. In the case of 
an asset-backed security, written procedures must require the fund to 
periodically determine the number of ten percent obligors (as that term 
is used in paragraph (d)(3)(ii)(D) of this section) deemed to be the 
issuers of all or a portion of the asset-backed security for purposes of 
paragraph (d)(3)(ii)(D) of this section; provided, however, written 
procedures need not require periodic determinations with respect to any 
asset-backed security that a fund's board of directors has determined, 
at the time of acquisition, will not have, or is unlikely to have, ten 
percent obligors that are deemed to be issuers of all or a portion of 
that asset-backed security for purposes of paragraph (d)(3)(ii)(D) of 
this section, and maintains a record of this determination.
    (7) Asset-backed securities not subject to guarantees. In the case 
of an asset-backed security for which the fund's board of directors has 
determined that the fund is not relying on the sponsor's financial 
strength or its ability or willingness to provide liquidity, credit or 
other support in connection with the asset-backed security to determine 
the quality (pursuant to paragraph (d)(2) of this section) or liquidity 
(pursuant to paragraph (d)(4) of this section) of the asset-backed 
security, written procedures must require periodic evaluation of such 
determination.
    (8) Stress Testing. Written procedures must provide for:
    (i) General. The periodic stress testing, at such intervals as the 
board of directors determines appropriate and reasonable in light of 
current market conditions, of the money market fund's ability to have 
invested at least ten percent of its total assets in weekly liquid 
assets, and the fund's ability to minimize principal volatility (and, in 
the case of a money market fund using the amortized cost method of 
valuation or penny rounding method of pricing as provided in paragraph 
(c)(1) of this section, the fund's ability to maintain the stable price 
per share established by the board of directors for the purpose of 
distribution, redemption and repurchase), based upon specified 
hypothetical events that include, but are not limited to:
    (A) Increases in the general level of short-term interest rates, in 
combination with various levels of an increase in shareholder 
redemptions;
    (B) An event indicating or evidencing credit deterioration, such as 
a downgrade or default of particular portfolio security positions, each 
representing various portions of the fund's portfolio (with varying 
assumptions about the resulting loss in the value of the security), in 
combination with various levels of an increase in shareholder 
redemptions;

[[Page 1146]]

    (C) A widening of spreads compared to the indexes to which portfolio 
securities are tied in various sectors in the fund's portfolio (in which 
a sector is a logically related subset of portfolio securities, such as 
securities of issuers in similar or related industries or geographic 
region or securities of a similar security type), in combination with 
various levels of an increase in shareholder redemptions; and
    (D) Any additional combinations of events that the adviser deems 
relevant.
    (ii) A report on the results of such testing to be provided to the 
board of directors at its next regularly scheduled meeting (or sooner, 
if appropriate in light of the results), which report must include:
    (A) The date(s) on which the testing was performed and an assessment 
of the money market fund's ability to have invested at least ten percent 
of its total assets in weekly liquid assets and to minimize principal 
volatility (and, in the case of a money market fund using the amortized 
cost method of valuation or penny rounding method of pricing as provided 
in paragraph (c)(1) of this section to maintain the stable price per 
share established by the board of directors); and
    (B) An assessment by the fund's adviser of the fund's ability to 
withstand the events (and concurrent occurrences of those events) that 
are reasonably likely to occur within the following year, including such 
information as may reasonably be necessary for the board of directors to 
evaluate the stress testing conducted by the adviser and the results of 
the testing. The fund adviser must include a summary of the significant 
assumptions made when performing the stress tests.
    (h) Recordkeeping and reporting--(1) Written procedures. For a 
period of not less than six years following the replacement of existing 
procedures with new procedures (the first two years in an easily 
accessible place), a written copy of the procedures (and any 
modifications thereto) described in this section must be maintained and 
preserved.
    (2) Board considerations and actions. For a period of not less than 
six years (the first two years in an easily accessible place) a written 
record must be maintained and preserved of the board of directors' 
considerations and actions taken in connection with the discharge of its 
responsibilities, as set forth in this section, to be included in the 
minutes of the board of directors' meetings.
    (3) Credit risk analysis. For a period of not less than three years 
from the date that the credit risks of a portfolio security were most 
recently reviewed, a written record must be maintained and preserved in 
an easily accessible place of the determination that a portfolio 
security is an eligible security, including the determination that it 
presents minimal credit risks at the time the fund acquires the 
security, or at such later times (or upon such events) that the board of 
directors determines that the investment adviser must reassess whether 
the security presents minimal credit risks.
    (4) Determinations with respect to adjustable rate securities. For a 
period of not less than three years from the date when the assessment 
was most recently made, a written record must be preserved and 
maintained, in an easily accessible place, of the determination required 
by paragraph (g)(5) of this section (that a variable rate or floating 
rate security that is not subject to a demand feature and for which 
maturity is determined pursuant to paragraph (i)(1), (i)(2) or (i)(4) of 
this section can reasonably be expected, upon readjustment of its 
interest rate at all times during the life of the instrument, to have a 
market value that approximates its amortized cost).
    (5) Determinations with respect to asset-backed securities. For a 
period of not less than three years from the date when the determination 
was most recently made, a written record must be preserved and 
maintained, in an easily accessible place, of the determinations 
required by paragraph (g)(6) of this section (the number of ten percent 
obligors (as that term is used in paragraph (d)(3)(ii)(D) of this 
section) deemed to be the issuers of all or a portion of the asset-
backed security for purposes of paragraph (d)(3)(ii)(D) of this 
section). The written record must include:
    (i) The identities of the ten percent obligors (as that term is used 
in paragraph (d)(3)(ii)(D) of this section), the

[[Page 1147]]

percentage of the qualifying assets constituted by the securities of 
each ten percent obligor and the percentage of the fund's total assets 
that are invested in securities of each ten percent obligor; and
    (ii) Any determination that an asset-backed security will not have, 
or is unlikely to have, ten percent obligors deemed to be issuers of all 
or a portion of that asset-backed security for purposes of paragraph 
(d)(3)(ii)(D) of this section.
    (6) Evaluations with respect to asset-backed securities not subject 
to guarantees. For a period of not less than three years from the date 
when the evaluation was most recently made, a written record must be 
preserved and maintained, in an easily accessible place, of the 
evaluation required by paragraph (g)(7) of this section (regarding 
asset-backed securities not subject to guarantees).
    (7) Evaluations with respect to securities subject to demand 
features or guarantees. For a period of not less than three years from 
the date when the evaluation was most recently made, a written record 
must be preserved and maintained, in an easily accessible place, of the 
evaluation required by paragraph (g)(4) of this section (regarding 
securities subject to one or more demand features or guarantees).
    (8) Reports with respect to stress testing. For a period of not less 
than six years (the first two years in an easily accessible place), a 
written copy of the report required under paragraph (g)(8)(ii) of this 
section must be maintained and preserved.
    (9) Inspection of records. The documents preserved pursuant to 
paragraph (h) of this section are subject to inspection by the 
Commission in accordance with section 31(b) of the Act (15 U.S.C. 80a-
30(b)) as if such documents were records required to be maintained 
pursuant to rules adopted under section 31(a) of the Act (15 U.S.C. 80a-
30(a)).
    (10) Web site disclosure of portfolio holdings and other fund 
information. The money market fund must post prominently on its Web site 
the following information:
    (i) For a period of not less than six months, beginning no later 
than the fifth business day of the month, a schedule of its investments, 
as of the last business day or subsequent calendar day of the preceding 
month, that includes the following information:
    (A) With respect to the money market fund and each class of 
redeemable shares thereof:
    (1) The WAM; and
    (2) The WAL.
    (B) With respect to each security held by the money market fund:
    (1) Name of the issuer;
    (2) Category of investment (indicate the category that identifies 
the instrument from among the following: U.S. Treasury Debt; U.S. 
Government Agency Debt; Non-U.S. Sovereign, Sub-Sovereign and Supra-
National debt; Certificate of Deposit; Non-Negotiable Time Deposit; 
Variable Rate Demand Note; Other Municipal Security; Asset Backed 
Commercial Paper; Other Asset Backed Securities; U.S. Treasury 
Repurchase Agreement, if collateralized only by U.S. Treasuries 
(including Strips) and cash; U.S. Government Agency Repurchase 
Agreement, collateralized only by U.S. Government Agency securities, 
U.S. Treasuries, and cash; Other Repurchase Agreement, if any collateral 
falls outside Treasury, Government Agency and cash; Insurance Company 
Funding Agreement; Investment Company; Financial Company Commercial 
Paper; and Non-Financial Company Commercial Paper. If Other Instrument, 
include a brief description);
    (3) CUSIP number (if any);
    (4) Principal amount;
    (5) The maturity date determined by taking into account the maturity 
shortening provisions in paragraph (i) of this section (i.e., the 
maturity date used to calculate WAM under paragraph (d)(1)(ii) of this 
section);
    (6) The maturity date determined without reference to the exceptions 
in paragraph (i) of this section regarding interest rate readjustments 
(i.e., the maturity used to calculate WAL under paragraph (d)(1)(iii) of 
this section);
    (7) Coupon or yield; and
    (8) Value.
    (ii) A schedule, chart, graph, or other depiction, which must be 
updated each business day as of the end of the preceding business day, 
showing, as of the

[[Page 1148]]

end of each business day during the preceding six months:
    (A) The percentage of the money market fund's total assets invested 
in daily liquid assets;
    (B) The percentage of the money market fund's total assets invested 
in weekly liquid assets; and
    (C) The money market fund's net inflows or outflows.
    (iii) A schedule, chart, graph, or other depiction showing the money 
market fund's net asset value per share (which the fund must calculate 
based on current market factors before applying the amortized cost or 
penny-rounding method, if used), rounded to the fourth decimal place in 
the case of funds with a $1.000 share price or an equivalent level of 
accuracy for funds with a different share price (e.g., $10.00 per 
share), as of the end of each business day during the preceding six 
months, which must be updated each business day as of the end of the 
preceding business day.
    (iv) A link to a Web site of the Securities and Exchange Commission 
where a user may obtain the most recent 12 months of publicly available 
information filed by the money market fund pursuant to Sec.270.30b1-7.
    (v) For a period of not less than one year, beginning no later than 
the same business day on which the money market fund files an initial 
report on Form N-CR (Sec.274.222 of this chapter) in response to the 
occurrence of any event specified in Parts C, E, F, or G of Form N-CR, 
the same information that the money market fund is required to report to 
the Commission on Part C (Items C.1, C.2, C.3, C.4, C.5, C.6, and C.7), 
Part E (Items E.1, E.2, E.3, and E.4), Part F (Items F.1 and F.2), or 
Part G of Form N-CR concerning such event, along with the following 
statement: ``The Fund was required to disclose additional information 
about this event [or ``these events,'' as appropriate] on Form N-CR and 
to file this form with the Securities and Exchange Commission. Any Form 
N-CR filing submitted by the Fund is available on the EDGAR Database on 
the Securities and Exchange Commission's Internet site at http://
www.sec.gov.''
    (11) Processing of transactions. A government money market fund and 
a retail money market fund (or its transfer agent) must have the 
capacity to redeem and sell securities issued by the fund at a price 
based on the current net asset value per share pursuant to Sec.
270.22c-1. Such capacity must include the ability to redeem and sell 
securities at prices that do not correspond to a stable price per share.
    (i) Maturity of portfolio securities. For purposes of this section, 
the maturity of a portfolio security shall be deemed to be the period 
remaining (calculated from the trade date or such other date on which 
the fund's interest in the security is subject to market action) until 
the date on which, in accordance with the terms of the security, the 
principal amount must unconditionally be paid, or in the case of a 
security called for redemption, the date on which the redemption payment 
must be made, except as provided in paragraphs (i)(1) through (i)(8) of 
this section:
    (1) Adjustable rate government securities. A government security 
that is a variable rate security where the variable rate of interest is 
readjusted no less frequently than every 397 calendar days shall be 
deemed to have a maturity equal to the period remaining until the next 
readjustment of the interest rate. A government security that is a 
floating rate security shall be deemed to have a remaining maturity of 
one day.
    (2) Short-term variable rate securities. A variable rate security, 
the principal amount of which, in accordance with the terms of the 
security, must unconditionally be paid in 397 calendar days or less 
shall be deemed to have a maturity equal to the earlier of the period 
remaining until the next readjustment of the interest rate or the period 
remaining until the principal amount can be recovered through demand.
    (3) Long-term variable rate securities. A variable rate security, 
the principal amount of which is scheduled to be paid in more than 397 
calendar days, that is subject to a demand feature, shall be deemed to 
have a maturity equal to the longer of the period remaining until the 
next readjustment of the interest rate or the period remaining until the 
principal amount can be recovered through demand.

[[Page 1149]]

    (4) Short-term floating rate securities. A floating rate security, 
the principal amount of which, in accordance with the terms of the 
security, must unconditionally be paid in 397 calendar days or less 
shall be deemed to have a maturity of one day, except for purposes of 
determining WAL under paragraph (d)(1)(iii) of this section, in which 
case it shall be deemed to have a maturity equal to the period remaining 
until the principal amount can be recovered through demand.
    (5) Long-term floating rate securities. A floating rate security, 
the principal amount of which is scheduled to be paid in more than 397 
calendar days, that is subject to a demand feature, shall be deemed to 
have a maturity equal to the period remaining until the principal amount 
can be recovered through demand.
    (6) Repurchase agreements. A repurchase agreement shall be deemed to 
have a maturity equal to the period remaining until the date on which 
the repurchase of the underlying securities is scheduled to occur, or, 
where the agreement is subject to demand, the notice period applicable 
to a demand for the repurchase of the securities.
    (7) Portfolio lending agreements. A portfolio lending agreement 
shall be treated as having a maturity equal to the period remaining 
until the date on which the loaned securities are scheduled to be 
returned, or where the agreement is subject to demand, the notice period 
applicable to a demand for the return of the loaned securities.
    (8) Money market fund securities. An investment in a money market 
fund shall be treated as having a maturity equal to the period of time 
within which the acquired money market fund is required to make payment 
upon redemption, unless the acquired money market fund has agreed in 
writing to provide redemption proceeds to the investing money market 
fund within a shorter time period, in which case the maturity of such 
investment shall be deemed to be the shorter period.
    (j) Delegation. The money market fund's board of directors may 
delegate to the fund's investment adviser or officers the responsibility 
to make any determination required to be made by the board of directors 
under this section other than the determinations required by paragraphs 
(c)(1) (board findings), (c)(2)(i) and (ii) (determinations related to 
liquidity fees and temporary suspensions of redemptions), (f)(1) 
(adverse events), (g)(1) and (2) (amortized cost and penny rounding 
procedures), and (g)(8) (stress testing procedures) of this section.
    (1) Written guidelines. The board of directors must establish and 
periodically review written guidelines (including guidelines for 
determining whether securities present minimal credit risks as required 
in paragraphs (d)(2) and (g)(3) of this section) and procedures under 
which the delegate makes such determinations.
    (2) Oversight. The board of directors must take any measures 
reasonably necessary (through periodic reviews of fund investments and 
the delegate's procedures in connection with investment decisions and 
prompt review of the adviser's actions in the event of the default of a 
security or event of insolvency with respect to the issuer of the 
security or any guarantee or demand feature to which it is subject that 
requires notification of the Commission under paragraph (f)(2) of this 
section by reference to Form N-CR (Sec.274.222 of this chapter)) to 
assure that the guidelines and procedures are being followed.

[79 FR 47958, Aug. 14, 2014, as amended at 80 FR 58153, Sept. 25, 2015]



Sec.270.2a19-2  Investment company general partners not deemed 
interested persons.

    Preliminary Note to Sec.270.2a19-2: This Sec.270.2a19-2 
conditionally excepts from the definition of interested person in 
section 2(a)(19) (15 U.S.C. 80a-2(a)(19)) general partners of investment 
companies organized in limited partnership form. Compliance with the 
conditions of this Sec.270.2a19-2 does not relieve an investment 
company of any other requirement of this Act, or except a general 
partner that is an interested person by virtue of any other provision.

    (a) Director General Partners Not Deemed Interested Persons. A 
general partner serving as a director of a limited partnership 
investment company shall not be deemed to be an interested person of 
such company, or of any investment adviser of, or principal underwriter 
for, such company, solely by

[[Page 1150]]

reason of being a partner of the limited partnership investment company, 
or a copartner in the limited partnership investment company with any 
investment adviser of, or principal underwriter for, the company, 
provided that the Limited Partnership Agreement contains in substance 
the following:
    (1) Only general partners who are natural persons shall serve as, 
and perform the functions of, directors of the limited partnership 
investment company, except that any general partner may act as provided 
in paragraph (a)(2)(iii) of this section.
    (2) A general partner shall not have the authority to act 
individually on behalf of, or to bind, the Limited Partnership 
Investment Company, except:
    (i) In such person's capacity as investment adviser, principal 
underwriter, or administrator;
    (ii) Within the scope of such person's authority as delegated by the 
board of directors; or
    (iii) In the event that no director of the company remains, to the 
extent necessary to continue the Limited Partnership Investment Company, 
for such limited periods as are permitted under the Act to fill director 
vacancies.
    (3) Limited partners shall have all of the rights afforded 
shareholders under the Act. If a limited partnership interest is 
transferred in a manner that is effective under the Partnership 
Agreement, the transferee shall have all of the rights afforded 
shareholders under the Act.
    (4) A general partner shall not withdraw from the Limited 
Partnership Investment Company or reduce its Federal Tax Status 
Contribution without giving at least one year's prior written notice to 
the Limited Partnership Investment Company, if such withdrawal or 
reduction is likely to cause the company to lose its partnership tax 
classification. This paragraph (a)(4) shall not apply to an investment 
adviser general partner if the company terminates its advisory agreement 
with such general partner.
    (b) Definitions. (1) ``Federal Tax Status Contribution'' shall mean 
the interest (including limited partnership interest) in each material 
item of partnership income, gain, loss, deduction, or credit, and other 
contributions, required to be held or made by general partners, pursuant 
to section 4 of Internal Revenue Service Revenue Procedure 89-12, or any 
successor provisions thereto.
    (2) ``Limited Partnership Investment Company'' shall mean a 
registered management company or a business development company that is 
organized as a limited partnership under state law.
    (3) ``Partnership Agreement'' shall mean the agreement of the 
partners of the Limited Partnership Investment Company as to the affairs 
of the limited partnership and the conduct of its business.

[58 FR 45838, Aug. 31, 1993; 58 FR 64353, Dec. 6, 1993; 59 FR 15501, 
Apr. 1, 1994]



Sec.270.2a19-3  Certain investment company directors not considered 
interested persons because of ownership of index fund securities.

    If a director of a registered investment company (``Fund'') owns 
shares of a registered investment company (including the Fund) with an 
investment objective to replicate the performance of one or more broad-
based securities indices (``Index Fund''), ownership of the Index Fund 
shares will not cause the director to be considered an ``interested 
person'' of the Fund or of the Fund's investment adviser or principal 
underwriter (as defined by section 2(a)(19)(A)(iii) and (B)(iii) of the 
Act (15 U.S.C. 80a-2(a)(19)(A)(iii) and (B)(iii)).

[66 FR 3758, Jan. 16, 2001]



Sec.270.2a41-1  Valuation of standby commitments by registered 
investment companies.

    (a) A standby commitment means a right to sell a specified 
underlying security or securities within a specified period of time and 
at an exercise price equal to the amortized cost of the underlying 
security or securities plus accrued interest, if any, at the time of 
exercise, that may be sold, transferred or assigned only with the 
underlying security or securities. A standby commitment entitles the 
holder to receive same day settlement, and will be considered to be from 
the party to whom the investment company will look for

[[Page 1151]]

payment of the exercise price. A standby commitment may be assigned a 
fair value of zero, Provided, That:
    (1) The standby commitment is not used to affect the company's 
valuation of the security or securities underlying the standby 
commitment; and
    (2) Any consideration paid by the company for the standby 
commitment, whether paid in cash or by paying a premium for the 
underlying security or securities, is accounted for by the company as 
unrealized depreciation until the standby commitment is exercised or 
expires.
    (b) [Reserved]

[51 FR 9779, Mar. 21, 1986, as amended at 56 FR 8128, Feb. 27, 1991; 61 
FR 13982, Mar. 28, 1996; 62 FR 64986, Dec. 9, 1997]



Sec.270.2a-46  Certain issuers as eligible portfolio companies.

    The term eligible portfolio company shall include any issuer that 
meets the requirements set forth in paragraphs (A) and (B) of section 
2(a)(46) of the Act (15 U.S.C. 80a-2(a)(46)(A) and (B)) and that:
    (a) Does not have any class of securities listed on a national 
securities exchange; or
    (b) Has a class of securities listed on a national securities 
exchange, but has an aggregate market value of outstanding voting and 
non-voting common equity of less than $250 million. For purposes of this 
paragraph:
    (1) The aggregate market value of an issuer's outstanding voting and 
non-voting common equity shall be computed by use of the price at which 
the common equity was last sold, or the average of the bid and asked 
prices of such common equity, in the principal market for such common 
equity as of a date within 60 days prior to the date of acquisition of 
its securities by a business development company; and
    (2) Common equity has the same meaning as in 17 CFR 230.405.

[73 FR 29051, May 20, 2008]



Sec.270.2a51-1  Definition of investments for purposes of section 2(a)
(51) (definition of ``qualified purchaser''); certain calculations.

    (a) Definitions. As used in this section:
    (1) The term Commodity Interests means commodity futures contracts, 
options on commodity futures contracts, and options on physical 
commodities traded on or subject to the rules of:
    (i) Any contract market designated for trading such transactions 
under the Commodity Exchange Act and the rules thereunder; or
    (ii) Any board of trade or exchange outside the United States, as 
contemplated in Part 30 of the rules under the Commodity Exchange Act 
[17 CFR 30.1 through 30.11].
    (2) The term Family Company means a company described in paragraph 
(A)(ii) of section 2(a)(51) of the Act [15 U.S.C. 80a-2(a)(51)].
    (3) The term Investment Vehicle means an investment company, a 
company that would be an investment company but for the exclusions 
provided by sections 3(c)(1) through 3(c)(9) of the Act [15 U.S.C. 80a-
3(c)(1) through 3(c)(9)] or the exemptions provided by Sec.Sec.
270.3a-6 or 270.3a-7, or a commodity pool.
    (4) The term Investments has the meaning set forth in paragraph (b) 
of this section.
    (5) The term Physical Commodity means any physical commodity with 
respect to which a Commodity Interest is traded on a market specified in 
paragraph (a)(1) of this section.
    (6) The term Prospective Qualified Purchaser means a person seeking 
to purchase a security of a Section 3(c)(7) Company.
    (7) The term Public Company means a company that:
    (i) Files reports pursuant to section 13 or 15(d) of the Securities 
Exchange Act of 1934 [15 U.S.C. 78m or 78o(d)]; or
    (ii) Has a class of securities that are listed on a ``designated 
offshore securities market'' as such term is defined by Regulation S 
under the Securities Act of 1933 [17 CFR 230.901 through 230.904].
    (8) The term Related Person means a person who is related to a 
Prospective Qualified Purchaser as a sibling, spouse or former spouse, 
or is a direct lineal descendant or ancestor by birth or adoption of the 
Prospective Qualified Purchaser, or is a spouse of such descendant or 
ancestor, provided that, in the case of a Family Company, a Related 
Person includes any owner of the

[[Page 1152]]

Family Company and any person who is a Related Person of such owner.
    (9) The term Relying Person means a Section 3(c)(7) Company or a 
person acting on its behalf.
    (10) The term Section 3(c)(7) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(7) 
of the Act [15 U.S.C. 80a-3(c)(7)].
    (b) Types of Investments. For purposes of section 2(a)(51) of the 
Act [15 U.S.C. 80a-2(a)(51)], the term Investments means:
    (1) Securities (as defined by section 2(a)(1) of the Securities Act 
of 1933 [15 U.S.C. 77b(a)(1)]), other than securities of an issuer that 
controls, is controlled by, or is under common control with, the 
Prospective Qualified Purchaser that owns such securities, unless the 
issuer of such securities is:
    (i) An Investment Vehicle;
    (ii) A Public Company; or
    (iii) A company with shareholders' equity of not less than $50 
million (determined in accordance with generally accepted accounting 
principles) as reflected on the company's most recent financial 
statements, provided that such financial statements present the 
information as of a date within 16 months preceding the date on which 
the Prospective Qualified Purchaser acquires the securities of a Section 
3(c)(7) Company;
    (2) Real estate held for investment purposes;
    (3) Commodity Interests held for investment purposes;
    (4) Physical Commodities held for investment purposes;
    (5) To the extent not securities, financial contracts (as such term 
is defined in section 3(c)(2)(B)(ii) of the Act [15 U.S.C. 80a-
3(c)(2)(B)(ii)] entered into for investment purposes;
    (6) In the case of a Prospective Qualified Purchaser that is a 
Section 3(c)(7) Company, a company that would be an investment company 
but for the exclusion provided by section 3(c)(1) of the Act [15 U.S.C. 
80a-3(c)(1)], or a commodity pool, any amounts payable to such 
Prospective Qualified Purchaser pursuant to a firm agreement or similar 
binding commitment pursuant to which a person has agreed to acquire an 
interest in, or make capital contributions to, the Prospective Qualified 
Purchaser upon the demand of the Prospective Qualified Purchaser; and
    (7) Cash and cash equivalents (including foreign currencies) held 
for investment purposes. For purposes of this section, cash and cash 
equivalents include:
    (i) Bank deposits, certificates of deposit, bankers acceptances and 
similar bank instruments held for investment purposes; and
    (ii) The net cash surrender value of an insurance policy.
    (c) Investment Purposes. For purposes of this section:
    (1) Real estate shall not be considered to be held for investment 
purposes by a Prospective Qualified Purchaser if it is used by the 
Prospective Qualified Purchaser or a Related Person for personal 
purposes or as a place of business, or in connection with the conduct of 
the trade or business of the Prospective Qualified Purchaser or a 
Related Person, provided that real estate owned by a Prospective 
Qualified Purchaser who is engaged primarily in the business of 
investing, trading or developing real estate in connection with such 
business may de deemed to be held for investment purposes. Residential 
real estate shall not be deemed to be used for personal purposes if 
deductions with respect to such real estate are not disallowed by 
section 280A of the Internal Revenue Code [26 U.S.C. 280A].
    (2) A Commodity Interest or Physical Commodity owned, or a financial 
contract entered into, by the Prospective Qualified Purchaser who is 
engaged primarily in the business of investing, reinvesting, or trading 
in Commodity Interests, Physical Commodities or financial contracts in 
connection with such business may be deemed to be held for investment 
purposes.
    (d) Valuation. For purposes of determining whether a Prospective 
Qualified Purchaser is a qualified purchaser, the aggregate amount of 
Investments owned and invested on a discretionary basis by the 
Prospective Qualified Purchaser shall be the Investments' fair market 
value on the most recent practicable date or their cost, provided that:
    (1) In the case of Commodity Interests, the amount of Investments 
shall be the value of the initial margin or

[[Page 1153]]

option premium deposited in connection with such Commodity Interests; 
and
    (2) In each case, there shall be deducted from the amount of 
Investments owned by the Prospective Qualified Purchaser the amounts 
specified in paragraphs (e) and (f) of this section, as applicable.
    (e) Deductions. In determining whether any person is a qualified 
purchaser there shall be deducted from the amount of such person's 
Investments the amount of any outstanding indebtedness incurred to 
acquire or for the purpose of acquiring the Investments owned by such 
person.
    (f) Deductions: Family Companies. In determining whether a Family 
Company is a qualified purchaser, in addition to the amounts specified 
in paragraph (e) of this section, there shall be deducted from the value 
of such Family Company's Investments any outstanding indebtedness 
incurred by an owner of the Family Company to acquire such Investments.
    (g) Special rules for certain Prospective Qualified Purchasers--1) 
Qualified institutional buyers. Any Prospective Qualified Purchaser who 
is, or who a Relying Person reasonably believes is, a qualified 
institutional buyer as defined in paragraph (a) of Sec.230.144A of 
this chapter, acting for its own account, the account of another 
qualified institutional buyer, or the account of a qualified purchaser, 
shall be deemed to be a qualified purchaser provided:
    (i) That a dealer described in paragraph (a)(1)(ii) of Sec.
230.144A of this chapter shall own and invest on a discretionary basis 
at least $25 million in securities of issuers that are not affiliated 
persons of the dealer; and
    (ii) That a plan referred to in paragraph (a)(1)(i)(D) or 
(a)(1)(i)(E) of Sec.230.144A of this chapter, or a trust fund referred 
to in paragraph (a)(1)(i)(F) of Sec.230.144A of this chapter that 
holds the assets of such a plan, will not be deemed to be acting for its 
own account if investment decisions with respect to the plan are made by 
the beneficiaries of the plan, except with respect to investment 
decisions made solely by the fiduciary, trustee or sponsor of such plan.
    (2) Joint Investments. In determining whether a natural person is a 
qualified purchaser, there may be included in the amount of such 
person's Investments any Investments held jointly with such person's 
spouse, or Investments in which such person shares with such person's 
spouse a community property or similar shared ownership interest. In 
determining whether spouses who are making a joint investment in a 
Section 3(c)(7) Company are qualified purchasers, there may be included 
in the amount of each spouse's Investments any Investments owned by the 
other spouse (whether or not such Investments are held jointly). In each 
case, there shall be deducted from the amount of any such Investments 
the amounts specified in paragraph (e) of this section incurred by each 
spouse.
    (3) Investments by Subsidiaries. For purposes of determining the 
amount of Investments owned by a company under section 2(a)(51)(A)(iv) 
of the Act [15 U.S.C. 80a-2(a)(51)(A)(iv)], there may be included 
Investments owned by majority-owned subsidiaries of the company and 
Investments owned by a company (``Parent Company'') of which the company 
is a majority-owned subsidiary, or by a majority-owned subsidiary of the 
company and other majority-owned subsidiaries of the Parent Company.
    (4) Certain Retirement Plans and Trusts. In determining whether a 
natural person is a qualified purchaser, there may be included in the 
amount of such person's Investments any Investments held in an 
individual retirement account or similar account the Investments of 
which are directed by and held for the benefit of such person.
    (h) Reasonable Belief. The term ``qualified purchaser'' as used in 
section 3(c)(7) of the Act [15 U.S.C. 80a-3(c)(7)] means any person that 
meets the definition of qualified purchaser in section 2(a)(51)(A) of 
the Act [15 U.S.C. 80a-2(a)(51)(A)]) and the rules thereunder, or that a 
Relying Person reasonably believes meets such definition.

[62 FR 17526, Apr. 9, 1997]

[[Page 1154]]



Sec.270.2a51-2  Definitions of beneficial owner for certain purposes
under sections 2(a)(51) and 3(c)(7) and determining indirect ownership
interests.

    (a) Beneficial ownership: General. Except as set forth in this 
section, for purposes of sections 2(a)(51)(C) and 3(c)(7)(B)(ii) of the 
Act [15 U.S.C. 80a-2(a)(51)(C) and -3(c)(7)(B)(ii)], the beneficial 
owners of securities of an excepted investment company (as defined in 
section 2(a)(51)(C) of the Act [15 U.S.C. 80a-2(a)(51)(C)]) shall be 
determined in accordance with section 3(c)(1) of the Act [15 U.S.C. 80a-
3(c)(1)].
    (b) Beneficial ownership: Grandfather provision. For purposes of 
section 3(c)(7)(B)(ii) of the Act [15 U.S.C. 80a-3(c)(7)(B)(ii)], 
securities of an issuer beneficially owned by a company (without giving 
effect to section 3(c)(1)(A) of the Act [15 U.S.C. 80a-3(c)(1)(A)]) 
(``owning company'') shall be deemed to be beneficially owned by one 
person unless:
    (1) The owning company is an investment company or an excepted 
investment company;
    (2) The owning company, directly or indirectly, controls, is 
controlled by, or is under common control with, the issuer; and
    (3) On October 11, 1996, under section 3(c)(1)(A) of the Act as then 
in effect, the voting securities of the issuer were deemed to be 
beneficially owned by the holders of the owning company's outstanding 
securities (other than short-term paper), in which case, such holders 
shall be deemed to be beneficial owners of the issuer's outstanding 
voting securities.
    (c) Beneficial ownership: Consent provision. For purposes of section 
2(a)(51)(C) of the Act [15 U.S.C. 80a-2(a)(51)(C)], securities of an 
excepted investment company beneficially owned by a company (without 
giving effect to section 3(c)(1)(A) of the Act [15 U.S.C. 80a-
3(c)(1)(A)]) (``owning company'') shall be deemed to be beneficially 
owned by one person unless:
    (1) The owning company is an excepted investment company;
    (2) The owning company directly or indirectly controls, is 
controlled by, or is under common control with, the excepted investment 
company or the company with respect to which the excepted investment 
company is, or will be, a qualified purchaser; and
    (3) On April 30, 1996, under section 3(c)(1)(A) of the Act as then 
in effect, the voting securities of the excepted investment company were 
deemed to be beneficially owned by the holders of the owning company's 
outstanding securities (other than short-term paper), in which case the 
holders of such excepted company's securities shall be deemed to be 
beneficial owners of the excepted investment company's outstanding 
voting securities.
    (d) Indirect ownership: Consent provision. For purposes of section 
2(a)(51)(C) of the Act [15 U.S.C. 80a-2(a)(51)(C)], an excepted 
investment company shall not be deemed to indirectly own the securities 
of an excepted investment company seeking a consent to be treated as a 
qualified purchaser (``qualified purchaser company'') unless such 
excepted investment company, directly or indirectly, controls, is 
controlled by, or is under common control with, the qualified purchaser 
company or a company with respect to which the qualified purchaser 
company is or will be a qualified purchaser.
    (e) Required consent: Consent provision. For purposes of section 
2(a)(51)(C) of the Act [15 U.S.C. 80a-2(a)(51)(C)], the consent of the 
beneficial owners of an excepted investment company (``owning company'') 
that beneficially owns securities of an excepted investment company that 
is seeking the consents required by section 2(a)(51)(C) (``consent 
company'') shall not be required unless the owning company directly or 
indirectly controls, is controlled by, or is under common control with, 
the consent company or the company with respect to which the consent 
company is, or will be, a qualified purchaser.

    Notes to Sec.270.2a51-2: 1. On both April 30, 1996 and October 11, 
1996, section 3(c)(1)(A) of the Act as then in effect provided that: (A) 
Beneficial ownership by a company shall be deemed to be beneficial 
ownership by one person, except that, if the company owns 10 per centum 
or more of the outstanding voting securities of the issuer, the 
beneficial ownership shall be deemed to be that of the holders of such 
company's outstanding securities (other than short-term paper) unless, 
as of the date of the most recent acquisition by such company of 
securities of that issuer,

[[Page 1155]]

the value of all securities owned by such company of all issuers which 
are or would, but for the exception set forth in this subparagraph, be 
excluded from the definition of investment company solely by this 
paragraph, does not exceed 10 per centum of the value of the company's 
total assets. Such issuer nonetheless is deemed to be an investment 
company for purposes of section 12(d)(1).
    2. Issuers seeking the consent required by section 2(a)(51)(C) of 
the Act should note that section 2(a)(51)(C) requires an issuer to 
obtain the consent of the beneficial owners of its securities and the 
beneficial owners of securities of any ``excepted investment company'' 
that directly or indirectly owns the securities of the issuer. Except as 
set forth in paragraphs (d) (with respect to indirect owners) and (e) 
(with respect to direct owners) of this section, nothing in this section 
is designed to limit this consent requirement.

[62 FR 17528, Apr. 9, 1997]



Sec.270.2a51-3  Certain companies as qualified purchasers.

    (a) For purposes of section 2(a)(51)(A) (ii) and (iv) of the Act [15 
U.S.C. 80a-2(a)(51)(A) (ii) and (iv)], a company shall not be deemed to 
be a qualified purchaser if it was formed for the specific purpose of 
acquiring the securities offered by a company excluded from the 
definition of investment company by section 3(c)(7) of the Act [15 
U.S.C. 80a-3(c)(7)] unless each beneficial owner of the company's 
securities is a qualified purchaser.
    (b) For purposes of section 2(a)(51) of the Act [15 U.S.C. 80a-
2(a)(51)], a company may be deemed to be a qualified purchaser if each 
beneficial owner of the company's securities is a qualified purchaser.

[62 FR 17528, Apr. 9, 1997]



Sec.270.3a-1  Certain prima facie investment companies.

    Notwithstanding section 3(a)(1)(C) of the Act (15 U.S.C. 80a-
3(a)(1)(c)), an issuer will be deemed not to be an investment company 
under the Act; Provided, That:
    (a) No more than 45 percent of the value (as defined in section 
2(a)(41) of the Act) of such issuer's total assets (exclusive of 
Government securities and cash items) consists of, and no more than 45 
percent of such issuer's net income after taxes (for the last four 
fiscal quarters combined) is derived from, securites other than:
    (1) Government securities;
    (2) Securities issued by employees' securities companies;
    (3) Securities issued by majority-owned subsidiaries of the issuer 
(other than subsidiaries relying on the exclusion from the definition of 
investment company in section 3(b)(3) or (c)(1) of the Act) which are 
not investment companies; and
    (4) Securities issued by companies:
    (i) Which are controlled primarily by such issuer;
    (ii) Through which such issuer engages in a business other than that 
of investing, reinvesting, owning, holding or trading in securities; and
    (iii) Which are not investment companies;
    (b) The issuer is not an investment company as defined in section 
3(a)(1)(A) or 3(a)(1)(B) of the Act (15 U.S.C. 80a-3(a)(1)(A) or 80a-
3(a)(1)(B)) and is not a special situation investment company; and
    (c) The percentages described in paragraph (a) of this section are 
determined on an unconsolidated basis, except that the issuer shall 
consolidate its financial statements with the financial statements of 
any wholly-owned subsidiaries.

[46 FR 6881, Jan. 22, 1981, as amended at 67 FR 43536, June 28, 2002]



Sec.270.3a-2  Transient investment companies.

    (a) For purposes of sections 3(a)(1)(A) and 3(a)(1)(C) of the Act 
(15 U.S.C. 80a-3(a)(1)(A) and 80a-3(a)(1)(C)), an issuer is deemed not 
to be engaged in the business of investing, reinvesting, owning, holding 
or trading in securities during a period of time not to exceed one year; 
Provided, That the issuer has a bona fide intent to be engaged 
primarily, as soon as is reasonably possible (in any event by the 
termination of such period of time), in a business other than that of 
investing, reinvesting, owning, holding or trading in securities, such 
intent to be evidenced by:
    (1) The issuer's business activities; and

[[Page 1156]]

    (2) An appropriate resolution of the issuer's board of directors, or 
by an appropriate action of the person or persons performing similar 
functions for any issuer not having a board of directors, which 
resolution or action has been recorded contemporaneously in its minute 
books or comparable documents.
    (b) For purposes of this rule, the period of time described in 
paragraph (a) shall commence on the earlier of:
    (1) The date on which an issuer owns securities and/or cash having a 
value exceeding 50 percent of the value of such issuer's total assets on 
either a consolidated or unconsolidated basis; or
    (2) The date on which an issuer owns or proposes to acquire 
investment securities (as defined in section 3(a) of the Act) having a 
value exceeding 40 per centum of the value of such issuer's total assets 
(exclusive of Government securities and cash items) on an unconsolidated 
basis.
    (c) No issuer may rely on this section more frequently than once 
during any three-year period.

[46 FR 6883, Jan. 22, 1981, as amended at 67 FR 43536, June 28, 2002]



Sec.270.3a-3  Certain investment companies owned by companies which 
are not investment companies.

    Notwithstanding section 3(a)(1)(A) or section 3(a)(1)(C) of the Act 
(15 U.S.C. 80a-3(a)(1)(A) or 80a-3(a)(1)(C)), an issuer will be deemed 
not to be an investment company for purposes of the Act; Provided, That 
all of the outstanding securities of the issuer (other than short-term 
paper, directors' qualifying shares, and debt securities owned by the 
Small Business Administration) are directly or indirectly owned by a 
company which satisfies the conditions of Sec.270.3a-1(a) and which 
is:
    (a) A company that is not an investment company as defined in 
section 3(a) of the Act;
    (b) A company that is an investment company as defined in section 
3(a)(1)(C) of the Act (15 U.S.C. 80a-3(a)(1)(C)), but which is excluded 
from the definition of the term ``investment company'' by section 
3(b)(1) or 3(b)(2) of the Act (15 U.S.C. 80a-3(b)(1) or 80a-3(b)(2)); or
    (c) A company that is deemed not to be an investment company for 
purposes of the Act by rule 3a-1.

[46 FR 6884, Jan. 22, 1981, as amended at 67 FR 43536, June 28, 2002]



Sec.270.3a-4  Status of investment advisory programs.

    Note: This section is a nonexclusive safe harbor from the definition 
of investment company for programs that provide discretionary investment 
advisory services to clients. There is no registration requirement under 
section 5 of the Securities Act of 1933 [15 U.S.C. 77e] with respect to 
programs that are organized and operated in the manner described in 
Sec.270.3a-4. The section is not intended, however, to create any 
presumption about a program that is not organized and operated in the 
manner contemplated by the section.

    (a) Any program under which discretionary investment advisory 
services are provided to clients that has the following characteristics 
will not be deemed to be an investment company within the meaning of the 
Act [15 U.S.C. 80a, et seq.]:
    (1) Each client's account in the program is managed on the basis of 
the client's financial situation and investment objectives and in 
accordance with any reasonable restrictions imposed by the client on the 
management of the account.
    (2)(i) At the opening of the account, the sponsor or another person 
designated by the sponsor obtains information from the client regarding 
the client's financial situation and investment objectives, and gives 
the client the opportunity to impose reasonable restrictions on the 
management of the account;
    (ii) At least annually, the sponsor or another person designated by 
the sponsor contacts the client to determine whether there have been any 
changes in the client's financial situation or investment objectives, 
and whether the client wishes to impose any reasonable restrictions on 
the management of the account or reasonably modify existing 
restrictions;
    (iii) At least quarterly, the sponsor or another person designated 
by the sponsor notifies the client in writing to contact the sponsor or 
such other person if there have been any changes in

[[Page 1157]]

the client's financial situation or investment objectives, or if the 
client wishes to impose any reasonable restrictions on the management of 
the client's account or reasonably modify existing restrictions, and 
provides the client with a means through which such contact may be made; 
and
    (iv) The sponsor and personnel of the manager of the client's 
account who are knowledgeable about the account and its management are 
reasonably available to the client for consultation.
    (3) Each client has the ability to impose reasonable restrictions on 
the management of the client's account, including the designation of 
particular securities or types of securities that should not be 
purchased for the account, or that should be sold if held in the 
account; Provided, however, that nothing in this section requires that a 
client have the ability to require that particular securities or types 
of securities be purchased for the account.
    (4) The sponsor or person designated by the sponsor provides each 
client with a statement, at least quarterly, containing a description of 
all activity in the client's account during the preceding period, 
including all transactions made on behalf of the account, all 
contributions and withdrawals made by the client, all fees and expenses 
charged to the account, and the value of the account at the beginning 
and end of the period.
    (5) Each client retains, with respect to all securities and funds in 
the account, to the same extent as if the client held the securities and 
funds outside the program, the right to:
    (i) Withdraw securities or cash;
    (ii) Vote securities, or delegate the authority to vote securities 
to another person;
    (iii) Be provided in a timely manner with a written confirmation or 
other notification of each securities transaction, and all other 
documents required by law to be provided to security holders; and
    (iv) Proceed directly as a security holder against the issuer of any 
security in the client's account and not be obligated to join any person 
involved in the operation of the program, or any other client of the 
program, as a condition precedent to initiating such proceeding.
    (b) As used in this section, the term sponsor refers to any person 
who receives compensation for sponsoring, organizing or administering 
the program, or for selecting, or providing advice to clients regarding 
the selection of, persons responsible for managing the client's account 
in the program. If a program has more than one sponsor, one person shall 
be designated the principal sponsor, and such person shall be considered 
the sponsor of the program under this section.

[62 FR 15109, Mar. 31, 1997]



Sec.270.3a-5  Exemption for subsidiaries organized to finance the 
operations of domestic or foreign companies.

    (a) A finance subsidiary will not be considered an investment 
company under section 3(a) of the Act (15 U.S.C. 80a-3(a)) and 
securities of a finance subsidiary held by the parent company or a 
company controlled by the parent company will not be considered 
``investment securities'' under section 3(a)(1)(C) of the Act (15 U.S.C. 
80a-3(a)(1)(C)); Provided, That:
    (1) Any debt securities of the finance subsidiary issued to or held 
by the public are unconditionally guaranteed by the parent company as to 
the payment of principal, interest, and premium, if any (except that the 
guarantee may be subordinated in right of payment to other debt of the 
parent company);
    (2) Any non-voting preferred stock of the finance subsidiary issued 
to or held by the public is unconditionally guaranteed by the parent 
company as to payment of dividends, payment of the liquidation 
preference in the event of liquidation, and payments to be made under a 
sinking fund, if a sinking fund is to be provided (except that the 
guarantee may be subordinated in right of payment to other debt of the 
parent company);
    (3) The parent company's guarantee provides that in the event of a 
default in payment of principal, interest, premium, dividends, 
liquidation preference or payments made under a sinking fund on any debt 
securities or non-voting preferred stock issued by the finance 
subsidiary, the holders of those

[[Page 1158]]

securities may institute legal proceedings directly against the parent 
company (or, in the case of a partnership or joint venture, against the 
partners or participants in the joint venture) to enforce the guarantee 
without first proceeding against the finance subsidiary;
    (4) Any securities issued by the finance subsidiary which are 
convertible or exchangeable are convertible or exchangeable only for 
securities issued by the parent company (and, in the case of a 
partnership or joint venture, for securities issued by the partners or 
participants in the joint venture) or for debt securities or non-voting 
preferred stock issued by the finance subsidiary meeting the applicable 
requirements of paragraphs (a)(1) through (a)(3);
    (5) The finance subsidiary invests in or loans to its parent company 
or a company controlled by its parent company at least 85% of any cash 
or cash equivalents raised by the finance subsidiary through an offering 
of its debt securities or non-voting preferred stock or through other 
borrowings as soon as practicable, but in no event later than six months 
after the finance subsidiary's receipt of such cash or cash equivalents;
    (6) The finance subsidiary does not invest in, reinvest in, own, 
hold or trade in securities other than Government securities, securities 
of its parent company or a company controlled by its parent company (or 
in the case of a partnership or joint venture, the securities of the 
partners or participants in the joint venture) or debt securities 
(including repurchase agreements) which are exempted from the provisions 
of the Securities Act of 1933 by section 3(a)(3) of that Act; and
    (7) Where the parent company is a foreign bank as the term is used 
in rule 3a-6 (17 CFR 270.3a-6 of this chapter), the parent company may, 
in lieu of the guaranty required by paragraph (a)(1) or (a)(2) of this 
section, issue, in favor of the holders of the finance subsidiary's debt 
securities or non-voting preferred stock, as the case may be, an 
irrevocable letter of credit in an amount sufficient to fund all of the 
amounts required to be guaranteed by paragraphs (a)(1) and (a)(2) of 
this section, provided, that:
    (i) Payment on such letter of credit shall be conditional only upon 
the presentation of customary documentation, and
    (ii) The beneficiary of such letter of credit is not required by 
either the letter of credit or applicable law to institute proceedings 
against the finance subsidiary before enforcing its remedies under the 
letter of credit.
    (b) For purposes of this rule,
    (1) A finance subsidiary shall mean any corporation--
    (i) All of whose securities other than debt securities or non-voting 
preferred stock meeting the applicable requirements of paragraphs (a)(1) 
through (3) or directors' qualifying shares are owned by its parent 
company or a company controlled by its parent company; and
    (ii) The primary purpose of which is to finance the business 
operations of its parent company or companies controlled by its parent 
company;
    (2) A parent company shall mean any corporation, partnership or 
joint venture:
    (i) That is not considered an investment company under section 3(a) 
or that is excepted or exempted by order from the definition of 
investment company by section 3(b) or by the rules or regulations under 
section 3(a);
    (ii) That is organized or formed under the laws of the United States 
or of a state or that is a foreign private issuer, or that is a foreign 
bank or foreign insurance company as those terms are used in rule 3a-6 
(17 CFR 270.3a-6 of this chapter); and
    (iii) In the case of a partnership or joint venture, each partner or 
participant in the joint venture meets the requirements of paragraphs 
(b)(2)(i) and (ii).
    (3) A company controlled by the parent company shall mean any 
corporation, partnership or joint venture:
    (i) That is not considered an investment company under section 3(a) 
or that is excepted or exempted by order from the definition of 
investment company by section 3(b) or by the rules or regulations under 
section 3(a);
    (ii) That is either organized or formed under the laws of the United 
States or of a state or that is a foreign private issuer, or that is a 
foreign bank

[[Page 1159]]

or foreign insurance company as those terms are used in rule 3a-6; and
    (iii) In the case of a corporation, more than 25 percent of whose 
outstanding voting securities are beneficially owned directly or 
indirectly by the parent company; or
    (iv) In the case of a partnership or joint venture, each partner or 
participant in the joint venture meets the requirements of paragraphs 
(b)(3) (i) and (ii), and the parent company has the power to exercise a 
controlling influence over the management or policies of the partnership 
or joint venture.
    (4) A foreign private issuer shall mean any issuer which is 
incorporated or organized under the laws of a foreign country, but not a 
foreign government or political subdivision of a foreign government.

[49 FR 49446, Dec. 20, 1984, as amended at 56 FR 56299, Nov. 4, 1991; 67 
FR 43536, June 28, 2002]



Sec.270.3a-6  Foreign banks and foreign insurance companies.

    (a) Notwithstanding section 3(a)(1)(A) or section 3(a)(1)(C) of the 
Act (15 U.S.C. 80a-3(a)(1)(A) or 80a-3(a)(1)(C)), a foreign bank or 
foreign insurance company shall not be considered an investment company 
for purposes of the Act.
    (b) For purposes of this section:
    (1)(i) Foreign bank means a banking institution incorporated or 
organized under the laws of a country other than the United States, or a 
political subdivision of a country other than the United States, that 
is:
    (A) Regulated as such by that country's or subdivision's government 
or any agency thereof;
    (B) Engaged substantially in commercial banking activity; and
    (C) Not operated for the purpose of evading the provisions of the 
Act;
    (ii) The term foreign bank shall also include:
    (A) A trust company or loan company that is:
    (1) Organized or incorporated under the laws of Canada or a 
political subdivision thereof;
    (2) Regulated as a trust company or a loan company by that country's 
or subdivision's government or any agency thereof; and
    (3) Not operated for the purpose of evading the provisions of the 
Act; and
    (B) A building society that is:
    (1) Organized under the laws of the United Kingdom or a political 
subdivision thereof;
    (2) Regulated as a building society by the country's or 
subdivision's government or any agency thereof; and
    (3) Not operated for the purpose of evading the provisions of the 
Act.
    (iii) Nothing in this section shall be construed to include within 
the definition of foreign bank a common or collective trust or other 
separate pool of assets organized in the form of a trust or otherwise in 
which interests are separately offered.
    (2) Engaged substantially in commercial banking activity means 
engaged regularly in, and deriving a substantial portion of its business 
from, extending commercial and other types of credit, and accepting 
demand and other types of deposits, that are customary for commercial 
banks in the country in which the head office of the banking institution 
is located.
    (3) Foreign insurance company means an insurance company 
incorporated or organized under the laws of a country other than the 
United States, or a political subdivision of a country other than the 
United States, that is:
    (i) Regulated as such by that country's or subdivision's government 
or any agency thereof;
    (ii) Engaged primarily and predominantly in:
    (A) The writing of insurance agreements of the type specified in 
section 3(a)(8) of the Securities Act of 1933 (15 U.S.C. 77c(a)(8)), 
except for the substitution of supervision by foreign government 
insurance regulators for the regulators referred to in that section; or
    (B) The reinsurance of risks on such agreements underwritten by 
insurance companies; and
    (iii) Not operated for the purpose of evading the provisions of the 
Act. Nothing in this section shall be construed to include within the 
definition of ``foreign insurance company'' a separate account or other 
pool of assets organized in the form of a trust or otherwise in which 
interests are separately offered.


[[Page 1160]]


    Note: Foreign banks and foreign insurance companies (and certain of 
their finance subsidiaries and holding companies) relying on rule 3a-6 
for exemption from the Act may be required by rule 489 (17 CFR 230.489) 
under the Securities Act of 1933 (15 U.S.C. 77a et seq.) to file Form F-
N with the Commission in connection with the filing of a registration 
statement under the Securities Act of 1933.

[56 FR 56299, Nov. 4, 1991, as amended at 67 FR 43536, June 28, 2002]



Sec.270.3a-7  Issuers of asset-backed securities.

    (a) Notwithstanding section 3(a) of the Act, any issuer who is 
engaged in the business of purchasing, or otherwise acquiring, and 
holding eligible assets (and in activities related or incidental 
thereto), and who does not issue redeemable securities will not be 
deemed to be an investment company; Provided That:
    (1) The issuer issues fixed-income securities or other securities 
which entitle their holders to receive payments that depend primarily on 
the cash flow from eligible assets;
    (2) Securities sold by the issuer or any underwriter thereof are 
fixed-income securities rated, at the time of initial sale, in one of 
the four highest categories assigned long-term debt or in an equivalent 
short-term category (within either of which there may be sub-categories 
or gradations indicating relative standing) by at least one nationally 
recognized statistical rating organization that is not an affiliated 
person of the issuer or of any person involved in the organization or 
operation of the issuer, except that:
    (i) Any fixed-income securities may be sold to accredited investors 
as defined in paragraphs (1), (2), (3), and (7) of rule 501(a) under the 
Securities Act of 1933 (17 CFR 230.501(a)) and any entity in which all 
of the equity owners come within such paragraphs; and
    (ii) Any securities may be sold to qualified institutional buyers as 
defined in rule 144A under the Securities Act (17 CFR 230.144A) and to 
persons (other than any rating organization rating the issuer's 
securities) involved in the organization or operation of the issuer or 
an affiliate, as defined in rule 405 under the Securities Act (17 CFR 
230.405), of such a person;

Provided, That the issuer or any underwriter thereof effecting such sale 
exercises reasonable care to ensure that such securities are sold and 
will be resold to persons specified in paragraphs (a)(2) (i) and (ii) of 
this section;
    (3) The issuer acquires additional eligible assets, or disposes of 
eligible assets, only if:
    (i) The assets are acquired or disposed of in accordance with the 
terms and conditions set forth in the agreements, indentures, or other 
instruments pursuant to which the issuer's securities are issued;
    (ii) The acquisition or disposition of the assets does not result in 
a downgrading in the rating of the issuer's outstanding fixed-income 
securities; and
    (iii) The assets are not acquired or disposed of for the primary 
purpose of recognizing gains or decreasing losses resulting from market 
value changes; and
    (4) If the issuer issues any securities other than securities 
exempted from the Securities Act by section 3(a)(3) thereof (15 U.S.C. 
77c(a)(3)), the issuer:
    (i) Appoints a trustee that meets the requirements of section 
26(a)(1) of the Act and that is not affiliated, as that term is defined 
in rule 405 under the Securities Act (17 CFR 230.405), with the issuer 
or with any person involved in the organization or operation of the 
issuer, which does not offer or provide credit or credit enhancement to 
the issuer, and that executes an agreement or instrument concerning the 
issuer's securities containing provisions to the effect set forth in 
section 26(a)(3) of the Act;
    (ii) Takes reasonable steps to cause the trustee to have a perfected 
security interest or ownership interest valid against third parties in 
those eligible assets that principally generate the cash flow needed to 
pay the fixed-income security holders, provided that such assets 
otherwise required to be held by the trustee may be released to the 
extent needed at the time for the operation of the issuer; and
    (iii) Takes actions necessary for the cash flows derived from 
eligible assets for the benefit of the holders of fixed-income 
securities to be deposited periodically in a segregated account that is

[[Page 1161]]

maintained or controlled by the trustee consistent with the rating of 
the outstanding fixed-income securities.
    (b) For purposes of this section:
    (1) Eligible assets means financial assets, either fixed or 
revolving, that by their terms convert into cash within a finite time 
period plus any rights or other assets designed to assure the servicing 
or timely distribution of proceeds to security holders.
    (2) Fixed-income securities means any securities that entitle the 
holder to receive:
    (i) A stated principal amount; or
    (ii) Interest on a principal amount (which may be a notional 
principal amount) calculated by reference to a fixed rate or to a 
standard or formula which does not reference any change in the market 
value or fair value of eligible assets; or
    (iii) Interest on a principal amount (which may be a notional 
principal amount) calculated by reference to auctions among holders and 
prospective holders, or through remarketing of the security; or
    (iv) An amount equal to specified fixed or variable portions of the 
interest received on the assets held by the issuer; or
    (v) Any combination of amounts described in paragraphs (b)(2) (i), 
(ii), (iii), and (iv) of this section;

Provided, That substantially all of the payments to which the holders of 
such securities are entitled consist of the foregoing amounts.

[57 FR 56256, Nov. 27, 1992]



Sec.270.3a-8  Certain research and development companies.

    (a) Notwithstanding sections 3(a)(1)(A) and 3(a)(1)(C) of the Act 
(15 U.S.C. 80a-3(a)(1)(A) and 80a-3(a)(1)(C)), an issuer will be deemed 
not to be an investment company if:
    (1) Its research and development expenses, for the last four fiscal 
quarters combined, are a substantial percentage of its total expense for 
the same period;
    (2) Its net income derived from investments in securities, for the 
last four fiscal quarters combined, does not exceed twice the amount of 
its research and development expenses for the same period;
    (3) Its expenses for investment advisory and management activities, 
investment research and custody, for the last four fiscal quarters, 
combined, do not exceed five percent of its total expenses for the same 
period;
    (4) Its investments in securities are capital preservation 
investments, except that:
    (i) No more than 10 percent of the issuer's total assets may consist 
of other investments, or
    (ii) No more than 25 percent of the issuer's total assets may 
consist of other investments, provided that at least 75 percent of such 
other investments are investments made pursuant to a collaborative 
research and development arrangement;
    (5) It does not hold itself out as being engaged in the business of 
investing, reinvesting or trading in securities, and it is not a special 
situation investment company;
    (6) It is primarily engaged, directly, through majority-owned 
subsidiaries, or through companies which it controls primarily, in a 
business or businesses other than that of investing, reinvesting, 
owning, holding, or trading in securities, as evidenced by:
    (i) The activities of its officers, directors and employees;
    (ii) Its public representations of policies;
    (iii) Its historical development; and
    (iv) An appropriate resolution of its board of directors, which 
resolution or action has been recorded contemporaneously in its minute 
books or comparable documents; and
    (7) Its board of directors has adopted a written investment policy 
with respect to the issuer's capital preservation investments.
    (b) For purposes of this section:
    (1) All assets shall be valued in accordance with section 
2(a)(41)(A) of the Act (15 U.S.C. 80a-2(a)(41)(A));
    (2) The percentages described in this section are determined on an 
unconsolidated basis, except that the issuer shall consolidate its 
financial statements with the financial statements of any wholly-owned 
subsidiaries;
    (3) Board of directors means the issuer's board of directors or an 
appropriate person or persons performing

[[Page 1162]]

similar functions for any issuer not having a board of directors;
    (4) Capital preservation investment means an investment that is made 
to conserve capital and liquidity until the funds are used in the 
issuer's primary business or businesses;
    (5) Controlled primarily means controlled within the meaning of 
section 2(a)(9) of the Act (15 U.S.C. 80a-2(a)(9)) with a degree of 
control that is greater than that of any other person;
    (6) Investment made pursuant to a collaborative research and 
development arrangement means an investment in an investee made pursuant 
to a business relationship which:
    (i) Is designed to achieve narrowly focused goals that are directly 
related to, and an integral part of, the issue's research and 
development activities;
    (ii) Calls for the issuer to conduct joint research and development 
activities with the investee or a company controlled primarily by, or 
which controls primarily, the investee; and
    (iii) Is not entered into for the purpose of avoiding regulation 
under the Act;
    (7) Investments in securities means all securities other than 
securities issued by majority-owned subsidiaries and companies 
controlled primarily by the issuer that conduct similar types of 
businesses, through which the issuer is engaged primarily in a business 
other than that of investing, reinvesting, owning, holding, or trading 
in securities;
    (8) Other investment means an investment in securities that is not a 
capital preservation investment; and
    (9) Research and development expenses means research and development 
costs as defined in FASB ASC Topic 730, Research and Development, as 
currently in effect or as it may be subsequently revised.

[68 FR 37052, June 20, 2003, as amended at 76 FR 50123, Aug. 12, 2011]



Sec.270.3c-1  Definition of beneficial ownership for certain 3(c)(1) 
funds.

    (a) As used in this section:
    (1) The term Covered Company means a company that is an investment 
company, a Section 3(c)(1) Company or a Section 3(c)(7) Company.
    (2) The term Section 3(c)(1) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(1) 
of the Act [15 U.S.C. 80a-3(c)(1)].
    (3) The term Section 3(c)(7) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(7) 
of the Act [15 U.S.C. 80a-3(c)(7)].
    (b) For purposes of section 3(c)(1)(A) of the Act [15 U.S.C. 80a-
3(c)(1)(A)], beneficial ownership by a Covered Company owning 10 percent 
or more of the outstanding voting securities of a Section 3(c)(1) 
Company shall be deemed to be beneficial ownership by one person, 
provided that:
    (1) On April 1, 1997, the Covered Company owned 10 percent or more 
of the outstanding voting securities of the Section 3(c)(1) Company or 
non-voting securities that, on such date and in accordance with the 
terms of such securities, were convertible into or exchangeable for 
voting securities that, if converted or exchanged on or after such date, 
would have constituted 10 percent or more of the outstanding voting 
securities of the Section 3(c)(1) Company; and
    (2) On the date of any acquisition of securities of the Section 
3(c)(1) Company by the Covered Company, the value of all securities 
owned by the Covered Company of all issuers that are Section 3(c)(1) or 
Section 3(c)(7) Companies does not exceed 10 percent of the Covered 
Company's total assets.

[62 FR 17529, Apr. 9, 1997]



Sec.270.3c-2  Definition of beneficial ownership in small business 
investment companies.

    For the purpose of section 3(c)(1) of the Act, beneficial ownership 
by a company owning 10 per centum or more of the outstanding voting 
securities of any issuer which is a small business investment company 
licensed to operate under the Small Business Investment Act of 1958, or 
which has received from the Small Business Administration notice to 
proceed to qualify for a license, which notice or license has not been 
revoked, shall be deemed to be beneficial ownership by one person (a) if 
and so long as the value of all securities of small business investments 
companies

[[Page 1163]]

owned by such company does not exceed 5 per centum of the value of its 
total assets; or (b) if and so long as such stock of the small business 
investment company shall be owned by a state development corporation 
which has been created by or pursuant to an act of the State legislature 
to promote and assist the growth and development of the economy within 
such State on a state-wide basis: Provided, That such State development 
corporation is not, or as a result of its investment in the small 
business investment company (considering such investment as an 
investment security) would not be, an investment company as defined in 
section 3 of the Act.

(Sec.6, 74 Stat. 412; 15 U.S.C. 80a-6)

[33 FR 11451, Aug. 13, 1968]



Sec.270.3c-3  Definition of certain terms used in section 3(c)(1)
of the Act with respect to certain debt securities offered by small
business investment  companies.
         

    The term public offering as used in section 3(c)(1) of the Act shall 
not be deemed to include the offer and sale by a small business 
investment company, licensed under the Small Business Investment Act of 
1958, of any debt security issued by it which is (a) not convertible 
into, exchangeable for, or accompanied by any equity security, and (b) 
guaranteed as to timely payment of principal and interest by the Small 
Business Administration and backed by the full faith and credit of the 
United States. The holders of any securities offered and sold as 
described in this section shall be counted, in the aggregate, as one 
person for purposes of section 3(c)(1) of the Act.

[37 FR 7590, Apr. 18, 1972]



Sec.270.3c-4  Definition of ``common trust fund'' as used in section 
3(c)(3) of the Act.

    The term common trust fund as used in section 3(c)(3) of the Act (15 
U.S.C. 80a-3(c)(3)) shall include a common trust fund which is 
maintained by a bank which is a member of an affiliated group, as 
defined in section 1504(a) of the Internal Revenue Code of 1954 (26 
U.S.C. 1504(a)), and which is maintained exclusively for the collective 
investment and reinvestment of monies contributed thereto by one or more 
bank members of such affiliated group in the capacity of trustee, 
executor, administrator, or guardian; Provided, That:
    (a) The common trust fund is operated in compliance with the same 
State and Federal regulatory requirements as would apply if the bank 
maintaining such fund and any other contributing banks were the same 
entity; and
    (b) The rights of persons for whose benefit a contributing bank acts 
as trustee, executor, administrator, or guardian would not be diminished 
by reason of the maintenance of such common trust fund by another bank 
member of the affiliated group.

(15 U.S.C. 80a-6(c), 80a-37(a))

[43 FR 2393, Jan. 17, 1978]



Sec.270.3c-5  Beneficial ownership by knowledgeable employees 
and certain other persons.

    (a) As used in this section:
    (1) The term Affiliated Management Person means an affiliated 
person, as such term is defined in section 2(a)(3) of the Act [15 U.S.C. 
80a-2(a)(3)], that manages the investment activities of a Covered 
Company. For purposes of this definition, the term ``investment 
company'' as used in section 2(a)(3) of the Act includes a Covered 
Company.
    (2) The term Covered Company means a Section 3(c)(1) Company or a 
Section 3(c)(7) Company.
    (3) The term Executive Officer means the president, any vice 
president in charge of a principal business unit, division or function 
(such as sales, administration or finance), any other officer who 
performs a policy-making function, or any other person who performs 
similar policy-making functions, for a Covered Company or for an 
Affiliated Management Person of the Covered Company.
    (4) The term Knowledgeable Employee with respect to any Covered 
Company means any natural person who is:
    (i) An Executive Officer, director, trustee, general partner, 
advisory board member, or person serving in a similar capacity, of the 
Covered Company or an Affiliated Management Person of the Covered 
Company; or

[[Page 1164]]

    (ii) An employee of the Covered Company or an Affiliated Management 
Person of the Covered Company (other than an employee performing solely 
clerical, secretarial or administrative functions with regard to such 
company or its investments) who, in connection with his or her regular 
functions or duties, participates in the investment activities of such 
Covered Company, other Covered Companies, or investment companies the 
investment activities of which are managed by such Affiliated Management 
Person of the Covered Company, provided that such employee has been 
performing such functions and duties for or on behalf of the Covered 
Company or the Affiliated Management Person of the Covered Company, or 
substantially similar functions or duties for or on behalf of another 
company for at least 12 months.
    (5) The term Section 3(c)(1) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(1) 
of the Act [15 U.S.C. 80a-3(c)(1)].
    (6) The term Section 3(c)(7) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(7) 
of the Act [15 U.S.C. 80a-3(c)(7)].
    (b) For purposes of determining the number of beneficial owners of a 
Section 3(c)(1) Company, and whether the outstanding securities of a 
Section 3(c)(7) Company are owned exclusively by qualified purchasers, 
there shall be excluded securities beneficially owned by:
    (1) A person who at the time such securities were acquired was a 
Knowledgeable Employee of such Company;
    (2) A company owned exclusively by Knowledgeable Employees;
    (3) Any person who acquires securities originally acquired by a 
Knowledgeable Employee in accordance with this section, provided that 
such securities were acquired by such person in accordance with Sec.
270.3c-6

[62 FR 17529, Apr. 9, 1997]



Sec.270.3c-6  Certain transfers of interests in section 3(c)(1)
and section 3(c)(7) funds.

    (a) As used in this section:
    (1) The term Donee means a person who acquires a security of a 
Covered Company (or a security or other interest in a company referred 
to in paragraph (b)(3) of this section) as a gift or bequest or pursuant 
to an agreement relating to a legal separation or divorce.
    (2) The term Section 3(c)(1) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(1) 
of the Act [15 U.S.C. 80a-3(c)(1)].
    (3) The term Section 3(c)(7) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(7) 
of the Act [15 U.S.C. 80a-3(c)(7)].
    (4) The term Transferee means a Section 3(c)(1) Transferee or a 
Qualified Purchaser Transferee, in each case as defined in paragraph (b) 
of this section.
    (5) The term Transferor means a Section 3(c)(1) Transferor or a 
Qualified Purchaser Transferor, in each case as defined in paragraph (b) 
of this section.
    (b) Beneficial ownership by any person (``Section 3(c)(1) 
Transferee'') who acquires securities or interests in securities of a 
Section 3(c)(1) Company from a person other than the Section 3(c)(1) 
Company shall be deemed to be beneficial ownership by the person from 
whom such transfer was made (``Section 3(c)(1) Transferor''), and 
securities of a Section 3(c)(7) Company that are owned by persons who 
received the securities from a qualified purchaser other than the 
Section 3(c)(7) Company (``Qualified Purchaser Transferor'') or a person 
deemed to be a qualified purchaser by this section shall be deemed to be 
acquired by a qualified purchaser (``Qualified Purchaser Transferee''), 
provided that the Transferee is:
    (1) The estate of the Transferor;
    (2) A Donee; or
    (3) A company established by the Transferor exclusively for the 
benefit of (or owned exclusively by) the Transferor and the persons 
specified in paragraphs (b)(1) and (b)(2) of this section.

[62 FR 17529, Apr. 9, 1997]



Sec.270.5b-1  Definition of ``total assets.''

    The term total assets, when used in computing values for the 
purposes of sections 5 and 12 of the Act, shall mean

[[Page 1165]]

the gross assets of the company with respect to which the computation is 
made, taken as of the end of the fiscal quarter of the company last 
preceding the date of computation. This section shall not apply to any 
company which has adopted either of the alternative methods of valuation 
permitted by Sec.270.2a-1.

[Rule N-5B-1, 6 FR 5920, Nov. 22, 1941]



Sec.270.5b-2  Exclusion of certain guarantees as securities of 
the guarantor.

    (a) For the purposes of section 5 of the act, a guarantee of a 
security shall not be deemed to be a security issued by the guarantor: 
Provided, That the value of all securities issued or guaranteed by the 
guarantor, and owned by the management company, does not exceed 10 
percent of the value of the total assets of such management company.
    (b) Notwithstanding paragraph (a) of this section, for the purposes 
of section 5 of the Act, a guarantee by a railroad company of a security 
issued by a terminal company, warehouse company, switching company, or 
bridge company, shall not be deemed to be a security issued by such 
railroad company: Provided:
    (1) The security is guaranteed jointly or severally by more than one 
railroad company; and
    (2) No one of such guaranteeing railroad companies directly or 
indirectly controls all of its co-guarantors.
    (c) For the purposes of section 5 of the Act, a lease or other 
arrangement whereby a railroad company is or becomes obligated to pay a 
stipulated annual sum of rental either to another railroad company or to 
the security holders of such other railroad company shall not be deemed 
in itself a guarantee.

[Rule N-5B-2, 10 FR 581, Jan. 16, 1945]



Sec.270.5b-3  Acquisition of repurchase agreement or refunded security 
treated as acquisition of underlying securities.

    (a) Repurchase Agreements. For purposes of sections 5 and 12(d)(3) 
of the Act (15 U.S.C. 80a-5 and 80a-12(d)(3)), the acquisition of a 
repurchase agreement may be deemed to be an acquisition of the 
underlying securities, provided the obligation of the seller to 
repurchase the securities from the investment company is Collateralized 
Fully.
    (b) Refunded Securities. For purposes of section 5 of the Act (15 
U.S.C. 80a-5), the acquisition of a Refunded Security is deemed to be an 
acquisition of the escrowed Government Securities.
    (c) Definitions. As used in this section:
    (1) Collateralized Fully in the case of a repurchase agreement means 
that:
    (i) The value of the securities collateralizing the repurchase 
agreement (reduced by the transaction costs (including loss of interest) 
that the investment company reasonably could expect to incur if the 
seller defaults) is, and during the entire term of the repurchase 
agreement remains, at least equal to the Resale Price provided in the 
agreement;
    (ii) The investment company has perfected its security interest in 
the collateral;
    (iii) The collateral is maintained in an account of the investment 
company with its custodian or a third party that qualifies as a 
custodian under the Act;
    (iv) The collateral consists entirely of:
    (A) Cash items;
    (B) Government Securities; or
    (C) Securities that the investment company's board of directors, or 
its delegate, determines at the time the repurchase agreement is entered 
into:
    (1) Each issuer of which has an exceptionally strong capacity to 
meet its financial obligations; and

    Note to paragraph (c)(1)(iv)(C)(1): For a discussion of the phrase 
``exceptionally strong capacity to meet its financial obligations'' see 
Investment Company Act Release No. 30847, (December 27, 2013).

    (2) Are sufficiently liquid that they can be sold at approximately 
their carrying value in the ordinary course of business within seven 
calendar days; and
    (v) Upon an Event of Insolvency with respect to the seller, the 
repurchase agreement would qualify under a provision of applicable 
insolvency law providing an exclusion from any automatic stay of 
creditors' rights against the seller.
    (2) Event of Insolvency means, with respect to a person:

[[Page 1166]]

    (i) An admission of insolvency, the application by the person for 
the appointment of a trustee, receiver, rehabilitator, or similar 
officer for all or substantially all of its assets, a general assignment 
for the benefit of creditors, the filing by the person of a voluntary 
petition in bankruptcy or application for reorganization or an 
arrangement with creditors; or
    (ii) The institution of similar proceedings by another person which 
proceedings are not contested by the person; or
    (iii) The institution of similar proceedings by a government agency 
responsible for regulating the activities of the person, whether or not 
contested by the person.
    (3) Government Security means any ``Government Security'' as defined 
in section 2(a)(16) of the Act (15 U.S.C. 80a-2(a)(16)).
    (4) Issuer, as used in paragraph (c)(1)(iv)(C)(1) of this section, 
means the issuer of a collateral security or the issuer of an 
unconditional obligation of a person other than the issuer of the 
collateral security to undertake to pay, upon presentment by the holder 
of the obligation (if required), the principal amount of the underlying 
collateral security plus accrued interest when due or upon default.
    (5) Refunded Security means a debt security the principal and 
interest payments of which are to be paid by Government Securities 
(``deposited securities'') that have been irrevocably placed in an 
escrow account pursuant to an agreement between the issuer of the debt 
security and an escrow agent that is not an ``affiliated person,'' as 
defined in section 2(a)(3)(C) of the Act (15 U.S.C. 80a-2(a)(3)(C)), of 
the issuer of the debt security, and, in accordance with such escrow 
agreement, are pledged only to the payment of the debt security and, to 
the extent that excess proceeds are available after all payments of 
principal, interest, and applicable premiums on the Refunded Securities, 
the expenses of the escrow agent and, thereafter, to the issuer or 
another party; provided that:
    (i) The deposited securities are not redeemable prior to their final 
maturity;
    (ii) The escrow agreement prohibits the substitution of the 
deposited securities unless the substituted securities are Government 
Securities; and
    (iii) At the time the deposited securities are placed in the escrow 
account, or at the time a substitution of the deposited securities is 
made, an independent certified public accountant has certified to the 
escrow agent that the deposited securities will satisfy all scheduled 
payments of principal, interest and applicable premiums on the Refunded 
Securities.
    (6) Resale Price means the acquisition price paid to the seller of 
the securities plus the accrued resale premium on such acquisition 
price. The accrued resale premium is the amount specified in the 
repurchase agreement or the daily amortization of the difference between 
the acquisition price and the resale price specified in the repurchase 
agreement.

[66 FR 36161, July 11, 2001, as amended at 74 FR 52373, Oct. 9, 2009; 79 
FR 1329, Jan. 8, 2014]



Sec.270.6a-5  Purchase of certain debt securities by companies relying
on section 6(a)(5) of the Act.

    For purposes of reliance on the exemption for certain companies 
under section 6(a)(5)(A) of the Act (15 U.S.C. 80a-6(a)(5)(A)), a 
company shall be deemed to have met the requirement for credit-
worthiness of certain debt securities under section 6(a)(5)(A)(iv)(I) of 
the Investment Company Act (15 U.S.C. 80a-6(a)(5)(A)(iv)(I)) if, at the 
time of purchase, the board of directors (or its delegate) determines or 
members of the company (or their delegate) determine that the debt 
security is:
    (a) Subject to no greater than moderate credit risk; and
    (b) Sufficiently liquid that it can be sold at or near its carrying 
value within a reasonably short period of time.

[77 FR 70120, Nov. 23, 2012]



Sec.270.6b-1  Exemption of employees' securities company pending 
determination of application.

    Any employees' securities company which files an application for an 
order of exemption under section 6(b) of the Act (54 Stat. 801; 15 
U.S.C. 80a-6) shall be exempt, pending final determination of such 
application by the Commission,

[[Page 1167]]

from all provisions of the Act applicable to investment companies as 
such.

[Rule N-6B-1, 6 FR 6126, Dec. 2, 1941]



Sec.270.6c-3  Exemptions for certain registered variable life 
insurance separate accounts.

    A separate account which meets the requirements of paragraph (a) of 
Rule 6e-2 (17 CFR 270.6e-2) or paragraph (a) of Rule 6e-3(T) (17 CFR 
270.6e-3(T)) and registers as an investment company under section 8(a) 
of the Act (15 U.S.C. 80a-8(a)), and the investment adviser, principal 
underwriter and depositor of such separate account, shall be exempt from 
the provisions of the Act specified in paragraph (b) of Rule 6e-2 or 
paragraph (b) of Rule 6e-3(T), except for sections 7 (15 U.S.C. 80a-7) 
and 8(a) of the Act, under the same terms and conditions as a separate 
account claiming exemption under Rule 6e-2 or Rule 6e-3(T).

(Secs. 6(c); 15 U.S.C. 80a-6(C) and 38(a))

[49 FR 49228, Dec. 3, 1984]



Sec.270.6c-6  Exemption for certain registered separate accounts
and other persons.

    (a) As used in this section,
    (1) Revenue Ruling shall mean Revenue Ruling 81-225, 1981-41 I.R.B. 
(October 13, 1981), issued by the Internal Revenue Service on September 
25, 1981.
    (2) Existing separate account shall mean a separate account which 
is, or is a part of, a unit investment trust registered under the Act, 
engaged in a continuous offering of its securities on September 25, 
1981.
    (3) Existing portfolio company shall mean a registered open-end 
management investment company, engaged in a continuous offering of its 
securities on September 25, 1981, all or part of whose securities were 
owned by an existing separate account on September 25, 1981.
    (4) New portfolio company shall mean any registered open-end 
management investment company the shares of which will be sold to one or 
more registered separate accounts for the purpose of minimizing the 
impact of the Revenue Ruling on the contractowners of an existing 
separate account, which new portfolio company has the same:
    (i) Investment objectives,
    (ii) Fundamental policies, and
    (iii) Voting rights as the existing portfolio company and has an 
advisory fee schedule, including expenses assumed by the adviser, that 
is at least as advantageous to the new portfolio company as was the fee 
schedule of the existing portfolio company.
    (5) New separate account shall mean a separate account which
    (i) Is, or is a part of, a unit investment trust registered under 
the Act;
    (ii) Is intended to minimize the impact of the Revenue Ruling on the 
contractowners of an existing separate account;
    (iii) Invests solely in one or more new portfolio companies;
    (iv) Has the same
    (A) Sales loads,
    (B) Depositor, and
    (C) Custodial arrangements

As the existing separate account; and
    (v) Has
    (A) Asset charges,
    (B) Administrative fees, and
    (C) Any other fees and charges (not including taxes) that correspond 
only to fees of the existing separate account and are no greater than 
those corresponding fees.
    (b) Any order of the Commission under the Act, granted to an 
existing separate account on or before September 25, 1981, shall remain 
in full force and effect notwithstanding that the existing separate 
account invests in one or more new portfolio companies in lieu of, or in 
addition to, investing in one or more existing portfolio companies; 
Provided, That:
    (1) No material changes in the facts upon which the order was based 
have occurred;
    (2) All representations, undertakings, and conditions made or agreed 
to by the existing separate account, and any other person or persons, 
other than any existing portfolio company, in connection with the 
issuance of the order are, and continue to be, applicable to the 
existing separate account and any such other person or persons, unless 
modified in accordance with this section;
    (3) All representations, undertakings, and conditions made or agreed 
to by the existing portfolio company in connection with the issuance of 
the order

[[Page 1168]]

are made or agreed to by the new portfolio company, unless modified in 
accordance with this section; and
    (4) Part II of the Registration Statement under the Securities Act 
of 1933 of the existing separate account
    (i) Indicates that the existing separate account is relying upon 
paragraph (b) of this section,
    (ii) Lists the Investment Company Act release numbers of any orders 
upon which the existing separate account intends to rely, and
    (iii) Contains a representation that the provisions of this 
paragraph (b) have been complied with.
    (c) Any order of the Commission under the Act, granted to an 
existing separate account on or before September 25, 1981, shall apply 
with full force and effect to a new separate account and the depositor 
of and principal underwriter for the new separate account 
notwithstanding that the new separate account invests in one or more new 
portfolio companies; Provided, That:
    (1) No material changes in the facts upon which the order was based 
have occurred;
    (2) All representations, undertakings, and conditions made or agreed 
to by the depositor, principal underwriter, and any other person or 
persons other than the existing separate account or any existing 
portfolio companies, in connection with the issuance of the order are, 
and continue to be, applicable to such depositor, principal underwriter, 
and other person or persons, unless modified in accordance with this 
section;
    (3) All representations, undertakings, and conditions made or agreed 
to by the existing separate account in connection with the issuance of 
the order are made or agreed to by the new separate account, unless 
modified in accordance with this section;
    (4) All representations, undertakings, and conditions made or agreed 
to by an existing portfolio company in connection with the issuance of 
the order are made or agreed to by the new portfolio company, unless 
modified in accordance with this section; and
    (5) Part II of the Registration Statement under the Securities Act 
of 1933 of the new separate account
    (i) Indicates that the new separate account is relying upon 
paragraph (c) of this section,
    (ii) Lists the Investment Company Act release numbers of any orders 
upon which the new separate account intends to rely, and
    (iii) Contains a representation that the provisions of this 
paragraph (c) have been complied with.
    (d) Any affiliated person or depositor of or principal underwriter 
for a new or existing separate account or any affiliated person of or 
principal underwriter for a new or existing portfolio company, and any 
affiliated person of such persons, principal underwriters, or depositor 
shall be exempt from section 17(d) of the Act (15 U.S.C 80a-17(d)) and 
rule 17d-1 thereunder (17 CFR 270.17d-1) to the extent necessary to 
permit the organization of one or more new portfolio companies; 
Provided, That, any expenses borne by the existing portfolio company or 
the new portfolio company in connection with such organization are 
necessary and appropriate and are allocated in a manner that is fair and 
reasonable to all of the shareholders of these companies.
    (e) Any affiliated person or depositor of or principal underwriter 
for a new or existing separate account and any affiliated persons of 
such a person, principal underwriter, or depositor shall be exempt from 
section 17(d) of the Act and Rule 17d-1 thereunder to the extent 
necessary to permit such person to bear any reasonable expenses arising 
out of the organization of one or more new portfolio companies or the 
new separate account.
    (f) Any affiliated persons or depositor of or principal underwriter 
for a new or existing separate account or any affiliated person of or 
principal underwriter for a new or existing portfolio company, and any 
affiliated person of such persons, principal underwriters, or depositor 
shall be exempt from section 17(a) (15 U.S.C. 80a-17(a)), and any 
existing portfolio company which has made an election pursuant to Rule 
18f-1 (17 CFR 270.18f-1) shall be permitted to revoke that election to 
the extent necessary to permit transactions involving the transfer of 
assets from the existing portfolio company to a new portfolio company; 
Provided, That:

[[Page 1169]]

    (1) Such assets are transferred without the imposition of any fees 
or charges;
    (2) The board of directors of the existing portfolio company, 
including a majority of the directors of the company who are not 
interested persons of such company, determines that the transfer of 
assets is fair and reasonable to all shareholders of the company and 
such determination, and the basis upon which it was made, is recorded in 
the minute book of the existing portfolio company;
    (3) Any securities involved are valued by the existing portfolio 
company for purposes of the transfer in accordance with its valuation 
practices for determining net asset value per share; and
    (4) With respect to Rule 18f-1, the existing separate account 
requests that the existing portfolio company redeem in kind the shares 
of the portfolio company held by the separate account.
    (g) The new portfolio company shall be exempt from section 2(a)(41) 
(15 U.S.C. 80a-2(a)(41)) of the Act and rules 2a-4 (17 CFR 270.2a-4) and 
22c-1 (17 CFR 270.22c-1) under the Act to the extent necessary to permit 
it to use the same method of valuation for the purpose of pricing its 
shares for sale, redemption, and repurchase, as the existing portfolio 
company; Provided, That:
    (1) The existing portfolio company had on September 25, 1981, an 
order of the Commission exempting it, for the purposes of pricing its 
shares for sale, redemption, and repurchase, from:
    (i) Section 2(a)(41) of the Act and rules 2a-4 and 22c-1 under the 
Act to the extent necessary to permit it to use the amortized cost 
valuation method or
    (ii) Rules 2a-4 and 22c-1 under the Act to the extent necessary to 
permit it to calculate its net asset value per share to the nearest one 
cent on share values of $1.00;
    (2) All representations, undertakings, and conditions made or agreed 
to by the existing portfolio company in connection with the order are 
made or agreed to by the new portfolio company unless modified in 
accordance with this section; and
    (3) Part II of the Registration Statement under the Securities Act 
of 1933 of the new portfolio company
    (i) Indicates that the new portfolio company is relying upon 
paragraph (g) of this section,
    (ii) Lists the Investment Company Act release numbers of any orders 
upon which the new portfolio company intends to rely, and
    (iii) Contains a representation that the provisions of paragraph (g) 
have been complied with.
    (h) The depositor or trustee of an existing separate account shall 
be exempt from section 26(c) of the Act (15 U.S.C. 80a-26(c)) to the 
extent necessary to permit the substitution of securities of the new 
portfolio company for securities of the existing portfolio company; 
Provided; That, within thirty days of such substitution:
    (1) The existing separate account notifies all contractowners of the 
substitution of securities and any determinations of the board of 
directors of the new portfolio company required by paragraph (d) of this 
section;
    (2) The existing separate account delivers a copy of the prospectus 
of the new portfolio company to all contractowners; and
    (3) The existing separate account, concurrently with the 
notification referred to in paragraph (h)(1) of this section or the 
delivery of the prospectus of the new portfolio company referred to in 
paragraph (h)(2) of this section, whichever is later, offers to those 
contractowners who would otherwise have surrender rights under their 
contracts the right, for a period of at least thirty days from the 
receipt of this offer, to surrender their contracts without the 
imposition of any withdrawal charge or contingent deferred sales load, 
and any surrendering contractowner receives the price next determined 
after the request for surrender is received by the insurance company.
    (i) The existing separate account shall be exempt from section 22(d) 
of the Act (15 U.S.C. 80a-22(d)) to the extent necessary to permit it to 
comply with paragraph (h) of this section and the principal underwriter 
for or depositor of the existing separate account shall be exempt from 
section 26(a)(4)(B) of the Act (15 U.S.C. 80a-26(a)(4)(B)) to the extent 
necessary to permit them to rely on paragraph (h) of this section.

[[Page 1170]]

    (j) Notwithstanding section 11 of the Act (15 U.S.C. 80a-11), the 
existing separate account or any principal underwriter for the existing 
separate account may make or cause to be made to the contractowners of 
the existing separate account an offer to exchange a security funded by 
an existing portfolio company for a security funded by a new portfolio 
company without the terms of that offer having first been submitted to 
and approved by the Commission; Provided, That the exchange is to be 
made on the basis of the relative net asset values of the securities to 
be exchanged without the imposition of any fees or charges.
    (k) Notwithstanding section 11 of the Act, the new separate account 
or any principal underwriter for the new separate account may make or 
cause to be made an offer to the contractowners of the existing separate 
account to exchange their securities for securities of the new separate 
account without the terms of that offer having first been submitted to 
and approved by the Commission;

Provided, That:
    (1) The exchange is to be made on the basis of the relative net 
asset values of the securities to be exchanged without the imposition of 
any fees or charges; and
    (2) If the new separate account imposes a contingent deferred sales 
load (``sales load'') on the securities to be acquired in the exchange
    (i) At the time this sales load is imposed, it is calculated as if
    (A) The contractowner had been a contractowner of the new separate 
account from the date on which he became a contractowner of the existing 
separate account, in the case of a sales load based on the amount of 
time the contractowner has been invested in the new separate account, 
and
    (B) Amounts attributable to purchase payments made to the existing 
separate account had been made to the new separate account on the date 
on which they were made to the existing separate account, in the case of 
a sales load based on the amount of time purchase payments have been 
invested in the new separate account, and
    (ii) The total sales load imposed does not exceed 9 percent of the 
sum of the purchase payments made to the new separate account and that 
portion of purchase payments made to the existing separate account 
attributable to the securities exchanged.
    (l) Notwithstanding the foregoing, the provisions of this section 
will be available to a new separate account or new portfolio company, or 
to any affiliated person or depositor of or principal underwriter for 
such a new separate account, to any affiliated person of or principal 
underwriter for such a new portfolio company, to any affiliated person 
of such persons, depositor, or principal underwriters, or to any 
substitution of securities effected in reliance on this section, only if 
such new separate account or new portfolio company is registered under 
the Act or such substitution is effected prior to September 21, 1983.

[47 FR 42559, Sept. 28, 1982, as amended at 67 FR 43536, June 28, 2002]



Sec.270.6c-7  Exemptions from certain provisions of sections 22(e) 
and 27 for registered separate accounts offering variable annuity 
contracts to participants in the Texas Optional Retirement Program.
          

    A registered separate account, and any depositor of or underwriter 
for such account, shall be exempt from the provisions of sections 22(e), 
27(c)(1), and 27(d) of the Act (15 U.S.C. 80a-22(e), 80a-27(c)(1), and 
80a-27(d), respectively) with respect to any variable annuity contract 
participating in such account to the extent necessary to permit 
compliance with the Texas Optional Retirement Program (``Program''), 
Provided, That the separate, account, depositor, or underwriter for such 
account:
    (a) Includes appropriate disclosure regarding the restrictions on 
redemption imposed by the Program in each registration statement, 
including the prospectus, used in connection with the Program;
    (b) Includes appropriate disclosure regarding the restrictions on 
redemption imposed by the Program in any sales literature used in 
connection with the offer of annuity contracts to potential Program 
participants;
    (c) Instructs salespeople who solicit Program participants to 
purchase annuity contracts specifically to bring

[[Page 1171]]

the restrictions on redemption imposed by the Program to the attention 
of potential Program participants;
    (d) Obtains from each Program participant who purchases an annuity 
contract in connection with the Program, prior to or at the time of such 
purchase, a signed statement acknowledging the restrictions on 
redemption imposed by the Program; and
    (e) Includes in Part II of the separate account's registration 
statement under the Securities Act of 1933 a representation that this 
section is being relied upon and that the provisions of paragraphs (a) 
through (d) of this section have been complied with.

(Secs. 6(c) and 38(a) of the Act (15 U.S.C. 80a-6(c) and 80a-37(a), 
respectively))

[49 FR 1479, Jan. 12, 1984]



Sec.270.6c-8  Exemptions for registered separate accounts to impose 
a deferred sales load and to deduct certain administrative charges.

    (a) As used in this section Deferred sales load shall mean any sales 
load, including a contingent deferred sales load, that is deducted upon 
redemption or annuitization of amounts representing all or a portion of 
a securityholder's interest in a registered separate account.
    (b) A registered separate account, and any depositor of or principal 
underwriter for such account, shall be exempt from the provisions of 
sections 2(a)(32), 2(a)(35), 22(c), 26(a)(2)(C), 27(c)(1), 27(c)(2), and 
27(d) of the Act (15 U.S.C. 80a-2(a)(32), 80a-2(a)(35), 80a-22(c), 80a-
26(a)(2)(C), 80a-27(c)(1), 80a-27(c)(2), and 80a-27(d), respectively) 
and rule 22c-1 under the Act (17 CFR 270.22c-1) to the extent necessary 
to permit them to impose a deferred sales load on any variable annuity 
contract participating in such account, Provided, That:
    (1) The amount of any such sales load imposed, when added to any 
sales load previously paid on such contract, shall not exceed 9 percent 
of purchase payments made to date for such contract; and
    (2) The terms of any offer to exchange another contract for the 
contract are in compliance with the requirements of paragraph (d) or (e) 
of rule 11a-2 under the Act (17 CFR 270.11a-2).
    (c) A registered separate account, and any depositor of or principal 
underwriter for such account, shall be exempt from sections 2(a)(32), 
22(c), 27(c)(1), and 27(d) of the Act (15 U.S.C. 80a-2(a)(32), 80a-
22(c), 80a-27(c)(1), and 80a-27(d), respectively) and rule 22c-1 under 
the Act (17 CFR 270.22c-1) to the extent necessary to permit them to 
deduct from the value of any variable annuity contract participating in 
such account, upon total redemption of the contract prior to the last 
day of the year, the full annual fee for administrative services that 
otherwise would have been deducted on that date.

(Secs. 6(c) and 38(a) of the Act (15 U.S.C. 80a-6(c) and 80a-37(a)))

[48 FR 36098, Aug. 9, 1983]



Sec.270.6c-10  Exemption for certain open-end management investment
companies to impose deferred sales loads.

    (a) A company and any exempted person shall be exempt from the 
provisions of sections 2(a)(32), 2(a)(35), and 22(d) of the Act [15 
U.S.C. 80a-2(a)(32), 80a-2(a)(35), and 80a-22(d), respectively] and 
Sec.270.22c-1 to the extent necessary to permit a deferred sales load 
to be imposed on shares issued by the company, Provided, that:
    (1) The amount of the deferred sales load does not exceed a 
specified percentage of the net asset value or the offering price at the 
time of purchase;
    (2) The terms of the deferred sales load are covered by the 
provisions of Rule 2830 of the Conduct Rules of the National Association 
of Securities Dealers, Inc.; and
    (3) The same deferred sales load is imposed on all shareholders, 
except that scheduled variations in or elimination of a deferred sales 
load may be offered to a particular class of shareholders or 
transactions, Provided, that the conditions in Sec.270.22d-1 are 
satisfied. Nothing in this paragraph (a) shall prevent a company from 
offering to existing shareholders a new scheduled variation that would 
waive or reduce the amount of a deferred sales load not yet paid.
    (b) For purposes of this section:

[[Page 1172]]

    (1) Company means a registered open-end management investment 
company, other than a registered separate account, and includes a 
separate series of the company;
    (2) Exempted person means any principal underwriter of, dealer in, 
and any other person authorized to consummate transactions in, 
securities issued by a company; and
    (3) Deferred sales load means any amount properly chargeable to 
sales or promotional expenses that is paid by a shareholder after 
purchase but before or upon redemption.

[61 FR 49016, Sept. 17, 1996]



Sec.270.6c-11  Exchange-traded funds.

    (a) Definitions. (1) For purposes of this section:
    Authorized participant means a member or participant of a clearing 
agency registered with the Commission, which has a written agreement 
with the exchange-traded fund or one of its service providers that 
allows the authorized participant to place orders for the purchase and 
redemption of creation units.
    Basket means the securities, assets or other positions in exchange 
for which an exchange-traded fund issues (or in return for which it 
redeems) creation units.
    Business day means any day the exchange-traded fund is open for 
business, including any day when it satisfies redemption requests as 
required by section 22(e) of the Act (15 U.S.C. 80a-22(e)).
    Cash balancing amount means an amount of cash to account for any 
difference between the value of the basket and the net asset value of a 
creation unit.
    Creation unit means a specified number of exchange-traded fund 
shares that the exchange-traded fund will issue to (or redeem from) an 
authorized participant in exchange for the deposit (or delivery) of a 
basket and a cash balancing amount if any.
    Custom basket means:
    (A) A basket that is composed of a non-representative selection of 
the exchange-traded fund's portfolio holdings; or
    (B) A representative basket that is different from the initial 
basket used in transactions on the same business day.
    Exchange-traded fund means a registered open-end management company:
    (A) That issues (and redeems) creation units to (and from) 
authorized participants in exchange for a basket and a cash balancing 
amount if any; and
    (B) Whose shares are listed on a national securities exchange and 
traded at market-determined prices.
    Exchange-traded fund share means a share of stock issued by an 
exchange-traded fund.
    Foreign investment means any security, asset or other position of 
the ETF issued by a foreign issuer as that term is defined in Sec.
240.3b-4 of this title, and that is traded on a trading market outside 
of the United States.
    Market price means:
    (A) The official closing price of an exchange-traded fund share; or
    (B) If it more accurately reflects the market value of an exchange-
traded fund share at the time as of which the exchange-traded fund 
calculates current net asset value per share, the price that is the 
midpoint between the national best bid and national best offer as of 
that time.
    National securities exchange means an exchange that is registered 
with the Commission under section 6 of the Securities Exchange Act of 
1934 (15 U.S.C. 78f).
    Portfolio holdings means the securities, assets or other positions 
held by the exchange-traded fund.
    Premium or discount means the positive or negative difference 
between the market price of an exchange-traded fund share at the time as 
of which the current net asset value is calculated and the exchange-
traded fund's current net asset value per share, expressed as a 
percentage of the exchange-traded fund share's current net asset value 
per share.
    (2) Notwithstanding the definition of exchange-traded fund in 
paragraph (a)(1) of this section, an exchange-traded fund is not 
prohibited from selling (or redeeming) individual shares on the day of 
consummation of a reorganization, merger, conversion or liquidation, and 
is not limited to transactions with

[[Page 1173]]

authorized participants under these circumstances.
    (b) Application of the Act to exchange-traded funds. If the 
conditions of paragraph (c) of this section are satisfied:
    (1) Redeemable security. An exchange-traded fund share is considered 
a ``redeemable security'' within the meaning of section 2(a)(32) of the 
Act (15 U.S.C. 80a-2(a)(32)).
    (2) Pricing. A dealer in exchange-traded fund shares is exempt from 
section 22(d) of the Act (15 U.S.C. 80a-22(d)) and Sec.270.22c-1(a) 
with regard to purchases, sales and repurchases of exchange-traded fund 
shares at market-determined prices.
    (3) Affiliated transactions. A person who is an affiliated person of 
an exchange-traded fund (or who is an affiliated person of such a 
person) solely by reason of the circumstances described in paragraphs 
(b)(3)(i) and (ii) of this section is exempt from sections 17(a)(1) and 
17(a)(2) of the Act (15 U.S.C. 80a-17(a)(1) and (a)(2)) with regard to 
the deposit and receipt of baskets:
    (i) Holding with the power to vote 5% or more of the exchange-traded 
fund's shares; or
    (ii) Holding with the power to vote 5% or more of any investment 
company that is an affiliated person of the exchange-traded fund.
    (4) Postponement of redemptions. If an exchange-traded fund includes 
a foreign investment in its basket, and if a local market holiday, or 
series of consecutive holidays, or the extended delivery cycles for 
transferring foreign investments to redeeming authorized participants 
prevents timely delivery of the foreign investment in response to a 
redemption request, the exchange-traded fund is exempt, with respect to 
the delivery of the foreign investment, from the prohibition in section 
22(e) of the Act (15 U.S.C. 80a-22(e)) against postponing the date of 
satisfaction upon redemption for more than seven days after the tender 
of a redeemable security if the exchange-traded fund delivers the 
foreign investment as soon as practicable, but in no event later than 15 
days after the tender of the exchange-traded fund shares.
    (c) Conditions. (1) Each business day, an exchange-traded fund must 
disclose prominently on its website, which is publicly available and 
free of charge:
    (i) Before the opening of regular trading on the primary listing 
exchange of the exchange-traded fund shares, the following information 
(as applicable) for each portfolio holding that will form the basis of 
the next calculation of current net asset value per share:
    (A) Ticker symbol;
    (B) CUSIP or other identifier;
    (C) Description of holding;
    (D) Quantity of each security or other asset held; and
    (E) Percentage weight of the holding in the portfolio;
    (ii) The exchange-traded fund's current net asset value per share, 
market price, and premium or discount, each as of the end of the prior 
business day;
    (iii) A table showing the number of days the exchange-traded fund's 
shares traded at a premium or discount during the most recently 
completed calendar year and the most recently completed calendar 
quarters since that year (or the life of the exchange-traded fund, if 
shorter);
    (iv) A line graph showing exchange-traded fund share premiums or 
discounts for the most recently completed calendar year and the most 
recently completed calendar quarters since that year (or the life of the 
exchange-traded fund, if shorter);
    (v) The exchange-traded fund's median bid-ask spread, expressed as a 
percentage rounded to the nearest hundredth, computed by:
    (A) Identifying the exchange-traded fund's national best bid and 
national best offer as of the end of each 10 second interval during each 
trading day of the last 30 calendar days;
    (B) Dividing the difference between each such bid and offer by the 
midpoint of the national best bid and national best offer; and
    (C) Identifying the median of those values; and
    (vi) If the exchange-traded fund's premium or discount is greater 
than 2% for more than seven consecutive trading days, a statement that 
the exchange-traded fund's premium or discount, as applicable, was 
greater than 2% and a discussion of the factors that

[[Page 1174]]

are reasonably believed to have materially contributed to the premium or 
discount, which must be maintained on the website for at least one year 
thereafter.
    (2) The portfolio holdings that form the basis for the exchange-
traded fund's next calculation of current net asset value per share must 
be the ETF's portfolio holdings as of the close of business on the prior 
business day.
    (3) An exchange-traded fund must adopt and implement written 
policies and procedures that govern the construction of baskets and the 
process that will be used for the acceptance of baskets; provided, 
however, if the exchange-traded fund utilizes a custom basket, these 
written policies and procedures also must:
    (i) Set forth detailed parameters for the construction and 
acceptance of custom baskets that are in the best interests of the 
exchange-traded fund and its shareholders, including the process for any 
revisions to, or deviations from, those parameters; and
    (ii) Specify the titles or roles of the employees of the exchange-
traded fund's investment adviser who are required to review each custom 
basket for compliance with those parameters.
    (4) The exchange-traded fund may not seek, directly or indirectly, 
to provide investment returns that correspond to the performance of a 
market index by a specified multiple, or to provide investment returns 
that have an inverse relationship to the performance of a market index, 
over a predetermined period of time.
    (d) Recordkeeping. The exchange-traded fund must maintain and 
preserve for a period of not less than five years, the first two years 
in an easily accessible place:
    (1) All written agreements (or copies thereof) between an authorized 
participant and the exchange-traded fund or one of its service providers 
that allows the authorized participant to place orders for the purchase 
or redemption of creation units;
    (2) For each basket exchanged with an authorized participant, 
records setting forth:
    (i) The ticker symbol, CUSIP or other identifier, description of 
holding, quantity of each holding, and percentage weight of each holding 
composing the basket exchanged for creation units;
    (ii) If applicable, identification of the basket as a custom basket 
and a record stating that the custom basket complies with policies and 
procedures that the exchange-traded fund adopted pursuant to paragraph 
(c)(3) of this section;
    (iii) Cash balancing amount (if any); and
    (iv) Identity of authorized participant transacting with the 
exchange-traded fund.

[84 FR 57234, Oct. 24, 2019]



Sec.270.6d-1  Exemption for certain closed-end investment companies.

    (a) An application under section 6(d) of the Act shall contain the 
following information:
    (1) A brief description of the character of the business and 
investment policy of the applicant.
    (2) The information relied upon by the applicant to satisfy the 
conditions of paragraphs (1) and (2) of section 6(d) of the Act.
    (3) The number of holders of each class of the applicant's 
outstanding securities.
    (4) An unconsolidated balance sheet as of a date not earlier than 
the end of the applicant's first fiscal year, together with a schedule 
specifying the title, the amount, the book value and, if determinable, 
the market value of each security in the applicant's portfolio.
    (5) An unconsolidated profit and loss statement for the applicant's 
last fiscal year.
    (6) A statement of each provision of the act from which the 
applicant seeks exemption, together with a statement of the facts by 
reason of which, in the applicant's opinion, such exemption is not 
contrary to the public interest or inconsistent with the protection of 
investors.
    (b) There shall be attached to each copy of the application a copy 
of Form N-8A. The form need not be executed, but it shall be clearly 
marked on its facing page as an exhibit to the application. The filing 
of Form N-8A in this manner shall not be construed as the

[[Page 1175]]

filing of a notification of registration under section 8(a) of the Act.
    (c) The application may contain any additional information which the 
applicant desires to submit.

[Rule N-6D-1, 5 FR 4346, Nov. 2, 1940]



Sec.270.6e-2  Exemptions for certain variable life insurance separate
accounts.

    (a) A separate account, and the investment adviser, principal 
underwriter and depositor of such separate account, shall, except for 
the exemptions provided in paragraph (b) of this Rule 6e-2, be subject 
to all provisions of the Act and rules and regulations promulgated 
thereunder as though such separate account were a registered investment 
company issuing periodic payment plan certificates if:
    (1) Such separate account is established and maintained by a life 
insurance company pursuant to the insurance laws or code of (i) any 
state or territory of the United States or the District of Columbia, or 
(ii) Canada or any province thereof, if it complies to the extent 
necessary with Rule 7d-1 (17 CFR 270.7d-1) under the Act;
    (2) The assets of the separate account are derived solely from the 
sale of variable life insurance contracts as defined in paragraph (c)(1) 
of this Rule 6e-2, and advances made by the life insurance company which 
established and maintains the separate account (``life insurer'') in 
connection with the operation of such separate account;
    (3) The separate account is not used for variable annuity contracts 
or for funds corresponding to dividend accumulations or other contract 
liabilities not involving life contingencies;
    (4) The income, gains and losses, whether or not realized, from 
assets allocated to such separate account, are, in accordance with the 
applicable variable life insurance contract, credited to or charged 
against such account without regard to other income, gains or losses of 
the life insurer;
    (5) The separate account is legally segregated, and that portion of 
its assets having a value equal to, or approximately equal to, the 
reserves and other contract liabilities with respect to such separate 
account are not chargeable with liabilities arising out of any other 
business that the life insurer may conduct;
    (6) The assets of the separate account have, at each time during the 
year that adjustments in the reserves are made, a value at least equal 
to the reserves and other contract liabilities with respect to such 
separate account, and at all other times, except pursuant to an order of 
the Commission, have a value approximately equal to or in excess of such 
reserves and liabilities; and
    (7) The investment adviser of the separate account is registered 
under the Investment Advisers Act of 1940.
    (b) If a separate account meets the requirements of paragraph (a) of 
this section, then such separate account and the other persons described 
in paragraph (a) of this section shall be exempt from the provisions of 
the Act as follows:
    (1) Section 2(a)(35): Provided, however, That the term ``sales 
load,'' as used in the Act and rules and regulations thereunder, shall 
have the meaning set forth in paragraph (c)(4) of this Rule.
    (2) Section 7.
    (3) Section 8 to the extent that:
    (i) For purposes of paragraph (a) of section 8, the separate account 
shall file with the Commission a notification on Form N-6EI-1 which 
identifies such separate account; and
    (ii) For purposes of paragraph (b) of section 8, the separate 
account shall file with the Commission a form to be designated by the 
Commission within ninety days after filing the notification on Form N-
6EI-1: Provided, however, That if the fiscal year of the separate 
account ends within this ninety day period the form may be filed within 
ninety days after the end of such fiscal year.
    (4) Section 9 to the extent that:
    (i) The eligibility restrictions of section 9(a) of the Act shall 
not be applicable to those persons who are officers, directors and 
employees of the life insurer or its affiliates who do not participate 
directly in the management or administration of the separate account or 
in the sale of variable life insurance contracts funded by such separate 
account; and
    (ii) A life insurer shall be ineligible pursuant to paragraph (3) of 
section 9(a) of the Act to serve as investment

[[Page 1176]]

adviser, depositor of or principal underwriter for a variable life 
insurance separate account only if an affiliated person of such life 
insurer, ineligible by reason of paragraph (1) or (2) of section 9(a), 
participates directly in the management or administration of the 
separate account or in the sale of variable life insurance contracts 
funded by such separate account.
    (5) Section 13(a) to the extent that:
    (i) An insurance regulatory authority may required pursuant to 
insurance law or regulation that the separate account make (or refrain 
from making) certain investments which would result in changes in the 
sub-classification or investment policies of the separate account;
    (ii) Changes in the investment policy of the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer, provided that such 
disapproval is reasonable and is based upon a determination by the life 
insurer in good faith that:
    (A) Such change would be contrary to state law; or
    (B) Such change would be inconsistent with the investment objectives 
of the separate account or would result in the purchase of securities 
for the separate account which vary from the general quality and nature 
of investments and investment techniques utilized by other separate 
accounts of the life insurer or of an affiliated life insurance company, 
which separate accounts have investment objectives similar to the 
separate account;
    (iii) Any action taken in accordance with paragraph (b)(5) (i) or 
(ii) of this section and the reasons therefor shall be disclosed in the 
proxy statement for the next meeting of variable life insurance 
contractholders of the separate account.
    (6) Section 14(a): Provided, That until the separate account has 
total assets of at least $100,000 the life insurer shall have (i) a 
combined capital and surplus, if a stock company, or (ii) an unassigned 
surplus, if a mutual company, of not less than $1,000,000 as set forth 
in the balance sheet of such life insurer contained in the registration 
statement, or any amendment thereto, relating to variable life insurance 
contracts funded by such separate account filed pursuant to the 
Securities Act of 1933, as amended.
    (7)(i) Section 15(a) to the extent this section requires that the 
initial written contract pursuant to which the investment adviser serves 
or acts shall have been approved by the vote of a majority of the 
outstanding voting securities of the registered company: Provided, That:
    (A) Such investment adviser is selected and a written contract is 
entered into before the effective date of the registration statement 
under the Securities Act of 1933, as amended, for variable life 
insurance contracts which are funded by the separate account, and that 
the terms of the contract are fully disclosed in such registration 
statement, and
    (B) A written contract is submitted to a vote of variable life 
insurance contractholders at their first meeting after the effective 
date of the registration statement under the Securities Act of 1933, as 
amended, on condition that such meeting shall take place within one year 
after such effective date, unless the time for the holding of such 
meeting shall be extended by the Commission upon written request for 
good cause shown;
    (ii) Sections 15 (a), (b) and (c) to the extent that:
    (A) An insurance regulatory authority may disapprove pursuant to 
insurance law or regulation any contract between the separate account 
and an investment adviser or principal underwriter;
    (B) Changes in the principal underwriter for the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer: Provided, That such 
disapproval is reasonable;
    (C) Changes in the investment adviser of the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer: Provided, That such 
disapproval is reasonable and is based upon a determination by the life 
insurer in good faith that:
    (1) The rate of the proposed investment advisory fee will exceed the 
maximum rate that is permitted to be

[[Page 1177]]

charged against the assets of the separate account for such services as 
specified by any variable life insurance contract funded by such 
separate account; or
    (2) The proposed investment adviser may be expected to employ 
investment techniques which vary from the general techniques utilized by 
the current investment adviser to the separate account, or advise the 
purchase or sale of securities which would be inconsistent with the 
investment objectives of the separate account, or which would vary from 
the quality and nature of investments made by other separate accounts of 
the life insurer or of an affiliated life insurance company, which 
separate accounts have investment objectives similar to the separate 
account;
    (D) Any action taken in accordance with paragraph (b)(7)(ii) (A), 
(B) or (C) of this section and the reasons therefor shall be disclosed 
in the proxy statement for the next meeting of variable life insurance 
contractholders of the separate account.
    (8) Section 16(a) to the extent that:
    (i) Persons serving as directors of the separate account prior to 
the first meeting of such account's variable life insurance 
contractholders are exempt from the requirement of section 16(a) of the 
Act that such persons be elected by the holders of outstanding voting 
securities of such account at an annual or special meeting called for 
that purpose, Provided, That:
    (A) Such persons have been appointed directors of such account by 
the life insurer before the effective date of the registration statement 
under the Securities Act of 1933, as amended, for variable life 
insurance contracts which are funded by the separate account and are 
identified in such registration statement (or are replacements appointed 
by the life insurer for any such persons who have become unable to serve 
as directors), and
    (B) An election of directors for such account shall be held at the 
first meeting of variable life insurance contractholders after the 
effective date of the registration statement under the Securities Act of 
1933, as amended, relating to contracts funded by such account, which 
meeting shall take place within one year after such effective date, 
unless the time for holding such meeting shall be extended by the 
Commission upon written request for good cause shown;
    (ii) A member of the board of directors of such separate account may 
be disapproved or removed by the appropriate insurance regulatory 
authority if such person is ineligible to serve as a director of the 
separate account pursuant to insurance law or regulation of the 
jurisdiction in which the life insurer is domiciled.
    (9) Section 17(f) to the extent that the securities and similar 
investments of the separate account may be maintained in the custody of 
the life insurer or an insurance company which is an affiliated person 
of such life insurer: Provided, That:
    (i) The securities and similar investments allocated to such 
separate account are clearly identified as to ownership by such account, 
and such securities and similar investments are maintained in the vault 
of an insurance company which meets the qualifications set forth in 
paragraph (b)(9)(ii) of this section, and whose procedures and 
activities with respect to such safekeeping function are supervised by 
the insurance regulatory authorities of the jurisdiction in which the 
securities and similar investments will be held;
    (ii) The insurance company maintaining such investments must file 
with an insurance regulatory authority of a State or territory of the 
United States or the District of Columbia an annual statement of its 
financial condition in the form prescribed by the National Association 
of Insurance Commissioners, must be subject to supervision and 
inspection by such authority and must be examined periodically as to its 
financial condition and other affairs by such authority, must hold the 
securities and similar investments of the separate account in its vault, 
which vault must be equivalent to that of a bank which is a member of 
the Federal Reserve System, and must have a combined capital and 
surplus, if a stock company, or an unassigned surplus, if a mutual 
company, of not less than $1,000,000 as set forth in its most recent 
annual statement filed with such authority;

[[Page 1178]]

    (iii) Access to such securities and similar investments shall be 
limited to employees of or agents authorized by the Commission, 
representatives of insurance regulatory authorities, independent public 
accountants for the separate account, accountants for the life insurer 
and to no more than 20 persons authorized pursuant to a resolution of 
the board of directors of the separate account, which persons shall be 
directors of the separate account, officers and responsible employees of 
the life insurer or officers and responsible employees of the affiliated 
insurance company in whose vault such investments are maintained (if 
applicable), and access to such securities and similar investments shall 
be had only by two or more such persons jointly, at least one of whom 
shall be a director of the separate account or officer of the life 
insurer;
    (iv) The requirement in paragraph (b)(9)(i) of this section that the 
securities and similar investments of the separate account be maintained 
in the vault of a qualified insurance company shall not apply to 
securities deposited with insurance regulatory authorities or deposited 
in a system for the central handling of securities established by a 
national securities exchange or national securities association 
registered with the Commission under the Securities Exchange Act of 
1934, as amended, or such person as may be permitted by the Commission, 
or to securities on loan which are collateralized to the extent of their 
full market value, or to securities hypothecated, pledged, or placed in 
escrow for the account of such separate account in connection with a 
loan or other transaction authorized by specific resolution of the board 
of directors of the separate account, or to securities in transit in 
connection with the sale, exchange, redemption, maturity or conversion, 
the exercise of warrants or rights, assents to changes in terms of the 
securities, or to other transactions necessary or appropriate in the 
ordinary course of business relating to the management of securities;
    (v) Each person when depositing such securities or similar 
investments in or withdrawing them from the depository or when ordering 
their withdrawal and delivery from the custody of the life insurer or 
affiliated insurance company, shall sign a notation in respect of such 
deposit, withdrawal or order which shall show (A) the date and time of 
the deposit, withdrawal or order, (B) the title and amount of the 
securities or other investments deposited, withdrawn or ordered to be 
withdrawn, and an identification thereof by certificate numbers or 
otherwise, (C) the manner of acquisition of the securities or similar 
investments deposited or the purpose for which they have been withdrawn, 
or ordered to be withdrawn, and (D) if withdrawn and delivered to 
another person the name of such person. Such notation shall be 
transmitted promptly to an officer or director of the separate account 
or the life insurer designated by the board of directors of the separate 
account who shall not be a person designated for the purpose of 
paragraph (b)(9)(iii) of this section. Such notation shall be on 
serially numbered forms and shall be preserved for at least one year;
    (vi) Such securities and similar investments shall be verified by 
complete examination by an independent public accountant retained by the 
separate account at least three times during each fiscal year, at least 
two of which shall be chosen by such accountant without prior notice to 
such separate account. A certificate of such accountant stating that he 
has made an examination of such securities and investments and 
describing the nature and extent of the examination shall be transmitted 
to the Commission by the accountant promptly after each examination;
    (vii) Securities and similar investments of a separate account 
maintained with a bank or other company whose functions and physical 
facilities are supervised by Federal or state authorities pursuant to 
any arrangement whereby the directors, officers, employees or agents of 
the separate account or the life insurer are authorized or permitted to 
withdraw such investments upon their mere receipt are deemed to be in 
the custody of the life insurer and shall be exempt from the 
requirements of section 17(f) so long as the arrangement complies with 
all provisions of this paragraph (b)(9), except

[[Page 1179]]

that such securities will be maintained in the vault of a bank or other 
company rather than the vault of an insurance company.
    (10) Section 18(i) to the extent that:
    (i) For the purposes of any section of the Act which provides for 
the vote of securityholders on matters relating to the investment 
company:
    (A) Variable life insurance contractholders shall have one vote for 
each $100 of cash value funded by the separate account, with fractional 
votes allocated for amounts less than $100;
    (B) The life insurer shall have one vote for each $100 of assets of 
the separate account not otherwise attributable to contractholders 
pursuant to paragraph (b)(10)(i)(A) of this section, with fractional 
votes allocated for amounts less than $100: Provided, That after the 
commencement of sales of variable life insurance contracts funded by the 
separate account, the life insurer shall cast its votes for and against 
each matter which may be voted upon by contractholders in the same 
proportion as the votes cast by contractholders; and
    (C) The number of votes to be allocated shall be determined as of a 
record date not more than 90 days prior to any meeting at which such 
vote is held: Provided, That if a quorum is not present at the meeting, 
the meeting may be adjourned for up to 60 days without fixing a new 
record date;
    (ii) The requirement of this section that every share of stock 
issued by a registered management investment company (except a common-
law trust of the character described in section 16(b)) shall be a voting 
stock and have equal voting rights with every other outstanding voting 
stock shall not be deemed to be violated by actions specifically 
permitted by any provision of this Rule.
    (11) Section 19 to the extent that the provisions of this section 
shall not be applicable to any dividend or similar distribution paid or 
payable pursuant to provisions of participating variable life insurance 
contracts.
    (12) Sections 22(d), 22(e), and 27(c)(1) and Rule 22c-1 promulgated 
under section 22(c) to the extent:
    (i) That the amount payable on death and the cash surrender value of 
each variable life insurance contract shall be determined on each day 
during which the New York Stock Exchange is open for trading, not less 
frequently than once daily as of the time of the close of trading on 
such exchange: Provided, That the amount payable on death need not be 
determined more than once each contract month if such determination does 
not reduce the participation of the contract in the investment 
experience of the separate account: Provided further, however, That if 
the net valuation premium for such contract is transferred at least 
annually, then the amount payable on death need be determined only when 
such net premium is transferred;
    (ii) Necessary for compliance with this Rule 6e-2 or with insurance 
laws and regulations and established administrative procedures of the 
life insurer with respect to issuance, transfer and redemption 
procedures for variable life insurance contracts funded by the separate 
account including, but not limited to, premium rate structure and 
premium processing, insurance underwriting standards, and the particular 
benefit afforded by the contract: Provided, however, That any procedure 
or action shall be reasonable, fair and not discriminatory to the 
interests of the affected contractholder and to all other holders of 
contracts of the same class or series funded by the separate account: 
And, further provided, That any such action shall be disclosed in the 
form required to be filed by the separate account with the Commission 
pursuant to paragraph (b)(3)(ii) of this Rule 6e-2.
    (13) Section 27 to the following extent:
    (i) Sections 27(a)(1) and 27(h)(1) to the extent that the sales 
load, as defined in paragraph (c)(4) of this section, on any variable 
life insurance contract which is funded by the separate account shall 
not exceed 9 per centum of the payments to be made thereon during the 
period equal to the lesser of 20 years or the anticipated life 
expectancy of the insured named in the contract based on the 1958 
Commissioners Standard Ordinary Mortality Table;
    (ii) Sections 27(a)(3) and 27(h)(3): Provided, That the 
proportionate amount

[[Page 1180]]

of sales load deducted from any payment during the contract period shall 
not exceed the proportionate amount deducted from any prior payment 
during the contract period except that such amount may exceed the amount 
deducted from a prior payment if the increase is caused by the grading 
of cash values into reserves or reductions in the annual cost of 
insurance;
    (iii) Sections 27(c)(2), 26(a)(1) and 26(a)(2): Provided, That the 
life insurer complies, to the extent applicable, with all other 
provisions of section 26 as if it were a trustee, depositor or custodian 
for the separate account, and:
    (A) Files with the insurance regulatory authority of a state or 
territory of the United States or of the District of Columbia an annual 
statement of its financial condition in the form prescribed by the 
National Association of Insurance Commissioners, which most recent 
statement indicates that it has a combined capital and surplus, if a 
stock company, or an unassigned surplus, if a mutual company, of not 
less than $1,000,000;
    (B) Is examined from time to time by the insurance regulatory 
authority of such state, territory or District of Columbia as to its 
financial condition and other affairs and is subject to supervision and 
inspection with respect to its separate account operations; and
    (C) Limits the fees for administrative services to amounts that are 
reasonable in relation to services rendered and expenses incurred. The 
Commission shall retain jurisdiction regarding the determination of such 
fees;
    (iv) Sections 27(c)(1) and 27(d), to the extent that such sections 
require that the variable life insurance contract be redeemable or 
provide for a refund in cash: Provided, That such contract provides for 
election by the contractholder of a cash surrender value or certain non-
forfeiture and settlement options which are required or permitted by the 
insurance law or regulation of the jurisdiction in which the contract is 
offered: And further provided, That unless required by the insurance law 
or regulation of the jurisdiction in which the contract is offered or 
unless elected by the contractholder, such contract shall not provide 
for the automatic imposition of any option, including, but not limited 
to, an automatic premium loan, which would involve the accrual or 
payment of an interest or similar charge;
    (v) Section 27(d): Provided, That the variable life insurance 
contract gives the holder thereof the right to:
    (A) Surrender the contract at any time during the first 24 months 
after issuance and receive in cash an amount not less than the sum of 
the present value of his contract which is the cash surrender value next 
computed after receipt by the life insurer of the request for surrender 
in proper form, plus, depending upon the period over which such contract 
has been retained by the contractholder, an amount which is a refund of 
any excess paid for sales loading prior to surrender: Provided, however, 
That if payments for the contract have not been duly paid on the date 
the request for surrender is received by the life insurer, and if the 
sum of the cash surrender value and the amount of any excess sales 
loading which would otherwise be refundable in cash were applied to 
provide (without sales loading) a nonforfeiture benefit in accordance 
with the contract, then the contractholder shall be entitled to receive 
in cash the present value, next computed after receipt by the life 
insurer of the request for surrender in proper form, of any non-
forfeiture benefit then in force. The amount of sales loading to be 
refunded shall be equal to that part of the excess paid for sales 
loading which is over the sum of 30 per centum of payments made for the 
first contract year plus 10 per centum of the payments made for the 
second contract year; and
    (B) Convert the contract at any time during the first 24 months 
after issuance so long as payments are duly made to a life insurance 
policy on the life of the insured which provides for fixed death 
benefits and cash surrender values pursuant to a plan of insurance 
specified in the contract issued by the life insurer, or by a life 
insurance company affiliated with such insurer, which provides for the 
same initial amount of insurance as the variable life insurance contract 
and premiums which are based on the same issue age and risk 
classification of the insured as the variable life insurance contract,

[[Page 1181]]

which conversion shall be subject to an equitable adjustment in payments 
and cash values to reflect variances, if any, in the payments and cash 
values under the original contract and the new policy: Provided, That 
the method of computing such adjustment shall be filed with the 
Commission as an exhibit to the form required pursuant to paragraph 
(b)(3)(ii) of this Rule;
    (vi) A depositor or principal underwriter for a variable life 
insurance contract sold subject to section 27(d) or section 27(f) of the 
Act, or both, shall be exempt from the requirements of Rule 27d-1 if an 
insurance company undertakes in writing to guarantee the performance of 
all obligations of such depositor or principal underwriter under 
sections 27(d) and 27(f) of the Act to refund charges and such insurance 
company, depositor and principal underwriter comply with all provisions 
of Rule 27d-2;
    (vii) Section 27(e) and Rule 27e-1 thereunder to the extent that the 
separate account and the depositor and principal underwriter therefor, 
when such persons are subject to paragraph (b)(13)(v) of this Rule, are 
required to provide a notice of right of withdrawal and refund to 
holders of variable life insurance contracts, if the life insurer or a 
duly authorized agent provides a notice of withdrawal and refund rights 
on Form N-27I-1, to the holder of any variable life insurance contract 
under which a refund may be available, provided that such notice shall 
be sent by first class mail to the contractholder:
    (A) At issuance of the variable life insurance contract, which 
notice may be sent together with the issued variable life insurance 
contract and an illustration, in a form appropriate for inclusion in the 
prospectus for the variable life insurance contract, of gross annual 
payments, death benefits and cash surrender values applicable to the 
age, sex and underwriting classification of the insured; and
    (B) If the contractholder has failed to make a payment prior to the 
expiration of the refund right provided by paragraph (b)(13)(v) of this 
Rule and the contract has not been reinstated within 30 days following 
the expiration of the grace period provided in the variable life 
insurance contract for making of any payment due: Provided, however, In 
any event, if a payment is not made when due such notice shall be sent 
not less than 15 days prior to the expiration of the refund right, which 
notice may be sent together with a notification that the payment is 
overdue or an offer to reinstate the contract;
    (viii) Section 27(f) and Rule 27f-1: Provided, That:
    (A) The contractholder may elect to return the contract within 45 
days of the date of the execution of the application for insurance or 
within 10 days after receipt of the issued contract by the 
contractholder, or within 10 days after mailing of the notice of the 
right of withdrawal, whichever is later, and receive a refund of all 
payments made for such contract;
    (B) A refund of all payments to redeeming contractholders will not 
in any way affect the interests in the separate account or the benefits 
of other variable life insurance contractholders;
    (C) Notice of such withdrawal right and a statement of charges on 
Form N-27I-2 is sent by first class mail to the contractholder, which 
notice and statement may be accompanied by the variable life insurance 
contract and an illustration, in a form appropriate for inclusion in the 
prospectus for the variable life insurance contract, of payments, death 
benefits and cash surrender values applicable to the age, sex and 
underwriting classification of the insured;
    (D) The contractholder, in conjunction with the notice of withdrawal 
right referred to in paragraph (b)(13)(viii)(C) of this rule, is 
provided with a form of request for refund of payments made, which form 
shall set forth;
    (1) Instructions as to the manner in which a refund may be obtained 
including the address to which the request form should be mailed; and
    (2) Spaces necessary to indicate the date of such request, the 
contract number and the signature of the contractholder; and
    (E) Within 7 days from the receipt of such duly executed timely 
request for refund, the life insurer will refund in cash to the 
contractholder the entire amount of payments made on the contract;

[[Page 1182]]

    (ix) Solely for purposes of paragraphs (b)(13)(v) and (viii) of this 
Rule, the postmark date on the envelope containing the variable life 
insurance contract shall determine whether such contract has been 
submitted for surrender or conversion within the designated period.
    (14) Section 32(a)(2): Provided, That:
    (i) The independent public accountant is selected before the 
effective date of the registration statement under the Securities Act of 
1933, as amended, for variable life insurance contracts which are funded 
by the separate account, and the identity of such accountant is 
disclosed in such registration statement, and
    (ii) The selection of such accountant is submitted for ratification 
or rejection to variable life insurance contractholders at their first 
meeting after the effective date of the registration statement under the 
Securities Act of 1933, as amended, on condition that such meeting shall 
take place within one year after such effective date, unless the time 
for the holding of such meeting shall be extended by the Commission upon 
written request for good cause shown.
    (15) If the separate account is organized as a unit investment 
trust, all the assets of which consist of the shares of one or more 
registered management investment companies which offer their shares 
exclusively to variable life insurance separate accounts of the life 
insurer or of any affiliated life insurance company:
    (i) The eligibility restrictions of section 9(a) of the Act shall 
not be applicable to those persons who are officers, directors and 
employees of the life insurer or its affiliates who do not participate 
directly in the management or administration of any registered 
management investment company described above;
    (ii) The life insurer shall be ineligible pursuant to paragraph (3) 
of section 9(a) of the Act to serve as investment adviser of or 
principal underwriter for any registered management investment company 
described in this paragraph (b)(15) only if an affiliated person of such 
life insurer, ineligible by reason of paragraph (1) or (2) of section 
9(a), participates in the management or administration of such company;
    (iii) The life insurer may vote shares of the registered management 
investment companies held by the separate account without regard to 
instructions from contractholders of the separate account if such 
instructions would require such shares to be voted:
    (A) To cause such companies to make (or refrain from making) certain 
investments which would result in changes in the sub-classification or 
investment objectives of such companies or to approve or disapprove any 
contract between such companies and an investment adviser when required 
to do so by an insurance regulatory authority subject to the provisions 
of paragraphs (b)(5)(i) and (7)(ii)(A) of this section; or
    (B) In favor of changes in investment objectives, investment adviser 
of or principal underwriter for such companies subject to the provisions 
of paragraphs (b)(5)(ii) and (7)(ii) (B) and (C) of this section;
    (iv) Any action taken in accordance with paragraph (b)(15)(iii)(A) 
or (B) of this section and the reasons therefor shall be disclosed in 
the next report to contractholders made pursuant to section 30(e) (15 
U.S.C. 80a-29(e)) and Sec.270.30e-2;
    (v) Any registered management investment company established by the 
insurer and described in this paragraph (b)(15) shall be exempt from 
section 14(a) provided that until such company has total assets of at 
least $100,000 the life insurer shall have at least the minimum net 
worth prescribed in paragraph (b)(6) of this section; and
    (vi) Any registered management investment company established by the 
insurer and described in this paragraph (b)(15) shall be exempt from 
sections 15(a), 16(a), and 32(a)(2) of the Act, to the extent prescribed 
by paragraphs (b)(7)(i), (b)(8)(i), and (b)(14), provided that such 
company complies with the conditions set forth in those paragraphs as if 
it were a separate account.
    (c) When used in this rule:
    (1) Variable life insurance contract means a contract of life 
insurance, subject to regulation under the insurance laws or code of 
every jurisdiction in

[[Page 1183]]

which it is offered, funded by a separate account of a life insurer, 
which contract, so long as payments are duly paid in accordance with its 
terms, provides for:
    (i) A death benefit and cash surrender value which vary to reflect 
the investment experience of the separate account;
    (ii) An initial stated dollar amount of death benefit, and payment 
of a death benefit guaranteed by the life insurer to be at least equal 
to such stated amount; and
    (iii) Assumption of the mortality and expense risks thereunder by 
the life insurer for which a charge against the assets of the separate 
account may be assessed. Such charge shall be disclosed in the 
prospectus and shall not be less than fifty per centum of the maximum 
charge for risk assumption as disclosed in the prospectus and as 
provided for in the contract.
    (2) Incidental insurance benefits means insurance benefits provided 
pursuant to the variable life insurance contract, other than the minimum 
and variable death benefit, which do not vary in amount or duration in 
accordance with the investment performance of the separate account, and 
include, but are not limited to, accidental death and dismemberment 
benefits, disability income benefits, guaranteed insurability options, 
and family income or fixed benefit term riders.
    (3) Minimum death benefit is the amount guaranteed by the life 
insurer to be paid pursuant to a variable life insurance contract in the 
event of the death of the insured without regard to the investment 
performance of the separate account funding the variable life insurance 
contract, if payments are duly made and if there are no outstanding 
loans, partial withdrawals or partial surrenders, but does not include 
any incidental insurance benefits.
    (4) Sales load charged on any payment is the excess of the payment 
over the sum of the following:
    (i) The amount of the cash value for the first contract year, if 
any, and the amount of the increase in the cash value for each 
subsequent contract year, that is attributable to payments made and not 
attributable to investment earnings;
    (ii) The cost of insurance for the period for which the payment is 
made based on the 1958 Commissioners Standard Ordinary Mortality Table 
and the assumed investment rate specified in the contract;
    (iii) A reasonable charge necessary to cover the risk assumed by the 
life insurer that the variable death benefit will be less than the 
guaranteed minimum death benefit;
    (iv) Any administrative expenses or fees which are reasonable and in 
amounts not exceeding anticipated administrative expenses and fees not 
properly chargeable to sales or promotional activities;
    (v) A deduction approximately equal to state premium taxes;
    (vi) Any additional charge assessed if the insured does not meet 
standard underwriting requirements;
    (vii) Any additional charge assessed specifically for any incidental 
insurance benefits which do not vary in relation to the performance of 
the separate account;
    (viii) Any additional charge, in the nature of an interest or 
service charge or administrative fee, assessed when payments are made 
more frequently than annually;
    (ix) For a participating variable life insurance contract, a 
deduction for dividends to be paid or credited in accordance with the 
dividend scale in effect on the issue date of the contract assuming a 
gross annual investment return for the separate account which funds such 
contract of 4 percent after deduction for any Federal income taxes, 
which deduction may be determined pursuant to either of the following 
methods, provided that the same method must be applied with respect to 
each payment under the contract:
    (A) The actuarial level annual equivalent of dividends to be paid or 
credited over the period described in paragraph (b)(13)(i) of this 
section, based upon the mortality, interest and lapse assumptions used 
in computing the dividend scale for such contract multiplied by the 
fraction of the contract year for which the payment is made; or
    (B) That portion of the dividend to be paid for the contract year 
which does

[[Page 1184]]

not depend on the making of additional payments.
    (5) Assumed investment rate is the rate of investment return 
specified in the contract which would be required to be credited to a 
variable life insurance contract, after deduction of charges for Federal 
income taxes, investment management fees, portfolio transaction expenses 
and mortality and expense guarantees, to maintain the variable death 
benefit equal at all times to the amount of death benefit, other than 
incidental insurance benefits, which would be payable pursuant to the 
variable life insurance contract if the death benefit did not vary 
according to the investment experience of the separate account.
    (6) Variable death benefit is the amount of death benefit, other 
than incidental insurance benefits, payable under a variable life 
insurance contract which varies to reflect the investment performance of 
the separate account, and which would be payable in the absence of the 
minimum death benefit.
    (7) Payment, as used in paragraphs (b)(13)(i), (b)(13)(ii) and 
(b)(13)(v)(A) of this section and in sections 27(a)(2) and 27(h)(2) 
solely with respect to variable life insurance contracts, means the 
gross premium payment made less any portion of such gross premium 
charged for or attributable to the items specified in paragraphs 
(c)(4)(vi), (vii) and (viii) of this section. ``Payment,'' as used in 
any other section of the Rule, means the gross premiums paid or payable 
for the variable life insurance contract.

(Secs. 6(c) and 38(a) of the Act (15 U.S.C. 80a-6(c) and 80a-37(a), 
respectively))

[41 FR 47027, Oct. 27, 1976; 41 FR 52668, Dec. 1, 1976, as amended at 49 
FR 1477, Jan. 12, 1984; 67 FR 43536, June 28, 2002]



Sec.270.6e-3(T)  Temporary exemptions for flexible premium variable 
life insurance separate accounts.

    (a) A separate account, and its investment adviser, principal 
underwriter and depositor, shall, except as provided in paragraph (b) of 
this Rule, comply with all provisions of the Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.) and the rules under it that apply to a 
registered investment company issuing periodic payment play certificates 
if:
    (1) It is a separate account within the meaning of section 2(a)(37) 
of the Act (15 U.S.C. 80a-2(a)(37)) and is established and maintained by 
a life insurance company pursuant to the insurance laws or code of (i) 
any state or territory of the United States or the District of Columbia, 
or (ii) Canada or any province thereof, if it complies with Rule 7d-1 
(17 CFR 270.7d-1) under the Act (the ``life insurer'');
    (2) The assets of the separate account are derived solely from (i) 
the sale of flexible premium variable life insurance contracts 
(``flexible contracts'') as defined in paragraph (c)(1) of this Rule, 
(ii) the sale of scheduled premium variable life insurance contracts 
(``scheduled contracts'') as defined in paragraph (c)(1) of Rule 6e-2 
(17 CFR 270.6e-2) under the Act, (iii) funds corresponding to dividend 
accumulations with respect to such contracts, and (iv) advances made by 
the life insurer in connection with the operation of such separate 
account;
    (3) The separate account is not used for variable annuity contracts 
or other contract liabilities not involving life contingencies;
    (4) The separate account is legally segregated, and that part of its 
assets with a value approximately equal to the reserves and other 
contract liabilities for such separate account are not chargeable with 
liabilities arising from any other business of the life insurer;
    (5) The value of the assets of the separate account, each time 
adjustments in the reserves are made, is at least equal to the reserves 
and other contract liabilities of the separate account, and at all other 
times approximately equals or exceeds the reserves and liabilities; and
    (6) The investment adviser of the separate account is registered 
under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).
    (b) A separate account that meets the requirements of paragraph (a) 
of this Rule, and its investment adviser, principal underwriter and 
depositor shall be exempt with respect to flexible contracts funded by 
the separate account from the following provisions of the Act:

[[Page 1185]]

    (1) Section 2(a)(35) (15 U.S.C. 80a-2(a)(35)), Provided, however, 
That the term ``sales load,'' as used in the Act and rules under it, 
shall have the meaning set forth in paragraph (c)(4) of this Rule. And 
provided further, That in connection with any sales load deducted 
pursuant to paragraph (d)(1) of this Rule, the separate account and 
other persons shall be exempt from sections 2(a)(32) (15 U.S.C. 80a-
2(a)(32)), 12(b) (15 U.S.C. 80a-12(b)), 22(c) (15 U.S.C. 80a-22(c)), 
26(a) (15 U.S.C. 80a-26(a)), 27(c)(1) (15 U.S.C. 80a-27(c)(1)), 27(c)(2) 
(15 U.S.C. 80a-27(c)(2)), and 27(d) (15 U.S.C. 80a-27(d)), and Rules 
12b-1 (17 CFR 270.12b-1) and 22c-1 (17 CFR 270.22c-1).
    (2) Section 7 (15 U.S.C. 80a-7).
    (3) Section 8 (15 U.S.C. 80a-8), to the extent that:
    (i) For purposes of paragraph (a) of section 8, the separate account 
filed with the Commission a notification on Form N-6EI-1 (17 CFR 
274.301) which identifies the separate account; and
    (ii) For purposes of paragraph (b) of section 8, the separate 
account shall file with the Commission the form designated by the 
Commission within ninety days after filing the notification on Form N-
6EI-1, Provided, however, That if the fiscal year of the separate 
account end within this ninety day period, the form may be filed within 
ninety days after the end of such fiscal year.
    (4) Section 9 (15 U.S.C. 80a-9), to the extent that:
    (i) The eligibility restrictions of section 9(a) shall not apply to 
persons who are officers, directors or employees of the life insurer or 
its affiliates and who do not participate directly in the management or 
administration of the separate account or in the sale of flexible 
contracts; and
    (ii) A life insurer shall be ineligible under paragraph (3) of 
section 9(a) to serve as investment adviser, depositor of or principal 
underwriter for the separate account only if an affiliated person of 
such life insurer, ineligible by reason of paragraphs (1) or (2) of 
section 9(a), participates directly in the management or administration 
of the separate account or in the sale of flexible contracts.
    (5) Section 13(a) (15 U.S.C. 80a-13(a)), to the extent that:
    (i) An insurance regulatory authority may require pursuant to 
insurance law or regulation that the separate account make (or refrain 
from making) certain investments which would result in changes in the 
sub-classification or investment policies of the separate account;
    (ii) Changes in the investment policy of the separate account 
initiated by its contractholders or board of directors may be 
disapproved by the life insurer, if the disapproval is reasonable and is 
based on a good faith determination by the life insurer that:
    (A) The change would violate state law; or
    (B) The change would not be consistent with the investment 
objectives of the separate account or would result in the purchase of 
securities for the separate account which vary from the general quality 
and nature of investments and investment techniques used by other 
separate accounts of the life insurer or of an affiliated life insurance 
company with similar investment objectives;
    (iii) Any action described in paragraph (b)(5)(i) or (ii) of this 
Rule and the reasons for it shall be disclosed in the next communication 
to contractholders, but in no case, later than twelve months from the 
date of such action.
    (6) Section 14(a) (15 U.S.C. 80a-14(a)), Provided, That until the 
separate account has total assets of at least $100,000, the life insurer 
shall have (i) a combined capital and surplus, if a stock company, or 
(ii) an unassigned surplus, if a mutual company, of not less than 
$1,000,000 as set forth in the balance sheet of such life insurer 
contained in the registration statement for flexible contracts filed 
under the Securities Act of 1933 (15 U.S.C. 77a et seq.) (the ``1933 
Act'').
    (7)(i) Section 15(a) (15 U.S.C. 80a-15(a)), to the extent it 
requires that the initial written contract with the investment adviser 
shall have been approved by the vote of a majority of the outstanding 
voting securities of the registered investment company, Provided, That:

[[Page 1186]]

    (A) The investment adviser is selected and a written contract is 
entered into before the effective date of the 1933 Act registration 
statement for flexible contracts, and that the terms of the contract are 
fully disclosed in the registration statement, and
    (B) A written contract is submitted to a vote of contractholders at 
their first meeting and within one year after the effective date of the 
1933 Act registration statement, unless the Commission upon written 
request and for good cause shown extends the time for the holding of 
such meeting;
    (ii) Sections 15 (a), (b) and (c), to the extent that:
    (A) An insurance regulatory authority may disapprove pursuant to 
insurance law or regulation any contract between the separate account 
and an investment adviser or principal underwriter;
    (B) Changes in the principal underwriter for the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer, Provided, That such 
disapproval is reasonable;
    (C) Changes in the investment adviser of the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer, Provided, That such 
disapproval is reasonable and is based on a good faith determination by 
the life insurer that:
    (1) The proposed investment advisory fee will exceed the maximum 
rate specified in any flexible contract that may be charged against the 
assets of the separate account for such services; or
    (2) The proposed investment adviser may be expected to employ 
investment techniques which vary from the general techniques used by the 
current investment adviser to the separate account, or advise the 
purchase or sale of securities which would not be consistent with the 
investment objectives of the separate account, or which would vary from 
the quality and nature of investments made by other separate accounts 
with similar investment objectives of the life insurer or an affiliated 
life insurance company;
    (D) Any action described in paragraph (b)(7)(ii) (A), (B) or (C) of 
this Rule and the reasons for it shall be disclosed in the next 
communication to contractholders, but in no case, later than twelve 
months from the date of such action.
    (8) Section 16(a) (15 U.S.C. 80a-16(a)), to the extent that:
    (i) Directors of the separate account serving before the first 
meeting of the account's contractholders are exempt from the requirement 
of section 16(a) that they be elected by the holders of outstanding 
voting securities of the account at an annual or special meeting called 
for that purpose, Provided, That:
    (A) Such persons were appointed directors of the account by the life 
insurer before the effective date of the 1933 Act registration statement 
for flexible contracts and are identified in the registration statement 
(or are replacements appointed by the life insurer for any such persons 
who have become unable to serve as directors), and
    (B) An election of directors for the account is held at the first 
meeting of contractholders and within one year after the effective date 
of the 1933 Act registration statement for flexible contracts, unless 
the time for holding the meeting is extended by the Commission upon 
written request and for good cause shown;
    (ii) A member of the board of directors of the separate account may 
be disapproved or removed by an insurance regulatory authority if the 
person is not eligible to be a director of the separate account under 
the law of the life insurer's domicile.
    (9) Section 17(f) (15 U.S.C. 80a-17(f)), to the extent that the 
securities and similar investments of a separate account organized as a 
management investment company may be maintained in the custody of the 
life insurer or of an affiliated life insurance company, Provided, That:
    (i) The securities and similar investments allocated to the separate 
account are clearly identified as owned by the account, and the 
securities and similar investments are kept in the vault of an insurance 
company which meets the qualifications in paragraph (b)(9)(ii) of this 
Rule, and whose safekeeping function is supervised by the insurance 
regulatory authorities of the

[[Page 1187]]

jurisdiction in which the securities and similar investments will be 
held;
    (ii) The insurance company maintaining such investments must file 
with an insurance regulatory authority of a state or territory of the 
United States or the District of Columbia an annual statement of its 
financial condition in the form prescribed by the National Association 
of Insurance Commissioners, must be subject to supervision and 
inspection by such authority and must be examined periodically as to its 
financial condition and other affairs by such authority, must hold the 
securities and similar investments of the separate account in its vault, 
which vault must be equivalent to that of a bank which is a member of 
the Federal Reserve System, and must have a combined capital and 
surplus, if a stock company, or an unassigned surplus, if a mutual 
company, of not less than $1,000,000 as set forth in its most recent 
annual statement filed with such authority;
    (iii) Access to such securities and similar investments shall be 
limited to employees of the Commission, representatives of insurance 
regulatory authorities, independent public accountants retained by the 
separate account (or on its behalf by the life insurer), accountants for 
the life insurer, and to no more than 20 persons authorized by a 
resolution of the board of directors of the separate account, which 
persons shall be directors of the separate account, officers and 
responsible employees of the life insurer or officers and responsible 
employees of the affiliated life insurance company in whose vault the 
investments are kept (if applicable), and access to such securities and 
similar investments shall be had only by two or more such persons 
jointly, at least one of whom shall be a director of the separate 
account or officer of the life insurer;
    (iv) The requirement in paragraph (b)(9)(i) of this Rule that the 
securities and similar investments of the separate account be maintained 
in the vault of a qualified insurance company shall not apply to 
securities deposited with insurance regulatory authorities or deposited 
in accordance with any rule under section 17(f), or to securities on 
loan which are collateralized to the extent of their full market value, 
or to securities hypothecated, pledged, or placed in escrow for the 
account of such separate account in connection with a loan or other 
transaction authorized by specific resolution of the board of directors 
of the separate account, or to securities in transit in connection with 
the sale, exchange, redemption, maturity or conversion, the exercise of 
warrants or rights, assents to changes in terms of the securities, or to 
other transactions necessary or appropriate in the ordinary course of 
business relating to the management of securities;
    (v) Each person when depositing such securities or similar 
investments in or withdrawing them from the depository or when ordering 
their withdrawal and delivery from the custody of the life insurer or 
affiliated life insurance company, shall sign a notation showing (A) the 
date and time of the deposit, withdrawal or order, (B) the title and 
amount of the securities or other investments deposited, withdrawn or 
ordered to be withdrawn, and an identification thereof by certificate 
numbers or otherwise, (C) the manner of acquisition of the securities or 
similar investments deposited or the purpose for which they have been 
withdrawn, or ordered to be withdrawn, and (D) if withdrawn and 
delivered to another person, the name of such person. The notation shall 
be sent promptly to an officer or director of the separate account or 
the life insurer designated by the board of directors of the separate 
account who is not himself permitted to have access to the securities or 
investments under paragraph (b)(9)(iii) of this Rule. The notation shall 
be on serially numbered forms and shall be kept for at least one year;
    (vi) The securities and similar investments shall be verified by 
complete examination by an independent public accountant retained by the 
separate account (or on its behalf by the life insurer) at least three 
times each fiscal year, at least two of which shall be chosen by the 
accountant without prior notice to the separate account. A certificate 
of the accountant stating that he has made an examination of such 
securities and investments and describing the nature and extent of the

[[Page 1188]]

examination shall be sent to the Commission by the accountant promptly 
after each examination;
    (vii) Securities and similar investments of a separate account 
maintained with a bank or other company whose functions and physical 
facilities are supervised by federal or state authorities under any 
arrangement whereby the directors, officers, employees or agents of the 
separate account or the life insurer are authorized or permitted to 
withdraw such investments upon their mere receipt are deemed to be in 
the custody of the life insurer and shall be exempt from the 
requirements of section 17(f) so long as the arrangement complies with 
all provisions of this paragraph (b)(9), except that such securities 
will be maintained in the vault of a bank or other company rather than 
the vault of an insurance company.
    (10) Section 18(i) (15 U.S.C. 80a-18(i)), to the extent that:
    (i) For the purposes of any section of the Act which provides for 
the vote of securityholders on matters relating to the investment 
company:
    (A) Flexible contractholders shall have one vote for each $100 of 
cash value funded by the separate account, with fractional votes 
allocated for amounts less than $100;
    (B) The life insurer shall have one vote for each $100 of assets of 
the separate account not otherwise attributable to contractholders under 
paragraph (b)(10)(i)(A) of this Rule, with fractional votes allocated 
for amounts less than $100, Provided, That after the commencement of 
sales of flexible contracts, the life insurer shall cast its votes for 
and against each matter which may be voted upon by contractholders in 
the same proportion as the votes cast by contractholders; and
    (C) The number of votes to be allocated shall be determined as of a 
record date not more than 90 days before any meeting at which such vote 
is held, Provided, That if a quorum is not present at the meeting, the 
meeting may be adjourned for up to 60 days without fixing a new record 
date;
    (ii) The requirement of this section that every share of stock 
issued by a registered management investment company (except a common-
law trust of the character described in section 16(c) (15 U.S.C. 80a-
16(c))) shall be a voting stock and have equal voting rights with every 
other outstanding voting stock shall not be deemed to be violated by 
actions specifically permitted by any provisions of this Rule.
    (11) Section 19 (15 U.S.C. 80a-19), to the extent that the 
provisions of this section shall not apply to any dividend or similar 
distribution paid or payable under provisions of participating flexible 
contracts.
    (12) Sections 22(c), 22(d) (15 U.S.C. 80a-22(d)), 22(e) (15 U.S.C. 
80a-22(e)), and 27(c)(1) and Rule 22c-1 to the extent:
    (i) The cash value of each flexible contract shall be computed in 
accordance with Rule 22c-1(b) under the Act; Provided, however, That 
where actual computation is not necessary for the operation of a 
particular contract, then the cash value of that contract must only be 
capable of computation; And provided further, That to the extent the 
calculation of the cash value reflects deductions for the cost of 
insurance and other insurance benefits or administrative expenses and 
fees or sales loads, such deductions need only be made at such times as 
specified in the contract or as necessary for compliance with insurance 
laws and regulations; and
    (ii) The death benefit, unless required by insurance laws and 
regulations, shall be computed on any day that the investment experience 
of the separate account would affect the death benefit under the terms 
of the contract provided that such terms are reasonable, fair, and 
nondiscriminatory;
    (iii) Necessary to comply with this Rule or with insurance laws and 
regulations and established administrative procedures of the life 
insurer for issuance, increases in or additions of insurance benefits, 
transfer and redemption of flexible contracts, including, but not 
limited to, premium rate structure and premium processing, insurance 
underwriting standards, and the particular benefit afforded by the 
contract, Provided, however, That any procedure or action shall be 
reasonable, fair and not discriminatory to the

[[Page 1189]]

interests of the affected contractholders and to all other holders of 
contracts of the same class or series funded by the separate account, 
And provided further, That any such action shall be disclosed in the 
form filed by the separate account with the Commission under paragraph 
(b)(3)(ii) of this Rule.
    (13) Section 27 (15 U.S.C. 80a-27), to the following extent:
    (i) Section 27(a)(1) (15 U.S.C. 80a-27(a)(1)), 27(h)(1) (15 U.S.C. 
80a-27(h)(1)), and 27(h)(4) (15 U.S.C. 80a-27(h)(4)), to the extent that 
sales load, as defined in paragraph (c)(4) of this Rule, deducted does 
not exceed that permitted by either paragraph (b)(13)(i)(A) or 
(b)(13)(i)(B) of this section:
    (A) 9 per centum of the sum of the guideline annual premiums that 
would be paid during the period equal to the lesser of 20 years or the 
anticipated life expectancy of the insured named in the contract based 
on the 1980 Commissioners Standard Ordinary Mortality Table, Provided, 
That this paragraph (b)(13)(i)(A) shall not prohibit deduction of sales 
load, in any manner permitted by this Rule, from payments made in excess 
of the sum of the guideline annual premiums that would be paid during 
the lesser of 20 years or the anticipated life expectancy of the insured 
based on the 1980 Commissioners Standard Ordinary Mortality Table; or
    (B) 9 per centum of payments made thereon; Provided, That the 
separate account elects by written notice to the Commission to be 
governed (with respect to each class of flexible contract offered) by 
either paragraph (b)(13)(i)(A) or (B); Provided, however, That for each 
class of flexible contract that requires more than four guideline annual 
premiums within the first two contract periods following issuance of the 
contract or of an increase in or addition of insurance benefits (within 
the meaning of paragraph (d)(2) of this section), the separate account 
must elect to be governed by paragraph (b)(13)(i)(B) of this section.
    (ii) Sections 27(a)(3) (15 U.S.C. 80a-27(a)(3)) and 27(h)(3) (15 
U.S.C. 80a-27(h)(3)), Provided, That the proportionate amount of sales 
load deducted from any payment shall not exceed the proportionate amount 
deducted from any prior payment unless an increase is caused by 
reductions in the annual cost of insurance, or a reduction in the sales 
load deducted from amounts transferred to a flexible contract from 
another plan of insurance;
    (iii) Sections 27(c)(2), 26(a)(1) (15 U.S.C. 80a-26(a)(1)), and 
26(a)(2) (15 U.S.C. 80a-26(a)(2)), to the extent necessary to permit the 
actions described in paragraphs (A) through (F) of this section, 
Provided, That the life insurer complies with all other applicable 
provisions of section 26 as if it were a trustee, depositor or custodian 
for the separate account; files with the insurance regulatory authority 
of a state or territory of the United States or of the District of 
Columbia an annual statement of its financial condition in the form 
prescribed by the National Association of Insurance Commissioners, which 
most recent statement indicates that it has a combined capital and 
surplus, if a stock company, or an unassigned surplus, if a mutual 
company, of not less than $1,000,000; and is examined from time to time 
by the insurance regulatory authority of such state, territory or 
District of Columbia as to its financial condition and other affairs and 
is subject to supervision and inspection with respect to its separate 
account operations.
    (A) Payment of a fee to the life insurer, or to any affiliated 
person or agent of the insurer, for bookkeeping or other administrative 
services provided to the separate account, or for administrative 
services or expenses incurred in underwriting, issuing, and maintaining 
flexible contracts, Provided, That the fee is not greater than the 
expenses, without profit:
    (1) Actually paid by the life insurer for the services provided; and
    (2) Increased by the value of any services provided directly by the 
life insurer, as determined in accordance with generally accepted 
accounting principles consistently applied.

The standard set forth in this paragraph shall be applied as follows: if 
the separate account reserves the right to increase the fee, the fee 
shall not exceed the cost of the services to be provided for one year; 
or if the fee is guaranteed not to increase for a specified period of 
time, the fee shall not exceed

[[Page 1190]]

the average expected cost of the services to be provided during the 
period of the guarantee;
    (B) The holding of the assets of the separate account by the life 
insurer without a trust indenture or other such instrument;
    (C) When the separate account is organized as a unit investment 
trust, the holding of the securities of any registered management 
investment company which offers its shares to the separate account in 
uncertificated form;
    (D) When the separate account is organized as a management 
investment company, the holding of its assets in any manner permitted by 
paragraph (b)(9) of this Rule or by section 17(f) or the rules under it;
    (E) The deduction of premium or other taxes imposed by any state or 
other governmental entity, the cost of insurance, charges assessed for 
incidental insurance benefits or if the insured does not meet standard 
underwriting requirements, and, if the separate account is organized as 
a management investment company, an investment advisory fee;
    (F) The deduction of a charge for mortality, expense, and any 
guaranteed death benefit risks assumed by the life insurer under the 
flexible contracts (collectively, a ``risk charge''), Provided, That the 
registration statement under the 1933 Act for flexible contracts 
includes:
    (1) A representation that this paragraph is being relied upon;
    (2) A representation that the level of the risk charge either is:
    (i) Within the range of industry practice for comparable flexible or 
scheduled contracts, or
    (ii) Reasonable in relation to the risks assumed by the life insurer 
under the contracts;
    (3) A brief description of the methodology used to support the 
representation made in response to paragraph (b)(13)(iii)(F)(2) of this 
Rule and an undertaking to keep and make available to the Commission 
upon request the documents used to support that representation;
    (4) A representation that either:
    (i) The proceeds from explicit sales loads will be sufficient to 
cover the expected costs of distributing the flexible contracts; or
    (ii)(A) The life insurer has concluded that there is a reasonable 
likelihood that the distribution financing arrangement of the separate 
account will benefit the separate account and contractholders and will 
keep and make available to the Commission on request a memorandum 
setting forth the basis for this representation; and
    (B) If the separate account is organized as a management investment 
company, a representation that the account will have a board of 
directors, a majority of whom are not interested persons of the separate 
account, formulate and approve any plan under Rule 12b-1 to finance 
distribution expenses. If the separate account is organized as a unit 
investment trust, a representation that the account will invest only in 
management investment companies which have undertaken to have a board of 
directors, a majority of whom are not interested persons of the company, 
formulate and approve any plan under Rule 12b-1 to finance distribution 
expenses.

Notwithstanding the provisions of this paragraph (b)(13)(iii)(F), no 
risk charge may be deducted in reliance thereupon if the registration 
statement or amendment thereto which initially sets forth the deduction 
of such charge or its increase becomes effective by lapse of time 
pursuant to section 8(a) of the 1933 Act or Rule 485 (17 CFR 230.485) 
thereunder. Such charge shall be disclosed in the prospectus and shall 
not be less than fifty per centum of the maximum charge for risk 
assumption as disclosed in the prospectus and as provided for in the 
contract. Any separate account organized under the Act as a management 
investment company and deducting a risk charge pursuant to this section 
shall be exempt from section 12(b) and Rule 12b-1 thereunder to the 
extent that monies derived from the risk charge may be used to finance 
distribution of the flexible contracts;
    (iv) Sections 27(c)(1) and 27(d), and sections 2(a)(32) and 22(c) 
and Rule 22c-1 thereunder, to the extent that:
    (A) Such sections require that the flexible contract be redeemable 
or provide for a refund in cash, Provided, That the contract provides 
for election

[[Page 1191]]

by the contractholder of a cash surrender value or certain non-
forfeiture and settlement options which are required or permitted by the 
insurance law or regulation of the jurisdiction in which the contract is 
offered, And provided further, That unless required by the insurance law 
or regulation of the jurisdiction in which the contract is offered or 
unless elected by the contractholder, the contract shall not provide for 
the automatic imposition of any option, including, but not limited to, 
an automatic premium loan, which would involve the accrual or payment of 
an interest or similar charge.
    (B) Notwithstanding the provisions of paragraph (b)(13)(iv)(A) of 
this Rule, if the amounts available under the contract to pay the 
charges due under the contract on any contract processing day are less 
than such charges due, the contract may provide that the cash surrender 
value (and any excess paid for sales loading not used to keep the 
contract in force pursuant to paragraph (b)(13)(iv)(B)(2) of this Rule) 
shall be applied to purchase a non-forfeiture option specified by the 
life insurer in such contract, Provided, That the contract also provides 
that:
    (1) Contract processing days occur not less frequently than monthly, 
and
    (2) the amount of any excess paid for sales loading (as provided in 
paragraph (b)(13)(v)(A) of this Rule) shall first be applied to keep the 
contract in force, Provided, however, That if the contractholder 
subsequently makes a payment, the life insurer may recover such excess 
loading;
    (C) Subject to other provisions of this Rule, sales loads and 
administrative expenses or fees may be deducted upon redemption.
    (v) Section 27(d), Provided, That the flexible contract gives the 
holder thereof the right to:
    (A) Surrender the contract at any time during the first 24 months 
after issuance and receive in cash an amount not less than the sum of 
the present value of his contract which is the cash surrender value next 
computed after receipt by the life insurer of the request for surrender 
in proper form, plus, an amount which is a refund of any excess paid for 
sales loading prior to or in connection with the surrender. The amount 
of sales loading to be refunded shall be equal to that part of the sales 
loading in excess of (1) the sum of 30 per centum of payments in 
aggregate amount less than or equal to one guideline annual premium, 
plus 10 per centum of payments in aggregate amount greater than one 
guideline annual premium but not more than two guideline annual 
premiums, and (2) 9 per centum of each payment made in excess of two 
guideline annual premiums;
    (B) Convert the contract at any time during the first 24 months 
after issuance, so long as the contract is in force, to a life insurance 
policy on the life of the insured under a plan of insurance (other than 
a plan involving a flexible contract as defined in paragraph (c)(1) of 
this Rule or a scheduled contract as defined in paragraph (c)(1) of Rule 
6e-2) specified in the contract, issued by the life insurer or by an 
affiliated life insurance company, which provides for (1) at the 
election of the contractholder, either the same death benefit or the 
same net amount at risk as the flexible contract at the time of 
conversion and (2) premiums (or cost of insurance or other charges, 
(``charges'') if such plan of insurance provides for flexible premiums) 
which are based on the same issue age and risk classification of the 
insured as the flexible contract. The conversion shall be subject to an 
equitable adjustment in payments and cash values to reflect variances, 
if any, in the payments (or charges), dividends, and cash values under 
the flexible contract and the new policy. The method of computing such 
adjustment shall be filed with the Commission as an exhibit to the form 
required under paragraph (b)(3)(ii) of this Rule;
    (vi) A depositor or principal underwriter for a flexible contract 
sold subject to section 27(d) or section 27(f), or both, shall be exempt 
from the requirements of Rule 27d-1 (17 CFR 270.27d-1) if an insurance 
company undertakes in writing to guarantee the performance of all 
obligations of such depositor or principal underwriter under sections 
27(d) and 27(f) to refund charges, and such insurance company, depositor 
and principal underwriter comply with all

[[Page 1192]]

provisions of Rule 27d-2 (17 CFR 270.27d-2);
    (vii) Section 27(e) [15 U.S.C. 80a-27(e)] and Rule 27e-1 (17 CFR 
270.27e-1) thereunder, to the extent that the separate account and the 
depositor and principal underwriter therefor, when such persons are 
subject to paragraph (b)(13)(v)(A) of this Rule, are required to provide 
a notice of right of surrender and refund to holders of flexible 
contracts, if the life insurer or a duly authorized agent provides a 
notice of surrender and refund rights on a written document containing 
information comparable to that required by Form N-27I-1 (17 CFR 274.301) 
to the holder of any flexible contract under which a refund may be 
available, Provided, That such notice shall be sent by first class mail 
or personal delivery to the contractholder:
    (A) Upon issuance of the flexible contract, which notice may be sent 
together with the issued contract and an illustration, in a form 
appropriate for inclusion in the prospectus for the flexible contract, 
of guideline annual premiums, death benefits and cash surrender values 
applicable to the age, sex and underwriting classification of the 
insured; and
    (B) On any contract processing day, prior to the expiration of the 
surrender and refund right provided in paragraph (b)(13)(v)(A) of this 
Rule, on which the amounts available under the contract on such day to 
pay the charges authorized by the contract are less than the amount 
necessary to keep the contract in force until the next following 
contract processing day. This notice may be sent together with any 
notice required by applicable state authority to be sent in these 
circumstances; Provided, however, That the right of surrender and refund 
provided by paragraph (b)(13)(v)(A) of this Rule shall not expire until 
not less than 15 days after the mailing or receipt, if personally 
delivered, of the last notice referred to in this paragraph 
(b)(13)(vii)(B) of this section;
    (viii) Section 27(f) and Rule 27f-1 thereunder (17 CFR 270.27f-1), 
Provided, That:
    (A) The contractholder may elect to return the contract within 45 
days of the date of the execution of the application for insurance, or 
within 10 days after receipt of the issued contract by the 
contractholder, or within 10 days after mailing or personal delivery of 
the notice of the right of withdrawal referred to in paragraph 
(b)(13)(viii)(C) of this Rule, whichever is later, and receive a refund 
equal to the sum of (1) the difference between the payments made, 
including any contract fees or other charges, and the amounts allocated 
to the separate account under the contract, (2) the value of the amounts 
allocated to the separate account under the contract on the date the 
returned contract is received by the insurer or its agent, and (3) any 
contract fees and other changes imposed on the amounts allocated to such 
separate account, Provided, however, That if state law or the contract 
so require, the redeeming contractholder shall receive a refund of all 
payments made for such contract;
    (B) A refund in accordance with paragraph (b)(13)(viii)(A) of this 
Rule to redeeming contractholders will not in any way affect the 
interests in the separate account or the benefits of other flexible or 
scheduled contractholders;
    (C) Notice of such withdrawal right and a statement of contract fees 
and other charges on a written document containing information 
comparable to that required by Form N-27I-2 (17 CFR 274.303) is sent by 
first class mail or personal delivery to the contractholder, which 
notice and statement may be accompanied by the flexible contract, and an 
illustration, in a form appropriate for inclusion in the prospectus for 
the flexible contract, of guideline annual premiums (or, if the contract 
is subject to paragraph (b)(13)(i)(B), payments), death benefits and 
cash surrender values applicable to the age, sex and underwriting 
classification of the insured;
    (D) The contractholder, in conjunction with the notice of withdrawal 
right referred to in paragraph (b)(13)(viii)(C) of this section, is 
provided with a form of request for refund of the amount computed in 
accordance with paragraph (b)(13)(viii)(A), which form shall set forth:

[[Page 1193]]

    (1) Instructions as to the manner in which a refund may be obtained, 
including the address to which the request form should be mailed; and
    (2) Spaces necessary to indicate the date of such request, the 
contract number and the signature of the contractholder; and
    (E) Within 7 days from the receipt of such duly executed timely 
request for refund, the life insurer will refund in cash to the 
contractholder the amount computed in accordance with paragraph 
(b)(13)(viii)(A) of this Rule; and
    (ix) Solely for purposes of paragraphs (b)(13)(v) and (b)(13)(viii) 
of this Rule, the postmark date on the envelope containing the flexible 
contract shall determine whether such contract has been submitted for 
surrender, conversion, or withdrawal within the designated period.
    (14) Section 32(a)(2) (15 U.S.C. 80a-31(a)(2)), Provided, That:
    (i) The independent public accountant is selected before the 
effective date of the 1933 Act registration statement for flexible 
contracts, and the identity of the accountant is disclosed in the 
registration statement, and
    (ii) The selection of the accountant is submitted for ratification 
or rejection to flexible contractholders at their first meeting and 
within one year after the effective date of the 1933 Act registration 
statement for flexible contracts, unless the time for holding the 
meeting is extended by order of the Commission.
    (15) If the separate account is organized as a unit investment 
trust, all the assets of which consist of the shares of one or more 
registered management investment companies which offer their shares 
exclusively to separate accounts of the life insurer, or of any 
affiliated life insurance company, offering either scheduled contracts 
or flexible contracts, or both; or which also offer their shares to 
variable annuity separate accounts of the life insurer or of an 
affiliated life insurance company, or which offer their shares to any 
such life insurance company in consideration solely for advances made by 
the life insurer in connection with the operation of the separate 
account; Provided, That: the board of directors of each investment 
company, constituted with a majority of disinterested directors, will 
monitor such company for the existence of any material irreconcilable 
conflict between the interests of variable annuity contractholders and 
scheduled or flexible contractholders investing in such company; the 
life insurer agrees that it will be responsible for reporting any 
potential or existing conflicts to the directors; and if a conflict 
arises, the life insurer will, at its own cost, remedy such conflict up 
to and including establishing a new registered management investment 
company and segregating the assets underlying the variable annuity 
contracts and the scheduled or flexible contracts; Then:
    (i) The eligibility restrictions of section 9(a) shall not apply to 
those persons who are officers, directors or employees of the life 
insurer or its affiliates who do not participate directly in the 
management or administration of any registered management investment 
company described in this paragraph (b)(15);
    (ii) The life insurer shall be ineligible under paragraph (3) of 
section 9(a) to serve as investment adviser of or principal underwriter 
for any registered management investment company described in this 
paragraph (b)(15) only if an affiliated person of such life insurer, 
ineligible by reason of paragraphs (1) or (2) of section 9(a), 
participates in the management or administration of such company;
    (iii) For purposes of any section of the Act which provides for the 
vote of securityholders on matters relating to the separate account or 
the underlying registered investment company, the voting provisions of 
paragraph (b)(10)(i) and (ii) of this Rule apply, Provided, That:
    (A) The life insurer may vote shares of the registered management 
investment companies held by the separate account without regard to 
instructions from contractholders of the separate account if such 
instructions would require such shares to be voted:
    (1) To cause such companies to make (or refrain from making) certain 
investments which would result in changes in the sub-classification or 
investment objectives of such companies

[[Page 1194]]

or to approve or disapprove any contract between such companies and an 
investment adviser when required to do so by an insurance regulatory 
authority subject to the provisions of paragraphs (b)(5)(i) and 
(b)(7)(ii)(A) of this Rule; or
    (2) In favor of changes in investment objectives, investment adviser 
of or principal underwriter for such companies subject to the provisions 
of paragraphs (b)(5)(ii) and (b)(7)(ii) (B) and (C) of this Rule;
    (B) Any action taken in accordance with paragraph (b)(15)(iii)(A)(1) 
or (2) of this section and the reasons therefor shall be disclosed in 
the next report contractholders made under section 30(e) (15 U.S.C. 80a-
29(e)) and Sec.270.30e-2;
    (iv) Any registered management investment company established by the 
life insurer and described in this paragraph (b)(15) shall be exempt 
from section 14(a), Provided, That until the company has total assets of 
at least $100,000, the life insurer shall have at least the minimum net 
worth prescribed in paragraph (b)(6) of this Rule; and
    (v) Any registered management investment company established by the 
life insurer and described in this paragraph (b)(15) shall be exempt 
from sections 15(a), 16(a), and 32(a)(2), to the extent prescribed by 
paragraphs (b)(7)(i), (b)(8)(i), and (b)(14) of this Rule, Provided, 
That the company complies with the conditions set forth in those 
paragraphs as if it were a separate account.
    (c) When used in this Rule:
    (1) Flexible premium variable life insurance contract means a 
contract of life insurance, subject to regulation under the insurance 
laws or code of every jurisdiction in which it is offered, funded by a 
separate account of a life insurer, which contract provides for:
    (i) Payments which are not fixed by the life insurer as to both 
timing and amount: Provided, however, That the life insurer may fix the 
timing and minimum amount of payments for the first two contract periods 
following issuance of the contract or of an increase in or addition of 
insurance benefits (within the meaning of paragraph (d)(2) of this 
section), and may prescribe a reasonable minimum amount for any 
additional payment;
    (ii) A death benefit the amount or duration of which may vary to 
reflect the investment experience of the separate account;
    (iii) A cash value which varies to reflect the investment experience 
of the separate account; and
    (iv) There is a reasonable expectation that subsequent payments will 
be made.
    (2) Incidental insurance benefits means insurance benefits provided 
pursuant to the flexible contract, other than any guaranteed and 
variable death benefit, which do not have discrete cash values that may 
vary in amount in accordance with the investment experience of the 
separate account, and include, but are not limited to, accidental death 
and dismemberment benefits, disability income benefits, guaranteed 
insurability options, and family income or fixed benefit term riders.
    (3) Guaranteed death benefit is any amount guaranteed by the life 
insurer to be paid pursuant to a flexible contract in the event of the 
death of the insured without regard to the investment experience of the 
separate account, if there are no outstanding loans or partial 
surrenders, but does not include any incidental insurance benefits.
    (4) Sales load charged during a contract period is the excess of any 
payments made during the period over the sum of the following:
    (i) The amount of the change (whether it is an increase or decrease) 
in the cash value for the period that is not attributable to net 
investment earnings or to dividends for a participating flexible 
contract for the period;
    (ii) The cost of insurance for the period based on:
    (A) For a flexible contract subject to paragraph (b)(13)(i)(A) of 
this section, the 1980 Commissioners Standard Ordinary Mortality Table 
and net interest at the annual effective rate specified for purposes of 
paragraph (c)(8)(i)(B) of this Rule; or
    (B) For a flexible contract subject to paragraph (b)(13)(i)(B) of 
this section, either the 1980 Commissioners Standard Ordinary Mortality 
Table or the 1958 Commissioners Ordinary Mortality

[[Page 1195]]

Table (whichever relates to rates guaranteed by the contract) and the 
assumed investment rate specified in the contract, Provided, however, 
That the 1958 Commissioners Ordinary Mortality Table may only be used 
for those contracts issued before 1990, or such earlier mandatory date 
for implementation of the 1980 Commissioners Standard Ordinary Mortality 
Table under the applicable Standard Nonforfeiture Law for life 
insurance;
    (iii) A reasonable charge necessary to cover the risk assumed by the 
life insurer that the variable death benefit will be less than any 
guaranteed death benefit;
    (iv) Any administrative expenses or fees which are deducted pursuant 
to paragraph (b)(13)(iii)(A) of this Rule;
    (v) A deduction for and approximately equal to state premium taxes;
    (vi) Any additional charge assessed if the insured does not meet 
standard underwriting requirements, including, but not limited to, any 
additional cost of insurance charge for a contract purchased on a 
simplified underwriting or guaranteed issue basis;
    (vii) Any additional charge assessed specifically for any incidental 
insurance benefits;
    (viii) Any additional charge, the nature of an interest charge, 
assessed when payments are made more frequently than annually, but only 
to the extent that such payments are made to fulfill a minimum payment 
requirement imposed pursuant to paragraph (c)(1)(i) of this Rule;
    (ix) Any amounts redeemed by the contractholder or paid out to the 
beneficiary upon the death of the insured which are not attributable to 
net investment earnings for the period; and
    (x) For a participating flexible contract, a deduction for dividends 
to be paid or credited in accordance with the dividend scale in effect 
on the issue date of the contract assuming a net annual investment 
return for the separate account which funds the contract of 5 per 
centum. The deduction may be determined by either of the following 
methods, but the same method must be used for each contract period:
    (A) The actuarial level annual equivalent of dividends to be paid or 
credited over the contract periods described in paragraph (b)(13)(i) of 
this Rule, based upon the mortality, interest and lapse assumptions used 
in computing the dividend scale for the contract (and, if the contract 
is subject to paragraph (b)(13)(i)(A) of this section, the assumption 
that the guideline annual premium will be paid in each contract period) 
multiplied by the fraction of the contract year represented by the 
contract period; or
    (B) That portion of the dividend to be paid for the contract year 
which does not depend on the making of payments in addition to those 
made during the period.
    (5) Contract period means the period from a contract issue or 
anniversary date to the earlier of the next following anniversary date 
(or, if later, the last day of any grace period commencing before such 
next following anniversary date) or the termination date of the 
contract.
    (6) Variable death benefit is the amount of death benefit, other 
than incidental insurance benefits, payable under a flexible contract 
which varies to reflect the investment experience of the separate 
account and which would be payable in the absence of any guaranteed 
death benefit.
    (7) Payment, as used in paragraphs (b)(13)(i), (b)(13)(ii), and 
(b)(13)(v)(A) of this Rule and in sections 27(a)(2) and 27(h)(2) solely 
with respect to flexible contracts, means for a contract period the 
gross permiums paid less any portion of such gross premiums charged for 
the items specified in paragraphs (c)(4)(vi), (c)(4)(vii), and 
(c)(4)(viii) of this Rule. ``Payment,'' as used in any other section of 
this Rule, means the gross premiums paid or payable for the flexible 
contract, Except, That ``Payment'' shall not include any amount deducted 
by the life insurer to recover excess sales loading previously applied 
to keep the contract in force pursuant to paragraph (b)(13)(iv)(B)(2) of 
this Rule.
    (8)(i) Guideline annual premium means the level annual amount that 
would be payable through the maturity date specified in paragraph 
(c)(8)(ii)(B) of this Rule for the future benefits under the contract 
if, subject to the provisions of paragraph (c)(8)(ii) of this Rule:

[[Page 1196]]

    (A) The payments were fixed by the life insurer as to both timing 
and amount, and
    (B) The payments were based on the 1980 Commissioners Standard 
Ordinary Mortality Table, net investment earnings at the greater of an 
annual effective rate of 5 per centum or rate or rates guaranteed at 
issuance of the flexible contract, the sales load under the contract, 
and the fees and charges associated with the contract specified in 
parapraphs (c)(4)(iii), (c)(4)(iv), (c)(4)(v), (c)(4)(vi), (c)(4)(vii), 
(c)(4)(viii) (for the first two contract periods as permitted by 
paragraphs (c)(1)(i)), and (c)(4)(x) of this Rule.
    (ii) In computing the future benefits under the flexible contract 
for determining the guideline annual premium:
    (A) The excess of the amount payable by reason of the death of the 
insured (determined without regard to any incidental insurance benefits) 
over the cash value of the contract shall be deemed to be not greater 
than such excess at the time the contract was issued,
    (B) The maturity date shall be the latest maturity date permitted 
under the contract but not less than 20 years after the date of issue or 
(if earlier) age 95, and
    (C) The amount of any endowment benefit (or sum of endowment 
benefits) shall be deemed not to exceed the least amount payable by 
reason of the death of the insured (determined without regard to any 
incidental insurance benefits) at any time under the contract.
    (9) Cash value means the amount that would be available in cash upon 
voluntary termination of a contract by its owner before it becomes 
payable by death or maturity, without regard to any charges that may be 
assessed upon such termination and before deduction of any outstanding 
contract loan.
    (10) Cash surrender value means the amount available in cash upon 
voluntary termination of a contract by its owner before it becomes 
payable by death or maturity, after any charges assessed in connection 
with the termination have been deducted and before deduction of any 
outstanding contract loan.
    (11) Net investment earnings means investment earnings in the 
separate account after deduction of any asset charges, including but not 
limited to, such charges for income tax; brokerage and other investment 
expenses; mortality, expense, and guaranteed death benefit risks; and an 
investment advisory fee, but not including deductions for sales load. 
However, ``net investment earnings'' as used in paragraph (c)(4)(i) of 
this Rule shall not include any amount deducted pursuant to paragraphs 
(ii) through (viii) of paragraph (c)(4).
    (12) Contract processing day means any day on which charges under 
the contract are deducted from the separate account.
    (d) The following computational rules shall be used in applying this 
Rule:
    (1) Paragraphs (b)(13)(i) and (b)(13)(ii) of this Rule shall be 
deemed to be satisfied with respect to any flexible contract under which 
sales load is deducted other than from payments prior to the allocation 
of net payments to the separate account if:
    (i) From issuance of the contract through each contract period, the 
aggregate amount of sales load deducted is not more than the aggregate 
amount of sales load that could be deducted under an otherwise identical 
flexible contract that deducted sales load only from payments prior to 
their allocation to the separate account; and
    (ii)(A) The amount of sales load deducted pursuant to any method 
permitted under this paragraph (other than asset-based sales loads) does 
not exceed the proportionate amount of sales load deducted prior thereto 
pursuant to the same method, unless an increase in such proportionate 
amount is caused by reductions in the annual cost of insurance, or a 
reduction in the sales load deducted from amounts transferred to a 
flexible contract from another plan of insurance; or
    (B) For asset-based sales load structures, the percentage of assets 
taken as sales load does not exceed any of the percentages previously 
taken pursuant to the same method, unless an increase in such percentage 
is caused by a reduction in the percentage taken on amounts transferred 
to a flexible contract from another plan of insurance.

[[Page 1197]]

    (2)(i) Solely with respect to increases in or additions of insurance 
benefits requested by a contractholder after issuance of a flexible 
contract, the contract shall be deemed to satisfy paragraphs 
(b)(13)(i)(A), (b)(13)(ii), (b)(13)(v), (b)(13)(viii), and (d)(1)(ii) of 
this Rule, Provided, That from issuance of the contract through each 
contract period the aggregate amount of sales load imposed is not more 
than the aggregate amount of sales load that would be permissible under 
the base test contract, as defined in paragraph (d)(2)(iii)(B) of this 
Rule, and the incremental test contract, as defined in paragraph 
(d)(2)(iii)(C) of this Rule.
    (ii) The following procedures shall be used in applying paragraph 
(d)(2)(i) of this section:
    (A) Payments for the actual contract, as defined in paragraph 
(d)(2)(iii)(A) of this Rule, and the base and incremental test contracts 
shall, for purposes of demonstrating compliance with the sales load 
provisions of this Rule, be deemed paid in the following proportionate 
amounts: level annual payments for the base test contract equal to the 
guideline annual premium for the contract, commencing upon issuance; 
level annual payments for the incremental test contract equal to the 
difference between the guideline annual premium for the actual contract 
after the increase in or addition of insurance benefits and before such 
increase or addition, commencing upon such increase or addition; and 
level annual payments for the actual contract equal to the guideline 
annual premium for such contract, commencing upon issuance and adjusted 
for such increase or addition as of the date of such increase or 
addition, Provided that the guideline annual premium used is that 
defined in paragraph (c)(8) of this section;
    (B) To the extent that the increases in, or additions of, insurance 
benefits are funded out of cash value, such cash value shall be 
proportionately allocated between the base test contract and incremental 
test contract according to the ratio of their respective guideline 
annual payments, as described in (d)(2)(ii)(A); and
    (C) It is assumed that no redemptions are made under the actual and 
test contracts.
    (D) An incremental test contract may deduct, in any manner permitted 
by this Rule, not more than 50 per centum of the sales load which would 
otherwise be permitted under the base test contract, and not be subject 
to the surrender, conversion, and withdrawal provisions set forth in 
paragraphs (b)(13)(v) (A) and (B) and (b)(13)(viii) of this Rule, 
Provided, however, That the increased or added benefit will be subject 
to the surrender, conversion, and withdrawal provisions referenced above 
if more than such 50 per centum of sales load is assessed.
    (iii) For purposes of this paragraph (d)(2):
    (A) Actual contract shall mean the flexible contract issued to the 
contractholder, and adjusted for the increase in or addition of 
insurance benefits, as of the date of the increase or addition;
    (B) Base test contract shall mean the actual contract had the 
increase or addition not occurred;
    (C) Incremental test contract shall mean a flexible contract that, 
(1) is issued on the date of the increase or addition, and (2) provides 
insurance benefits identical to the incremental change in insurance 
benefits under the actual contract upon such increase or addition; and
    (D) Any change in insurance benefits which would occur automatically 
under a contract, with or without the opportunity for contractholder 
disapproval, or any change in death benefit operation shall not be 
considered an ``increase in or addition of insurance benefits requested 
by a contractholder'' for purposes of imposing additional sales load.

[52 FR 11208, Apr. 8, 1987, as amended at 59 FR 43467, Aug. 24, 1994; 67 
FR 43536, June 28, 2002]



Sec.270.7d-1  Specification of conditions and arrangements for Canadian
management investment companies requesting order permitting 
registration.

    (a) A management investment company organized under the laws of 
Canada or any province thereof may obtain

[[Page 1198]]

an order pursuant to section 7(d) permitting its registration under the 
act and the public offering of its securities, if otherwise appropriate, 
upon the filing of an application complying with paragraph (b) of this 
section. All such applications will be considered by the Commission 
pursuant to the procedure set forth in Sec.270.0-5 and other 
applicable rules. Conditions and arrangements proposed by investment 
companies organized under the laws of other countries will be considered 
by the Commission in the light of the special circumstances and local 
laws involved in each case.
    (b) An application filed pursuant to this section shall contain, 
inter alia, the following undertakings and agreements of the applicant:
    (1) Applicant will cause each present and future officer, director, 
investment adviser, principal underwriter and custodian of the applicant 
to enter into an agreement, to be filed by applicant with the Commission 
upon the filing of its registration statement or upon the assumption of 
such office by such person which will provide, among other things, that 
each such person agrees (i) to comply with the applicant's Letters 
Patent (Charter) and By Laws, the act and the rules thereunder, and the 
undertakings and agreements contained in said application insofar as 
applicable to such person; (ii) to do nothing inconsistent with the 
applicant's undertakings and agreements required by this section; (iii) 
that the undertakings enumerated as paragraphs (b)(1)(i) and (ii) of 
this section constitute representations and inducements to the 
Commission to issue its order in the premises and continue the same in 
effect, as the case may be; (iv) that each such agreement constitutes a 
contract between such person and the applicant and its shareholders with 
the intent that applicant's shareholders shall be beneficiaries of and 
shall have the status of parties to such agreement so as to enable them 
to maintain actions at law or in equity within the United States and 
Canada for any violation thereof. In addition the agreement of each 
officer and director will contain provisions similar to those contained 
in paragraph (b)(6) of this section.
    (2) That every agreement and undertaking of the applicant, its 
officers, directors, investment adviser, principal underwriter and 
custodian required by this section (i) constitute inducements to the 
Commission for the issuance and continuance in effect of, and conditions 
to, the Commission's order to be entered under this section; (ii) 
constitute a contract among applicant and applicant's shareholders with 
the same intent as set forth in paragraph (b)(1)(iv) of this section; 
and (iii) failure by the applicant or any of the above enumerated 
persons to comply with any such agreement and undertaking, unless 
permitted by the Commission, shall constitute a violation of the order 
entered under this section.
    (3) That the Commission, in its discretion, may revoke its order 
permitting registration of the applicant and the public offering of its 
securities if it shall find after notice and opportunity for hearing 
that there shall have been a violation of such order or the act and may 
determine whether distribution of applicant's assets is necessary or 
appropriate in the interests of investors and may so direct.
    (4) That applicant will perform every action and thing necessary to 
cause and assist the custodian of its assets to distribute the same, or 
the proceeds thereof, if the Commission or a court of competent 
jurisdiction, shall have so directed by a final order.
    (5) That any shareholder of the applicant or the Commission on its 
own motion or on request of shareholders shall have the right to 
initiate a proceeding (i) before the Commission for the revocation of 
the order permitting registration of the applicant or (ii) before a 
court of competent jurisdiction for the liquidation of applicant and a 
distribution of its assets to its shareholders and creditors. Such court 
may enter such order in the event that it shall find, after notice and 
opportunity for hearing that applicant, its officers, directors, 
investment adviser, principal underwriter or custodian shall have 
violated any provision of the act or the Commission's order of 
registration of the applicant.

A court of competent jurisdiction for the purpose of paragraphs (b)(4) 
and (5) of this paragraph means the District

[[Page 1199]]

Court of the United States of the district in which the assets of the 
applicant are maintained.
    (6) That any shareholder of the applicant shall have the right to 
bring suit at law or in equity, in any court of the United States or 
Canada having jurisdiction over applicant, its assets or any of its 
officers or directors to enforce compliance by applicant, its officers 
and directors with any provision of applicant's Charter or By Laws, the 
act and the rules thereunder, or undertakings and agreements required by 
this section, insofar as applicable to such persons. That such court may 
appoint a trustee or receiver of the applicant with all powers necessary 
to implement the purposes of such suit, including the administration of 
the estate, the collection of corporate property including choses-in-
action, and distribution of applicant's assets to its creditors and 
shareholders. That applicant and its officers and directors waive any 
objection they may be entitled to raise and any right they may have to 
object to the power and right of any shareholder of the applicant to 
bring such suit, reserving, however, their right to maintain that they 
have complied with the aforesaid provisions, undertakings and 
agreements, and otherwise to dispute such suit on its merits. Applicant, 
its officers and directors also agree that any final judgment or decree 
of any United States court as aforesaid, may be granted full faith and 
credit by a court of competent jurisdiction of Canada and consent that 
such Canadian court may enter judgment or decree thereon at the instance 
of any shareholder, receiver or trustee of the applicant.
    (7) Applicant will file, and will cause each of its present or 
future directors, officers, or investment advisers who is not a resident 
of the United States to file with the Commission irrevocable designation 
of the applicant's custodian as an agent in the United States to accept 
service of process in any suit, action or proceeding before the 
Commission or any appropriate court to enforce the provisions of the 
acts administered by the Commission, or to enforce any right or 
liability based upon applicant's Charter, By Laws, contracts, or the 
respective undertakings and agreements of any such person required by 
this section, or which alleges a liability on the part of any such 
persons arising out of their service, acts of transactions relating to 
the applicant.
    (8) Applicant's Charter and By Laws, taken together, will contain, 
so long as applicant is registered under the act in substance the 
following:
    (i) The provisions of the Act as follows: Section 2(a): Provided, 
That the term ``government securities'' defined in section 2(a)(16) may 
include securities issued or guaranteed by Canada or any instrumentality 
of the government of Canada; the term ``value'' defined in section 
2(a)(41) may be defined solely for the purposes of sections 5 and 12 in 
accordance with the provisions of Sec.270.2a-1 (Rule 2a-1) if the same 
shall be necessary or desirable to comply with Canadian regulatory or 
revenue laws or rules or regulations thereunder; the term ``bank'' 
defined in section 2(a)(5) shall be defined solely for the purposes of 
section 9 and 10, as any banking institution; section 4; section 5; 
section 6(c); section 9; section 10 (a), (b), (c), (e), (f) and (g): 
Provided, That the provisions of section 10(d) may be substituted for 
the provisions of section 10(a) and 10(b)(2) if applicable; section 11; 
section 12 (a), (b), (c), and (d); section 13(a); section 15 (a), (b), 
and (c); section 16(a); sections 17, 18, 19, 20 and 21; section 22(d); 
section 22(e): Provided, That the Toronto Stock Exchange or the Montreal 
Stock Exchange or both may be included in addition to the New York Stock 
Exchange; section 22(f); section 22(g); section 23; section 25 (a) and 
(b); section 30 (a), (b), (d), (e), and (f); section 31; section 32(a): 
Provided, That provision may be made for the selection and termination 
of employment of the accountant in compliance with The Companies Act of 
Canada; section 32(b). Where a provision of the act prohibits or directs 
action by an investment company, or its directors, officers or 
employees, the Charter or By Laws shall state that the applicant of its 
directors, officers or employees shall or shall not act, as the case may 
be, in conformity with the intent of the statute; where the provision 
applies to others, such as principal underwriters, investment advisers, 
controlled companies and affiliated persons, the Charter

[[Page 1200]]

or By Laws shall also state that the applicant will not permit the 
prohibited conduct or will obtain the required action. Any of the 
provisions of sections 11, 12, 15, 18, 22, 23, 30, and 31 may be omitted 
if not applicable to a company of applicant's classification or sub-
classification as defined in section 4 or 5 of the act or if not 
applicable because the subject matter of such provisions is prohibited 
by the Charter or By Laws. Other provisions of the act not specified 
above may be incorporated in the applicant's Charter or By Laws at its 
option.
    (ii) Any question of interpretation of any term or provision of the 
Charter or By Laws having a counterpart in or otherwise derived from a 
term or provision of the act shall be resolved by reference to 
interpretations, if any, of the corresponding term or provision of the 
act by the courts of the United States of America or, in the absence of 
any controlling decision of any such court, by rules, regulations, 
orders or interpretations of the Commission.
    (iii) Applicant will maintain the original or duplicate copies of 
its books and records at the office of its custodian or other office 
located within the United States.
    (iv) At least a majority of the directors and of the officers of the 
applicant will be United States citizens of whom a majority will be 
resident in the United States.
    (v) Except as provided in Sec.270.17f-5 and Sec.270.17f-7, 
applicant will appoint, by contract, a bank, as defined in section 
2(a)(5) of the Act (15 U.S.C. 80a-2(a)(5)) and having the qualification 
described in section 26(a)(1) of the Act (15 U.S.C. 80a-26(a)(1)), to 
act as trustee of, and maintain in its sole custody in the United 
States, all of applicant's securities and cash, other than cash 
necessary to meet applicant's current administrative expenses. The 
contract will provide, inter alia, that the custodian will:
    (A) Consummate all purchases and sales of securities by applicant, 
other than purchases and sales on an established securities exchange, 
through the delivery of securities and receipt of cash, or vice versa as 
the case may be, within the United States, and (B) redeem in the United 
States such of applicant's shares as shall be surrendered therefor, and 
(C) distribute applicant's assets, or the proceeds thereof, to 
applicant's creditors and shareholders, upon service upon the custodian 
of an order of the Commission or court directing such distribution as 
provided in paragraphs (b) (3) and (5) of this section.
    (vi) Applicant's principal underwriter for the sale of its shares 
will be a citizen and resident of the United States or a corporation 
organized under the laws of a state of the United States, and having its 
principal place of business therein, and if redeemable shares are 
offered, also a member in good standing of a securities association 
registered under section 15A of the Securities Exchange Act of 1934.
    (vii) Applicant will appoint an accountant, qualified to act as an 
independent public accountant for the applicant under the act and the 
rules thereunder, who maintains a permanent office and place of business 
in the United States.
    (viii) Any contract entered into between the applicant and its 
investment adviser and principal underwriter will contain provisions in 
compliance with the requirements of sections 15, 17(i) and 31 and the 
rules thereunder, and require that the investment adviser maintain in 
the United States its books and records or duplicate copies thereof 
relating to applicant.
    (ix) Applicant's Charter and By Laws will not be changed in any 
manner inconsistent with this paragraph or the Act and the rules 
thereunder unless authorized by the Commission.
    (9) Contracts of the applicant, other than those executed on an 
established securities exchange which do not involve affiliated persons, 
will provide that:
    (i) Such contracts, irrespective of the place of their execution or 
performance, will be performed in accordance with the requirements of 
the Act, the Securities Act of 1933, and the Securities Exchange Act of 
1934, if the subject matter of such contracts is within the purview of 
such acts; and
    (ii) In effecting the purchase or sale of assets the parties thereto 
will utilize the United States mails or means of interstate commerce.

[[Page 1201]]

    (10) Applicant will furnish to the Commission with its registration 
statement filed under the Act a list of persons affiliated with it and 
with its investment adviser and principal underwriter and will furnish 
revisions of such list, if any, concurrently with the filing of periodic 
reports required to be filed under the Act.

(Sec.7, 54 Stat. 802; 15 U.S.C. 80a-7; secs. 6(c); 15 U.S.C. 80a-6(c); 
and 38(a); 15 U.S.C. 80a-37(a) of the Act)

[19 FR 2585, May 5, 1954, as amended at 38 FR 8593, Apr. 4, 1973; 49 FR 
36084, Sept. 14, 1984; 65 FR 25637, May 3, 2000]



Sec.270.7d-2  Definition of ``public offering'' as used in section 7
(d) of the Act with respect to certain Canadian tax-deferred 
retirement savings accounts.

    (a) Definitions. As used in this section:
    (1) Canadian law means the federal laws of Canada, the laws of any 
province or territory of Canada, and the rules or regulations of any 
federal, provincial, or territorial regulatory authority, or any self-
regulatory authority, of Canada.
    (2) Canadian Retirement Account means a trust or other arrangement, 
including, but not limited to, a ``Registered Retirement Savings Plan'' 
or ``Registered Retirement Income Fund'' administered under Canadian 
law, that is managed by the Participant and:
    (i) Operated to provide retirement benefits to a Participant; and
    (ii) Established in Canada, administered under Canadian law, and 
qualified for tax-deferred treatment under Canadian law.
    (3) Eligible Security means a security issued by a Qualified Company 
that:
    (i) Is offered to a Participant, or sold to his or her Canadian 
Retirement Account, in reliance on this section; and
    (ii) May also be purchased by Canadians other than Participants.
    (4) Foreign Government means the government of any foreign country 
or of any political subdivision of a foreign country.
    (5) Foreign Issuer means any issuer that is a Foreign Government, a 
national of any foreign country or a corporation or other organization 
incorporated or organized under the laws of any foreign country, except 
an issuer meeting the following conditions:
    (i) More than 50 percent of the outstanding voting securities of the 
issuer are held of record either directly or through voting trust 
certificates or depositary receipts by residents of the United States; 
and
    (ii) Any of the following:
    (A) The majority of the executive officers or directors are United 
States citizens or residents;
    (B) More than 50 percent of the assets of the issuer are located in 
the United States; or
    (C) The business of the issuer is administered principally in the 
United States.
    (iii) For purposes of this definition, the term resident, as applied 
to security holders, means any person whose address appears on the 
records of the issuer, the voting trustee, or the depositary as being 
located in the United States.
    (6) Participant means a natural person who is a resident of the 
United States, or is temporarily present in the United States, and who 
contributes to, or is or will be entitled to receive the income and 
assets from, a Canadian Retirement Account.
    (7) Qualified Company means a Foreign Issuer whose securities are 
qualified for investment on a tax-deferred basis by a Canadian 
Retirement Account under Canadian law.
    (8) United States means the United States of America, its 
territories and possessions, any State of the United States, and the 
District of Columbia.
    (b) Public Offering. For purposes of section 7(d) of the Act (15 
U.S.C. 80a-7(d)), the term ``public offering'' does not include the 
offer to a Participant, or the sale to his or her Canadian Retirement 
Account, of Eligible Securities issued by a Qualified Company, if the 
Qualified Company:
    (1) Includes in any written offering materials delivered to a 
Participant, or to his or her Canadian Retirement Account, a prominent 
statement that the Eligible Security, and the Qualified Company that 
issued the Eligible Security, are not registered with the U.S. 
Securities and Exchange Commission, and that the Eligible Security and 
the

[[Page 1202]]

Qualified Company are relying on exemptions from registration.
    (2) Has not asserted that Canadian law, or the jurisdiction of the 
courts of Canada, does not apply in a proceeding involving an Eligible 
Security.

[65 FR 37677, June 15, 2000]



Sec.270.8b-1  Scope of Sec.Sec.270.8b-1 through 270.8b-32.

    The rules contained in Sec.Sec.270.8b-1 through 270.8b-32 shall 
govern all registration statements pursuant to section 8 of the Act (15 
U.S.C. 80a-8), including notifications of registration pursuant to 
section 8(a), and all reports pursuant to section 30(a) or (b) of the 
Act (15 U.S.C. 80a-29(a) or (b)), including all amendments to such 
statements and reports, except that any provision in a form covering the 
same subject matter as any such rule shall be controlling.

[83 FR 40880, Aug. 16, 2018]



Sec.270.8b-2  Definitions.

    Unless the context otherwise requires, the terms in paragraphs (a) 
through (m) of this section, when used in the rules contained in 
Sec.Sec.270.8b-1 through 270.8b-32, in the rules under section 30(a) 
or (b) of the Act or in the forms for registration statements and 
reports pursuant to section 8 or 30(a) or (b) of the Act, shall have the 
respective meanings indicated in this section. The terms ``EDGAR,'' 
``EDGAR Filer Manual,'' ``electronic filer,'' ``electronic filing,'' 
``electronic format,'' ``electronic submission,'' ``paper format,'' and 
``signature'' shall have the meanings assigned to such terms in part 232 
of this chapter (Regulation S-T--General Rules for Electronic Filings).
    (a) Amount. The term ``amount'', when used in regard to securities, 
means the principal amount if relating to evidences of indebtedness, the 
number of shares if relating to shares, and the number of units if 
relating to any other kind of security.
    (b) Certified. The term ``certified'', when used in regard to 
financial statements, means certified by an independent public or 
independent certified public accountant or accountants.
    (c) Charter. The term ``charter'' includes articles of 
incorporation, declaration of trust, articles of association or 
partnership, or any similar instrument, as amended, effecting (either 
with or without filing with any governmental agency) the organization or 
creation of an incorporated or unincorporated person.
    (d) Employee. The term ``employee'' does not include a director, 
trustee, officer or member of the advisory board.
    (e) Fiscal year. The term ``fiscal year'' means the annual 
accounting period or, if no closing date has been adopted, the calendar 
year ending on December 31.
    (f) Investment income. The term ``investment income'' means the 
aggregate of net operating income or loss from real estate and gross 
income from interest, dividends and all other sources, exclusive of 
profit or loss on sales of securities or other properties.
    (g) Material. The term ``material'', when used to qualify a 
requirement for the furnishing of information as to any subject, limits 
the information required to those matters as to which an average prudent 
investor ought reasonably to be informed before buying or selling any 
security of the particular company.
    (h) Parent. A ``parent'' of a specified person is an affiliated 
person who controls the specified person directly or indirectly through 
one or more intermediaries.
    (i) Previously filed or reported. The terms ``previously filed'' and 
``previously reported'' means previously filed with, or reported in, a 
registration statement filed under section 8 of the Act or under the 
Securities Act of 1933, a report filed under section 30 of the Act or 
section 13 or 15(d) of the Securities Exchange Act of 1934, a definitive 
proxy statement filed under section 20 of the Act or section 14 of the 
Securities Exchange Act of 1934, or a prospectus filed under the 
Securities Act of 1933: Provided, That information contained in any such 
document shall be deemed to have been previously filed with, or reported 
to, an exchange only if such document is filed with such exchange.
    (j) Share. The term ``share'' means a share of stock in a 
corporation or unit of interest in an unincorporated person.

[[Page 1203]]

    (k) Significant subsidiary. The term ``significant subsidiary'' 
means a subsidiary meeting any one of the following conditions:
    (1) The value of the investments in and advances to the subsidiary 
by its parent and the parent's other subsidiaries, if any exceed 10 
percent of the value of the assets of the parent or, if a consolidated 
balance sheet is filed, the value of the assets of the parent and its 
consolidated subsidiaries.
    (2) The total investment income of the subsidiary or, in the case of 
a noninvestment company subsidiary, the net income exceeds 10 percent of 
the total investment income of the parent or, if consolidated statements 
are filed, 10 percent of the total investment income of the parent and 
its consolidated subsidiaries.
    (3) The subsidiary is the parent of one or more subsidiaries and, 
together with such subsidiaries would, if considered in the aggregate, 
constitute a significant subsidiary.
    (l) Subsidiary. A ``subsidiary'' of a specified person is an 
affiliated person who is controlled by the specified person, directly or 
indirectly, through one or more intermediaries.
    (m) Totally-held subsidiary. The term ``totally-held subsidiary'' 
means a subsidiary (1) substantially all of whose outstanding securities 
are owned by its parent and/or the parent's other totally-held 
subsidiaries, and (2) which is not indebted to any person other than its 
parent and/or the parent's other totally-held subsidiaries in an amount 
which is material in relation to the particular subsidiary, excepting 
indebtedness incurred in the ordinary course of business which is not 
over-due and which matures within one year from the date of its 
creation, whether evidenced by securities or not.

[18 FR 8575, Dec. 19, 1953, as amended at 19 FR 2779, May 14, 1954; 58 
FR 14860, Mar. 18, 1993; 65 FR 24802, Apr. 27, 2000; 70 FR 6572, Feb. 8, 
2005; 83 FR 40878, Aug. 16, 2018]



Sec.270.8b-3  Title of securities.

    Wherever the title of securities is required to be stated, there 
shall be given such information as will indicate the type and general 
character of the securities, including the following:
    (a) In the case of shares, the par or stated value, if any; the rate 
of dividends, if fixed, and whether cumulative or noncumulative; a brief 
indication of the preference, if any; and if convertible, a statement to 
that effect.
    (b) In the case of funded debt, the rate of interest; the date of 
maturity, or if the issue matures serially, a brief indication of the 
serial maturities, such as ``maturing serially from 1950 to 1960''; if 
the payment of principal or interest is contingent, an appropriate 
indication of such contingency; a brief indication of the priority of 
the issue; and if convertible, a statement to that effect.
    (c) In the case of any other kind of security, appropriate 
information of comparable character.

[18 FR 8575, Dec. 19, 1953]



Sec.270.8b-4  Interpretation of requirements.

    Unless the context clearly shows otherwise:
    (a) The forms require information only as to the company filing the 
registration statement or report.
    (b) Whenever any fixed period of time in the past is indicated, such 
period shall be computed from the date of filing.
    (c) Whenever words relate to the future, they have reference solely 
to present intention.
    (d) Any words indicating the holder of a position or office include 
persons, by whatever titles designated, whose duties are those 
ordinarily performed by holders of such positions or officers.

[18 FR 8575, Dec. 18, 1953]



Sec.270.8b-5  Time of filing original registration statement.

    An investment company shall file a registration statement with the 
Commission on the appropriate form within three months after the filing 
of notification of registration under section 8(a) of the Act, provided 
that if the fiscal year of the company ends within the three months 
period, its registration statement may be filed within three months 
after the end of such fiscal year.

[19 FR 2779, May 14, 1954]

[[Page 1204]]



Sec.270.8b-6  [Reserved]



Sec.270.8b-10  Requirements as to proper form.

    Every registration statement or report shall be prepared in 
accordance with the form prescribed therefor by the Commission, as in 
effect on the date of filing. Any such statement or report shall be 
deemed to be filed on the proper form unless objection to the form is 
made by the Commission within thirty days after the date of filing.

[18 FR 8576, Dec. 19, 1953]



Sec.270.8b-11  Number of copies; signatures; binding.

    (a) Three complete copies of each registration statement or report, 
including exhibits and all other papers and documents filed as a part 
thereof, shall be filed with the Commission.
    (b) In the case of a registration statement filed on Form N-1A 
(Sec.239.15A and Sec.274.11A of this chapter), Form N-2 (Sec.
239.14 and Sec.274.11a-1 of this chapter), Form N-3 (Sec.239.17a and 
Sec.274.11b of this chapter), Form N-4 (Sec.239.17b and Sec.
274.11c of this chapter), or Form N-6 (Sec.239.17c and Sec.274.11d 
of this chapter), three complete copies of each part of the registration 
statement (including, if applicable, exhibits and all other papers and 
documents filed as part of Part C of the registration statement) shall 
be filed with the Commission.
    (c) At least one copy of the registration statement or report shall 
be signed in the manner prescribed by the appropriate form. Unsigned 
copies shall be conformed. If the signature of any person is affixed 
pursuant to a power of attorney or other similar authority, a copy of 
such power of attorney or other authority shall also be filed with the 
registration statement or report.
    (d) Each copy of a registration statement or report filed with the 
Commission shall be bound in one or more parts without stiff covers. The 
binding shall be made on the left-hand side and in such manner as to 
leave the reading matter legible.
    (e) Signatures. Where the Act or the rules thereunder, including 
paragraph (c) of this section, require a document filed with or 
furnished to the Commission to be signed, the document should be 
manually signed, or signed using either typed signatures or duplicated 
or facsimile versions of manual signatures. When typed, duplicated or 
facsimile signatures are used, each signatory to the filing shall 
manually sign a signature page or other document authenticating, 
acknowledging, or otherwise adopting his or her signature that appears 
in the filing. Execute each such document before or at the time the 
filing is made and retain for a period of five years. Upon request, the 
registrant shall furnish to the Commission or its staff a copy of any or 
all documents retained pursuant to this section.

[49 FR 32059, Aug. 10, 1984, as amended at 50 FR 26160, June 25, 1985; 
57 FR 56835, Dec. 1, 1992; 60 FR 26622, May 17, 1995; 63 FR 13944, Mar. 
23, 1998; 67 FR 19870, Apr. 23, 2002]



Sec.270.8b-12  Requirements as to paper, printing and language.

    (a) Registration statements and reports shall be filed on good 
quality, unglazed, white paper, no larger than 8\1/2\ x 11 inches in 
size, insofar as practicable. To the extent that the reduction of larger 
documents would render them illegible, such documents may be filed on 
paper larger than 8\1/2\ x 11 inches in size.
    (b) In the case of a registration statement filed on Form N-1A 
(Sec.Sec.239.15A and 274.11A of this chapter), Form N-2 (Sec.Sec.
239.14 and 274.11a-1 of this chapter), Form N-3 (Sec.Sec.239.17a and 
274.11b of this chapter), Form N-4 (Sec.Sec.239.17b and 274.11c of 
this chapter), or Form N-6 (Sec.239.17c and Sec.274.11d of this 
chapter), Part C of the registration statement shall be filed on good 
quality, unglazed, white paper, no larger than 8\1/2\ x 11 inches in 
size, insofar as practicable. The prospectus and, if applicable, the 
Statement of Additional Information, however, may be filed on smaller-
sized paper provided that the size of paper used in each document is 
uniform.
    (c) The registration statement or report and, insofar as practicable 
all papers and documents filed as a part thereof, shall be printed, 
lithographed, mimeographed or typewritten. However, the registration 
statement or report or any portion thereof may be prepared by any 
similar process which, in the opinion of the Commission, produces copies 
suitable for permanent

[[Page 1205]]

record. Irrespective of the process used, all copies of any such 
material shall be clear, easily readable and suitable for repeated 
photocopying. Debits in credit categories and credits in debit 
categories shall be designated so as to be clearly distinguishable as 
such on photocopies.
    (d) The body of all printed registration statements and reports and 
all notes to financial statements and other tabular data included 
therein shall be in roman type at least as large as 10-point modern 
type. However, to the extent necessary for convenient presentation, 
financial statements and other statistical or tabular data, including 
tabular data in notes, may be set in type at least as large and as 
legible as 8-point modern type. All type shall be leaded at least 2-
points.
    (e) Registration statements and reports shall be in the English 
language. If any exhibit or other paper or document filed with a 
registration statement or report is in a foreign language, it shall be 
accompanied by a translation into the English language.
    (f) Where a registration statement or report is distributed through 
an electronic medium, issuers may satisfy legibility requirements 
applicable to printed documents, such as paper size, type size and font, 
bold-face type, italics and red ink, by presenting all required 
information in a format readily communicated to investors, and where 
indicated, in a manner reasonably calculated to draw investor attention 
to specific information.

[49 FR 32060, Aug. 10, 1984, as amended at 50 FR 26160, June 25, 1985; 
57 FR 56836, Dec. 1, 1992; 61 FR 24657, May 15, 1996; 67 FR 19870, Apr. 
23, 2002]



Sec.270.8b-13  Preparation of registration statement or report.

    The registration statement or report shall contain the numbers and 
captions of all items of the appropriate form, but the text of the items 
may be omitted provided the answers thereto are so prepared as to 
indicate to the reader the coverage of the items without the necessity 
of his referring to the text of the items or instructions thereto. 
However, where any item requires information to be given in tabular 
form, it shall be given in substantially the tabular form specified in 
the item. All instructions, whether appearing under the items of the 
form or elsewhere therein, are to be omitted from the registration 
statement or report. Unless expressly provided otherwise, if any item is 
inapplicable or the answer thereto is in the negative, an appropriate 
statement to that effect shall be made.

[18 FR 8576, Dec. 19, 1953]



Sec.270.8b-14  Riders; inserts.

    Riders shall not be used. If the registration statement or report is 
typed on a printed form, and the space provided for the answer to any 
given item is insufficient, reference shall be made in such space to a 
full insert page or pages on which the item number and caption and the 
complete answer are given.

[18 FR 8576, Dec. 19, 1953]



Sec.270.8b-15  Amendments.

    All amendments shall be filed under cover of the facing sheet of the 
appropriate form, shall be clearly identified as amendments, and shall 
comply with all pertinent requirements applicable to registration 
statements and reports. Amendments shall be filed separately for each 
separate registration or report amended. Except as permitted under rule 
102(b) of Regulation S-T (Sec.232.102(b) of this chapter), any 
amendment filed under this section shall state the complete text of each 
item amended. An amendment to any report required to include the 
certifications as specified in Sec.270.30a-2(a) must include new 
certifications by each principal executive and principal financial 
officer of the registrant, and an amendment to any report required to be 
accompanied by the certifications as specified in Sec.240.13a-14(b) or 
Sec.240.15d-14(b) and Sec.270.30a-2(b) must be accompanied by new 
certifications by each principal executive and principal financial 
officer of the registrant.

[18 FR 8576, Dec. 19, 1953, as amended at 58 FR 14860, Mar. 18, 1993; 68 
FR 5365, Feb. 3, 2003; 68 FR 36671, June 18, 2003]

[[Page 1206]]



Sec.270.8b-16  Amendments to registration statement.

    (a) Every registered management investment company which is required 
to file an annual report on Form N-CEN, as prescribed by Sec.270.30a-1 
of this chaptershall amend the registration statement required pursuant 
to Section 8(b) by filing, not more than 120 days after the close of 
each fiscal year ending on or after the date upon which such 
registration statement was filed, the appropriate form prescribed for 
such amendments.
    (b) Paragraph (a) of this section shall not apply to a registered 
closed-end management investment company whose registration statement 
was filed on Form N-2; provided that the following information is 
transmitted to shareholders in its annual report to shareholders:
    (1) If the company offers a dividend reinvestment plan to 
shareholders, information about the plan required to be disclosed in the 
company's prospectus by Item 10.1.e of Form N-2 (17 CFR 274.11a-1);
    (2) Any material changes in the company's investment objectives or 
policies (described in Item 8.2 of Form N-2) that have not been approved 
by shareholders;
    (3) Any changes in the company's charter or by-laws that would delay 
or prevent a change of control of the company (described in Item 10.1.f 
of Form N-2) that have not been approved by shareholders;
    (4) Any material changes in the principal risk factors associated 
with investment in the company (described in Item 8.3 of Form N-2); and
    (5) Any changes in the persons who are primarily responsible for the 
day-to-day management of the company's portfolio (described in Item 
9.1.c of Form N-2), including any new person's business experience 
during the past five years and the length of time he or she has been 
responsible for the management of the portfolio.
    (c) In lieu of including a description of the dividend reinvestment 
plan in its annual report, a company may comply with the disclosure 
requirement of paragraph (b)(1) of this section concerning a company's 
dividend reinvestment plan by delivering to each shareholder annually a 
separate document containing the information about the plan required to 
be disclosed in the company's prospectus by Item 10.1.e of Form N-2. Any 
such document shall be deemed to be a record or document subject to the 
record-keeping requirements of section 31 (15 U.S.C. 80a-30) and the 
rules adopted thereunder (17 CFR 270.31a-1 et seq.).
    (d) The changes required to be disclosed by paragraphs (b)(2) 
through (b)(5) of this section are those that occurred since the later 
of either the effective date of the company's registration statement 
relating to its initial offering of securities under the Securities Act 
of 1933 (15 U.S.C. 77a et seq.) (or the most recent post-effective 
amendment thereto) or the close of the period covered by the previously 
transmitted annual shareholder report.

[54 FR 10321, Mar. 13, 1989, as amended at 57 FR 56836, Dec. 1, 1992; 81 
FR 82020, Nov. 18, 2016]



Sec.270.8b-20  Additional information.

    In addition to the information expressly required to be included in 
a registration statement or report, there shall be added such further 
material information, if any, as may be necessary to make the required 
statements, in the light of the circumstances under which they are made, 
not misleading.

[18 FR 8576, Dec. 19, 1953]



Sec.270.8b-21  Information unknown or not available.

    Information required need be given only insofar as it is known or 
reasonably available to the registrant. If any required information is 
unknown and not reasonably available to the registrant, either because 
the obtaining thereof would involve unreasonable effort or expense, or 
because it rests peculiarly within the knowledge of another person not 
affiliated with the registrant, the information may be omitted subject 
to the following conditions:
    (a) The registrant shall give such information on the subject as it 
possesses or can acquire without unreasonable effort or expense, 
together with the sources thereof.

[[Page 1207]]

    (b) The registrant shall include a statement either showing that 
unreasonable effort or expense would be involved or indicating the 
absence of any affiliation with the person within whose knowledge the 
information rests and stating the result of a request made to such 
person for the information.

[18 FR 8576, Dec. 19, 1953]



Sec.270.8b-22  Disclaimer of control.

    If the existence of control is open to reasonable doubt in any 
instance, the registrant may disclaim the existence of control and any 
admission thereof; in such case, however, the registrant shall state the 
material facts pertinent to the possible existence of control.

[18 FR 8576, Dec. 19, 1953]



Sec.Sec.270.8b-23--270.8b-24  [Reserved]



Sec.270.8b-25  Extension of time for furnishing information.

    (a) Subject to paragraph (b) of this section, if it is impractical 
to furnish any required information, document or report at the time it 
is required to be filed, there may be filed with the Commission as a 
separate document an application (a) identifying the information, 
document or report in question, (b) stating why the filing thereof at 
the time required is impracticable, and (c) requesting an extension of 
time for filing the information, document or report to a specified date 
not more than 60 days after the date it would otherwise have to be 
filed. The application shall be deemed granted unless the Commission, 
within 10 days after receipt thereof, shall enter an order denying the 
application. Section 270.0-5 (Rule N-5) shall not apply to such 
applications.
    (b) If it is impracticable to furnish any document or report 
required to be filed in electronic format at the time it is required to 
be filed, the electronic filer may file under the temporary hardship 
provision of rule 201 of Regulation S-T (Sec.232.201 of this chapter) 
or may submit a written application for a continuing hardship exemption, 
in accordance with rule 202 of Regulation S-T (Sec.232.202 of this 
chapter). Applications for such exemptions shall be considered in 
accordance with the provisions of those sections and paragraphs (h) and 
(i) of Sec.200.30-5 of this chapter.

[18 FR 8576, Dec. 19, 1953, as amended at 58 FR 14860, Mar. 18, 1993; 60 
FR 14630, Mar. 20, 1995]



Sec.270.8b-30  Additional exhibits.

    A company may file such exhibits as it may desire, in addition to 
those required by the appropriate form. Such exhibits shall be so marked 
as to indicate clearly the subject matters to which they refer.

[18 FR 8576, Dec. 19, 1953]



Sec.270.8b-31  Omission of substantially identical documents.

    In any case where two or more indentures, contracts, franchises, or 
other documents required to be filed as exhibits are substantially 
identical in all material respects except as to the parties thereto, the 
dates of execution, or other details, copies of only one of such 
documents need be filed, with a schedule identifying the other documents 
omitted and setting forth the material details in which such documents 
differ from the documents filed. The Commission may at any time in its 
discretion require the filing of copies of any documents so omitted.

[18 FR 8576, Dec. 19, 1953]



Sec.270.8b-32  [Reserved]



Sec.270.8f-1  Deregistration of certain registered investment 
companies.

    A registered investment company that seeks a Commission order 
declaring that it is no longer an investment company may file an 
application with the Commission on Form N-8F (17 CFR 274.218) if the 
investment company:
    (a) Has sold substantially all of its assets to another registered 
investment company or merged into or consolidated with another 
registered investment company;
    (b) Has distributed substantially all of its assets to its 
shareholders and has completed, or is in the process of, winding up its 
affairs;
    (c) Qualifies for an exclusion from the definition of ``investment 
company'' under section 3(c)(1) (15 U.S.C.

[[Page 1208]]

80a-3(c)(1)) or section 3(c)(7) (15 U.S.C. 80a-3(c)(7)) of the Act; or
    (d) Has become a business development company.

    Note to Sec.270.8f-1: Applicants who are not eligible to use Form 
N-8F to file an application to deregister may follow the general 
guidance for filing applications under rule 0-2 (17 CFR 270.0-2) of this 
chapter.

[64 FR 19471, Apr. 21, 1999]



Sec.270.10b-1  Definition of regular broker or dealer.

    The term regular broker or dealer of an investment company shall 
mean:
    (a) One of the ten brokers or dealers that received the greatest 
dollar amount of brokerage commissions by virtue of direct or indirect 
participation in the company's portfolio transactions during the 
company's most recent fiscal year;
    (b) One of the ten brokers or dealers that engaged as principal in 
the largest dollar amount of portfolio transactions of the investment 
company during the company's most recent fiscal year; or
    (c) One of the ten brokers or dealers that sold the largest dollar 
amount of securities of the investment company during the company's most 
recent fiscal year.

[49 FR 40572, Oct. 17, 1984]



Sec.270.10e-1  Death, disqualification, or bona fide resignation
of directors.

    If a registered investment company, by reason of the death, 
disqualification, or bona fide resignation of any director, does not 
meet any requirement of the Act or any rule or regulation thereunder 
regarding the composition of the company's board of directors, the 
operation of the relevant subsection of the Act, rule, or regulation 
will be suspended as to the company:
    (a) For 90 days if the vacancy may be filled by action of the board 
of directors; or
    (b) For 150 days if a vote of stockholders is required to fill the 
vacancy.

[66 FR 3758, Jan. 16, 2001]



Sec.270.10f-1  Conditional exemption of certain underwriting 
transactions.

    Any purchase or other acquisition by a registered management company 
acting, pursuant to a written agreement, as an underwriter of securities 
of an issuer which is not an investment company shall be exempt from the 
provisions of section 10(f) (54 Stat. 806; 15 U.S.C. 80a-10) upon the 
following conditions:
    (a) The party to such agreement other than such registered company 
is a principal underwriter of such securities, which principal 
underwriter (1) is a person primarily engaged in the business of 
underwriting and distributing securities issued by other persons, 
selling securities to customers, or related activities, whose gross 
income normally is derived principally from such business or related 
activities, and (2) does not control or is not under common control with 
such registered company.
    (b) No public offering of the securities underwritten by such 
agreement has been made prior to the execution thereof.
    (c) Such securities have been effectively registered pursuant to the 
Securities Act of 1933 (48 Stat. 74; 15 U.S.C. 77a-aa) prior to the 
execution of such agreement.
    (d) In regard to any securities underwritten, whether or not 
purchased, by the registered company pursuant to such agreement, such 
company shall be allowed a rate of gross commission, spread, concession 
or other profit not less than the amount allowed to such principal 
underwriter, exclusive of any amounts received by such principal 
underwriter as a management fee from other principal underwriters.
    (e) Such agreement is authorized by resolution adopted by a vote of 
not less than a majority of the board of directors of such registered 
company, none of which majority is an affiliated person of such 
principal underwriter, of the issuer of the securities underwritten 
pursuant to such agreement or of any person engaged in a business 
described in paragraph (a)(1) of this section.
    (f) The resolution required in paragraph (e) of this section shall 
state that it has been adopted pursuant to this section, and shall 
incorporate the terms of the proposed agreement by attaching a copy 
thereof as an exhibit or otherwise.

[[Page 1209]]

    (g) A copy of the resolution required in paragraph (e) of this 
section, signed by each member of the board of directors of the 
registered company who voted in favor of its adoption, shall be 
transmitted to the Commission not later than the fifth day succeeding 
the date on which such agreement is executed.

[Rule N-10F-1, 6 FR 1191, Feb. 28, 1941]



Sec.270.10f-2  Exercise of warrants or rights received on portfolio
securities.

    Any purchase or other acquisition of securities by a registered 
investment company pursuant to the exercise of warrants or rights to 
subscribe to or to purchase securities shall be exempt from the 
provisions of section 10(f) (section 10(f), 54 Stat. 807; 15 U.S.C. 80a-
10) of the Act, Provided, That the warrants or rights so exercised (a) 
were offered or issued to such company as a security holder on the same 
basis as all other holders of the class or classes of securities to whom 
such warrants or rights were offered or issued, and (b) do not exceed 5 
percent of the total amount of such warrants or rights so issued.

[Rule N-10F-2, 9 FR 339, Jan. 8, 1944]



Sec.270.10f-3  Exemption for the acquisition of securities during the 
existence of an underwriting or selling syndicate.

    (a) Definitions--(1) Domestic Issuer means any issuer other than a 
foreign government, a national of any foreign country, or a corporation 
or other organization incorporated or organized under the laws of any 
foreign country.
    (2) Eligible Foreign Offering means a public offering of securities, 
conducted under the laws of a country other than the United States, that 
meets the following conditions:
    (i) The offering is subject to regulation by a ``foreign financial 
regulatory authority,'' as defined in section 2(a)(50) of the Act [15 
U.S.C. 80a-2(a)(50)], in such country;
    (ii) The securities are offered at a fixed price to all purchasers 
in the offering (except for any rights to purchase securities that are 
required by law to be granted to existing security holders of the 
issuer);
    (iii) Financial statements, prepared and audited in accordance with 
standards required or permitted by the appropriate foreign financial 
regulatory authority in such country, for the two years prior to the 
offering, are made available to the public and prospective purchasers in 
connection with the offering; and
    (iv) If the issuer is a Domestic Issuer, it meets the following 
conditions:
    (A) It has a class of securities registered pursuant to section 
12(b) or 12(g) of the Securities Exchange Act of 1934 [15 U.S.C. 78l(b) 
or 78l(g)] or is required to file reports pursuant to section 15(d) of 
the Securities Exchange Act of 1934 [15 U.S.C. 78o(d)]; and
    (B) It has filed all the material required to be filed pursuant to 
section 13(a) or 15(d) of the Securities Exchange Act of 1934 [15 U.S.C. 
78m(a) or 78o(d)] for a period of at least twelve months immediately 
preceding the sale of securities made in reliance upon this (or for such 
shorter period that the issuer was required to file such material).
    (3) Eligible Municipal Securities means ``municipal securities,'' as 
defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(29)), that are sufficiently liquid that they can be sold 
at or near their carrying value within a reasonably short period of time 
and either:
    (i) Are subject to no greater than moderate credit risk; or
    (ii) If the issuer of the municipal securities, or the entity 
supplying the revenues or other payments from which the issue is to be 
paid, has been in continuous operation for less than three years, 
including the operation of any predecessors, the securities are subject 
to a minimal or low amount of credit risk.
    (4) Eligible Rule 144A Offering means an offering of securities that 
meets the following conditions:
    (i) The securities are offered or sold in transactions exempt from 
registration under section 4(2) of the Securities Act of 1933 [15 U.S.C. 
77d(2)], rule 144A thereunder [Sec.230.144A of this chapter], or rules 
501-508 thereunder [Sec.Sec.230.501-230.508 of this chapter];
    (ii) The securities are sold to persons that the seller and any 
person acting

[[Page 1210]]

on behalf of the seller reasonably believe to include qualified 
institutional buyers, as defined in Sec.230.144A(a)(1) of this 
chapter; and
    (iii) The seller and any person acting on behalf of the seller 
reasonably believe that the securities are eligible for resale to other 
qualified institutional buyers pursuant to Sec.230.144A of this 
chapter.
    (5) Managed portion of a portfolio of a registered investment 
company means a discrete portion of a portfolio of a registered 
investment company for which a subadviser is responsible for providing 
investment advice, provided that:
    (i) The subadviser is not an affiliated person of any investment 
adviser, promoter, underwriter, officer, director, member of an advisory 
board, or employee of the registered investment company; and
    (ii) The subadviser's advisory contract:
    (A) Prohibits it from consulting with any subadviser of the 
investment company that is a principal underwriter or an affiliated 
person of a principal underwriter concerning transactions of the 
investment company in securities or other assets; and
    (B) Limits its responsibility in providing advice to providing 
advice with respect to such portion.
    (6) Series of a series company means any class or series of a 
registered investment company that issues two or more classes or series 
of preferred or special stock, each of which is preferred over all other 
classes or series with respect to assets specifically allocated to that 
class or series.
    (7) Subadviser means an investment adviser as defined in section 
2(a)(20)(B) of the Act (15 U.S.C. 80a-2(a)(20)(B)).
    (b) Exemption for purchases by series companies and investment 
companies with managed portions. For purposes of this section and 
section 10(f) of the Act (15 U.S.C. 80a-10(f)), each Series of a Series 
Company, and each Managed Portion of a registered investment company, is 
deemed to be a separate investment company. Therefore, a purchase or 
acquisition of a security by a registered investment company is exempt 
from the prohibitions of section 10(f) of the Act if section 10(f) of 
the Act would not prohibit such purchase if each Series and each Managed 
Portion of the company were a separately registered investment company.
    (c) Exemption for other purchases. Any purchase of securities by a 
registered investment company prohibited by section 10(f) of the Act [15 
U.S.C. 80a-10(f)] shall be exempt from the provisions of such section if 
the following conditions are met:
    (1) Type of Security. The securities to be purchased are:
    (i) Part of an issue registered under the Securities Act of 1933 (15 
U.S.C. 77a--aa) that is being offered to the public;
    (ii) Part of an issue of government securities, as defined in 
section 2(a)(16) of the Act (15 U.S.C. 80a-2(a)(16));
    (iii) Eligible Municipal Securities;
    (iv) Securities sold in an Eligible Foreign Offering; or
    (v) Securities sold in an Eligible Rule 144A Offering.
    (2) Timing and Price. (i) The securities are purchased prior to the 
end of the first day on which any sales are made, at a price that is not 
more than the price paid by each other purchaser of securities in that 
offering or in any concurrent offering of the securities (except, in the 
case of an Eligible Foreign Offering, for any rights to purchase that 
are required by law to be granted to existing security holders of the 
issuer); and
    (ii) If the securities are offered for subscription upon exercise of 
rights, the securities shall be purchased on or before the fourth day 
preceding the day on which the rights offering terminates.
    (3) Reasonable reliance. For purposes of determining compliance with 
paragraphs (c)(1)(v) and (c)(2)(i) of this section, an investment 
company may reasonably rely upon written statements made by the issuer 
or a syndicate manager, or by an underwriter or seller of the securities 
through which such investment company purchases the securities.
    (4) Continuous operation. If the securities to be purchased are part 
of an issue registered under the Securities Act of 1933 (15 U.S.C. 77a-
aa) that is being offered to the public, are government securities (as 
defined in section

[[Page 1211]]

2(a)(16) of the Act (15 U.S.C. 80a-2(a)(16))), or are purchased pursuant 
to an Eligible Foreign Offering or an Eligible Rule 144A Offering, the 
issuer of the securities must have been in continuous operation for not 
less than three years, including the operations of any predecessors.
    (5) Firm Commitment Underwriting. The securities are offered 
pursuant to an underwriting or similar agreement under which the 
underwriters are committed to purchase all of the securities being 
offered, except those purchased by others pursuant to a rights offering, 
if the underwriters purchase any of the securities.
    (6) Reasonable commission. The commission, spread or profit received 
or to be received by the principal underwriters is reasonable and fair 
compared to the commission, spread or profit received by other such 
persons in connection with the underwriting of similar securities being 
sold during a comparable period of time.
    (7) Percentage limit--(i) Generally. The amount of securities of any 
class of such issue to be purchased by the investment company, 
aggregated with purchases by any other investment company advised by the 
investment company's investment adviser, and any purchases by another 
account with respect to which the investment adviser has investment 
discretion if the investment adviser exercised such investment 
discretion with respect to the purchase, does not exceed the following 
limits:
    (A) If purchased in an offering other than an Eligible Rule 144A 
Offering, 25 percent of the principal amount of the offering of such 
class; or
    (B) If purchased in an Eligible Rule 144A Offering, 25 percent of 
the total of:
    (1) The principal amount of the offering of such class sold by 
underwriters or members of the selling syndicate to qualified 
institutional buyers, as defined in Sec.230.144A(a)(1) of this 
chapter; plus
    (2) The principal amount of the offering of such class in any 
concurrent public offering.
    (ii) Exemption from percentage limit. The requirement in paragraph 
(c)(7)(i) of this section applies only if the investment adviser of the 
investment company is, or is an affiliated person of, a principal 
underwriter of the security; and
    (iii) Separate aggregation. The requirement in paragraph (c)(7)(i) 
of this section applies independently with respect to each investment 
adviser of the investment company that is, or is an affiliated person 
of, a principal underwriter of the security.
    (8) Prohibition of Certain Affiliate Transactions. Such investment 
company does not purchase the securities being offered directly or 
indirectly from an officer, director, member of an advisory board, 
investment adviser or employee of such investment company or from a 
person of which any such officer, director, member of an advisory board, 
investment adviser or employee is an affiliated person; provided, that a 
purchase from a syndicate manager shall not be deemed to be a purchase 
from a specific underwriter if:
    (i) Such underwriter does not benefit directly or indirectly from 
the transaction; or
    (ii) In respect to the purchase of Eligible Municipal Securities, 
such purchase is not designated as a group sale or otherwise allocated 
to the account of any person from whom this paragraph prohibits the 
purchase.
    (9) [Reserved]
    (10) Board review. The board of directors of the investment company, 
including a majority of the directors who are not interested persons of 
the investment company:
    (i) Has approved procedures, pursuant to which such purchases may be 
effected for the company, that are reasonably designed to provide that 
the purchases comply with all the conditions of this section;
    (ii) Approves such changes to the procedures as the board deems 
necessary; and
    (iii) Determines no less frequently than quarterly that all 
purchases made during the preceding quarter were effected in compliance 
with such procedures.
    (11) Board composition. The board of directors of the investment 
company satisfies the fund governance standards defined in Sec.270.0-
1(a)(7).
    (12) Maintenance of records. The investment company:

[[Page 1212]]

    (i) Shall maintain and preserve permanently in an easily accessible 
place a written copy of the procedures, and any modification thereto, 
described in paragraphs (c)(10)(i) and (c)(10)(ii) of this section; and
    (ii) Shall maintain and preserve for a period not less than six 
years from the end of the fiscal year in which any transactions 
occurred, the first two years in an easily accessible place, a written 
record of each such transaction, setting forth from whom the securities 
were acquired, the identity of the underwriting syndicate's members, the 
terms of the transaction, and the information or materials upon which 
the determination described in paragraph (c)(10)(iii) of this section 
was made.

[62 FR 42408, Aug. 7, 1997, as amended at 66 FR 3758, Jan. 16, 2001; 67 
FR 31079, May 8, 2002; 68 FR 3152, Jan. 22, 2003; 69 FR 46389, Aug. 7, 
2004; 74 FR 52373, Oct. 9, 2009; 81 FR 82020, Nov. 18, 2016]



Sec.270.11a-1  Definition of ``exchange'' for purposes of section 
11 of the Act.

    (a) For the purposes of section 11 of the Act, the term exchange as 
used therein shall include the issuance of any security by a registered 
investment company in an amount equal to the proceeds, or any portion of 
the proceeds, paid or payable--
    (1) Upon the repurchase, by or at the instance of such issuer, of an 
outstanding security the terms of which provide for its termination, 
retirement or cancellation, or
    (2) Upon the termination, retirement or cancellation of an 
outstanding security of such issuer in accordance with the terms 
thereof.
    (b) A security shall not be deemed to have been repurchased by or at 
the instance of the issuer, or terminated, retired or canceled in 
accordance with the terms of the security if--
    (1) The security was redeemed or repurchased at the instance of the 
holder; or
    (2) A security holder's account was closed for failure to make 
payments as prescribed in the security or instruments pursuant to which 
the security was issued, and notice of intention to close the account 
was mailed to the security holder, and he had a reasonable time in which 
to meet the deficiency; or
    (3) Sale of the security was restricted to a specified, limited 
group of persons and, in accordance with the terms of the security or 
the instruments pursuant to which the security was issued, upon its 
being transferred by the holder to a person not a member of the group 
eligible to purchase the security, the issuer required the surrender of 
the security and paid the redemption price thereof.
    (c) The provisions of paragraph (a) of this section shall not apply 
if, following the repurchase of an outstanding security by or at the 
instance of the issuer or the termination, retirement or cancellation of 
an outstanding security in accordance with the terms thereof--
    (1) The proceeds are actually paid to the security holder by or on 
behalf of the issuer within 7 days, and
    (2) No sale and no offer (other than by way of exchange) of any 
security of the issuer is made by or on behalf of the issuer to the 
person to whom such proceeds were paid, within 60 days after such 
payment.
    (d) The provisions of paragraph (a) of this section shall not apply 
to the repurchase, termination, retirement, or cancellation of a 
security outstanding on the effective date of this section or issued 
pursuant to a subscription agreement or other plan of acquisition in 
effect on such date.

(Sec.11, 54 Stat. 808; 15 U.S.C. 80a-11)

[32 FR 10728, July 21, 1967]



Sec.270.11a-2  Offers of exchange by certain registered separate 
accounts or others the terms of which do not require prior Commission
approval.

    (a) As used in this section:
    (1) Deferred sales load shall mean any sales load, including a 
contingent deferred sales load, that is deducted upon redemption or 
annuitization of amounts representing all or a portion of a 
securityholder's interest in a separate account;
    (2) Exchanged security shall include not only the security or 
securities (or portion[s] thereof) of a securityholder actually 
exchanged pursuant to an exchange offer but also any security or

[[Page 1213]]

securities (or portion[s] thereof) of the securityholder previously 
exchanged for the exchanged security or its predecessors;
    (3) Front-end sales load shall mean any sales load that is deducted 
from one or more purchase payments made by a securityholder before they 
are invested in a separate account; and
    (4) Purchase payments made for the acquired security, as used in 
paragraphs (c)(2) and (d)(2) of this section, shall not include any 
purchase payments made for the exchanged security or any appreciation 
attributable to those purchase payments that are transferred to the 
offering account in connection with an exchange.
    (b) Notwithstanding section 11 of the Act [15 U.S.C. 80a-11], any 
registered separate account or any principal underwriter for such an 
account (collectively, the ``offering account'') may make or cause to be 
made an offer to the holder of a security of the offering account, or of 
any other registered separate account having the same insurance company 
depositor or sponsor as the offering account or having an insurance 
company depositor or sponsor that is an affiliate of the offering 
account's depositor or sponsor, to exchange his security (or portion 
thereof) (the ``exchanged security'') for a security (or portion 
thereof) of the offering account (the ``acquired security'') without the 
terms of such exchange offer first having been submitted to and approved 
by the Commission, as provided below:
    (1) If the securities (or portions thereof) involved are variable 
annuity contracts, then
    (i) The exchange must be made on the basis of the relative net asset 
values of the securities to be exchanged, except that the offering 
account may deduct at the time of the exchange
    (A) An administrative fee which is disclosed in the part of the 
offering account's registration statement under the Securities Act of 
1933 relating to the prospectus, and
    (B) Any front-end sales load permitted by paragraph (c) of this 
section, and
    (ii) Any deferred sales load imposed on the acquired security by the 
offering account shall be calculated in the manner prescribed by 
paragraph (d) or (e) of this section; or
    (2) If the securities (or portions thereof) involved are variable 
life insurance contracts offered by a separate account registered under 
the Act as a unit investment trust, then the exchange must be made on 
the basis of the relative net asset values of the securities to be 
exchanged, except that the offering account may deduct at the time of 
the exchange an administrative fee which is disclosed in the part of the 
offering account's registration statement under the Securities Act of 
1933 relating to the prospectus.
    (c) If the offering account imposes a front-end sales load on the 
acquired security, then such sales load
    (1) Shall be a percentage that is no greater than the excess of the 
rate of the front-end sales load otherwise applicable to that security 
over the rate of any front-end sales load previously paid on the 
exchanged security, and
    (2) Shall not exceed 9 percent of the sum of the purchase payments 
made for the acquired security and the exchanged security.
    (d) If the offering account imposes a deferred sales load on the 
acquired security and the exchanged security was also subject to a 
deferred sales load, then any deferred sales load imposed on the 
acquired security:
    (1) Shall be calulated as if
    (i) The holder of the acquired security had been the holder of that 
security from the date on which he became the holder of the exchanged 
security and
    (ii) Purchase payments made for the exchanged security had been made 
for the acquired security on the date on which they were made for the 
exchanged security; and
    (2) Shall not exceed 9 percent of the sum of the purchase payments 
made for the acquired security and the exchanged security.
    (e) If the offering account imposes a deferred sales load on the 
acquired security and a front-end sales load was paid on the exchanged 
security, then any deferred sales load imposed on the acquired security 
may not be imposed on purchase payments made for the exchanged security 
or any appreciation attributable to purchase payments

[[Page 1214]]

made for the exchanged security that are transferred in connection with 
the exchange.
    (f) Notwithstanding the foregoing, no offer of exchange shall be 
made in reliance on this section if both a front-end sales load and a 
deferred sales load are to be imposed on the acquired security or if 
both such sales loads are imposed on the exchanged security.

(Sec.11(a) (15 U.S.C. 80a-11(a)) and Sec.38(a) (15 U.S.C. 80a-37(a)) 
of the Act)

[48 FR 36245, Aug. 10, 1983]



Sec.270.11a-3  Offers of exchange by open-end investment companies
other than separate accounts.

    (a) For purposes of this rule:
    (1) Acquired security means the security held by a securityholder 
after completing an exchange pursuant to an exchange offer;
    (2) Administrative fee means any fee, other than a sales load, 
deferred sales load or redemption fee, that is
    (i) Reasonably intended to cover the costs incurred in processing 
exchanges of the type for which the fee is charged, Provided that: the 
offering company will maintain and preserve records of any determination 
of the costs incurred in connection with exchanges for a period of not 
less than six years, the first two years in an easily accessible place. 
The records preserved under this provision shall be subject to 
inspection by the Commission in accordance with section 31(b) of the Act 
(15 U.S.C. 80a-30(b)) as if such records were records required to be 
maintained under rules adopted under section 31(a) of the Act (15 U.S.C. 
80a-30a)); or
    (ii) A nominal fee as defined in paragraph (a)(8) of this section;
    (3) Deferred sales load means any amount properly chargeable to 
sales or promotional expenses that is paid by a shareholder after 
purchase but before or upon redemption;
    (4) Exchanged security means
    (i) The security actually exchanged pursuant to an exchange offer, 
and
    (ii) Any security previously exchanged for such security or for any 
of its predecessors;
    (5) Group of investment companies means any two or more registered 
open-end investment companies that hold themselves out to investors as 
related companies for purposes of investment and investor services, and
    (i) That have a common investment adviser or principal underwriter, 
or
    (ii) The investment adviser or principal underwriter of one of the 
companies is an affiliated person as defined in section 2(a)(3) of the 
Act (15 U.S.C. 80a-2(a)(3)) of the investment adviser or principal 
underwriter of each of the other companies;
    (6) Offering company means a registered open-end investment company 
(other than a registered separate account) or any principal underwriter 
thereof that makes an offer (an ``exchange offer'') to the holder of a 
security of that company, or of another open-end investment company 
within the same group of investment companies as the offering company, 
to exchange that security for a security of the offering company;
    (7) Redemption fee means a fee that is imposed by the fund pursuant 
to section 270.22c-2; and
    (8) Nominal fee means a slight or de minimis fee.
    (b) Nothwithstanding section 11(a) of the Act (15 U.S.C. 80a-11(a)), 
and except as provided in paragraphs (d) and (e) of this section, in 
connection with an exchange offer an offering company may cause a 
securityholder to be charged a sales load on the acquired security, a 
redemption fee, an administrative fee, or any combination of the 
foregoing, Provided that:
    (1) Any administrative fee or scheduled variation thereof is applied 
uniformly to all securityholders of the class specified;
    (2) Any redemption fee charged with respect to the exchanged 
security or any scheduled variation thereof
    (i) Is applied uniformly to all securityholders of the class 
specified, and
    (ii) Does not exceed the redemption fee applicable to a redemption 
of the exchanged security in the absence of an exchange.
    (3) No deferred sales load is imposed on the exchanged security at 
the time of an exchange;
    (4) Any sales load charged with respect to the acquired security is 
a percentage that is no greater than the excess, if any, of the rate of 
the sales load

[[Page 1215]]

applicable to that security in the absence of an exchange over the sum 
of the rates of all sales loads previously paid on the exchanged 
security, Provided that:
    (i) The percentage rate of any sales load charged when the acquired 
security is redeemed, that is solely the result of a deferred sales load 
imposed on the exchanged security, may be no greater than the excess, if 
any, of the applicable rate of such sales load, calculated in accordance 
with paragraph (b)(5) of this section, over the sum of the rates of all 
sales loads previously paid on the acquired security, and
    (ii) In no event may the sum of the rates of all sales loads imposed 
prior to and at the time the acquired security is redeemed, including 
any sales load paid or to be paid with respect to the exchanged 
security, exceed the maximum sales load rate, calculated in accordance 
with paragraph (b)(5) of this section, that would be applicable in the 
absence of an exchange to the security (exchanged or acquired) with the 
highest such rate;
    (5) Any deferred sales load charged at the time the acquired 
security is redeemed is calculated as if the holder of the acquired 
security had held that security from the date on which he became the 
holder of the exchanged security, Provided that:
    (i) The time period during which the acquired security is held need 
not be included when the amount of the deferred sales load is 
calculated, if the deferred sales load is
    (A) reduced by the amount of any fees collected on the acquired 
security under the terms of any plan of distribution adopted in 
accordance with rule 12b-1 under the Act (17 CFR 270.12b-1) (a ``12b-1 
plan''), and
    (B) Solely the result of a sales load imposed on the exchanged 
security, and no other sales loads, including deferred sales loads, are 
imposed with respect to the acquired security,
    (ii) The time period during which the exchanged security is held 
need not be included when the amount of the deferred sales load on the 
acquired security is calculated, if
    (A) The deferred sales load is reduced by the amount of any fees 
previously collected on the exchanged security under the terms of any 
12b-1 plan, and
    (B) The exchanged security was not subject to any sales load, and
    (iii) The holding periods in this subsection may be computed as of 
the end of the calendar month in which a security was purchased or 
redeemed;
    (6) The prospectus of the offering company discloses
    (i) The amount of any administrative or redemption fee imposed on an 
exchange transaction for its securities, as well as the amount of any 
administrative or redemption fee imposed on its securityholders to 
acquire the securities of other investment companies in an exchange 
transaction, and
    (ii) If the offering company reserves the right to change the terms 
of or terminate an exchange offer, that the exchange offer is subject to 
termination and its terms are subject to change;
    (7) Any sales literature or advertising that mentions the existence 
of the exchange offer also discloses
    (i) The existence of any administrative fee or redemption fee that 
would be imposed at the time of an exchange; and
    (ii) If the offering company reserves the right to change the terms 
of or terminate the exchange offer, that the exchange offer is subject 
to termination and its terms are subject to change;
    (8) Whenever an exchange offer is to be terminated or its terms are 
to be amended materially, any holder of a security subject to that offer 
shall be given prominent notice of the impending termination or 
amendment at least 60 days prior to the date of termination or the 
effective date of the amendment, Provided that:
    (i) No such notice need be given if the only material effect of an 
amendment is to reduce or eliminate an administrative fee, sales load or 
redemption fee payable at the time of an exchange, and
    (ii) No notice need be given if, under extraordinary circumstances, 
either
    (A) There is a suspension of the redemption of the exchanged 
security under section 22(e) of the Act [15 U.S.C. 80a-22(e)] and the 
rules and regulations thereunder, or
    (B) The offering company temporarily delays or ceases the sale of 
the

[[Page 1216]]

acquired security because it is unable to invest amounts effectively in 
accordance with applicable investment objectives, policies and 
restrictions; and
    (9) In calculating any sales load charged with respect to the 
acquired security:
    (i) If a securityholder exchanges less than all of his securities, 
the security upon which the highest sales load rate was previously paid 
is deemed exchanged first; and
    (ii) If the exchanged security was acquired through reinvestment of 
dividends or capital gains distributions, that security is deemed to 
have been sold with a sales load rate equal to the sales load rate 
previously paid on the security on which the dividend was paid or 
distribution made.
    (c) If either no sales load is imposed on the acquired security or 
the sales load imposed is less than the maximum allowed by paragraph 
(b)(4) of this section, the offering company may require the exchanging 
securityholder to have held the exchanged security for a minimum period 
of time previously established by the offering company and applied 
uniformly to all securityholders of the class specified.
    (d) Any offering company that has previously made an offer of 
exchange may continue to impose fees or sales loads permitted by an 
order under section 11(a) of the Act upon shares purchased before the 
earlier of (1) One year after the effective date of this section, or (2) 
When the offer has been brought into compliance with the terms of this 
section, and upon shares acquired through reinvestment of dividends or 
capital gains distributions based on such shares, until such shares are 
redeemed.
    (e) Any offering company that has previously made an offer of 
exchange cannot rely on this section to amend such prior offer unless
    (1) The offering company's prospectus disclosed, during at least the 
two year period prior to the amendment of the offer (or, if the fund is 
less than two years old, at all times the offer has been outstanding) 
that the terms of the offer were subject to change, or
    (2) The only effect of such change is to reduce or eliminate an 
administrative fee, sales load or redemption fee payable at the time of 
an exchange.

[54 FR 35185, Aug. 24, 1989, as amended at 61 FR 49016, Sept. 17, 1996; 
70 FR 13341, Mar. 18, 2005]



Sec.270.12b-1  Distribution of shares by registered open-end 
management investment company.

    (a)(1) Except as provided in this section, it shall be unlawful for 
any registered open-end management investment company (other than a 
company complying with the provisions of section 10(d) of the Act (15 
U.S.C. 80a-10(d))) to act as a distributor of securities of which it is 
the issuer, except through an underwriter;
    (2) For purposes of this section, such a company will be deemed to 
be acting as a distributor of securities of which it is the issuer, 
other than through an underwriter, if it engages directly or indirectly 
in financing any activity which is primarily intended to result in the 
sale of shares issued by such company, including, but not necessarily 
limited to, advertising, compensation of underwriters, dealers, and 
sales personnel, the printing and mailing of prospectuses to other than 
current shareholders, and the printing and mailing of sales literature;
    (b) A registered, open-end management investment company 
(``Company'') may act as a distributor of securities of which it is the 
issuer: Provided, That any payments made by such company in connection 
with such distribution are made pursuant to a written plan describing 
all material aspects of the proposed financing of distribution and that 
all agreements with any person relating to implementation of the plan 
are in writing: And further provided, That:
    (1) Such plan has been approved by a vote of at least a majority of 
the outstanding voting securities of such company, if adopted after any 
public offering of the company's voting securities or the sale of such 
securities to persons who are not affiliated persons of the company, 
affiliated persons of such persons, promoters of the company, or 
affiliated persons of such promoters;
    (2) Such plan, together with any related agreements, has been 
approved by a vote of the board of directors of such

[[Page 1217]]

company, and of the directors who are not interested persons of the 
company and have no direct or indirect financial interest in the 
operation of the plan or in any agreements related to the plan, cast in 
person at a meeting called for the purpose of voting on such plan or 
agreements;
    (3) Such plan or agreement provides, in substance:
    (i) That it shall continue in effect for a period of more than one 
year from the date of its execution or adoption only so long as such 
continuance is specifically approved at least annually in the manner 
described in paragraph (b)(2) of this section;
    (ii) That any person authorized to direct the disposition of monies 
paid or payable by such company pursuant to the plan or any related 
agreement shall provide to the company's board of directors, and the 
directors shall review, at least quarterly, a written report of the 
amounts so expended and the purposes for which such expenditures were 
made; and
    (iii) In the case of a plan, that it may be terminated at any time 
by vote of a majority of the members of the board of directors of the 
company who are not interested persons of the company and have no direct 
or indirect financial interest in the operation of the plan or in any 
agreements related to the plan or by vote of a majority of the 
outstanding voting securities of such company;
    (iv) In the case of an agreement related to a plan:
    (A) That it may be terminated at any time, without the payment of 
any penalty, by vote of a majority of the members of the board of 
directors of such company who are not interested persons of the company 
and have no direct or indirect financial interest in the operation of 
the plan or in any agreements related to the plan or by vote of a 
majority of the outstanding voting securities of such company on not 
more than sixty days' written notice to any other party to the 
agreement, and
    (B) For its automatic termination in the event of its assignment;
    (4) Such plan provides that it may not be amended to increase 
materially the amount to be spent for distribution without shareholder 
approval and that all material amendments of the plan must be approved 
in the manner described in paragraph (b)(2) of this section; and
    (5) Such plan is implemented and continued in a manner consistent 
with the provisions of paragraphs (c), (d), and (e) of this section;
    (c) A registered open-end management investment company may rely on 
the provisions of paragraph (b) of this section only if its board of 
directors satisfies the fund governance standards as defined in Sec.
270.0-1(a)(7);
    (d) In considering whether a registered open-end management 
investment company should implement or continue a plan in reliance on 
paragraph (b) of this section, the directors of such company shall have 
a duty to request and evaluate, and any person who is a party to any 
agreement with such company relating to such plan shall have a duty to 
furnish, such information as may reasonably be necessary to an informed 
determination of whether such plan should be implemented or continued; 
in fulfilling their duties under this paragraph the directors should 
consider and give appropriate weight to all pertinent factors, and 
minutes describing the factors considered and the basis for the decision 
to use company assets for distribution must be made and preserved in 
accordance with paragraph (f) of this section;

    Note: For a discussion of factors which may be relevant to a 
decision to use company assets for distribution, see Investment Company 
Act Releases Nos. 10862, September 7, 1979, and 11414, October 28, 1980.

    (e) A registered open-end management investment company may 
implement or continue a plan pursuant to paragraph (b) of this section 
only if the directors who vote to approve such implementation or 
continuation conclude, in the exercise of reasonable business judgment 
and in light of their fiduciary duties under state law and under 
sections 36(a) and (b) (15 U.S.C. 80a-35 (a) and (b)) of the Act, that 
there is a reasonable likelihood that the plan will benefit the company 
and its shareholders;
    (f) A registered open-end management investment company must 
preserve copies of any plan, agreement or report made pursuant to this 
section

[[Page 1218]]

for a period of not less than six years from the date of such plan, 
agreement or report, the first two years in an easily accessible place;
    (g) If a plan covers more than one series or class of shares, the 
provisions of the plan must be severable for each series or class, and 
whenever this rule provides for any action to be taken with respect to a 
plan, that action must be taken separately for each series or class 
affected by the matter. Nothing in this paragraph (g) shall affect the 
rights of any purchase class under Sec.270.18f-3(f)(2)(iii).
    (h) Notwithstanding any other provision of this section, a company 
may not:
    (1) Compensate a broker or dealer for any promotion or sale of 
shares issued by that company by directing to the broker or dealer:
    (i) The company's portfolio securities transactions; or
    (ii) Any remuneration, including but not limited to any commission, 
mark-up, mark-down, or other fee (or portion thereof) received or to be 
received from the company's portfolio transactions effected through any 
other broker (including a government securities broker) or dealer 
(including a municipal securities dealer or a government securities 
dealer); and
    (2) Direct its portfolio securities transactions to a broker or 
dealer that promotes or sells shares issued by the company, unless the 
company (or its investment adviser):
    (i) Is in compliance with the provisions of paragraph (h)(1) of this 
section with respect to that broker or dealer; and
    (ii) Has implemented, and the company's board of directors 
(including a majority of directors who are not interested persons of the 
company) has approved, policies and procedures reasonably designed to 
prevent:
    (A) The persons responsible for selecting brokers and dealers to 
effect the company's portfolio securities transactions from taking into 
account the brokers' and dealers' promotion or sale of shares issued by 
the company or any other registered investment company; and
    (B) The company, and any investment adviser and principal 
underwriter of the company, from entering into any agreement (whether 
oral or written) or other understanding under which the company directs, 
or is expected to direct, portfolio securities transactions, or any 
remuneration described in paragraph (h)(1)(ii) of this section, to a 
broker (including a government securities broker) or dealer (including a 
municipal securities dealer or a government securities dealer) in 
consideration for the promotion or sale of shares issued by the company 
or any other registered investment company.

[45 FR 73905, Nov. 7, 1980, as amended at 60 FR 11885, Mar. 2, 1995; 61 
FR 49011, Sept. 17, 1996; 62 FR 51765, Oct. 3, 1997; 66 FR 3758, Jan. 
16, 2001; 69 FR 46389, Aug. 2, 2004; 69 FR 54733, Sept. 9, 2004; 78 FR 
79299, Dec. 30, 2013]



Sec.270.12d1-1  Exemptions for investments in money market funds.

    (a) Exemptions for acquisition of money market fund shares. If the 
conditions of paragraph (b) of this section are satisfied, 
notwithstanding sections 12(d)(1)(A), 12(d)(1)(B), 17(a), and 57 of the 
Act (15 U.S.C. 80a-12(d)(1)(A), 80a-12(d)(1)(B), 80a-17(a), and 80a-56), 
and Sec.270.17d-1:
    (1) An investment company (``acquiring fund'') may purchase and 
redeem shares issued by a money market fund; and
    (2) A money market fund, any principal underwriter thereof, and a 
broker or a dealer may sell or otherwise dispose of shares issued by the 
money market fund to an acquiring fund.
    (b) Conditions--(1) Fees. The acquiring fund pays no sales charge, 
as defined in rule 2830(b)(8) of the Conduct Rules of the NASD (``sales 
charge''), or service fee, as defined in rule 2830(b)(9) of the Conduct 
Rules of the NASD, charged in connection with the purchase, sale, or 
redemption of securities issued by a money market fund (``service 
fee''); or the acquiring fund's investment adviser waives its advisory 
fee in an amount necessary to offset any sales charge or service fee.
    (2) Unregistered money market funds. If the money market fund is not 
an investment company registered under the Act:
    (i) The acquiring fund reasonably believes that the money market 
fund satisfies the following conditions as if it

[[Page 1219]]

were a registered open-end investment company:
    (A) Operates in compliance with Sec.270.2a-7;
    (B) Complies with sections 17(a), (d), (e), 18, and 22(e) of the Act 
(15 U.S.C. 80a-17(a), (d), (e), 80a-18, and 80a-22(e));
    (C) Has adopted procedures designed to ensure that it complies with 
sections 17(a), (d), (e), 18, and 22(e) of the Act (15 U.S.C. 80a-17(a), 
(d), (e), 80a-18, and 80a-22(e)), periodically reviews and updates those 
procedures, and maintains books and records describing those procedures;
    (D) Maintains the records required by Sec.Sec.270.31a-1(b)(1), 
270.31a-1(b)(2)(ii), 270.31a-1(b)(2)(iv), and 270.31a-1(b)(9); and
    (E) Preserves permanently, the first two years in an easily 
accessible place, all books and records required to be made under 
paragraphs (b)(2)(i)(C) and (D) of this section, and makes those records 
available for examination on request by the Commission or its staff; and
    (ii) The adviser to the money market fund is registered with the 
Commission as an investment adviser under section 203 of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-3).
    (c) Exemption from certain monitoring and recordkeeping requirements 
under Sec.270.17e-1. Notwithstanding the requirements of Sec.Sec.
270.17e-1(b)(3) and 270.17e-1(d)(2), the payment of a commission, fee, 
or other remuneration to a broker shall be deemed as not exceeding the 
usual and customary broker's commission for purposes of section 
17(e)(2)(A) of the Act if:
    (1) The commission, fee, or other remuneration is paid in connection 
with the sale of securities to or by an acquiring fund;
    (2) The broker and the acquiring fund are affiliated persons because 
each is an affiliated person of the same money market fund; and
    (3) The acquiring fund is an affiliated person of the money market 
fund solely because the acquiring fund owns, controls, or holds with 
power to vote five percent or more of the outstanding securities of the 
money market fund.
    (d) Definitions. (1) Investment company includes a company that 
would be an investment company under section 3(a) of the Act (15 U.S.C. 
80a-3(a)) but for the exceptions to that definition provided for in 
sections 3(c)(1) and 3(c)(7) of the Act (15 U.S.C. 80a-3(c)(1) and 80a-
3(c)(7)).
    (2) Money market fund means:
    (i) An open-end management investment company registered under the 
Act that is regulated as a money market fund under Sec.270.2a-7; or
    (ii) A company that would be an investment company under section 
3(a) of the Act (15 U.S.C. 80a-3(a)) but for the exceptions to that 
definition provided for in sections 3(c)(1) and 3(c)(7) of the Act (15 
U.S.C. 80a-3(c)(1) and 80a-3(c)(7)) and that:
    (A) Is limited to investing in the types of securities and other 
investments in which a money market fund may invest under Sec.270.2a-
7; and
    (B) Undertakes to comply with all the other requirements of Sec.
270.2a-7, except that, if the company has no board of directors, the 
company's investment adviser performs the duties of the board of 
directors.

[71 FR 36655, June 27, 2006]



Sec.270.12d1-2  Exemptions for investment companies relying on section
12(d)(1)(G) of the Act.

    (a) Exemption to acquire other securities. Notwithstanding section 
12(d)(1)(G)(i)(II) of the Act (15 U.S.C. 80a-12(d)(1)(G)(i)(II)), a 
registered open-end investment company or a registered unit investment 
trust that relies on section 12(d)(1)(G) of the Act (15 U.S.C. 80a-
12(d)(1)(G)) to acquire securities issued by another registered 
investment company that is in the same group of investment companies may 
acquire, in addition to Government securities and short-term paper:
    (1) Securities issued by an investment company, other than 
securities issued by another registered investment company that is in 
the same group of investment companies, when the acquisition is in 
reliance on section 12(d)(1)(A) or 12(d)(1)(F) of the Act (15 U.S.C. 
80a-12(d)(1)(A) or 80a-12(d)(1)(F));
    (2) Securities (other than securities issued by an investment 
company); and
    (3) Securities issued by a money market fund, when the acquisition 
is in reliance on Sec.270.12d1-1.

[[Page 1220]]

    (b) Definitions. For purposes of this section, money market fund has 
the same meaning as in Sec.270.12d1-1(d)(2).

[71 FR 36655, June 27, 2006]



Sec.270.12d1-3  Exemptions for investment companies relying on section
12(d)(1)(F) of the Act.

    (a) Exemption from sales charge limits. A registered investment 
company (``acquiring fund'') that relies on section 12(d)(1)(F) of the 
Act (15 U.S.C. 80a-12(d)(1)(F)) to acquire securities issued by an 
investment company (``acquired fund'') may offer or sell any security it 
issues through a principal underwriter or otherwise at a public offering 
price that includes a sales load of more than 1\1/2\ percent if any 
sales charges and service fees charged with respect to the acquiring 
fund's securities do not exceed the limits set forth in rule 2830 of the 
Conduct Rules of the NASD applicable to a fund of funds.
    (b) Definitions. For purposes of this section, the terms fund of 
funds, sales charge, and service fee have the same meanings as in rule 
2830(b) of the Conduct Rules of the NASD.

[71 FR 36655, June 27, 2006]



Sec.270.12d2-1  Definition of insurance company for purposes of 
sections 12(d)(2) and 12(g) of the Act.

    For purposes of sections 12(d)(2) and 12(g) of the Act [15 U.S.C. 
80a-12(d)(2) and 80a-12(g)], insurance company shall include a foreign 
insurance company as that term is used in rule 3a-6 under the Act (17 
CFR 270.3a-6).

[56 FR 56300, Nov. 4, 1991]



Sec.270.12d3-1  Exemption of acquisitions of securities issued by 
persons engaged in securities related businesses.

    (a) Notwithstanding section 12(d)(3) of the Act, a registered 
investment company, or any company or companies controlled by such 
registered investment company (``acquiring company'') may acquire any 
security issued by any person that, in its most recent fiscal year, 
derived 15 percent or less of its gross revenues from securities related 
activities unless the acquiring company would control such person after 
the acquisition.
    (b) Notwithstanding section 12(d)(3) of the Act, an acquiring 
company may acquire any security issued by a person that, in its most 
recent fiscal year, derived more than 15 percent of its gross revenues 
from securities related activities, provided that:
    (1) Immediately after the acquisition of any equity security, the 
acquiring company owns not more than five percent of the outstanding 
securities of that class of the issuer's equity securities;
    (2) Immediately after the acquisition of any debt security, the 
acquiring company owns not more than ten percent of the outstanding 
principal amount of the issuer's debt securities; and
    (3) Immediately after any such acquisition, the acquiring company 
has invested not more than five percent of the value of its total assets 
in the securities of the issuer.
    (c) Notwithstanding paragraphs (a) and (b) of this section, this 
section does not exempt the acquisition of:
    (1) A general partnership interest; or
    (2) A security issued by the acquiring company's promoter, principal 
underwriter, or any affiliated person of such promoter, or principal 
underwriter; or
    (3) A security issued by the acquiring company's investment adviser, 
or an affiliated person of the acquiring company's investment adviser, 
other than a security issued by a subadviser or an affiliated person of 
a subadviser of the acquiring company provided that:
    (i) Prohibited relationships. The subadviser that is (or whose 
affiliated person is) the issuer is not, and is not an affiliated person 
of, an investment adviser responsible for providing advice with respect 
to the portion of the acquiring company that is acquiring the 
securities, or of any promoter, underwriter, officer, director, member 
of an advisory board, or employee of the acquiring company;
    (ii) Advisory contract. The advisory contracts of the Subadviser 
that is (or whose affiliated person is) the issuer, and any Subadviser 
that is advising the portion of the acquiring company that is purchasing 
the securities:

[[Page 1221]]

    (A) Prohibit them from consulting with each other concerning 
transactions of the acquiring company in securities or other assets, 
other than for purposes of complying with the conditions of paragraphs 
(a) and (b) of this section; and
    (B) Limit their responsibility in providing advice to providing 
advice with respect to a discrete portion of the acquiring company's 
portfolio.
    (d) For purposes of this section:
    (1) Securities related activities are a person's activities as a 
broker, a dealer, an underwriter, an investment adviser registered under 
the Investment Advisers Act of 1940, as amended, or as an investment 
adviser to a registered investment company.
    (2) An issuer's gross revenues from its own securities related 
activities and from its ratable share of the securities related 
activities of enterprises of which it owns 20 percent or more of the 
voting or equity interest should be considered in determining the degree 
to which an issuer is engaged in securities related activities. Such 
information may be obtained from the issuer's annual report to 
shareholders, the issuer's annual reports or registration statement 
filed with the Commission, or the issuer's chief financial officer.
    (3) Equity security is as defined in Sec.240.3a-11 of this 
chapter.
    (4) Debt security includes all securities other than equity 
securities.
    (5) Determination of the percentage of an acquiring company's 
ownership of any class of outstanding equity securities of an issuer 
shall be made in accordance with the procedures described in the rules 
under Sec.240.16 of this chapter.
    (6) Where an acquiring company is considering acquiring or has 
acquired options, warrants, rights, or convertible securities of a 
securities related business, the determination required by paragraph (b) 
of this section shall be made as though such options, warrants, rights, 
or conversion privileges had been exercised.
    (7) The following transactions will not be deemed to be an 
acquisition of securities of a securities related business:
    (i) Receipt of stock dividends on securities acquired in compliance 
with this section;
    (ii) Receipt of securities arising from a stock-for-stock split on 
securities acquired in compliance with this section;
    (iii) Exercise of options, warrants, or rights acquired in 
compliance with this section;
    (iv) Conversion of convertible securities acquired in compliance 
with this section; and
    (v) Acquisition of Demand Features or Guarantees, as these terms are 
defined in Sec.Sec.270.2a-7(a)(9) and 270.2a-7(a)(16) respectively, 
provided that, immediately after the acquisition of any Demand Feature 
or Guarantee, the company will not, with respect to 75 percent of the 
total value of its assets, have invested more than ten percent of the 
total value of its assets in securities underlying Demand Features or 
Guarantees from the same institution. For the purposes of this section, 
a Demand Feature or Guarantee will be considered to be from the party to 
whom the company will look for a payment of the exercise price.
    (8) Any class or series of an investment company that issues two or 
more classes or series of preferred or special stock, each of which is 
preferred over all other classes or series with respect to assets 
specifically allocated to that class or series, shall be treated as if 
it is a registered investment company.
    (9) Subadviser means an investment adviser as defined in section 
2(a)(20)(B) of the Act (15 U.S.C. 80a-2(a)(20)(B)).

[58 FR 49427, Sept. 23, 1993, as amended at 61 FR 13982, Mar. 28, 1996; 
62 FR 64986, Dec. 9, 1997; 66 FR 36162, July 11, 2001; 68 FR 3152, Jan. 
22, 2003; 79 FR 47967, Aug. 14, 2014; 80 FR 58155, Sept. 25, 2015]



Sec.270.13a-1  Exemption for change of status by temporarily 
diversified company.

    A change of its subclassification by a registered management company 
from that of a diversified company to that of a nondiversified company 
shall be exempt from the provisions of section 13(a)(1) of the Act (54 
Stat. 811; 15 U.S.C. 80a-13), if such change occurs under the following 
circumstances:
    (a) Such company was a nondiversified company at the time of its

[[Page 1222]]

registration pursuant to section 8(a) (54 Stat. 803; 15 U.S.C. 80a-8), 
or thereafter legally became a nondiversified company.
    (b) After its registration and within 3 years prior to such change, 
such company became a diversified company.
    (c) At the time such company became a diversified company, its 
registration statement filed pursuant to section 8(b) (54 Stat. 803; 15 
U.S.C. 80a-8), as supplemented and modified by any amendments and 
reports theretofore filed, did not stated that the registrant proposed 
to become a diversified company.

[Rule N-13A-1, 6 FR 3967, Aug. 8, 1941]



Sec.270.14a-1  Use of notification pursuant to regulation E under
the Securities Act of 1933.

    For the purposes of section 14(a)(3) of the Act, registration of 
securities under the Securities Act of 1933 by a small business 
investment company operating under the Small Business Investment Act of 
1958 shall be deemed to include the filing of a notification under Rule 
604 of Regulation E promulgated under said Act if provision is made in 
connection with such notification which in the opinion of the Commission 
adequately insures (a) that after the effective date of such 
notification such company will not issue any security or receive any 
proceeds of any subscription for any security until firm agreements have 
been made with such company by not more than twenty-five responsible 
persons to purchase from it securities to be issued by it for an 
aggregate net amount which plus the then net worth of the company, if 
any, will equal at least $100,000; (b) that said aggregate net amount 
will be paid into such company before any subscriptions for such 
securities will be accepted from any persons in excess of twenty-five; 
(c) that arrangements will be made whereby any proceeds so paid in, as 
well as any sales load, will be refunded to any subscriber on demand 
without any deduction, in the event that the net proceeds so received by 
the company do not result in the company having a net worth of at least 
$100,000 within ninety days after such notification becomes effective.

[25 FR 3512, Apr. 22, 1960]



Sec.270.14a-2  Exemption from section 14(a) of the Act for certain
registered separate accounts and their principal underwriters.

    (a) A registered separate account, and any principal underwriter for 
such account, shall be exempt from section 14(a) of the Act (15 U.S.C. 
80a-14(a)) with respect to a public offering of variable annuity 
contracts participating in such account if, at the commencement of such 
offering, the insurance company establishing and maintaining such 
separate account shall have (1) a combined capital and surplus, if a 
stock company, or (2) an unassigned surplus, if a mutual company, of not 
less than $1,000,000 as set forth in the balance sheet of such insurance 
company contained in the registration statement or any amendment thereto 
relating to such contracts filed pursuant to the Securities Act of 1933.
    (b) Any registered management investment company which has as a 
promoter an insurance company meeting the requirements of paragraph (a) 
of this section and which offers its securities to separate accounts of 
such insurance company registered under the Act as unit investment 
trusts (``trust accounts''), and any principal underwriter for such 
investment company, shall be exempt from section 14(a) with respect to 
such offering and to the offering of such securities to trust accounts 
of other insurance companies meeting the requirements of paragraph (a) 
of this section.
    (c) Any registered management investment company exempt from section 
14(a) of the Act pursuant to paragraph (b) of this section shall be 
exempt from sections 15(a), 16(a), and 32(a)(2) of the Act (15 U.S.C. 
80a-15(a), 80a-16(a), and 80a-31(a)(2)), to the extent prescribed in 
rules 15a-3, 16a-1, and 32a-2 under the Act (17 CFR 270.15a-3, 270.16a-
1, and 270.32a-2), provided that such investment company complies with 
the conditions set forth in those rules as if it were a separate 
account.

(Secs. 6(c) and 38(a) of the Act (15 U.S.C. 80a-6(c) and 80a-37(a), 
respectively))

[49 FR 1479, Jan. 12, 1984]

[[Page 1223]]



Sec.270.14a-3  Exemption from section 14(a) of the Act for certain
registered unit investment trusts and their principal underwriters.

    (a) A registered unit investment trust (hereinafter referred to as 
the ``Trust'') engaged exclusively in the business of investing in 
eligible trust securities, and any principal underwriter for the Trust, 
shall be exempt from section 14(a) of the Act with respect to a public 
offering of Trust units: Provided, That:
    (1) At the commencement of such offering the Trust holds at least 
$100,000 principal amount of eligible trust securities (or delivery 
statements relating to contracts for the purchase of any such securities 
which, together with cash or an irrevocable letter of credit issued by a 
bank in the amount required for their purchase, are held by the Trust 
for purchase of the securities);
    (2) If, within ninety days from the time that the Trust's 
registration statement has become effective under the Securities Act of 
1933 (15 U.S.C. 77a et seq.) the net worth of the Trust declines to less 
than $100,000 or the Trust is terminated, the sponsor for the Trust 
shall--
    (i) Refund, on demand and without deduction, all sales charges to 
any unitholders who purchased Trust units from the sponsor (or from any 
underwriter or dealer participating in the distribution), and
    (ii) Liquidate the eligible trust securities held by the Trust and 
distribute the proceeds thereof to the unitholders of the Trust;
    (3) The sponsor instructs the trustee when the eligible trust 
securities are deposited in the Trust that, in the event that 
redemptions by the sponsor or any underwriter of units constituting a 
part of the unsold units results in the Trust having a net worth of less 
than 40 percent of the principal amount of the eligible trust securities 
(or delivery statements relating to contracts for the purchase of any 
such securities which, together with cash or an irrevocable letter of 
credit issued by a bank in the amount required for their purchase, are 
held by the Trust for purchase of the securities) initially deposited in 
the Trust--
    (i) The trustee shall terminate the Trust and distribute the assets 
thereof to the unitholders of the Trust, and
    (ii) The sponsor for the Trust shall refund, on demand and without 
deduction, all sales charges to any unitholder who purchased Trust units 
from the sponsor or from any underwriter or dealer participating in the 
distribution.
    (b) For the purposes of determining the availability of the 
exemption provided by the foregoing subsection, the term ``eligible 
trust securities'' shall mean:
    (1) Securities (other than convertible securities) which are issued 
by a corporation and which have their interest or dividend rate fixed at 
the time they are issued;
    (2) Interest bearing obligations issued by a state, or by any 
agency, instrumentality, authority or political subdivision thereof;
    (3) Government securities; and
    (4) Units of a previously issued series of the Trust: Provided, 
That:
    (i) The aggregate principal amount of units of existing series so 
deposited shall not exceed 10% of the aggregate principal amount of the 
portfolio of the new series;
    (ii) The aggregate principal amount of units of any particular 
existing series so deposited shall not exceed 5% of the aggregate 
principal amount of the portfolio of the new series;
    (iii) No units shall be so deposited which do not substantially meet 
investment quality criteria at least as high as those applicable to the 
new series in which such units are deposited;
    (iv) The value of the eligible trust securities underlying units of 
an existing series deposited in a new series shall not, by reason of 
maturity of such securities according to their terms within ten years 
following the date of deposit, be reduced sufficiently for such existing 
series to be voluntarily terminated;
    (v) Units of existing series so deposited shall constitute units 
purchased by the sponsor as market maker and not remaining unsold units 
from the original distribution of such units; and

[[Page 1224]]

    (vi) The sponsor shall deposit units of existing series in the new 
series without a sales charge.

(Secs. 6(c) and 38(a) (15 U.S.C. 80a-6(c) and 15 U.S.C. 80a-37(a)))

[44 FR 29646, May 22, 1979; 44 FR 40064, July 9, 1979]



Sec.270.15a-1  Exemption from stockholders' approval of certain small
investment advisory contracts.

    An investment adviser of a registered investment company shall be 
exempt from the requirement of sections 15(a) and 15(e) of the Act (54 
Stat. 812; 15 U.S.C. 80a-15) that the written contract pursuant to which 
he acts shall have been approved by the vote of a majority of the 
outstanding votingsecurities of such company, if the following 
conditions are met:
    (a) Such investment adviser is not an affiliated person of such 
company (except as investment adviser) nor of any principal underwriter 
for such company.
    (b) His compensation as investment adviser of such company in any 
fiscal year of the company during which any such contract is in effect 
either (1) is not more than $100 or (2) is not more than $2,500 and not 
more than \1/40\ of 1 percent of the value of the company's net assets 
averaged over the year or taken as of a definite date or dates within 
the year.
    (c) The aggregate compensation of all investment advisers of such 
company exempted pursuant to this section in any fiscal year of the 
company either (1) is not more than $200 or (2) is not more than \1/20\ 
of 1 percent of the value of the company's net assets averaged over the 
year or taken as of a definite date or dates within the year.

[Rule N-15A-1, 6 FR 2275, Jan. 8, 1944]



Sec.270.15a-2  Annual continuance of contracts.

    (a) For purposes of sections 15(a) and 15(b) of the Act, the 
continuance of a contract for a period more than two years after the 
date of its execution shall be deemed to have been specifically approved 
at least annually by the board of directors or by a vote of a majority 
of the outstanding voting securities of a registered investment company 
if such approval occurs:
    (1) With respect to the first continuance of a contract, during the 
90 days prior to and including the earlier of (i) the date specified in 
such contract for its termination in the absence of such approval, or 
(ii) the second anniversary of the date upon which such contract was 
executed; or
    (2) With respect to any subsequent continuance of a contract, during 
the 90 days prior to and including the first anniversary of the date 
upon which the most recent previous annual continuance of such contract 
became effective.
    (b) The provisions of paragraph (a) of this section shall not apply 
to any continuance of a contract which shall have been approved not 
later than 90 days after the date of adoption of this section, provided 
that such contract shall expire, by its terms, not later than 17 months 
from the date of adoption of this section.

    Note: This section does not establish the exclusive method of 
complying with the Act. It provides one procedure by which a registered 
investment company may comply with the applicable provisions of sections 
15(a) and 15(b) of the Act; it does not preclude any other appropriate 
procedure. Any annual continuance of a contract approved in accordance 
with the provisions of paragraph (a)(1) or (a)(2) of Sec.270.15a-2 
will constitute a renewal of such contract for the purposes of section 
15(c) of the Act, and therefore such renewal must be approved by the 
disinterested directors within the times specified in the section for a 
continuance.

[41 FR 41911, Sept. 24, 1976]



Sec.270.15a-3  Exemption for initial period of investment adviser 
of certain registered separate accounts from requirement of security
holder approval of investment advisory contract.
          

    (a) An investment adviser of a registered separate account shall be 
exempt from the requirement under section 15(a) of the Act that the 
initial written contract pursuant to which the investment adviser serves 
or acts shall have been approved by the vote of a majority of the 
outstanding voting securities of such registered separate account, 
subject to the following conditions:

[[Page 1225]]

    (1) Such registered separate account qualifies for exemption from 
section 14(a) of the Act pursuant to Sec.270.14a-2, or is exempt 
therefrom by order of the Commission upon application; and
    (2) Such written contract shall be submitted to a vote of variable 
annuity contract owners at their first meeting after the effective date 
of the registration statement under the Securities Act of 1933, as 
amended (15 U.S.C. 77a et seq.) relating to variable annuity contracts 
participating in such account: Provided, That such meeting shall take 
place within 1 year after such effective date, unless the time for the 
holding of such meeting shall be extended by the Commission upon written 
request showing good cause therefor.

(Sec.6, 54 Stat. 800; 15 U.S.C. 80a-6)

[34 FR 12695, Aug. 5, 1969]



Sec.270.15a-4  Temporary exemption for certain investment advisers.

    (a) For purposes of this section:
    (1) Fund means an investment company, and includes a separate series 
of the company.
    (2) Interim contract means a written investment advisory contract:
    (i) That has not been approved by a majority of the fund's 
outstanding voting securities; and
    (ii) That has a duration no greater than 150 days following the date 
on which the previous contract terminates.
    (3) Previous contract means an investment advisory contract that has 
been approved by a majority of the fund's outstanding voting securities 
and has been terminated.
    (b) Notwithstanding section 15(a) of the Act (15 U.S.C. 80a-15(a)), 
a person may act as investment adviser for a fund under an interim 
contract after the termination of a previous contract as provided in 
paragraphs (b)(1) or (b)(2) of this section:
    (1) In the case of a previous contract terminated by an event 
described in section 15(a)(3) of the Act (15 U.S.C. 80a-15(a)(3)), by 
the failure to renew the previous contract, or by an assignment (other 
than an assignment by an investment adviser or a controlling person of 
the investment adviser in connection with which assignment the 
investment adviser or a controlling person directly or indirectly 
receives money or other benefit):
    (i) The compensation to be received under the interim contract is no 
greater than the compensation the adviser would have received under the 
previous contract; and
    (ii) The fund's board of directors, including a majority of the 
directors who are not interested persons of the fund, has approved the 
interim contract within 10 business days after the termination, at a 
meeting in which directors may participate by any means of communication 
that allows all directors participating to hear each other 
simultaneously during the meeting.
    (2) In the case of a previous contract terminated by an assignment 
by an investment adviser or a controlling person of the investment 
adviser in connection with which assignment the investment adviser or a 
controlling person directly or indirectly receives money or other 
benefit:
    (i) The compensation to be received under the interim contract is no 
greater than the compensation the adviser would have received under the 
previous contract;
    (ii) The board of directors, including a majority of the directors 
who are not interested persons of the fund, has voted in person to 
approve the interim contract before the previous contract is terminated;
    (iii) The board of directors, including a majority of the directors 
who are not interested persons of the fund, determines that the scope 
and quality of services to be provided to the fund under the interim 
contract will be at least equivalent to the scope and quality of 
services provided under the previous contract;
    (iv) The interim contract provides that the fund's board of 
directors or a majority of the fund's outstanding voting securities may 
terminate the contract at any time, without the payment of any penalty, 
on not more than 10 calendar days' written notice to the investment 
adviser;
    (v) The interim contract contains the same terms and conditions as 
the previous contract, with the exception of its effective and 
termination dates, provisions governed by paragraphs

[[Page 1226]]

(b)(2)(i), (b)(2)(iv), and (b)(2)(vi) of this section, and any other 
differences in terms and conditions that the board of directors, 
including a majority of the directors who are not interested persons of 
the fund, finds to be immaterial;
    (vi) The interim contract contains the following provisions:
    (A) The compensation earned under the contract will be held in an 
interest-bearing escrow account with the fund's custodian or a bank;
    (B) If a majority of the fund's outstanding voting securities 
approve a contract with the investment adviser by the end of the 150-day 
period, the amount in the escrow account (including interest earned) 
will be paid to the investment adviser; and
    (C) If a majority of the fund's outstanding voting securities do not 
approve a contract with the investment adviser, the investment adviser 
will be paid, out of the escrow account, the lesser of:
    (1) Any costs incurred in performing the interim contract (plus 
interest earned on that amount while in escrow); or
    (2) The total amount in the escrow account (plus interest earned); 
and
    (vii) The board of directors of the investment company satisfies the 
fund governance standards defined in Sec.270.0-1(a)(7).

[64 FR 68023, Dec. 6, 1999, as amended 66 FR 3758, Jan. 16, 2001; 69 FR 
46389, Aug. 2, 2004]



Sec.270.16a-1  Exemption for initial period of directors of certain 
registered accounts from requirements of election by security holders.

    (a) Persons serving as the directors of a registered separate 
account shall, prior to the first meeting of such account's variable 
annuity contract owners, be exempt from the requirement of section 16(a) 
of the Act that such persons be elected by the holders of outstanding 
voting securities of such account at an annual or special meeting called 
for that purpose, subject to the following conditions:
    (1) Such registered separate account qualifies for exemption from 
section 14(a) of the Act pursuant to Sec.270.14a-1 or is exempt 
therefrom by order of the Commission upon application; and
    (2) Such persons have been appointed directors of such account by 
the establishing insurance company; and
    (3) An election of directors for such account shall be held at the 
first meeting of variable annuity contract owners after the effective 
date of the registration statement under the Securities Act of 1933, as 
amended (15 U.S.C. 77a et seq.), relating to contracts participating in 
such account: Provided, That such meeting shall take place within 1 year 
after such effective date, unless the time for the holding of such 
meeting shall be extended by the Commission upon written request showing 
good cause therefor.

(Sec.6, 54 Stat. 800; 15 U.S.C. 80a-6)

[34 FR 12695, Aug. 5, 1969]



Sec.270.17a-1  Exemption of certain underwriting transactions exempted
by Sec.270.10f-1.

    Any transaction exempted pursuant to Sec.270.10f-1 shall be exempt 
from the provisions of section 17(a)(1) of the Act (54 Stat. 815; 15 
U.S.C. 80a-17).

[Rule N-17A-1, 6 FR 1191, Feb. 28, 1941]



Sec.270.17a-2  Exemption of certain purchase, sale, or borrowing
transactions.

    Purchase, sale or borrowing transactions occurring in the usual 
course of business between affiliated persons of registered investment 
companies shall be exempt from section 17(a) of the Act provided (a) the 
transactions involve notes, drafts, time payment contracts, bills of 
exchange, acceptance or other property of a commercial character rather 
than of an investment character; (b) the buyer or lender is a bank; and 
(c) the seller or borrower is a bank or is engaged principally in the 
business of installment financing.

[Rule N-17A-2, 12 FR 5008, July 29, 1947]



Sec.270.17a-3  Exemption of transactions with fully owned subsidiaries.

    (a) The following transactions shall be exempt from section 17(a) of 
the Act:
    (1) Transactions solely between a registered investment company and 
one or more of its fully owned subsidiaries or solely between two or 
more fully owned subsidiaries of such company.

[[Page 1227]]

    (2) Transactions solely between any subsidiary of a registered 
investment company and one or more fully owned subsidiaries of such 
subsidiary or solely between two or more fully owned subsidiaries of 
such subsidiary.
    (b) The term fully owned subsidiary as used in this section, means a 
subsidiary (1) all of whose outstanding securities, other than 
directors' qualifying shares, are owned by its parent and/or the 
parent's other fully owned subsidiaries, and (2) which is not indebted 
to any person other than its parent and/or the parent's other fully 
owned subsidiaries in an amount which is material in relation to the 
particular subsidiary, excepting (i) indebtedness incurred in the 
ordinary course of business which is not overdue and which matures 
within one year from the date of its creation, whether evidenced by 
securities or not, and (ii) any other indebtedness to one or more banks 
or insurance companies.

[Rule N-17A-3, 12 FR 3442, May 28, 1947]



Sec.270.17a-4  Exemption of transactions pursuant to certain contracts.

    Transactions pursuant to a contract shall be exempt from section 
17(a) of the Act if at the time of the making of the contract and for a 
period of at least six months prior thereto no affiliation or other 
relationship existed which would operate to make such contract or the 
subsequent performance thereof subject to the provisions of said section 
17(a).

[Rule N-17A-4, 12 FR 5008, July 29, 1947]



Sec.270.17a-5  Pro rata distribution neither ``sale'' nor ``purchase.''

    When a company makes a pro rata distribution in cash or in kind 
among its common stockholders without giving any election to any 
stockholder as to the specific assets which such stockholders shall 
receive, such distribution shall not be deemed to involve a sale to or a 
purchase from such distributing company as those terms are used in 
section 17(a) of the Act.

[20 FR 7447, Oct. 6, 1955]



Sec.270.17a-6  Exemption for transactions with portfolio affiliates.

    (a) Exemption for transactions with portfolio affiliates. A 
transaction to which a fund, or a company controlled by a fund, and a 
portfolio affiliate of the fund are parties is exempt from the 
provisions of section 17(a) of the Act (15 U.S.C. 80a-17(a)), provided 
that none of the following persons is a party to the transaction, or has 
a direct or indirect financial interest in a party to the transaction 
other than the fund:
    (1) An officer, director, employee, investment adviser, member of an 
advisory board, depositor, promoter of or principal underwriter for the 
fund;
    (2) A person directly or indirectly controlling the fund;
    (3) A person directly or indirectly owning, controlling or holding 
with power to vote five percent or more of the outstanding voting 
securities of the fund;
    (4) A person directly or indirectly under common control with the 
fund, other than:
    (i) A portfolio affiliate of the fund; or
    (ii) A fund whose sole interest in the transaction or a party to the 
transaction is an interest in the portfolio affiliate; or
    (5) An affiliated person of any of the persons mentioned in 
paragraphs (a)(1)-(4) of this section, other than the fund or a 
portfolio affiliate of the fund.
    (b) Definitions--(1) Financial interest. (i) The term financial 
interest as used in this section does not include:
    (A) Any interest through ownership of securities issued by the fund;
    (B) Any interest of a wholly-owned subsidiary of a fund;
    (C) Usual and ordinary fees for services as a director;
    (D) An interest of a non-executive employee;
    (E) An interest of an insurance company arising from a loan or 
policy made or issued by it in the ordinary course of business to a 
natural person;
    (F) An interest of a bank arising from a loan or account made or 
maintained by it in the ordinary course of business to or with a natural 
person, unless it arises from a loan to a person who is an officer, 
director or executive of a company which is a party to the transaction, 
or from a loan to a person

[[Page 1228]]

who directly or indirectly owns, controls, or holds with power to vote, 
five percent or more of the outstanding voting securities of a company 
which is a party to the transaction;
    (G) An interest acquired in a transaction described in paragraph 
(d)(3) of Sec.270.17d-1; or
    (H) Any other interest that the board of directors of the fund, 
including a majority of the directors who are not interested persons of 
the fund, finds to be not material, provided that the directors record 
the basis for that finding in the minutes of their meeting.
    (ii) A person has a financial interest in any party in which it has 
a financial interest, in which it had a financial interest within six 
months prior to the transaction, or in which it will acquire a financial 
interest pursuant to an arrangement in existence at the time of the 
transaction.
    (2) Fund means a registered investment company or separate series of 
a registered investment company.
    (3) Portfolio affiliate of a fund means a person that is an 
affiliated person (or an affiliated person of an affiliated person) of a 
fund solely because the fund, a fund under common control with the fund, 
or both:
    (i) Controls such person (or an affiliated person of such person); 
or
    (ii) Owns, controls, or holds with power to vote five percent or 
more of the outstanding voting securities of such person (or an 
affiliated person of such person).

[68 FR 3153, Jan. 22, 2003]



Sec.270.17a-7  Exemption of certain purchase or sale transactions
between an investment company and certain affiliated persons thereof.

    A purchase or sale transaction between registered investment 
companies or separate series of registered investment companies, which 
are affiliated persons, or affiliated persons of affiliated persons, of 
each other, between separate series of a registered investment company, 
or between a registered investment company or a separate series of a 
registered investment company and a person which is an affiliated person 
of such registered investment company (or affiliated person of such 
person) solely by reason of having a common investment adviser or 
investment advisers which are affiliated persons of each other, common 
directors, and/or common officers, is exempt from section 17(a) of the 
Act; Provided, That:
    (a) The transaction is a purchase or sale, for no consideration 
other than cash payment against prompt delivery of a security for which 
market quotations are readily available;
    (b) The transaction is effected at the independent current market 
price of the security. For purposes of this paragraph the ``current 
market price'' shall be:
    (1) If the security is an ``NMS stock'' as that term is defined in 
17 CFR 242.600, the last sale price with respect to such security 
reported in the consolidated transaction reporting system 
(``consolidated system'') or the average of the highest current 
independent bid and lowest current independent offer for such security 
(reported pursuant to 17 CFR 242.602) if there are no reported 
transactions in the consolidated system that day; or
    (2) If the security is not a reported security, and the principal 
market for such security is an exchange, then the last sale on such 
exchange or the average of the highest current independent bid and 
lowest current independent offer on such exchange if there are no 
reported transactions on such exchange that day; or
    (3) If the security is not a reported security and is quoted in the 
NASDAQ System, then the average of the highest current independent bid 
and lowest current independent offer reported on Level 1 of NASDAQ; or
    (4) For all other securities, the average of the highest current 
independent bid and lowest current independent offer determined on the 
basis of reasonable inquiry;
    (c) The transaction is consistent with the policy of each registered 
investment company and separate series of a registered investment 
company participating in the transaction, as recited in its registration 
statement and reports filed under the Act;
    (d) No brokerage commission, fee (except for customary transfer 
fees), or other remuneration is paid in connection with the transaction;

[[Page 1229]]

    (e) The board of directors of the investment company, including a 
majority of the directors who are not interested persons of such 
investment company,
    (1) Adopts procedures pursuant to which such purchase or sale 
transactions may be effected for the company, which are reasonably 
designed to provide that all of the conditions of this section in 
paragraphs (a) through (d) have been complied with,
    (2) Makes and approves such changes as the board deems necessary, 
and
    (3) Determines no less frequently than quarterly that all such 
purchases or sales made during the preceding quarter were effected in 
compliance with such procedures;
    (f) The board of directors of the investment company satisfies the 
fund governance standards defined in Sec.270.0-1(a)(7); and
    (g) The investment company (1) maintains and preserves permanently 
in an easily accessible place a written copy of the procedures (and any 
modifications thereto) described in paragraph (e) of this section, and 
(2) maintains and preserves for a period not less than six years from 
the end of the fiscal year in which any transactions occurred, the first 
two years in an easily accessible place, a written record of each such 
transaction setting forth a description of the security purchased or 
sold, the identity of the person on the other side of the transaction, 
the terms of the purchase or sale transaction, and the information or 
materials upon which the determinations described in paragraph (e)(3) of 
this section were made.

[46 FR 17013, Mar. 17, 1981, as amended at 58 FR 49921, Sept. 24, 1993; 
66 FR 3758, Jan. 16, 2001; 69 FR 46389, Aug. 2, 2004; 70 FR 37632, June 
29, 2005]



Sec.270.17a-8  Mergers of affiliated companies.

    (a) Exemption of affiliated mergers. A Merger of a registered 
investment company (or a series thereof) and one or more other 
registered investment companies (or series thereof) or Eligible 
Unregistered Funds is exempt from sections 17(a)(1) and (2) of the Act 
(15 U.S.C. 80a-17(a)(1)-(2)) if:
    (1) Surviving company. The Surviving Company is a registered 
investment company (or a series thereof).
    (2) Board determinations. As to any registered investment company 
(or series thereof) participating in the Merger (``Merging Company''):
    (i) The board of directors, including a majority of the directors 
who are not interested persons of the Merging Company or of any other 
company or series participating in the Merger, determines that:
    (A) Participation in the Merger is in the best interests of the 
Merging Company; and
    (B) The interests of the Merging Company's existing shareholders 
will not be diluted as a result of the Merger.

    Note to paragraph (a)(2)(i): For a discussion of factors that may be 
relevant to the determinations in paragraph (a)(2)(i) of this section, 
see Investment Company Act Release No. 25666, July 18, 2002.

    (ii) The directors have requested and evaluated such information as 
may reasonably be necessary to their determinations in paragraph 
(a)(2)(i) of this section, and have considered and given appropriate 
weight to all pertinent factors.
    (iii) The directors, in making the determination in paragraph 
(a)(2)(i)(B) of this section, have approved procedures for the valuation 
of assets to be conveyed by each Eligible Unregistered Fund 
participating in the Merger. The approved procedures provide for the 
preparation of a report by an Independent Evaluator, to be considered in 
assessing the value of any securities (or other assets) for which market 
quotations are not readily available, that sets forth the fair value of 
each such asset as of the date of the Merger.
    (iv) The determinations required in paragraph (a)(2)(i) of this 
section and the bases thereof, including the factors considered by the 
directors pursuant to paragraph (a)(2)(ii) of this section, are recorded 
fully in the minute books of the Merging Company.
    (3) Shareholder approval. Participation in the Merger is approved by 
the vote of a majority of the outstanding voting securities (as provided 
in section 2(a)(42) of the Act (15 U.S.C. 80a-

[[Page 1230]]

2(a)(42))) of any Merging Company that is not a Surviving Company, 
unless--
    (i) No policy of the Merging Company that under section 13 of the 
Act (15 U.S.C. 80a-13) could not be changed without a vote of a majority 
of its outstanding voting securities, is materially different from a 
policy of the Surviving Company;
    (ii) No advisory contract between the Merging Company and any 
investment adviser thereof is materially different from an advisory 
contract between the Surviving Company and any investment adviser 
thereof, except for the identity of the investment companies as a party 
to the contract;
    (iii) Directors of the Merging Company who are not interested 
persons of the Merging Company and who were elected by its shareholders, 
will comprise a majority of the directors of the Surviving Company who 
are not interested persons of the Surviving Company; and
    (iv) Any distribution fees (as a percentage of the fund's average 
net assets) authorized to be paid by the Surviving Company pursuant to a 
plan adopted in accordance with Sec.270.12b-1 are no greater than the 
distribution fees (as a percentage of the fund's average net assets) 
authorized to be paid by the Merging Company pursuant to such a plan.
    (4) Board composition. The board of directors of the Merging Company 
satisfies the fund governance standards defined in Sec.270.0-1(a)(7).
    (5) Merger records. Any Surviving Company preserves written records 
that describe the Merger and its terms for six years after the Merger 
(and for the first two years in an easily accessible place).
    (b) Definitions. For purposes of this section:
    (1) Merger means the merger, consolidation, or purchase or sale of 
substantially all of the assets between a registered investment company 
(or a series thereof) and another company;
    (2) Eligible Unregistered Fund means:
    (i) A collective trust fund, as described in section 3(c)(11) of the 
Act (15 U.S.C. 80a-3(c)(11));
    (ii) A common trust fund or similar fund, as described in section 
3(c)(3) of the Act (15 U.S.C. 80a-3(c)(3)); or
    (iii) A separate account, as described in section 2(a)(37) of the 
Act (15 U.S.C. 80a-2(a)(37)), that is neither registered under section 8 
of the Act, nor required to be so registered;
    (3) Independent Evaluator means a person who has expertise in the 
valuation of securities and other financial assets and who is not an 
interested person, as defined in section 2(a)(19) of the Act (15 U.S.C. 
80a-2(a)(19)), of the Eligible Unregistered Fund or any affiliate 
thereof except the Merging Company; and
    (4) Surviving Company means a company in which shareholders of a 
Merging Company will obtain an interest as a result of a Merger.

[67 FR 48518, July 24, 2002, as amended at 69 FR 46389, Aug. 2, 2004]



Sec.270.17a-9  Purchase of certain securities from a money market
fund by an affiliate, or an affiliate of an affiliate.

    The purchase of a security from the portfolio of an open-end 
investment company holding itself out as a money market fund by any 
affiliated person or promoter of or principal underwriter for the money 
market fund or any affiliated person of such person shall be exempt from 
section 17(a) of the Act (15 U.S.C. 80a-17(a)); provided that:
    (a) In the case of a portfolio security that has ceased to be an 
Eligible Security (as defined in Sec.270.2a-7(a)(12)), or has 
defaulted (other than an immaterial default unrelated to the financial 
condition of the issuer):
    (1) The purchase price is paid in cash; and
    (2) The purchase price is equal to the greater of the amortized cost 
of the security or its market price (in each case, including accrued 
interest).
    (b) In the case of any other portfolio security:
    (1) The purchase price meets the requirements of paragraph (a)(1) 
and (2) of this section; and
    (2) In the event that the purchaser thereafter sells the security 
for a higher price than the purchase price paid to the money market 
fund, the purchaser shall promptly pay to the fund the amount by which 
the subsequent sale

[[Page 1231]]

price exceeds the purchase price paid to the fund.

[75 FR 10117, Mar. 4, 2010]



Sec.270.17a-10  Exemption for transactions with certain subadvisory 
affiliates.

    (a) Exemption. A person that is prohibited by section 17(a) of the 
Act (15 U.S.C. 80a-17(a)) from entering into a transaction with a fund 
solely because such person is, or is an affiliated person of, a 
subadviser of the fund, or a subadviser of a fund that is under common 
control with the fund, may nonetheless enter into such transaction, if:
    (1) Prohibited relationship. The person is not, and is not an 
affiliated person of, an investment adviser responsible for providing 
advice with respect to the portion of the fund for which the transaction 
is entered into, or of any promoter, underwriter, officer, director, 
member of an advisory board, or employee of the fund.
    (2) Prohibited conduct. The advisory contracts of the subadviser 
that is (or whose affiliated person is) entering into the transaction, 
and any subadviser that is advising the fund (or portion of the fund) 
entering into the transaction:
    (i) Prohibit them from consulting with each other concerning 
transactions for the fund in securities or other assets; and
    (ii) If both such subadvisers are responsible for providing 
investment advice to the fund, limit the subadvisers' responsibility in 
providing advice with respect to a discrete portion of the fund's 
portfolio.
    (b) Definitions. (1) Fund means a registered investment company and 
includes a separate series of a registered investment company.
    (2) Subadviser means an investment adviser as defined in section 
2(a)(20)(B) of the Act (15 U.S.C. 80a-2(a)(20)(B)).

[68 FR 3153, Jan. 22, 2003]



Sec.270.17d-1  Applications regarding joint enterprises or 
arrangements and certain profit-sharing plans.

    (a) No affiliated person of or principal underwriter for any 
registered investment company (other than a company of the character 
described in section 12(d)(3) (A) and (B) of the Act) and no affiliated 
person of such a person or principal underwriter, acting as principal, 
shall participate in, or effect any transaction in connection with, any 
joint enterprise or other joint arrangement or profit-sharing plan in 
which any such registered company, or a company controlled by such 
registered company, is a participant, and which is entered into, adopted 
or modified subsequent to the effective date of this rule, unless an 
application regarding such joint enterprise, arrangement or profit-
sharing plan has been filed with the Commission and has been granted by 
an order entered prior to the submission of such plan or modification to 
security holders for approval, or prior to such adoption or modification 
if not so submitted, except that the provisions of this rule shall not 
preclude any affiliated person from acting as manager of any 
underwriting syndicate or other group in which such registered or 
controlled company is a participant and receiving compensation therefor.
    (b) In passing upon such applications, the Commission will consider 
whether the participation of such registered or controlled company in 
such joint enterprise, joint arrangement or profit-sharing plan on the 
basis proposed is consistent with the provisions, policies and purposes 
of the Act and the extent to which such participation is on a basis 
different from or less advantageous than that of other participants.
    (c) ``Joint enterprise or other joint arrangement or profit-sharing 
plan'' as used in this section shall mean any written or oral plan, 
contract, authorization or arrangement, or any practice or understanding 
concerning an enterprise or undertaking whereby a registered investment 
company or a controlled company thereof and any affiliated person of or 
a principal underwriter for such registered investment company, or any 
affiliated person of such a person or principal underwriter, have a 
joint or a joint and several participation, or share in the profits of 
such enterprise or undertaking, including, but not limited to, any stock 
option or stock purchase plan, but shall not include an investment 
advisory contract subject to section 15 of the Act.

[[Page 1232]]

    (d) Notwithstanding the requirements of paragraph (a) of this 
section, no application need be filed pursuant to this section with 
respect to any of the following:
    (1) Any profit-sharing, stock option or stock purchase plan provided 
by any controlled company which is not an investment company for its 
officers, directors or employees, or the purchase of stock or the 
granting, modification or exercise of options pursuant to such a plan, 
provided:
    (i) No individual participates therein who is either:
    (a) An affiliated person of any investment company which is an 
affiliated person of such controlled company; or
    (b) An affiliated person of the investment adviser or principal 
underwriter of such investment company; and
    (ii) No participant has been an affiliated person of such investment 
company, its investment adviser or principal underwriter during the life 
of the plan and for six months prior to, as the case may be:
    (a) Institution of the profit-sharing plan;
    (b) The purchase of stock pursuant to a stock purchase plan; or
    (c) The granting of any options pursuant to a stock option plan.
    (2) Any plan provided by any registered investment company or any 
controlled company for its officers or employees if such plan has been 
qualified under section 401 of the Internal Revenue Code of 1954 and all 
contributions paid under said plan by the employer qualify as deductible 
under section 404 of said Code.
    (3) Any loan or advance of credit to, or acquisition of securities 
or other property of, a small business concern, or any agreement to do 
any of the foregoing (``Investments''), made by a bank and a small 
business investment company (SBIC) licensed under the Small Business 
Investment Act of 1958, whether such transactions are contemporaneous or 
separated in time, where the bank is an affiliated person of either (i) 
the SBIC or (ii) an affiliated person of the SBIC; but reports 
containing pertinent details as to Investments and transactions relating 
thereto shall be made at such time, on such forms and by such persons as 
the Commission may from time to time prescribe.
    (4) The issuance by a registered investment company which is 
licensed by the Small Business Administration pursuant to the Small 
Business Investment Act of 1958 of stock options which qualify under 
section 422 of the Internal Revenue Code, as amended, and which conform 
to Sec.107.805(b) of Chapter I of Title 13 of the Code of Federal 
Regulations.
    (5) Any joint enterprise or other joint arrangement or profit-
sharing plan (``joint enterprise'') in which a registered investment 
company or a company controlled by such a company, is a participant, and 
in which a portfolio affiliate (as defined in Sec.270.17a-6(b)(3)) of 
such registered investment company is also a participant, provided that:
    (i) None of the persons identified in Sec.270.17a-6(a) is a 
participant in the joint enterprise, or has a direct or indirect 
financial interest in a participant in the joint enterprise (other than 
the registered investment company);
    (ii) Financial interest. (A) The term financial interest as used in 
this section does not include:
    (1) Any interest through ownership of securities issued by the 
registered investment company;
    (2) Any interest of a wholly owned subsidiary of the registered 
investment company;
    (3) Usual and ordinary fees for services as a director;
    (4) An interest of a non-executive employee;
    (5) An interest of an insurance company arising from a loan or 
policy made or issued by it in the ordinary course of business to a 
natural person;
    (6) An interest of a bank arising from a loan to a person who is an 
officer, director, or executive of a company which is a participant in 
the joint transaction or from a loan to a person who directly or 
indirectly owns, controls, or holds with power to vote, five percent or 
more of the outstanding voting securities of a company which is a 
participant in the joint transaction;
    (7) An interest acquired in a transaction described in paragraph 
(d)(3) of this section; or

[[Page 1233]]

    (8) Any other interest that the board of directors of the investment 
company, including a majority of the directors who are not interested 
persons of the investment company, finds to be not material, provided 
that the directors record the basis for that finding in the minutes of 
their meeting.
    (B) A person has a financial interest in any party in which it has a 
financial interest, in which it had a financial interest within six 
months prior to the investment company's participation in the 
enterprise, or in which it will acquire a financial interest pursuant to 
an arrangement in existence at the time of the investment company's 
participation in the enterprise.
    (6) The receipt of securities and/or cash by an investment company 
or a controlled company thereof and an affiliated person of such 
investment company or an affiliated person of such person pursuant to a 
plan of reorganization: Provided, That no person identified in Sec.
270.17a-6(a)(1) or any company in which such a person has a direct or 
indirect financial interest (as defined in paragraph (d)(5)(ii) of this 
section):
    (i) Has a direct or indirect financial interest in the corporation 
under reorganization, except owning securities of each class or classes 
owned by such investment company or controlled company;
    (ii) Receives pursuant to such plan any securities or other 
property, except securities of the same class and subject to the same 
terms as the securities received by such investment company or 
controlled company, and/or cash in the same proportion as is received by 
the investment company or controlled company based on securities of the 
company under reorganization owned by such persons; and
    (iii) Is, or has a direct or indirect financial interest in any 
person (other than such investment company or controlled company) who 
is:
    (A) Purchasing assets from the company under reorganization; or
    (B) Exchanging shares with such person in a transaction not in 
compliance with the standards described in this paragraph (d)(6).
    (7) Any arrangement regarding liability insurance policies (other 
than a bond required pursuant to rule 17g-1 (Sec.270.17g-1) under the 
Act); Provided, That
    (i) The investment company's participation in the joint liability 
insurance policy is in the best interests of the investment company;
    (ii) The proposed premium for the joint liability insurance policy 
to be allocated to the investment company, based upon its proportionate 
share of the sum of the premiums that would have been paid if such 
insurance coverage were purchased separately by the insured parties, is 
fair and reasonable to the investment company;
    (iii) The joint liability insurance policy does not exclude coverage 
for bona fide claims made against any director who is not an interested 
person of the investment company, or against the investment company if 
it is a co-defendant in the claim with the disinterested director, by 
another person insured under the joint liability insurance policy;
    (iv) The board of directors of the investment company, including a 
majority of the directors who are not interested persons with respect 
thereto, determine no less frequently than annually that the standards 
described in paragraphs (d)(7)(i) and (ii) of this section have been 
satisfied; and
    (v) The board of directors of the investment company satisfies the 
fund governance standards defined in Sec.270.0-1(a)(7).
    (8) An investment adviser's bearing expenses in connection with a 
merger, consolidation or purchase or sale of substantially all of the 
assets of a company which involves a registered investment company of 
which it is an affiliated person.

[22 FR 426, Jan. 23, 1957, as amended at 26 FR 11240, Nov. 29, 1961; 35 
FR 13123, Aug. 18, 1970; 39 FR 37973, Oct. 25, 1974; 44 FR 58503, Oct. 
10, 1979; 44 FR 58908, Oct. 12, 1979; 45 FR 12409, Feb. 26, 1980; 66 FR 
3758, Jan. 16, 2001; 68 FR 3153, Jan. 22, 2003; 69 FR 46389, Aug. 2, 
2004; 78 FR 79299, Dec. 30, 2013]

[[Page 1234]]



Sec.270.17d-2  Form for report by small business investment company 
and affiliated bank.

    Form N-17D-1 is hereby prescribed as the form for reports required 
by paragraph (d)(3) of Sec.270.17d-1.

[26 FR 11240, Nov. 29, 1961]



Sec.270.17d-3  Exemption relating to certain joint enterprises or 
arrangements concerning payment for distribution of shares of 
a registered open-end management investment company.
          

    An affiliated person of, or principal underwriter for, a registered 
open-end management investment company and an affiliated person of such 
a person or principal underwriter shall be exempt from section 17(d) of 
the Act (15 U.S.C. 80a-17(d)) and rule 17d-1 thereunder (17 CFR 270.17d-
1), to the extent necessary to permit any such person or principal 
underwriter to enter into a written agreement with such company whereby 
the company will make payments in connection with the distribution of 
its shares, Provided, That:
    (a) Such agreement is made in compliance with the provisions of 
Sec.270.12b-1; and
    (b) No other registered management investment company which is 
either an affiliated person of such company or an affiliated person of 
such a person is a party to such agreement.

[45 FR 73905, Nov. 7, 1980]



Sec.270.17e-1  Brokerage transactions on a securities exchange.

    For purposes of section 17(e)(2)(A) of the Act [15 U.S.C. 80a-
17(e)(2)(A)], a commission, fee or other remuneration shall be deemed as 
not exceeding the usual and customary broker's commission, if:
    (a) The commission, fee, or other remuneration received or to be 
received is reasonable and fair compared to the commission, fee or other 
remuneration received by other brokers in connection with comparable 
transactions involving similar securities being purchased or sold on a 
securities exchange during a comparable period of time;
    (b) The board of directors, including a majority of the directors of 
the investment company who are not interested persons thereof:
    (1) Has adopted procedures which are reasonably designed to provide 
that such commission, fee, or other remuneration is consistent with the 
standard described in paragraph (a) of this section;
    (2) Makes and approves such changes as the board deems necessary; 
and
    (3) Determines no less frequently than quarterly that all 
transactions effected pursuant to this section during the preceding 
quarter (other than transactions in which the person acting as broker is 
a person permitted to enter into a transaction with the investment 
company by Sec.270.17a-10) were effected in compliance with such 
procedures;
    (c) The board of directors of the investment company satisfies the 
fund governance standards defined in Sec.270.0-1(a)(7); and
    (d) The investment company:
    (1) Shall maintain and preserve permanently in an easily accessible 
place a copy of the procedures (and any modification thereto) described 
in paragraph (b)(1) of this section; and
    (2) Shall maintain and preserve for a period not less than six years 
from the end of the fiscal year in which any transactions occurred, the 
first two years in an easily accessible place, a record of each such 
transaction (other than any transaction in which the person acting as 
broker is a person permitted to enter into a transaction with the 
investment company by Sec.270.17a-10) setting forth the amount and 
source of the commission, fee or other remuneration received or to be 
received, the identity of the person acting as broker, the terms of the 
transaction, and the information or materials upon which the findings 
described in paragraph (b)(3) of this section were made.

[44 FR 37203, June 26, 1979, as amended at 58 FR 49921, Sept. 24, 1993; 
66 FR 3759, Jan. 16, 2001; 68 FR 3154, Jan. 22, 2003; 69 FR 46389, Aug. 
2, 2004]



Sec.270.17f-1  Custody of securities with members of national 
securities exchanges.

    (a) No registered management investment company shall place or 
maintain any of its securities or similar investments in the custody of 
a company

[[Page 1235]]

which is a member of a national securities exchange as defined in the 
Securities Exchange Act of 1934 (whether or not such company trades in 
securities for its own account) except pursuant to a written contract 
which shall have been approved, or if executed before January 1, 1941, 
shall have been ratified not later than that date, by a majority of the 
board of directors of such investment company.
    (b) The contract shall require, and the securities and investments 
shall be maintained in accordance with the following:
    (1) The securities and similar investments held in such custody 
shall at all times be individually segregated from the securities and 
investments of any other person and marked in such manner as to clearly 
identify them as the property of such registered management company, 
both upon physical inspection thereof and upon examination of the books 
of the custodian. The physical segregation and marking of such 
securities and investments may be accomplished by putting them in 
separate containers bearing the name of such registered management 
investment company or by attaching tags or labels to such securities and 
investments.
    (2) The custodian shall have no power or authority to assign, 
hypothecate, pledge or otherwise to dispose of any such securities and 
investments, except pursuant to the direction of such registered 
management company and only for the account of such registered 
investment company.
    (3) Such securities and investments shall be subject to no lien or 
charge of any kind in favor of the custodian or any persons claiming 
through the custodian.
    (4) Such securities and investments shall be verified by actual 
examination at the end of each annual and semi-annual fiscal period by 
an independent public accountant retained by the investment company, and 
shall be examined by such accountant at least one other time, chosen by 
the accountant, during each fiscal year. A certificate of such 
accountant stating that an examination of such securities has been made, 
and describing the nature and extent of the examination, shall be 
attached to a completed Form N-17f-1 (17 CFR 274.219) and transmitted to 
the Commission promptly after each examination.
    (5) Such securities and investments shall, at all times, be subject 
to inspection by the Commission through its employees or agents.
    (6) The provisions of paragraphs (b) (1), (2) and (3) of this 
section shall not apply to securities and similar investments bought for 
or sold to such investment company by the company which is custodian 
until the securities have been reduced to the physical possession of the 
custodian and have been paid for by such investment company: Provided, 
That the company which is custodian shall take possession of such 
securities at the earliest practicable time. Nothing in this 
subparagraph shall be construed to relieve any company which is a member 
of a national securities exchange of any obligation under existing law 
or under the rules of any national securities exchange.
    (c) A copy of any contract executed or ratified pursuant to 
paragraph (a) of this section shall be transmitted to the Commission 
promptly after execution or ratification unless it has been previously 
transmitted.
    (d) Any contract executed or ratified pursuant to paragraph (a) of 
this section shall be ratified by the board of directors of the 
registered management investment company at least annually thereafter.

[Rule N-17F-1, 5 FR 4317, Oct. 31, 1940, as amended at 54 FR 32049, Aug. 
4, 1989]



Sec.270.17f-2  Custody of investments by registered management 
investment company.

    (a) The securities and similar investments of a registered 
management investment company may be maintained in the custody of such 
company only in accordance with the provisions of this section. 
Investments maintained by such a company with a bank or other company 
whose functions and physical facilities are supervised by Federal or 
State authority under any arrangement whereunder the directors, 
officers, employees or agents of such company are authorized or 
permitted to withdraw such investments upon their mere receipt, are 
deemed to be in the

[[Page 1236]]

custody of such company and may be so maintained only upon compliance 
with the provisions of this section.
    (b) Except as provided in paragraph (c) of this section, all such 
securities and similar investments shall be deposited in the safekeeping 
of, or in a vault or other depository maintained by, a bank or other 
company whose functions and physical facilities are supervised by 
Federal or State authority. Investments so deposited shall be physically 
segregated at all times from those of any other person and shall be 
withdrawn only in connection with transactions of the character 
described in paragraph (c) of this section.
    (c) The first sentence of paragraph (b) of this section shall not 
apply to securities on loan which are collateralized to the extent of 
their full market value, or to securities hypothecated, pledged, or 
placed in escrow for the account of such investment company in 
connection with a loan or other transaction authorized by specific 
resolution of its board of directors, or to securities in transit in 
connection with the sale, exchange, redemption, maturity or conversion, 
the exercise of warrants or rights, assents to changes in terms of the 
securities, or other transactions necessary or appropriate in the 
ordinary course of business relating to the management of securities.
    (d) Except as otherwise provided by law, no person shall be 
authorized or permitted to have access to the securities and similar 
investments deposited in accordance with paragraph (b) of this section 
except pursuant to a resolution of the board of directors of such 
investment company. Each such resolution shall designate not more than 
five persons who shall be either officers or responsible employees of 
such company and shall provide that access to such investments shall be 
had only by two or more such persons jointly, at least one of whom shall 
be an officer; except that access to such investments shall be permitted 
(1) to properly authorized officers and employees of the bank or other 
company in whose safekeeping the investments are placed and (2) for the 
purpose of paragraph (f) of this section to the independent public 
accountant jointly with any two persons so designated or with such 
officer or employee of such bank or such other company. Such investments 
shall at all times be subject to inspection by the Commission through 
its authorized employees or agents accompanied, unless otherwise 
directed by order of the Commission, by one or more of the persons 
designated pursuant to this paragraph.
    (e) Each person when depositing such securities or similar 
investments in or withdrawing them from the depository or when ordering 
their withdrawal and delivery from the safekeeping of the bank or other 
company, shall sign a notation in respect of such deposit, withdrawal or 
order which shall show (1) the date and time of the deposit, withdrawal 
or order, (2) the title and amount of the securities or other 
investments deposited, withdrawn or ordered to be withdrawn, and an 
identification thereof by certificate numbers or otherwise, (3) the 
manner of acquisition of the securities or similar investments deposited 
or the purpose for which they have been withdrawn, or ordered to be 
withdrawn, and (4) if withdrawn and delivered to another person the name 
of such person. Such notation shall be transmitted promptly to an 
officer or director of the investment company designated by its board of 
directors who shall not be a person designated for the purpose of 
paragraph (d) of this section. Such notation shall be on serially 
numbered forms and shall be preserved for at least one year.
    (f) Such securities and similar investments shall be verified by 
actual examination by an independent public accountant retained by the 
investment company at least three times during each fiscal year, at 
least two of which shall be chosen by such accountant without prior 
notice to such company. A certificate of such accountant stating that an 
examination of such securities and investments has been made, and 
describing the nature and extent of the examination, shall be attached 
to a completed Form N-17f-2 (17 CFR 274.220) and transmitted to the 
Commission promptly after each examination.

[Rule N-17F-2, 12 FR 6717, Oct. 11, 1947, as amended at 54 FR 32049, 
Aug. 4, 1989]

[[Page 1237]]



Sec.270.17f-3  Free cash accounts for investment companies with 
bank custodians.

    No registered investment company having a bank custodian shall hold 
free cash except, upon resolution of its board or directors, a petty 
cash account may be maintained in an amount not to exceed $500: 
Provided, That such account is operated under the imprest system and is 
maintained subject to adequate controls approved by the board of 
directors over disbursements and reimbursements including, but not 
limited to fidelity bond coverage of persons having access to such 
funds.

(Sec.17(f), 54 Stat. 815, 15 U.S.C. 80a-17(f), Sec.9, Pub. L. 91-547, 
84 Stat. 1420)

[37 FR 9989, May 18, 1972]



Sec.270.17f-4  Custody of investment company assets with a securities 
depository.

    (a) Custody arrangement with a securities depository. A fund's 
custodian may place and maintain financial assets, corresponding to the 
fund's security entitlements, with a securities depository or 
intermediary custodian, if the custodian:
    (1) Is at a minimum obligated to exercise due care in accordance 
with reasonable commercial standards in discharging its duty as a 
securities intermediary to obtain and thereafter maintain such financial 
assets;
    (2) Is required to provide, promptly upon request by the fund, such 
reports as are available concerning the internal accounting controls and 
financial strength of the custodian; and
    (3) Requires any intermediary custodian at a minimum to exercise due 
care in accordance with reasonable commercial standards in discharging 
its duty as a securities intermediary to obtain and thereafter maintain 
financial assets corresponding to the security entitlements of its 
entitlement holders.
    (b) Direct dealings with securities depository. A fund may place and 
maintain financial assets, corresponding to the fund's security 
entitlements, directly with a securities depository, if:
    (1) The fund's contract with the securities depository or the 
securities depository's written rules for its participants:
    (i) Obligate the securities depository at a minimum to exercise due 
care in accordance with reasonable commercial standards in discharging 
its duty as a securities intermediary to obtain and thereafter maintain 
financial assets corresponding to the fund's security entitlements; and
    (ii) Requires the securities depository to provide, promptly upon 
request by the fund, such reports as are available concerning the 
internal accounting controls and financial strength of the securities 
depository; and
    (2) The fund has implemented internal control systems reasonably 
designed to prevent unauthorized officer's instructions (by providing at 
least for the form, content and means of giving, recording and reviewing 
all officer's instructions).
    (c) Definitions. For purposes of this section the terms:
    (1) Clearing corporation, financial asset, securities intermediary, 
and security entitlement have the same meanings as is attributed to 
those terms in Sec.8-102, Sec.8-103, and Sec.Sec.8-501 through 8-
511 of the Uniform Commercial Code, 2002 Official Text and Comments, 
which are incorporated by reference in this section pursuant to 5 U.S.C. 
552(a) and 1 CFR part 51. The Director of the Federal Register has 
approved this incorporation by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51. You may obtain a copy of the Uniform 
Commercial Code from the National Conference of Commissioners on Uniform 
State Laws, 211 East Ontario Street, Suite 1300, Chicago, Il 60611. You 
may inspect a copy at the following addresses: Louis Loss Library, U.S. 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549, or at the National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call 202-
741-6030, or go to: http://www.archives.gov/federal_register/
code_of_federal_regulations/ibr_locations.html.
    (2) Custodian means a bank or other person authorized to hold assets 
for the fund under section 17(f) of the Act (15 U.S.C. 80a-17(f)) or 
Commission rules in this chapter, but does not include a fund itself, a 
foreign custodian whose

[[Page 1238]]

use is governed by Sec.270.17f-5 or Sec.270.17f-7, or a vault, safe 
deposit box, or other repository for safekeeping maintained by a bank or 
other company whose functions and physical facilities are supervised by 
a federal or state authority if the fund maintains its own assets there 
in accordance with Sec.270.17f-2.
    (3) Fund means an investment company registered under the Act and, 
where the context so requires with respect to a fund that is a unit 
investment trust or a face-amount certificate company, includes the 
fund's trustee.
    (4) Intermediary custodian means any subcustodian that is a 
securities intermediary and is qualified to act as a custodian.
    (5) Officer's instruction means a request or direction to a 
securities depository or its operator, or to a registered transfer 
agent, in the name of the fund by one or more persons authorized by the 
fund's board of directors (or by the fund's trustee, if the fund is a 
unit investment trust or a face-amount certificate company) to give the 
request or direction.
    (6) Securities depository means a clearing corporation that is:
    (i) Registered with the Commission as a clearing agency under 
section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1); or
    (ii) A Federal Reserve Bank or other person authorized to operate 
the federal book entry system described in the regulations of the 
Department of Treasury codified at 31 CFR 357, Subpart B, or book-entry 
systems operated pursuant to comparable regulations of other federal 
agencies.

[68 FR 8442, Feb. 20, 2003, as amended at 69 FR 18803, Apr. 9, 2004; 73 
FR 32228, June 5, 2008]



Sec.270.17f-5  Custody of investment company assets outside the 
United States.

    (a) Definitions. For purposes of this section:
    (1) Eligible Foreign Custodian means an entity that is incorporated 
or organized under the laws of a country other than the United States 
and that is a Qualified Foreign Bank or a majority-owned direct or 
indirect subsidiary of a U.S. Bank or bank-holding company.
    (2) Foreign Assets means any investments (including foreign 
currencies) for which the primary market is outside the United States, 
and any cash and cash equivalents that are reasonably necessary to 
effect the Fund's transactions in those investments.
    (3) Foreign Custody Manager means a Fund's or a Registered Canadian 
Fund's board of directors or any person serving as the board's delegate 
under paragraphs (b) or (d) of this section.
    (4) Fund means a management investment company registered under the 
Act (15 U.S.C. 80a) and incorporated or organized under the laws of the 
United States or of a state.
    (5) Qualified Foreign Bank means a banking institution or trust 
company, incorporated or organized under the laws of a country other 
than the United States, that is regulated as such by the country's 
government or an agency of the country's government.
    (6) Registered Canadian Fund means a management investment company 
incorporated or organized under the laws of Canada and registered under 
the Act pursuant to the conditions of Sec.270.7d-1.
    (7) U.S. Bank means an entity that is:
    (i) A banking institution organized under the laws of the United 
States;
    (ii) A member bank of the Federal Reserve System;
    (iii) Any other banking institution or trust company organized under 
the laws of any state or of the United States, whether incorporated or 
not, doing business under the laws of any state or of the United States, 
a substantial portion of the business of which consists of receiving 
deposits or exercising fiduciary powers similar to those permitted to 
national banks under the authority of the Comptroller of the Currency, 
and which is supervised and examined by state or federal authority 
having supervision over banks, and which is not operated for the purpose 
of evading the provisions of this section; or
    (iv) A receiver, conservator, or other liquidating agent of any 
institution or firm included in paragraphs (a)(7)(i), (ii), or (iii) of 
this section.
    (b) Delegation. A Fund's board of directors may delegate to the 
Fund's investment adviser or officers or to a

[[Page 1239]]

U.S. Bank or to a Qualified Foreign Bank the responsibilities set forth 
in paragraphs (c)(1), (c)(2), or (c)(3) of this section, provided that:
    (1) Reasonable Reliance. The board determines that it is reasonable 
to rely on the delegate to perform the delegated responsibilities;
    (2) Reporting. The board requires the delegate to provide written 
reports notifying the board of the placement of Foreign Assets with a 
particular custodian and of any material change in the Fund's foreign 
custody arrangements, with the reports to be provided to the board at 
such times as the board deems reasonable and appropriate based on the 
circumstances of the Fund's arrangements; and
    (3) Exercise of Care. The delegate agrees to exercise reasonable 
care, prudence and diligence such as a person having responsibility for 
the safekeeping of the Fund's Foreign Assets would exercise, or to 
adhere to a higher standard of care, in performing the delegated 
responsibilities.
    (c) Maintaining Assets with an Eligible Foreign Custodian. A Fund or 
its Foreign Custody Manager may place and maintain the Fund's Foreign 
Assets in the care of an Eligible Foreign Custodian, provided that:
    (1) General Standard. The Foreign Custody Manager determines that 
the Foreign Assets will be subject to reasonable care, based on the 
standards applicable to custodians in the relevant market, if maintained 
with the Eligible Foreign Custodian, after considering all factors 
relevant to the safekeeping of the Foreign Assets, including, without 
limitation:
    (i) The Eligible Foreign Custodian's practices, procedures, and 
internal controls, including, but not limited to, the physical 
protections available for certificated securities (if applicable), the 
method of keeping custodial records, and the security and data 
protection practices;
    (ii) Whether the Eligible Foreign Custodian has the requisite 
financial strength to provide reasonable care for Foreign Assets;
    (iii) The Eligible Foreign Custodian's general reputation and 
standing; and
    (iv) Whether the Fund will have jurisdiction over and be able to 
enforce judgments against the Eligible Foreign Custodian, such as by 
virtue of the existence of offices in the United States or consent to 
service of process in the United States.
    (2) Contract. The arrangement with the Eligible Foreign Custodian is 
governed by a written contract that the Foreign Custody Manager has 
determined will provide reasonable care for Foreign Assets based on the 
standards specified in paragraph (c)(1) of this section.
    (i) The contract must provide:
    (A) For indemnification or insurance arrangements (or any 
combination) that will adequately protect the Fund against the risk of 
loss of Foreign Assets held in accordance with the contract;
    (B) That the Foreign Assets will not be subject to any right, 
charge, security interest, lien or claim of any kind in favor of the 
Eligible Foreign Custodian or its creditors, except a claim of payment 
for their safe custody or administration or, in the case of cash 
deposits, liens or rights in favor of creditors of the custodian arising 
under bankruptcy, insolvency, or similar laws;
    (C) That beneficial ownership of the Foreign Assets will be freely 
transferable without the payment of money or value other than for safe 
custody or administration;
    (D) That adequate records will be maintained identifying the Foreign 
Assets as belonging to the Fund or as being held by a third party for 
the benefit of the Fund;
    (E) That the Fund's independent public accountants will be given 
access to those records or confirmation of the contents of those 
records; and
    (F) That the Fund will receive periodic reports with respect to the 
safekeeping of the Foreign Assets, including, but not limited to, 
notification of any transfer to or from the Fund's account or a third 
party account containing assets held for the benefit of the Fund.
    (ii) The contract may contain, in lieu of any or all of the 
provisions specified in paragraph (c)(2)(i) of this section, other 
provisions that the Foreign Custody Manager determines will provide, in 
their entirety, the same or a greater

[[Page 1240]]

level of care and protection for the Foreign Assets as the specified 
provisions, in their entirety.
    (3)(i) Monitoring the Foreign Custody Arrangements. The Foreign 
Custody Manager has established a system to monitor the appropriateness 
of maintaining the Foreign Assets with a particular custodian under 
paragraph (c)(1) of this section, and to monitor performance of the 
contract under paragraph (c)(2) of this section.
    (ii) If an arrangement with an Eligible Foreign Custodian no longer 
meets the requirements of this section, the Fund must withdraw the 
Foreign Assets from the Eligible Foreign Custodian as soon as reasonably 
practicable.
    (d) Registered Canadian Funds. Any Registered Canadian Fund may 
place and maintain its Foreign Assets outside the United States in 
accordance with the requirements of this section, provided
    (1) The Foreign Assets are placed in the care of an overseas branch 
of a U.S. Bank that has aggregate capital, surplus, and undivided 
profits of a specified amount, which must not be less than $500,000; and
    (2) The Foreign Custody Manager is the Fund's board of directors, 
its investment adviser or officers, or a U.S. Bank.

    Note to Sec.270.17f-5: When a Fund's (or its custodian's) custody 
arrangement with an Eligible Securities Depository (as defined in Sec.
270.17f-7) involves one or more Eligible Foreign Custodians through 
which assets are maintained with the Eligible Securities Depository, 
Sec.270.17f-5 will govern the Fund's (or its custodian's) use of each 
Eligible Foreign Custodian, while Sec.270.17f-7 will govern an 
Eligible Foreign Custodian's use of the Eligible Securities Depository.

[65 FR 25637, May 3, 2000]



Sec.270.17f-6  Custody of investment company assets with Futures 
Commission Merchants and Commodity Clearing Organizations.

    (a) A Fund may place and maintain cash, securities, and similar 
investments with a Futures Commission Merchant in amounts necessary to 
effect the Fund's transactions in Exchange-Traded Futures Contracts and 
Commodity Options, Provided that:
    (1) The manner in which the Futures Commission Merchant maintains 
the Fund's assets shall be governed by a written contract, which 
provides that:
    (i) The Futures Commission Merchant shall comply with the 
segregation requirements of section 4d(2) of the Commodity Exchange Act 
(7 U.S.C. 6d(2)) and the rules thereunder (17 CFR Chapter I) or, if 
applicable, the secured amount requirements of rule 30.7 under the 
Commodity Exchange Act (17 CFR 30.7);
    (ii) The Futures Commission Merchant, as appropriate to the Fund's 
transactions and in accordance with the Commodity Exchange Act (7 U.S.C. 
1 through 25) and the rules and regulations thereunder (including 17 CFR 
part 30), may place and maintain the Fund's assets to effect the Fund's 
transactions with another Futures Commission Merchant, a Clearing 
Organization, a U.S. or Foreign Bank, or a member of a foreign board of 
trade, and shall obtain an acknowledgment, as required under rules 
1.20(a) or 30.7(c) under the Commodity Exchange Act [17 CFR 1.20(a) or 
30.7(c)], as applicable, that such assets are held on behalf of the 
Futures Commission Merchant's customers in accordance with the 
provisions of the Commodity Exchange Act; and
    (iii) The Futures Commission Merchant shall promptly furnish copies 
of or extracts from the Futures Commission Merchant's records or such 
other information pertaining to the Fund's assets as the Commission 
through its employees or agents may request.
    (2) Any gains on the Fund's transactions, other than de minimis 
amounts, may be maintained with the Futures Commission Merchant only 
until the next business day following receipt.
    (3) If the custodial arrangement no longer meets the requirements of 
this section, the Fund shall withdraw its assets from the Futures 
Commission Merchant as soon as reasonably practicable.
    (b) For purposes of this section:
    (1) Clearing Organization means a clearing organization as defined 
in rule 1.3(d) under the Commodity Exchange Act (17 CFR 1.3(d)) and 
includes a clearing organization for a foreign board of trade.

[[Page 1241]]

    (2) Exchange-Traded Futures Contracts and Commodity Options means 
commodity futures contracts, options on commodity futures contracts, and 
options on physical commodities traded on or subject to the rules of:
    (i) Any contract market designated for trading such transactions 
under the Commodity Exchange Act and the rules thereunder; or
    (ii) Any board of trade or exchange outside the United States, as 
contemplated in Part 30 under the Commodity Exchange Act.
    (3) Fund means an investment company registered under the Act (15 
U.S.C. 80a-1 et seq.).
    (4) Futures Commission Merchant means any person that is registered 
as a futures commission merchant under the Commodity Exchange Act and 
that is not an affiliated person of the Fund or an affiliated person of 
such person.
    (5) U.S. or Foreign Bank means a bank, as defined in section 2(a)(5) 
of the Act (15 U.S.C. 80a-2(a)(5)), or a banking institution or trust 
company that is incorporated or organized under the laws of a country 
other than the United States and that is regulated as such by the 
country's government or an agency thereof.

[61 FR 66212, Dec. 17, 1996]



Sec.270.17f-7  Custody of investment company assets with a foreign 
securities depository.

    (a) Custody arrangement with an eligible securities depository. A 
Fund, including a Registered Canadian Fund, may place and maintain its 
Foreign Assets with an Eligible Securities Depository, provided that:
    (1) Risk-limiting safeguards. The custody arrangement provides 
reasonable safeguards against the custody risks associated with 
maintaining assets with the Eligible Securities Depository, including:
    (i) Risk analysis and monitoring. (A) The fund or its investment 
adviser has received from the Primary Custodian (or its agent) an 
analysis of the custody risks associated with maintaining assets with 
the Eligible Securities Depository; and
    (B) The contract between the Fund and the Primary Custodian requires 
the Primary Custodian (or its agent) to monitor the custody risks 
associated with maintaining assets with the Eligible Securities 
Depository on a continuing basis, and promptly notify the Fund or its 
investment adviser of any material change in these risks.
    (ii) Exercise of care. The contract between the Fund and the Primary 
Custodian states that the Primary Custodian will agree to exercise 
reasonable care, prudence, and diligence in performing the requirements 
of paragraphs (a)(1)(i)(A) and (B) of this section, or adhere to a 
higher standard of care.
    (2) Withdrawal of assets from eligible securities depository. If a 
custody arrangement with an Eligible Securities Depository no longer 
meets the requirements of this section, the Fund's Foreign Assets must 
be withdrawn from the depository as soon as reasonably practicable.
    (b) Definitions. The terms Foreign Assets, Fund, Qualified Foreign 
Bank, Registered Canadian Fund, and U.S. Bank have the same meanings as 
in Sec.270.17f-5. In addition:
    (1) Eligible Securities Depository means a system for the central 
handling of securities as defined in Sec.270.17f-4 that:
    (i) Acts as or operates a system for the central handling of 
securities or equivalent book-entries in the country where it is 
incorporated, or a transnational system for the central handling of 
securities or equivalent book-entries;
    (ii) Is regulated by a foreign financial regulatory authority as 
defined under section 2(a)(50) of the Act (15 U.S.C. 80a-2(a)(50));
    (iii) Holds assets for the custodian that participates in the system 
on behalf of the Fund under safekeeping conditions no less favorable 
than the conditions that apply to other participants;
    (iv) Maintains records that identify the assets of each participant 
and segregate the system's own assets from the assets of participants;
    (v) Provides periodic reports to its participants with respect to 
its safekeeping of assets, including notices of transfers to or from any 
participant's account; and

[[Page 1242]]

    (vi) Is subject to periodic examination by regulatory authorities or 
independent accountants.
    (2) Primary Custodian means a U.S. Bank or Qualified Foreign Bank 
that contracts directly with a Fund to provide custodial services 
related to maintaining the Fund's assets outside the United States.

    Note to Sec.270.17f-7: When a Fund's (or its custodian's) custody 
arrangement with an Eligible Securities Depository involves one or more 
Eligible Foreign Custodians (as defined in Sec.270.17f-5) through 
which assets are maintained with the Eligible Securities Depository, 
Sec.270.17f-5 will govern the Fund's (or its custodian's) use of each 
Eligible Foreign Custodian, while Sec.270.17f-7 will govern an 
Eligible Foreign Custodian's use of the Eligible Securities Depository.

[65 FR 25638, May 3, 2000]




Sec.270.17g-1  Bonding of officers and employees of registered 
management investment companies.

    (a) Each registered management investment company shall provide and 
maintain a bond which shall be issued by a reputable fidelity insurance 
company, authorized to do business in the place where the bond is 
issued, against larceny and embezzlement, covering each officer and 
employee of the investment company, who may singly, or jointly with 
others, have access to securities or funds of the investment company, 
either directly or through authority to draw upon such funds or to 
direct generally the disposition of such securities, unless the officer 
or employee has such access solely through his position as an officer or 
employee of a bank (hereinafter referred to as ``covered persons'').
    (b) The bond may be in the form of (1) an individual bond for each 
covered person or a schedule or blanket bond covering such persons, (2) 
a blanket bond which names the registered management investment company 
as the only insured (hereinafter referred to as ``single insured bond'') 
or (3) a bond which names the registered management investment company 
and one or more other parties as insureds (hereinafter referred to as a 
``joint insured bond''), such other insured parties being limited to (i) 
persons engaged in the management or distribution of the shares of the 
registered investment company, (ii) other registered investment 
companies which are managed and/or whose shares are distributed by the 
same persons (or affiliates of such persons), (iii) persons who are 
engaged in the management and/or distribution of shares of companies 
included in paragraph (b)(3)(i) of this section, (iv) affiliated persons 
of any registered management investment company named in the bond or of 
any person included in paragraph (b)(3)(i) or (b)(3)(iii) of this 
section who are engaged in the administration of any registered 
management investment company named as insured in the bond, and (v) any 
trust, pension, profit-sharing or other benefit plan for officers, 
directors or employees of persons named in the bond.
    (c) A bond of the type described in paragraph (b)(1) or (b)(2) of 
this section shall provide that it shall not be cancelled, terminated or 
modified except after written notice shall have been given by the acting 
party to the affected party and to the Commission not less than sixty 
days prior to the effective date of cancellation, termination or 
modification. A joint insured bond described in paragraph (b)(3) of this 
section shall provide, that (1) it shall not be cancelled terminated or 
modified except after written notice shall have been given by the acting 
party to the affected party, and by the fidelity insurance company to 
all registered investment companies named as insureds and to the 
Commission, not less than sixty days prior to the effective date of 
cancellation, termination, or modification and (2) the fidelity 
insurance company shall furnish each registered management investment 
company named as an insured with (i) a copy of the bond and any 
amendment thereto promptly after the execution thereof, (ii) a copy of 
each formal filing of a claim under the bond by any other named insured 
promptly after the receipt thereof, and (iii) notification of the terms 
of the settlement of each such claim prior to the execution of the 
settlement.
    (d) The bond shall be in such reasonable form and amount as a 
majority of the board of directors of the registered management 
investment company who

[[Page 1243]]

are not ``interested persons'' of such investment company as defined by 
section 2(a)(19) of the Act shall approve as often as their fiduciary 
duties require, but not less than once every twelve months, with due 
consideration to all relevant factors including, but not limited to, the 
value of the aggregate assets of the registered management investment 
company to which any covered person may have access, the type and terms 
of the arrangements made for the custody and safekeeping of such assets, 
and the nature of the securities in the company's portfolio: Provided, 
however, That (1) the amount of a single insured bond shall be at least 
equal to an amount computed in accordance with the following schedule:

------------------------------------------------------------------------
Amount of registered management investment
  company gross assets--at the end of the    Minimum amount of bond (in
 most recent fiscal quarter prior to date             dollars)
               (in dollars)
------------------------------------------------------------------------
Up to 500,000.............................  50,000.
500,000 to 1,000,000......................  75,000.
1,000,000 to 2,500,000....................  100,000.
2,500,000 to 5,000,000....................  125,000.
5,000,000 to 7,500,000....................  150,000.
7,500,000 to 10,000,000...................  175,000.
10,000,000 to 15,000,000..................  200,000.
15,000,000 to 20,000,000..................  225,000.
20,000,000 to 25,000,000..................  250,000.
25,000,000 to 35,000,000..................  300,000.
35,000,000 to 50,000,000..................  350,000.
50,000,000 to 75,000,000..................  400,000.
75,000,000, to 100,000,000................  450,000.
100,000,000 to 150,000,000................  525,000.
150,000,000 to 250,000,000................  600,000.
250,000,000 to 500,000,000................  750,000.
500,000,000 to 750,000,000................  900,000.
750,000,000 to 1,000,000,000..............  1,000,000.
1,000,000,000 to 1,500,000,000............  1,250,000.
1,500,000,000 to 2,000,000,000............  1,500,000.
Over 2,000,000,000........................  1,500,000 plus 200,000 for
                                             each 500,000,000 of gross
                                             assets up to a maximum bond
                                             of 2,500,000.
------------------------------------------------------------------------

    (2) A joint insured bond shall be in an amount at least equal to the 
sum of (i) the total amount of coverage which each registered management 
investment company named as an insured would have been required to 
provide and maintain individually pursuant to the schedule hereinabove 
had each such registered management investment company not been named 
under a joint insured bond, plus (ii) the amount of each bond which each 
named insured other than a registered management investment company 
would have been required to provide and maintain pursuant to federal 
statutes or regulations had it not been named as an insured under a 
joint insured bond.
    (e) No premium may be paid for any joint insured bond or any 
amendment thereto unless a majority of the board of directors of each 
registered management investment company named as an insured therein who 
are not ``interested persons'' of such company shall approve the portion 
of the premium to be paid by such company, taking all relevant factors 
into consideration including, but not limited to, the number of the 
other parties named as insured, the nature of the business activities of 
such other parties, the amount of the joint insured bond, and the amount 
of the premium for such bond, the ratable allocation of the premium 
among all parties named as insureds, and the extent to which the share 
of the premium allocated to the investment company is less than the 
premium such company would have had to pay if it had provided and 
maintained a single insured bond.
    (f) Each registered management investment company named as an 
insured in a joint insured bond shall enter into an agreement with all 
of the other named insureds providing that in the event recovery is 
received under the bond as a result of a loss sustained by the 
registered management investment company and one or more other named 
insureds, the registered management investment company shall receive an 
equitable and proportionate share of the recovery, but at least equal to 
the amount which it would have received had it provided and maintained a 
single insured bond with the minimum coverage required by paragraph 
(d)(1) of this section.
    (g) Each registered management investment company shall:
    (1) File with the Commission (i) within 10 days after receipt of an 
executed bond of the type described in paragraph (b)(1) or (2) of this 
section or any amendment thereof, (a) a copy of the bond, (b) a copy of 
the resolution of a majority of the board of directors who are not 
``interested persons'' of the registered management investment company 
approving the form and amount of the bond, and (c) a statement as to

[[Page 1244]]

the period for which premiums have been paid; (ii) within 10 days after 
receipt of an executed joint insured bond, or any amendment thereof, (a) 
a copy of the bond, (b) a copy of the resolution of a majority of the 
board of directors who are not ``interested persons'' of the registered 
management investment company approving the amount, type, form and 
coverage of the bond and the portion of the premium to be paid by such 
company, (c) a statement showing the amount of the single insured bond 
which the investment company would have provided and maintained had it 
not been named as an insured under a joint insured bond, (d) a statement 
as to the period for which premiums have been paid, and (e) a copy of 
each agreement between the investment company and all of the other named 
insureds entered into pursuant to paragraph (f) of this section; and 
(iii) a copy of any amendment to the agreement entered into pursuant to 
paragraph (f) of this section within 10 days after the execution of such 
amendment,
    (2) File with the Commission, in writing, within five days after the 
making of any claim under the bond by the investment company, a 
statement of the nature and amount of the claim,
    (3) File with the Commission, within five days of the receipt 
thereof, a copy of the terms of the settlement of any claim made under 
the bond by the investment company, and
    (4) Notify by registered mail each member of the board of directors 
of the investment company at his last known residence address of (i) any 
cancellation, termination or modification of the bond, not less than 
forty-five days prior to the effective date of the cancellation or 
termination or modification, (ii) the filing and of the settlement of 
any claim under the bond by the investment company, at the time the 
filings required by paragraph (g) (2) and (3) of this section are made 
with the Commission, and (iii) the filing and of the proposed terms of 
settlement of any claim under the bond by any other named insured, 
within five days of the receipt of a notice from the fidelity insurance 
company.
    (h) Each registered management investment company shall designate an 
officer thereof who shall make the filings and give the notices required 
by paragraph (g) of this section.
    (i) Where the registered management investment company is an 
unincorporated company managed by a depositor, trustee or investment 
adviser, the terms ``officer'' and ``employee'' shall include, for the 
purposes of this rule, the officers and employees of the depositor, 
trustee, or investment adviser.
    (j) Any joint insured bond provided and maintained by a registered 
management investment company and one or more other parties shall be a 
transaction exempt from the provisions of section 17(d) of the Act (15 
U.S.C. 80a-17(d)) and the rules thereunder, if:
    (1) The terms and provisions of the bond comply with the provisions 
of this section;
    (2) The terms and provisions of any agreement required by paragraph 
(f) of this section comply with the provisions of that paragraph; and
    (3) The board of directors of the investment company satisfies the 
fund governance standards defined in Sec.270.0-1(a)(7).
    (k) At the next anniversary date of an existing fidelity bond, but 
not later than one year from the effective date of this rule, 
arrangements between registered management investment companies and 
fidelity insurance companies and arrangements between registered 
management investment companies and other parties named as insureds 
under joint insured bonds which would not permit compliance with the 
provisions of this rule shall be modified by the parties so as to effect 
such compliance.

[39 FR 10579, Mar. 21, 1974, as amended at 66 FR 3759, Jan. 16, 2001; 69 
FR 46390, Aug. 2, 2004]



Sec.270.17j-1  Personal investment activities of investment company 
personnel.

    (a) Definitions. For purposes of this section:
    (1) Access person means:
    (i) Any Advisory Person of a Fund or of a Fund's investment adviser. 
If an investment adviser's primary business is advising Funds or other 
advisory clients, all of the investment adviser's directors, officers, 
and general partners are presumed to be Access Persons of

[[Page 1245]]

any Fund advised by the investment adviser. All of a Fund's directors, 
officers, and general partners are presumed to be Access Persons of the 
Fund.
    (ii) Any director, officer or general partner of a principal 
underwriter who, in the ordinary course of business, makes, participates 
in or obtains information regarding, the purchase or sale of Covered 
Securities by the Fund for which the principal underwriter acts, or 
whose functions or duties in the ordinary course of business relate to 
the making of any recommendation to the Fund regarding the purchase or 
sale of Covered Securities.
    (2) Advisory person of a Fund or of a Fund's investment adviser 
means:
    (i) Any director, officer, general partner or employee of the Fund 
or investment adviser (or of any company in a control relationship to 
the Fund or investment adviser) who, in connection with his or her 
regular functions or duties, makes, participates in, or obtains 
information regarding, the purchase or sale of Covered Securities by a 
Fund, or whose functions relate to the making of any recommendations 
with respect to such purchases or sales; and
    (ii) Any natural person in a control relationship to the Fund or 
investment adviser who obtains information concerning recommendations 
made to the Fund with regard to the purchase or sale of Covered 
Securities by the Fund.
    (3) Control has the same meaning as in section 2(a)(9) of the Act 
[15 U.S.C. 80a-2(a)(9)].
    (4) Covered security means a security as defined in section 2(a)(36) 
of the Act [15 U.S.C. 80a-2(a)(36)], except that it does not include:
    (i) Direct obligations of the Government of the United States;
    (ii) Bankers' acceptances, bank certificates of deposit, commercial 
paper and high quality short-term debt instruments, including repurchase 
agreements; and
    (iii) Shares issued by open-end Funds.
    (5) Fund means an investment company registered under the Investment 
Company Act.
    (6) An Initial public offering means an offering of securities 
registered under the Securities Act of 1933 [15 U.S.C. 77a], the issuer 
of which, immediately before the registration, was not subject to the 
reporting requirements of sections 13 or 15(d) of the Securities 
Exchange Act of 1934 [15 U.S.C. 78m or 78o(d)].
    (7) Investment personnel of a Fund or of a Fund's investment adviser 
means:
    (i) Any employee of the Fund or investment adviser (or of any 
company in a control relationship to the Fund or investment adviser) 
who, in connection with his or her regular functions or duties, makes or 
participates in making recommendations regarding the purchase or sale of 
securities by the Fund.
    (ii) Any natural person who controls the Fund or investment adviser 
and who obtains information concerning recommendations made to the Fund 
regarding the purchase or sale of securities by the Fund.
    (8) A Limited offering means an offering that is exempt from 
registration under the Securities Act of 1933 pursuant to section 
4(a)(2) or section 4(a)(5) [15 U.S.C. 77d(a)(2) or 77d(a)(5)] or 
pursuant to rule 504, or rule 506 [17 CFR 230.504 or 230.506] under the 
Securities Act of 1933.
    (9) Purchase or sale of a covered security includes, among other 
things, the writing of an option to purchase or sell a Covered Security.
    (10) Security held or to be acquired by a Fund means:
    (i) Any Covered Security which, within the most recent 15 days:
    (A) Is or has been held by the Fund; or
    (B) Is being or has been considered by the Fund or its investment 
adviser for purchase by the Fund; and
    (ii) Any option to purchase or sell, and any security convertible 
into or exchangeable for, a Covered Security described in paragraph 
(a)(10)(i) of this section.
    (11) Automatic investment plan means a program in which regular 
periodic purchases (or withdrawals) are made automatically in (or from) 
investment accounts in accordance with a predetermined schedule and 
allocation. An Automatic Investment Plan includes a dividend 
reinvestment plan.
    (b) Unlawful actions. It is unlawful for any affiliated person of or 
principal underwriter for a Fund, or any affiliated person of an 
investment adviser of or

[[Page 1246]]

principal underwriter for a Fund, in connection with the purchase or 
sale, directly or indirectly, by the person of a Security Held or to be 
Acquired by the Fund:
    (1) To employ any device, scheme or artifice to defraud the Fund;
    (2) To make any untrue statement of a material fact to the Fund or 
omit to state a material fact necessary in order to make the statements 
made to the Fund, in light of the circumstances under which they are 
made, not misleading;
    (3) To engage in any act, practice or course of business that 
operates or would operate as a fraud or deceit on the Fund; or
    (4) To engage in any manipulative practice with respect to the Fund.
    (c) Code of Ethics--(1) Adoption and approval of Code of Ethics. (i) 
Every Fund (other than a money market fund or a Fund that does not 
invest in Covered Securities) and each investment adviser of and 
principal underwriter for the Fund, must adopt a written code of ethics 
containing provisions reasonably necessary to prevent its Access Persons 
from engaging in any conduct prohibited by paragraph (b) of this 
section.
    (ii) The board of directors of a Fund, including a majority of 
directors who are not interested persons, must approve the code of 
ethics of the Fund, the code of ethics of each investment adviser and 
principal underwriter of the Fund, and any material changes to these 
codes. The board must base its approval of a code and any material 
changes to the code on a determination that the code contains provisions 
reasonably necessary to prevent Access Persons from engaging in any 
conduct prohibited by paragraph (b) of this section. Before approving a 
code of a Fund, investment adviser or principal underwriter or any 
amendment to the code, the board of directors must receive a 
certification from the Fund, investment adviser or principal underwriter 
that it has adopted procedures reasonably necessary to prevent Access 
Persons from violating the Fund's, investment adviser's, or principal 
underwriter's code of ethics. The Fund's board must approve the code of 
an investment adviser or principal underwriter before initially 
retaining the services of the investment adviser or principal 
underwriter. The Fund's board must approve a material change to a code 
no later than six months after adoption of the material change.
    (iii) If a Fund is a unit investment trust, the Fund's principal 
underwriter or depositor must approve the Fund's code of ethics, as 
required by paragraph (c)(1)(ii) of this section. If the Fund has more 
than one principal underwriter or depositor, the principal underwriters 
and depositors may designate, in writing, which principal underwriter or 
depositor must conduct the approval required by paragraph (c)(1)(ii) of 
this section, if they obtain written consent from the designated 
principal underwriter or depositor.
    (2) Administration of Code of Ethics. (i) The Fund, investment 
adviser and principal underwriter must use reasonable diligence and 
institute procedures reasonably necessary to prevent violations of its 
code of ethics.
    (ii) No less frequently than annually, every Fund (other than a unit 
investment trust) and its investment advisers and principal underwriters 
must furnish to the Fund's board of directors, and the board of 
directors must consider, a written report that:
    (A) Describes any issues arising under the code of ethics or 
procedures since the last report to the board of directors, including, 
but not limited to, information about material violations of the code or 
procedures and sanctions imposed in response to the material violations; 
and
    (B) Certifies that the Fund, investment adviser or principal 
underwriter, as applicable, has adopted procedures reasonably necessary 
to prevent Access Persons from violating the code.
    (3) Exception for principal underwriters. The requirements of 
paragraphs (c)(1) and (c)(2) of this section do not apply to any 
principal underwriter unless:
    (i) The principal underwriter is an affiliated person of the Fund or 
of the Fund's investment adviser; or
    (ii) An officer, director or general partner of the principal 
underwriter serves as an officer, director or general partner of the 
Fund or of the Fund's investment adviser.

[[Page 1247]]

    (d) Reporting requirements of access persons--(1) Reports required. 
Unless excepted by paragraph (d)(2) of this section, every Access Person 
of a Fund (other than a money market fund or a Fund that does not invest 
in Covered Securities) and every Access Person of an investment adviser 
of or principal underwriter for the Fund, must report to that Fund, 
investment adviser or principal underwriter:
    (i) Initial holdings reports. No later than 10 days after the person 
becomes an Access Person (which information must be current as of a date 
no more than 45 days prior to the date the person becomes an Access 
Person):
    (A) The title, number of shares and principal amount of each Covered 
Security in which the Access Person had any direct or indirect 
beneficial ownership when the person became an Access Person;
    (B) The name of any broker, dealer or bank with whom the Access 
Person maintained an account in which any securities were held for the 
direct or indirect benefit of the Access Person as of the date the 
person became an Access Person; and
    (C) The date that the report is submitted by the Access Person.
    (ii) Quarterly transaction reports. No later than 30 days after the 
end of a calendar quarter, the following information:
    (A) With respect to any transaction during the quarter in a Covered 
Security in which the Access Person had any direct or indirect 
beneficial ownership:
    (1) The date of the transaction, the title, the interest rate and 
maturity date (if applicable), the number of shares and the principal 
amount of each Covered Security involved;
    (2) The nature of the transaction (i.e., purchase, sale or any other 
type of acquisition or disposition);
    (3) The price of the Covered Security at which the transaction was 
effected;
    (4) The name of the broker, dealer or bank with or through which the 
transaction was effected; and
    (5) The date that the report is submitted by the Access Person.
    (B) With respect to any account established by the Access Person in 
which any securities were held during the quarter for the direct or 
indirect benefit of the Access Person:
    (1) The name of the broker, dealer or bank with whom the Access 
Person established the account;
    (2) The date the account was established; and
    (3) The date that the report is submitted by the Access Person.
    (iii) Annual Holdings Reports. Annually, the following information 
(which information must be current as of a date no more than 45 days 
before the report is submitted):
    (A) The title, number of shares and principal amount of each Covered 
Security in which the Access Person had any direct or indirect 
beneficial ownership;
    (B) The name of any broker, dealer or bank with whom the Access 
Person maintains an account in which any securities are held for the 
direct or indirect benefit of the Access Person; and
    (C) The date that the report is submitted by the Access Person.
    (2) Exceptions from reporting requirements. (i) A person need not 
make a report under paragraph (d)(1) of this section with respect to 
transactions effected for, and Covered Securities held in, any account 
over which the person has no direct or indirect influence or control.
    (ii) A director of a Fund who is not an ``interested person'' of the 
Fund within the meaning of section 2(a)(19) of the Act [15 U.S.C. 80a-
2(a)(19)], and who would be required to make a report solely by reason 
of being a Fund director, need not make:
    (A) An initial holdings report under paragraph (d)(1)(i) of this 
section and an annual holdings report under paragraph (d)(1)(iii) of 
this section; and
    (B) A quarterly transaction report under paragraph (d)(1)(ii) of 
this section, unless the director knew or, in the ordinary course of 
fulfilling his or her official duties as a Fund director, should have 
known that during the 15-day period immediately before or after the 
director's transaction in a Covered Security, the Fund purchased or sold 
the Covered Security, or the Fund or its investment adviser considered 
purchasing or selling the Covered Security.

[[Page 1248]]

    (iii) An Access Person to a Fund's principal underwriter need not 
make a report to the principal underwriter under paragraph (d)(1) of 
this section if:
    (A) The principal underwriter is not an affiliated person of the 
Fund (unless the Fund is a unit investment trust) or any investment 
adviser of the Fund; and
    (B) The principal underwriter has no officer, director or general 
partner who serves as an officer, director or general partner of the 
Fund or of any investment adviser of the Fund.
    (iv) An Access Person to an investment adviser need not make a 
separate report to the investment adviser under paragraph (d)(1) of this 
section to the extent the information in the report would duplicate 
information required to be recorded under Sec.275.204-2(a)(13) of this 
chapter.
    (v) An Access Person need not make a quarterly transaction report 
under paragraph (d)(1)(ii) of this section if the report would duplicate 
information contained in broker trade confirmations or account 
statements received by the Fund, investment adviser or principal 
underwriter with respect to the Access Person in the time period 
required by paragraph (d)(1)(ii), if all of the information required by 
that paragraph is contained in the broker trade confirmations or account 
statements, or in the records of the Fund, investment adviser or 
principal underwriter.
    (vi) An Access Person need not make a quarterly transaction report 
under paragraph (d)(1)(ii) of this section with respect to transactions 
effected pursuant to an Automatic Investment Plan.
    (3) Review of reports. Each Fund, investment adviser and principal 
underwriter to which reports are required to be made by paragraph (d)(1) 
of this section must institute procedures by which appropriate 
management or compliance personnel review these reports.
    (4) Notification of reporting obligation. Each Fund, investment 
adviser and principal underwriter to which reports are required to be 
made by paragraph (d)(1) of this section must identify all Access 
Persons who are required to make these reports and must inform those 
Access Persons of their reporting obligation.
    (5) Beneficial ownership. For purposes of this section, beneficial 
ownership is interpreted in the same manner as it would be under Sec.
240.16a-1(a)(2) of this chapter in determining whether a person is the 
beneficial owner of a security for purposes of section 16 of the 
Securities Exchange Act of 1934 [15 U.S.C. 78p] and the rules and 
regulations thereunder. Any report required by paragraph (d) of this 
section may contain a statement that the report will not be construed as 
an admission that the person making the report has any direct or 
indirect beneficial ownership in the Covered Security to which the 
report relates.
    (e) Pre-approval of investments in IPOs and limited offerings. 
Investment Personnel of a Fund or its investment adviser must obtain 
approval from the Fund or the Fund's investment adviser before directly 
or indirectly acquiring beneficial ownership in any securities in an 
Initial Public Offering or in a Limited Offering.
    (f) Recordkeeping Requirements. (1) Each Fund, investment adviser 
and principal underwriter that is required to adopt a code of ethics or 
to which reports are required to be made by Access Persons must, at its 
principal place of business, maintain records in the manner and to the 
extent set out in this paragraph (f), and must make these records 
available to the Commission or any representative of the Commission at 
any time and from time to time for reasonable periodic, special or other 
examination:
    (A) A copy of each code of ethics for the organization that is in 
effect, or at any time within the past five years was in effect, must be 
maintained in an easily accessible place;
    (B) A record of any violation of the code of ethics, and of any 
action taken as a result of the violation, must be maintained in an 
easily accessible place for at least five years after the end of the 
fiscal year in which the violation occurs;
    (C) A copy of each report made by an Access Person as required by 
this section, including any information provided in lieu of the reports 
under paragraph (d)(2)(v) of this section, must be

[[Page 1249]]

maintained for at least five years after the end of the fiscal year in 
which the report is made or the information is provided, the first two 
years in an easily accessible place;
    (D) A record of all persons, currently or within the past five 
years, who are or were required to make reports under paragraph (d) of 
this section, or who are or were responsible for reviewing these 
reports, must be maintained in an easily accessible place; and
    (E) A copy of each report required by paragraph (c)(2)(ii) of this 
section must be maintained for at least five years after the end of the 
fiscal year in which it is made, the first two years in an easily 
accessible place.
    (2) A Fund or investment adviser must maintain a record of any 
decision, and the reasons supporting the decision, to approve the 
acquisition by investment personnel of securities under paragraph (e), 
for at least five years after the end of the fiscal year in which the 
approval is granted.

[64 FR 46834, Aug. 27, 1999; 65 FR 12943, Mar. 10, 2000, as amended at 
69 FR 41707, July 9, 2004; 76 FR 81806, Dec. 29, 2011; 81 FR 83554, Nov. 
21, 2016]



Sec.270.18c-1  Exemption of privately held indebtedness.

    The issuance or sale of more than one class of senior securities 
representing indebtedness by a small business investment company, 
licensed under the Small Business Investment Act of 1958, shall not be 
prohibited by section 18(c) so long as such small business investment 
company does not have outstanding any publicly held indebtedness, and 
all securities of any such class are (a) privately held by the Small 
Business Administration, or banks, insurance companies or other 
institutional investors, (b) not intended to be publicly distributed, 
and (c) not convertible into, exchangeable for, or accompanied by any 
option to acquire, any equity security.

[26 FR 11240, Nov. 29, 1961]



Sec.270.18c-2  Exemptions of certain debentures issued by small
business investment companies.

    (a) The issuance or sale of any class of senior security 
representing indebtedness by a small business investment company 
licensed under the Small Business Investment Act of 1958 shall not be 
prohibited by section 18(c) of the Act provided such senior security 
representing indebtedness is (1) not convertible into, exchangeable for, 
or accompanied by an option to acquire any equity security; (2) fully 
guaranteed as to timely payment of all principal and interest by the 
Small Business Administration and backed by the full faith and credit of 
the United States; and (3) subordinated to any other debt securities not 
issued pursuant to this section or, if such security is not so 
subordinated, that such security, according to its own terms, will not 
be preferred over any other unsecured debt securities in the payment of 
principal and interest: And further provided, That all other debt 
securities then outstanding issued by such small business investment 
company were issued as permitted by Sec.270.18c-1 or this section.
    (b) Any security issued and sold as permitted by paragraph (a) of 
this section shall be deemed for purposes of Sec.270.18c-1 to be 
privately held by the Small Business Administration and for purposes of 
Sec.270.18c-1 shall not be deemed to be publicly held outstanding 
indebtedness.
    (c) The issuance or sale of any security as permitted by paragraph 
(a) of this section shall not be deemed to be a sale to any person other 
than the Small Business Administration by any small business investment 
company licensed under the Small Business Investment Company Act of 1958 
which is exempt from any provision of the Investment Company Act, if 
such exemption is conditioned on such company not offering or selling 
its securities to any person other than the Small Business 
Administration.

(Secs. 6(c), 38(a), 54 Stat. 800, 841, 15 U.S.C. 80a-6(c), 80a-37(a))

[37 FR 7590, Apr. 18, 1972]



Sec.270.18f-1  Exemption from certain requirements of section 18(f)
(1) (of the Act) for registered open-end investment companies which
have the right to redeem in kind.
          

    (a) A registered open-end investment company which has the right to 
redeem securities of which it is the issuer in assets other than cash 
may file with

[[Page 1250]]

the Commission at any time a notification of election on Form N-18F-1 
(Sec.274.51 of this chapter) committing itself to pay in cash all 
requests for redemption by any shareholder of record, limited in amount 
with respect to each shareholder during any 90-day period to the lesser 
of
    (1) $250,000 or
    (2) 1 percent of the net asset value of such company at the 
beginning of such period.
    (b) An election pursuant to paragraph (a) of this section:
    (1) Shall be described in either the prospectus or the Statement of 
Additional Information, at the discretion of the investment company, and
    (2) Shall be irrevocable while this Sec.270.18f-1 is in effect 
unless the Commission by order upon application permits the withdrawal 
of such notification of election as being appropriate in the public 
interest and consistent with the protection of investors.
    (c) Upon making the election described in paragraph (a) of this 
section, an investment company shall be exempt from the requirements of 
section 18(f)(1) (of the Act) to the extent necessary for such company 
to effectuate redemptions in the manner set forth in such paragraph.

(Secs. 7, 10, and 19 of the Securities Act of 1933 (15 U.S.C. 77g, 77j, 
and 77s) and secs. 8, 30 and 38 of the Investment Company Act of 1940 
(15 U.S.C. 80a-8, 80a-29 and 80a-37))

[36 FR 11919, June 23, 1971, as amended at 48 FR 37940, Aug. 22, 1983]



Sec.270.18f-2  Fair and equitable treatment for holders of each class
or series of stock of series investment companies.

    (a) For purposes of this Sec.270.18f-2 a series company is a 
registered open-end investment company which, in accordance with the 
provisions of section 18(f)(2) of the Act, issues two or more classes or 
series of preferred or special stock each of which is preferred over all 
other classes or series in respect of assets specifically allocated to 
that class or series. Any matter required to be submitted by the 
provisions of the Act or of applicable State law, or otherwise, to the 
holders of the outstanding voting securities of a series company shall 
not be deemed to have been effectively acted upon less approved by the 
holders of a majority of the outstanding voting securities of each class 
or series of stock affected by such matter.
    (b) For the purposes of paragraph (a) of this Sec.270.18f-2, a 
class or series of stock will be deemed to be affected by such a matter, 
unless (1) the interests of each class or series in the matter are 
substantially identical, or (2) the matter does not affect any interest 
of such class or series.
    (c)(1) With respect to the submission of an investment advisory 
contract to the holders of the outstanding voting securities of a series 
company for the approval required by section 15(a) of the Act, such 
matter shall be deemed to be effectively acted upon with respect to any 
class or series of securities of such company if a majority of the 
outstanding voting securities of such class or series vote for the 
approval of such matter, notwithstanding (i) that such matter has not 
been approved by the holders of a majority of the outstanding voting 
securities of any other class or series affected by such matter, and 
(ii) that such matter has not been approved by the vote of a majority of 
the outstanding voting securities of such company, provided that if such 
a majority is required by State law or otherwise, such requirement shall 
apply.
    (2) If any class or series of securities of a series company fails 
to approve an investment advisory contract in the manner required by 
paragraph (c)(1) of this section, the investment adviser of such company 
may continue to serve or act in such capacity for the period of time 
pending such required approval of such contract, of a new contract with 
the same or different adviser, or other definitive action: Provided, 
That the compensation received by such investment adviser during such 
period is equal to no more than its actual costs incurred in furnishing 
investment advisory services to such class or series or the amount it 
would have received under the advisory contract, whichever is less.
    (d) With respect to the submission of a change in investment policy 
to the

[[Page 1251]]

holders of the outstanding voting securities of a series company for the 
approval required by section 13 of the Act, such matter shall be deemed 
to have been effectively acted upon with respect to any class or series 
of such company if a majority of the outstanding voting securities of 
such class or series vote for the approval of such matter, 
notwithstanding (1) that such matter has not been approved by the 
holders of a majority of the outstanding voting securities of any other 
class or series affected by such matter, and (2) that such matter has 
not been approved by the vote of a majority of the outstanding voting 
securities of such company: Provided, That if such a majority is 
required by State law or otherwise, such requirement shall apply.
    (e) The submission to shareholders of the selection of the 
independent public accountant of a series company required by section 
32(a) (of the Act) shall be exempt from the separate voting requirements 
of paragraph (a) of this Sec.270.18f-2.
    (f) The submission to shareholders of a contract with a principal 
underwriter of a series company required by section 15(b) of the Act 
shall be exempt from the separate voting requirements of paragraph (a) 
of this Sec.270.18f-2.
    (g) The submission to shareholders of nominees for election as 
directors required by section 16(a) of the Act shall be exempt from the 
separate voting requirements of paragraph (a) of this Sec.270.18f-2.
    (h) For the purposes of this Sec.270.18f-2 a ``majority of the 
outstanding voting securities'' of a class or series, (1) when used with 
respect to a matter required by any provision of the Act to be submitted 
to the outstanding voting securities of a series company, shall have the 
same meaning as a ``majority of the outstanding voting securities of a 
company'' as defined in section 2(a)(42) of the Act; and (2) when used 
with respect to any other matter required to be submitted to the 
outstanding voting securities of a series company, shall mean the lesser 
of (i) the minimum vote of the outstanding voting securities of a 
company required by applicable State law or other applicable 
requirement, or (ii) the minimum vote specified by paragraph (1) of this 
paragraph (h), unless State law requires approval of such matters by a 
specified percentage of the outstanding voting securities of a 
particular class or series, in which case, State law shall apply.

(Secs. 6(c), 13, 15(a), 15(b), 16(a), 18(f)(2), 32(a), 54 Stat. 800, 
811, 812, 813, 817, 838, 841, 15 U.S.C. 80a-6(c), 80a-13, 80a-15(b), 
80a-16(a), 80a-18(f)(2), 80a-31(a), 80a-37(a), Pub. L. 91-547, 84 Stat. 
1421)

[37 FR 17386, Aug. 26, 1972]



Sec.270.18f-3  Multiple class companies.

    Notwithstanding sections 18(f)(1) and 18(i) of the Act (15 U.S.C. 
80a-18(f)(1) and (i), respectively), a registered open-end management 
investment company or series or class thereof established in accordance 
with section 18(f)(2) of the Act (15 U.S.C. 80a-18(f)(2)) whose shares 
are registered on Form N-1A [Sec.Sec.239.15A and 274.11A of this 
chapter] (``company'') may issue more than one class of voting stock, 
provided that:
    (a) Each class:
    (1)(i) Shall have a different arrangement for shareholder services 
or the distribution of securities or both, and shall pay all of the 
expenses of that arrangement;
    (ii) May pay a different share of other expenses, not including 
advisory or custodial fees or other expenses related to the management 
of the company's assets, if these expenses are actually incurred in a 
different amount by that class, or if the class receives services of a 
different kind or to a different degree than other classes; and
    (iii) May pay a different advisory fee to the extent that any 
difference in amount paid is the result of the application of the same 
performance fee provisions in the advisory contract of the company to 
the different investment performance of each class;
    (2) Shall have exclusive voting rights on any matter submitted to 
shareholders that relates solely to its arrangement;
    (3) Shall have separate voting rights on any matter submitted to 
shareholders in which the interests of one class differ from the 
interests of any other class; and

[[Page 1252]]

    (4) Shall have in all other respects the same rights and obligations 
as each other class.
    (b) Expenses may be waived or reimbursed by the company's adviser, 
underwriter, or any other provider of services to the company.
    (c)(1) Income, realized gains and losses, unrealized appreciation 
and depreciation, and Fundwide Expenses shall be allocated based on one 
of the following methods (which method shall be applied on a consistent 
basis):
    (i) To each class based on the net assets of that class in relation 
to the net assets of the company (``relative net assets'');
    (ii) To each class based on the Simultaneous Equations Method;
    (iii) To each class based on the Settled Shares Method, provided 
that the company is a Daily Dividend Fund (such a company may allocate 
income and Fundwide Expenses based on the Settled Shares Method and 
realized gains and losses and unrealized appreciation and depreciation 
based on relative net assets);
    (iv) To each share without regard to class, provided that the 
company is a Daily Dividend Fund that maintains the same net asset value 
per share in each class; that the company has received undertakings from 
its adviser, underwriter, or any other provider of services to the 
company, agreeing to waive or reimburse the company for payments to such 
service provider by one or more classes, as allocated under paragraph 
(a)(1) of this section, to the extent necessary to assure that all 
classes of the company maintain the same net asset value per share; and 
that payments waived or reimbursed under such an undertaking may not be 
carried forward or recouped at a future date; or
    (v) To each class based on any other appropriate method, provided 
that a majority of the directors of the company, and a majority of the 
directors who are not interested persons of the company, determine that 
the method is fair to the shareholders of each class and that the 
annualized rate of return of each class will generally differ from that 
of the other classes only by the expense differentials among the 
classes.
    (2) For purposes of this section:
    (i) Daily Dividend Fund means any company that has a policy of 
declaring distributions of net income daily, including any money market 
fund that operates in compliance with Sec.270.2a-7;
    (ii) Fundwide Expenses means expenses of the company not allocated 
to a particular class under paragraph (a)(1) of this section;
    (iii) The Settled Shares Method means allocating to each class based 
on relative net assets, excluding the value of subscriptions receivable; 
and
    (iv) The Simultaneous Equations Method means the simultaneous 
allocation to each class of each day's income, realized gains and 
losses, unrealized appreciation and depreciation, and Fundwide Expenses 
and reallocation to each class of undistributed net investment income, 
undistributed realized gains or losses, and unrealized appreciation or 
depreciation, based on the operating results of the company, changes in 
ownership interests of each class, and expense differentials between the 
classes, so that the annualized rate of return of each class generally 
differs from that of the other classes only by the expense differentials 
among the classes.
    (d) Any payments made under paragraph (a) of this section shall be 
made pursuant to a written plan setting forth the separate arrangement 
and expense allocation of each class, and any related conversion 
features or exchange privileges. Before the first issuance of a share of 
any class in reliance upon this section, and before any material 
amendment of a plan, a majority of the directors of the company, and a 
majority of the directors who are not interested persons of the company, 
shall find that the plan as proposed to be adopted or amended, including 
the expense allocation, is in the best interests of each class 
individually and the company as a whole; initial board approval of a 
plan under this paragraph (d) is not required, however, if the plan does 
not make any change in the arrangements and expense allocations 
previously approved by the board under an existing order of exemption. 
Before any vote on the plan, the directors shall request and evaluate, 
and any

[[Page 1253]]

agreement relating to a class arrangement shall require the parties 
thereto to furnish, such information as may be reasonably necessary to 
evaluate the plan.
    (e) The board of directors of the investment company satisfies the 
fund governance standards defined in Sec.270.0-1(a)(7).
    (f) Nothing in this section prohibits a company from offering any 
class with:
    (1) An exchange privilege providing that securities of the class may 
be exchanged for certain securities of another company; or
    (2) A conversion feature providing that shares of one class of the 
company (the ``purchase class'') will be exchanged automatically for 
shares of another class of the company (the ``target class'') after a 
specified period of time, provided that:
    (i) The conversion is effected on the basis of the relative net 
asset values of the two classes without the imposition of any sales 
load, fee, or other charge;
    (ii) The expenses, including payments authorized under a plan 
adopted pursuant to Sec.270.12b-1 (``rule 12b-1 plan''), for the 
target class are not higher than the expenses, including payments 
authorized under a rule 12b-1 plan, for the purchase class; and
    (iii) If the shareholders of the target class approve any increase 
in expenses allocated to the target class under paragraphs (a)(1)(i) and 
(a)(1)(ii) of this section, and the purchase class shareholders do not 
approve the increase, the company will establish a new target class for 
the purchase class on the same terms as applied to the target class 
before that increase.
    (3) A conversion feature providing that shares of a class in which 
an investor is no longer eligible to participate may be converted to 
shares of a class in which that investor is eligible to participate, 
provided that:
    (i) The investor is given prior notice of the proposed conversion; 
and
    (ii) The conversion is effected on the basis of the relative net 
asset values of the two classes without the imposition of any sales 
load, fee, or other charge.

[60 FR 11885, Mar. 2, 1995, as amended at 62 FR 51765, Oct. 3, 1997; 66 
FR 3759, Jan. 16, 2001; 69 FR 46390, Aug. 2, 2004; 79 FR 47967, Aug. 14, 
2014]



Sec.270.19a-1  Written statement to accompany dividend payments by 
management companies.

    (a) Every written statement made pursuant to section 19 by or on 
behalf of a management company shall be made on a separate paper and 
shall clearly indicate what portion of the payment per share is made 
from the following sources:
    (1) Net income for the current or preceding fiscal year, or 
accumulated undistributed net income, or both, not including in either 
case profits or losses from the sale of securities or other properties.
    (2) Accumulated undistributed net profits from the sale of 
securities or other properties (except that an open-end company may 
treat as a separate source its net profits from such sales during its 
current fiscal year).
    (3) Paid-in surplus or other capital source.

To the extent that a payment is properly designated as being made from a 
source specified in paragraph (a) (1) or (2) of this section, it need 
not be designated as having been made from a source specified in this 
paragraph.
    (b) If the payment is made in whole or in part from a source 
specified in paragraph (a)(2) of this section the written statement 
shall indicate, after giving effect to the part of such payment so 
specified, the deficit, if any, in the aggregate of (1) accumulated 
undistributed realized profits less losses on the sale of securities or 
other properties and (2) the net unrealized appreciation or depreciation 
of portfolio securities, all as of a date reasonably close to the end of 
the period as of which the dividend is paid. Any statement made pursuant 
to the preceding sentence shall specify the amount, if any, of such 
deficit which represents unrealized depreciation of portfolio 
securities.
    (c) Accumulated undistributed net income and accumulated 
undistributed net profits from the sale of securities or other 
properties shall be determined, at the option of the company, either (1) 
from the date of the organization of the company, (2) from the date of a 
reorganization, as defined in clause (A) or (B) of section 2(a)(33) of 
the Act (54 Stat. 790; 15 U.S.C. 80a-2(a)(33)), (3)

[[Page 1254]]

from the date as of which a write-down of portfolio securities was made 
in connection with a corporate readjustment, approved by stockholders, 
of the type known as ``quasi- reorganization,'' or (4) from January 1, 
1925, to the close of the period as of which the dividend is paid, 
without giving effect to such payment.
    (d) For the purpose of this section, open-end companies which upon 
the sale of their shares allocate to undistributed income or other 
similar account that portion of the consideration received which 
represents the approximate per share amount of undistributed net income 
included in the sales price, and make a corresponding deduction from 
undistributed net income upon the purchase or redemption of shares, need 
not treat the amounts so allocated as paid-in surplus or other capital 
source.
    (e) For the purpose of this section, the source or sources from 
which a dividend is paid shall be determined (or reasonably estimated) 
to the close of the period as of which it is paid without giving effect 
to such payment. If any such estimate is subsequently ascertained to be 
inaccurate in a significant amount, a correction thereof shall be made 
by a written statement pursuant to section 19(a) of the Act or in the 
first report to stockholders following discovery of the inaccuracy.
    (f) Insofar as a written statement made pursuant to section 19(a) of 
the Act relates to a dividend on preferred stock paid for a period of 
less than a year, a company may elect to indicate only that portion of 
the payment which is made from sources specified in paragraph (a)(1) of 
this section, and need not specify the sources from which the remainder 
was paid. Every company which in any fiscal year elects to make a 
statement pursuant to the preceding sentence shall transmit to the 
holders of such preferred stock, at a date reasonably near the end of 
the last dividend period in such fiscal year, a statement meeting the 
requirements of paragraph (a) of this section on an annual basis.
    (g) The purpose of this section, in the light of which it shall be 
construed, is to afford security holders adequate disclosure of the 
sources from which dividend payments are made. Nothing in this section 
shall be construed to prohibit the inclusion in any written statement of 
additional information in explanation of the information required by 
this section. Nothing in this section shall be construed to permit a 
dividend payment in violation of any State law or to prevent compliance 
with any requirement of State law regarding dividends consistent with 
this rule.

    Cross Reference: For interpretative release applicable to Sec.
270.19a-1, see No. 71 in tabulation, part 271 of this chapter.

[Rule N-19-1, 6 FR 1114, Feb. 25, 1941. Redesignated at 36 FR 22901, 
Dec. 2, 1971, and amended at 38 FR 8593, Apr. 4, 1973]



Sec.270.19b-1  Frequency of distribution of capital gains.

    (a) No registered investment company which is a ``regulated 
investment company'' as defined in section 851 of the Internal Revenue 
Code of 1986 (``Code'') shall distribute more than one capital gain 
dividend (``distribution''), as defined in section 852(b)(3)(C) of the 
Code, with respect to any one taxable year of the company, other than a 
distribution otherwise permitted by this rule or made pursuant to 
section 855 of the Code which is supplemental to the prior distribution 
with respect to the same taxable year of the company and which does not 
exceed 10% of the aggregate amount distributed for such taxable year.
    (b) No registered investment company which is not a ``regulated 
investment company'' as defined in section 851 of the Code shall make 
more than one distribution of long-term capital gains, as defined in the 
Code, in any one taxable year of the company: Provided, That a unit 
investment trust may distribute capital gain dividends received from a 
``regulated investment company'' within a reasonable time after receipt.
    (c) The provisions of this rule shall not apply to a unit investment 
trust (hereinafter referred to as the ``Trust'') engaged exclusively in 
the business of investing in eligible trust securities (as defined in 
Rule 14a-3(b) (17 CFR 270.14a-3(b)) under this Act); Provided, That:

[[Page 1255]]

    (1) The capital gain distribution is a result of--
    (i) An issuer's calling or redeeming an eligible trust security held 
by the Trust,
    (ii) The sale of an eligible trust security by the Trust to provide 
funds for redemption of Trust units when the amount received by the 
Trust for such sale exceeds the amount required to satisfy the 
redemption distribution,
    (iii) The sale of an eligible trust security to maintain 
qualification of the Trust as a ``regulated investment company'' under 
section 851 of the Code,
    (iv) Regular distributions of principal and prepayment of principal 
on eligible trust securities, or
    (v) The sale of an eligible trust security in order to maintain the 
investment stability of the Trust; and
    (2) Capital gains distributions are clearly described as such in a 
report to the unitholder which accompanies each such distribution.
    (d) For purposes of paragraph (c) of this section, sales made to 
maintain the investment stability of the Trust means sales made to 
prevent deterioration of the value of the eligible trust securities held 
in the Trust portfolio when one or more of the following factors exist:
    (1) A default in the payment of principal or interest on an eligible 
trust security;
    (2) An action involving the issuer of an eligible trust security 
which adversely affects the ability of such issuer to continue payment 
of principal or interest on its eligible trust securities; or
    (3) A change in market, revenue or credit factors which adversely 
affects the ability of such issuer to continue payment of principal or 
interest on its eligible trust securities.
    (e) If a registered investment company because of unforeseen 
circumstances in a particular taxable year proposes to make a 
distribution which would be prohibited by the provisions of this 
section, it may file a request with the Commission for authorization to 
make such a distribution. Such request shall comply with the 
requirements of Sec.270.0-2 of this chapter and shall set forth the 
pertinent facts and explain the circumstances which the company believes 
justify such distribution. The request shall be deemed granted unless 
the Commission within 15 days after receipt thereof shall deny such 
request as not being necessary or appropriate in the public interest or 
for the protection of investors and notify the company in writing of 
such denial.
    (f) A registered investment company may make one additional 
distribution of long-term capital gains, as defined in the Code, with 
respect to any one taxable year of the company, which distribution is 
made, in whole or in part, for the purpose of not incurring any tax 
under section 4982 of the Code. Such additional distribution may be made 
prior or subsequent to any distribution otherwise permitted by paragraph 
(a) of this section.

(Secs. 6(c), 19(b) (15 U.S.C. 80a-19(b), and Sec.38(a)))

[36 FR 22901, Dec. 2, 1971, as amended at 44 FR 29647, May 22, 1979; 44 
FR 40064, July 9, 1979; 52 FR 42428, Nov. 5, 1987]



Sec.270.20a-1  Solicitation of proxies, consents and authorizations.

    (a) No person shall solicit or permit the use of his or her name to 
solicit any proxy, consent, or authorization with respect to any 
security issued by a registered Fund, except upon compliance with 
Regulation 14A (Sec.240.14a-1 of this chapter), Schedule 14A (Sec.
240.14a-101 of this chapter), and all other rules and regulations 
adopted pursuant to section 14(a) of the Securities Exchange Act of 1934 
that would be applicable to such solicitation if it were made in respect 
of a security registered pursuant to section 12 of the Securities 
Exchange Act of 1934. Unless the solicitation is made in respect of a 
security registered on a national securities exchange, none of the 
soliciting material need be filed with such exchange.
    (b) If the solicitation is made by or on behalf of the management of 
the investment company, then the investment adviser or any prospective 
investment adviser and any affiliated person thereof as to whom 
information is required in the solicitation shall upon request of the 
investment company promptly transmit to the investment company all 
information necessary to

[[Page 1256]]

enable the management of such company to comply with the rules and 
regulations applicable to such solicitation. If the solicitation is made 
by any person other than the management of the investment company, on 
behalf of and with the consent of the investment adviser or prospective 
investment adviser, then the investment adviser or prospective 
investment adviser and any affiliated person thereof as to whom 
information is required in the solicitation shall upon request of the 
person making the solicitation promptly transmit to such person all 
information necessary to enable such person to comply with the rules and 
regulations applicable to the solicitation.
    Instruction. Registrants that have made a public offering of 
securities and that hold security holder votes for which proxies, 
consents, or authorizations are not being solicited pursuant to the 
requirements of this section should refer to section 14(c) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78n(c)) and the information 
statement requirements set forth in the rules thereunder.

[25 FR 1865, Mar. 3, 1960, as amended at 37 FR 1472, Jan. 29, 1972; 52 
FR 48985, Dec. 29, 1987; 57 FR 1102, Jan. 10, 1992; 59 FR 52700, Oct. 
19, 1994]



Sec.Sec.270.20a-2--270.20a-4  [Reserved]



Sec.270.22c-1  Pricing of redeemable securities for distribution, 
redemption and repurchase.

    (a) No registered investment company issuing any redeemable 
security, no person designated in such issuer's prospectus as authorized 
to consummate transactions in any such security, and no principal 
underwriter of, or dealer in, any such security shall sell, redeem, or 
repurchase any such security except at a price based on the current net 
asset value of such security which is next computed after receipt of a 
tender of such security for redemption or of an order to purchase or 
sell such security: Provided, That:
    (1) This paragraph shall not prevent a sponsor of a unit investment 
trust (hereinafter referred to as the ``Trust'') engaged exclusively in 
the business of investing in eligible trust securities (as defined in 
Rule 14a-3(b) (17 CFR 270.14a-3(b))) from selling or repurchasing Trust 
units in a secondary market at a price based on the offering side 
evaluation of the eligible trust securities in the Trust's portfolio, 
determined at any time on the last business day of each week, effective 
for all sales made during the following week, if on the days that such 
sales or repurchases are made the sponsor receives a letter from a 
qualified evaluator stating, in its opinion, that:
    (i) In the case of repurchases, the current bid price is not higher 
than the offering side evaluation, computed on the last business day of 
the previous week; and
    (ii) In the case of resales, the offering side evaluation, computed 
as of the last business day of the previous week, is not more than one-
half of one percent ($5.00 on a unit representing $1,000 principal 
amount of eligible trust securities) greater than the current offering 
price.
    (2) This paragraph shall not prevent any registered investment 
company from adjusting the price of its redeemable securities sold 
pursuant to a merger, consolidation or purchase of substantially all of 
the assets of a company which meets the conditions specified in Sec.
270.17a-8.
    (3) Notwithstanding this paragraph (a), a registered open-end 
management investment company (but not a registered open-end management 
investment company that is regulated as a money market fund under Sec.
270.2a-7 or an exchange-traded fund as defined in paragraph (a)(3)(v)(A) 
of this section) (a ``fund'') may use swing pricing to adjust its 
current net asset value per share to mitigate dilution of the value of 
its outstanding redeemable securities as a result of shareholder 
purchase or redemption activity, provided that it has established and 
implemented swing pricing policies and procedures in compliance with the 
paragraphs (a)(3)(i) through (v) of this section.
    (i) The fund's swing pricing policies and procedures must:
    (A) Provide that the fund must adjust its net asset value per share 
by a single swing factor or multiple factors that may vary based on the 
swing threshold(s) crossed once the level of net purchases into or net 
redemptions

[[Page 1257]]

from such fund has exceeded the applicable swing threshold for the fund. 
In determining whether the fund's level of net purchases or net 
redemptions has exceeded the applicable swing threshold(s), the 
person(s) responsible for administering swing pricing shall be permitted 
to make such determination based on receipt of sufficient information 
about the fund investors' daily purchase and redemption activity 
(``investor flow'') to allow the fund to reasonably estimate whether it 
has crossed the swing threshold(s) with high confidence, and shall 
exclude any purchases or redemptions that are made in kind and not in 
cash. This investor flow information may consist of individual, 
aggregated, or netted orders, and may include reasonable estimates where 
necessary.
    (B) Specify the process for how the fund's swing threshold(s) shall 
be determined, considering:
    (1) The size, frequency, and volatility of historical net purchases 
or net redemptions of fund shares during normal and stressed periods;
    (2) The fund's investment strategy and the liquidity of the fund's 
portfolio investments;
    (3) The fund's holdings of cash and cash equivalents, and borrowing 
arrangements and other funding sources; and
    (4) The costs associated with transactions in the markets in which 
the fund invests.
    (C) Specify the process for how the swing factor(s) shall be 
determined, which must include: The establishment of an upper limit on 
the swing factor(s) used, which may not exceed two percent of net asset 
value per share; and the determination that the factor(s) used are 
reasonable in relationship to the costs discussed in this paragraph. In 
determining the swing factor(s) and the upper limit, the person(s) 
responsible for administering swing pricing may take into account only 
the near-term costs expected to be incurred by the fund as a result of 
net purchases or net redemptions that occur on the day the swing 
factor(s) is used, including spread costs, transaction fees and charges 
arising from asset purchases or asset sales resulting from those 
purchases or redemptions, and borrowing-related costs associated with 
satisfying redemptions.
    (ii) The fund's board of directors, including a majority of 
directors who are not interested persons of the fund must:
    (A) Approve the fund's swing pricing policies and procedures;
    (B) Approve the fund's swing threshold(s) and the upper limit on the 
swing factor(s) used, and any changes to the swing threshold(s) or the 
upper limit on the swing factor(s) used;
    (C) Designate the fund's investment adviser, officer, or officers 
responsible for administering the swing pricing policies and procedures 
(``person(s) responsible for administering swing pricing''). The 
administration of swing pricing must be reasonably segregated from 
portfolio management of the fund and may not include portfolio managers; 
and
    (D) Review, no less frequently than annually, a written report 
prepared by the person(s) responsible for administering swing pricing 
that describes:
    (1) Its review of the adequacy of the fund's swing pricing policies 
and procedures and the effectiveness of their implementation, including 
the impact on mitigating dilution;
    (2) Any material changes to the fund's swing pricing policies and 
procedures since the date of the last report; and
    (3) Its review and assessment of the fund's swing threshold(s), 
swing factor(s), and swing factor upper limit considering the 
requirements of paragraphs (a)(3)(i)(B) and (C) of this section, 
including the information and data supporting the determination of the 
swing threshold(s), swing factor(s), and swing factor upper limit.
    (iii) The fund shall maintain the policies and procedures adopted by 
the fund under this paragraph (a)(3) that are in effect, or at any time 
within the past six years were in effect, in an easily accessible place, 
and shall maintain a written copy of the report provided to the board 
under paragraph (a)(3)(ii)(C) of this section for six years, the first 
two in an easily accessible place.
    (iv) Any fund (a ``feeder fund'') that invests, pursuant to section 
12(d)(1)(E) of the Act (15 U.S.C. 80a-12(d)(1)(E)), in

[[Page 1258]]

another fund (a ``master fund'') may not use swing pricing to adjust the 
feeder fund's net asset value per share; however, a master fund may use 
swing pricing to adjust the master fund's net asset value per share, 
pursuant to the requirements set forth in this paragraph (a)(3).
    (v) For purposes of this paragraph (a)(3):
    (A) Exchange-traded fund means an open-end management investment 
company (or series or class thereof), the shares of which are listed and 
traded on a national securities exchange, and that has formed and 
operates under an exemptive order under the Act granted by the 
Commission or in reliance on an exemptive rule adopted by the 
Commission.
    (B) Swing factor means the amount, expressed as a percentage of the 
fund's net asset value and determined pursuant to the fund's swing 
pricing policies and procedures, by which a fund adjusts its net asset 
value per share once a fund's applicable swing threshold has been 
exceeded.
    (C) Swing pricing means the process of adjusting a fund's current 
net asset value per share to mitigate dilution of the value of its 
outstanding redeemable securities as a result of shareholder purchase 
and redemption activity, pursuant to the requirements set forth in this 
paragraph (a)(3).
    (D) Swing threshold means an amount of net purchases or net 
redemptions, expressed as a percentage of the fund's net asset value, 
that triggers the application of swing pricing.
    (E) Transaction fees and charges means brokerage commissions, 
custody fees, and any other charges, fees, and taxes associated with 
portfolio asset purchases and sales.
    (b) For the purposes of this section,
    (1) The current net asset value of any such security shall be 
computed no less frequently than once daily, Monday through Friday, at 
the specific time or times during the day that the board of directors of 
the investment company sets, in accordance with paragraph (e) of this 
section, except on:
    (i) Days on which changes in the value of the investment company's 
portfolio securities will not materially affect the current net asset 
value of the investment company's redeemable securities;
    (ii) Days during which no security is tendered for redemption and no 
order to purchase or sell such security is received by the investment 
company; or
    (iii) Customary national business holidays described or listed in 
the prospectus and local and regional business holidays listed in the 
prospectus; and
    (2) A ``qualified evaluator'' shall mean any evaluator which 
represents it is in a position to determine, on the basis of an informal 
evaluation of the eligible trust securities held in the Trust's 
portfolio, whether--
    (i) The current bid price is higher than the offering side 
evaluation, computed on the last business day of the previous week, and
    (ii) The offering side evaluation, computed as of the last business 
day of the previous week, is more than one-half of one percent ($5.00 on 
a unit representing $1,000 principal amount of eligible trust 
securities) greater than the current offering price.
    (c) Notwithstanding the provisions above, any registered separate 
account offering variable annuity contracts, any person designated in 
such account's prospectus as authorized to consummate transactions in 
such contracts, and any principal underwriter of or dealer in such 
contracts shall be permitted to apply the initial purchase payment for 
any such contract at a price based on the current net asset value of 
such contract which is next computed:
    (1) Not later than two business days after receipt of the order to 
purchase by the insurance company sponsoring the separate account 
(``insurer''), if the contract application and other information 
necessary for processing the order to purchase (collectively, 
``application'') are complete upon receipt; or
    (2) Not later than two business days after an application which is 
incomplete upon receipt by the insurer is made complete, Provided, That, 
if an incomplete application is not made complete within five business 
days after receipt,
    (i) The prospective purchaser shall be informed of the reasons for 
the delay, and

[[Page 1259]]

    (ii) The initial purchase payment shall be returned immediately and 
in full, unless the prospective purchaser specifically consents to the 
insurer retaining the purchase payment until the application is made 
complete.
    (3) As used in this section:
    (i) Prospective Purchaser shall mean either an individual 
contractowner or an individual participant in a group contract.
    (ii) Initial Purchase Payment shall refer to the first purchase 
payment submitted to the insurer by, or on behalf of, a prospective 
purchaser.
    (d) The board of directors shall initially set the time or times 
during the day that the current net asset value shall be computed, and 
shall make and approve such changes as the board deems necessary.

(Secs. 6(c), 22(c) and 38(a), 15 U.S.C. 80a-6(c), 80a-22(c) and 80a-
37(a))

[44 FR 29647, May 22, 1979, as amended at 44 FR 48660, Aug. 20, 1979; 45 
FR 12409, Feb. 26, 1980; 50 FR 7911, Feb. 27, 1985; 50 FR 24763, June 
13, 1985; 50 FR 42682, Oct. 22, 1985; 58 FR 49922, Sept. 24, 1993; 81 FR 
82137, Nov. 18, 2016]



Sec.270.22c-2  Redemption fees for redeemable securities.

    (a) Redemption fee. It is unlawful for any fund issuing redeemable 
securities, its principal underwriter, or any dealer in such securities, 
to redeem a redeemable security issued by the fund within seven calendar 
days after the security was purchased, unless it complies with the 
following requirements:
    (1) Board determination. The fund's board of directors, including a 
majority of directors who are not interested persons of the fund, must 
either:
    (i) Approve a redemption fee, in an amount (but no more than two 
percent of the value of shares redeemed) and on shares redeemed within a 
time period (but no less than seven calendar days), that in its judgment 
is necessary or appropriate to recoup for the fund the costs it may 
incur as a result of those redemptions or to otherwise eliminate or 
reduce so far as practicable any dilution of the value of the 
outstanding securities issued by the fund, the proceeds of which fee 
will be retained by the fund; or
    (ii) Determine that imposition of a redemption fee is either not 
necessary or not appropriate.
    (2) Shareholder information. With respect to each financial 
intermediary that submits orders, itself or through its agent, to 
purchase or redeem shares directly to the fund, its principal 
underwriter or transfer agent, or to a registered clearing agency, the 
fund (or on the fund's behalf, the principal underwriter or transfer 
agent) must either:
    (i) Enter into a shareholder information agreement with the 
financial intermediary (or its agent); or
    (ii) Prohibit the financial intermediary from purchasing in nominee 
name on behalf of other persons, securities issued by the fund. For 
purposes of this paragraph, ``purchasing'' does not include the 
automatic reinvestment of dividends.
    (3) Recordkeeping. The fund must maintain a copy of the written 
agreement under paragraph (a)(2)(i) of this section that is in effect, 
or at any time within the past six years was in effect, in an easily 
accessible place.
    (b) Excepted funds. The requirements of paragraph (a) of this 
section do not apply to the following funds, unless they elect to impose 
a redemption fee pursuant to paragraph (a)(1) of this section:
    (1) Money market funds;
    (2) Any fund that issues securities that are listed on a national 
securities exchange; and
    (3) Any fund that affirmatively permits short-term trading of its 
securities, if its prospectus clearly and prominently discloses that the 
fund permits short-term trading of its securities and that such trading 
may result in additional costs for the fund.
    (c) Definitions. For the purposes of this section:
    (1) Financial intermediary means:
    (i) Any broker, dealer, bank, or other person that holds securities 
issued by the fund, in nominee name;
    (ii) A unit investment trust or fund that invests in the fund in 
reliance on section 12(d)(1)(E) of the Act (15 U.S.C. 80a-12(d)(1)(E)); 
and
    (iii) In the case of a participant-directed employee benefit plan 
that owns the securities issued by the fund, a retirement plan's 
administrator under

[[Page 1260]]

section 3(16)(A) of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1002(16)(A)) or any person that maintains the plan's 
participant records.
    (iv) Financial intermediary does not include any person that the 
fund treats as an individual investor with respect to the fund's 
policies established for the purpose of eliminating or reducing any 
dilution of the value of the outstanding securities issued by the fund.
    (2) Fund means an open-end management investment company that is 
registered or required to register under section 8 of the Act (15 U.S.C. 
80a-8), and includes a separate series of such an investment company.
    (3) Money market fund means an open-end management investment 
company that is registered under the Act and is regulated as a money 
market fund under Sec.270.2a-7.
    (4) Shareholder includes a beneficial owner of securities held in 
nominee name, a participant in a participant-directed employee benefit 
plan, and a holder of interests in a fund or unit investment trust that 
has invested in the fund in reliance on section 12(d)(1)(E) of the Act. 
A shareholder does not include a fund investing pursuant to section 
12(d)(1)(G) of the Act (15 U.S.C. 80a-12(d)(1)(G)), a trust established 
pursuant to section 529 of the Internal Revenue Code (26 U.S.C. 529), or 
a holder of an interest in such a trust.
    (5) Shareholder information agreement means a written agreement 
under which a financial intermediary agrees to:
    (i) Provide, promptly upon request by a fund, the Taxpayer 
Identification Number (or in the case of non U.S. shareholders, if the 
Taxpayer Identification Number is unavailable, the International 
Taxpayer Identification Number or other government issued identifier) of 
all shareholders who have purchased, redeemed, transferred, or exchanged 
fund shares held through an account with the financial intermediary, and 
the amount and dates of such shareholder purchases, redemptions, 
transfers, and exchanges;
    (ii) Execute any instructions from the fund to restrict or prohibit 
further purchases or exchanges of fund shares by a shareholder who has 
been identified by the fund as having engaged in transactions of fund 
shares (directly or indirectly through the intermediary's account) that 
violate policies established by the fund for the purpose of eliminating 
or reducing any dilution of the value of the outstanding securities 
issued by the fund; and
    (iii) Use best efforts to determine, promptly upon request of the 
fund, whether any specific person about whom it has received the 
identification and transaction information set forth in paragraph 
(c)(5)(i) of this section, is itself a financial intermediary 
(``indirect intermediary'') and, upon further request by the fund:
    (A) Provide (or arrange to have provided) the identification and 
transaction information set forth in paragraph (c)(5)(i) of this section 
regarding shareholders who hold an account with an indirect 
intermediary; or
    (B) Restrict or prohibit the indirect intermediary from purchasing, 
in nominee name on behalf of other persons, securities issued by the 
fund.

[71 FR 58272, Oct. 3, 2006]



Sec.270.22d-1  Exemption from section 22(d) to permit sales of 
redeemable securities at prices which reflect sales loads set 
pursuant to a schedule.

    A registered investment company that is the issuer of redeemable 
securities, a principal underwriter of such securities or a dealer 
therein shall be exempt from the provisions of section 22(d) to the 
extent necessary to permit the sale of such securities at prices that 
reflect scheduled variations in, or elimination of, the sales load. 
These price schedules may offer such variations in or elimination of the 
sales load to particular classes of investors or transactions, Provided, 
That:
    (a) The company, the principal underwriter and dealers in the 
company's shares apply any scheduled variation uniformly to all offerees 
in the class specified;
    (b) The company furnishes to existing shareholders and prospective 
investors adequate information concerning any scheduled variation, as 
prescribed in applicable registration statement form requirements;

[[Page 1261]]

    (c) Before making any new sales load variation available to 
purchasers of the company's shares, the company revises its prospectus 
and statement of additional information to describe that new variation; 
and
    (d) The company advises existing shareholders of any new sales load 
variation within one year of the date when that variation is first made 
available to purchasers of the company's shares.

(Secs. 6(c) (15 U.S.C. 80a-6(c)) and 38(a) (15 U.S.C. 80a-37(a)))

[50 FR 7911, Feb. 27, 1985]



Sec.270.22d-2  Exemption from section 22(d) for certain registered 
separate accounts.

    A registered separate account, any principal underwriter for such 
account, any dealer in contracts or units of interest or participations 
in such contracts issued by such account and any insurance company 
maintaining such account shall, with respect to any variable annuity 
contracts, units, or participations therein issued by such account, be 
exempted from section 22(d) to the extent necessary to permit the sale 
of such contracts, units or participations by such persons at prices 
which reflect variations in the sales load or in any administrative 
charge or other deductions from the purchase payments; Provided, 
however, That (a) the prospectus discloses as precisely as possible the 
amount of the variations and the circumstances, if any, in which such 
variations shall be available or describes the basis for such variations 
and the manner in which entitlement shall be determined, and (b) any 
such variations reflect differences in costs or services and are not 
unfairly discriminatory against any person.

(Secs. 6(c) (15 U.S.C. 80a-6(c)) and 38(a) (15 U.S.C. 80a-37(a)))

[40 FR 33970, Aug. 13, 1975. Redesignated at 50 FR 7911, Feb. 27, 1985]



Sec.270.22e-1  Exemption from section 22(e) of the Act during annuity
payment period of variable annuity contracts participating in certain 
registered separate accounts.
          

    (a) A registered separate account, shall during the annuity payment 
period of variable annuity contracts participating in such account, be 
exempt from the provisions of section 22(e) of the Act prohibiting the 
suspension of the right of redemption or postponement of the date of 
payment or satisfaction upon redemption of any redeemable security, with 
respect to such contracts under which payments are being made based upon 
life contingencies.

(Sec.6, 54 Stat. 800; 15 U.S.C. 80a-6)

[34 FR 12696, Aug. 5, 1969]



Sec.270.22e-2  Pricing of redemption requests in accordance with Rule
22c-1.

    An investment company shall not be deemed to have suspended the 
right of redemption if it prices a redemption request by computing the 
net asset value of the investment company's redeemable securities in 
accordance with the provisions of Rule 22c-1.

[50 FR 24764, June 13, 1985]



Sec.270.22e-3  Exemption for liquidation of money market funds.

    (a) Exemption. A registered open-end management investment company 
or series thereof (``fund'') that is regulated as a money market fund 
under Sec.270.2a-7 is exempt from the requirements of section 22(e) of 
the Act (15 U.S.C. 80a-22(e)) if:
    (1) The fund, at the end of a business day, has invested less than 
ten percent of its total assets in weekly liquid assets or, in the case 
of a fund that is a government money market fund, as defined in Sec.
270.2a-7(a)(16) or a retail money market fund, as defined in Sec.
270.2a-7(a)(25), the fund's price per share as computed for the purpose 
of distribution, redemption and repurchase, rounded to the nearest one 
percent, has deviated from the stable price established by the board of 
directors or the fund's board of directors, including a majority of 
directors who are not interested persons of the fund, determines that 
such a deviation is likely to occur;
    (2) The fund's board of directors, including a majority of directors 
who are not interested persons of the fund, irrevocably has approved the 
liquidation of the fund; and

[[Page 1262]]

    (3) The fund, prior to suspending redemptions, notifies the 
Commission of its decision to liquidate and suspend redemptions by 
electronic mail directed to the attention of the Director of the 
Division of Investment Management or the Director's designee.
    (b) Conduits. Any registered investment company, or series thereof, 
that owns, pursuant to section 12(d)(1)(E) of the Act (15 U.S.C. 80a-
12(d)(1)(E)), shares of a money market fund that has suspended 
redemptions of shares pursuant to paragraph (a) of this section also is 
exempt from the requirements of section 22(e) of the Act (15 U.S.C. 80a-
22(e)). A registered investment company relying on the exemption 
provided in this paragraph must promptly notify the Commission that it 
has suspended redemptions in reliance on this section. Notification 
under this paragraph shall be made by electronic mail directed to the 
attention of the Director of the Division of Investment Management or 
the Director's designee.
    (c) Commission Orders. For the protection of shareholders, the 
Commission may issue an order to rescind or modify the exemption 
provided by this section, after appropriate notice and opportunity for 
hearing in accordance with section 40 of the Act (15 U.S.C. 80a-39).
    (d) Definitions. Each of the terms business day, total assets, and 
weekly liquid assets has the same meaning as defined in Sec.270.2a-7.

[75 FR 10117, Mar. 4, 2010, as amended at 79 FR 47967, Aug. 14, 2014]



Sec.270.22e-4  Liquidity risk management programs.

    (a) Definitions. For purposes of this section:
    (1) Acquisition (or acquire) means any purchase or subsequent 
rollover.
    (2) Business day means any day, other than Saturday, Sunday, or any 
customary business holiday.
    (3) Convertible to cash means the ability to be sold, with the sale 
settled.
    (4) Exchange-traded fund or ETF means an open-end management 
investment company (or series or class thereof), the shares of which are 
listed and traded on a national securities exchange, and that has formed 
and operates under an exemptive order under the Act granted by the 
Commission or in reliance on an exemptive rule adopted by the 
Commission.
    (5) Fund means an open-end management investment company that is 
registered or required to register under section 8 of the Act (15 U.S.C. 
80a-8) and includes a separate series of such an investment company, but 
does not include a registered open-end management investment company 
that is regulated as a money market fund under Sec.270.2a-7 or an In-
Kind ETF.
    (6) Highly liquid investment means any cash held by a fund and any 
investment that the fund reasonably expects to be convertible into cash 
in current market conditions in three business days or less without the 
conversion to cash significantly changing the market value of the 
investment, as determined pursuant to the provisions of paragraph 
(b)(1)(ii) of this section.
    (7) Highly liquid investment minimum means the percentage of the 
fund's net assets that the fund invests in highly liquid investments 
that are assets pursuant to paragraph (b)(1)(iii) of this section.
    (8) Illiquid investment means any investment that the fund 
reasonably expects cannot be sold or disposed of in current market 
conditions in seven calendar days or less without the sale or 
disposition significantly changing the market value of the investment, 
as determined pursuant to the provisions of paragraph (b)(1)(ii) of this 
section.
    (9) In-Kind Exchange Traded Fund or In-Kind ETF means an ETF that 
meets redemptions through in-kind transfers of securities, positions, 
and assets other than a de minimis amount of cash and that publishes its 
portfolio holdings daily.
    (10) Less liquid investment means any investment that the fund 
reasonably expects to be able to sell or dispose of in current market 
conditions in seven calendar days or less without the sale or 
disposition significantly changing the market value of the investment, 
as determined pursuant to the provisions of paragraph (b)(1)(ii) of this 
section, but where the sale or disposition is reasonably expected to 
settle in more than seven calendar days.

[[Page 1263]]

    (11) Liquidity risk means the risk that the fund could not meet 
requests to redeem shares issued by the fund without significant 
dilution of remaining investors' interests in the fund.
    (12) Moderately liquid investment means any investment that the fund 
reasonably expects to be convertible into cash in current market 
conditions in more than three calendar days but in seven calendar days 
or less, without the conversion to cash significantly changing the 
market value of the investment, as determined pursuant to the provisions 
of paragraph (b)(1)(ii) of this section.
    (13) Person(s) designated to administer the program means the fund 
or In-Kind ETF's investment adviser, officer, or officers (which may not 
be solely portfolio managers of the fund or In-Kind ETF) responsible for 
administering the program and its policies and procedures pursuant to 
paragraph (b)(2)(ii) of this section.
    (14) Unit Investment Trust or UIT means a unit investment trust as 
defined in section 4(2) of the Act (15 U.S.C. 80a-4).
    (b) Liquidity Risk Management Program. Each fund and In-Kind ETF 
must adopt and implement a written liquidity risk management program 
(``program'') that is reasonably designed to assess and manage its 
liquidity risk.
    (1) Required program elements. The program must include policies and 
procedures reasonably designed to incorporate the following elements:
    (i) Assessment, management, and periodic review of liquidity risk. 
Each fund and In-Kind ETF must assess, manage, and periodically review 
(with such review occurring no less frequently than annually) its 
liquidity risk, which must include consideration of the following 
factors, as applicable:
    (A) The fund or In-Kind ETF's investment strategy and liquidity of 
portfolio investments during both normal and reasonably foreseeable 
stressed conditions, including whether the investment strategy is 
appropriate for an open-end fund, the extent to which the strategy 
involves a relatively concentrated portfolio or large positions in 
particular issuers, and the use of borrowings for investment purposes 
and derivatives;
    (B) Short-term and long-term cash flow projections during both 
normal and reasonably foreseeable stressed conditions;
    (C) Holdings of cash and cash equivalents, as well as borrowing 
arrangements and other funding sources; and
    (D) For an ETF:
    (1) The relationship between the ETF's portfolio liquidity and the 
way in which, and the prices and spreads at which, ETF shares trade, 
including, the efficiency of the arbitrage function and the level of 
active participation by market participants (including authorized 
participants); and
    (2) The effect of the composition of baskets on the overall 
liquidity of the ETF's portfolio.
    (ii) Classification. Each fund must, using information obtained 
after reasonable inquiry and taking into account relevant market, 
trading, and investment-specific considerations, classify each of the 
fund's portfolio investments (including each of the fund's derivatives 
transactions) as a highly liquid investment, moderately liquid 
investment, less liquid investment, or illiquid investment. A fund must 
review its portfolio investments' classifications, at least monthly in 
connection with reporting the liquidity classification for each 
portfolio investment on Form N-PORT in accordance with Sec.270.30b1-9, 
and more frequently if changes in relevant market, trading, and 
investment-specific considerations are reasonably expected to materially 
affect one or more of its investments' classifications.
    Note to paragraph (b)(1)(ii)introductory text: If an investment 
could be viewed as either a highly liquid investment or a moderately 
liquid investment, because the period to convert the investment to cash 
depends on the calendar or business day convention used, a fund should 
classify the investment as a highly liquid investment. For a discussion 
of considerations that may be relevant in classifying the liquidity of 
the fund's portfolio investments, see Investment Company Act Release No. 
IC-32315 (Oct. 13, 2016).
    (A) The fund may generally classify and review its portfolio 
investments (including the fund's derivatives transactions) according to 
their asset class, provided, however, that the fund must separately 
classify and review any investment within an asset class if the

[[Page 1264]]

fund or its adviser has information about any market, trading, or 
investment-specific considerations that are reasonably expected to 
significantly affect the liquidity characteristics of that investment as 
compared to the fund's other portfolio holdings within that asset class.
    (B) In classifying and reviewing its portfolio investments or asset 
classes (as applicable), the fund must determine whether trading varying 
portions of a position in a particular portfolio investment or asset 
class, in sizes that the fund would reasonably anticipate trading, is 
reasonably expected to significantly affect its liquidity, and if so, 
the fund must take this determination into account when classifying the 
liquidity of that investment or asset class.
    (C) For derivatives transactions that the fund has classified as 
moderately liquid investments, less liquid investments, and illiquid 
investments, identify the percentage of the fund's highly liquid 
investments that it has segregated to cover, or pledged to satisfy 
margin requirements in connection with, derivatives transactions in each 
of these classification categories.
    Note to paragraph (b)(1)(ii)(C): For purposes of calculating these 
percentages, a fund that has segregated or pledged highly liquid 
investments and non-highly liquid investments to cover derivatives 
transactions classified as moderately liquid, less liquid, or illiquid 
investments first should apply segregated or pledged assets that are 
highly liquid investments to cover these transactions, unless it has 
specifically identified segregated non-highly liquid investments as 
covering such derivatives transactions.
    (iii) Highly liquid investment minimum. (A) Any fund that does not 
primarily hold assets that are highly liquid investments must:
    (1) Determine a highly liquid investment minimum, considering the 
factors specified in paragraphs (b)(1)(i)(A) through (D) of this 
section, as applicable (but considering those factors specified in 
paragraphs (b)(1)(i)(A) and (B) only as they apply during normal 
conditions, and during stressed conditions only to the extent they are 
reasonably foreseeable during the period until the next review of the 
highly liquid investment minimum). The highly liquid investment minimum 
determined pursuant to this paragraph may not be changed during any 
period of time that a fund's assets that are highly liquid investments 
are below the determined minimum without approval from the fund's board 
of directors, including a majority of directors who are not interested 
persons of the fund;
    (2) Periodically review, no less frequently than annually, the 
highly liquid investment minimum; and
    (3) Adopt and implement policies and procedures for responding to a 
shortfall of the fund's highly liquid investments below its highly 
liquid investment minimum, which must include requiring the person(s) 
designated to administer the program to report to the fund's board of 
directors no later than its next regularly scheduled meeting with a 
brief explanation of the causes of the shortfall, the extent of the 
shortfall, and any actions taken in response, and if the shortfall lasts 
more than 7 consecutive calendar days, must include requiring the 
person(s) designated to administer the program to report to the board 
within one business day thereafter with an explanation of how the fund 
plans to restore its minimum within a reasonable period of time.
    (B) For purposes of determining whether a fund primarily holds 
assets that are highly liquid investments, a fund must exclude from its 
calculations the percentage of the fund's assets that are highly liquid 
investments that it has segregated to cover all derivatives transactions 
that the fund has classified as moderately liquid investments, less 
liquid investments, and illiquid investments, or pledged to satisfy 
margin requirements in connection with those derivatives transactions, 
as determined pursuant to paragraph (b)(1)(ii)(C) of this section.
    (iv) Illiquid investments. No fund or In-Kind ETF may acquire any 
illiquid investment if, immediately after the acquisition, the fund or 
In-Kind ETF would have invested more than 15% of its net assets in 
illiquid investments that are assets. If a fund or In-Kind ETF holds 
more than 15% of its net assets in illiquid investments that are assets:
    (A) It must cause the person(s) designated to administer the program 
to

[[Page 1265]]

report such an occurrence to the fund's or In-Kind ETF's board of 
directors within one business day of the occurrence, with an explanation 
of the extent and causes of the occurrence, and how the fund or In-Kind 
ETF plans to bring its illiquid investments that are assets to or below 
15% of its net assets within a reasonable period of time; and
    (B) If the amount of the fund's or In-Kind ETF's illiquid 
investments that are assets is still above 15% of its net assets 30 days 
from the occurrence (and at each consecutive 30 day period thereafter), 
the fund or In-Kind ETF's board of directors, including a majority of 
directors who are not interested persons of the fund or In-Kind ETF, 
must assess whether the plan presented to it pursuant to paragraph 
(b)(1)(iv)(A) continues to be in the best interest of the fund or In-
Kind ETF.
    (v) Redemptions in Kind. A fund that engages in, or reserves the 
right to engage in, redemptions in kind and any In-Kind ETF must 
establish policies and procedures regarding how and when it will engage 
in such redemptions in kind.
    (2) Board oversight. A fund or In-Kind ETF's board of directors, 
including a majority of directors who are not interested persons of the 
fund or In-Kind ETF, must:
    (i) Initially approve the liquidity risk management program;
    (ii) Approve the designation of the person(s) designated to 
administer the program; and
    (iii) Review, no less frequently than annually, a written report 
prepared by the person(s) designated to administer the program that 
addresses the operation of the program and assesses its adequacy and 
effectiveness of implementation, including, if applicable, the operation 
of the highly liquid investment minimum, and any material changes to the 
program.
    (3) Recordkeeping. The fund or In-Kind ETF must maintain:
    (i) A written copy of the program and any associated policies and 
procedures adopted pursuant to paragraphs (b)(1) through (b)(2) of this 
section that are in effect, or at any time within the past five years 
were in effect, in an easily accessible place;
    (ii) Copies of any materials provided to the board of directors in 
connection with its approval under paragraph (b)(2)(i) of this section, 
and materials provided to the board of directors under paragraph 
(b)(2)(iii) of this section, for at least five years after the end of 
the fiscal year in which the documents were provided, the first two 
years in an easily accessible place; and
    (iii) If applicable, a written record of the policies and procedures 
related to how the highly liquid investment minimum, and any adjustments 
thereto, were determined, including assessment of the factors 
incorporated in paragraphs (b)(1)(iii)(A) through (B) of this section 
and any materials provided to the board pursuant to paragraph 
(b)(1)(iii)(A)(3) of this section, for a period of not less than five 
years (the first two years in an easily accessible place) following the 
determination of, and each change to, the highly liquid investment 
minimum.
    (c) UIT liquidity. On or before the date of initial deposit of 
portfolio securities into a registered UIT, the UIT's principal 
underwriter or depositor must determine that the portion of the illiquid 
investments that the UIT holds or will hold at the date of deposit that 
are assets is consistent with the redeemable nature of the securities it 
issues, and must maintain a record of that determination for the life of 
the UIT and for five years thereafter.

[81 FR 82264, Nov. 18, 2016]



Sec.270.23c-1  Repurchase of securities by closed-end companies.

    (a) A registered closed-end company may purchase for cash a security 
of which it is the issuer, subject to the following conditions:
    (1) If the security is a stock entitled to cumulative dividends, 
such dividends are not in arrears.
    (2) If the security is a stock not entitled to cumulative dividends, 
at least 90 percent of the net income of the issuer for the last 
preceding fiscal year, determined in accordance with good accounting 
practice and not including profits or losses realized from the sale of 
securities or other properties, was distributed to its shareholders 
during such fiscal year or within 60 days after the close of such fiscal 
year.

[[Page 1266]]

    (3) If the security to be purchased is junior to any class of 
outstanding security of the issuer representing indebtedness (except 
notes or other evidences of indebtedness held by a bank or other person, 
the issuance of which did not involve a public offering) all securities 
of such class shall have an asset coverage of at least 300 percent 
immediately after such purchase; and if the security to be purchased is 
junior to any class of outstanding senior security of the issuer which 
is a stock, all securities of such class shall have an asset coverage of 
at least 200 percent immediately after such purchase, and shall not be 
in arrears as to dividends.
    (4) The seller of the security is not to the knowledge of the issuer 
an affiliated person of the issuer.
    (5) Payment of the purchase price is accompanied or preceded by a 
written confirmation of the purchase.
    (6) The purchase is made at a price not above the market value, if 
any, or the asset value of such security, whichever is lower, at the 
time of such purchase.
    (7) The issuer discloses to the seller or, if the seller is acting 
through a broker, to the seller's broker, either prior to or at the time 
of purchase the approximate or estimated asset coverage per unit of the 
security to be purchased.
    (8) No brokerage commission is paid by the issuer to any affiliated 
person of the issuer in connection with the purchase.
    (9) The purchase is not made in a manner or on a basis which 
discriminates unfairly against any holders of the class of securities 
purchased.
    (10) If the security is a stock, the issuer has, within the 
preceding six months, informed stockholders of its intention to purchase 
stock of such class by letter or report addressed to all the 
stockholders of such class.
    (11) The issuer files with the Commission, as an exhibit to Form N-
CSR (Sec.249.331 and Sec.274.128), a copy of any written 
solicitation to purchase securities under this section sent or given 
during the period covered by the report by or on behalf of the issuer to 
10 or more persons.
    (b) Notwithstanding the conditions of paragraph (a) of this section, 
a closed-end company may purchase fractional interests in, or fractional 
rights to receive, any security of which it is the issuer.
    (c) This rule does not apply to purchase of securities made pursuant 
to section 23(c)(1) or (2) of the Act (54 Stat. 825; 15 U.S.C. 80a-23). 
A registered closed-end company may file an application with the 
Commission for an order under section 23(c)(3) of the Act permitting the 
purchase of any security of which it is the issuer which does not meet 
the conditions of this rule and which is not to be made pursuant to 
section 23(c)(1) or (2) of the Act.
    (d) This rule relates exclusively to the requirements of section 
23(c) of the Act, and the provisions hereof shall not be construed to 
authorize any action which contravenes any other applicable law, 
statutory or otherwise, or the provision of any indenture or other 
instrument pursuant to which securities of the issuer were issued.

[Rule N-23C-1, 7 FR 10424, Dec. 15, 1942, as amended at 68 FR 64975, 
Nov. 17, 2003]

    Cross Reference: For interpretative release applicable to Sec.
270.23c-1, see No. 78 in tabulation, part 271 of this chapter.



Sec.270.23c-2  Call and redemption of securities issued by 
registered closed-end companies.

    (a) Notwithstanding the provisions of Sec.270.23c-1 (Rule N-23c-
1), a registered closed-end investment company may call or redeem any 
securities of which it is the issuer, in accordance with the terms of 
such securities or the charter, indenture or other instrument pursuant 
to which such securities were issued: Provided, That, if less than all 
the outstanding securities of a class or series are to be called or 
redeemed the call or redemption shall be made by lot, on a pro rata 
basis, or in such other manner as will not discriminate unfairly against 
any holder of the securities of such class or series.
    (b) A registered closed-end investment company which proposes to 
call or redeem any securities of which it is the issuer shall file with 
the Commission notice of its intention to call or redeem such securities 
at least 30 days prior to the date set for the call or redemption; 
Provided, however, That if notice of the call or the redemption is

[[Page 1267]]

required to be published in a newspaper or otherwise, notice shall be 
given to the Commission at least 10 days in advance of the date of 
publication. Such notice shall be filed in triplicate and shall include 
(1) the title of the class of securities to be called or redeemed, (2) 
the date on which the securities are to be called or redeemed, (3) the 
applicable provisions of the governing instrument pursuant to which the 
securities are to be called or redeemed and, (4) if less than all the 
outstanding securities of a class or series are to be called or 
redeemed, the principal amount or number of shares and the basis upon 
which the securities to be called or redeemed are to be selected.

[Rule N-23C-2, 7 FR 6669, Aug. 25, 1942]



Sec.270.23c-3  Repurchase offers by closed-end companies.

    (a) Definitions. For purposes of this section:
    (1) Periodic interval shall mean an interval of three, six, or 
twelve months.
    (2) Repurchase offer shall mean an offer pursuant to this section by 
an investment company to repurchase common stock of which it is the 
issuer.
    (3) Repurchase offer amount shall mean the amount of common stock 
that is the subject of a repurchase offer, expressed as a percentage of 
such stock outstanding on the repurchase request deadline, that an 
investment company offers to repurchase in a repurchase offer. The 
repurchase offer amount shall not be less than five percent nor more 
than twenty-five percent of the common stock outstanding on a repurchase 
request deadline. Before each repurchase offer, the repurchase offer 
amount for that repurchase offer shall be determined by the directors of 
the company.
    (4) Repurchase payment deadline with respect to a tender of common 
stock shall mean the date by which an investment company must pay 
securities holders for any stock repurchased. A repurchase payment 
deadline shall occur seven days after the repurchase pricing date 
applicable to such tender.
    (5) Repurchase pricing date with respect to a tender of common stock 
shall mean the date on which an investment company determines the net 
asset value applicable to the repurchase of the securities. A repurchase 
pricing date shall occur no later than the fourteenth day after a 
repurchase request deadline, or the next business day if the fourteenth 
day is not a business day. In no event shall an investment company 
determine the net asset value applicable to the repurchase of the stock 
before the close of business on the repurchase request deadline.
    (i) For an investment company making a repurchase offer pursuant to 
paragraph (b) of this section, the number of days between the repurchase 
request deadline and the repurchase pricing date for a repurchase offer 
shall be the maximum number specified by the company pursuant to 
paragraph (b)(2)(i)(D) of this section.
    (ii) For an investment company making a repurchase offer pursuant to 
paragraph (c) of this section, the repurchase pricing date shall be such 
date as the company shall disclose to security holders in the 
notification pursuant to paragraph (b)(4) of this section with respect 
to such offer.
    (iii) For purposes of paragraph (b)(1) of this section, a repurchase 
pricing date may be a date earlier than the date determined pursuant to 
paragraph (a)(5) (i) or (ii) of this section if, on or immediately 
following the repurchase request deadline, it appears that the use of an 
earlier repurchase pricing date is not likely to result in significant 
dilution of the net asset value of either stock that is tendered for 
repurchase or stock that is not tendered.
    (6) Repurchase request shall mean the tender of common stock in 
response to a repurchase offer.
    (7) Repurchase request deadline with respect to a repurchase offer 
shall mean the date by which an investment company must receive 
repurchase requests submitted by security holders in response to that 
offer or withdrawals or modifications of previously submitted repurchase 
requests. The first repurchase request deadline after the effective date 
of the registration statement for the common stock that is the subject 
of a repurchase offer, or after a shareholder vote adopting the 
fundamental policy specifying a company's periodic interval, whichever 
is later, shall occur no later than two periodic intervals thereafter.

[[Page 1268]]

    (b) Periodic repurchase offers. A registered closed-end company or a 
business development company may repurchase common stock of which it is 
the issuer from the holders of the stock at periodic intervals, pursuant 
to repurchase offers made to all holders of the stock, Provided that:
    (1) The company shall repurchase the stock for cash at the net asset 
value determined on the repurchase pricing date and shall pay the 
holders of the stock by the repurchase payment deadline except as 
provided in paragraph (b)(3) of this section. The company may deduct 
from the repurchase proceeds only a repurchase fee, not to exceed two 
percent of the proceeds, that is paid to the company and is reasonably 
intended to compensate the company for expenses directly related to the 
repurchase. A company may not condition a repurchase offer upon the 
tender of any minimum amount of shares.
    (2)(i) The company shall repurchase the security pursuant to a 
fundamental policy, changeable only by a majority vote of the 
outstanding voting securities of the company, stating:
    (A) That the company will make repurchase offers at periodic 
intervals pursuant to this section, as this section may be amended from 
time to time;
    (B) The periodic intervals between repurchase request deadlines;
    (C) The dates of repurchase request deadlines or the means of 
determining the repurchase request deadlines; and
    (D) The maximum number of days between each repurchase request 
deadline and the next repurchase pricing date.
    (ii) The company shall include a statement in its annual report to 
shareholders of the following:
    (A) Its policy under paragraph (b)(2)(i) of this section; and
    (B) With respect to repurchase offers by the company during the 
period covered by the annual report, the number of repurchase offers, 
the repurchase offer amount and the amount tendered in each repurchase 
offer, and the extent to which in any repurchase offer the company 
repurchased stock pursuant to the procedures in paragraph (b)(5) of this 
section.
    (iii) A company shall be deemed to be making repurchase offers 
pursuant to a policy within paragraph (b)(2)(i) of this section if:
    (A) The company makes repurchase offers to its security holders at 
periodic intervals and, before May 14, 1993, has disclosed in its 
registration statement its intention to make or consider making such 
repurchase offers; and
    (B) The company's board of directors adopts a policy specifying the 
matters required by paragraph (b)(2)(i) of this section, and the 
periodic interval specified therein conforms generally to the frequency 
of the company's prior repurchase offers.
    (3)(i) The company shall not suspend or postpone a repurchase offer 
except pursuant to a vote of a majority of the directors, including a 
majority of the directors who are not interested persons of the company, 
and only:
    (A) If the repurchase would cause the company to lose its status as 
a regulated investment company under Subchapter M of the Internal 
Revenue Code [26 U.S.C. 851-860];
    (B) If the repurchase would cause the stock that is the subject of 
the offer that is either listed on a national securities exchange or 
quoted in an inter-dealer quotation system of a national securities 
association to be neither listed on any national securities exchange nor 
quoted on any inter-dealer quotation system of a national securities 
association;
    (C) For any period during which the New York Stock Exchange or any 
other market in which the securities owned by the company are 
principally traded is closed, other than customary week-end and holiday 
closings, or during which trading in such market is restricted;
    (D) For any period during which an emergency exists as a result of 
which disposal by the company of securities owned by it is not 
reasonably practicable, or during which it is not reasonably practicable 
for the company fairly to determine the value of its net assets; or
    (E) For such other periods as the Commission may by order permit for 
the protection of security holders of the company.
    (ii) If a repurchase offer is suspended or postponed, the company 
shall provide notice to security holders of such

[[Page 1269]]

suspension or postponement. If the company renews the repurchase offer, 
the company shall send a new notification to security holders satisfying 
the requirements of paragraph (b)(4) of this section.
    (4)(i) No less than twenty-one and no more than forty-two days 
before each repurchase request deadline, the company shall send to each 
holder of record and to each beneficial owner of the stock that is the 
subject of the repurchase offer a notification providing the following 
information:
    (A) A statement that the company is offering to repurchase its 
securities from security holders at net asset value;
    (B) Any fees applicable to such repurchase;
    (C) The repurchase offer amount;
    (D) The dates of the repurchase request deadline, repurchase pricing 
date, and repurchase payment deadline, the risk of fluctuation in net 
asset value between the repurchase request deadline and the repurchase 
pricing date, and the possibility that the company may use an earlier 
repurchase pricing date pursuant to paragraph (a)(5)(iii) of this 
section;
    (E) The procedures for security holders to tender their shares and 
the right of the security holders to withdraw or modify their tenders 
until the repurchase request deadline;
    (F) The procedures under which the company may repurchase such 
shares on a pro rata basis pursuant to paragraph (b)(5) of this section;
    (G) The circumstances in which the company may suspend or postpone a 
repurchase offer pursuant to paragraph (b)(3) of this section;
    (H) The net asset value of the common stock computed no more than 
seven days before the date of the notification and the means by which 
security holders may ascertain the net asset value thereafter; and
    (I) The market price, if any, of the common stock on the date on 
which such net asset value was computed, and the means by which security 
holders may ascertain the market price thereafter.
    (ii) The company shall file three copies of the notification with 
the Commission within three business days after sending the notification 
to security holders. Those copies shall be accompanied by copies of Form 
N-23c-3 (Sec.274.221 of this chapter) (``Notification of Repurchase 
Offer''). The format of the copies shall comply with the requirements 
for registration statements and reports under Sec.270.8b-12 of this 
chapter.
    (iii) For purposes of sending a notification to a beneficial owner 
pursuant to paragraph (b)(4)(i) of this section, where the company knows 
that shares of common stock that is the subject of a repurchase offer 
are held of record by a broker, dealer, voting trustee, bank, 
association or other entity that exercises fiduciary powers in nominee 
name or otherwise, the company shall follow the procedures for 
transmitting materials to beneficial owners of securities that are set 
forth in Sec.240.14a-13 of this chapter.
    (5) If security holders tender more than the repurchase offer 
amount, the company may repurchase an additional amount of stock not to 
exceed two percent of the common stock outstanding on the repurchase 
request deadline. If the company determines not to repurchase more than 
the repurchase offer amount, or if security holders tender stock in an 
amount exceeding the repurchase offer amount plus two percent of the 
common stock outstanding on the repurchase request deadline, the company 
shall repurchase the shares tendered on a pro rata basis; Provided, 
however, That this provision shall not prohibit the company from:
    (i) Accepting all stock tendered by persons who own, beneficially or 
of record, an aggregate of not more than a specified number which is 
less than one hundred shares and who tender all of their stock, before 
prorating stock tendered by others; or
    (ii) Accepting by lot stock tendered by security holders who tender 
all stock held by them and who, when tendering their stock, elect to 
have either all or none or at least a minimum amount or none accepted, 
if the company first accepts all stock tendered by security holders who 
do not so elect.
    (6) The company shall permit tenders of stock for repurchase to be 
withdrawn or modified at any time until the repurchase request deadline 
but

[[Page 1270]]

shall not permit tenders to be withdrawn or modified thereafter.
    (7)(i) The current net asset value of the company's common stock 
shall be computed no less frequently than weekly on such day and at such 
specific time or times during the day that the board of directors of the 
company shall set.
    (ii) The current net asset value of the company's common stock shall 
be computed daily on the five business days preceding a repurchase 
request deadline at such specific time or times during the day that the 
board of directors of the company shall set.
    (iii) For purposes of section 23(b) [15 U.S.C. 80a-23(b)], the 
current net asset value applicable to a sale of common stock by the 
company shall be the net asset value next determined after receipt of an 
order to purchase such stock. During any period when the company is 
offering its common stock, the current net asset value of the common 
stock shall be computed no less frequently than once daily, Monday 
through Friday, at the specific time or times during the day that the 
board of directors of the company shall set, except on:
    (A) Days on which changes in the value of the company's portfolio 
securities will not materially affect the current net asset value of the 
common stock;
    (B) Days during which no order to purchase its common stock is 
received, other than days when the net asset value would otherwise be 
computed pursuant to paragraph (b)(7)(i) of this section; or
    (C) Customary national, local, and regional business holidays 
described or listed in the prospectus.
    (8) The board of directors of the investment company satisfies the 
fund governance standards defined in Sec.270.0-1(a)(7).
    (9) Any senior security issued by the company or other indebtedness 
contracted by the company either shall mature by the next repurchase 
pricing date or shall provide for the redemption or call of such 
security or the repayment of such indebtedness by the company by the 
next repurchase pricing date, either in whole or in part, without 
penalty or premium, as necessary to permit the company to repurchase 
securities in such repurchase offer amount as the directors of the 
company shall determine in compliance with the asset coverage 
requirements of section 18 [15 U.S.C. 80a-18] or 61 [15 U.S.C. 80a-60], 
as applicable.
    (10)(i) From the time a company sends a notification to shareholders 
pursuant to paragraph (b)(4) of this section until the repurchase 
pricing date, a percentage of the company's assets equal to at least 100 
percent of the repurchase offer amount shall consist of assets that can 
be sold or disposed of in the ordinary course of business, at 
approximately the price at which the company has valued the investment, 
within a period equal to the period between a repurchase request 
deadline and the repurchase payment deadline, or of assets that mature 
by the next repurchase payment deadline.
    (ii) In the event that the company's assets fail to comply with the 
requirements in paragraph (b)(10)(i) of this section, the board of 
directors shall cause the company to take such action as it deems 
appropriate to ensure compliance.
    (iii) In supervising the company's operations and portfolio 
management by the investment adviser, the company's board of directors 
shall adopt written procedures reasonably designed, taking into account 
current market conditions and the company's investment objectives, to 
ensure that the company's portfolio assets are sufficiently liquid so 
that the company can comply with its fundamental policy on repurchases, 
and comply with the liquidity requirements of paragraph (b)(10)(i) of 
this section. The board of directors shall review the overall 
composition of the portfolio and make and approve such changes to the 
procedures as the board deems necessary.
    (11) The company, or any underwriter for the company, shall comply, 
as if the company were an open-end company, with the provisions of 
section 24(b) [15 U.S.C. 80a-24(b)] and rules issued thereunder with 
respect to any advertisement, pamphlet, circular, form letter, or other 
sales literature addressed to or intended for distribution to 
prospective investors.

[[Page 1271]]

    (c) Discretionary repurchase offers. A registered closed-end company 
or a business development company may repurchase common stock of which 
it is the issuer from the holders of the stock pursuant to a repurchase 
offer that is not made pursuant to a fundamental policy and that is made 
to all holders of the stock not earlier than two years after another 
offer pursuant to this paragraph (c) if the company complies with the 
requirements of paragraphs (b) (1), (3), (4), (5), (6), (7)(ii), (8), 
(10)(i), and (10)(ii) of this section.
    (d) Exemption from the definition of redeemable security. A company 
that makes repurchase offers pursuant to paragraph (b) or (c) of this 
section shall not be deemed thereby to be an issuer of redeemable 
securities within section 2(a)(32) [15 U.S.C. 80a-2(a)(32)].

[58 FR 19343, Apr. 14, 1993; 58 FR 29695, May 21, 1993, as amended at 66 
FR 3759, Jan. 16, 2001; 69 FR 46390, Aug. 2, 2004]



Sec.270.24b-1  Definitions.

    (a) The term form letter as used in section 24(b) of the Act 
includes (1) one of a series of identical sales letters, and (2) any 
sales letter a substantial portion of which consists of a statement 
which is in essence identical with similar statements in sales letters 
sent to 25 or more persons within any period of 90 consecutive days.
    (b) The term distribution as used in section 24(b) of the Act 
includes the distribution or redistribution to prospective investors of 
the content of any written sales literature, whether such distribution 
or redistribution is effected by means of written or oral 
representations or statements.
    (c) The terms rules and regulations as used in section 24 (a) and 
(c) of the Act shall include the forms for registration of securities 
under the Securities Act of 1933 and the related instructions thereto.

(Sec.19, 48 Stat. 85, as amended, Sec.319, 53 Stat. 1173; 15 U.S.C. 
77s, 77sss)

[Rule N-24B-1, 6 FR 3020, June 21, 1941, as amended by 21 FR 1046, Feb. 
15, 1956]



Sec.270.24b-2  Filing copies of sales literature.

    Copies of material filed with the Commission for the sole purpose of 
complying with section 24(b) of the Act (15 U.S.C. 80a-24(b)) either 
shall be accompanied by a letter of transmittal which makes appropriate 
references to said section or shall make such appropriate reference on 
the face of the material.

[70 FR 43570, July 27, 2005]



Sec.270.24b-3  Sales literature deemed filed.

    Any advertisement, pamphlet, circular, form letter or other sales 
literature addressed to or intended for distribution to prospective 
investors shall be deemed filed with the Commission for purposes of 
section 24(b) of the Act [15 U.S.C. 80a-24(b)] upon filing with a 
national securities association registered under section 15A of the 
Securities Exchange Act of 1934 [15 U.S.C. 78o] that has adopted rules 
providing standards for the investment company advertising practices of 
its members and has established and implemented procedures to review 
that advertising.

[53 FR 3880, Feb. 10, 1988]



Sec.270.24b-4  Filing copies of covered investment fund research 
reports.

    A covered investment fund research report, as defined in paragraph 
(c)(3) of Sec.230.139b of this chapter under the Securities Act of 
1933 (15 U.S.C. 77a et seq.), of a covered investment fund registered as 
an investment company under the Act, shall not be subject to section 
24(b) of the Act or the rules and regulations thereunder, except that 
such report shall be subject to such section and the rules and 
regulations thereunder to the extent that it is otherwise not subject to 
the content standards in the rules of any self-regulatory organization 
related to research reports, including those contained in the rules 
governing communications with the public regarding investment companies 
or substantially similar standards.

[83 FR 64222, Dec. 13, 2018]

[[Page 1272]]



Sec.270.24e-1  Filing of certain prospectuses as post-effective
amendments to registration statements under the Securities Act 
of 1933.

    Section 24(e) of the Act requires that when a prospectus is revised 
so that it may be available for use in compliance with section 10(a)(3) 
of the Securities Act of 1933 for a period extending beyond the time 
when the previous prospectus would have ceased to be available for such 
use, such revised prospectus, in order to meet the requirements of 
section 10 of said Act, must be filed as an amendment to the 
registration statement under said Act and such amendment must have 
become effective prior to the use of the revised prospectus. Except as 
hereinabove provided, section 24(e) of the Act shall not be deemed to 
govern the times and conditions under which post-effective amendments 
shall be filed to registration statements under the Securities Act of 
1933.

(Sec.24, 54 Stat. 825, as amended; 15 U.S.C. 80a-24)

[20 FR 2856, Apr. 28, 1955, as amended at 62 FR 47938, Sept. 12, 1997]



Sec.270.24f-2  Registration under the Securities Act of 1933 of 
certain investment company securities.

    (a) General. Any face-amount certificate company, open-end 
management company or unit investment trust (``issuer'') that is deemed 
to have registered an indefinite amount of securities pursuant to 
section 24(f) of the Act (15 U.S.C. 80a-24(f)) must not later than 90 
days after the end of any fiscal year during which it has publicly 
offered such securities, file Form 24F-2 (17 CFR 274.24) with the 
Commission. Form 24F-2 must be prepared in accordance with the 
requirements of that form, and must be accompanied by the payment of a 
registration fee with respect to the securities sold during the fiscal 
year in reliance upon registration pursuant to section 24(f) of the Act 
calculated in the manner specified in section 24(f) of the Act and in 
the Form. An issuer that pays the registration fee more than 90 days 
after the end of its fiscal year must pay interest in the manner 
specified in section 24(f) of the Act and in Form 24F-2.
    (b) Issuer ceasing operations; mergers and other transactions. For 
purposes of this section, if an issuer ceases operations, the date the 
issuer ceases operations will be deemed to be the end of its fiscal 
year. In the case of a liquidation, merger, or sale of all or 
substantially all of the assets (``merger'') of the issuer, the issuer 
will be deemed to have ceased operations for the purposes of this 
section on the date the merger is consummated; provided, however, that 
in the case of a merger of an issuer or a series of an issuer 
(``Predecessor Issuer'') with another issuer or a series of an issuer 
(``Successor Issuer''), the Predecessor Issuer will not be deemed to 
have ceased operations and the Successor issuer will assume the 
obligations, fees, and redemption credits of the Predecessor Issuer 
incurred pursuant to section 24(f) of the Act and Sec.270.24e-2 (as in 
effect prior to October 11, 1997; see 17 CFR part 240 to end, revised as 
of April 1, 1997) if the Successor Issuer:
    (1) had no assets or liabilities, other than nominal assets or 
liabilities, and no operating history immediately prior to the merger;
    (2) Acquired substantially all of the assets and assumed 
substantially all of the liabilities and obligations of the Predecessor 
Issuer; and
    (3) The merger is not designed to result in the Predecessor Issuer 
merging with, or substantially all of its assets being acquired by, an 
issuer (or a series of an issuer) that would not meet the conditions of 
paragraph (b)(1) of this section.
    (c) Counting days. To determine the date on which Form 24F-2 must be 
filed with the Commission under paragraph (a) of this section, the first 
day of the 90-day period is the first calendar day of the fiscal year 
following the fiscal year for which the Form is to be filed. If the last 
day of the 90-day period falls on a Saturday, Sunday, or federal 
holiday, the period ends on the first business day thereafter.

    Note to paragraph (c): For example, a Form 24F-2 for a fiscal year 
ending on June 30 must be filed no later than September 28. If September 
28 falls on a Saturday, Sunday, the Form must be filed on the following 
Monday.

[62 FR 47938, Sept. 12, 1997]

[[Page 1273]]



Sec.270.26a-1  Payment of administrative fees to the depositor or 
principal underwriter of a unit investment trust; exemptive relief 
for separate accounts.

    (a) For purposes of section 26(a)(2)(C) of the Act, payment of a fee 
to the depositor of or a principal underwriter for a registered unit 
investment trust, or to any affiliated person or agent of such depositor 
or underwriter (collectively, ``depositor''), for bookkeeping or other 
administrative services provided to the trust shall be allowed the 
custodian or trustee (``trustee'') as an expense, Provided, That such 
fee is an amount not greater than the expenses, without profit:
    (1) Actually paid by such depositor directly attributable to the 
services provided and
    (2) Increased by the services provided directly by such depositor, 
as determined in accordance with generally accepted accounting 
principles consistently applied.
    (b) A registered separate account, and any depositor of or principal 
underwriter for such account, shall be exempt from the provisions of 
sections 26(a) and 27(c)(2) of the Act [15 U.S.C. 80a-26(a) and 80a-
27(c)(2)] with respect to any variable annuity contract participating in 
such account to the extent necessary to permit the deduction of any fee 
that would be allowed a trustee as an expense as provided in paragraph 
(a) of this section, Provided, That the standard used in paragraph (a) 
of this section shall be applied as follows: if the separate account 
reserves the right to increase the fee, the fee shall not be greater 
than the cost of the services to be provided for one year; if the fee is 
guaranteed not to increase for a specified period of time, the fee shall 
not be greater than the average expected cost of the services to be 
provided during the period of the guarantee.

(Sec.6(c), 26(a), and 38(a) (15 U.S.C. 80a-6(c), 80a-26(a), and 80a-
37(a)))

[49 FR 31063, Aug. 3, 1984]



Sec.270.26a-2  Exemptions from certain provisions of sections 26 and
27 for registered separate accounts and others regarding custodianship
of and deduction of certain fees and charges from the assets of such
accounts.

    A registered separate account, and any depositor of or principal 
underwriter for such account, shall be exempt from the provisions of 
Sections 26(a) and 27(c)(2) of the Act [15 U.S.C. 80a-26(a) and 80a-
27(c)(2)] with respect to any variable annuity contract participating in 
such account to the extent necessary:
    (a) To permit the insurance company that sponsors such account to 
hold the assets of the separate account and to hold such assets not 
pursuant to a trust indenture or other such instrument;
    (b) To permit any separate account registered under the Act as a 
unit investment trust to hold the securities of any underlying portfolio 
companies in uncertificated form;
    (c) To permit any separate account registered under the Act as a 
management investment company to hold its assets in any manner permitted 
by section 17(f) of the Act [15 U.S.C. 80a-17(f)] or any rules 
thereunder; and
    (d) To permit the deduction from the assets of the separate account 
of amounts for premium taxes imposed by any State or other governmental 
entity and, if the separate account is registered under the Act as an 
open-end management investment company, an investment advisory fee.

(Secs. 6(c) and 38(a) (15 U.S.C. 80a-6(c) and 80a-37(a), respectively))

[49 FR 31064, Aug. 3, 1984]



Sec.270.27a-1  Conditions for compliance with and exemptions from
certain provisions of section 27(a)(1) and section 27(h)(1) of the
Act for certain registered separate accounts.
          

    (a) A registered separate account, and any depositor of or 
underwriter for such account, shall with respect to any variable annuity 
contract participating in such account, be deemed to satisfy the 
requirements of section 27(a)(1) and section 27(h)(1) of the Act if such 
contract provides for a sales load which will not exceed 9 per centum of 
the

[[Page 1274]]

total payments to be made thereon as of a date not later than the end of 
the 12th year of such payments: Provided, That if a contract be issued 
for any stipulated shorter payment period the sales load under such 
contract shall not exceed 9 per centum of the total payments thereunder 
for such period.

[36 FR 11645, June 17, 1971]



Sec.270.27a-2  Exemption from section 27(a)(3) and section 27(h)(3) of
the Act for certain registered separate accounts.

    (a) A registered separate account, and any depositor of or 
underwriter for such account, shall be exempt from paragraph (3) of 
section 27(a) and paragraph (3) of section 27(h) of the Act: Provided, 
That with respect to any variable annuity contract participating in such 
account the proportionate amount of sales load deducted from any payment 
during the contract period shall not exceed the proportionate amount 
deducted from any prior payment during the contract period.

[36 FR 11645, June 17, 1971]



Sec.270.27a-3  Exemption from section 27(a)(4) and section 27(h)(5) 
of the Act for certain registered separate accounts.

    (a) A registered separate account, and any depositor of or 
underwriter for such account, shall be exempt from paragraph (4) of 
section 27(a) of the Act and paragraph (5) of section 27(h) of the Act 
as to payments under any variable annuity contract participating in such 
account which (1) is purchased in connection with a plan which meets the 
requirements for qualification under section 401 of the Internal Revenue 
Code of 1954, as amended (Code), or the requirements for deduction of 
the employer's contributions under section 404(a)(2) of the Code, or (2) 
meets the requirements of section 403(b) of the Code, but such 
exemptions shall apply only to contributions or payments within the 
exclusion allowance for any employee under section 403(b) except as 
clause (3) hereof applies, or (3) permits no sales load deduction from 
any payment in excess of 9 per centum of such payment.

[36 FR 11645, June 17, 1971, as amended at 36 FR 23624, Dec. 11, 1971]



Sec.270.27c-1  Exemption from section 27(c)(1) and section 27(d) of 
the Act during annuity payment period of variable annuity contracts
participating in certain registered separate accounts.
          

    (a) A registered separate account, and any depositor of or 
underwriter for such account, shall, during the annuity payment period 
of variable annuity contracts participating in such account, be exempt 
from the requirement of paragraph (1) of section 27(c) of the Act that a 
periodic payment plan certificate be a redeemable security and from 
section 27(d) of the Act with respect to such contracts under which 
payments are being made based upon life contingencies.

(Sec.6(c), 54 Stat. 800, 841; Sec.16, 84 Stat. 1424, 15 U.S.C. 80a-
27(h))

[36 FR 11645, June 17, 1971]



Sec.270.27d-1  Reserve requirements for principal underwriters and 
depositors to carry out the obligations to refund charges required
by section 27(d) and section 27(f) of the Act.
          

    (a)(1) Every depositor of or principal underwriter for the issuer of 
a periodic payment plan certificate sold subject to section 27(d) or 
section 27(f) of the Act or both, shall deposit and maintain funds in a 
segregated trust account as a reserve and as security for the purpose of 
assuring the refund of charges required by sections 27(d) and 27(f) of 
the Act.
    (2) The assets of such trust account may be held as cash or invested 
only in one or more of (i) government securities as defined in section 
2(a)(16) of the Act (except equity securities) or (ii) negotiable 
certificates of deposit issued by a bank, as defined in section 2(a)(5) 
of the Act and having capital and surplus of at least $10 million: 
Provided, That no such investment may have a maturity of more than 5 
years, no more than 50 percent of the assets may be invested in 
obligations having a maturity of more than 1 year, and certificates of 
deposit of a single issuer may

[[Page 1275]]

not constitute more than 10 percent of the value of the assets in the 
account.
    (3) Any income, gains, or losses from assets allocated to such 
account, whether or not realized, shall be credited to or charged 
against such account without regard to other income, gains, or losses of 
the depositor or principal underwriter.
    (4) The assets of such trust account may be withdrawn only as 
permitted by paragraph (f) of this section and shall in no event be 
chargeable with liabilities arising out of any aspect of the business of 
the depositor or principal underwriter other than assuring the ability 
of the depositor or principal underwriter to refund the amounts required 
by such sections.
    (b) For purposes of this section:
    (1) ``Excess sales load'' on any payment is that portion of the 
sales load in excess of 15 percent of that payment.
    (2) ``Monthly payment'' shall be the amount of the smallest monthly 
installment scheduled to be paid during the life of the plan. If 
payments are required or permitted to be made on a basis less frequently 
than monthly, an equivalent monthly payment shall be the amount 
determined by dividing the smallest minimum payment required or 
permitted in a payment period by the number of months included in such 
period.
    (3) The assets in the segregated trust account shall be valued as 
follows: (i) With respect to securities for which market quotations are 
readily available, the market value of such securities; and (ii) with 
respect to other securities, fair value as determined in good faith by 
the depositor or principal underwriter.
    (c) For every periodic payment plan certificate governed by section 
27(d), the depositor or principal underwriter shall deposit into the 
segregated trust account not less than 45 percent of the excess sales 
load on each of the first six monthly payments or their equivalent.
    (d) For all periodic payment plan certificates governed by section 
27(d) which have not been surrendered in accordance with their terms, 
and for which the depositor or principal underwriter may be liable for 
the refund of any sales load, the depositor or principal underwriter 
shall maintain in the segregated trust account an amount equal to not 
less than 15% of the total refundable sales load on the payments made on 
those certificates. The depositor or principal underwriter shall also 
maintain in the segregated trust account such additional amounts as the 
Commission by order may require for the depositor or principal 
underwriter to carry out refund obligations pursuant to sections 27(d) 
and 27(f) of the Act.
    (e) For every periodic payment plan certificate governed by section 
27(f) of the Act, and for which the depositor or principal underwriter 
has no obligation to refund any excess sales load pursuant to section 
27(d) of the Act, the depositor or principal underwriter shall deposit 
and maintain during the refund period, at least the following amounts in 
the segregated trust account:
    (1) For certificates that require monthly payments of $100 or less, 
20 percent of the difference between the gross payments made and the net 
amount invested;
    (2) For certificates that require monthly payments in excess of $100 
and for single payment plan certificates, 30 percent of the difference 
between the gross payments made and the net amount invested;
    (3) For certificates with respect to which the holder is entitled to 
receive the greater of the refund provided by section 27(f) (of the Act) 
or a refund of total payments and upon which a total of at least $1,000 
has been paid, 100 percent of the difference between the gross payments 
made and net amount invested; and
    (4) Such additional amounts as the Commission by order may require 
to carry out the obligation to refund charges pursuant to section 27(f) 
of the Act.
    (f) Assets may be withdrawn from the segregated trust account by 
each depositor or principal underwriter:
    (1) To refund excess sales load to a certificate holder exercising 
the right of surrender specified in section 27(d) of the Act; or
    (2) To refund to a certificate holder exercising the right of 
withdrawal specified in section 27(f) of the Act the difference between 
the amount of his

[[Page 1276]]

gross payments and the net amount invested; or
    (3) For any other purpose: Provided, however, That such withdrawal 
shall not reduce the segregated trust account to an amount less than the 
sum of (i) 130 percent of the amount required to be maintained by 
paragraph (d) of this section, if any, and (ii) 100 percent of that 
amount required to be maintained by paragraph (e) of this section, if 
any.
    (g) The minimum amounts required to be maintained by paragraphs (d) 
and (e) of this section shall be computed at least monthly. Any 
additional deposits required by paragraph (d) or (e) of this section 
shall be made immediately after such computation, and any withdrawals 
permitted by paragraph (f)(3) of this section may be made only at such 
time.
    (h) Nothing in this section shall be construed to prohibit a 
depositor or principal underwriter, acting as such for two or more 
registered investment companies issuing periodic payment plan 
certificates, from combining in a single segregated trust account the 
reserves for such companies required by this section.
    (i) The refunds required to be made to certificate holders pursuant 
to sections 27(d) and 27(f) (of the Act) shall be paid in cash not more 
than 7 days from the date the certificate is received in proper form by 
the custodian bank or such other paying agent as may be designated under 
the periodic payment plan.
    (j) Each depositor or principal underwriter shall file with the 
Commission, within the appropriate period of time specified, an 
Accounting of Segregated Trust Account. Form N-27D-1 (Sec.274.127d-1 
of this chapter) is hereby prescribed as such accounting form.

[36 FR 13136, July 15, 1971, as amended at 40 FR 50712, Oct. 31, 1975]



Sec.270.27d-2  Insurance company undertaking in lieu of segregated 
trust account.

    (a) Any depositor of or principal underwriter for the issuer of a 
periodic payment plan certificate sold subject to section 27(d) or 27(f) 
of the Act, or both, shall be exempt from the requirements of Sec.
270.27d-1 if an insurance company (as defined in section 2(a)(17) of the 
Act) undertakes in writing to guarantee the performance of all 
obligations of such depositor or principal underwriter to refund charges 
under sections 27(d) and 27(f) of the Act and paragraph (b) of this 
section: Provided, however, That:
    (1) Such insurance company at all times shall have (i) combined 
capital paid-up, gross paid in and contributed surplus and unassigned 
surplus, if a stock company, or (ii) unassigned surplus, if a mutual 
company, at least equal to the larger of (a) $1 million or (b) 200 
percent of the amount of the total refund obligation of the depositor or 
underwriter pursuant to sections 27(d) and 27(f) (of the Act) less any 
liability reserve established by such insurance company to meet such 
obligations; and
    (2) Such depositor or underwriter shall file or cause to be filed 
with the Commission as an exhibit to the registration statement or any 
amendment thereto pursuant to the Securities Act of 1933 of the 
registered investment company issuing periodic payment plan certificates 
(i) a copy of such written undertaking, and any amendment thereto, (ii) 
an annual statement certified by a responsible officer of the insurance 
company indicating that at least on a monthly basis throughout its 
fiscal year the insurance company has met the requirements of the 
proviso in paragraph (a)(1) of this section, and (iii) a Statement of 
Financial Condition (Balance Sheet) of the insurance company certified 
by an independent public accountant. Such balance sheet shall be filed 
at least annually, within 90 days after the close of the insurance 
company's fiscal year.
    (b) The refunds required to be made to certificate holders pursuant 
to sections 27(d) and 27(f) (of the Act) shall be paid in cash not more 
than 7 days from the date the certificate is received in proper form by 
the custodian bank or such other paying agent as may be designated under 
the periodic payment plan.

[36 FR 13137, July 15, 1971]

[[Page 1277]]



Sec.270.27e-1  Requirements for notice to be mailed to certain 
purchasers of periodic payment plan certificates sold subject to 
section 27(d) of the Act.

    (a) The notice required by section 27(e) of the Act shall be sent by 
first class mail and shall be accompanied by a written instruction sheet 
and a return form to be used in connection with the exercise of the 
surrender right described in the notice. No other written or graphic 
material may be included with such notice.
    (b) In the event that regular payments throughout the first 18 
months of the plan are required less frequently than monthly, such a 
notice shall be mailed to any certificate holder who has missed any 
payment or payments equal to or greater in amount than the amount of 
payments which, if missed, would have required the mailing of a notice 
if equal monthly payments had been required during such 15- or 18-month 
periods.
    (c) Any payment not made within 31 days after it is due shall be 
deemed a missed payment whether or not an equivalent payment is made 
subsequently by the certificate holder.
    (d) In the event any such notice is not mailed prior to 15 days 
before the expiration of the 18th month, the certificate holder shall 
have 15 days from the date such notice is mailed within which to 
exercise the right of surrender described therein. Nothing herein 
contained shall require a second notice to be mailed to any certificate 
holder who has been mailed a notice within 30 days following 15 months 
after the issuance of his certificate.
    (e) Notwithstanding the requirements of section 27(e) of the Act, no 
notice need be mailed to a certificate holder if, at the time such 
notice would be required to be mailed, he would not be entitled to 
receive any refund of sales loading upon surrender of his certificate.
    (f) Form N-27E-1 is hereby prescribed to inform certificate holders 
of their right to surrender their certificates pursuant to section 27(d) 
of the Act. The text of Form N-27E-1 is as follows:

 Form N-27E-1--Notice to Periodic Payment Plan Certificate Holders of 8 
     Months Surrender Rights With Respect to Periodic Payment Plan 
                            Certificates \2\
---------------------------------------------------------------------------

    \2\ See the General Instructions to Form N-27E-1 in paragraph (f) of 
Sec.270.27e-1 of this chapter, 36 FR 13138.
---------------------------------------------------------------------------

                                Important

(Date of mailing)
Re: _(1) ___.
    Dear _(2) ___: This notice is required to be sent to all purchasers 
of plan certificates pursuant to laws administered by the U.S. 
Securities and Exchange Commission. You should read it carefully and 
retain it with your financial records.
    You have missed _(3) ___ after your _ (4) ___ plan certificate was 
issued. Until _ (5) ___ you will be entitled to surrender your plan 
certificate and receive, in addition to the value of your account on the 
date your certificate is received, a refund of that portion of the sales 
charges you have paid in excess of 15 percent of the gross payments 
under your plan.
    For example, if your certificate had been received for surrender _ 
(6) ___ you would have received a total of $______ (7) ___ for it (the 
value of your account $______ (8) ___ plus a refund of $______ (9) ___ 
of the sales charges you have paid). After your right expires you will 
be entitled to receive only the value of your account. Of course, the 
value of your account will vary from day to day and by the date your 
right expires it may be more or less than it is today.
    In determining whether to exercise your right to terminate your 
plan, you should consider that, while the average sales charge deducted 
from your payments has amounted to _ (10) ___ percent of the total 
payments made, the sales charge for the remainder of the payments under 
the plan, if you continue the plan, will be _ (11) ___and the average 
sales charge if you complete the plan will be _ (12) ___ percent. 
Exercising your right to terminate your plan, however, will result in a 
net sales charge of 15 percent of your total payments. Accordingly, if 
you believe you may discontinue making further payments on your plan, it 
would probably be to your advantage to exercise this right now.
    If you wish to exercise your right to terminate your plan, you may 
return your certificate to _ (13) ___ by _ (14) ___ in accordance with 
the enclosed instructions.
Very truly yours,
                                                             _ (15) ___.

                        Form N-27E-1 Instructions

    General instructions. A. The notice shall be legible and shall be 
printed or typed on letter-sized paper. It shall be in modern type at

[[Page 1278]]

least as large as 10-point modern type. All type shall be leaded at 
least 2 points. Parenthetical references should be completed in 
accordance with the itemized instructions below and need not be 
underlined or boldfaced.
    B. The notice shall bear the letterhead of the sender and the 
mailing date. An inconspicuous reference to the form number may appear 
on the notice.
    Itemized instructions. Insert the following in the corresponding 
numbered spaces on Form N-27E-1:
    (1) The name of the plan and the account number of the certificate 
holder. An additional internal recordkeeping reference may also be 
included at the option of the sender.
    (2) The name of certificate holder or an identification such as 
``Investor'' or ``Planholder.''
    (3) Whichever of the following statements is appropriate: ``three or 
more payments during the first 15 months'' or ``a payment after the 15th 
month.''
    (4) The name of the plan.
    (5) The date of the first business day which is 18 months from the 
date of the issuance of the certificate or in the event such notice is 
not mailed prior to 15 days before the expiration of the 18th month, the 
date of the first business day which is 15 days from the date such 
notice is mailed.
    (6) A date which is not more than 2 business days prior to the date 
of the notice.
    (7) The sum of Items 8 and 9.
    (8) The value of the account payable to the certificate holder if 
the certificate had been received on the date set forth in Item 6. In 
the event such certificate holder has made a partial withdrawal in 
accordance with the terms of his certificate, the notice may state after 
the first sentence in the third paragraph that ``The value of your 
account reflects the partial withdrawal which you made previously.''
    (9) The amount as of the date set forth in Item 6 which is equal to 
that part of the excess paid for sales loading which is over 15 percent 
of the gross payments made by the certificate holder.
    (10) Average percentage deducted for sales charges to the date set 
forth in Item 6.
    (11) The percentage to be deducted for sales charges after the date 
set forth in Item 6.
    If the holder has made less than 12 monthly payments, the following 
shall be substituted for the first sentence of the third paragraph of 
the notice:
    ``In determining whether to exercise your right to terminate your 
plan, you should consider that, while the sales charge deducted from 
your payments has amounted to ___ (10) percent of the total payments 
made, the sales charge for the next ___ (11a) payments will be ___ (11b) 
percent and the sales charge for the remainder of the payments will be 
___ (11c) percent. If you complete the plan, the average sales charge 
will be ___ (12) percent.''
    (11a) The number of payments yet to be made which are subject to the 
initial sales to completion.
    (11b) The percentage to be deducted from sales charges from such 
payments.
    (11c) The percentage to be deducted for sales charges from all 
subsequent payments.
    (12) Average percentage to be deducted for sales charges from 
inception of the plan to completion.
    (13) Name and address of custodian bank or other person authorized 
to accept surrendered certificates.
    (14) Same date as in Item 5.
    (15) The name of a responsible officer of the sender, with his 
title.

[36 FR 13137, July 15, 1971, as amended at 36 FR 14727, Aug. 11, 1971; 
37 FR 9990, May 18, 1972]



Sec.270.27f-1  Notice of right of withdrawal required to be mailed 
to periodic payment plan certificate holders and exemption from 
section 27(f) for certain periodic payment plan certificates.

          
    (a) The notice and statement of charges (notice) required by section 
27(f) of the Act shall be sent by first-class mail and shall be 
accompanied by a written instruction sheet and a return form to be used 
in connection with the exercise of the right of withdrawal described in 
the notice. Except for a confirmation slip, the plan certificate, and 
any notice required by applicable State law, no other written or graphic 
material may be included with such notice.
    (b) The notice may be mailed by the issuer, the principal 
underwriter for, or the depositor of, the issuer or a recordkeeping 
agent for the issuer if the custodian bank has delegated the mailing of 
the notice to any of them or the issuer has been permitted to operate 
without a custodian bank by Commission order.
    (c) Solely for purposes of section 27(f) of the Act, the postmark 
date on the envelope containing the certificate shall determine whether 
a certificate has been surrendered within the 45-day period.
    (d) Form N-27F-1 is hereby prescribed to inform certificate holders, 
other than holders of plans upon which the amount of sales load deducted 
from any payment does not exceed 9 percent of any payment and variable 
annuity

[[Page 1279]]

contracts, of their withdrawal right pursuant to section 27(f) of the 
Act. The text of Form N-27F-1 is as follows:

 Form N-27F-1 Notice to Periodic Payment Plan Certificate Holders of 45-
 Day Withdrawal Right With Respect to Periodic Payment Plan Certificates

                                Important

(Date of mailing)
Re: __ (1) __
    Dear __ (2) __: This notice is required to be sent to all purchasers 
of plan certificates pursuant to laws administered by the U.S. 
Securities and Exchange Commission. You should read it carefully and 
retain it with your financial records.
    Of the $______ (3) __ you have paid on your __ (4) __ plan, 
representing __ (5) __ regular monthly payments, $_____ (6) __ or __ (7) 
__ percent has been deducted for various charges.
[The following sentence is to be included when any periodic payment 
remains outstanding in which the sales load charges exceed 9 percent of 
such payment.]
    A total of $______ (8) __ or __ (9) __ percent of your first __ (10) 
__ monthly payments will be deducted from those payments for similar 
charges.
    Charges of $______ (11) __ or __ (12) __ percent will be deducted 
from each subsequent payment. You have until __ (13) __ to surrender 
your certificate for any reason and receive a refund of all of the 
charges which have been deducted from your payments, and, in addition, 
the value of your account on the date your certificate is received.
    In determining whether or not to exercise your right you should 
consider, among other things, the projected cost of your investment and 
your ability to make the scheduled payments over the life of your plan 
as they become due. Your plan provides for __ (14) __ payments of 
$______ (15) __ per __ (16) __, or total payments of $______ (17) __. If 
you made all of the scheduled payments over the full term of your plan, 
the total deductions would be $______ (18) __ or an effective charge of 
__ (19) __ percent of your total payments. However, if you do not 
complete your program, the deduction of various charges from your 
initial payments will result in your paying effective charges in excess 
of that rate. For a more complete description of the charges deducted 
under your plan, carefully review your prospectus.
    If you wish to exercise your right of withdrawal, return your plan 
certificate to __ (20) __ by __ (21) __ in accordance with the enclosed 
instructions.
    Very truly yours,
    __ (22) __.

                  Instructions for Use of Form N-27F-1

    General instructions. A. The notice shall be legible and shall be 
printed or typed on letter-size paper. It shall be in modern type at 
least as large as 10-point modern type. All type shall be leaded at 
least 2 points. Parenthetical references should be completed in 
accordance with the Itemized Instructions below and need not be 
underlined or boldfaced.
    B. The notice shall bear the letterhead of the sender and the 
mailing date. An inconspicuous reference to the form number may appear 
on the notice.
    Itemized Instructions. Insert the following in the corresponding 
numbered spaces on Form N-27F-1.
    (1) The name of the plan and the account number of the certificate 
holder. An additional internal record keeping reference may also be 
included at the option of the sender.
    (2) The name of certificate holder or an identification such as 
``Investor'' or ``Planholder.''
    (3) The total amount paid by the certificate holder as of the date 
of the mailing.
    (4) The name of the plan.
    (5) The number of regular monthly payments or their equivalent made 
by the certificate holder as of the date of mailing.
    (6) The total amount deducted for all charges from the amount paid 
by the certificate holder as of the date of the mailing.
    (7) The percentage that the total charges set forth in Item (6) are 
of the total payments included under Item (3) above.
    (8) The total dollar amount of all charges scheduled to be deducted 
from the payments made by the certificate holder before the first 
regular payment upon which there would be a reduction in the rate of the 
applicable sales charge below 9 percent of the certificate holder's 
gross payment.
    (9) The percentage that the total charges set forth in Item 8 are of 
the total payments included under Instruction 8 above.
    (10) The number of regular monthly payments required to be made 
before the rate of the sales charges deducted from such regular payment 
is reduced to less than 9 percent of the certificate holder's gross 
payment.
    (11) The dollar amount of the charges to be deducted from each 
payment made by the certificate holder after the first regular payment 
upon which there would be a reduction in the rate of the applicable 
sales charge below 9 percent of the certificate holder's gross payment. 
If a portion of the payments is used for the purchase of completion 
insurance, the amount attributable thereto shall not be included as a 
charge and the following phrase shall be added: ``Apart from insurance 
premiums based upon the amount of coverage in effect at the time of 
payment.''
    (12) The percentage that the amount of the charges set forth in Item 
11 are of the

[[Page 1280]]

amount of the payment included under Instruction 11 above.
    (13) The date which is 45 days from the date on which the notice 
will be mailed.
    (14) The number of monthly or quarterly payments provided for under 
the plan.
    (15) The dollar amount of each scheduled periodic payment to be made 
by the certificate holder.
    (16) The period (e.g., month, quarter) for which payments are 
scheduled to be made under the plan.
    (17) The dollar amount of total payments scheduled to be made over 
the full term of the plan by the certificate holder.
    (18) The total dollar amount of all charges scheduled to be deducted 
over the full term of the plan.
    (19) The percentage that the total charges as set forth in Item 18 
are of the total payments scheduled to be made by the certificate holder 
over the full term of the plan.
    (20) The name and address of the custodian bank or other person 
authorized to accept surrendered certificates.
    (21) The date which is 45 days from the date on which the notice 
will be mailed.
    (22) The name of a responsible officer of the sender with his title.

(Secs. 27(e), 27(f), 38(a), 54 Stat. 829, 841; 15 U.S.C. 80a-27(e), 80a-
27(f), 80a-37(a); Sec.16, Pub. L. 91-547, 84 Stat. 1424-1425; Sec.
6(c), 15 U.S.C. 80a-6(c))

[36 FR 24055, Dec. 18, 1971, as amended at 37 FR 9990, May 18, 1972; 45 
FR 17958, Mar. 20, 1980]



Sec.270.27g-1  Election to be governed by section 27(h).

    (a) If any registered investment company which issues or intends to 
issue a periodic payment plan certificate chooses to be governed by the 
provisions of section 27(h) (of the Act) rather than the provisions of 
sections 27 (a) and (d) (of the Act), it shall signify such choice by 
filing with the Commission as an exhibit to its registration statement 
filed under the Securities Act of 1933 a written Notice of Election to 
be so governed.
    (b) Any registered investment company issuing periodic payment plan 
certificates which has elected, in accordance with paragraph (a) of this 
section, to be governed by the provisions of section 27(h) of the Act 
may thereafter withdraw such election by filing with the Commission, in 
the manner specified for filing a Notice of Election, a written Notice 
of Withdrawal of Election: Provided, however, That no such withdrawal of 
election shall be made within 12 months of an election by such company 
under paragraph (a) of this section and, provided further that such 
company may not thereafter elect to be governed by the provisions of 
section 27(h) (of the Act) until an additional 12-month period has 
elapsed.

[36 FR 13139, July 15, 1971]



Sec.270.27h-1  Exemptions from section 27(h)(4) for certain payments.

    (a) For purposes of this section and section 27(h)(4) of the Act (1) 
``minimum monthly payment, or its equivalent,'' shall be the amount of 
the smallest monthly installment scheduled to be made during the life of 
the plan; and (2) ``quarter'' shall be the 3-month period which 
commences on the date a periodic payment plan is issued and each 3-month 
period thereafter.
    (b) The provisions of section 27(h) (4) (of the Act) shall not apply 
to:
    (1) That portion of the first payment on a periodic payment plan 
certificate which equals the amount of five minimum monthly payments: 
Provided, however, That the deduction for sales load on any other 
payments received during the first quarter after the issuance of the 
certificate may not exceed the sales load applicable to payments 
subsequent to the first 48 monthly payments or their equivalent;
    (2) A payment or payments received in any subsequent quarter which 
equals the amount of three minimum monthly payments: Provided, however, 
That after an amount equivalent to three minimum monthly payments (not 
including payments of arrears) is received in any such subsequent 
quarter the deduction for sales load on any additional payments received 
in such quarter may not exceed the sales load applicable to payments 
subsequent to the first 48 monthly payments or their equivalent;
    (3) Payments of arrears by a certificate holder who is delinquent in 
his payments; and
    (4) Any payments made on a periodic payment plan certificate out of 
the proceeds of completion insurance received upon the death of the 
certificate holder.

[36 FR 13139, July 15, 1971]

[[Page 1281]]



Sec.270.28b-1  Investment in loans partially or wholly guaranteed 
under the Servicemen's Readjustment Act of 1944, as amended.

    (a) The term qualified investments as used in section 28(b) of the 
Investment Company Act of 1940 shall include:
    (1) Any loan, any portion of which is guaranteed under Title III of 
the Servicemen's Readjustment Act of 1944, as amended, and which is 
secured by a first lien on real estate: Provided, The amount of the loan 
not so guaranteed does not exceed 66\2/3\ percent of the reasonable 
value of such real estate as determined by proper appraisal made by an 
appraiser designated by the Administrator of Veterans' Affairs;
    (2) Any secondary loan the full amount of which is guaranteed under 
section 505(a) of Title III of the above mentioned act and which is 
secured by a second lien on real estate:

Provided, however, That any such loan shall be deemed a qualified 
investment only so long as (i) insurance policies are required to be 
procured and maintained in an amount sufficient to protect the security 
against the risks or hazards to which it may be subjected to the extent 
customary in the locality, and (ii) the loan shall remain guaranteed 
under Title III of the Servicemen's Readjustment Act of 1944, as 
amended, to the extent specified in paragraph (a) (1) or (2) of this 
section, as the case may be.
    (b) Loans made pursuant to this section shall be valued at the 
original principal amount of the loan less all payments made thereon 
which have been applied to the reduction of such principal amount.

(Secs. 28(b), 38, 54 Stat. 832, 841; 15 U.S.C. 80a-28(b), 80a-38)

[Rule N-28B-1, 11 FR 6483, June 13, 1946]



Sec.270.30a-1  Annual report for registered investment companies.

    Every management investment company must file an annual report on 
Form N-CEN (Sec.274.101 of this chapter) at least every twelve months 
and not more than seventy-five calendar days after the close of each 
fiscal year. Every unit investment trust must file an annual report on 
Form N-CEN (Sec.274.101 of this chapter) at least every twelve months 
and not more than seventy-five calendar days after the close of each 
calendar year. A registered investment company that has filed a 
registration statement with the Commission registering its securities 
for the first time under the Securities Act of 1933 is relieved of this 
reporting obligation with respect to any reporting period or portion 
thereof prior to the date on which that registration statement becomes 
effective or is withdrawn.

[81 FR 82020, Nov. 18, 2016]



Sec.270.30a-2  Certification of Form N-CSR and Form N-Q.

    (a) Each report filed on Form N-CSR (Sec.Sec.249.331 and 274.128 
of this chapter) or Form N-Q (Sec.Sec.249.332 and 274.130 of this 
chapter) by a registered management investment company must include 
certifications in the form specified in Item 12(a)(2) of Form N-CSR or 
Item 3 of Form N-Q, as applicable, and such certifications must be filed 
as an exhibit to such report. Each principal executive and principal 
financial officer of the investment company, or persons performing 
similar functions, at the time of filing of the report must sign a 
certification.
    (b) Each report on Form N-CSR filed by a registered management 
investment company under Section 13(a) or 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that contains 
financial statements must be accompanied by the certifications required 
by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 
U.S.C. 1350) and such certifications must be furnished as an exhibit to 
such report as specified in Item 12(b) of Form N-CSR. Each principal 
executive and principal financial officer of the investment company (or 
equivalent thereof) must sign a certification. This requirement may be 
satisfied by a single certification signed by an investment company's 
principal executive and principal financial officers.
    (c) A person required to provide a certification specified in 
paragraph (a) or (b) of this section may not have the certification 
signed on his or her behalf

[[Page 1282]]

pursuant to a power of attorney or other form of confirming authority.

[68 FR 36671, June 18, 2003, as amended at 68 FR 67011, Nov. 28, 2003; 
68 FR 69223, Dec. 11, 2003; 69 FR 11264, Mar. 9, 2004; 69 FR 52799, Aug. 
27, 2004; 70 FR 6573, Feb. 8, 2005; 83 FR 40880, Aug. 16, 2018]

    Effective Date Note: At 81 FR 82021, Nov. 18, 2016, Sec.270.30a-2 
was amended in the section heading, by removing the phrase ``and Form N-
Q''; and in the first sentence of paragraph (a), by removing the phrases 
``or Form N-Q (Sec.Sec.249.332 and 274.130 of this chapter)'' and 
``or Item 3 of Form N-Q, as applicable,'', effective Aug. 1, 2019. At 82 
FR 58731, Dec. 14, 2017, these amendments were delayed until May 1, 
2020.



Sec.270.30a-3  Controls and procedures.

    (a) Every registered management investment company, other than a 
small business investment company registered on Form N-5 (Sec.Sec.
239.24 and 274.5 of this chapter), must maintain disclosure controls and 
procedures (as defined in paragraph (c) of this section) and internal 
control over financial reporting (as defined in paragraph (d) of this 
section).
    (b) Each such registered management investment company's management 
must evaluate, with the participation of the company's principal 
executive and principal financial officers, or persons performing 
similar functions, the effectiveness of the company's disclosure 
controls and procedures, within the 90-day period prior to the filing 
date of each report on Form N-CSR (Sec.Sec.249.331 and 274.128 of 
this chapter) and Form N-Q (Sec.Sec.249.332 and 274.130 of this 
chapter).
    (c) For purposes of this section, the term disclosure controls and 
procedures means controls and other procedures of a registered 
management investment company that are designed to ensure that 
information required to be disclosed by the investment company on Form 
N-CSR (Sec.Sec.249.331 and 274.128 of this chapter) and Form N-Q 
(Sec.Sec.249.332 and 274.130 of this chapter) is recorded, processed, 
summarized, and reported within the time periods specified in the 
Commission's rules and forms. Disclosure controls and procedures 
include, without limitation, controls and procedures designed to ensure 
that information required to be disclosed by an investment company in 
the reports that it files or submits on Form N-CSR and Form N-Q is 
accumulated and communicated to the investment company's management, 
including its principal executive and principal financial officers, or 
persons performing similar functions, as appropriate to allow timely 
decisions regarding required disclosure.
    (d) The term internal control over financial reporting is defined as 
a process designed by, or under the supervision of, the registered 
management investment company's principal executive and principal 
financial officers, or persons performing similar functions, and 
effected by the company's board of directors, management, and other 
personnel, to provide reasonable assurance regarding the reliability of 
financial reporting and the preparation of financial statements for 
external purposes in accordance with generally accepted accounting 
principles and includes those policies and procedures that:
    (1) Pertain to the maintenance of records that in reasonable detail 
accurately and fairly reflect the transactions and dispositions of the 
assets of the investment company;
    (2) Provide reasonable assurance that transactions are recorded as 
necessary to permit preparation of financial statements in accordance 
with generally accepted accounting principles, and that receipts and 
expenditures of the investment company are being made only in accordance 
with authorizations of management and directors of the investment 
company; and
    (3) Provide reasonable assurance regarding prevention or timely 
detection of unauthorized acquisition, use, or disposition of the 
investment company's assets that could have a material effect on the 
financial statements.

[68 FR 36671, June 18, 2003, as amended at 69 FR 11264, Mar. 9, 2004]

    Effective Date Note: At 81 FR 82021, Nov. 18, 2016, Sec.270.30a-3 
was amended in paragraph (b), by removing the phrase ``and Form N-Q 
(Sec.Sec.249.332 and 274.130 of this chapter)'', in the first 
sentence of paragraph (c), by removing the phrase ``and Form N-Q 
(Sec.Sec.249.332 and 274.130 of this chapter)'', and in the second 
sentence of paragraph (c), by removing the phrase ``and Form N-Q'', 
effective Aug. 1, 2019. At 82 FR 58731, Dec. 14, 2017, these amendments 
were delayed until May 1, 2020.

[[Page 1283]]


    Effective Date Note: At 81 FR 82021, Nov. 18, 2016, Sec.270.30a-3 
was amended in paragraph (b), by removing the phrase ``and Form N-Q 
(Sec.Sec.249.332 and 274.130 of this chapter)'', in the first 
sentence of paragraph (c), by removing the phrase ``and Form N-Q 
(Sec.Sec.249.332 and 274.130 of this chapter)'', and in the second 
sentence of paragraph (c), by removing the phrase ``and Form N-Q'', 
effective Aug. 1, 2019. At 82 FR 58731, Dec. 14, 2017, these amendments 
were delayed until May 1, 2020.



Sec.270.30a-4  Annual report for wholly-owned registered management
investment company subsidiary of registered management investment
company.

    Notwithstanding the provisions of Sec.270.30a-1, a registered 
management investment company that is a wholly-owned subsidiary of a 
registered management investment company need not file an annual report 
on Form N-CEN if financial information with respect to that subsidiary 
is reported in the parent's annual report on Form N-CEN.

[81 FR 82021, Nov. 18, 2016]



Sec.Sec.270.30b1-1--270.b1-3  [Reserved]



Sec.270.30b1-4  Report of proxy voting record.

    Every registered management investment company, other than a small 
business investment company registered on Form N-5 (Sec.Sec.239.24 
and 274.5 of this chapter), shall file an annual report on Form N-PX 
(Sec.274.129 of this chapter) not later than August 31 of each year, 
containing the registrant's proxy voting record for the most recent 
twelve-month period ended June 30.

[68 FR 6581, Feb. 7, 2003]



Sec.270.30b1-5  Quarterly report.

    Every registered management investment company, other than a small 
business investment company registered on Form N-5 (Sec.Sec.239.24 
and 274.5 of this chapter), shall file a quarterly report on Form N-Q 
(Sec.Sec.249.332 and 274.130 of this chapter) not more than 60 days 
after the close of the first and third quarters of each fiscal year. A 
registered management investment company that has filed a registration 
statement with the Commission registering its securities for the first 
time under the Securities Act of 1933 is relieved of this reporting 
obligation with respect to any reporting period or portion thereof prior 
to the date on which that registration statement becomes effective or is 
withdrawn.

[69 FR 11264, Mar. 9, 2004]

    Effective Date Note: At 81 FR 82021, Nov. 18, 2016, Sec.270.30b1-5 
was removed, effective Aug. 1, 2019. At 82 FR 58731, Dec. 14, 2017, this 
amendment was delayed until May 1, 2020.



Sec.270.30b1-7  Monthly report for money market funds.

    Every registered open-end management investment company, or series 
thereof, that is regulated as a money market fund under Sec.270.2a-7 
must file with the Commission a monthly report of portfolio holdings on 
Form N-MFP (Sec.274.201 of this chapter), current as of the last 
business day or any subsequent calendar day of the preceding month, no 
later than the fifth business day of each month.

[79 FR 47967, Aug. 14, 2014]



Sec.270.30b1-8  Current report for money market funds.

    Every registered open-end management investment company, or series 
thereof, that is regulated as a money market fund under Sec.270.2a-7, 
that experiences any of the events specified on Form N-CR (274.222 of 
this chapter), must file with the Commission a current report on Form N-
CR within the period specified in that form.

[79 FR 47967, Aug. 14, 2014]



Sec.270.30b1-9  Monthly report.

    Each registered management investment company or exchange-traded 
fund organized as a unit investment trust, or series thereof, other than 
a registered open-end management investment company that is regulated as 
a money market fund under Sec.270.2a-7 or a small business investment 
company registered on Form N-5 (Sec.Sec.239.24 and 274.5 of this 
chapter), must file a monthly report of portfolio holdings on Form N-
PORT (Sec.274.150 of this chapter), current as of the last business 
day, or last calendar day, of the month. A registered investment company 
that has filed a registration statement with

[[Page 1284]]

the Commission registering its securities for the first time under the 
Securities Act of 1933 is relieved of this reporting obligation with 
respect to any reporting period or portion thereof prior to the date on 
which that registration statement becomes effective or is withdrawn. 
Each registered investment company that is required to file reports on 
Form N-PORT must maintain in its records the information that is 
required to be included on Form N-PORT no later than 30 days after the 
end of each month. Such information shall be treated as a record under 
section 31(a)(1) of the Act [15 U.S.C. 80a-30(a)(1)] and Sec.270.31a-
1(b) of this chapter subject to the requirements of Sec.270.31a-
2(a)(2) of this chapter. Reports on Form N-PORT for each month in each 
fiscal quarter of a registered investment company must be filed with the 
Commission no later than 60 days after the end of such fiscal quarter.

[84 FR 7987, Mar. 6, 2019]



Sec.270.30b1-9(T)  Temporary rule regarding monthly report.

    (a) Until April 1, 2019, each registered management investment 
company subject to Sec.270.30b1-9 of this chapter must satisfy its 
reporting obligation under that section by maintaining in its records 
the information that is required to be included in Form N-PORT (Sec.
274.150 of this chapter).
    (b) The information maintained in the registered management 
investment company's records under paragraph (a) of this section shall 
be treated as a record under section 31(a)(1) of the Act [15 U.S.C. 80a-
30(a)(1)] and Sec.270.31a-1(b) of this chapter subject to the 
requirements of Sec.270.31a-2(a)(2) of this chapter.
    (c) This section will expire and no longer be effective on March 31, 
2026.

[82 FR 58739, Dec. 14, 2017]

    Effective Date Note: At 82 FR 58739, Dec. 14, 2017, Sec.270.30b1-
9(T) was added, effective Jan. 16, 2018, to Mar. 31, 2026.



Sec.270.30b1-10  Current report for open-end management investment
companies.

    Every registered open-end management investment company, or series 
thereof but not a fund that is regulated as a money market fund under 
Sec.270.2a-7, that experiences any event specified on Form N-LIQUID, 
must file with the Commission a current report on Form N-LIQUID within 
the period specified in that form.

[81 FR 82266, Nov. 18, 2016]



Sec.270.30b2-1  Filing of reports to stockholders.

    (a) Every registered management investment company shall file a 
report on Form N-CSR (Sec.Sec.249.331 and 274.128 of this chapter) 
not later than 10 days after the transmission to stockholders of any 
report that is required to be transmitted to stockholders under Sec.
270.30e-1.
    (b) A registered investment company shall file with the Commission a 
copy of every periodic or interim report or similar communication 
containing financial statements that is transmitted by or on behalf of 
such registered investment company to any class of such company's 
security holders and that is not required to be filed with the 
Commission under paragraph (a) of this section. The filing shall be made 
not later than 10 days after the transmission to security holders.

[68 FR 5366, Feb. 3, 2003]



Sec.270.30d-1  Filing of copies of reports to shareholders.

    A registered management investment company, other than a small 
business investment company registered on Form N-5 (Sec.Sec.239.24 
and 274.5 of this chapter), that is required to file annual and 
quarterly reports pursuant to section 13(a) or 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall satisfy its 
requirement to file such reports by the filing, in accordance with the 
rules and procedures specified therefor, of reports on Form N-CSR 
(Sec.Sec.249.331 and 274.128 of this chapter) and Form N-Q 
(Sec.Sec.249.332 and 274.130 of this chapter). A registered unit 
investment trust or a small business investment company registered on 
Form N-5 that is required to file annual and quarterly reports pursuant 
to section 13(a) or 15(d) of the Securities Exchange Act of 1934 shall 
satisfy its requirement to file such reports by the filing, in 
accordance with the rules and

[[Page 1285]]

procedures specified therefor, of reports on Form N-CEN (Sec.Sec.
249.330 and 274.101 of this chapter).

[69 FR 11264, Mar. 9, 2004, as amended at 81 FR 82021, Nov. 18, 2016]

    Effective Date Note: At 81 FR 82021, Nov. 18, 2016, Sec.270.30d-1 
was amended by removing the phrase ``Form N-SAR'' and adding in its 
place ``Form N-CEN'', effective June 1, 2018. At 82 FR 58731, Dec. 14, 
2017, this amendment was delayed until May 1, 2020



Sec.270.30e-1  Reports to stockholders of management companies.

    (a) Every registered management company shall transmit to each 
stockholder of record, at least semi-annually, a report containing the 
information required to be included in such reports by the company's 
registration statement form under the 1940 Act, except that the initial 
report of a newly registered company shall be made as of a date not 
later than the close of the fiscal year or half-year occurring on or 
after the date on which the company's notification of registration under 
the 1940 Act is filed with the Commission.
    (b) If any matter was submitted during the period covered by the 
shareholder report to a vote of shareholders, through the solicitation 
of proxies or otherwise, furnish the following information:
    (1) The date of the meeting and whether it was an annual or special 
meeting.
    (2) If the meeting involved the election of directors, the name of 
each director elected at the meeting and the name of each other director 
whose term of office as a director continued after the meeting.
    (3) A brief description of each matter voted upon at the meeting and 
the number of votes cast for, against or withheld, as well as the number 
of abstentions and broker non-votes as to each such matter, including a 
separate tabulation with respect to each matter or nominee for office.

    Instruction. The solicitation of any authorization or consent (other 
than a proxy to vote at a shareholders' meeting) with respect to any 
matter shall be deemed a submission of such matter to a vote of 
shareholders within the meaning of this paragraph (b).

    (c) Each report shall be transmitted within 60 days after the close 
of the period for which such report is being made.
    (d) An open-end company may transmit a copy of its currently 
effective prospectus or Statement of Additional Information, or both, 
under the Securities Act, in place of any report required to be 
transmitted to shareholders by this section, provided that the 
prospectus or Statement of Additional Information, or both, include all 
the information that would otherwise be required to be contained in the 
report by this section. Such prospectus or Statement of Additional 
Information, or both, shall be transmitted within 60 days after the 
close of the period for which the report is being made.
    (e) The period of time within which any report prescribed by this 
rule shall be transmitted may be extended by the Commission upon written 
request showing good cause therefor. Section 270.0-5 shall not apply to 
such requests.
    (f)(1) A company will be considered to have transmitted a report to 
shareholders who share an address if:
    (i) The company transmits a report to the shared address;
    (ii) The company addresses the report to the shareholders as a group 
(for example, ``ABC Fund [or Corporation] Shareholders,'' ``Jane Doe and 
Household,'' ``The Smith Family'') or to each of the shareholders 
individually (for example, ``John Doe and Richard Jones''); and
    (iii) The shareholders consent in writing to delivery of one report.
    (2) The company need not obtain written consent from a shareholder 
under paragraph (f)(1)(iii) of this section if all of the following 
conditions are met:
    (i) The shareholder has the same last name as the other 
shareholders, or the company reasonably believes that the shareholders 
are members of the same family;
    (ii) The company has transmitted a notice to the shareholder at 
least 60 days before the company begins to rely on this section 
concerning transmission of reports to that shareholder. The notice must 
be a separate written statement and:
    (A) State that only one report will be delivered to the shared 
address unless

[[Page 1286]]

the company receives contrary instructions;
    (B) Include a toll-free telephone number or be accompanied by a 
reply form that is pre-addressed with postage provided, that the 
shareholder can use to notify the company that he or she wishes to 
receive a separate report;
    (C) State the duration of the consent;
    (D) Explain how a shareholder can revoke consent;
    (E) State that the company will begin sending individual copies to a 
shareholder within 30 days after the company receives revocation of the 
shareholder's consent; and
    (F) Contain the following prominent statement, or similar clear and 
understandable statement, in bold-face type: ``Important Notice 
Regarding Delivery of Shareholder Documents''. This statement also must 
appear on the envelope in which the notice is delivered. Alternatively, 
if the notice is delivered separately from other communications to 
investors, this statement may appear either on the notice or on the 
envelope in which the notice is delivered;

    Note to paragraph (f)(2)(ii): The notice should be written in plain 
English. See Sec.230.421(d)(2) of this chapter for a discussion of 
plain English principles.

    (iii) The company has not received the reply form or other 
notification indicating that the shareholder wishes to continue to 
receive an individual copy of the report, within 60 days after the 
company sent the notice; and
    (iv) The company transmits the report to a post office box or to a 
residential street address. The company can assume a street address is a 
residence unless it has information that indicates it is a business.
    (3) At least once a year, the company must explain to shareholders 
who have consented under paragraph (f)(1)(iii) or paragraph (f)(2) of 
this section how they can revoke their consent. The explanation must be 
reasonably designed to reach these investors. If a shareholder, orally 
or in writing, revokes consent to delivery of one report to a shared 
address, the company must begin sending individual copies to that 
shareholder within 30 days after the company receives the revocation.
    (4) For purposes of this section, address means a street address, a 
post office box number, an electronic mail address, a facsimile 
telephone number, or other similar destination to which paper or 
electronic documents are transmitted, unless otherwise provided in this 
section. If the company has reason to believe that the address is a 
street address of a multi-unit building, the address must include the 
unit number.

[46 FR 36126, July 14, 1981, as amended at 48 FR 37940, Aug. 22, 1983; 
48 FR 44477, Sept. 29, 1983; 50 FR 26160, June 25, 1985; 57 FR 56836, 
Dec. 1, 1992; 59 FR 52700, Oct. 19, 1994; 61 FR 24657, May 15, 1996; 64 
FR 62547, Nov. 16, 1999. Redesignated and amended at 66 FR 3759, Jan. 
16, 2001]



Sec.270.30e-2  Reports to shareholders of unit investment trusts.

    (a) At least semiannually every registered unit investment trust 
substantially all the assets of which consist of securities issued by a 
management company must transmit to each shareholder of record 
(including record holders of periodic payment plan certificates), a 
report containing all the applicable information and financial 
statements or their equivalent, required by Sec.270.30d-1 to be 
included in reports of the management company for the same fiscal 
period. Each of these reports must be transmitted within the period 
allowed the management company by Sec.270.30e-1 for transmitting 
reports to its shareholders.
    (b) Any report required by this section will be considered 
transmitted to a shareholder of record if the unit investment trust 
satisfies the conditions set forth in Sec.270.30e-1(f) with respect to 
that shareholder.

[64 FR 62547, Nov. 16, 1999. Redesignated and amended at 66 FR 3759, 
Jan. 16, 2001]



Sec.270.30e-3  Internet availability of reports to shareholders.

    (a) General. A Company may satisfy its obligation to transmit a 
report required by Sec.270.30e-1 or Sec.270.30e-2 (``Report'') to a 
shareholder of record if all of the conditions set forth in paragraphs 
(b) through (e), and (i) of this section are satisfied.

[[Page 1287]]

    (b) Availability of report to shareholders and other materials. (1) 
The following materials are publicly accessible, free of charge, at the 
website address specified in the Notice from the date the Company 
transmits the Report as required by Sec.270.30e-1 or Sec.270.30e-2 
until the Company next transmits a report required by Sec.270.30e-1 or 
Sec.270.30e-2 with respect to the Fund:
    (i) Current report to shareholders. The Report.
    (ii) Prior report to shareholders. Any report with respect to the 
Fund for the prior reporting period that was transmitted to shareholders 
of record pursuant to Sec.270.30e-1 or Sec.270.30e-2.
    (iii) Complete portfolio holdings from reports containing a summary 
schedule of investments. If a report specified in paragraph (b)(1)(i) or 
(b)(1)(ii) of this section includes a summary schedule of investments 
(Sec.210.12-12B of this chapter) in lieu of Schedule I--Investments in 
securities of unaffiliated issuers (Sec.210.12-12 of this chapter), 
the Fund's complete portfolio holdings as of the close of the period 
covered by the report, presented in accordance with the schedules set 
forth in Sec.Sec.210.12-12 through 210.12-14 of Regulation S-X 
(Sec.Sec.210.12-12 through 210.12-14 of this chapter), which need not 
be audited.
    (iv) Portfolio holdings for most recent first and third fiscal 
quarters. For a Fund other than a Fund that is regulated as a money 
market fund under Sec.270.2a-7 or a small business investment company 
registered on Form N-5 (Sec.Sec.239.24 and 274.5 of this chapter), 
the Fund's complete portfolio holdings as of the close of the Fund's 
most recent first and third fiscal quarters, if any, after the date on 
which the Fund's registration statement became effective, presented in 
accordance with the schedules set forth in Sec.Sec.210.12-12 through 
210.12-14 of Regulation S-X [Sec.Sec.210.12-12 through 210.12-14 of 
this chapter], which need not be audited. The complete portfolio 
holdings required by this paragraph (b)(1)(iv) must be made publicly 
available not later than 60 days after the close of the fiscal quarter.
    (2) The website address relied upon for compliance with this section 
may not be the address of the Commission's electronic filing system.
    (3) The materials that are accessible in accordance with paragraph 
(b)(1) of this section must be presented on the website in a format, or 
formats, that are convenient for both reading online and printing on 
paper.
    (4) Persons accessing the materials specified in paragraph (b)(1) of 
this section must be able to permanently retain, free of charge, an 
electronic version of such materials in a format, or formats, that meet 
the conditions of paragraph (b)(3) of this section.
    (5) The conditions set forth in paragraphs (b)(1) through (b)(4) of 
this section shall be deemed to be met, notwithstanding the fact that 
the materials specified in paragraph (b)(1) of this section are not 
available for a time in the manner required by paragraphs (b)(1) through 
(b)(4) of this section, provided that:
    (i) The Company has reasonable procedures in place to ensure that 
the specified materials are available in the manner required by 
paragraphs (b)(1) through (b)(4) of this section; and
    (ii) The Company takes prompt action to ensure that the specified 
documents become available in the manner required by paragraphs (b)(1) 
through (b)(4) of this section, as soon as practicable following the 
earlier of the time at which it knows or reasonably should have known 
that the documents are not available in the manner required by 
paragraphs (b)(1) through (b)(4) of this section.
    (c) Notice. A paper notice (``Notice'') meeting the conditions of 
this paragraph (c) must be sent to the shareholder within 70 days after 
the close of the period for which the Report is being made. The Notice 
may contain only the information specified by paragraphs (c)(1), (2), 
and (3) of this section, and may include pictures, logos, or similar 
design elements so long as the design is not misleading and the 
information is clear.
    (1) The Notice must be written using plain English principles 
pursuant to paragraph (d) of this section and:
    (i) Contain a prominent legend in bold-face type that states ``[An] 
Important Report[s] to [Shareholders] of [Fund] [is/are] Now Available 
Online

[[Page 1288]]

and In Print by Request.'' The Notice may also include information 
identifying the Fund, the Fund's sponsor (including any investment 
adviser or sub-adviser to the Fund), a variable annuity or variable life 
insurance contract or insurance company issuer thereof, or a financial 
intermediary through which shares of the Fund are held.
    (ii) State that the Report contains important information about the 
Fund, including its portfolio holdings and financial statements. The 
statement may also include a brief listing of other types of information 
contained in the Report.
    (iii) State that the Report is available at the website address 
specified in the Notice or, upon request, by mail, and encourage the 
shareholder to access and review the Report.
    (iv) Include a website address where the Report and other materials 
specified in paragraph (b)(1) of this section are available. The website 
address must be specific enough to lead investors directly to the 
documents that are required to be accessible under paragraph (b)(1) of 
this section, rather than to the home page or section of the website 
other than on which the documents are posted. The website may be a 
central site with prominent links to each document. In addition to the 
website address, the Notice may contain any other equivalent method or 
means to access the Report or other materials specified in paragraph 
(b)(1) of this section.
    (v) Provide a toll-free (or collect) telephone number to contact the 
Company or the shareholder's financial intermediary, and:
    (A) Provide instructions describing how a shareholder may request a 
paper or email copy of the Report and other materials specified in 
paragraph (b)(1) of this section at no charge, and an indication that 
he/she will not otherwise receive a paper or email copy;
    (B) Explain that the shareholder can at any time elect to receive 
print reports in the future and provide instructions describing how a 
shareholder may make that election (e.g., by contacting the Company or 
by contacting the shareholder's financial intermediary); and
    (C) If applicable, provide instructions describing how a shareholder 
can elect to receive shareholder reports or other documents and 
communications by electronic delivery.
    (2) The Notice may include additional methods by which a shareholder 
can contact the Company or the shareholder's financial intermediary 
(e.g., by email or through a website), which may include any information 
needed to identify the shareholder.
    (3) A Notice relating to a Report required by Sec.270.30e-1 may 
include content from the Report if such content is set forth after the 
information required by paragraph (c)(1) of this section.
    (4) The Notice may not be incorporated into, or combined with, 
another document, except that the Notice may incorporate or combine one 
or more other Notices.
    (5) The Notice must be sent separately from other types of 
shareholder communications and may not accompany any other document or 
materials; provided, however, that the Notice may accompany:
    (i) One or more other Notices;
    (ii) A current Summary Prospectus, Statutory Prospectus, Statement 
of Additional Information, or Notice of Internet Availability of Proxy 
Materials under Sec.240.14a-16 of this chapter;
    (iii) In the case of a Fund held in a separate account funding a 
variable annuity or variable life insurance contract, such contract or 
the Statutory Prospectus and Statement of Additional Information for 
such contract; or
    (iv) The shareholder's account statement.
    (6) A Notice required by this paragraph (c) will be considered 
transmitted to a shareholder of record if the conditions set forth in 
Sec.270.30e-1(f), Sec.270.30e-2(b), Sec.240.14a-3(e), or Sec.
240.14c-3(c) of this chapter are satisfied with respect to that 
shareholder.
    (d) Plain English requirements. (1) To enhance the readability of 
the Notice, plain English principles must be used in the organization, 
language, and design of the Notice.
    (2) The Notice must be drafted so that, at a minimum, it 
substantially complies with each of the following plain English writing 
principles:

[[Page 1289]]

    (i) Short sentences;
    (ii) Definite, concrete, everyday words;
    (iii) Active voice;
    (iv) Tabular presentation or bullet lists for complex material, 
whenever possible;
    (v) No legal jargon or highly technical business terms; and
    (vi) No multiple negatives.
    (e) Delivery of paper copy upon request. A paper copy of any of the 
materials specified in paragraph (b)(1) of this section must be 
transmitted to any person requesting such a copy, at no cost to the 
requestor and by U.S. first class mail or other reasonably prompt means, 
within three business days after a request for a paper copy is received.
    (f) Investor elections to receive future reports in paper. (1) This 
section may not be relied upon to transmit a Report to a shareholder if 
the shareholder has notified the Company (or the shareholder's financial 
intermediary) that the shareholder wishes to receive paper copies of 
shareholder reports at any time after the Company has first notified the 
shareholder of its intent to rely on the rule or provided a Notice to 
the shareholder.
    (2) A shareholder who has notified the Company (or the shareholder's 
financial intermediary) that the shareholder wishes to receive paper 
copies of shareholder reports with respect to a Fund will be deemed to 
have requested paper copies of shareholder reports with respect to:
    (i) Any and all current and future Funds held through an account or 
accounts with:
    (A) The Fund's transfer agent or principal underwriter or agent 
thereof for the same ``group of related investment companies'' as such 
term is defined in Sec.270.0-10; or
    (B) A financial intermediary; and
    (ii) Any and all Funds held currently and in the future in a 
separate account funding a variable annuity or variable life insurance 
contract.
    (g) Delivery of other documents. This section may not be relied upon 
to transmit a copy of a Fund's currently effective Statutory Prospectus 
or Statement of Additional Information, or both, under the Securities 
Act of 1933 (15 U.S.C. 77a et seq.) as otherwise permitted by paragraph 
(d) of Sec.270.30e-1.
    (h) Definitions. For purposes of this section:
    (1) Company means a Fund required to transmit a report to 
shareholders pursuant to Sec.270.30e-1 or a unit investment trust 
required to transmit a report to shareholders pursuant to Sec.270.30e-
2.
    (2) Fund means a registered management company and any separate 
series of the management company.
    (3) Statement of Additional Information means the statement of 
additional information required by Part B of the applicable registration 
form.
    (4) Statutory Prospectus means a prospectus that satisfies the 
requirements of section 10(a) of the Securities Act of 1933 (15 U.S.C. 
77(j)(a)).
    (5) Summary Prospectus means the summary prospectus described in 
paragraph (b) of Sec.230.498 of this chapter.
    (i) Transition period. (1) A Company may rely on this section to 
first transmit a Report to a shareholder:
    (i) Beginning on January 1, 2021, if:
    (A) The Company has included the required statement on each 
prospectus, summary prospectus, annual report to shareholders, and semi-
annual report to shareholders, as applicable, required to be delivered 
or transmitted to shareholders for the period beginning on the date the 
Company first publicly offers its shares, and ending on December 31, 
2020; or
    (B) The Company first publicly offers its shares on or after January 
1, 2021; or
    (ii) In all other cases, after the Company has included the required 
statement on each prospectus, summary prospectus, annual report to 
shareholders, and semi-annual report to shareholders, as applicable, 
required to be delivered or transmitted to shareholders for a period of 
two years or January 1, 2022, whichever comes first.
    (2) For purposes of this paragraph (i), a ``required statement'' 
means the statement regarding the Company's intent to rely on this 
section specified by:
    (i) Its applicable registration form, and

[[Page 1290]]

    (ii) In the case of a Fund that uses a summary prospectus, Sec.
230.498 of this chapter.

    Note to Sec.270.30e-3: For a discussion of how the conditions and 
requirements of this rule may apply in the context of investors holding 
Fund shares through financial intermediaries, see Investment Company 
Release No. 33115 (June 5, 2018).

[83 FR 29205, June 22, 2018]

    Effective Date Note: At 83 FR 29206, June 22, 2018, Sec.270.30e-3 
was amended in paragraph (a), by removing ``, and (i)'', and by removing 
paragraph (i), effective Jan. 1, 2022.



Sec.270.30h-1  Applicability of section 16 of the Exchange Act to
section 30(h).

    (a) The filing of any statement prescribed under section 16(a) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78p(a)) shall satisfy the 
corresponding requirements of section 30(h) of the Act (15 U.S.C. 80a-
29(h)).
    (b) The rules under section 16 of the Securities Exchange Act of 
1934 (15 U.S.C. 78p) shall apply to any duty, liability or prohibition 
imposed with respect to a transaction involving any security of a 
registered closed-end company under section 30(h) of the Act (15 U.S.C. 
80a-29(h)).
    (c) No statements need be filed pursuant to section 30(h) of the Act 
(15 U.S.C. 80a-29(h)) by an affiliated person of an investment adviser 
in his or her capacity as such if such person is solely an employee, 
other than an officer, of such investment adviser.

[67 FR 43537, June 28, 2002]



Sec.270.31a-1  Records to be maintained by registered investment 
companies, certain majority-owned subsidiaries thereof, and other
persons having transactions with registered investment companies.
          

    (a) Every registered investment company, and every underwriter, 
broker, dealer, or investment adviser which is a majority-owned 
subsidiary of such a company, shall maintain and keep current the 
accounts, books, and other documents relating to its business which 
constitute the record forming the basis for financial statements 
required to be filed pursuant to section 30 of the Investment Company 
Act of 1940 and of the auditor's certificates relating thereto.
    (b) Every registered investment company shall maintain and keep 
current the following books, accounts, and other documents:
    (1) Journals (or other records of original entry) containing an 
itemized daily record in detail of all purchases and sales of securities 
(including sales and redemptions of its own securities), all receipts 
and deliveries of securities (including certificate numbers if such 
detail is not recorded by custodian or transfer agent), all receipts and 
disbursements of cash and all other debits and credits. Such records 
shall show for each such transaction the name and quantity of 
securities, the unit and aggregate purchase or sale price, commission 
paid, the market on which effected, the trade date, the settlement date, 
and the name of the person through or from whom purchased or received or 
to whom sold or delivered. In the case of a money market fund, also 
identify the provider of any Demand Feature or Guarantee (as defined in 
Sec.270.2a-7(a)(9) or Sec.270.2a-7(a)(16) respectively) and give a 
brief description of the nature of the Demand Feature or Guarantee 
(e.g., unconditional demand feature, conditional demand feature, letter 
of credit, or bond insurance) and, in a subsidiary portfolio investment 
record, provide the complete legal name and accounting and other 
information (including sufficient information to calculate coupons, 
accruals, maturities, puts, and calls) necessary to identify, value, and 
account for each investment.
    (2) General and auxiliary ledgers (or other records) reflecting all 
assets, liability, reserve, capital, income and expense accounts, 
including:
    (i) Separate ledger accounts (or other records) reflecting the 
following:
    (a) Securities in transfer;
    (b) Securities in physical possession;
    (c) Securities borrowed and securities loaned;
    (d) Monies borrowed and monies loaned (together with a record of the 
collateral therefor and substitutions in such collateral);
    (e) Dividends and interest received;
    (f) Dividends receivable and interest accrued.


[[Page 1291]]


    Instruction. (a) and (b) of this subdivision shall be stated in 
terms of securities quantities only; (c) and (d) of this subdivision 
shall be stated in dollar amounts and securities quantities as 
appropriate; (e) and (f) of this subdivision shall be stated in dollar 
amounts only.

    (ii) Separate ledger accounts (or other records) for each portfolio 
security, showing (as of trade dates) (a) the quantity and unit and 
aggregate price for each purchase, sale, receipt, and delivery of 
securities and commodities for such accounts, and (b) all other debits 
and credits for such accounts. Securities positions and money balances 
in such ledger accounts (or other records) shall be brought forward 
periodically but not less frequently than at the end of fiscal quarters. 
Any portfolio security, the salability of which is conditioned, shall be 
so noted. A memorandum record shall be available setting forth, with 
respect to each portfolio security account, the amount and declaration 
ex-dividend, and payment dates of each dividend declared thereon.
    (iii) Separate ledger accounts (or other records) for each broker-
dealer bank or other person with or through which transactions in 
portfolio securities are effected, showing each purchase or sale of 
securities with or through such persons, including details as to the 
date of the purchase or sale, the quantity and unit and aggregate price 
of such securities, and the commissions or other compensation paid to 
such persons. Purchases or sales effected during the same day at the 
same price may be aggregated.
    (iv) Separate ledger accounts (or other records), which may be 
maintained by a transfer agent or registrar, showing for each 
shareholder of record of the investment company the number of shares of 
capital stock of the company held. In respect of share accumulation 
accounts (arising from periodic investment plans, dividend reinvestment 
plans, deposit of issued shares by the owner thereof, etc.), details 
shall be available as to the dates and number of shares of each 
accumulation, and except with respect to already issued shares deposited 
by the owner thereof, prices of each such accumulation.
    (3) A securities record or ledger reflecting separately for each 
portfolio security as of trade date all ``long'' and ``short'' positions 
carried by the investment company for its own account and showing the 
location of all securities long and the off-setting position to all 
securities short. The record called for by this paragraph shall not be 
required in circumstances under which all portfolio securities are 
maintained by a bank or banks or a member or members of a national 
securities exchange as custodian under a custody agreement or as agent 
for such custodian.
    (4) Corporate charters, certificates of incorporation or trust 
agreements, and by-laws, and minute books of stockholders' and 
directors' or trustees' meetings; and minute books of directors' or 
trustees' committee and advisory board or advisory committee meetings.
    (5) A record of each brokerage order given by or in behalf of the 
investment company for, or in connection with, the purchase or sale of 
securities, whether executed or unexecuted. Such record shall include 
the name of the broker, the terms and conditions of the order and of any 
modification or cancellation thereof, the time of entry or cancellation, 
the price at which executed, and the time of receipt of report of 
execution. The record shall indicate the name of the person who placed 
the order in behalf of the investment company.
    (6) A record of all other portfolio purchases or sales showing 
details comparable to those prescribed in paragraph (b)(5) of this 
section.
    (7) A record of all puts, calls, spreads, straddles, and other 
options in which the investment company has any direct or indirect 
interest or which the investment company has granted or guaranteed; and 
a record of any contractual commitments to purchase, sell, receive or 
deliver securities or other property (but not including open orders 
placed with broker-dealers for the purchase or sale of securities, which 
may be cancelled by the company on notices without penalty or cost of 
any kind); containing, at least, an identification of the security, the 
number of units involved, the option price, the date of maturity, the 
date of issuance, and the person to whom issued.

[[Page 1292]]

    (8) A record of the proof of money balances in all ledger accounts 
(except shareholder accounts), in the form of trial balances. Such trial 
balances shall be prepared currently at least once a month.
    (9) A record for each fiscal quarter, which shall be completed 
within ten days after the end of such quarter, showing specifically the 
basis or bases upon which the allocation of orders for the purchase and 
sale of portfolio securities to named brokers or dealers and the 
division of brokerage commissions or other compensation on such purchase 
and sale orders among named persons were made during such quarter. The 
record shall indicate the consideration given to (i) sales of shares of 
the investment company by brokers or dealers, (ii) the supplying of 
services or benefits by brokers or dealers to the investment company, 
its investment adviser or principal underwriter or any persons 
affiliated therewith, and (iii) any other considerations other than the 
technical qualifications of the brokers and dealers as such. The record 
shall show the nature of the services or benefits made available, and 
shall describe in detail the application of any general or specific 
formula or other determinant used in arriving at such allocation of 
purchase and sale orders and such division of brokerage commissions or 
other compensation. The record shall also include the identities of the 
persons responsible for the determination of such allocation and such 
division of brokerage commissions or other compensation.
    (10) A record in the form of an appropriate memorandum identifying 
the person or persons, committees, or groups authorizing the purchase or 
sale of portfolio securities. Where an authorization is made by a 
committee or group, a record shall be kept of the names of its members 
who participated in the authorization. There shall be retained as part 
of the record required by this paragraph any memorandum, recommendation, 
or instruction supporting or authorizing the purchase or sale of 
portfolio securities. The requirements of this paragraph are applicable 
to the extent they are not met by compliance with the requirements of 
paragraph (b)(4) of this section.
    (11) Files of all advisory material received from the investment 
adviser, any advisory board or advisory committee, or any other persons 
from whom the investment company accepts investment advice, other than 
material which is furnished solely through uniform publications 
distributed generally.
    (12) The term ``other records'' as used in the expressions 
``journals (or other records of original entry)'' and ``ledger accounts 
(or other records)'' shall be construed to include, where appropriate, 
copies of voucher checks, confirmations, or similar documents which 
reflect the information required by the applicable rule or rules in 
appropriate sequence and in permanent form, including similar records 
developed by the use of automatic data processing systems.
    (c) Every underwriter, broker, or dealer which is a majority-owned 
subsidiary of a registered investment company shall maintain in the form 
prescribed therein such accounts, books and other documents as are 
required to be maintained by brokers and dealers by rule adopted under 
section 17 of the Securities Exchange Act of 1934.
    (d) Every depositer of any registered investment company, and every 
principal underwriter for any registered investment company other than a 
closed-end investment company, shall maintain such accounts, books and 
other documents as are required to be maintained by brokers and dealers 
by rule adopted under section 17 of the Securities Exchange Act of 1934, 
to the extent such records are necessary or appropriate to record such 
person's transactions with such registered investment company.
    (e) Every investment advisor which is a majority-owned subsidiary of 
a registered investment company shall maintain in the form prescribed 
therein such accounts, books and other documents as are required to be 
maintained by registered investment advisers by rule adopted under 
section 204 of the Investment Advisers Act of 1940.
    (f) Every investment adviser not a majority-owned subsidiary of a 
registered investment company shall maintain such accounts, books and 
other documents as are required to be

[[Page 1293]]

maintained by registered investment advisers by rule adopted under 
section 204 of the Investment Advisers Act of 1940, to the extent such 
records are necessary or appropriate to record such person's 
transactions with such registered investment company.

(Sec.31, 54 Stat. 838; 15 U.S.C. 80a-30)

[27 FR 11993, Dec. 5, 1962, as amended at 61 FR 13983, Mar. 28, 1996; 62 
FR 64986, Dec. 9, 1997; 79 FR 47968, Aug. 14, 2014; 80 FR 58155, Sept. 
25, 2015]



Sec.270.31a-2  Records to be preserved by registered investment
companies, certain majority-owned subsidiaries thereof, and other
persons having transactions with registered investment companies.

    (a) Every registered investment company shall:
    (1) Preserve permanently, the first two years in an easily 
accessible place, all books and records required to be made pursuant to 
paragraphs (1) through (4) of Sec.270.31a-1(b);
    (2) Preserve for a period not less than six years from the end of 
the fiscal year in which any transactions occurred, the first two years 
in an easily accessible place, all books and records required to be made 
pursuant to paragraphs (b)(5) through (12) of Sec.270.31a-1 and all 
vouchers, memoranda, correspondence, checkbooks, bank statements, 
cancelled checks, cash reconciliations, cancelled stock certificates, 
and all schedules evidencing and supporting each computation of net 
asset value of the investment company shares, including schedules 
evidencing and supporting each computation of an adjustment to net asset 
value of the investment company shares based on swing pricing policies 
and procedures established and implemented pursuant to Sec.270.22c-
1(a)(3), and other documents required to be maintained by Sec.270.31a-
1(a) and not enumerated in Sec.270.31a-1(b).
    (3) Preserve for a period not less than 6 years from the end of the 
fiscal year last used, the first 2 years in an easily accessible place, 
any advertisement, pamphlet, circular, form letter or other sales 
literature addressed to or intended for distribution to prospective 
investors;
    (4) Preserve for a period not less than six years, the first two 
years in an easily accessible place, any record of the initial 
determination that a director is not an interested person of the 
investment company, and each subsequent determination that the director 
is not an interested person of the investment company. These records 
must include any questionnaire and any other document used to determine 
that a director is not an interested person of the company;
    (5) Preserve for a period not less than six years, the first two 
years in an easily accessible place, any materials used by the 
disinterested directors of an investment company to determine that a 
person who is acting as legal counsel to those directors is an 
independent legal counsel; and
    (6) Preserve for a period not less than six years, the first two 
years in an easily accessible place, any documents or other written 
information considered by the directors of the investment company 
pursuant to section 15(c) of the Act (15 U.S.C. 80a-15(c)) in approving 
the terms or renewal of a contract or agreement between the company and 
an investment adviser.
    (b) Every underwriter, broker, or dealer which is a majority-owned 
subsidiary of a registered investment company shall preserve for the 
periods prescribed therein such accounts, books and other documents as 
are required to be preserved by brokers and dealers by rule adopted 
under section 17 of the Securities Exchange Act of 1934.
    (c) Every depositor of any registered investment company, and every 
principal underwriter for any registered investment company other than a 
closed-end company, shall preserve for a period of not less than six 
years such accounts, books and other documents as are required to be 
maintained by brokers and dealers by rule adopted under section 17 of 
the Securities Exchange Act of 1934, to the extent such records are 
necessary or appropriate to record such person's transactions with such 
registered investment company.
    (d) Every investment adviser which is a majority-owned subsidiary of 
a registered investment company shall preserve for the periods 
prescribed therein

[[Page 1294]]

such accounts, books and other documents as are required to be preserved 
by investment advisers by rule adopted under section 204 of the 
Investment Advisers Act of 1940.
    (e) Every investment adviser not a majority-owned subsidiary of a 
registered investment company shall preserve for a period of not less 
than six years such accounts, books and other documents as are required 
to be maintained by registered investment advisers by rule adopted under 
section 204 of the Investment Advisers Act of 1940, to the extent such 
records are necessary or appropriate to record such person's 
transactions with such registered investment company.
    (f) Micrographic and electronic storage permitted--(1) General. The 
records required to be maintained and preserved under this part may be 
maintained and preserved for the required time by, or on behalf of, an 
investment company on:
    (i) Micrographic media, including microfilm, microfiche, or any 
similar medium; or
    (ii) Electronic storage media, including any digital storage medium 
or system that meets the terms of this section.
    (2) General requirements. The investment company, or person that 
maintains and preserves records on its behalf, must:
    (i) Arrange and index the records in a way that permits easy 
location, access, and retrieval of any particular record;
    (ii) Provide promptly any of the following that the Commission (by 
its examiners or other representatives) or the directors of the company 
may request:
    (A) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (B) A legible, true, and complete printout of the record; and
    (C) Means to access, view, and print the records; and
    (iii) Separately store, for the time required for preservation of 
the original record, a duplicate copy of the record on any medium 
allowed by this section.
    (3) Special requirements for electronic storage media. In the case 
of records on electronic storage media, the investment company, or 
person that maintains and preserves records on its behalf, must 
establish and maintain procedures:
    (i) To maintain and preserve the records, so as to reasonably 
safeguard them from loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized 
personnel, the directors of the investment company, and the Commission 
(including its examiners and other representatives); and
    (iii) To reasonably ensure that any reproduction of a non-electronic 
original record on electronic storage media is complete, true, and 
legible when retrieved.
    (4) Notwithstanding the provisions of paragraphs (a) through (e) of 
this section, any record, book or other document may be destroyed in 
accordance with a plan previously submitted to and approved by the 
Commission. A plan shall be deemed to have been approved by the 
Commission if notice to the contrary has not been received within 90 
days after submission of the plan to the Commission.

[27 FR 11994, Dec. 5, 1962, as amended at 38 FR 7797, Mar. 26, 1973; 51 
FR 42209, Nov. 24, 1986; 53 FR 3880, Feb. 10, 1988; 66 FR 3759, Jan. 16, 
2001; 66 FR 29228, May 30, 2001; 69 FR 46390, Aug. 2, 2004; 81 FR 82138, 
Nov. 18, 2016]



Sec.270.31a-3  Records prepared or maintained by other than person 
required to maintain and preserve them.

    (a) If the records required to be maintained and preserved pursuant 
to the provisions of Sec.Sec.270.31a-1 and 270.31a-2 are prepared or 
maintained by others on behalf of the person required to maintain and 
preserve such records, the person required to maintain and preserve such 
records shall obtain from such other person an agreement in writing to 
the effect that such records are the property of the person required to 
maintain and preserve such records and will be surrendered promptly on 
request.
    (b) In cases where a bank or member of a national securities 
exchange acts as custodian, transfer agent, or dividend disbursing 
agent, compliance with this section shall be considered to have been met 
if such bank or exchange

[[Page 1295]]

member agrees in writing to make any records relating to such service 
available upon request and to preserve for the periods prescribed in 
Sec.270.31a-2 any such records as are required to be maintained by 
Sec.270.31a-1.

(Sec.31, 54 Stat. 838; 15 U.S.C. 80a-30)

[27 FR 11994, Dec. 5, 1962]



Sec.270.32a-1  Exemption of certain companies from affiliation 
provisions of section 32(a).

    A registered investment company shall be exempt from the provisions 
of paragraph (1) of section 32(a) of the Act (54 Stat. 838; 15 U.S.C. 
80a-31), insofar as said paragraph requires that independent public 
accounts for such company be selected by a majority of certain members 
of the board of directors, if:
    (a) Such company meets the conditions of paragraphs (1) to (8), 
inclusive, of section 10(d) of the Act (54 Stat. 807; 15 U.S.C. 80a-10); 
and
    (b) Such accountants are selected by a majority of all the members 
of the board of directors.

[Rule N-32A-1, 6 FR 6631, Dec. 23, 1941]



Sec.270.32a-2  Exemption for initial period from vote of security 
holders on independent public accountant for certain registered 
separate accounts.

    (a) A registered separate account shall be exempt from the 
requirement under paragraph (2) of section 32(a) of the Act that 
selection of an independent public accountant shall have been submitted 
for ratification or rejection at the next succeeding annual meeting of 
security owners, subject to the following conditions:
    (1) Such registered separate account qualifies for exemption from 
section 14(a) of the Act pursuant to Sec.270.14a-2, or is exempt 
therefrom by order of the Commission upon application; and
    (2) The selection of such accountant shall be submitted for 
ratification or rejection to variable annuity contract owners at their 
first meeting after the effective date of the registration statement 
under the Securities Act of 1933, as amended (15 U.S.C. 77a et seq.), 
relating to contracts participating in such account: Provided, That such 
meeting shall take place within 1 year after such effective date, unless 
the time for the holding of such meeting shall be extended by the 
Commission upon written request showing good cause therefor.

(Sec.6, 54 Stat. 800; 15 U.S.C. 80a-6)

[34 FR 12696, Aug. 5, 1969]



Sec.270.32a-3  Exemption from provision of section 32(a)(1) regarding 
the time period during which a registered management investment
company must select an independent public accountant.

    (a) A registered management investment company (``company'') 
organized in a jurisdiction that does not require it to hold regular 
annual meetings of its stockholders, and which does not hold a regular 
annual stockholders' meeting in a given fiscal year, shall be exempt in 
that fiscal year from the requirement of section 32(a)(1) of the Act (15 
U.S.C. 80a-31(a)(1)) that the independent public accountant 
(``accountant'') be selected at a board of directors meeting held within 
30 days before or after the beginning of the fiscal year or before the 
annual meeting of stockholders in that year, provided, that such company 
is either:
    (1) In a set of investment companies as defined in paragraph (b) of 
this section, if not all the members of such set have an identical 
fiscal year end and if such company selects an accountant at a board of 
directors meeting held within 90 days before or after the beginning of 
that fiscal year; or
    (2) Not in a set of investment companies, or is in a set, each of 
whose members has the same fiscal year end, and if such company selects 
an accountant at a board of directors meeting held within 30 days before 
or 90 days after the beginning of that fiscal year.
    (b) For purposes of this rule, ``set of investment companies'' means 
any two or more registered management investment companies that hold 
themselves out to investors as related companies for purposes of 
investment and investor services, and
    (1) That have a common investment adviser or principal underwriter, 
or
    (2) If the investment adviser or principal underwriter of one of the 
companies is an affiliated person as defined in

[[Page 1296]]

section 2(a)(3)(C) of the Act (15 U.S.C. 80a-2(a)(3)(C)) of the 
investment adviser or principal underwriter of each of the other 
companies.

[54 FR 31332, July 28, 1989]



Sec.270.32a-4  Independent audit committees.

    A registered management investment company or a registered face-
amount certificate company is exempt from the requirement of section 
32(a)(2) of the Act (15 U.S.C. 80a-32(a)(2)) that the selection of the 
company's independent public accountant be submitted for ratification or 
rejection at the next succeeding annual meeting of shareholders, if:
    (a) The company's board of directors has established a committee, 
composed solely of directors who are not interested persons of the 
company, that has responsibility for overseeing the fund's accounting 
and auditing processes (``audit committee'');
    (b) The company's board of directors has adopted a charter for the 
audit committee setting forth the committee's structure, duties, powers, 
and methods of operation or set forth such provisions in the fund's 
charter or bylaws; and
    (c) The company maintains and preserves permanently in an easily 
accessible place a copy of the audit committee's charter and any 
modification to the charter.

[66 FR 3759, Jan. 16, 2001]



Sec.270.34b-1  Sales literature deemed to be misleading.

    Any advertisement, pamphlet, circular, form letter, or other sales 
literature addressed to or intended for distribution to prospective 
investors that is required to be filed with the Commission by section 
24(b) of the Act [15 U.S.C. 80a-24(b)] (``sales literature'') shall have 
omitted to state a fact necessary in order to make the statements made 
therein not materially misleading unless the sales literature includes 
the information specified in paragraphs (a) and (b) of this section.

    Note to introductory text of Sec.270.34b-1: The fact that the 
sales literature includes the information specified in paragraphs (a) 
and (b) of this section does not relieve the investment company, 
underwriter, or dealer of any obligations with respect to the sales 
literature under the antifraud provisions of the federal securities 
laws. For guidance about factors to be weighed in determining whether 
statements, representations, illustrations, and descriptions contained 
in investment company sales literature are misleading, see Sec.230.156 
of this chapter.

    (a) Sales literature for a money market fund shall contain the 
information required by paragraph (b)(4) of Sec.230.482 of this 
chapter, presented in the manner required by paragraph (b)(5) of Sec.
230.482 of this chapter.
    (b)(1) Except as provided in paragraph (b)(3) of this section:
    (i) In any sales literature that contains performance data for an 
investment company, include the disclosure required by paragraph (b)(3) 
of Sec.230.482 of this chapter, presented in the manner required by 
paragraph (b)(5) of Sec.230.482 of this chapter.
    (ii) In any sales literature for a money market fund:
    (A) Accompany any quotation of yield or similar quotation purporting 
to demonstrate the income earned or distributions made by the money 
market fund with a quotation of current yield specified by paragraph 
(e)(1)(i) of Sec.230.482 of this chapter;
    (B) Accompany any quotation of the money market fund's tax 
equivalent yield or tax equivalent effective yield with a quotation of 
current yield as specified in Sec.230.482(d)(1)(iii) of this chapter; 
and
    (C) Accompany any quotation of the money market fund's total return 
with a quotation of the money market fund's current yield specified in 
paragraph (e)(1)(i) of Sec.230.482 of this chapter. Place the 
quotations of total return and current yield next to each other, in the 
same size print, and if there is a material difference between the 
quoted total return and the quoted current yield, include a statement 
that the yield quotation more closely reflects the current earnings of 
the money market fund than the total return quotation.
    (iii) In any sales literature for an investment company other than a 
money market fund that contains performance data:

[[Page 1297]]

    (A) Include the total return information required by paragraph 
(d)(3) of Sec.230.482 of this chapter;
    (B) Accompany any quotation of performance adjusted to reflect the 
effect of taxes (not including a quotation of tax equivalent yield or 
other similar quotation purporting to demonstrate the tax equivalent 
yield earned or distributions made by the company) with the quotations 
of total return specified by paragraph (d)(4) of Sec.230.482 of this 
chapter;
    (C) If the sales literature (other than sales literature for a 
company that is permitted under Sec.270.35d-1(a)(4) to use a name 
suggesting that the company's distributions are exempt from federal 
income tax or from both federal and state income tax) represents or 
implies that the company is managed to limit or control the effect of 
taxes on company performance, include the quotations of total return 
specified by paragraph (d)(4) of Sec.230.482 of this chapter;
    (D) Accompany any quotation of yield or similar quotation purporting 
to demonstrate the income earned or distributions made by the company 
with a quotation of current yield specified by paragraph (d)(1) of Sec.
230.482 of this chapter; and
    (E) Accompany any quotation of tax equivalent yield or other similar 
quotation purporting to demonstrate the tax equivalent yield earned or 
distributions made by the company with a quotation of tax equivalent 
yield specified in paragraph (d)(2) and current yield specified by 
paragraph (d)(1) of Sec.230.482 of this chapter.
    (2) Any performance data included in sales literature under 
paragraphs (b)(1)(ii) or (iii) of this section must meet the currentness 
requirements of paragraph (g) of Sec.230.482 of this chapter.
    (3) The requirements specified in paragraph (b)(1) of this section 
shall not apply to any quarterly, semi-annual, or annual report to 
shareholders under Section 30 of the Act (15 U.S.C. 80a-29) containing 
performance data for a period commencing no earlier than the first day 
of the period covered by the report; nor shall the requirements of 
paragraphs (d)(3)(ii), (d)(4)(ii), and (g) of Sec.230.482 of this 
chapter apply to any such periodic report containing any other 
performance data.

    Note: Sales literature (except that of a money market fund) 
containing a quotation of yield or tax equivalent yield must also 
contain the total return information. In the case of sales literature, 
the currentness provisions apply from the date of distribution and not 
the date of submission for publication.

[58 FR 19055, Apr. 12, 1993; 58 FR 21927, Apr. 26, 1993, as amended at 
62 FR 64986, Dec. 9, 1997; 63 FR 13987, Mar. 23, 1998; 66 FR 9018, Feb. 
5, 2001; 68 FR 57779, Oct. 6, 2003]



Sec.270.35d-1  Investment company names.

    (a) For purposes of section 35(d) of the Act (15 U.S.C. 80a-34(d)), 
a materially deceptive and misleading name of a Fund includes:
    (1) Names suggesting guarantee or approval by the United States 
government. A name suggesting that the Fund or the securities issued by 
it are guaranteed, sponsored, recommended, or approved by the United 
States government or any United States government agency or 
instrumentality, including any name that uses the words ``guaranteed'' 
or ``insured'' or similar terms in conjunction with the words ``United 
States'' or ``U.S. government.''
    (2) Names suggesting investment in certain investments or 
industries. A name suggesting that the Fund focuses its investments in a 
particular type of investment or investments, or in investments in a 
particular industry or group of industries, unless:
    (i) The Fund has adopted a policy to invest, under normal 
circumstances, at least 80% of the value of its Assets in the particular 
type of investments, or in investments in the particular industry or 
industries, suggested by the Fund's name; and
    (ii) Either the policy described in paragraph (a)(2)(i) of this 
section is a fundamental policy under section 8(b)(3) of the Act (15 
U.S.C. 80a-8(b)(3)), or the Fund has adopted a policy to provide the 
Fund's shareholders with at least 60 days prior notice of any change in 
the policy described in paragraph (a)(2)(i) of this section that meets 
the requirements of paragraph (c) of this section.
    (3) Names suggesting investment in certain countries or geographic 
regions. A

[[Page 1298]]

name suggesting that the Fund focuses its investments in a particular 
country or geographic region, unless:
    (i) The Fund has adopted a policy to invest, under normal 
circumstances, at least 80% of the value of its Assets in investments 
that are tied economically to the particular country or geographic 
region suggested by its name;
    (ii) The Fund discloses in its prospectus the specific criteria used 
by the Fund to select these investments; and
    (iii) Either the policy described in paragraph (a)(3)(i) of this 
section is a fundamental policy under section 8(b)(3) of the Act (15 
U.S.C. 80a-8(b)(3)), or the Fund has adopted a policy to provide the 
Fund's shareholders with at least 60 days prior notice of any change in 
the policy described in paragraph (a)(3)(i) of this section that meets 
the requirements of paragraph (c) of this section.
    (4) Tax-exempt Funds. A name suggesting that the Fund's 
distributions are exempt from federal income tax or from both federal 
and state income tax, unless the Fund has adopted a fundamental policy 
under section 8(b)(3) of the Act (15 U.S.C. 80a-8(b)(3)):
    (i) To invest, under normal circumstances, at least 80% of the value 
of its Assets in investments the income from which is exempt, as 
applicable, from federal income tax or from both federal and state 
income tax; or
    (ii) To invest, under normal circumstances, its Assets so that at 
least 80% of the income that it distributes will be exempt, as 
applicable, from federal income tax or from both federal and state 
income tax.
    (b) The requirements of paragraphs (a)(2) through (a)(4) of this 
section apply at the time a Fund invests its Assets, except that these 
requirements shall not apply to any unit investment trust (as defined in 
section 4(2) of the Act (15 U.S.C. 80a-4(2))) that has made an initial 
deposit of securities prior to July 31, 2002. If, subsequent to an 
investment, these requirements are no longer met, the Fund's future 
investments must be made in a manner that will bring the Fund into 
compliance with those paragraphs.
    (c) A policy to provide a Fund's shareholders with notice of a 
change in a Fund's investment policy as described in paragraphs 
(a)(2)(ii) and (a)(3)(iii) of this section must provide that:
    (1) The notice will be provided in plain English in a separate 
written document;
    (2) The notice will contain the following prominent statement, or 
similar clear and understandable statement, in bold-face type: 
``Important Notice Regarding Change in Investment Policy''; and
    (3) The statement contained in paragraph (c)(2) of this section also 
will appear on the envelope in which the notice is delivered or, if the 
notice is delivered separately from other communications to investors, 
that the statement will appear either on the notice or on the envelope 
in which the notice is delivered.
    (d) For purposes of this section:
    (1) Fund means a registered investment company and any series of the 
investment company.
    (2) Assets means net assets, plus the amount of any borrowings for 
investment purposes.

[66 FR 8518, Feb. 1, 2001; 66 FR 14828, Mar. 14, 2001]



Sec.270.38a-1  Compliance procedures and practices of certain 
investment companies.

    (a) Each registered investment company and business development 
company (``fund'') must:
    (1) Policies and procedures. Adopt and implement written policies 
and procedures reasonably designed to prevent violation of the Federal 
Securities Laws by the fund, including policies and procedures that 
provide for the oversight of compliance by each investment adviser, 
principal underwriter, administrator, and transfer agent of the fund;
    (2) Board approval. Obtain the approval of the fund's board of 
directors, including a majority of directors who are not interested 
persons of the fund, of the fund's policies and procedures and those of 
each investment adviser, principal underwriter, administrator, and 
transfer agent of the fund, which approval must be based on a finding by 
the board that the policies and procedures are reasonably designed to 
prevent violation of the Federal Securities

[[Page 1299]]

Laws by the fund, and by each investment adviser, principal underwriter, 
administrator, and transfer agent of the fund;
    (3) Annual review. Review, no less frequently than annually, the 
adequacy of the policies and procedures of the fund and of each 
investment adviser, principal underwriter, administrator, and transfer 
agent and the effectiveness of their implementation;
    (4) Chief compliance officer. Designate one individual responsible 
for administering the fund's policies and procedures adopted under 
paragraph (a)(1) of this section:
    (i) Whose designation and compensation must be approved by the 
fund's board of directors, including a majority of the directors who are 
not interested persons of the fund;
    (ii) Who may be removed from his or her responsibilities by action 
of (and only with the approval of) the fund's board of directors, 
including a majority of the directors who are not interested persons of 
the fund;
    (iii) Who must, no less frequently than annually, provide a written 
report to the board that, at a minimum, addresses:
    (A) The operation of the policies and procedures of the fund and 
each investment adviser, principal underwriter, administrator, and 
transfer agent of the fund, any material changes made to those policies 
and procedures since the date of the last report, and any material 
changes to the policies and procedures recommended as a result of the 
annual review conducted pursuant to paragraph (a)(3) of this section; 
and
    (B) Each Material Compliance Matter that occurred since the date of 
the last report; and
    (iv) Who must, no less frequently than annually, meet separately 
with the fund's independent directors.
    (b) Unit investment trusts. If the fund is a unit investment trust, 
the fund's principal underwriter or depositor must approve the fund's 
policies and procedures and chief compliance officer, must receive all 
annual reports, and must approve the removal of the chief compliance 
officer from his or her responsibilities.
    (c) Undue influence prohibited. No officer, director, or employee of 
the fund, its investment adviser, or principal underwriter, or any 
person acting under such person's direction may directly or indirectly 
take any action to coerce, manipulate, mislead, or fraudulently 
influence the fund's chief compliance officer in the performance of his 
or her duties under this section.
    (d) Recordkeeping. The fund must maintain:
    (1) A copy of the policies and procedures adopted by the fund under 
paragraph (a)(1) that are in effect, or at any time within the past five 
years were in effect, in an easily accessible place; and
    (2) Copies of materials provided to the board of directors in 
connection with their approval under paragraph (a)(2) of this section, 
and written reports provided to the board of directors pursuant to 
paragraph (a)(4)(iii) of this section (or, if the fund is a unit 
investment trust, to the fund's principal underwriter or depositor, 
pursuant to paragraph (b) of this section) for at least five years after 
the end of the fiscal year in which the documents were provided, the 
first two years in an easily accessible place; and
    (3) Any records documenting the fund's annual review pursuant to 
paragraph (a)(3) of this section for at least five years after the end 
of the fiscal year in which the annual review was conducted, the first 
two years in an easily accessible place.
    (e) Definitions. For purposes of this section:
    (1) Federal Securities Laws means the Securities Act of 1933 (15 
U.S.C. 77a-aa), the Securities Exchange Act of 1934 (15 U.S.C. 78a-mm), 
the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), 
the Investment Company Act of 1940 (15 U.S.C. 80a), the Investment 
Advisers Act of 1940 (15 U.S.C. 80b), Title V of the Gramm-Leach-Bliley 
Act (Pub. L. No. 106-102, 113 Stat. 1338 (1999), any rules adopted by 
the Commission under any of these statutes, the Bank Secrecy Act (31 
U.S.C. 5311-5314; 5316-5332) as it applies to funds, and any rules 
adopted thereunder by the Commission or the Department of the Treasury.
    (2) A Material Compliance Matter means any compliance matter about 
which the fund's board of directors

[[Page 1300]]

would reasonably need to know to oversee fund compliance, and that 
involves, without limitation:
    (i) A violation of the Federal securities laws by the fund, its 
investment adviser, principal underwriter, administrator or transfer 
agent (or officers, directors, employees or agents thereof),
    (ii) A violation of the policies and procedures of the fund, its 
investment adviser, principal underwriter, administrator or transfer 
agent, or
    (iii) A weakness in the design or implementation of the policies and 
procedures of the fund, its investment adviser, principal underwriter, 
administrator or transfer agent.

[68 FR 74729, Dec. 24, 2003]



Sec.270.45a-1  Confidential treatment of names and addresses of
dealers of registered investment company securities.

    (a) Exhibits calling for the names and addresses of dealers to or 
through whom principal underwriters of registered investment companies 
are currently offering securities and which are required to be furnished 
with registration statements filed pursuant to section 8(b) of the Act 
(54 Stat. 804; 15 U.S.C. 80a-8), or periodic reports filed pursuant to 
section 30(a) or section 30(b)(1) of the Act (54 Stat. 836; 15 U.S.C. 
80a-30), shall be the subject of confidential treatment and shall not be 
made available to the public, except that the Commission may by order 
make such exhibits available to the public if, after appropriate notice 
and opportunity for hearing, it finds that public disclosure of such 
material is necessary or appropriate in the public interest or for the 
protection of investors.
    (b) The exhibits referred to in paragraph (a) of this section shall 
be filed in quadruplicate with the Commission at the time the 
registration statement or periodic report is filed. Such exhibits shall 
be enclosed in a separate envelope marked ``Confidential Treatment'' and 
addressed to the Chairman, Securities and Executive Commission, 
Washington, DC. Confidential treatment requests shall be submitted in 
paper only, whether or not the registrant is required to file in 
electronic format.

[Rule N-45A-1, 7 FR 197, Jan. 10, 1942, as amended at 20 FR 7036, Sept. 
20, 1955; 58 FR 14860, Mar. 18, 1993]



Sec.270.55a-1  Investment activities of business development 
companies.

    Notwithstanding section 55(a) of the Act (15 U.S.C. 80a-54(a)), a 
business development company may acquire securities purchased in 
transactions not involving any public offering from an issuer, or from 
any person who is an officer or employee of the issuer, if the issuer 
meets the requirements of sections 2(a)(46)(A) and (B) of the Act (15 
U.S.C. 80a-2(a)(46)(A) and (B)), but the issuer is not an eligible 
portfolio company because it does not meet the requirements of Sec.
270.2a-46, and the business development company meets the requirements 
of paragraphs (i) and (ii) of section 55(a)(1)(B) of the Act (15 U.S.C. 
80a-54(a)(1)(B)(i) and (ii)).

[71 FR 64092, Oct. 31, 2006]



Sec.270.57b-1  Exemption for downstream affiliates of business
development companies.

    Notwithstanding subsection (b)(2) of section 57 of the Act, the 
provisions of subsection (a) of that section shall not apply to any 
person (a) solely because that person is directly or indirectly 
controlled by a business development company or (b) solely because that 
person is, within the meaning of section 2(a)(3) (C) or (D) of the Act 
[15 U.S.C. 80a-2(a)(3) (C) or (D)], an affiliated person of a person 
described in (a) of this section.

[46 FR 16674, Mar. 13, 1981]



Sec.270.60a-1  Exemption for certain business development companies.

    Section 12(d)(1) (A) and (C) of the Act shall not apply to the 
acquisition by a business development company of the securities of a 
small business investment company licensed to do business under the 
Small Business Investment Act of 1958 which is operated as a wholly-
owned subsidiary of the business development company.

[46 FR 16674, Mar. 13, 1981]

[[Page 1301]]



         PART 271_INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT 
         COMPANY ACT OF 1940 AND GENERAL RULES AND REGULATIONS 
         THEREUNDER--Table of Contents

    Authority: 15 U.S.C. 80a et seq.

----------------------------------------------------------------------------------------------------------------
                                                      Release
                      Subject                           No.         Date            Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Statement of the Commission respecting distinctions        12   Nov. 16, 1940  11 FR 10991.
 between the reporting requirements of section
 16(a) of the Securities Exchange Act of 1934 and
 section 30(f) of the Investment Company Act of
 1940.
Letter of General Counsel relating to sections(b)          69   Feb. 19, 1941   Do.
 and 26(c).
Letter of the Director of the Investment Company           71   Feb. 21, 1941   Do.
 Division relating to section 19 and Rule N-19-1
 (17 CFR, 270.19a-1).
Statement by the Commission relating to section            78    Mar. 4, 1941   Do.
 23(c)(3) and Rule N-23C-1 (17 CFR, 270.23c-1).
Letter of General Counsel relating to section 22(d)        87   Mar. 14, 1941  11 FR 10992.
Letter of General Counsel relating to section 22(d)        89   Mar. 13, 1941   Do.
Letter of General Counsel relating to section 24(b)       150   June 20, 1941   Do.
Opinion of General Counsel relating to sections           167   July 23, 1941  11 FR 10993.
 8(b)(1) and 13(a).
Letter of General Counsel relating to section 10(a)       214  Sept. 15, 1941  11 FR 10994.
Extract from letter of the Director of the                446    Feb. 5, 1943   Do.
 Corporation Finance Division relating to sections
 20 and 34(b).
Excerpts from letters of the Director of the              448   Feb. 17, 1943   Do.
 Corporation Finance Division relating to section
 14 and Schedule 14A under Regulation X-14.
Letter of the Director of the Corporation Finance         735    Jan. 3, 1945  11 FR 10995.
 Division relating to section 20 of the Investment
 Company Act of 1940 and to Rule X-14A-7 under the
 Securities Exchange Act of 1934 (17 CFR, 240.14a-
 7).
Statement of the Commission on the offering of           3187    Feb. 6, 1961  26 FR 1275.
 common stock to the public at a per share price
 substantially in excess of the net asset value of
 the stock.
Opinion of the Commission that ``Equity Funding,''       3480    May 22, 1962  27 FR 5190.
 ``Secured Funding,'' or ``Life Funding''
 constitutes an investment contract and when
 publicly offered is required to be registered
 under the Securities Act of 1933.
Statement of the Commission advising all registered      3542  Sept. 21, 1962  27 FR 9652.
 investment companies to divest themselves of
 interest and securities acquired in contravention
 of the provisions of section 12(d)(3) of the
 Investment Company Act of 1940 within a reasonable
 period of time.
Statement of the Commission advising any closed-end      3548    Oct. 3, 1962  27 FR 9987.
 investment company contemplating repurchase of its
 own shares to consult with the Division of
 Corporate re nature of disclosure to be made to
 security holders.
Opinion and statement of the Commission in regard        4426    Dec. 7, 1965  30 FR 15420.
 to proper reporting of deferred income taxes
 arising from installment sales.
Statement of the Commission to clarify the meaning       4483   Jan. 19, 1966  31 FR 1005.
 of ``beneficial ownership of securities'' as
 relates to beneficial ownership of securities held
 by family members.
Statement of the Commission setting the date of May      4516   Feb. 14, 1966  31 FR 3175.
 1, 1966 after which filings must reflect
 beneficial ownership of securities held by family
 members.
Staff interpretative and no-action positions             5510    Oct. 8, 1968  33 FR 15650.
 relating to property rights of an investment
 company and its investment adviser in the
 company's name and to the status of arrangement
 funding qualified Self-Employed Individual's
 Retirement Plans with life insurance contracts and
 investment company securities. The staff's
 comments do not purport to be an official
 expression of the Commission.
Statement of the Director of the Commission's            5554    Dec. 3, 1968  33 FR 18576.
 Division of Corporate Regulation re the filing of
 supplements to investment company prospectuses
 under the Securities Act of 1933 as a result of
 changes in stock exchange rules effective December
 5, 1968 relating to ``customer-directed give ups''.
Interpretative positions of the Division of              5569   Dec. 27, 1968  34 FR 382.
 Corporate Regulation on questions relating to Rule
 22c-1 which was adopted Oct. 16, 1968; text of
 questions and answers.
Statement of the Commission setting forth emergency      5632   Mar. 12, 1969  34 FR 5547.
 procedures adopted by the Division of Corporate
 Regulation to expedite processing of registration
 statements, amendments, and proxy statements.
Letter by Philip A. Loomis, Jr., General Counsel     ........   Nov. 10, 1969  34 FR 18543.
 for the Commission, explaining obligations of
 mutual fund managements and brokers with respect
 to commissions on portfolio brokerage of mutual
 funds.
Commission's statement discussing restricted             5847   Oct. 21, 1969  35 FR 19989.
 securities.
Commission's statement that disclosure requirements      6026   Apr. 13, 1970  35 FR 19991.
 set forth in release of October 21, 1969 will be
 applied to lists of portfolio securities set forth
 not only in registration statements but also in
 reports to the Commission and to shareholders, in
 sales literature and in proxy statements.

[[Page 1302]]

 
Publication of the Commission's guidelines re            6082   June 23, 1970  36 FR 12103.
 applicability of Federal securities law to offer
 and sale outside the U.S. of shares of registered
 open-end investment companies.
Statement of the Commission reminding reporting          6209   Oct. 15, 1970  35 FR 16733.
 companies of obligation re Commission's rules to
 file reports on a timely basis.
Commission's views relating to important questions       6295   Dec. 23, 1970  35 FR 19986.
 re the accounting by registered investment
 companies for investment securities in their
 financial statements and in the periodic
 computations of net asset value for the purpose of
 pricing their shares.
Publication of the Commission's procedure to be          6330   Jan. 25, 1971  36 FR 2600.
 followed if requests are to be met for no action
 or interpretative letters and responses thereto to
 be made available for public use.
First in a series of statements by the Commission        6336    Feb. 2, 1971  36 FR 2867.
 alerting registered companies, their counsel, and
 other interested persons re certain changes made
 in the Investment Company Act of 1940 by Pub. L.
 91-547 (1970 Act) such as approval of investment
 advisory contracts which should be considered in
 connection with 1971 annual meetings.
The Commission's views on the purchase, redemption,      6366    Mar. 5, 1971  36 FR 4978.
 or repurchase of fund shares.
Second in a series of statements by the Commission       6392   Mar. 19, 1971  36 FR 5840.
 calling attention to some important provisions of
 Pub. L. 91-547 (1970 Act) which in this case
 require companies that issue periodic payment
 plans and face-amount certificates to take certain
 actions.
Third in a series of statements by the Commission        6430    Apr. 2, 1971  36 FR 7897.
 on problems arising under Pub. L. 91-547 (1970
 Act) re registration and regulation of insurance
 company separate accounts used as funding vehicles
 for certain employee stock bonus, pension and
 profit sharing plans.
Publication by the Commission of certain important       6440    Apr. 6, 1971  36 FR 8729.
 amendments relating to the repeal and modification
 of certain exemptions by the Investment Company
 Amendments Act of 1970 (Pub. L. 91-547) and to the
 pyramiding of investment companies and the
 regulation of fund holding companies under the
 same act.
Commission's statement on amendments contained in        6506     May 5, 1971  36 FR 9130.
 Pub. L. 91-547 concerning policies of a registered
 investment company; ineligibility of certain
 persons to serve as employees of a registered
 company; legal standards for investment company
 reorganizations of unit investment trusts; and
 filing of certain legal documents with the
 Commission.
Commission's interpretative position relating to         6480    May 10, 1971  36 FR 9627.
 judiciary duty of Directors of a Registered
 Investment Company.
Commission's issuance of guidelines for additional       6568   June 11, 1971  36 FR 12164.
 disclosures for contractual plan prospectuses
 concerning new refund and election provisions of
 the Investment Company Amendments Act of 1970
 (Pub. L. 91-547).
Commission's guidelines relating to checking             6863   Jan. 29, 1972  37 FR 1474.
 accounts established by investment companies
 having bank custodians.
Commission endorses the establishment by all             7091    Apr. 5, 1972  37 FR 6850.
 publicly held companies of audit committees
 composed of outside directors.
Commission's statement of factors to be considered       7113   Apr. 19, 1972  37 FR 7690.
 in connection with investment company advisory
 contracts containing incentive arrangements.
Applicability of Commission's policy statement on        7170    May 18, 1972  37 FR 9988.
 the future structure of securities markets to
 selection of brokers and payment of commissions by
 institutional managers.
Commission's statement and policy on misleading pro      7204    June 9, 1972  37 FR 11559.
 rata stock distributions to shareholders.
Commission's guidelines prepared by the Division of      7220    June 9, 1972  37 FR 12790.
 Corporate Regulation for use in preparing and
 filing registration statements for open-end and
 closed-end management investment companies on
 Forms S-4 and S-5.
Guidelines prepared by the Commission's Division of      7221    June 9, 1972  37 FR 12790.
 Corporate Regulation for use in preparation and
 filing of registration statements for both open-
 end and closed-end management investment companies
 on Form N-8B-1.
Commission's guidelines on independence of               7264    July 5, 1972  37 FR 14294.
 certifying accountants; example cases and
 Commission's conclusions.
Commission's decisions on advisory committee             7390    Mar. 1, 1973  38 FR 5457.
 recommendations regarding commencement of
 enforcement proceedings and termination of staff
 investigations.
Commission's interpretation of risk-sharing in           7395    Oct. 5, 1972  37 FR 20937.
 pooling-of-interest accounting.
Amendment of previous interpretation (AS-130) of         7606   Jan. 18, 1973  38 FR 1734.
 risk-sharing test in pooling-of-interest
 accounting.
Commission expresses concern with failure of             7856   July 10, 1973  38 FR 18366.
 issuers to timely file periodic and current
 reports.
Commission's conclusion as to certain problems           7955  Sept. 10, 1973  38 FR 24635.
 relating to the effect of treasury stock
 transaction on accounting for business
 combinations.
Commission request for comments on Accounting            8025   Oct. 17, 1973  38 FR 28819.
 Series Release No. 146.

[[Page 1303]]

 
Commission's statement on procedure to be followed       8236    Mar. 7, 1974  39 FR 8916.
 upon issuance of a notice pursuant to Rule 0-5.
Commission's statement of policy and                    7955A   Apr. 12, 1974  39 FR 14588.
 interpretations.
Commission's views on business combinations              8410    July 3, 1974  39 FR 26719.
 involving open-end investment companies.
Commission's guidelines for filings related to           8433   July 22, 1974  39 FR 28520.
 extractive reserves and natural gas supplies.
Commission's statement on two-tier real estate           8456   Sept. 5, 1974  39 FR 32129.
 investment companies.
Division of Investment Management Regulation             8752   Apr. 24, 1975  40 FR 17986.
 Interpretive Position Relating to Rule 22c-1.
Commission's guidelines in Accounting Series             8819   June 13, 1975  40 FR 27441.
 Release No. 148.
Commission's guidelines for filing of application        8959    Oct. 2, 1975  40 FR 45424.
 for Order permitting registration of foreign
 investment companies.
Commission's statements of investment policies of        9011   Oct. 30, 1975  40 FR 54241.
 money market funds relating to industry
 concentration.
Procedures for filing and processing registration        9426  Sept. 13, 1976  41 FR 39012.
 statements and post-effective amendments filed by                             41 FR 46851.
 registered investment companies.
Valuation of debt instruments by money market funds      9786    May 31, 1977  42 FR 28999.
 and certain other open end investment companies.
Rescission of certain accounting series releases...      9817   June 15, 1977  42 FR 33282.
Withdrawal of undertaking required of investment         9889   Aug. 12, 1977  42 FR 42196.
 companies.
Disclosure of management remuneration..............      9900   Aug. 18, 1977  42 FR 43058;
                                                                               42 FR 46047.
Bearing of distribution expenses by mutual funds...      9915   Aug. 31, 1977  42 FR 44810.
Division of investment management interpretative         9932  Sept. 15, 1977  42 FR 47553.
 position relating to rights offerings by closed-
 end investment companies below net asset value.
Disclosure of management remuneration..............     10112    Feb. 6, 1978  43 FR 6060.
Sales load variation in special offerings to permit     10419    Oct. 4, 1978  43 FR 47492;
 mutual fund shareholders to purchase additional                               43 FR 52022.
 shares.
Disclosure of management remuneration..............     10597   Feb. 22, 1979  44 FR 16368.
General statement of policy regarding exemptive         10653    Apr. 5, 1979  44 FR 21629.
 provisions relating to annuity and insurance
 contracts.
General statement of policy regarding securities        10666   Apr. 18, 1979  44 FR 25128.
 trading practices of registered investment
 companies.
Shareholder communications, shareholder                 10860   Sept. 6, 1979  44 FR 53426.
 participation in the corporate electoral process
 and corporate governance generally.
Statement of staff position on pooled income funds.     11016   Jan. 10, 1980  45 FR 3258.
Effect of credit controls on the operations of          11088   Mar. 14, 1980  45 FR 17954.
 certain registered investment companies including
 money market refunds.
Effective of the termination of credit controls on      11263   July 21, 1980  45 FR 49917.
 the operations of certain registered investment
 companies including money market funds.
Indemnification by investment companies............     11330   Sept. 4, 1980  45 FR 62423;
                                                                               45 FR 67082.
Issuance of ``Retail Repurchase Agreements'' by         11958  Sept. 25, 1981  46 FR 48637.
 banks and savings and loan associations.
Effect of revenue ruling 81-225 on issuers and          11960  Sept. 28, 1981  46 FR 48640.
 holders of certain variable annuity contracts.
Disclosure of management remuneration..............     12070    Dec. 3, 1981  46 FR 60421.
Statement of staff position on adoption of              12274    Mar. 5, 1982  47 FR 10518.
 permanent notification forms for business
 development companies.
Statement of staff position regarding securities        13005    Feb. 2, 1983  48 FR 5894.
 trading practices of registered investment
 companies.
Public statements by corporate representatives.....     13718   Jan. 13, 1984  49 FR 2469.
Statement of position of Commission's Division of       14492   Apr. 30, 1985  50 FR 19339.
 Investment Management.
Statement of the Commission Regarding Disclosure        16509    Aug. 1, 1988  53 FR 29228.
 Obligations of Companies Affected by the
 Government's Defense Contract Procurement Inquiry
 and Related Issues.
Management's discussion and analysis of financial       16961    May 18, 1989  54 FR 22427.
 condition and results of operations; certain
 investment company disclosure.
Status under the Investment Company Act of 1940 of      17681   Aug. 17, 1990  55 FR 34551.
 United States Branches or Agencies of Foreign
 Banks Issuing Securities;Interpretive Release.
Ownership reports and trading by officers,              18114   Apr. 26, 1991  56 FR 19928.
 directors and principal security holders.
Use of electronic media for delivery purposes......     21399    Oct. 6, 1995  60 FR 53467.
Use of electronic media for delivery purposes......     21945     May 9, 1996  60 FR 24651.
Statement of the Commission Regarding Use of            23071   Mar. 23, 1998  63 FR 14813
 Internet Web Sites to Offer Securities, Solicit
 Securities Transactions or Advertise Investment
 Services Offshore.
Statement of the Commission Regarding Disclosure of     23366   July 29, 1998  63 FR 41404.
 Year 2000 Issues and Consequences by Public
 Companies, Investment Advisers, Investment
 Companies, and Municipal Securities Issuers.

[[Page 1304]]

 
Interpretive Matters Concerning Independent             24083   Oct. 14, 1999  64 FR 59877.
 Directors of Investment Companies..
Use of electronic media............................     24426   Apr. 28, 2000  65 FR 25857.
Commission Guidance on Mini-Tender Offers and           24564   July 24, 2000  65 FR 46588.
 Limited Partnership Tender Offers.
Exemption From Section 101(c)(1) of the Electronic      24582   July 27, 2000  65 FR 47284.
 Signatures in Global and National Commerce Act for
 Registered Investment Companies.
Application of the Electronic Signatures in Global      25003   June 14, 2001  66 FR 33176.
 and National Commerce Act to Record Retention
 Requirements Pertaining to Issuers.
Commission Guidance Regarding Prohibited Conduct in     26828   April 7, 2005  70 FR 19672.
 Connection with IPO Allocations.
Commission Guidance Regarding Accounting for Sales      27178     December 5,  70 FR 73345
 of Vaccines and Bioterror Countermeasures to the                        2005
 Federal Government for Placement Into the
 Pediatric Vaccine Stockpile or the Strategic
 National Stockpile.
Commission Guidance on the Use of Company Web Sites     28351  August 1, 2008  73 FR 45874
Commission Guidance Regarding the Definition of the  IC-31684   June 19, 2015  80 FR 37537
 Terms ``Spouse'' and ``Marriage'' Following the
 Supreme Court's Decision in United States v.
 Windsor.
Commission Guidance Regarding Revenue Recognition    IC-32784   Aug. 18, 2017  82 FR 41148
 for Bill-and-Hold Arrangements.
Updates to Commission Guidance Regarding Accounting  IC-32785   Aug. 18, 2017  82 FR 41151
 for Sales of Vaccines and Bioterror
 Countermeasures to the Federal Government for
 Placement into the Pediatric Vaccine Stockpile or
 the Strategic National Stockpile.
Commission Guidance Regarding the Proxy Voting       IC-33605   Aug. 21, 2019  84 FR 47426
 Responsibilities of Investment Advisers.
----------------------------------------------------------------------------------------------------------------



PART 274_FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940--
Table of Contents



Sec.
274.0-1 Availability of forms.

                    Subpart A_Registration Statements

274.5 Form N-5, for registration statement of small business investment 
          company under the Securities Act of 1933 and the Investment 
          Company Act of 1940.
274.10 Form N-8A, for notification of registration.
274.11 Form N-1, registration statement of open end management 
          investment companies.
274.11A Form N-1A, registration statement of open-end management 
          investment companies.
274.11a-1 Form N-2, registration statement of closed end management 
          investment companies.
274.11b Form N-3, registration statement of separate accounts organized 
          as management investment companies.
274.11c Form N-4, registration statement of separate accounts organized 
          as unit investment trusts.
274.11d Form N-6, registration statement of separate accounts organized 
          as unit investment trusts that offer variable life insurance 
          policies.
274.12 Form N-8B-2, registration statement of unit investment trusts 
          which are currently issuing securities.
274.13 Form N-8B-3, registration statement of unincorporated management 
          investment companies currently issuing periodic payment plan 
          certificates.
274.14 Form N-8B-4, registration statements of face-amount certificate 
          companies.
274.15 Form N-6F, notice of intent to elect to be subject to sections 55 
          through 65 of the Investment Company Act of 1940.
274.24 Form 24F-2, annual filing of securities sold pursuant to 
          registration of certain investment company securities.
274.51 Form N-18F-1, for notification of election pursuant to Sec.
          270.18f-1 of this chapter.
274.53 Form N-54A, notification of election to be subject to sections 55 
          through 65 of the Investment Company Act of 1940 filed 
          pursuant to section 54(a) of the Act.
274.54 Form N-54C, notification of withdrawal of election to be subject 
          to sections 55 through 65 of the Investment Company Act of 
          1940 filed pursuant to section 54(c) of the Investment Company 
          Act of 1940.

                       Subpart B_Forms for Reports

Sec.274.101 Form N-CEN, annual report of registered investment 
          companies.
274.102-274.126 [Reserved]
274.127d-1 Form N-27D-1, accounting of segregated trust account.
274.127e-1 Form N-27E-1, notice to periodic payment plan certificate 
          holders of 18-month surrender rights with respect to periodic 
          payment plan certificates.

[[Page 1305]]

274.127f-1 Form N-27F-1, notice of periodic payment plan certificate 
          holders of 45-day withdrawal right with respect to periodic 
          payment plan certificates.
274.128 Form N-CSR, certified shareholder report.
274.129 Form N-PX, annual report of proxy voting record of registered 
          management investment company.
274.130 Form N-Q, quarterly schedule of portfolio holdings of registered 
          management investment company.
274.150 Form N-PORT, Monthly portfolio holdings report.
274.200 Form N--17D-1, report filed by small business investment company 
          (SBIC) registered under the Investment Company Act of 1940 and 
          an affiliated bank, with respect to investments by the SBIC 
          and the bank, submitted pursuant to paragraph (d)(3) of Sec.
          270.17d-1 of this chapter.

                  Subpart C_Forms for Other Statements

274.201 Form N-MFP, portfolio holdings of money market funds.
274.202 Form 3, initial statement of beneficial ownership of securities.
274.203 Form 4, statement of changes in beneficial ownership of 
          securities.
274.218 Form N-8F, application for deregistration of certain registered 
          investment companies.
274.219 Form N-17f-1, cover page for each certificate of accounting of 
          securities and similar investments of a management investment 
          company in the custody of a member of a national securities 
          exchange, filed pursuant to rule 17f-1.
274.220 Form N-17f-2, cover page for each certificate of accounting of 
          securities and similar investments in the custody of a 
          registered management investment company, filed pursuant to 
          rule 17f-2.
274.221 Form N-23c-3, Notification of repurchase offer.
274.222 Form N-CR, Current report of money market fund material events.
274.223 Form N-LIQUID, Current report, open-end investment company 
          liquidity.

                     Subpart D_Forms for Exemptions

274.301 Notification of claim of exemption pursuant to Rule 6e-2 or Rule 
          6e-3(T) under the Investment Company Act.
274.302 Form N-27I-1, notice of right of withdrawal and refund for 
          variable life insurance contractholders required pursuant to 
          Rule 6e-2 (Sec.270.6e-2 of this chapter).
274.303 Form N-27I-2, notice of withdrawal right and statement of 
          charges for variable life insurance contractholders required 
          pursuant to Rule 6e-2 (Sec.270.6e-2 of this chapter).

                  Subpart E_Forms for Electronic Filing

274.401 [Reserved]
274.402 Form ID, uniform application for access codes to file on EDGAR.
274.403 Form SE, form for submission of paper format exhibits by 
          electronic filers.
274.404 Form TH--Notification of reliance on temporary hardship 
          exemption.

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 
78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and Pub. L. 111-203, Sec.939A, 
124 Stat. 1376 (2010), unless otherwise noted.
    Section 274.128 is also issued under 15 U.S.C. 78j-1, 7202, 7233, 
7241, 7264, and 7265; and 18 U.S.C. 1350.

    Source: 33 FR 19003, Dec. 20, 1968, unless otherwise noted.



Sec.274.0-1  Availability of forms.

    (a) This part identifies and describes the forms prescribed for use 
under the Investment Company Act of 1940.
    (b) Any person may obtain a copy of any form prescribed for use in 
this part by written request to the Securities and Exchange Commission, 
100 F Street, NE., Washington, DC 20549. Any person may inspect the 
forms at this address and at the Commission's regional offices. (See 
Sec.200.11 of this chapter for the addresses of SEC regional offices)

[46 FR 17757, Mar. 20, 1981, as amended at 47 FR 26820, June 22, 1982; 
59 FR 5946, Feb. 9, 1994; 73 FR 32228, June 5, 2008]



                    Subpart A_Registration Statements



Sec.274.5  Form N-5, for registration statement of small business 
investment company under the Securities Act of 1933 and the Investment
Company Act of 1940.

    This form shall be used for the registration statement under both 
sections 6 and 7 of the Securities Act of 1933 (15 U.S.C. 77f, 77g) and 
section 8(b) of the Investment Company Act of 1940 (15 U.S.C. 80a-8(b)), 
by a small business investment company which is licensed as such under 
the Small Business Investment Act of 1958 or which has received 
preliminary approval of the Small Business Administration and has been 
notified by that Administration that it may submit a license 
application.

[[Page 1306]]


    Editorial Note: For Federal Register citations affecting Form N-5, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.10  Form N-8A, for notification of registration.

    This form shall be used as the notification of registration filed 
with the Commission pursuant to section 8(a) of the Investment Company 
Act of 1940.

    Editorial Note: For Federal Register citations affecting Form N-8A, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.11  Form N-1, registration statement of open-end management
investment companies.

    Form N-1 shall be used as the registration statement to be filed 
pursuant to Section 8(b) of the Investment Company Act of 1940 by open-
end management investment companies that are separate accounts of 
insurance companies. This form shall also be used for registration under 
the Securities Act of 1933 of the securities of all such companies. This 
form is not applicable for small business investment companies which 
register pursuant to Sec.Sec.239.24 and 274.5 of this chapter.

[49 FR 32060, Aug. 10, 1984, as amended at 59 FR 52701, Oct. 19, 1994]

    Editorial Note: For Federal Register citations affecting Form N-1, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.11A  Form N-1A, registration statement of open-end management
investment companies.

    Form N-1A shall be used as the registration statement to be filed 
pursuant to section 8(b) of the Investment Company Act of 1940 by open-
end management investment companies other than separate accounts of 
insurance companies or companies which issue periodic payment plan 
certificates or which are sponsors or depositors of companies issuing 
such certificates. This form shall be used for registration under the 
Securities Act of 1933 of the securities of all open-end management 
investment companies other than registered separate accounts of 
insurance companies. This form is not applicable for small business 
investment companies which register pursuant to Sec.Sec.293.24 and 
274.5 of this chapter.

[48 FR 37940, Aug. 22, 1983, as amended at 59 FR 52701, Oct. 19, 1994]

    Editorial Note: For Federal Register citations affecting Form N-1A, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.11a-1  Form N-2, registration statement of closed end 
management investment companies.

    This form shall be used as the registration statement to be filed 
pursuant to section 8(b) of the Investment Company Act of 1940 by closed 
end management investment companies other than companies which issue 
periodic payment plan certificates or which are sponsors or depositors 
of companies issuing such certificates. This form also shall be used for 
registration under the Securities Act of 1933 of the securities of all 
closed end management investment companies. This form is not applicable 
for small business investment companies which register pursuant to 
Sec.Sec.239.24 and 274.5 of this chapter.

[43 FR 39553, Sept. 5, 1978, as amended at 59 FR 52701, Oct. 19, 1994]

    Editorial Note: For Federal Register citations affecting Form N-2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.11b  Form N-3, registration statement of separate accounts 
organized as management investment companies.

    Form N-3 shall be used as the registration statement to be filed 
pursuant to section 8(b) of the Investment Company Act of 1940 by 
separate accounts that offer variable annuity contracts to register as 
management investment companies. This form shall also be used for 
registration under the Securities Act of 1933 of the securities of such 
separate accounts (Sec.239.17a of this chapter).

[50 FR 26161, June 25, 1985]

    Editorial Note: For Federal Register citations affecting Form N-3, 
see the List of CFR Sections Affected, which appears in the

[[Page 1307]]

Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.274.11c  Form N-4, registration statement of separate accounts
organized as unit investment trusts.

    Form N-4 shall be used as the registration statement to be filed 
pursuant to section 8(b) of the Investment Company Act of 1940 by 
separate accounts that offer variable annuity contracts to register as 
unit investment trusts. This form shall also be used for registration 
under the Securities Act of 1933 of the securities of such separate 
accounts (Sec.239.17b of this chapter).

[50 FR 26161, June 25, 1985]

    Editorial Note: For Federal Register citations affecting Form N-4, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.11d  Form N-6, registration statement of separate accounts
organized as unit investment trusts that offer variable life insurance
policies.

    Form N-6 shall be used as the registration statement to be filed 
pursuant to section 8(b) of the Investment Company Act of 1940 by 
separate accounts that offer variable life insurance policies to 
register as unit investment trusts. This form shall also be used for 
registration under the Securities Act of 1933 of the securities of such 
separate accounts (Sec.239.17c of this chapter).

[67 FR 19870, Apr. 23, 2002]

    Editorial Note: For Federal Register citations affecting Form N-6, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.12  Form N-8B-2, registration statement of unit investment
trusts that are currently issuing securities.

    This form shall be used as the registration statement to be filed, 
pursuant to section 8(b) of the Investment Company Act of 1940, by unit 
investment trusts other than separate accounts that are currently 
issuing securities, including unit investment trusts that are issuers of 
periodic payment plan certificates.

[67 FR 19870, Apr. 23, 2002]

    Editorial Note: For Federal Register citations affecting Form N-8B-
2, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.13  Form N-8B-3, registration statement of unincorporated
management investment companies currently issuing periodic payment
plan certificates.

    (a) This form shall be used for registration statement to be filed, 
pursuant to section 8(b) of the Investment Company Act of 1940, by 
unincorporated management investment companies currently issuing 
periodic payment plan certificates.

    Editorial Note: For Federal Register citations affecting Form N-8B-
3, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.14  Form N-8B-4, registration statements of face-amount 
certificate companies.

    This form shall be used for registration statements of face-amount 
certificate companies registered under the Investment Company Act of 
1940.

    Editorial Note: For Federal Register citations affecting Form N-8B-
4, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.15  Form N-6F, notice of intent to elect to be subject to
sections 55 through 65 of the Investment Company Act of 1940.

    This form shall be used by a company that would be excluded from the 
definition of an investment company by section 3(c)(1) of the Investment 
Company Act of 1940 [15 U.S.C. 80a-3(c)(1)], except that at the time of 
filing it proposes to make a public offering of its securities as a 
business development company, to notify the Securities and Exchange 
Commission that the company intends in good faith to file, within 90 
days, a notification of election to become subject to the provisions of 
sections 55 through 65 of the Investment Company Act of 1940 [15 U.S.C. 
80a-54 through 64].

[[Page 1308]]


The text of the form is set forth in the appendix to this release. \1\
---------------------------------------------------------------------------

    \1\ A copy of Form N-6F accompanied this release as originally filed 
in the Office of the Federal Register.

---------------------------------------------------------------------------
[47 FR 10520, Mar. 11, 1982]

    Editorial Note: For Federal Register citations affecting Form N-6F, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.24  Form 24F-2, annual filing of securities sold pursuant 
to registration of certain investment company securities.

    Form 24F-2 shall be used as the annual report filed by face amount 
certificate companies, open-end management companies, and unit 
investment trusts pursuant to Sec.270.24f-2 of this chapter for 
reporting securities sold during the fiscal year.

[62 FR 47940, Sept. 12, 1997]

    Editorial Note: For Federal Register citations affecting Form 24F-2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.51  Form N-18F-1, for notification of election pursuant 
to Sec.270.18f-1 of this chapter.

    (a) This form shall be filed with the Commission in triplicate as 
the notification of election pursuant to Sec.270.18f-1 of this chapter 
by a registered open-end investment company to commit itself to pay in 
cash all redemptions requested by a shareholder of record as provided in 
said section.

[36 FR 11920, June 23, 1971 as amended at 36 FR 20504, Oct. 23, 1971; 39 
FR 36003, Oct. 7, 1974; 59 FR 52701, Oct. 19, 1994]

    Editorial Note: For Federal Register citations affecting Form N-18F-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.53  Form N-54A, notification of election to be subject to
sections 55 through 65 of the Investment Company Act of 1940 filed
pursuant to section 54(a) of the Act
          .

    This form shall be used pursuant to section 54(a) of the Investment 
Company Act of 1940 [15 U.S.C. 80a-53(a)] by a company of the type 
defined in sections 2(a)(48) (A) and (B) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-2(a)(48) (A) and (B) to notify the Securities and 
Exchange Commission of its election to be subject to the provisions of 
sections 55 through 65 of said Act [15 U.S.C. 80a-54 through 64].

The text of the form is set forth in the appendix to this release. \2\
---------------------------------------------------------------------------

    \2\ A copy of Form N-54A accompanied this release as originally 
filed in the Office of the Federal Register.

---------------------------------------------------------------------------
[47 FR 10520, Mar. 11, 1982]

    Editorial Note: For Federal Register citations affecting Form N-54A, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.54  Form N-54C, notification of withdrawal of election to be
subject to sections 55 through 65 of the Investment Company Act of 
1940 filed pursuant to section 54(c) of the Investment Company Act
of 1940.
          

    This form shall be used pursuant to section 54(c) of the Investment 
Company Act of 1940 [15 U.S.C. 80a-53(c)] by a business development 
company to file a notice of withdrawal of its election under section 
54(a) of the Investment Company Act of 1940 [15 U.S.C. 80a-53(a)].

The text of the form is set forth in the appendix to this release. \3\
---------------------------------------------------------------------------

    \3\ A copy of Form N-54C accompanied this release as originally 
filed in the Office of the Federal Register.

---------------------------------------------------------------------------
[47 FR 10520, Mar. 11, 1982]

    Editorial Note: For Federal Register citations affecting Form N-54C, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



                       Subpart B_Forms for Reports



Sec.274.101  Form N-CEN, annual report of registered investment
companies.

    This form shall be used by registered investment companies for 
annual reports to be filed pursuant to 17 CFR 270.30a-1.

[81 FR 82023, Nov. 18, 2016]

    Editorial Note: For Federal Register citations affecting Form N-CEN, 
see the List of CFR Sections Affected, which appears in

[[Page 1309]]

the Finding Aids section of the printed volume and at www.govinfo.gov.

    Editorial Note: For Federal Register citations affecting Form N-SAR, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.Sec.274.102-274.126  [Reserved]



Sec.274.127d-1  Form N-27D-1 accounting of segregated trust account.

    This form shall be completed and filed with the Commission as a 
report required by Sec.270.27d-1 of this chapter by each depositor or 
principal underwriter, within 15 days after the close of each quarter 
during the first 2 years after the effective date of Sec.270.27d-1 of 
this chapter, and thereafter this form shall be filed annually on or 
before January 31 of the following calendar year. Each investment 
company for which a segregated trust account is established shall be 
listed on the cover page. Two copies of the form, plus an additional 
copy for each registered investment company covered, shall be filed and 
the filing shall be signed by an authorized representative of the 
depositor or underwriter.

[36 FR 24056, Dec. 18, 1971]

    Editorial Note: For Federal Register citations affecting Form N-27D-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.127e-1  Form N-27E-1, notice to periodic payment plan
certificate holders of 18-month surrender rights with respect
to periodic payment plan certificates.
          

    This form is to be reproduced by the issuer or any depositor of or 
underwriter for such issuer and will not be available at the Securities 
and Exchange Commission. For required text of the form see paragraph (f) 
of Sec.270.27e-1 of this chapter.

[36 FR 13139, July 15, 1971]

    Editorial Note: For Federal Register citations affecting Form N-27E-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.127f-1  Form N-27F-1, notice to periodic payment plan
certificate holders of 45-day withdrawal right with respect 
to periodic payment plan certificates.
          

    This form is to be reproduced by the issuer or any depositor of or 
underwriter for such issuer and will not be available at the Securities 
and Exchange Commission. For required text of the form see paragraph (d) 
of Sec.270.27f-1 of this chapter.

[45 FR 17958, Mar. 20, 1980]

    Editorial Note: For Federal Register citations affecting Form N-27F-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.128  Form N-CSR, certified shareholder report.

    This form shall be used by registered management investment 
companies to file reports pursuant to Sec.270.30b2-1(a) of this 
chapter not later than 10 days after the transmission to stockholders of 
any report that is required to be transmitted to stockholders under 
Sec.270.30e-1 of this chapter.

[68 FR 5368, Feb. 3, 2003]

    Editorial Note: For Federal Register citations affecting Form N-CSR, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.129  Form N-PX, annual report of proxy voting record
of registered management investment company.

    This form shall be used by registered management investment 
companies, other than small business investment companies registered on 
Form N-5 (Sec.Sec.239.24 and 274.5 of this chapter), for annual 
reports to be filed not later than August 31 of each year, containing 
the company's proxy voting record for the most recent twelve-month 
period ended June 30, pursuant to section 30 of the Investment Company 
Act of 1940 and Sec.270.30b1-4 of this chapter.

[68 FR 6584, Feb. 7, 2003]

    Editorial Note: For Federal Register citations affecting Form N-PX, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

[[Page 1310]]



Sec.274.130  Form N-Q, quarterly schedule of portfolio holdings
of registered management investment company.

    This form shall be used by registered management investment 
companies, other than small business investment companies registered on 
Form N-5 (Sec.Sec.239.24 and 274.5 of this chapter), to file reports 
pursuant to Sec.270.30b1-5 of this chapter not later than 60 days 
after the close of the first and third quarters of each fiscal year.

[69 FR 11271, Mar. 9, 2004]

    Editorial Note: For Federal Register citations affecting Form N-Q, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

    Effective Date Note: At 81 FR 82066, Nov. 18, 2016, Sec.274.130 
was removed, effective Aug. 1, 2019. At 82 FR 58731, Dec. 14, 2017, this 
removal was delayed until May 1, 2020.



Sec.274.150  Form N-PORT, Monthly portfolio holdings report.

    (a) Except as provided in paragraph (b) of this section, this form 
shall be used by registered management investment companies or exchange-
traded funds organized as unit investment trusts, or series thereof, to 
file reports pursuant to Sec.270.30b1-9 of this chapter not later than 
60 days after the end of each fiscal quarter.
    (b) Form N-PORT shall not be filed by a registered open-end 
management investment company that is regulated as a money market fund 
under Sec.270.2a-7 of this chapter or a small business investment 
company registered on Form N-5 (Sec.Sec.239.24 and 274.5 of this 
chapter), or series thereof.
    Note: The text of Form N-PORT will not appear in the Code of Federal 
Regulations.

[84 FR 7988, Mar. 6, 2019]

    Editorial Note: For Federal Register citations affecting Form N-
PORT, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.274.200  Form N-17D-1, report filed by small business investment
company (SBIC) registered under the Investment Company Act of 1940 
and an affiliated bank, with respect to investments by the SBIC and
the bank,submitted pursuant to paragraph (d)(3) of Sec.270.17d-1 of 
this chapter.

    This form shall be filed pursuant to Rule 17d-2 (Sec.270.17d-2 of 
this chapter) as the report required, under subparagraph (d)(3) of Rule 
17d-1 (Sec.270.17d-1(d)(3) of this chapter), to be filed, either 
jointly or separately, by a small business investment company (SBIC) 
licensed as such under the Small Business Investment Act of 1958, and by 
a bank which is an affiliated person of either the SBIC or of an 
affiliated person of the SBIC, with respect to investments in a small 
business concern by the SBIC and the bank.

    Editorial Note: For Federal Register citations affecting Form N-17D-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



                  Subpart C_Forms for Other Statements



Sec.274.201  Form N-MFP, portfolio holdings of money market funds.

    This form shall be used by registered open-end management investment 
companies that are regulated as money market funds under Sec.270.2a-7 
of this chapter to file reports pursuant to Sec.270.30b1-7 of this 
chapter no later than the fifth business day of each month.

[75 FR 10118, Mar. 4, 2010]

    Editorial Note: For Federal Register citations affecting Form N-MFP, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.202  Form 3, initial statement of beneficial ownership 
of securities.

    This form shall be filed pursuant to Sec.270.30h-1 for initial 
statements of beneficial ownership of securities required to be filed 
pursuant to section 30(h) of the Investment Company Act of 1940 (15 
U.S.C. 80a-29(h)). (Same as Sec.249.103 of this chapter.)

[67 FR 43537, June 28, 2002]

[[Page 1311]]


    Editorial Note: For Federal Register citations affecting Form 3, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.203  Form 4, statement of changes in beneficial ownership 
of securities.

    This form shall be filed pursuant to Sec.270.30h-1 for statements 
of changes in beneficial ownership of securities required to be filed 
pursuant to section 30(h) of the Investment Company Act of 1940 (15 
U.S.C. 80a-29(h)). (Same as Sec.249.104 of this chapter.)

[67 FR 43537, June 28, 2002]

    Editorial Note: For Federal Register citations affecting Form 4, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.218  Form N-8F, application for deregistration of certain 
registered investment companies.

    This form must be used as the application for an order of the 
Commission in cases in which the applicant is a registered investment 
company that:
    (a) Has sold substantially all of its assets to another registered 
investment company or merged into or consolidated with another 
registered investment company;
    (b) Has distributed substantially all of its assets to its 
shareholders and has completed, or is in the process of, winding up its 
affairs;
    (c) Qualifies for an exclusion from the definition of ``investment 
company'' under section 3(c)(1) (15 U.S.C. 80a-3(c)(1)) or section 
3(c)(7) (15 U.S.C. 80a-3(c)(7)) of the Act; or
    (d) Has become a business development company.

[64 FR 19471, Apr. 21, 1999]

    Editorial Note: For Federal Register citations affecting Form N-8F, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.219  Form N-17f-1, cover page for each certificate of 
accounting of securities and similar investments of a management
investment company in the custody of a member of a national 
securities exchange, filed pursuant to rule 17f-1.
          

[54 FR 32049, Aug. 4, 1989]

    Editorial Note: For Federal Register citations affecting Form N-17f-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.220  Form N-17f-2, cover page for each certificate of
accounting of securities and similar investments in the custody
of a registered management investment company, filed pursuant
to rule 17f-2.

[54 FR 32049, Aug. 4, 1989]

    Editorial Note: For Federal Register citations affecting Form
    N-17f-2, see the List of CFR Sections Affected, which appears
    in the Finding Aids section of the printed volume and at
    www.govinfo.gov.



Sec.274.221  Form N-23c-3, Notification of repurchase offer.

    Form N-23c-3 shall be filed with copies of notifications of 
repurchase offers submitted to the Commission as required under rule 
23c-3 (Sec.270.23c-3 of this chapter).

[58 FR 19345, Apr. 14, 1993]

    Editorial Note: For Federal Register citations affecting Form N-23c-
3, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.222  Form N-CR, Current report of money market fund material events.

    This form shall be used by registered investment companies that are 
regulated as money market funds under Sec.270.2a-7 of this chapter to 
file current reports pursuant to Sec.270.30b1-8 of this chapter within 
the time periods specified in the form.

[79 FR 47973, Aug. 14, 2014]

    Editorial Note: For Federal Register citations affecting Form N-CR, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

[[Page 1312]]



Sec.274.223  Form N-LIQUID, Current report, open-end investment
company liquidity.

    This form shall be used by registered open-end management investment 
companies, or series thereof, but not including a company or series 
thereof that is regulated as a money market fund under Sec.270.2a-7 of 
this chapter, to file reports pursuant to Sec.270.30b1-10 of this 
chapter.

[81 FR 82268, Nov. 18, 2016]

    Editorial Note: For Federal Register citations affecting Form N-
LIQUID, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



                     Subpart D_Forms for Exemptions

    Authority: Secs. 6(c), (15 U.S.C. 80a-6(c)), 6(e), (15 U.S.C. 80a-
6(e)), 38(a), 15 U.S.C. 80a-37(a) of the Act.



Sec.274.301  Notification of claim of exemption pursuant to Rule 6e-2
or Rule 6e-3(T) under the Investment Company Act.

    This form shall be filed with the Commission as required by Sec.
270.6e-2 or Sec.270.6e-3(T) of this chapter by each insurance company 
with respect to each separate account for which exemption is claimed 
pursuant to Sec.270.6e-2 or Sec.270.6e-3(T).

[49 FR 47228, Dec. 3, 1984]

    Editorial Note: For Federal Register citations affecting Form N-6EI-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.302  Form N-27I-1, notice of right of withdrawal and refund 
for variable life insurance contractholders required pursuant to Rule
6e-2 (Sec.270.6e-2 of this chapter).
          

[41 FR 47032, Oct. 27, 1976]

    Editorial Note: For Federal Register citations affecting Form N-27I-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.274.303  Form N-27I-2, notice of withdrawal right and statement
of charges for variable life insurance contractholders required 
pursuant to Rule 6e-2 (Sec.270.6e-2 of this chapter).
          

[41 FR 47032, Oct. 27, 1976]

    Editorial Note: For Federal Register citations affecting Form N-27I-
2, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



                  Subpart E_Forms for Electronic Filing

    Source: 50 FR 40485, Oct. 4, 1985, unless otherwise noted.



Sec.274.401  [Reserved]



Sec.274.402  Form ID, uniform application for access codes to file
on EDGAR.

    Form ID must be filed by registrants, third party filers, or their 
agents, to whom the Commission previously has not assigned a Central 
Index Key (CIK) code, to request the following access codes to permit 
filing on EDGAR:
    (a) Central Index Key (CIK)--uniquely identifies each filer, filing 
agent, and training agent.
    (b) CIK Confirmation Code (CCC)--used in the header of a filing in 
conjunction with the CIK of the filer to ensure that the filing has been 
authorized by the filer.
    (c) Password (PW)--allows a filer, filing agent or training agent to 
log on to the EDGAR system, submit filings, and change its CCC.
    (d) Password Modification Authorization Code (PMAC)--allows a filer, 
filing agent or training agent to change its Password.

[69 FR 22711, Apr. 26, 2004]

    Editorial Note: For Federal Register citations affecting Form ID, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.403  Form SE, form for submission of paper format exhibits 
by electronic filers.

    This form shall be used by an electronic filer for the submission of 
any paper format document relating to an otherwise electronic filing, as 
provided

[[Page 1313]]

in rule 311 of Regulation S-T (Sec.232.311 of this chapter).

[58 FR 14861, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form SE, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.274.404  Form TH--Notification of reliance on temporary hardship
exemption.

    Form TH shall be filed by any electronic filer who submits to the 
Commission, pursuant to a temporary hardship exemption, a document in 
paper format that otherwise would be required to be submitted 
electronically, as prescribed by rule 201(a) of Regulation S-T (Sec.
232.201(a) of this chapter).

[58 FR 14861, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form TH, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



PART 275_RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940--
Table of Contents



Sec.
275.0-2 General procedures for serving non-residents.
275.0-3 References to rules and regulations.
275.0-4 General requirements of papers and applications.
275.0-5 Procedure with respect to applications and other matters.
275.0-6 Incorporation by reference in applications.
275.0-7 Small entities under the Investment Advisers Act for purposes of 
          the Regulatory Flexibility Act.
275.202(a)(1)-1 Certain transactions not deemed assignments.
275.202(a)(11)(G)-1 Family offices.
275.202(a)(30)-1 Foreign private advisers.
275.203-1 Application for investment adviser registration.
275.203-2 Withdrawal from investment adviser registration.
275.203-3 Hardship exemptions.
275.203(l)-1 Venture capital fund defined.
275.203(m)-1 Private fund adviser exemption.
275.203A-1 Eligibility for SEC registration; switching to or from SEC 
          registration.
275.203A-2 Exemptions from prohibition on Commission registration.
275.203A-3 Definitions.
275.203A-4--203A-6 [Reserved]
275.204-1 Amendments to Form ADV
275.204-2 Books and records to be maintained by investment advisers.
275.204-3 Delivery of brochures and brochure supplements.
275.204-4 Reporting by exempt reporting advisers.
275.204-5 Delivery of Form CRS.
275.204(b)-1 Reporting by investment advisers to private funds.
275.204A-1 Investment adviser codes of ethics.
275.205-1 Definition of ``investment performance'' of an investment 
          company and ``investment record'' of an appropriate index of 
          securities prices.
275.205-2 Definition of ``specified period'' over which the asset value 
          of the company or fund under management is averaged.
275.205-3 Exemption from the compensation prohibition of section 
          205(a)(1) for investment advisers.
275.206(3)-1 Exemption of investment advisers registered as broker-
          dealers in connection with the provision of certain investment 
          advisory services.
275.206(3)-2 Agency cross transactions for advisory clients.
275.206(4)-1 Advertisements by investment advisers.
275.206(4)-2 Custody of funds or securities of clients by investment 
          advisers.
275.206(4)-3 Cash payments for client solicitations.
275.206(4)-4 [Reserved]
275.206(4)-5 Political contributions by certain investment advisers.
275.206(4)-6 Proxy voting.
275.206(4)-7 Compliance procedures and practices.
275.206(4)-8 Pooled investment vehicles.
275.222-1 Definitions.
275.222-2 Definition of ``client'' for purposes of the national de 
          mimimis standard.

    Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-2(a)(17), 
80b-3, 80b-4, 80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless otherwise 
noted.
    Section 275.203A-1 is also issued under 15 U.S.C. 80b-3a.
    Section 275.203A-2 is also issued under 15 U.S.C. 80b-3a.
    Section 275.203A-3 is also issued under 15 U.S.C. 80b-3a.
    Section 275.204-1 is also issued under Sec.407 and 408, Pub. L. 
111-203, 124 Stat. 1376.
    Section 275.204-2 is also issued under 15 U.S.C. 80b-6.
    Section 275.205-3 is also issued under 15 U.S.C. 80b-5(e).
    Section 275.204-4 is also issued under Sec.407 and 408, Pub. L. 
111-203, 124 Stat. 1376.
    Section 275.204-5 is also issued under Sec.913, Public Law 111-203, 
Sec.124 Stat. 1827-28 (2010).

[[Page 1314]]

    Section 275.211h-1 is also issued under Sec.913, Public Law 111-
203, Sec.124 Stat. 1827-28 (2010).



Sec.275.0-2  General procedures for serving non-residents.

    (a) General procedures for serving process, pleadings, or other 
papers on non-resident investment advisers, general partners and 
managing agents. Under Forms ADV and ADV-NR [17 CFR 279.1 and 279.4], a 
person may serve process, pleadings, or other papers on a non-resident 
investment adviser, or on a non-resident general partner or non-resident 
managing agent of an investment adviser by serving any or all of its 
appointed agents:
    (1) A person may serve a non-resident investment adviser, non-
resident general partner, or non-resident managing agent by furnishing 
the Commission with one copy of the process, pleadings, or papers, for 
each named party, and one additional copy for the Commission's records.
    (2) If process, pleadings, or other papers are served on the 
Commission as described in this section, the Secretary of the Commission 
(Secretary) will promptly forward a copy to each named party by 
registered or certified mail at that party's last address filed with the 
Commission.
    (3) If the Secretary certifies that the Commission was served with 
process, pleadings, or other papers pursuant to paragraph (a)(1) of this 
section and forwarded these documents to a named party pursuant to 
paragraph (a)(2) of this section, this certification constitutes 
evidence of service upon that party.
    (b) Definitions. For purposes of this section:
    (1) Managing agent means any person, including a trustee, who 
directs or manages, or who participates in directing or managing, the 
affairs of any unincorporated organization or association other than a 
partnership.
    (2) Non-resident means:
    (i) An individual who resides in any place not subject to the 
jurisdiction of the United States;
    (ii) A corporation that is incorporated in or that has its principal 
office and place of business in any place not subject to the 
jurisdiction of the United States; and
    (iii) A partnership or other unincorporated organization or 
association that has its principal office and place of business in any 
place not subject to the jurisdiction of the United States.
    (3) Principal office and place of business has the same meaning as 
in Sec.275.203A-3(c) of this chapter.

[65 FR 57448, Sept. 22, 2000]



Sec.275.0-3  References to rules and regulations.

    The term rules and regulations refers to all rules and regulations 
adopted by the Commission pursuant to the Act, including the forms for 
registration and reports and the accompanying instructions thereto.

[30 FR 4129, Mar. 30, 1965]



Sec.275.0-4  General requirements of papers and applications.

    (a) Filings. (1) All papers required to be filed with the Commission 
shall, unless otherwise provided by the rules and regulations, be 
delivered through the mails or otherwise to the Securities and Exchange 
Commission, Washington, DC 20549. Except as otherwise provided by the 
rules and regulations, such papers shall be deemed to have been filed 
with the Commission on the date when they are actually received by it.
    (2) All filings required to be made electronically with the 
Investment Adviser Registration Depository (``IARD'') shall, unless 
otherwise provided by the rules and regulations in this part, be deemed 
to have been filed with the Commission upon acceptance by the IARD. 
Filings required to be made through the IARD on a day that the IARD is 
closed shall be considered timely filed with the Commission if filed 
with the IARD no later than the following business day.
    (3) Filings required to be made through the IARD during the period 
in December of each year that the IARD is not available for submission 
of filings shall be considered timely filed with the Commission if filed 
with the IARD no later than the following January 7.

    Note to paragraph (a)(3): Each year the IARD shuts down to filers 
for several days

[[Page 1315]]

during the end of December to process renewals of state notice filings 
and registrations. During this period, advisers are not able to submit 
filings through the IARD. Check the Commission's Web site at http://
www.sec.gov/iard for the dates of the annual IARD shutdown.

    (b) Formal specifications respecting applications. Every application 
for an order under any provision of the Act, for which a form with 
instructions is not specifically prescribed, and every amendment to such 
application, shall be filed in quintuplicate. One copy shall be signed 
by the applicant, but the other four copies may have facsimile or typed 
signatures. Such applications shall be on paper no larger than 8\1/2\ x 
11 inches in size. To the extent that the reduction of larger documents 
would render them illegible, those documents may be filed on paper 
larger than 8\1/2\ x 11 inches in size. The left margin should be at 
least 1\1/2\ inches wide and, if the application is bound, it should be 
bound on the left side. All typewritten or printed matter (including 
deficits in financial statements) should be set forth in black so as to 
permit photocopying and microfilming.
    (c) Authorization respecting applications. (1) Every application for 
an order under any provision of the Act, for which a form with 
instructions is not specifically prescribed and which is executed by a 
corporation, partnership, or other company and filed with the 
Commission, shall contain a concise statement of the applicable 
provisions of the articles of incorporation, bylaws, or similar 
documents, relating to the right of the person signing and filing such 
application to take such action on behalf of the applicant, and a 
statement that all such requirements have been complied with and that 
the person signing and filing the same is fully authorized to do so. If 
such authorization is dependent on resolutions of stockholders, 
directors, or other bodies, such resolutions shall be attached as an 
exhibit to, or the pertinent provisions thereof shall be quoted in, the 
application.
    (2) If an amendment to any such application shall be filed, such 
amendment shall contain a similar statement or, in lieu thereof, shall 
state that the authorization described in the original application is 
applicable to the individual who signs such amendment and that such 
authorization still remains in effect.
    (3) When any such application or amendment is signed by an agent or 
attorney, the power of attorney evidencing his authority to sign shall 
contain similar statements and shall be filed with the Commission.
    (d) Verification of applications and statements of fact. Every 
application for an order under any provision of the Act, for which a 
form with instructions is not specifically prescribed and every 
amendment to such application, and every statement of fact formally 
filed in support of, or in opposition to, any application or declaration 
shall be verified by the person executing the same. An instrument 
executed on behalf of a corporation shall be verified in substantially 
the following form, but suitable changes may be made in such form for 
other kinds of companies and for individuals:

    State of __________________ County of __________, SS:______
    The undersigned being duly sworn deposes and says that he has duly 
executed the attached __________ dated _____, 19__, for and on behalf of 
____________ (Name of company); that he is the ________ (Title of 
officer) of such company; and that all action by stockholders, 
directors, and other bodies necessary to authorize deponent to execute 
and file such instrument has been taken. Deponent further says that he 
is familiar with such instrument, and the contents thereof, and that the 
facts therein set forth are true to the best of his knowledge, 
information and belief.

(Signature)_____________________________________________________________

(Type or print name beneath)____________________________________________
    Subscribed and sworn to before me a __________ (Title of officer) 
this _____ day of _____, 19__.

    [official seal]

    My commission expires______

    (e) Statement of grounds for application. Each application should 
contain a brief statement of the reasons why the applicant is deemed to 
be entitled to the action requested with a reference to the provisions 
of the Act and of the rules and regulations under which application is 
made.

[[Page 1316]]

    (f) Name and address. Every application shall contain the name and 
address of each applicant and the name and address of any person to whom 
any applicant wishes any question regarding the application to be 
directed.
    (g) Proposed notice. A proposed notice of the proceeding initiated 
by the filing of the application shall accompany each application as an 
exhibit thereto and, if necessary, shall be modified to reflect any 
amendments to such application.
    (h) Definition of application. For purposes of this rule, an 
``application'' means any application for an order of the Commission 
under the Act other than an application for registration as an 
investment adviser.
    (i) The manually signed original (or in the case of duplicate 
original) one duplicate originals of all registrations, applications, 
statements, reports, or other documents filed under the Investment 
Advisers Act of 1940, as amended, shall be numbered sequentially (in 
addition to any internal numbering which otherwise may be present) by 
handwritten, typed, printed, or other legible form of notation from the 
facing page of the document through the last page of that document and 
any exhibits or attachments thereto. Further, the total number of pages 
contained in a numbered original shall be set forth on the first page of 
the document.

[41 FR 39019, Sept. 14, 1976, as amended at 44 FR 4666, Jan. 23, 1979; 
47 FR 58239, Dec. 30, 1982; 68 FR 42248, July 17, 2003; 76 FR 71877, 
Nov. 21, 2011]



Sec.275.0-5  Procedure with respect to applications and other matters.

    The procedure hereinbelow set forth will be followed with respect to 
any proceeding initiated by the filing of an application, or upon the 
Commission's own motion, pursuant to any section of the Act or any rule 
or regulation thereunder, unless in the particular case a different 
procedure is provided:
    (a) Notice of the initiation of the proceeding will be published in 
the Federal Register and will indicate the earliest date upon which an 
order disposing of the matter may be entered. The notice will also 
provide that any interested person may, within the period of time 
specified therein, submit to the Commission in writing any facts bearing 
upon the desirability of a hearing on the matter and may request that a 
hearing be held, stating his reasons therefor and the nature of his 
interest in the matter.
    (b) An order disposing of the matter will be issued as of course 
following the expiration of the period of time referred to in paragraph 
(a) of this section, unless the Commission thereafter orders a hearing 
on the matter.
    (c) The Commission will order a hearing on the matter, if it appears 
that a hearing is necessary or appropriate in the public interest or for 
the protection of investors, (1) upon the request of any interested 
person or (2) upon its own motion.
    (d) Definition of application. For purposes of this rule, an 
``application'' means any application for an order of the Commission 
under the Act other than an application for registration as an 
investment adviser.

[41 FR 39020, Sept. 14, 1976, as amended at 61 FR 49962, Sept. 24, 1996]



Sec.275.0-6  Incorporation by reference in applications.

    (a) Exhibits. Any document or part thereof, including any financial 
statement or part thereof, filed with the Commission pursuant to any Act 
administered by the Commission may be incorporated by reference as an 
exhibit to any application filed with the Commission by the same or any 
other person. If any modification has occurred in the text of any 
document incorporated by reference since the filing thereof, the 
registrant must file with the reference a statement containing the text 
of any such modification and the date thereof.
    (b) General. Include an express statement clearly describing the 
specific location of the information you are incorporating by reference. 
The statement must identify the document where the information was 
originally filed or submitted and the location of the information within 
that document. The statement must be made at the particular place where 
the information is required, if applicable. Information must not be 
incorporated by reference in any case where such incorporation

[[Page 1317]]

would render the disclosure incomplete, unclear, or confusing. For 
example, unless expressly permitted or required, disclosure must not be 
incorporated by reference from a second document if that second document 
incorporates information pertinent to such disclosure by reference to a 
third document.
    (c) Definition of Application. For purposes of this rule, an 
``application'' means any application for an order of the Commission 
under the Act other than an application for registration as an 
investment adviser.

[84 FR 12738, Apr. 2, 2019]



Sec.275.0-7  Small entities under the Investment Advisers Act for
purposes of the Regulatory Flexibility Act.

    (a) For purposes of Commission rulemaking in accordance with the 
provisions of Chapter Six of the Administrative Procedure Act (5 U.S.C. 
601 et seq.) and unless otherwise defined for purposes of a particular 
rulemaking proceeding, the term small business or small organization for 
purposes of the Investment Advisers Act of 1940 shall mean an investment 
adviser that:
    (1) Has assets under management, as defined under Section 203A(a)(3) 
of the Act (15 U.S.C. 80b-3a(a)(2)) and reported on its annual updating 
amendment to Form ADV (17 CFR 279.1), of less than $25 million, or such 
higher amount as the Commission may by rule deem appropriate under 
Section 203A(a)(1)(A) of the Act (15 U.S.C. 80b-3a(a)(1)(A));
    (2) Did not have total assets of $5 million or more on the last day 
of the most recent fiscal year; and
    (3) Does not control, is not controlled by, and is not under common 
control with another investment adviser that has assets under management 
of $25 million or more (or such higher amount as the Commission may deem 
appropriate), or any person (other than a natural person) that had total 
assets of $5 million or more on the last day of the most recent fiscal 
year.
    (b) For purposes of this section:
    (1) Control means the power, directly or indirectly, to direct the 
management or policies of a person, whether through ownership of 
securities, by contract, or otherwise.
    (i) A person is presumed to control a corporation if the person:
    (A) Directly or indirectly has the right to vote 25 percent or more 
of a class of the corporation's voting securities; or
    (B) Has the power to sell or direct the sale of 25 percent or more 
of a class of the corporation's voting securities.
    (ii) A person is presumed to control a partnership if the person has 
the right to receive upon dissolution, or has contributed, 25 percent or 
more of the capital of the partnership.
    (iii) A person is presumed to control a limited liability company 
(LLC) if the person:
    (A) Directly or indirectly has the right to vote 25 percent or more 
of a class of the interests of the LLC;
    (B) Has the right to receive upon dissolution, or has contributed, 
25 percent or more of the capital of the LLC; or
    (C) Is an elected manager of the LLC.
    (iv) A person is presumed to control a trust if the person is a 
trustee or managing agent of the trust.
    (2) Total assets means the total assets as shown on the balance 
sheet of the investment adviser or other person described above under 
paragraph (a)(3) of this section, or the balance sheet of the investment 
adviser or such other person with its subsidiaries consolidated, 
whichever is larger.

[63 FR 35515, June 30, 1998, as amended at 65 FR 57448, Sept. 22, 2000; 
76 FR 43011, July 19, 2011]



Sec.275.202(a)(1)-1  Certain transactions not deemed assignments.

    A transaction which does not result in a change of actual control or 
management of an investment adviser is not an assignment for purposes of 
section 205(a)(2) of the Act.

[51 FR 32907, Sept. 17, 1986; 64 FR 2567, Jan. 15, 1999]



Sec.275.202(a)(11)(G)-1  Family offices.

    (a) Exclusion. A family office, as defined in this section, shall 
not be considered to be an investment adviser for purpose of the Act.
    (b) Family office. A family office is a company (including its 
directors, partners, members, managers, trustees, and employees acting 
within the scope of their position or employment) that:

[[Page 1318]]

    (1) Has no clients other than family clients; provided that if a 
person that is not a family client becomes a client of the family office 
as a result of the death of a family member or key employee or other 
involuntary transfer from a family member or key employee, that person 
shall be deemed to be a family client for purposes of this section for 
one year following the completion of the transfer of legal title to the 
assets resulting from the involuntary event;
    (2) Is wholly owned by family clients and is exclusively controlled 
(directly or indirectly) by one or more family members and/or family 
entities; and
    (3) Does not hold itself out to the public as an investment adviser.
    (c) Grandfathering. A family office as defined in paragraph (a) of 
this section shall not exclude any person, who was not registered or 
required to be registered under the Act on January 1, 2010, solely 
because such person provides investment advice to, and was engaged 
before January 1, 2010 in providing investment advice to:
    (1) Natural persons who, at the time of their applicable investment, 
are officers, directors, or employees of the family office who have 
invested with the family office before January 1, 2010 and are 
accredited investors, as defined in Regulation D under the Securities 
Act of 1933;
    (2) Any company owned exclusively and controlled by one or more 
family members; or
    (3) Any investment adviser registered under the Act that provides 
investment advice to the family office and who identifies investment 
opportunities to the family office, and invests in such transactions on 
substantially the same terms as the family office invests, but does not 
invest in other funds advised by the family office, and whose assets as 
to which the family office directly or indirectly provides investment 
advice represents, in the aggregate, not more than 5 percent of the 
value of the total assets as to which the family office provides 
investment advice; provided that a family office that would not be a 
family office but for this paragraph (c) shall be deemed to be an 
investment adviser for purposes of paragraphs (1), (2) and (4) of 
section 206 of the Act.
    (d) Definitions. For purposes of this section:
    (1) Affiliated family office means a family office wholly owned by 
family clients of another family office and that is controlled (directly 
or indirectly) by one or more family members of such other family office 
and/or family entities affiliated with such other family office and has 
no clients other than family clients of such other family office.
    (2) Control means the power to exercise a controlling influence over 
the management or policies of a company, unless such power is solely the 
result of being an officer of such company.
    (3) Executive officer means the president, any vice president in 
charge of a principal business unit, division or function (such as 
administration or finance), any other officer who performs a policy-
making function, or any other person who performs similar policy-making 
functions, for the family office.
    (4) Family client means:
    (i) Any family member;
    (ii) Any former family member;
    (iii) Any key employee;
    (iv) Any former key employee, provided that upon the end of such 
individual's employment by the family office, the former key employee 
shall not receive investment advice from the family office (or invest 
additional assets with a family office-advised trust, foundation or 
entity) other than with respect to assets advised (directly or 
indirectly) by the family office immediately prior to the end of such 
individual's employment, except that a former key employee shall be 
permitted to receive investment advice from the family office with 
respect to additional investments that the former key employee was 
contractually obligated to make, and that relate to a family-office 
advised investment existing, in each case prior to the time the person 
became a former key employee.
    (v) Any non-profit organization, charitable foundation, charitable 
trust (including charitable lead trusts and charitable remainder trusts 
whose only current beneficiaries are other family

[[Page 1319]]

clients and charitable or non-profit organizations), or other charitable 
organization, in each case for which all the funding such foundation, 
trust or organization holds came exclusively from one or more other 
family clients;
    (vi) Any estate of a family member, former family member, key 
employee, or, subject to the condition contained in paragraph (d)(4)(iv) 
of this section, former key employee;
    (vii) Any irrevocable trust in which one or more other family 
clients are the only current beneficiaries;
    (viii) Any irrevocable trust funded exclusively by one or more other 
family clients in which other family clients and non-profit 
organizations, charitable foundations, charitable trusts, or other 
charitable organizations are the only current beneficiaries;
    (ix) Any revocable trust of which one or more other family clients 
are the sole grantor;
    (x) Any trust of which: Each trustee or other person authorized to 
make decisions with respect to the trust is a key employee; and each 
settlor or other person who has contributed assets to the trust is a key 
employee or the key employee's current and/or former spouse or spousal 
equivalent who, at the time of contribution, holds a joint, community 
property, or other similar shared ownership interest with the key 
employee; or
    (xi) Any company wholly owned (directly or indirectly) exclusively 
by, and operated for the sole benefit of, one or more other family 
clients; provided that if any such entity is a pooled investment 
vehicle, it is excepted from the definition of ``investment company'' 
under the Investment Company Act of 1940.
    (5) Family entity means any of the trusts, estates, companies or 
other entities set forth in paragraphs (d)(4)(v), (vi), (vii), (viii), 
(ix), or (xi) of this section, but excluding key employees and their 
trusts from the definition of family client solely for purposes of this 
definition.
    (6) Family member means all lineal descendants (including by 
adoption, stepchildren, foster children, and individuals that were a 
minor when another family member became a legal guardian of that 
individual) of a common ancestor (who may be living or deceased), and 
such lineal descendants' spouses or spousal equivalents; provided that 
the common ancestor is no more than 10 generations removed from the 
youngest generation of family members.
    (7) Former family member means a spouse, spousal equivalent, or 
stepchild that was a family member but is no longer a family member due 
to a divorce or other similar event.
    (8) Key employee means any natural person (including any key 
employee's spouse or spouse equivalent who holds a joint, community 
property, or other similar shared ownership interest with that key 
employee) who is an executive officer, director, trustee, general 
partner, or person serving in a similar capacity of the family office or 
its affiliated family office or any employee of the family office or its 
affiliated family office (other than an employee performing solely 
clerical, secretarial, or administrative functions with regard to the 
family office) who, in connection with his or her regular functions or 
duties, participates in the investment activities of the family office 
or affiliated family office, provided that such employee has been 
performing such functions and duties for or on behalf of the family 
office or affiliated family office, or substantially similar functions 
or duties for or on behalf of another company, for at least 12 months.
    (9) Spousal equivalent means a cohabitant occupying a relationship 
generally equivalent to that of a spouse.

[76 FR 37994, June 29, 2011, as amended at 81 FR 60457, Sept. 1, 2016]



Sec.275.202(a)(30)-1  Foreign private advisers.

    (a) Client. You may deem the following to be a single client for 
purposes of section 202(a)(30) of the Act (15 U.S.C. 80b-2(a)(30)):
    (1) A natural person, and:
    (i) Any minor child of the natural person;
    (ii) Any relative, spouse, spousal equivalent, or relative of the 
spouse or of the spousal equivalent of the natural person who has the 
same principal residence;
    (iii) All accounts of which the natural person and/or the persons 
referred

[[Page 1320]]

to in this paragraph (a)(1) are the only primary beneficiaries; and
    (iv) All trusts of which the natural person and/or the persons 
referred to in this paragraph (a)(1) are the only primary beneficiaries;
    (2)(i) A corporation, general partnership, limited partnership, 
limited liability company, trust (other than a trust referred to in 
paragraph (a)(1)(iv) of this section), or other legal organization (any 
of which are referred to hereinafter as a ``legal organization'') to 
which you provide investment advice based on its investment objectives 
rather than the individual investment objectives of its shareholders, 
partners, limited partners, members, or beneficiaries (any of which are 
referred to hereinafter as an ``owner''); and
    (ii) Two or more legal organizations referred to in paragraph 
(a)(2)(i) of this section that have identical owners.
    (b) Special rules regarding clients. For purposes of this section:
    (1) You must count an owner as a client if you provide investment 
advisory services to the owner separate and apart from the investment 
advisory services you provide to the legal organization, provided, 
however, that the determination that an owner is a client will not 
affect the applicability of this section with regard to any other owner;
    (2) You are not required to count an owner as a client solely 
because you, on behalf of the legal organization, offer, promote, or 
sell interests in the legal organization to the owner, or report 
periodically to the owners as a group solely with respect to the 
performance of or plans for the legal organization's assets or similar 
matters;
    (3) A limited partnership or limited liability company is a client 
of any general partner, managing member or other person acting as 
investment adviser to the partnership or limited liability company;
    (4) You are not required to count a private fund as a client if you 
count any investor, as that term is defined in paragraph (c)(2) of this 
section, in that private fund as an investor in the United States in 
that private fund; and
    (5) You are not required to count a person as an investor, as that 
term is defined in paragraph (c)(2) of this section, in a private fund 
you advise if you count such person as a client in the United States.

    Note to paragraphs (a) and (b): These paragraphs are a safe harbor 
and are not intended to specify the exclusive method for determining who 
may be deemed a single client for purposes of section 202(a)(30) of the 
Act (15 U.S.C. 80b-2(a)(30)).

    (c) Definitions. For purposes of section 202(a)(30) of the Act (15 
U.S.C. 80b-2(a)(30)):
    (1) Assets under management means the regulatory assets under 
management as determined under Item 5.F of Form ADV (Sec.279.1 of this 
chapter).
    (2) Investor means:
    (i) Any person who would be included in determining the number of 
beneficial owners of the outstanding securities of a private fund under 
section 3(c)(1) of the Investment Company Act of 1940 (15 U.S.C. 80a-
3(c)(1)), or whether the outstanding securities of a private fund are 
owned exclusively by qualified purchasers under section 3(c)(7) of that 
Act (15 U.S.C. 80a-3(c)(7)); and
    (ii) Any beneficial owner of any outstanding short-term paper, as 
defined in section 2(a)(38) of the Investment Company Act of 1940 (15 
U.S.C. 80a-2(a)(38)), issued by the private fund.

    Note to paragraph (c)(2): You may treat as a single investor any 
person who is an investor in two or more private funds you advise.

    (3) In the United States means with respect to:
    (i) Any client or investor, any person who is a U.S. person as 
defined in Sec.230.902(k) of this chapter, except that any 
discretionary account or similar account that is held for the benefit of 
a person in the United States by a dealer or other professional 
fiduciary is in the United States if the dealer or professional 
fiduciary is a related person, as defined in Sec.275.206(4)-2(d)(7), 
of the investment adviser relying on this section and is not organized, 
incorporated, or (if an individual) resident in the United States.

    Note to paragraph (c)(3)(i): A person who is in the United States 
may be treated as not being in the United States if such person was not 
in the United States at the time of becoming a client or, in the case of 
an investor

[[Page 1321]]

in a private fund, each time the investor acquires securities issued by 
the fund.

    (ii) Any place of business, in the United States, as that term is 
defined in Sec.230.902(l) of this chapter; and
    (iii) The public, in the United States, as that term is defined in 
Sec.230.902(l) of this chapter.
    (4) Place of business has the same meaning as in Sec.275.222-1(a).
    (5) Spousal equivalent has the same meaning as in Sec.
275.202(a)(11)(G)-1(d)(9).
    (d) Holding out. If you are relying on this section, you shall not 
be deemed to be holding yourself out generally to the public in the 
United States as an investment adviser, within the meaning of section 
202(a)(30) of the Act (15 U.S.C. 80b-2(a)(30)), solely because you 
participate in a non-public offering in the United States of securities 
issued by a private fund under the Securities Act of 1933 (15 U.S.C. 
77a).

[76 FR 39701, July 6, 2011]



Sec.275.203-1  Application for investment adviser registration.

    (a) Form ADV. (1) To apply for registration with the Commission as 
an investment adviser, you must complete Form ADV (17 CFR 279.1) by 
following the instructions in the form and you must file Part 1A of Form 
ADV, the firm brochure(s) required by Part 2A of Form ADV and Form CRS 
required by Part 3 of Form ADV electronically with the Investment 
Adviser Registration Depository (IARD) unless you have received a 
hardship exemption under Sec.275.203-3. You are not required to file 
with the Commission the brochure supplements required by Part 2B of Form 
ADV.

    Note 1 to paragraph (a)(1): Information on how to file with the IARD 
is available on the Commission's website at http://www.sec.gov/iard. If 
you are not required to deliver a brochure or Form CRS to any clients, 
you are not required to prepare or file a brochure or Form CRS, as 
applicable, with the Commission. If you are not required to deliver a 
brochure supplement to any clients for any particular supervised person, 
you are not required to prepare a brochure supplement for that 
supervised person.

    (2)(i) On or after June 30, 2020, the Commission will not accept any 
initial application for registration as an investment adviser that does 
not include a Form CRS that satisfies the requirements of Part 3 of Form 
ADV.
    (ii) Beginning on May 1, 2020, any initial application for 
registration as an investment adviser filed prior to June 30, 2020, must 
include a Form CRS that satisfies the requirements of Part 3 of Form ADV 
by no later than June 30, 2020.
    (b) When filed. Each Form ADV is considered filed with the 
Commission upon acceptance by the IARD.
    (c) Filing fees. You must pay FINRA (the operator of the IARD) a 
filing fee. The Commission has approved the amount of the filing fee. No 
portion of the filing fee is refundable. Your completed application for 
registration will not be accepted by FINRA, and thus will not be 
considered filed with the Commission, until you have paid the filing 
fee.

[65 FR 57448, Sept. 22, 2000; 65 FR 81737, Dec. 27, 2000 as amended at 
84 FR 33630, July 12, 2019]

    Editorial Note: For Federal Register citations affecting Form ADV, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.275.203-2  Withdrawal from investment adviser registration.

    (a) Form ADV-W. You must file Form ADV-W (17 CFR 279.2) to withdraw 
from investment adviser registration with the Commission (or to withdraw 
a pending registration application).
    (b) Electronic filing. Once you have filed your Form ADV (17 CFR 
279.1) (or any amendments to Form ADV) electronically with the 
Investment Adviser Registration Depository (IARD), any Form ADV-W you 
file must be filed with the IARD, unless you have received a hardship 
exemption under Sec.275.203-3.
    (c) Effective date--upon filing. Each Form ADV-W filed under this 
section is effective upon acceptance by the IARD, provided however that 
your investment adviser registration will continue for a period of sixty 
days after acceptance solely for the purpose of commencing a proceeding 
under section 203(e) of the Act (15 U.S.C. 80b-3(e)).
    (d) Filing fees. You do not have to pay a fee to file Form ADV-W 
through the IARD.

[[Page 1322]]

    (e) Form ADV-W is a report. Each Form ADV-W required to be filed 
under this section is a ``report'' within the meaning of sections 204 
and 207 of the Act (15 U.S.C. 80b-4 and 80b-7).

[65 FR 57449, Sept. 22, 2000]



Sec.275.203-3  Hardship exemptions.

    This section provides two ``hardship exemptions'' from the 
requirement to make Advisers Act filings electronically with the 
Investment Adviser Registration Depository (IARD).
    (a) Temporary hardship exemption--(1) Eligibility for exemption. If 
you are registered or are registering with the Commission as an 
investment adviser and submit electronic filings on the Investment 
Adviser Registration Depository (IARD) system, but have unanticipated 
technical difficulties that prevent you from submitting a filing to the 
IARD system, you may request a temporary hardship exemption from the 
requirements of this chapter to file electronically.
    (2) Application procedures. To request a temporary hardship 
exemption, you must:
    (i) File Form ADV-H (17 CFR 279.3) in paper format with no later 
than one business day after the filing that is the subject of the ADV-H 
was due; and
    (ii) Submit the filing that is the subject of the Form ADV-H in 
electronic format with the IARD no later than seven business days after 
the filing was due.
    (3) Effective date--upon filing. The temporary hardship exemption 
will be granted when you file a completed Form ADV-H.
    (b) Continuing hardship exemption--(1) Eligibility for exemption. If 
you are a ``small business'' (as described in paragraph (b)(5) of this 
section), you may apply for a continuing hardship exemption.
    The period of the exemption may be no longer than one year after the 
date on which you apply for the exemption.
    (2) Application procedures. To apply for a continuing hardship 
exemption, you must file Form ADV-H at least ten business days before a 
filing is due. The Commission will grant or deny your application within 
ten business days after you file Form ADV-H.
    (3) Effective date--upon approval. You are not exempt from the 
electronic filing requirements until and unless the Commission approves 
your application. If the Commission approves your application, you may 
submit your filings to FINRA in paper format for the period of time for 
which the exemption is granted.
    (4) Criteria for exemption. Your application will be granted only if 
you are able to demonstrate that the electronic filing requirements of 
this chapter are prohibitively burdensome or expensive.
    (5) Small business. You are a ``small business'' for purposes of 
this section if you are required to answer Item 12 of Form ADV (17 CFR 
279.1) and checked ``no'' to each question in Item 12 that you were 
required to answer.

    Note to paragraph (b): FINRA will charge you an additional fee 
covering its cost to convert to electronic format a filing made in 
reliance on a continuing hardship exemption.

[65 FR 57449, Sept. 22, 2000; 65 FR 81738, Dec. 27, 2000, as amended at 
68 FR 42248, July 17, 2003; 73 FR 4694, Jan. 28, 2008]



Sec.275.203(l)-1  Venture capital fund defined.

    (a) Venture capital fund defined. For purposes of section 203(l) of 
the Act (15 U.S.C. 80b-3(l)), a venture capital fund is any entity 
described in subparagraph (A), (B), or (C) of section 203(b)(7) of the 
Act (15 U.S.C. 80b-3(b)(7)) (other than an entity that has elected to be 
regulated or is regulated as a business development company pursuant to 
section 54 of the Investment Company Act of 1940 (15 U.S.C. 80a-53)) or 
any entity described in subparagraph (A) or (B) of section 203(b)(8) of 
the Act (15 U.S.C. 80b-3(b)(8)) (other than an entity that has elected 
to be regulated or is regulated as a business development company 
pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C. 
80a-53)) or any private fund that:
    (1) Represents to investors and potential investors that it pursues 
a venture capital strategy;
    (2) Immediately after the acquisition of any asset, other than 
qualifying investments or short-term holdings, holds no more than 20 
percent of the amount of the fund's aggregate capital contributions and 
uncalled committed capital in assets (other than short-

[[Page 1323]]

term holdings) that are not qualifying investments, valued at cost or 
fair value, consistently applied by the fund;
    (3) Does not borrow, issue debt obligations, provide guarantees or 
otherwise incur leverage, in excess of 15 percent of the private fund's 
aggregate capital contributions and uncalled committed capital, and any 
such borrowing, indebtedness, guarantee or leverage is for a non-
renewable term of no longer than 120 calendar days, except that any 
guarantee by the private fund of a qualifying portfolio company's 
obligations up to the amount of the value of the private fund's 
investment in the qualifying portfolio company is not subject to the 120 
calendar day limit;
    (4) Only issues securities the terms of which do not provide a 
holder with any right, except in extraordinary circumstances, to 
withdraw, redeem or require the repurchase of such securities but may 
entitle holders to receive distributions made to all holders pro rata; 
and
    (5) Is not registered under section 8 of the Investment Company Act 
of 1940 (15 U.S.C. 80a-8), and has not elected to be treated as a 
business development company pursuant to section 54 of that Act (15 
U.S.C. 80a-53).
    (b) Certain pre-existing venture capital funds. For purposes of 
section 203(l) of the Act (15 U.S.C. 80b-3(l)) and in addition to any 
venture capital fund as set forth in paragraph (a) of this section, a 
venture capital fund also includes any private fund that:
    (1) Has represented to investors and potential investors at the time 
of the offering of the private fund's securities that it pursues a 
venture capital strategy;
    (2) Prior to December 31, 2010, has sold securities to one or more 
investors that are not related persons, as defined in Sec.275.206(4)-
2(d)(7), of any investment adviser of the private fund; and
    (3) Does not sell any securities to (including accepting any 
committed capital from) any person after July 21, 2011.
    (c) Definitions. For purposes of this section:
    (1) Committed capital means any commitment pursuant to which a 
person is obligated to:
    (i) Acquire an interest in the private fund; or
    (ii) Make capital contributions to the private fund.
    (2) Equity security has the same meaning as in section 3(a)(11) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(11)) and Sec.
240.3a11-1 of this chapter.
    (3) Qualifying investment means:
    (i) An equity security issued by a qualifying portfolio company that 
has been acquired directly by the private fund from the qualifying 
portfolio company;
    (ii) Any equity security issued by a qualifying portfolio company in 
exchange for an equity security issued by the qualifying portfolio 
company described in paragraph (c)(3)(i) of this section; or
    (iii) Any equity security issued by a company of which a qualifying 
portfolio company is a majority-owned subsidiary, as defined in section 
2(a)(24) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(24)), 
or a predecessor, and is acquired by the private fund in exchange for an 
equity security described in paragraph (c)(3)(i) or (c)(3)(ii) of this 
section.
    (4) Qualifying portfolio company means any company that:
    (i) At the time of any investment by the private fund, is not 
reporting or foreign traded and does not control, is not controlled by 
or under common control with another company, directly or indirectly, 
that is reporting or foreign traded;
    (ii) Does not borrow or issue debt obligations in connection with 
the private fund's investment in such company and distribute to the 
private fund the proceeds of such borrowing or issuance in exchange for 
the private fund's investment; and
    (iii) Is not an investment company, a private fund, an issuer that 
would be an investment company but for the exemption provided by Sec.
270.3a-7 of this chapter, or a commodity pool.
    (5) Reporting or foreign traded means, with respect to a company, 
being subject to the reporting requirements under section 13 or 15(d) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), or having 
a security listed or traded on any exchange or organized

[[Page 1324]]

market operating in a foreign jurisdiction.
    (6) Short-term holdings means cash and cash equivalents, as defined 
in Sec.270.2a51-1(b)(7)(i) of this chapter, U.S. Treasuries with a 
remaining maturity of 60 days or less, and shares of an open-end 
management investment company registered under section 8 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-8) that is regulated as a 
money market fund under Sec.270.2a-7 of this chapter.

    Note: For purposes of this section, an investment adviser may treat 
as a private fund any issuer formed under the laws of a jurisdiction 
other than the United States that has not offered or sold its securities 
in the United States or to U.S. persons in a manner inconsistent with 
being a private fund, provided that the adviser treats the issuer as a 
private fund under the Act (15 U.S.C. 80b) and the rules thereunder for 
all purposes.

[76 FR 39702, July 6, 2011, as amended at 83 FR 1302, Jan. 11, 2018; 85 
FR 13741, Mar. 10, 2020]



Sec.275.203(m)-1  Private fund adviser exemption.

    (a) United States investment advisers. For purposes of section 
203(m) of the Act (15 U.S.C. 80b-3(m)), an investment adviser with its 
principal office and place of business in the United States is exempt 
from the requirement to register under section 203 of the Act if the 
investment adviser:
    (1) Acts solely as an investment adviser to one or more qualifying 
private funds; and
    (2) Manages private fund assets of less than $150 million.
    (b) Non-United States investment advisers. For purposes of section 
203(m) of the Act (15 U.S.C. 80b-3(m)), an investment adviser with its 
principal office and place of business outside of the United States is 
exempt from the requirement to register under section 203 of the Act if:
    (1) The investment adviser has no client that is a United States 
person except for one or more qualifying private funds; and
    (2) All assets managed by the investment adviser at a place of 
business in the United States are solely attributable to private fund 
assets, the total value of which is less than $150 million.
    (c) Frequency of Calculations. For purposes of this section, 
calculate private fund assets annually, in accordance with General 
Instruction 15 to Form ADV (Sec.279.1 of this chapter).
    (d) Definitions. For purposes of this section:
    (1) Assets under management means the regulatory assets under 
management as determined under Item 5.F of Form ADV (Sec.279.1 of this 
chapter), except the following shall be excluded from the definition of 
assets under management for purposes of this section:
    (i) The regulatory assets under management attributable to a private 
fund that is an entity described in subparagraph (A), (B), or (C) of 
section 203(b)(7) of the Act (15 U.S.C. 80b- 3(b)(7)) (other than an 
entity that has elected to be regulated or is regulated as a business 
development company pursuant to section 54 of the Investment Company Act 
of 1940 (15 U.S.C. 80a-53)); and
    (ii) The regulatory assets under management attributable to a 
private fund that is an entity described in subparagraph (A) or (B) of 
section 203(b)(8) of the Act (15 U.S.C. 80b-3(b)(8)) (other than an 
entity that has elected to be regulated or is regulated as a business 
development company pursuant to section 54 of the Investment Company Act 
of 1940 (15 U.S.C. 80a-53).
    (2) Place of business has the same meaning as in Sec.275.222-1(a).
    (3) Principal office and place of business of an investment adviser 
means the executive office of the investment adviser from which the 
officers, partners, or managers of the investment adviser direct, 
control, and coordinate the activities of the investment adviser.
    (4) Private fund assets means the investment adviser's assets under 
management attributable to a qualifying private fund.
    (5) Qualifying private fund means any private fund that is not 
registered under section 8 of the Investment Company Act of 1940 (15 
U.S.C. 80a-8) and has not elected to be treated as a business 
development company pursuant to section 54 of that Act (15 U.S.C. 80a-
53). For purposes of this section, an investment adviser may treat as a 
private

[[Page 1325]]

fund an issuer that qualifies for an exclusion from the definition of an 
``investment company,'' as defined in section 3 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-3), in addition to those provided by 
section 3(c)(1) or 3(c)(7) of that Act (15 U.S.C. 80a-3(c)(1) or 15 
U.S.C. 80a-3(c)(7)), provided that the investment adviser treats the 
issuer as a private fund under the Act (15 U.S.C. 80b) and the rules 
thereunder for all purposes.
    (6) Related person has the same meaning as in Sec.275.206(4)-
2(d)(7).
    (7) United States has the same meaning as in Sec.230.902(l) of 
this chapter.
    (8) United States person means any person that is a U.S. person as 
defined in Sec.230.902(k) of this chapter, except that any 
discretionary account or similar account that is held for the benefit of 
a United States person by a dealer or other professional fiduciary is a 
United States person if the dealer or professional fiduciary is a 
related person of the investment adviser relying on this section and is 
not organized, incorporated, or (if an individual) resident in the 
United States.

    Note to paragraph (d)(8): A client will not be considered a United 
States person if the client was not a United States person at the time 
of becoming a client.

[76 FR 39703, July 6, 2011, as amended at 83 FR 1302, Jan. 11, 2018; 85 
FR 13741, Mar. 10, 2020]



Sec.275.203A-1  Eligibility for SEC registration; Switching to or 
from SEC registration.

    (a) Eligibility for SEC registration of mid-sized investment 
advisers. If you are an investment adviser described in section 
203A(a)(2)(B) of the Act (15 U.S.C. 80b-3a(a)(2)(B)):
    (1) Threshold for SEC registration and registration buffer. You may, 
but are not required to register with the Commission if you have assets 
under management of at least $100,000,000 but less than $110,000,000, 
and you need not withdraw your registration unless you have less than 
$90,000,000 of assets under management.
    (2) Exceptions. This paragraph (a) does not apply if:
    (i) You are an investment adviser to an investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a) or 
to a company which has elected to be a business development company 
pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C. 
80a-54), and has not withdrawn the election; or
    (ii) You are eligible for an exemption described in Sec.275.203A-2 
of this chapter.
    (b) Switching to or from SEC registration--(1) State-registered 
advisers--switching to SEC registration. If you are registered with a 
state securities authority, you must apply for registration with the 
Commission within 90 days of filing an annual updating amendment to your 
Form ADV reporting that you are eligible for SEC registration and are 
not relying on an exemption from registration under sections 203(l) or 
203(m) of the Act (15 U.S.C. 80b-3(l), (m)).
    (2) SEC-registered advisers--switching to State registration. If you 
are registered with the Commission and file an annual updating amendment 
to your Form ADV reporting that you are not eligible for SEC 
registration and are not relying on an exemption from registration under 
sections 203(l) or 203(m) of the Act (15 U.S.C. 80b-3(l), (m)), you must 
file Form ADV-W (17 CFR 279.2) to withdraw your SEC registration within 
180 days of your fiscal year end (unless you then are eligible for SEC 
registration). During this period while you are registered with both the 
Commission and one or more state securities authorities, the Act and 
applicable State law will apply to your advisory activities.

[76 FR 43011, July 19, 2011]



Sec.275.203A-2  Exemptions from prohibition on Commission registration.

    The prohibition of section 203A(a) of the Act (15 U.S.C. 80b-3a(a)) 
does not apply to:
    (a) Pension consultants. (1) An investment adviser that is a 
``pension consultant,'' as defined in this section, with respect to 
assets of plans having an aggregate value of at least $200,000,000.
    (2) An investment adviser is a pension consultant, for purposes of 
paragraph (a) of this section, if the investment adviser provides 
investment advice to:

[[Page 1326]]

    (i) Any employee benefit plan described in section 3(3) of the 
Employee Retirement Income Security Act of 1974 (``ERISA'') [29 U.S.C. 
1002(3)];
    (ii) Any governmental plan described in section 3(32) of ERISA (29 
U.S.C. 1002(32)); or
    (iii) Any church plan described in section 3(33) of ERISA (29 U.S.C. 
1002(33)).
    (3) In determining the aggregate value of assets of plans, include 
only that portion of a plan's assets for which the investment adviser 
provided investment advice (including any advice with respect to the 
selection of an investment adviser to manage such assets). Determine the 
aggregate value of assets by cumulating the value of assets of plans 
with respect to which the investment adviser was last employed or 
retained by contract to provide investment advice during a 12-month 
period ended within 90 days of filing an annual updating amendment to 
Form ADV (17 CFR 279.1).
    (b) Investment advisers controlling, controlled by, or under common 
control with an investment adviser registered with the Commission. An 
investment adviser that controls, is controlled by, or is under common 
control with, an investment adviser eligible to register, and registered 
with, the Commission (``registered adviser''), provided that the 
principal office and place of business of the investment adviser is the 
same as that of the registered adviser. For purposes of this paragraph, 
control means the power to direct or cause the direction of the 
management or policies of an investment adviser, whether through 
ownership of securities, by contract, or otherwise. Any person that 
directly or indirectly has the right to vote 25 percent or more of the 
voting securities, or is entitled to 25 percent or more of the profits, 
of an investment adviser is presumed to control that investment adviser.
    (c) Investment advisers expecting to be eligible for Commission 
registration within 120 Days. An investment adviser that:
    (1) Immediately before it registers with the Commission, is not 
registered or required to be registered with the Commission or a state 
securities authority of any State and has a reasonable expectation that 
it would be eligible to register with the Commission within 120 days 
after the date the investment adviser's registration with the Commission 
becomes effective;
    (2) Indicates on Schedule D of its Form ADV (17 CFR 279.1) that it 
will withdraw from registration with the Commission if, on the 120th day 
after the date the investment adviser's registration with the Commission 
becomes effective, the investment adviser would be prohibited by section 
203A(a) of the Act (15 U.S.C. 80b-3a(a)) from registering with the 
Commission; and
    (3) Notwithstanding Sec.275.203A-1(b)(2) of this chapter, files a 
completed Form ADV-W (17 CFR 279.2) withdrawing from registration with 
the Commission within 120 days after the date the investment adviser's 
registration with the Commission becomes effective.
    (d) Multi-state investment advisers. An investment adviser that:
    (1) Upon submission of its application for registration with the 
Commission, is required by the laws of 15 or more States to register as 
an investment adviser with the state securities authority in the 
respective States, and thereafter would, but for this section, be 
required by the laws of at least 15 States to register as an investment 
adviser with the state securities authority in the respective States;
    (2) Elects to rely on paragraph (d) of this section by:
    (i) Indicating on Schedule D of its Form ADV that the investment 
adviser has reviewed the applicable State and federal laws and has 
concluded that, in the case of an application for registration with the 
Commission, it is required by the laws of 15 or more States to register 
as an investment adviser with the state securities authorities in the 
respective States or, in the case of an amendment to Form ADV, it would 
be required by the laws of at least 15 States to register as an 
investment adviser with the state securities authorities in the 
respective States, within 90 days prior to the date of filing Form ADV; 
and
    (ii) Undertaking on Schedule D of its Form ADV to withdraw from 
registration with the Commission if the adviser indicates on an annual 
updating amendment to Form ADV that the investment adviser would be 
required by

[[Page 1327]]

the laws of fewer than 15 States to register as an investment adviser 
with the state securities authority in the respective States, and that 
the investment adviser would be prohibited by section 203A(a) of the Act 
(15 U.S.C. 80b-3a(a)) from registering with the Commission, by filing a 
completed Form ADV-W within 180 days of the adviser's fiscal year end 
(unless the adviser then is eligible for SEC registration); and
    (3) Maintains in an easily accessible place a record of the States 
in which the investment adviser has determined it would, but for the 
exemption, be required to register for a period of not less than five 
years from the filing of a Form ADV that includes a representation that 
is based on such record.
    (e) Internet investment advisers. (1) An investment adviser that:
    (i) Provides investment advice to all of its clients exclusively 
through an interactive website, except that the investment adviser may 
provide investment advice to fewer than 15 clients through other means 
during the preceding twelve months;
    (ii) Maintains, in an easily accessible place, for a period of not 
less than five years from the filing of a Form ADV that includes a 
representation that the adviser is eligible to register with the 
Commission under paragraph (e) of this section, a record demonstrating 
that it provides investment advice to its clients exclusively through an 
interactive website in accordance with the limits in paragraph (e)(1)(i) 
of this section; and
    (iii) Does not control, is not controlled by, and is not under 
common control with, another investment adviser that registers with the 
Commission under paragraph (b) of this section solely in reliance on the 
adviser registered under paragraph (e) of this section as its registered 
adviser.
    (2) For purposes of paragraph (e) of this section, interactive 
website means a website in which computer software-based models or 
applications provide investment advice to clients based on personal 
information each client supplies through the website.
    (3) An investment adviser may rely on the definition of client in 
Sec.275.202(a)(30)-1 in determining whether it provides investment 
advice to fewer than 15 clients under paragraph (e)(1)(i) of this 
section.

[62 FR 28133, May 22, 1997, as amended at 63 FR 39715, 39716, July 24, 
1998; 65 FR 57450, Sept. 22, 2000; 67 FR 77625, Dec. 18, 2003; 76 FR 
43012, July 19, 2011]



Sec.275.203A-3  Definitions.

    For purposes of section 203A of the Act (15 U.S.C. 80b-3a) and the 
rules thereunder:
    (a)(1) Investment adviser representative. ``Investment adviser 
representative'' of an investment adviser means a supervised person of 
the investment adviser:
    (i) Who has more than five clients who are natural persons (other 
than excepted persons described in paragraph (a)(3)(i) of this section); 
and
    (ii) More than ten percent of whose clients are natural persons 
(other than excepted persons described in paragraph (a)(3)(i) of this 
section).
    (2) Notwithstanding paragraph (a)(1) of this section, a supervised 
person is not an investment adviser representative if the supervised 
person:
    (i) Does not on a regular basis solicit, meet with, or otherwise 
communicate with clients of the investment adviser; or
    (ii) Provides only impersonal investment advice.
    (3) For purposes of this section:
    (i) ``Excepted person'' means a natural person who is a qualified 
client as described in Sec.275.205-3(d)(1).
    (ii) ``Impersonal investment advice'' means investment advisory 
services provided by means of written material or oral statements that 
do not purport to meet the objectives or needs of specific individuals 
or accounts.
    (4) Supervised persons may rely on the definition of ``client'' in 
Sec.275.202(a)(30)-1 to identify clients for purposes of paragraph 
(a)(1) of this section, except that supervised persons need not count 
clients that are not residents of the United States.
    (b) Place of business. ``Place of business'' of an investment 
adviser representative means:
    (1) An office at which the investment adviser representative 
regularly provides investment advisory services, solicits, meets with, 
or otherwise communicates with clients; and

[[Page 1328]]

    (2) Any other location that is held out to the general public as a 
location at which the investment adviser representative provides 
investment advisory services, solicits, meets with, or otherwise 
communicates with clients.
    (c) Principal office and place of business. ``Principal office and 
place of business'' of an investment adviser means the executive office 
of the investment adviser from which the officers, partners, or managers 
of the investment adviser direct, control, and coordinate the activities 
of the investment adviser.
    (d) Assets under management. Determine ``assets under management'' 
by calculating the securities portfolios with respect to which an 
investment adviser provides continuous and regular supervisory or 
management services as reported on the investment adviser's Form ADV (17 
CFR 279.1).
    (e) State securities authority. ``State securities authority'' means 
the securities commissioner or commission (or any agency, office or 
officer performing like functions) of any State.

[62 FR 28134, May 22, 1997, as amended at 63 FR 39715, July 24, 1998; 69 
FR 72088, Dec. 10, 2004; 76 FR 43012, July 19, 2011]



Sec.Sec.275.203A-4--275.203A-6  [Reserved]



Sec.275.204-1  Amendments to Form ADV.

    (a) When amendment is required. You must amend your Form ADV (17 CFR 
279.1):
    (1) Parts 1 and 2:
    (i) At least annually, within 90 days of the end of your fiscal 
year; and
    (ii) More frequently, if required by the instructions to Form ADV.
    (2) Part 3 at the frequency required by the instructions to Form 
ADV.
    (b) Electronic filing of amendments. (1) Subject to paragraph (c) of 
this section, you must file all amendments to Part 1A, Part 2A, and Part 
3 of Form ADV electronically with the IARD, unless you have received a 
continuing hardship exemption under Sec.275.203-3. You are not 
required to file with the Commission amendments to brochure supplements 
required by Part 2B of Form ADV.
    (2) If you have received a continuing hardship exemption under Sec.
275.203-3, you must, when you are required to amend your Form ADV, file 
a completed Part 1A, Part 2A and Part 3 of Form ADV on paper with the 
SEC by mailing it to FINRA.
    (c) Filing fees. You must pay FINRA (the operator of the IARD) an 
initial filing fee when you first electronically file Part 1A of Form 
ADV. After you pay the initial filing fee, you must pay an annual filing 
fee each time you file your annual updating amendment. No portion of 
either fee is refundable. The Commission has approved the filing fees. 
Your amended Form ADV will not be accepted by FINRA, and thus will not 
be considered filed with the Commission, until you have paid the filing 
fee.
    (d) Amendments to Form ADV are reports. Each amendment required to 
be filed under this section is a ``report'' within the meaning of 
sections 204 and 207 of the Act (15 U.S.C. 80b-4 and 80b-7).
    (e) Transition to Filing Form CRS. If you are registered with the 
Commission or have an application for registration pending with the 
Commission prior to June 30, 2020, you must amend your Form ADV by 
electronically filing with IARD your initial Form CRS that satisfies the 
requirements of Part 3 of Form ADV (as amended effective September 30, 
2019) beginning on May 1, 2020 and by no later than June 30, 2020.

    Note 1 to paragraphs (e): This note applies to paragraphs (a), (b), 
and (e) of this section. Information on how to file with the IARD is 
available on our website at http://www.sec.gov/iard. For the annual 
updating amendment: Summaries of material changes that are not included 
in the adviser's brochure must be filed with the Commission as an 
exhibit to Part 2A in the same electronic file; and if you are not 
required to prepare a brochure, a summary of material changes, an annual 
updating amendment to your brochure, or Form CRS you are not required to 
file them with the Commission. See the instructions for Part 2A and Part 
3 of Form ADV.

[65 FR 57450, Sept. 22, 2000; 65 FR 81738, Dec. 27, 2000, as amended at 
68 FR 42248, July 17, 2003; 73 FR 4694, Jan. 28, 2008; 75 FR 49267, Aug. 
12, 2010; 76 FR 43013, July 19, 2011; 81 FR 60458, Sept. 1, 2016; 84 FR 
33630, July 12, 2019]



Sec.275.204-2  Books and records to be maintained by investment advisers.

    (a) Every investment adviser registered or required to be registered

[[Page 1329]]

under section 203 of the Act (15 U.S.C. 80b-3) shall make and keep true, 
accurate and current the following books and records relating to its 
investment advisory business;
    (1) A journal or journals, including cash receipts and 
disbursements, records, and any other records of original entry forming 
the basis of entries in any ledger.
    (2) General and auxiliary ledgers (or other comparable records) 
reflecting asset, liability, reserve, capital, income and expense 
accounts.
    (3) A memorandum of each order given by the investment adviser for 
the purchase or sale of any security, of any instruction received by the 
investment adviser concerning the purchase, sale, receipt or delivery of 
a particular security, and of any modification or cancellation of any 
such order or instruction. Such memoranda shall show the terms and 
conditions of the order, instruction, modification or cancellation; 
shall identify the person connected with the investment adviser who 
recommended the transaction to the client and the person who placed such 
order; and shall show the account for which entered, the date of entry, 
and the bank, broker or dealer by or through whom executed where 
appropriate. Orders entered pursuant to the exercise of discretionary 
power shall be so designated.
    (4) All check books, bank statements, cancelled checks and cash 
reconciliations of the investment adviser.
    (5) All bills or statements (or copies thereof), paid or unpaid, 
relating to the business of the investment adviser as such.
    (6) All trial balances, financial statements, and internal audit 
working papers relating to the business of such investment adviser.
    (7) Originals of all written communications received and copies of 
all written communications sent by such investment adviser relating to:
    (i) Any recommendation made or proposed to be made and any advice 
given or proposed to be given;
    (ii) Any receipt, disbursement or delivery of funds or securities;
    (iii) The placing or execution of any order to purchase or sell any 
security;
    (iv) The performance or rate of return of any or all managed 
accounts or securities recommendations: Provided, however:
    (A) That the investment adviser shall not be required to keep any 
unsolicited market letters and other similar communications of general 
public distribution not prepared by or for the investment adviser, and
    (B) That if the investment adviser sends any notice, circular or 
other advertisement offering any report, analysis, publication or other 
investment advisory service to more than 10 persons, the investment 
adviser shall not be required to keep a record of the names and 
addresses of the persons to whom it was sent; except that if such 
notice, circular or advertisement is distributed to persons named on any 
list, the investment adviser shall retain with the copy of such notice, 
circular or advertisement a memorandum describing the list and the 
source thereof
    (8) A list or other record of all accounts in which the investment 
adviser is vested with any discretionary power with respect to the 
funds, securities or transactions of any client.
    (9) All powers of attorney and other evidences of the granting of 
any discretionary authority by any client to the investment adviser, or 
copies thereof.
    (10) All written agreements (or copies thereof) entered into by the 
investment adviser with any client or otherwise relating to the business 
of such investment adviser as such.
    (11) A copy of each notice, circular, advertisement, newspaper 
article, investment letter, bulletin or other communication that the 
investment adviser circulates or distributes, directly or indirectly, to 
10 or more persons (other than persons connected with such investment 
adviser), and if such notice, circular, advertisement, newspaper 
article, investment letter, bulletin or other communication recommends 
the purchase or sale of a specific security and does not state the 
reasons for such recommendation, a memorandum of the investment adviser 
indicating the reasons therefor.
    (12)(i) A copy of the investment adviser's code of ethics adopted 
and implemented pursuant to Sec.275.204A-1 that

[[Page 1330]]

is in effect, or at any time within the past five years was in effect;
    (ii) A record of any violation of the code of ethics, and of any 
action taken as a result of the violation; and
    (iii) A record of all written acknowledgments as required by Sec.
275.204A-1(a)(5) for each person who is currently, or within the past 
five years was, a supervised person of the investment adviser.
    (13)(i) A record of each report made by an access person as required 
by Sec.275.204A-1(b), including any information provided under 
paragraph (b)(3)(iii) of that section in lieu of such reports;
    (ii) A record of the names of persons who are currently, or within 
the past five years were, access persons of the investment adviser; and
    (iii) A record of any decision, and the reasons supporting the 
decision, to approve the acquisition of securities by access persons 
under Sec.275.204A-1(c), for at least five years after the end of the 
fiscal year in which the approval is granted.
    (14)(i) A copy of each brochure, brochure supplement and Form CRS, 
and each amendment or revision to the brochure, brochure supplement and 
Form CRS, that satisfies the requirements of Part 2 or Part 3 of Form 
ADV, as applicable [17 CFR 279.1]; any summary of material changes that 
satisfies the requirements of Part 2 of Form ADV but is not contained in 
the brochure; and a record of the dates that each brochure, brochure 
supplement and Form CRS, each amendment or revision thereto, and each 
summary of material changes not contained in a brochure given to any 
client or to any prospective client who subsequently becomes a client.
    (ii) Documentation describing the method used to compute managed 
assets for purposes of Item 4.E of Part 2A of Form ADV, if the method 
differs from the method used to compute regulatory assets under 
management in Item 5.F of Part 1A of Form ADV.
    (iii) A memorandum describing any legal or disciplinary event listed 
in Item 9 of Part 2A or Item 3 of Part 2B (Disciplinary Information) and 
presumed to be material, if the event involved the investment adviser or 
any of its supervised persons and is not disclosed in the brochure or 
brochure supplement described in paragraph (a)(14)(i) of this section. 
The memorandum must explain the investment adviser's determination that 
the presumption of materiality is overcome, and must discuss the factors 
described in Item 9 of Part 2A of Form ADV or Item 3 of Part 2B of Form 
ADV.
    (15) All written acknowledgments of receipt obtained from clients 
pursuant to Sec.275.206(4)-3(a)(2)(iii)(B) and copies of the 
disclosure documents delivered to clients by solicitors pursuant to 
Sec.275.206(4)-3.
    (16) All accounts, books, internal working papers, and any other 
records or documents that are necessary to form the basis for or 
demonstrate the calculation of the performance or rate of return of any 
or all managed accounts or securities recommendations in any notice, 
circular, advertisement, newspaper article, investment letter, bulletin 
or other communication that the investment adviser circulates or 
distributes, directly or indirectly, to any person (other than persons 
connected with such investment adviser); provided, however, that, with 
respect to the performance of managed accounts, the retention of all 
account statements, if they reflect all debits, credits, and other 
transactions in a client's account for the period of the statement, and 
all worksheets necessary to demonstrate the calculation of the 
performance or rate of return of all managed accounts shall be deemed to 
satisfy the requirements of this paragraph.
    (17)(i) A copy of the investment adviser's policies and procedures 
formulated pursuant to Sec.275.206(4)-7(a) of this chapter that are in 
effect, or at any time within the past five years were in effect;
    (ii) Any records documenting the investment adviser's annual review 
of those policies and procedures conducted pursuant to Sec.275.206(4)-
7(b) of this chapter;
    (iii) A copy of any internal control report obtained or received 
pursuant to Sec.275.206(4)-2(a)(6)(ii).
    (18)(i) Books and records that pertain to Sec.275.206(4)-5 
containing a list or other record of:

[[Page 1331]]

    (A) The names, titles and business and residence addresses of all 
covered associates of the investment adviser;
    (B) All government entities to which the investment adviser provides 
or has provided investment advisory services, or which are or were 
investors in any covered investment pool to which the investment adviser 
provides or has provided investment advisory services, as applicable, in 
the past five years, but not prior to September 13, 2010;
    (C) All direct or indirect contributions made by the investment 
adviser or any of its covered associates to an official of a government 
entity, or direct or indirect payments to a political party of a State 
or political subdivision thereof, or to a political action committee; 
and
    (D) The name and business address of each regulated person to whom 
the investment adviser provides or agrees to provide, directly or 
indirectly, payment to solicit a government entity for investment 
advisory services on its behalf, in accordance with Sec.275.206(4)-
5(a)(2).
    (ii) Records relating to the contributions and payments referred to 
in paragraph (a)(18)(i)(C) of this section must be listed in 
chronological order and indicate:
    (A) The name and title of each contributor;
    (B) The name and title (including any city/county/State or other 
political subdivision) of each recipient of a contribution or payment;
    (C) The amount and date of each contribution or payment; and
    (D) Whether any such contribution was the subject of the exception 
for certain returned contributions pursuant to Sec.275.206(4)-5(b)(2).
    (iii) An investment adviser is only required to make and keep 
current the records referred to in paragraphs (a)(18)(i)(A) and (C) of 
this section if it provides investment advisory services to a government 
entity or a government entity is an investor in any covered investment 
pool to which the investment adviser provides investment advisory 
services.
    (iv) For purposes of this section, the terms ``contribution,'' 
``covered associate,'' ``covered investment pool,'' ``government 
entity,'' ``official,'' ``payment,'' ``regulated person,'' and 
``solicit'' have the same meanings as set forth in Sec.275.206(4)-5.
    (b) If an investment adviser subject to paragraph (a) of this 
section has custody or possession of securities or funds of any client, 
the records required to be made and kept under paragraph (a) of this 
section shall include:
    (1) A journal or other record showing all purchases, sales, receipts 
and deliveries of securities (including certificate numbers) for such 
accounts and all other debits and credits to such accounts.
    (2) A separate ledger account for each such client showing all 
purchases, sales, receipts and deliveries of securities, the date and 
price of each purchase and sale, and all debits and credits.
    (3) Copies of confirmations of all transactions effected by or for 
the account of any such client.
    (4) A record for each security in which any such client has a 
position, which record shall show the name of each such client having 
any interest in such security, the amount or interest of each such 
client, and the location of each such security.
    (5) A memorandum describing the basis upon which you have determined 
that the presumption that any related person is not operationally 
independent under Sec.275.206(4)-2(d)(5) has been overcome.
    (c)(1) Every investment adviser subject to paragraph (a) of this 
section who renders any investment supervisory or management service to 
any client shall, with respect to the portfolio being supervised or 
managed and to the extent that the information is reasonably available 
to or obtainable by the investment adviser, make and keep true, accurate 
and current:
    (i) Records showing separately for each such client the securities 
purchased and sold, and the date, amount and price of each such purchase 
and sale.
    (ii) For each security in which any such client has a current 
position, information from which the investment adviser can promptly 
furnish the name of each such client, and the current amount or interest 
of such client.

[[Page 1332]]

    (2) Every investment adviser subject to paragraph (a) of this 
section that exercises voting authority with respect to client 
securities shall, with respect to those clients, make and retain the 
following:
    (i) Copies of all policies and procedures required by Sec.
275.206(4)-6.
    (ii) A copy of each proxy statement that the investment adviser 
receives regarding client securities. An investment adviser may satisfy 
this requirement by relying on a third party to make and retain, on the 
investment adviser's behalf, a copy of a proxy statement (provided that 
the adviser has obtained an undertaking from the third party to provide 
a copy of the proxy statement promptly upon request) or may rely on 
obtaining a copy of a proxy statement from the Commission's Electronic 
Data Gathering, Analysis, and Retrieval (EDGAR) system.
    (iii) A record of each vote cast by the investment adviser on behalf 
of a client. An investment adviser may satisfy this requirement by 
relying on a third party to make and retain, on the investment adviser's 
behalf, a record of the vote cast (provided that the adviser has 
obtained an undertaking from the third party to provide a copy of the 
record promptly upon request).
    (iv) A copy of any document created by the adviser that was material 
to making a decision how to vote proxies on behalf of a client or that 
memorializes the basis for that decision.
    (v) A copy of each written client request for information on how the 
adviser voted proxies on behalf of the client, and a copy of any written 
response by the investment adviser to any (written or oral) client 
request for information on how the adviser voted proxies on behalf of 
the requesting client.
    (d) Any books or records required by this section may be maintained 
by the investment adviser in such manner that the identity of any client 
to whom such investment adviser renders investment supervisory services 
is indicated by numerical or alphabetical code or some similar 
designation.
    (e)(1) All books and records required to be made under the 
provisions of paragraphs (a) to (c)(1)(i), inclusive, and (c)(2) of this 
section (except for books and records required to be made under the 
provisions of paragraphs (a)(11), (a)(12)(i), (a)(12)(iii), (a)(13)(ii), 
(a)(13)(iii), (a)(16), and (a)(17)(i) of this section), shall be 
maintained and preserved in an easily accessible place for a period of 
not less than five years from the end of the fiscal year during which 
the last entry was made on such record, the first two years in an 
appropriate office of the investment adviser.
    (2) Partnership articles and any amendments thereto, articles of 
incorporation, charters, minute books, and stock certificate books of 
the investment adviser and of any predecessor, shall be maintained in 
the principal office of the investment adviser and preserved until at 
least three years after termination of the enterprise.
    (3)(i) Books and records required to be made under the provisions of 
paragraphs (a)(11) and (a)(16) of this rule shall be maintained and 
preserved in an easily accessible place for a period of not less than 
five years, the first two years in an appropriate office of the 
investment adviser, from the end of the fiscal year during which the 
investment adviser last published or otherwise disseminated, directly or 
indirectly, the notice, circular, advertisement, newspaper article, 
investment letter, bulletin or other communication.
    (ii) Transition rule. If you are an investment adviser that was, 
prior to July 21, 2011, exempt from registration under section 203(b)(3) 
of the Act (15 U.S.C. 80b-3(b)(3)), as in effect on July 20, 2011, 
paragraph (e)(3)(i) of this section does not require you to maintain or 
preserve books and records that would otherwise be required to be 
maintained or preserved under the provisions of paragraph (a)(16) of 
this section to the extent those books and records pertain to the 
performance or rate of return of such private fund (as defined in 
section 202(a)(29) of the Act (15 U.S.C. 80b-2(a)(29)), or other account 
you advise for any period ended prior to your registration, provided 
that you continue to preserve any books and records in your possession 
that pertain to the performance or rate of return of such private fund 
or other account for such period.

[[Page 1333]]

    (f) An investment adviser subject to paragraph (a) of this section, 
before ceasing to conduct or discontinuing business as an investment 
adviser shall arrange for and be responsible for the preservation of the 
books and records required to be maintained and preserved under this 
section for the remainder of the period specified in this section, and 
shall notify the Commission in writing, at its principal office, 
Washington, D.C. 20549, of the exact address where such books and 
records will be maintained during such period.
    (g) Micrographic and electronic storage permitted--(1) General. The 
records required to be maintained and preserved pursuant to this part 
may be maintained and preserved for the required time by an investment 
adviser on:
    (i) Micrographic media, including microfilm, microfiche, or any 
similar medium; or
    (ii) Electronic storage media, including any digital storage medium 
or system that meets the terms of this section.
    (2) General requirements. The investment adviser must:
    (i) Arrange and index the records in a way that permits easy 
location, access, and retrieval of any particular record;
    (ii) Provide promptly any of the following that the Commission (by 
its examiners or other representatives) may request:
    (A) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (B) A legible, true, and complete printout of the record; and
    (C) Means to access, view, and print the records; and
    (iii) Separately store, for the time required for preservation of 
the original record, a duplicate copy of the record on any medium 
allowed by this section.
    (3) Special requirements for electronic storage media. In the case 
of records on electronic storage media, the investment adviser must 
establish and maintain procedures:
    (i) To maintain and preserve the records, so as to reasonably 
safeguard them from loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized personnel 
and the Commission (including its examiners and other representatives); 
and
    (iii) To reasonably ensure that any reproduction of a non-electronic 
original record on electronic storage media is complete, true, and 
legible when retrieved.
    (h)(1) Any book or other record made, kept, maintained and preserved 
in compliance with Sec.Sec.240.17a-3 and 240.17a-4 of this chapter 
under the Securities Exchange Act of 1934, or with rules adopted by the 
Municipal Securities Rulemaking Board, which is substantially the same 
as the book or other record required to be made, kept, maintained and 
preserved under this section, shall be deemed to be made, kept, 
maintained and preserved in compliance with this section.
    (2) A record made and kept pursuant to any provision of paragraph 
(a) of this section, which contains all the information required under 
any other provision of paragraph (a) of this section, need not be 
maintained in duplicate in order to meet the requirements of the other 
provision of paragraph (a) of this section.
    (i) As used in this section the term ``discretionary power'' shall 
not include discretion as to the price at which or the time when a 
transaction is or is to be effected, if, before the order is given by 
the investment adviser, the client has directed or approved the purchase 
or sale of a definite amount of the particular security.
    (j)(1) Except as provided in paragraph (j)(3) of this section, each 
non-resident investment adviser registered or applying for registration 
pursuant to section 203 of the Act shall keep, maintain and preserve, at 
a place within the United States designated in a notice from him as 
provided in paragraph (j)(2) of this section true, correct, complete and 
current copies of books and records which he is required to make, keep 
current, maintain or preserve pursuant to any provisions of any rule or 
regulation of the Commission adopted under the Act.
    (2) Except as provided in paragraph (j)(3) of this section, each 
nonresident investment adviser subject to this paragraph (j) shall 
furnish to the Commission a written notice specifying the address of the 
place within the United States where the copies of the books

[[Page 1334]]

and records required to be kept and preserved by him pursuant to 
paragraph (j)(1) of this section are located. Each non-resident 
investment adviser registered or applying for registration when this 
paragraph becomes effective shall file such notice within 30 days after 
such rule becomes effective. Each non-resident investment adviser who 
files an application for registration after this paragraph becomes 
effective shall file such notice with such application for registration.
    (3) Notwithstanding the provisions of paragraphs (j)(1) and (2) of 
this section, a non-resident investment adviser need not keep or 
preserve within the United States copies of the books and records 
referred to in said paragraphs (j)(1) and (2), if:
    (i) Such non-resident investment adviser files with the Commission, 
at the time or within the period provided by paragraph (j)(2) of this 
section, a written undertaking, in form acceptable to the Commission and 
signed by a duly authorized person, to furnish to the Commission, upon 
demand, at its principal office in Washington, DC, or at any Regional 
Office of the Commission designated in such demand, true, correct, 
complete and current copies of any or all of the books and records which 
he is required to make, keep current, maintain or preserve pursuant to 
any provision of any rule or regulation of the Commission adopted under 
the Act, or any part of such books and records which may be specified in 
such demand. Such undertaking shall be in substantially the following 
form:

    The undersigned hereby undertakes to furnish at its own expense to 
the Securities and Exchange Commission at its principal office in 
Washington, DC or at any Regional Office of said Commission specified in 
a demand for copies of books and records made by or on behalf of said 
Commission, true, correct, complete and current copies of any or all, or 
any part, of the books and records which the undersigned is required to 
make, keep current or preserve pursuant to any provision of any rule or 
regulation of the Securities and Exchange Commission under the 
Investment Advisers Act of 1940. This undertaking shall be suspended 
during any period when the undersigned is making, keeping current, and 
preserving copies of all of said books and records at a place within the 
United States in compliance with Rule 204-2(j) under the Investment 
Advisers Act of 1940. This undertaking shall be binding upon the 
undersigned and the heirs, successors and assigns of the undersigned, 
and the written irrevocable consents and powers of attorney of the 
undersigned, its general partners and managing agents filed with the 
Securities and Exchange Commission shall extend to and cover any action 
to enforce same.


and
    (ii) Such non-resident investment adviser furnishes to the 
Commission, at his own expense 14 days after written demand therefor 
forwarded to him by registered mail at his last address of record filed 
with the Commission and signed by the Secretary of the Commission or 
such person as the Commission may authorize to act in its behalf, true, 
correct, complete and current copies of any or all books and records 
which such investment adviser is required to make, keep current or 
preserve pursuant to any provision of any rule or regulation of the 
Commission adopted under the Act, or any part of such books and records 
which may be specified in said written demand. Such copies shall be 
furnished to the Commission at its principal office in Washington, DC, 
or at any Regional Office of the Commission which may be specified in 
said written demand.
    (4) For purposes of this rule the term non-resident investment 
adviser shall have the meaning set out in Sec.275.0-2(d)(3) under the 
Act.
    (k) Every investment adviser that registers under section 203 of the 
Act (15 U.S.C. 80b-3) after July 8, 1997 shall be required to preserve 
in accordance with this section the books and records the investment 
adviser had been required to maintain by the State in which the 
investment adviser had its principal office and place of business prior 
to registering with the Commission.

[26 FR 5002, June 6, 1961]

    Editorial Note: For Federal Register citations affecting Sec.
275.204-2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.

[[Page 1335]]



Sec.275.204-3  Delivery of brochures and brochure supplements.

    (a) General requirements. If you are registered under the Act as an 
investment adviser, you must deliver a brochure and one or more brochure 
supplements to each client or prospective client that contains all 
information required by Part 2 of Form ADV [17 CFR 279.1].
    (b) Delivery requirements. Subject to paragraph (g), you (or a 
supervised person acting on your behalf) must:
    (1) Deliver to a client or prospective client your current brochure 
before or at the time you enter into an investment advisory contract 
with that client.
    (2) Deliver to each client, annually within 120 days after the end 
of your fiscal year and without charge, if there are material changes in 
your brochure since your last annual updating amendment:
    (i) A current brochure, or
    (ii) The summary of material changes to the brochure as required by 
Item 2 of Form ADV, Part 2A that offers to provide your current brochure 
without charge, accompanied by the Web site address (if available) and 
an e-mail address (if available) and telephone number by which a client 
may obtain the current brochure from you, and the Web site address for 
obtaining information about you through the Investment Adviser Public 
Disclosure (IAPD) system.
    (3) Deliver to each client or prospective client a current brochure 
supplement for a supervised person before or at the time that supervised 
person begins to provide advisory services to the client; provided, 
however, that if investment advice for a client is provided by a team 
comprised of more than five supervised persons, a current brochure 
supplement need only be delivered to that client for the five supervised 
persons with the most significant responsibility for the day-to-day 
advice provided to that client. For purposes of this section, a 
supervised person will provide advisory services to a client if that 
supervised person will:
    (i) Formulate investment advice for the client and have direct 
client contact; or
    (ii) Make discretionary investment decisions for the client, even if 
the supervised person will have no direct client contact.
    (4) Deliver the following to each client promptly after you create 
an amended brochure or brochure supplement, as applicable, if the 
amendment adds disclosure of an event, or materially revises information 
already disclosed about an event, in response to Item 9 of Part 2A of 
Form ADV or Item 3 of Part 2B of Form ADV (Disciplinary Information), 
respectively, (i) the amended brochure or brochure supplement, as 
applicable, along with a statement describing the material facts 
relating to the change in disciplinary information, or (ii) a statement 
describing the material facts relating to the change in disciplinary 
information.
    (c) Exceptions to delivery requirement. (1) You are not required to 
deliver a brochure to a client:
    (i) That is an investment company registered under the Investment 
Company Act of 1940 [15 U.S.C. 80a-1 to 80a-64] or a business 
development company as defined in that Act, provided that the advisory 
contract with that client meets the requirements of section 15(c) of 
that Act [15 U.S.C. 80a-15(c)]; or
    (ii) Who receives only impersonal investment advice for which you 
charge less than $500 per year.
    (2) You are not required to deliver a brochure supplement to a 
client:
    (i) To whom you are not required to deliver a brochure under 
subparagraph (c)(1) of this section;
    (ii) Who receives only impersonal investment advice; or
    (iii) Who is an officer, employee, or other person related to the 
adviser that would be a ``qualified client'' of your firm under Sec.
275.205-3(d)(1)(iii).
    (d) Wrap fee program brochures. (1) If you are a sponsor of a wrap 
fee program, then the brochure that paragraph (b) of this section 
requires you to deliver to a client or prospective client of the wrap 
fee program must be a wrap fee program brochure containing all the 
information required by Part 2A, Appendix 1 of Form ADV. Any additional 
information in a wrap fee program brochure must be limited to 
information applicable to wrap fee programs that you sponsor.

[[Page 1336]]

    (2) You do not have to deliver a wrap fee program brochure if 
another sponsor of the wrap fee program delivers, to the client or 
prospective client of the wrap fee program, a wrap fee program brochure 
containing all the information required by Part 2A, Appendix 1 of Form 
ADV.

    Note to paragraph (d): A wrap fee program brochure does not take the 
place of any brochure supplements that you are required to deliver under 
paragraph (b) of this section.

    (e) Multiple brochures. If you provide substantially different 
advisory services to different clients, you may provide them with 
different brochures, so long as each client receives all information 
about the services and fees that are applicable to that client. The 
brochure you deliver to a client may omit any information required by 
Part 2A of Form ADV if the information does not apply to the advisory 
services or fees that you will provide or charge, or that you propose to 
provide or charge, to that client.
    (f) Other disclosure obligations. Delivering a brochure or brochure 
supplement in compliance with this section does not relieve you of any 
other disclosure obligations you have to your advisory clients or 
prospective clients under any federal or state laws or regulations.
    (g) Definitions. For purposes of this section:
    (1) Impersonal investment advice means investment advisory services 
that do not purport to meet the objectives or needs of specific 
individuals or accounts.
    (2) Current brochure and current brochure supplement mean the most 
recent revision of the brochure or brochure supplement, including all 
amendments to date.
    (3) Sponsor of a wrap fee program means an investment adviser that 
is compensated under a wrap fee program for sponsoring, organizing, or 
administering the program, or for selecting, or providing advice to 
clients regarding the selection of, other investment advisers in the 
program.
    (4) Supervised person means any of your officers, partners or 
directors (or other persons occupying a similar status or performing 
similar functions) or employees, or any other person who provides 
investment advice on your behalf.
    (5) Wrap fee program means an advisory program under which a 
specified fee or fees not based directly upon transactions in a client's 
account is charged for investment advisory services (which may include 
portfolio management or advice concerning the selection of other 
investment advisers) and the execution of client transactions.

[75 FR 49268, Aug. 12, 2010, as amended at 81 FR 60458, Oct. 31, 2016; 
84 FR 33630, July 12, 2019]



Sec.275.204-4  Reporting by exempt reporting advisers.

    (a) Exempt reporting advisers. If you are an investment adviser 
relying on the exemption from registering with the Commission under 
section 203(l) or (m) of the Act (15 U.S.C. 80b-3(l) or 80b-3(m)), you 
must complete and file reports on Form ADV (17 CFR 279.1) by following 
the instructions in the Form, which specify the information that an 
exempt reporting adviser must provide.
    (b) Electronic filing. You must file Form ADV electronically with 
the Investment Adviser Registration Depository (IARD) unless you have 
received a hardship exemption under paragraph (e) of this section.

    Note to paragraph (b): Information on how to file with the IARD is 
available on the Commission's Web site at http://www.sec.gov/iard.

    (c) When filed. Each Form ADV is considered filed with the 
Commission upon acceptance by the IARD.
    (d) Filing fees. You must pay FINRA (the operator of the IARD) a 
filing fee. The Commission has approved the amount of the filing fee. No 
portion of the filing fee is refundable. Your completed Form ADV will 
not be accepted by FINRA, and thus will not be considered filed with the 
Commission, until you have paid the filing fee.
    (e) Temporary hardship exemption--(1) Eligibility for exemption. If 
you have unanticipated technical difficulties that prevent submission of 
a filing to the IARD, you may request a temporary

[[Page 1337]]

hardship exemption from the requirements of this chapter to file 
electronically.
    (2) Application procedures. To request a temporary hardship 
exemption, you must:
    (i) File Form ADV-H (17 CFR 279.3) in paper format no later than one 
business day after the filing that is the subject of the ADV-H was due; 
and
    (ii) Submit the filing that is the subject of the Form ADV-H in 
electronic format with the IARD no later than seven business days after 
the filing was due.
    (3) Effective date--upon filing. The temporary hardship exemption 
will be granted when you file a completed Form ADV-H.
    (f) Final report. You must file a final report in accordance with 
instructions in Form ADV when:
    (1) You cease operation as an investment adviser;
    (2) You no longer meet the definition of exempt reporting adviser 
under paragraph (a); or
    (3) You apply for registration with the Commission.

    Note to paragraph (f): You do not have to pay a filing fee to file a 
final report on Form ADV through the IARD.

[76 FR 43013, July 19, 2011]



Sec.275.204-5  Delivery of Form CRS.

    (a) General requirements. If you are registered under the Act as an 
investment adviser, you must deliver Form CRS, required by Part 3 of 
Form ADV [17 CFR 279.1], to each retail investor.
    (b) Delivery requirements. You (or a supervised person acting on 
your behalf) must:
    (1) Deliver to each retail investor your current Form CRS before or 
at the time you enter into an investment advisory contract with that 
retail investor.
    (2) Deliver to each retail investor who is an existing client your 
current Form CRS before or at the time you:
    (i) Open a new account that is different from the retail investor's 
existing account(s);
    (ii) Recommend that the retail investor roll over assets from a 
retirement account into a new or existing account or investment; or
    (iii) Recommend or provide a new investment advisory service or 
investment that does not necessarily involve the opening of a new 
account and would not be held in an existing account.
    (3) Post the current Form CRS prominently on your website, if you 
have one, in a location and format that is easily accessible for retail 
investors.
    (4) Communicate any changes made to Form CRS to each retail investor 
who is an existing client within 60 days after the amendments are 
required to be made and without charge. The communication can be made by 
delivering the amended Form CRS or by communicating the information 
through another disclosure that is delivered to the retail investor.
    (5) Deliver a current Form CRS to each retail investor within 30 
days upon request.
    (c) Other disclosure obligations. Delivering Form CRS in compliance 
with this section does not relieve you of any other disclosure 
obligations you have to your retail investors under any Federal or State 
laws or regulations.
    (d) Definitions. For purposes of this section:
    (1) Current Form CRS means the most recent version of the Form CRS.
    (2) Retail investor means a natural person, or the legal 
representative of such natural person, who seeks to receive or receives 
services primarily for personal, family or household purposes.
    (3) Supervised person means any of your officers, partners or 
directors (or other persons occupying a similar status or performing 
similar functions) or employees, or any other person who provides 
investment advice on your behalf.
    (e) Transition rule. (1) Within 30 days after the date by which you 
are first required by Sec.275.204-1(b)(3) to electronically file your 
Form CRS with the Commission, you must deliver to each of your existing 
clients who is a retail investor your current Form CRS as required by 
Part 3 of Form ADV.
    (2) As of the date by which you are first required to electronically 
file your Form CRS with the Commission, you must begin using your Form 
CRS as required by Part 3 of Form ADV to

[[Page 1338]]

comply with the requirements of paragraph (b) of this section.

[84 FR 33631, July 12, 2019]



Sec.275.204(b)-1  Reporting by investment advisers to private funds.

    (a) Reporting by investment advisers to private funds on Form PF. If 
you are an investment adviser registered or required to be registered 
under section 203 of the Act (15 U.S.C. 80b-3), you act as an investment 
adviser to one or more private funds and, as of the end of your most 
recently completed fiscal year, you managed private fund assets of at 
least $150 million, you must complete and file a report on Form PF (17 
CFR 279.9) by following the instructions in the Form, which specify the 
information that an investment adviser must provide. Your initial report 
on Form PF is due no later than the last day on which your next update 
would be timely in accordance with paragraph (e) if you had previously 
filed the Form; provided that you are not required to file Form PF with 
respect to any fiscal quarter or fiscal year ending prior to the date on 
which your registration becomes effective.
    (b) Electronic filing. You must file Form PF electronically with the 
Form PF filing system on the Investment Adviser Registration Depository 
(IARD).

    Note to paragraph (b): Information on how to file Form PF is 
available on the Commission's Web site at http://www.sec.gov/iard.

    (c) When filed. Each Form PF is considered filed with the Commission 
upon acceptance by the Form PF filing system.
    (d) Filing fees. You must pay the operator of the Form PF filing 
system a filing fee as required by the instructions to Form PF. The 
Commission has approved the amount of the filing fee. No portion of the 
filing fee is refundable. Your completed Form PF will not be accepted by 
the operator of the Form PF filing system, and thus will not be 
considered filed with the Commission, until you have paid the filing 
fee.
    (e) Updates to Form PF. You must file an updated Form PF:
    (1) At least annually, no later than the date specified in the 
instructions to Form PF; and
    (2) More frequently, if required by the instructions to Form PF. You 
must file all updated reports electronically with the Form PF filing 
system.
    (f) Temporary hardship exemption. (1) If you have unanticipated 
technical difficulties that prevent you from submitting Form PF on a 
timely basis through the Form PF filing system, you may request a 
temporary hardship exemption from the requirements of this section to 
file electronically.
    (2) To request a temporary hardship exemption, you must:
    (i) Complete and file in paper format, in accordance with the 
instructions to Form PF, Item A of Section 1a and Section 5 of Form PF, 
checking the box in Section 1a indicating that you are requesting a 
temporary hardship exemption, no later than one business day after the 
electronic Form PF filing was due; and
    (ii) Submit the filing that is the subject of the Form PF paper 
filing in electronic format with the Form PF filing system no later than 
seven business days after the filing was due.
    (3) The temporary hardship exemption will be granted when you file 
Item A of Section 1a and Section 5 of Form PF, checking the box in 
Section 1a indicating that you are requesting a temporary hardship 
exemption.
    (4) The hardship exemptions available under Sec.275.203-3 do not 
apply to Form PF.
    (g) Definitions. For purposes of this section:
    (1) Assets under management means the regulatory assets under 
management as determined under Item 5.F of Form ADV (Sec.279.1 of this 
chapter).
    (2) Private fund assets means the investment adviser's assets under 
management attributable to private funds.

[76 FR 71174, Nov. 16, 2011]



Sec.275.204A-1  Investment adviser codes of ethics.

    (a) Adoption of code of ethics. If you are an investment adviser 
registered or required to be registered under section 203 of the Act (15 
U.S.C. 80b-3), you must establish, maintain and enforce a written code 
of ethics that, at a minimum, includes:
    (1) A standard (or standards) of business conduct that you require 
of your

[[Page 1339]]

supervised persons, which standard must reflect your fiduciary 
obligations and those of your supervised persons;
    (2) Provisions requiring your supervised persons to comply with 
applicable Federal securities laws;
    (3) Provisions that require all of your access persons to report, 
and you to review, their personal securities transactions and holdings 
periodically as provided below;
    (4) Provisions requiring supervised persons to report any violations 
of your code of ethics promptly to your chief compliance officer or, 
provided your chief compliance officer also receives reports of all 
violations, to other persons you designate in your code of ethics; and
    (5) Provisions requiring you to provide each of your supervised 
persons with a copy of your code of ethics and any amendments, and 
requiring your supervised persons to provide you with a written 
acknowledgment of their receipt of the code and any amendments.
    (b) Reporting requirements--(1) Holdings reports. The code of ethics 
must require your access persons to submit to your chief compliance 
officer or other persons you designate in your code of ethics a report 
of the access person's current securities holdings that meets the 
following requirements:
    (i) Content of holdings reports. Each holdings report must contain, 
at a minimum:
    (A) The title and type of security, and as applicable the exchange 
ticker symbol or CUSIP number, number of shares, and principal amount of 
each reportable security in which the access person has any direct or 
indirect beneficial ownership;
    (B) The name of any broker, dealer or bank with which the access 
person maintains an account in which any securities are held for the 
access person's direct or indirect benefit; and
    (C) The date the access person submits the report.
    (ii) Timing of holdings reports. Your access persons must each 
submit a holdings report:
    (A) No later than 10 days after the person becomes an access person, 
and the information must be current as of a date no more than 45 days 
prior to the date the person becomes an access person.
    (B) At least once each 12-month period thereafter on a date you 
select, and the information must be current as of a date no more than 45 
days prior to the date the report was submitted.
    (2) Transaction reports. The code of ethics must require access 
persons to submit to your chief compliance officer or other persons you 
designate in your code of ethics quarterly securities transactions 
reports that meet the following requirements:
    (i) Content of transaction reports. Each transaction report must 
contain, at a minimum, the following information about each transaction 
involving a reportable security in which the access person had, or as a 
result of the transaction acquired, any direct or indirect beneficial 
ownership:
    (A) The date of the transaction, the title, and as applicable the 
exchange ticker symbol or CUSIP number, interest rate and maturity date, 
number of shares, and principal amount of each reportable security 
involved;
    (B) The nature of the transaction (i.e., purchase, sale or any other 
type of acquisition or disposition);
    (C) The price of the security at which the transaction was effected;
    (D) The name of the broker, dealer or bank with or through which the 
transaction was effected; and
    (E) The date the access person submits the report.
    (ii) Timing of transaction reports. Each access person must submit a 
transaction report no later than 30 days after the end of each calendar 
quarter, which report must cover, at a minimum, all transactions during 
the quarter.
    (3) Exceptions from reporting requirements. Your code of ethics need 
not require an access person to submit:
    (i) Any report with respect to securities held in accounts over 
which the access person had no direct or indirect influence or control;
    (ii) A transaction report with respect to transactions effected 
pursuant to an automatic investment plan;
    (iii) A transaction report if the report would duplicate information 
contained in broker trade confirmations or account statements that you 
hold in

[[Page 1340]]

your records so long as you receive the confirmations or statements no 
later than 30 days after the end of the applicable calendar quarter.
    (c) Pre-approval of certain investments. Your code of ethics must 
require your access persons to obtain your approval before they directly 
or indirectly acquire beneficial ownership in any security in an initial 
public offering or in a limited offering.
    (d) Small advisers. If you have only one access person (i.e., 
yourself), you are not required to submit reports to yourself or to 
obtain your own approval for investments in any security in an initial 
public offering or in a limited offering, if you maintain records of all 
of your holdings and transactions that this section would otherwise 
require you to report.
    (e) Definitions. For the purpose of this section:
    (1) Access person means:
    (i) Any of your supervised persons:
    (A) Who has access to nonpublic information regarding any clients' 
purchase or sale of securities, or nonpublic information regarding the 
portfolio holdings of any reportable fund, or
    (B) Who is involved in making securities recommendations to clients, 
or who has access to such recommendations that are nonpublic.
    (ii) If providing investment advice is your primary business, all of 
your directors, officers and partners are presumed to be access persons.
    (2) Automatic investment plan means a program in which regular 
periodic purchases (or withdrawals) are made automatically in (or from) 
investment accounts in accordance with a predetermined schedule and 
allocation. An automatic investment plan includes a dividend 
reinvestment plan.
    (3) Beneficial ownership is interpreted in the same manner as it 
would be under Sec.240.16a-1(a)(2) of this chapter in determining 
whether a person has beneficial ownership of a security for purposes of 
section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p) and 
the rules and regulations thereunder. Any report required by paragraph 
(b) of this section may contain a statement that the report will not be 
construed as an admission that the person making the report has any 
direct or indirect beneficial ownership in the security to which the 
report relates.
    (4) Federal securities laws means the Securities Act of 1933 (15 
U.S.C. 77a-aa), the Securities Exchange Act of 1934 (15 U.S.C. 78a-mm), 
the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), 
the Investment Company Act of 1940 (15 U.S.C. 80a), the Investment 
Advisers Act of 1940 (15 U.S.C. 80b), title V of the Gramm-Leach-Bliley 
Act (Pub. L. 106-102, 113 Stat. 1338 (1999), any rules adopted by the 
Commission under any of these statutes, the Bank Secrecy Act (31 U.S.C. 
5311-5314; 5316-5332) as it applies to funds and investment advisers, 
and any rules adopted thereunder by the Commission or the Department of 
the Treasury.
    (5) Fund means an investment company registered under the Investment 
Company Act.
    (6) Initial public offering means an offering of securities 
registered under the Securities Act of 1933 (15 U.S.C. 77a), the issuer 
of which, immediately before the registration, was not subject to the 
reporting requirements of sections 13 or 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)).
    (7) Limited offering means an offering that is exempt from 
registration under the Securities Act of 1933 pursuant to section 
4(a)(2) or section 4(a)(5) (15 U.S.C. 77d(a)(2) or 77d(a)(5)) or 
pursuant to Sec.Sec.230.504 or 230.506 of this chapter.
    (8) Purchase or sale of a security includes, among other things, the 
writing of an option to purchase or sell a security.
    (9) Reportable fund means:
    (i) Any fund for which you serve as an investment adviser as defined 
in section 2(a)(20) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(20)) (i.e., in most cases you must be approved by the fund's 
board of directors before you can serve); or
    (ii) Any fund whose investment adviser or principal underwriter 
controls you, is controlled by you, or is under common control with you. 
For purposes of this section, control has the same meaning as it does in 
section 2(a)(9) of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(9)).
    (10) Reportable security means a security as defined in section 
202(a)(18) of

[[Page 1341]]

the Act (15 U.S.C. 80b-2(a)(18)), except that it does not include:
    (i) Direct obligations of the Government of the United States;
    (ii) Bankers' acceptances, bank certificates of deposit, commercial 
paper and high quality short-term debt instruments, including repurchase 
agreements;
    (iii) Shares issued by money market funds;
    (iv) Shares issued by open-end funds other than reportable funds; 
and
    (v) Shares issued by unit investment trusts that are invested 
exclusively in one or more open-end funds, none of which are reportable 
funds.

[69 FR 41708, July 9, 2004, as amended at 76 FR 81806, Dec. 29, 2011; 81 
FR 83554, Nov. 21, 2016]



Sec.275.205-1  Definition of ``investment performance'' of an
investment company and ``investment record'' of an appropriate 
index of securities prices.

    (a) Investment performance of an investment company for any period 
shall mean the sum of:
    (1) The change in its net asset value per share during such period;
    (2) The value of its cash distributions per share accumulated to the 
end of such period; and
    (3) The value of capital gains taxes per share paid or payable on 
undistributed realized long-term capital gains accumulated to the end of 
such period; expressed as a percentage of its net asset value per share 
at the beginning of such period. For this purpose, the value of 
distributions per share of realized capital gains, of dividends per 
share paid from investment income and of capital gains taxes per share 
paid or payable on undistributed realized long-term capital gains shall 
be treated as reinvested in shares of the investment company at the net 
asset value per share in effect at the close of business on the record 
date for the payment of such distributions and dividends and the date on 
which provision is made for such taxes, after giving effect to such 
distributions, dividends and taxes.
    (b) Investment record of an appropriate index of securities prices 
for any period shall mean the sum of:
    (1) The change in the level of the index during such period; and
    (2) The value, computed consistently with the index, of cash 
distributions made by companies whose securities comprise the index 
accumulated to the end of such period; expressed as a percentage of the 
index level at the beginning of such period. For this purpose cash 
distributions on the securities which comprise the index shall be 
treated as reinvested in the index at least as frequently as the end of 
each calendar quarter following the payment of the dividend.

                                                    Exhibit I
[Method of computing the investment record of the standard & poor's 500 stock composite index for calendar 1971]
----------------------------------------------------------------------------------------------------------------
                                                                             Quarterly dividend yield-composite
                                                                                           index
                                                                          --------------------------------------
                  Quarterly ending--                     Index value \1\                       Quarterly percent
                                                                             Annual percent      \3\ (\1/4\ of
                                                                                  \2\         annual)
----------------------------------------------------------------------------------------------------------------
Dec. 1970.............................................              92.15  .................  ..................
Mar. 1971.............................................             100.31               3.10                0.78
June 1971.............................................              99.70               3.11                 .78
Sept. 1971............................................              98.34               3.14                 .79
Dec. 1971.............................................             102.09               3.01                 .75
----------------------------------------------------------------------------------------------------------------
\1\ Source: Standard & Poor's Trade and Securities Statistics, Jan. 1972, p. 33.
\2\ Id. See Standard & Poor's Trade and Securities Statistics Security and Price Index Record--1970 Edition, p.
  133 for explanation of quarterly dividend yield.
\3\ Quarterly percentages have been founded to two decimal places.

Change in index value for 1971: 102.09 - 92.15 = 9.94.
Accumulated value of dividends for 1971:

[[Page 1342]]

[GRAPHIC] [TIFF OMITTED] TC14NO91.094

    Aggregate value of dividends paid, assuming quarterly reinvestment 
and computed consistently with the index:
    (Percent yield as computed above) x (ending index value) = Aggregate 
value of dividends paid
    For 1971:

.0314 x 102.09 = 3.21

    Investment record of Standard & Poor's 500 stock composite index 
assuming quarterly reinvestment dividends:
[GRAPHIC] [TIFF OMITTED] TC14NO91.095

    The same method can be extended to cases where an investment 
company's fiscal quarters do not coincide with the fiscal quarters of 
the S & P dividend record or to instances where a ``rolling period'' is 
used for performance comparisons as indicated by the following example 
of the calculation of the investment record of the Standard & Poor's 500 
Stock Composite Index for the 12 months ended November 1971:

Index value Nov. 30, 1971.....................................     93.99
Index value Nov. 30, 1970.....................................     87.20
                                                               ---------
 Change in index value........................................      6.79
 


------------------------------------------------------------------------
                                    Dividend yield       Rate for each
                                 --------------------  month of quarter
        Quarter ending--           Annual   \1/4\ of      (\1/12\ of
                                    rate     annual   annual)
------------------------------------------------------------------------
Dec. 1970.......................      3.41      0.85            0.28
Mar. 1971.......................      3.10       .78             .26
June 1971.......................      3.11       .78             .26
Sept. 1971......................      3.14       .79             .26
Dec. 1971.......................      3.01       .75             .25
------------------------------------------------------------------------

    Accumulated value of dividends reinvested:

    December = 1.0028
    January-March = 1.0078
    April-June = 1.0078
    July-September = 1.0079
    October-November = 1.0053 \4\
---------------------------------------------------------------------------

    \4\ The rate for October and November would be two-thirds of the 
yield for the quarter ended Sept. 30 (i.e. .667 x .79 = 5269) since the 
yield for the quarter ended Dec. 31 would not be available as of Nov. 
30.

    Dividend yield:

       (1.0028 x 1.0078 x 1.0078 x 1.0079 x 1.0053) - 1.00 = .0320

    Aggregate value of dividends paid computed consistently with the 
index:

.0320 x 93.99 = 3.01

    Investment record of the Standard & Poor's 500 Stock Composite Index 
for the 12 months ended November 30, 1971:
[GRAPHIC] [TIFF OMITTED] TC14NO91.096


                                                   Exhibit II
  [Method of Computing the Investment Record of the New York Stock Exchange Composite Index for Calendar 1971]
----------------------------------------------------------------------------------------------------------------
                                                                            (4)--Quarterly
                                                         (3)--Aggregate        value of
                                                        market value of     estimated cash      (5)--Estimated
                                     (2)--Index value   shares listed on     payments of          yield \4\
        (1)--Quarter ending                \1\           the NYSE as of    shares listed on       (quarterly
                                                         end of quarter        the NYSE      percent)
                                                          (billions of       (millions of
                                                          dollars) \2\       dollars) \3\
----------------------------------------------------------------------------------------------------------------
Dec. 1970.........................              50.23
Mar. 1971.........................              55.44               $709             $5,106                0.72
June 1971.........................              55.09                710              4,961                 .70
Sept. 1971........................              54.33                709              5,006                 .71
Dec. 1971.........................              56.43                742              5,183                 .70
----------------------------------------------------------------------------------------------------------------
\1\ Source: New York Stock Exchange Composite Index as reported daily by the New York Stock Exchange.
\2\ Source: Monthly Review, New York Stock Exchange.
\3\ Source: The Exchange, New York Stock Exchange magazine, May, Aug., Nov. 1971 and Feb. 1972 editions. Upon
  request the Statistics Division of the Research Department of the NYSE will make this figure available within
  10 days of the end of each quarter.
\4\ The ratio of column 4 to column 3.


[[Page 1343]]

Change in NYSE Composite Index value for 1971: 56.43 - 50.23 = 6.20.
Accumulated Value of Dividends of NYSE Composite Index for 1971:
[GRAPHIC] [TIFF OMITTED] TC14NO91.097

    Aggregate value of dividends paid on NYSE Composite Index assuming 
quarterly reinvestment:
    For 1971:

.0286 x 56.43 = 1.61

    Investment record of the New York Stock Exchange Composite Index 
assuming quarterly reinvestment of dividends:
[GRAPHIC] [TIFF OMITTED] TC14NO91.098

    The same method can be extended to cases where an investment 
company's fiscal quarters do not coincide with the fiscal quarters of 
the NYSE dividend record or to instances where a ``rolling period'' is 
used for performance comparisons as indicated by the following example 
of the calculation of the investment record of the NYSE Composite Index 
for the 12 months ended November 1971:

Index value Nov. 30, 1971.....................................     51.84
Index value Nov. 30, 1970.....................................     47.41
                                                               ---------
 Change in index value........................................      4.43
 


------------------------------------------------------------------------
                                           Dividend      Rate for each
                                             yield     month of quarter
             Quarter ending                quarterly      (\1/12\ of
                                            percent   annual)
------------------------------------------------------------------------
Dec. 1970...............................        0.79            0.26
Mar. 1971...............................         .72             .24
June 1971...............................         .70             .23
Sept. 1971..............................         .71             .24
Dec. 1971...............................         .70             .23
------------------------------------------------------------------------

    Accumulated value of dividends reinvested:

    December = 1.0026
    January-March = 1.0072
    April-June = 1.0070
    July-September = 1.0071
    October-November = 1.0047 \4\
---------------------------------------------------------------------------

    \4\ The rate for October and November would be two thirds of the 
yield for the quarter ended September 30 (i.e. .667 x .71 = 4736), since 
the yield for the quarter ended December 31 would not be available as of 
November 30.

    Dividend yield:

       (1.0026 x 1.0072 x 1.0070 x 1.0071 x 1.0047) - 1.00 = .0289

    Aggregate value of dividends paid computed consistently with the 
index:

.0289 x 51.84 = 1.50

    Investment record of the NYSE Composite Index for the 12 months 
ended November 30, 1971:
[GRAPHIC] [TIFF OMITTED] TC14NO91.099


(Secs. 205, 211, 54 Stat. 852, 74 Stat. 887, 15 U.S.C. 80b-205, 80b-211; 
Sec.25, 84 Stat. 1432, 1433, Pub. L. 91-547)

[37 FR 17468, Aug. 29, 1972]



Sec.275.205-2  Definition of ``specified period'' over which the asset
value of the company or fund under management is averaged.

    (a) For purposes of this rule:
    (1) Fulcrum fee shall mean the fee which is paid or earned when the 
investment company's performance is equivalent to that of the index or 
other measure of performance.
    (2) Rolling period shall mean a period consisting of a specified 
number of subperiods of definite length in which the most recent 
subperiod is substituted for the earliest subperiod as time passes.
    (b) The specified period over which the asset value of the company 
or fund under management is averaged shall mean the period over which 
the investment performance of the company or fund and the investment 
record of an appropriate index of securities prices or such other 
measure of investment performance are computed.
    (c) Notwithstanding paragraph (b) of this section, the specified 
period over which the asset value of the company or fund is averaged for 
the purpose of computing the fulcrum fee may differ from the period over 
which the asset value is averaged for computing the

[[Page 1344]]

performance related portion of the fee, only if:
    (1) The performance related portion of the fee is computed over a 
rolling period and the total fee is payable at the end of each subperiod 
of the rolling period; and
    (2) The fulcrum fee is computed on the basis of the asset value 
averaged over the most recent subperiod or subperiods of the rolling 
period.

(Secs. 205, 106A, 211; 54 Stat. 852, 855; 84 Stat. 1433, 15 U.S.C. 80b-
5, 80b-6a, 80b-11)

[37 FR 24896, Nov. 22, 1972]



Sec.275.205-3  Exemption from the compensation prohibition of section
205(a)(1) for investment advisers.

    (a) General. The provisions of section 205(a)(1) of the Act (15 
U.S.C. 80b-5(a)(1)) will not be deemed to prohibit an investment adviser 
from entering into, performing, renewing or extending an investment 
advisory contract that provides for compensation to the investment 
adviser on the basis of a share of the capital gains upon, or the 
capital appreciation of, the funds, or any portion of the funds, of a 
client, Provided, That the client entering into the contract subject to 
this section is a qualified client, as defined in paragraph (d)(1) of 
this section.
    (b) Identification of the client. In the case of a private 
investment company, as defined in paragraph (d)(3) of this section, an 
investment company registered under the Investment Company Act of 1940, 
or a business development company, as defined in section 202(a)(22) of 
the Act (15 U.S.C. 80b-2(a)(22)), each equity owner of any such company 
(except for the investment adviser entering into the contract and any 
other equity owners not charged a fee on the basis of a share of capital 
gains or capital appreciation) will be considered a client for purposes 
of paragraph (a) of this section.
    (c) Transition rules--(1) Registered investment advisers. If a 
registered investment adviser entered into a contract and satisfied the 
conditions of this section that were in effect when the contract was 
entered into, the adviser will be considered to satisfy the conditions 
of this section; Provided, however, that if a natural person or company 
who was not a party to the contract becomes a party (including an equity 
owner of a private investment company advised by the adviser), the 
conditions of this section in effect at that time will apply with regard 
to that person or company.
    (2) Registered investment advisers that were previously not 
registered. If an investment adviser was not required to register with 
the Commission pursuant to section 203 of the Act (15 U.S.C. 80b-3) and 
was not registered, section 205(a)(1) of the Act will not apply to an 
advisory contract entered into when the adviser was not required to 
register and was not registered, or to an account of an equity owner of 
a private investment company advised by the adviser if the account was 
established when the adviser was not required to register and was not 
registered; Provided, however, that section 205(a)(1) of the Act will 
apply with regard to a natural person or company who was not a party to 
the contract and becomes a party (including an equity owner of a private 
investment company advised by the adviser) when the adviser is required 
to register.
    (3) Certain transfers of interests. Solely for purposes of 
paragraphs (c)(1) and (c)(2) of this section, a transfer of an equity 
ownership interest in a private investment company by gift or bequest, 
or pursuant to an agreement related to a legal separation or divorce, 
will not cause the transferee to ``become a party'' to the contract and 
will not cause section 205(a)(1) of the Act to apply to such transferee.
    (d) Definitions. For the purposes of this section:
    (1) The term qualified client means:
    (i) A natural person who, or a company that, immediately after 
entering into the contract has at least $1,000,000 under the management 
of the investment adviser;
    (ii) A natural person who, or a company that, the investment adviser 
entering into the contract (and any person acting on his behalf) 
reasonably believes, immediately prior to entering into the contract, 
either:
    (A) Has a net worth (together, in the case of a natural person, with 
assets held jointly with a spouse) of more than $2,000,000. For purposes 
of calculating a natural person's net worth:

[[Page 1345]]

    (1) The person's primary residence must not be included as an asset;
    (2) Indebtedness secured by the person's primary residence, up to 
the estimated fair market value of the primary residence at the time the 
investment advisory contract is entered into may not be included as a 
liability (except that if the amount of such indebtedness outstanding at 
the time of calculation exceeds the amount outstanding 60 days before 
such time, other than as a result of the acquisition of the primary 
residence, the amount of such excess must be included as a liability); 
and
    (3) Indebtedness that is secured by the person's primary residence 
in excess of the estimated fair market value of the residence must be 
included as a liability; or
    (B) Is a qualified purchaser as defined in section 2(a)(51)(A) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(51)(A)) at the 
time the contract is entered into; or
    (iii) A natural person who immediately prior to entering into the 
contract is:
    (A) An executive officer, director, trustee, general partner, or 
person serving in a similar capacity, of the investment adviser; or
    (B) An employee of the investment adviser (other than an employee 
performing solely clerical, secretarial or administrative functions with 
regard to the investment adviser) who, in connection with his or her 
regular functions or duties, participates in the investment activities 
of such investment adviser, provided that such employee has been 
performing such functions and duties for or on behalf of the investment 
adviser, or substantially similar functions or duties for or on behalf 
of another company for at least 12 months.
    (2) The term company has the same meaning as in section 202(a)(5) of 
the Act (15 U.S.C. 80b-2(a)(5)), but does not include a company that is 
required to be registered under the Investment Company Act of 1940 but 
is not registered.
    (3) The term private investment company means a company that would 
be defined as an investment company under section 3(a) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-3(a)) but for the exception provided 
from that definition by section 3(c)(1) of such Act (15 U.S.C. 80a-
3(c)(1)).
    (4) The term executive officer means the president, any vice 
president in charge of a principal business unit, division or function 
(such as sales, administration or finance), any other officer who 
performs a policy-making function, or any other person who performs 
similar policy-making functions, for the investment adviser.
    (e) Inflation adjustments. Pursuant to section 205(e) of the Act, 
the dollar amounts specified in paragraphs (d)(1)(i) and (d)(1)(ii)(A) 
of this section shall be adjusted by order of the Commission, on or 
about May 1, 2016 and issued approximately every five years thereafter. 
The adjusted dollar amounts established in such orders shall be computed 
by:
    (1) Dividing the year-end value of the Personal Consumption 
Expenditures Chain-Type Price Index (or any successor index thereto), as 
published by the United States Department of Commerce, for the calendar 
year preceding the calendar year in which the order is being issued, by 
the year-end value of such index (or successor) for the calendar year 
1997;
    (2) For the dollar amount in paragraph (d)(1)(i) of this section, 
multiplying $750,000 times the quotient obtained in paragraph (e)(1) of 
this section and rounding the product to the nearest multiple of 
$100,000; and
    (3) For the dollar amount in paragraph (d)(1)(ii)(A) of this 
section, multiplying $1,500,000 times the quotient obtained in paragraph 
(e)(1) of this section and rounding the product to the nearest multiple 
of $100,000.

[63 FR 39027, July 21, 1998, as amended at 69 FR 72088, Dec. 10, 2004; 
77 FR 10368, Feb. 22, 2012]



Sec.275.206(3)-1  Exemption of investment advisers registered as 
broker-dealers in connection with the provision of certain investment
advisory services.

    (a) An investment adviser which is a broker or dealer registered 
pursuant to section 15 of the Securities Exchange Act of 1934 shall be 
exempt from section 206(3) in connection with any

[[Page 1346]]

transaction in relation to which such broker or dealer is acting as an 
investment adviser solely (1) by means of publicly distributed written 
materials or publicly made oral statements; (2) by means of written 
materials or oral statements which do not purport to meet the objectives 
or needs of specific individuals or accounts; (3) through the issuance 
of statistical information containing no expressions of opinion as to 
the investment merits of a particular security; or (4) any combination 
of the foregoing services: Provided, however, That such materials and 
oral statements include a statement that if the purchaser of the 
advisory communication uses the services of the adviser in connection 
with a sale or purchase of a security which is a subject of such 
communication, the adviser may act as principal for its own account or 
as agent for another person.
    (b) For the purpose of this Rule, publicly distributed written 
materials are those which are distributed to 35 or more persons who pay 
for such materials, and publicly made oral statements are those made 
simultaneously to 35 or more persons who pay for access to such 
statements.

    Note: The requirement that the investment adviser disclose that it 
may act as principal or agent for another person in the sale or purchase 
of a security that is the subject of investment advice does not relieve 
the investment adviser of any disclosure obligation which, depending 
upon the nature of the relationship between the investment adviser and 
the client, may be imposed by subparagraphs (1) or (2) of section 206 or 
the other provisions of the federal securities laws.

[40 FR 38159, Aug. 27, 1975]



Sec.275.206(3)-2  Agency cross transactions for advisory clients.

    (a) An investment adviser, or a person registered as a broker-dealer 
under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) 
and controlling, controlled by, or under common control with an 
investment adviser, shall be deemed in compliance with the provisions of 
sections 206(3) of the Act (15 U.S.C. 80b-6(3)) in effecting an agency 
cross transaction for an advisory client, if:
    (1) The advisory client has executed a written consent prospectively 
authorizing the investment adviser, or any other person relying on this 
rule, to effect agency cross transactions for such advisory client, 
provided that such written consent is obtained after full written 
disclosure that with respect to agency cross transactions the investment 
adviser or such other person will act as broker for, receive commissions 
from, and have a potentially conflicting division of loyalties and 
responsibilities regarding, both parties to such transactions;
    (2) The investment adviser, or any other person relying on this 
rule, sends to each such client a written confirmation at or before the 
completion of each such transaction, which confirmation includes (i) a 
statement of the nature of such transaction, (ii) the date such 
transaction took place, (iii) an offer to furnish upon request, the time 
when such transaction took place, and (iv) the source and amount of any 
other remuneration received or to be received by the investment adviser 
and any other person relying on this rule in connection with the 
transaction, Provided, however, That if, in the case of a purchase, 
neither the investment adviser nor any other person relying on this rule 
was participating in a distribution, or in the case of a sale, neither 
the investment adviser nor any other person relying on this rule was 
participating in a tender offer, the written confirmation may state 
whether any other remuneration has been or will be received and that the 
source and amount of such other remuneration will be furnished upon 
written request of such customer;
    (3) The investment adviser, or any other person relying in this 
rule, sends to each such client, at least annually, and with or as part 
of any written statement or summary of such account from the investment 
adviser or such other person, a written disclosure statement identifying 
the total number of such transactions during the period since the date 
of the last such statement or summary, and the total amount of all 
commissions or other remuneration received or to be received by the 
investment adviser or any other person relying on this rule in 
connection with such transactions during such period;

[[Page 1347]]

    (4) Each written disclosure statement and confirmation required by 
this rule includes a conspicuous statement that the written consent 
referred to in paragraph (a)(1) of this section may be revoked at any 
time by written notice to the investment adviser, or to any other person 
relying on this rule, from the advisory client; and
    (5) No such transaction is effected in which the same investment 
adviser or an investment adviser and any person controlling, controlled 
by or under common control with such investment adviser recommended the 
transaction to both any seller and any purchaser.
    (b) For purposes of this rule the term agency cross transaction for 
an advisory client shall mean a transaction in which a person acts as an 
investment adviser in relation to a transaction in which such investment 
adviser, or any person controlling, controlled by, or under common 
control with such investment adviser, acts as broker for both such 
advisory client and for another person on the other side of the 
transaction.
    (c) This rule shall not be construed as relieving in any way the 
investment adviser or another person relying on this rule from acting in 
the best interests of the advisory client, including fulfilling the duty 
with respect to the best price and execution for the particular 
transaction for the advisory client; nor shall it relieve such person or 
persons from any disclosure obligation which may be imposed by 
subparagraphs (1) or (2) of section 206 of the Act or by other 
applicable provisions of the federal securities laws.

[42 FR 29301 June 8, 1977, as amended at 48 FR 41379, Sept. 15, 1983; 62 
FR 28135, May 22, 1997]



Sec.275.206(4)-1  Advertisements by investment advisers.

    (a) It shall constitute a fraudulent, deceptive, or manipulative 
act, practice, or course of business within the meaning of section 
206(4) of the Act (15 U.S.C. 80b-6(4)) for any investment adviser 
registered or required to be registered under section 203 of the Act (15 
U.S.C. 80b-3), directly or indirectly, to publish, circulate, or 
distribute any advertisement:
    (1) Which refers, directly or indirectly, to any testimonial of any 
kind concerning the investment adviser or concerning any advice, 
anaylsis, report or other service rendered by such investment adviser; 
or
    (2) Which refers, directly or indirectly, to past specific 
recommendations of such investment adviser which were or would have been 
profitable to any person: Provided, however, That this shall not 
prohibit an advertisement which sets out or offers to furnish a list of 
all recommendations made by such investment adviser within the 
immediately preceding period of not less than one year if such 
advertisement, and such list if it is furnished separately: (i) State 
the name of each such security recommended, the date and nature of each 
such recommendation (e.g., whether to buy, sell or hold), the market 
price at that time, the price at which the recommendation was to be 
acted upon, and the market price of each such security as of the most 
recent practicable date, and (ii) contain the following cautionary 
legend on the first page thereof in print or type as large as the 
largest print or type used in the body or text thereof: ``it should not 
be assumed that recommendations made in the future will be profitable or 
will equal the performance of the securities in this list''; or
    (3) Which represents, directly or indirectly, that any graph, chart, 
formula or other device being offered can in and of itself be used to 
determine which securities to buy or sell, or when to buy or sell them; 
or which represents directly or indirectly, that any graph, chart, 
formula or other device being offered will assist any person in making 
his own decisions as to which securities to buy, sell, or when to buy or 
sell them, without prominently disclosing in such advertisement the 
limitations thereof and the difficulties with respect to its use; or
    (4) Which contains any statement to the effect that any report, 
analysis, or other service will be furnished free or without charge, 
unless such report, analysis or other service actually is or will be 
furnished entirely free and without any condition or obligation, 
directly or indirectly; or

[[Page 1348]]

    (5) Which contains any untrue statement of a material fact, or which 
is otherwise false or misleading.
    (b) For the purposes of this section the term advertisement shall 
include any notice, circular, letter or other written communication 
addressed to more than one person, or any notice or other announcement 
in any publication or by radio or television, which offers (1) any 
analysis, report, or publication concerning securities, or which is to 
be used in making any determination as to when to buy or sell any 
security, or which security to buy or sell, or (2) any graph, chart, 
formula, or other device to be used in making any determination as to 
when to buy or sell any security, or which security to buy or sell, or 
(3) any other investment advisory service with regard to securities.

(Sec.206, 54 Stat. 852, as amended; 15 U.S.C. 80b-6)

[26 FR 10549, Nov. 9, 1961, as amended at 62 FR 28135, May 22, 1997]



Sec.275.206(4)-2  Custody of funds or securities of clients by 
investment advisers.

    (a) Safekeeping required. If you are an investment adviser 
registered or required to be registered under section 203 of the Act (15 
U.S.C. 80b-3), it is a fraudulent, deceptive, or manipulative act, 
practice or course of business within the meaning of section 206(4) of 
the Act (15 U.S.C. 80b-6(4)) for you to have custody of client funds or 
securities unless:
    (1) Qualified custodian. A qualified custodian maintains those funds 
and securities:
    (i) In a separate account for each client under that client's name; 
or
    (ii) In accounts that contain only your clients' funds and 
securities, under your name as agent or trustee for the clients.
    (2) Notice to clients. If you open an account with a qualified 
custodian on your client's behalf, either under the client's name or 
under your name as agent, you notify the client in writing of the 
qualified custodian's name, address, and the manner in which the funds 
or securities are maintained, promptly when the account is opened and 
following any changes to this information. If you send account 
statements to a client to which you are required to provide this notice, 
include in the notification provided to that client and in any 
subsequent account statement you send that client a statement urging the 
client to compare the account statements from the custodian with those 
from the adviser.
    (3) Account statements to clients. You have a reasonable basis, 
after due inquiry, for believing that the qualified custodian sends an 
account statement, at least quarterly, to each of your clients for which 
it maintains funds or securities, identifying the amount of funds and of 
each security in the account at the end of the period and setting forth 
all transactions in the account during that period.
    (4) Independent verification. The client funds and securities of 
which you have custody are verified by actual examination at least once 
during each calendar year, except as provided below, by an independent 
public accountant, pursuant to a written agreement between you and the 
accountant, at a time that is chosen by the accountant without prior 
notice or announcement to you and that is irregular from year to year. 
The written agreement must provide for the first examination to occur 
within six months of becoming subject to this paragraph, except that, if 
you maintain client funds or securities pursuant to this section as a 
qualified custodian, the agreement must provide for the first 
examination to occur no later than six months after obtaining the 
internal control report. The written agreement must require the 
accountant to:
    (i) File a certificate on Form ADV-E (17 CFR 279.8) with the 
Commission within 120 days of the time chosen by the accountant in 
paragraph (a)(4) of this section, stating that it has examined the funds 
and securities and describing the nature and extent of the examination;
    (ii) Upon finding any material discrepancies during the course of 
the examination, notify the Commission within one business day of the 
finding, by means of a facsimile transmission or electronic mail, 
followed by first class mail, directed to the attention of

[[Page 1349]]

the Director of the Office of Compliance Inspections and Examinations; 
and
    (iii) Upon resignation or dismissal from, or other termination of, 
the engagement, or upon removing itself or being removed from 
consideration for being reappointed, file within four business days Form 
ADV-E accompanied by a statement that includes:
    (A) The date of such resignation, dismissal, removal, or other 
termination, and the name, address, and contact information of the 
accountant; and
    (B) An explanation of any problems relating to examination scope or 
procedure that contributed to such resignation, dismissal, removal, or 
other termination.
    (5) Special rule for limited partnerships and limited liability 
companies. If you or a related person is a general partner of a limited 
partnership (or managing member of a limited liability company, or hold 
a comparable position for another type of pooled investment vehicle), 
the account statements required under paragraph (a)(3) of this section 
must be sent to each limited partner (or member or other beneficial 
owner).
    (6) Investment advisers acting as qualified custodians. If you 
maintain, or if you have custody because a related person maintains, 
client funds or securities pursuant to this section as a qualified 
custodian in connection with advisory services you provide to clients:
    (i) The independent public accountant you retain to perform the 
independent verification required by paragraph (a)(4) of this section 
must be registered with, and subject to regular inspection as of the 
commencement of the professional engagement period, and as of each 
calendar year-end, by, the Public Company Accounting Oversight Board in 
accordance with its rules; and
    (ii) You must obtain, or receive from your related person, within 
six months of becoming subject to this paragraph and thereafter no less 
frequently than once each calendar year a written internal control 
report prepared by an independent public accountant:
    (A) The internal control report must include an opinion of an 
independent public accountant as to whether controls have been placed in 
operation as of a specific date, and are suitably designed and are 
operating effectively to meet control objectives relating to custodial 
services, including the safeguarding of funds and securities held by 
either you or a related person on behalf of your advisory clients, 
during the year;
    (B) The independent public accountant must verify that the funds and 
securities are reconciled to a custodian other than you or your related 
person; and
    (C) The independent public accountant must be registered with, and 
subject to regular inspection as of the commencement of the professional 
engagement period, and as of each calendar year-end, by, the Public 
Company Accounting Oversight Board in accordance with its rules.
    (7) Independent representatives. A client may designate an 
independent representative to receive, on his behalf, notices and 
account statements as required under paragraphs (a)(2) and (a)(3) of 
this section.
    (b) Exceptions. (1) Shares of mutual funds. With respect to shares 
of an open-end company as defined in section 5(a)(1) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-5(a)(1)) (``mutual fund''), you may 
use the mutual fund's transfer agent in lieu of a qualified custodian 
for purposes of complying with paragraph (a) of this section.
    (2) Certain privately offered securities. (i) You are not required 
to comply with paragraph (a)(1) of this section with respect to 
securities that are:
    (A) Acquired from the issuer in a transaction or chain of 
transactions not involving any public offering;
    (B) Uncertificated, and ownership thereof is recorded only on the 
books of the issuer or its transfer agent in the name of the client; and
    (C) Transferable only with prior consent of the issuer or holders of 
the outstanding securities of the issuer.
    (ii) Notwithstanding paragraph (b)(2)(i) of this section, the 
provisions of this paragraph (b)(2) are available with respect to 
securities held for the account of a limited partnership (or a limited 
liability company, or other type of pooled investment vehicle) only if 
the limited partnership is audited,

[[Page 1350]]

and the audited financial statements are distributed, as described in 
paragraph (b)(4) of this section.
    (3) Fee deduction. Notwithstanding paragraph (a)(4) of this section, 
you are not required to obtain an independent verification of client 
funds and securities maintained by a qualified custodian if:
    (i) you have custody of the funds and securities solely as a 
consequence of your authority to make withdrawals from client accounts 
to pay your advisory fee; and
    (ii) if the qualified custodian is a related person, you can rely on 
paragraph (b)(6) of this section.
    (4) Limited partnerships subject to annual audit. You are not 
required to comply with paragraphs (a)(2) and (a)(3) of this section and 
you shall be deemed to have complied with paragraph (a)(4) of this 
section with respect to the account of a limited partnership (or limited 
liability company, or another type of pooled investment vehicle) that is 
subject to audit (as defined in rule 1-02(d) of Regulation S-X (17 CFR 
210.1-02(d))):
    (i) At least annually and distributes its audited financial 
statements prepared in accordance with generally accepted accounting 
principles to all limited partners (or members or other beneficial 
owners) within 120 days of the end of its fiscal year;
    (ii) By an independent public accountant that is registered with, 
and subject to regular inspection as of the commencement of the 
professional engagement period, and as of each calendar year-end, by, 
the Public Company Accounting Oversight Board in accordance with its 
rules; and
    (iii) Upon liquidation and distributes its audited financial 
statements prepared in accordance with generally accepted accounting 
principles to all limited partners (or members or other beneficial 
owners) promptly after the completion of such audit.
    (5) Registered investment companies. You are not required to comply 
with this section (17 CFR 275.206(4)-2) with respect to the account of 
an investment company registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1 to 80a-64).
    (6) Certain Related Persons. Notwithstanding paragraph (a)(4) of 
this section, you are not required to obtain an independent verification 
of client funds and securities if:
    (i) you have custody under this rule solely because a related person 
holds, directly or indirectly, client funds or securities, or has any 
authority to obtain possession of them, in connection with advisory 
services you provide to clients; and
    (ii) your related person is operationally independent of you.
    (c) Delivery to Related Person. Sending an account statement under 
paragraph (a)(5) of this section or distributing audited financial 
statements under paragraph (b)(4) of this section shall not satisfy the 
requirements of this section if such account statements or financial 
statements are sent solely to limited partners (or members or other 
beneficial owners) that themselves are limited partnerships (or limited 
liability companies, or another type of pooled investment vehicle) and 
are your related persons.
    (d) Definitions. For the purposes of this section:
    (1) Control means the power, directly or indirectly, to direct the 
management or policies of a person, whether through ownership of 
securities, by contract, or otherwise. Control includes:
    (i) Each of your firm's officers, partners, or directors exercising 
executive responsibility (or persons having similar status or functions) 
is presumed to control your firm;
    (ii) A person is presumed to control a corporation if the person:
    (A) Directly or indirectly has the right to vote 25 percent or more 
of a class of the corporation's voting securities; or
    (B) Has the power to sell or direct the sale of 25 percent or more 
of a class of the corporation's voting securities;
    (iii) A person is presumed to control a partnership if the person 
has the right to receive upon dissolution, or has contributed, 25 
percent or more of the capital of the partnership;
    (iv) A person is presumed to control a limited liability company if 
the person:
    (A) Directly or indirectly has the right to vote 25 percent or more 
of a

[[Page 1351]]

class of the interests of the limited liability company;
    (B) Has the right to receive upon dissolution, or has contributed, 
25 percent or more of the capital of the limited liability company; or
    (C) Is an elected manager of the limited liability company; or
    (v) A person is presumed to control a trust if the person is a 
trustee or managing agent of the trust.
    (2) Custody means holding, directly or indirectly, client funds or 
securities, or having any authority to obtain possession of them. You 
have custody if a related person holds, directly or indirectly, client 
funds or securities, or has any authority to obtain possession of them, 
in connection with advisory services you provide to clients. Custody 
includes:
    (i) Possession of client funds or securities (but not of checks 
drawn by clients and made payable to third parties) unless you receive 
them inadvertently and you return them to the sender promptly but in any 
case within three business days of receiving them;
    (ii) Any arrangement (including a general power of attorney) under 
which you are authorized or permitted to withdraw client funds or 
securities maintained with a custodian upon your instruction to the 
custodian; and
    (iii) Any capacity (such as general partner of a limited 
partnership, managing member of a limited liability company or a 
comparable position for another type of pooled investment vehicle, or 
trustee of a trust) that gives you or your supervised person legal 
ownership of or access to client funds or securities.
    (3) Independent public accountant means a public accountant that 
meets the standards of independence described in rule 2-01(b) and (c) of 
Regulation S-X (17 CFR 210.2-01(b) and (c)).
    (4) Independent representative means a person that:
    (i) Acts as agent for an advisory client, including in the case of a 
pooled investment vehicle, for limited partners of a limited partnership 
(or members of a limited liability company, or other beneficial owners 
of another type of pooled investment vehicle) and by law or contract is 
obliged to act in the best interest of the advisory client or the 
limited partners (or members, or other beneficial owners);
    (ii) Does not control, is not controlled by, and is not under common 
control with you; and
    (iii) Does not have, and has not had within the past two years, a 
material business relationship with you.
    (5) Operationally independent: for purposes of paragraph (b)(6) of 
this section, a related person is presumed not to be operationally 
independent unless each of the following conditions is met and no other 
circumstances can reasonably be expected to compromise the operational 
independence of the related person: (i) Client assets in the custody of 
the related person are not subject to claims of the adviser's creditors; 
(ii) advisory personnel do not have custody or possession of, or direct 
or indirect access to client assets of which the related person has 
custody, or the power to control the disposition of such client assets 
to third parties for the benefit of the adviser or its related persons, 
or otherwise have the opportunity to misappropriate such client assets; 
(iii) advisory personnel and personnel of the related person who have 
access to advisory client assets are not under common supervision; and 
(iv) advisory personnel do not hold any position with the related person 
or share premises with the related person.
    (6) Qualified custodian means:
    (i) A bank as defined in section 202(a)(2) of the Advisers Act (15 
U.S.C. 80b-2(a)(2)) or a savings association as defined in section 
3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(1)) that 
has deposits insured by the Federal Deposit Insurance Corporation under 
the Federal Deposit Insurance Act (12 U.S.C. 1811);
    (ii) A broker-dealer registered under section 15(b)(1) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)(1)), holding the 
client assets in customer accounts;
    (iii) A futures commission merchant registered under section 4f(a) 
of the Commodity Exchange Act (7 U.S.C. 6f(a)), holding the client 
assets in customer accounts, but only with respect to clients' funds and 
security futures, or other securities incidental to transactions in 
contracts for the purchase or

[[Page 1352]]

sale of a commodity for future delivery and options thereon; and
    (iv) A foreign financial institution that customarily holds 
financial assets for its customers, provided that the foreign financial 
institution keeps the advisory clients' assets in customer accounts 
segregated from its proprietary assets.
    (7) Related person means any person, directly or indirectly, 
controlling or controlled by you, and any person that is under common 
control with you.

[75 FR 1484, Jan. 11, 2010]



Sec.275.206(4)-3  Cash payments for client solicitations.

    (a) It shall be unlawful for any investment adviser required to be 
registered pursuant to section 203 of the Act to pay a cash fee, 
directly or indirectly, to a solicitor with respect to solicitation 
activities unless:
    (1)(i) The investment adviser is registered under the Act;
    (ii) The solicitor is not a person (A) subject to a Commission order 
issued under section 203(f) of the Act, or (B) convicted within the 
previous ten years of any felony or misdemeanor involving conduct 
described in section 203(e)(2)(A) through (D) of the Act, or (C) who has 
been found by the Commission to have engaged, or has been convicted of 
engaging, in any of the conduct specified in paragraphs (1), (5) or (6) 
of section 203(e) of the Act, or (D) is subject to an order, judgment or 
decree described in section 203(e)(4) of the Act; and
    (iii) Such cash fee is paid pursuant to a written agreement to which 
the adviser is a party; and

    Note: The investment adviser shall retain a copy of each written 
agreement required by this paragraph as part of the records required to 
be kept under Sec.275.204-2(a)(10) of this chapter.

    (2) Such cash fee is paid to a solicitor:
    (i) With respect to solicitation activities for the provision of 
impersonal advisory services only; or
    (ii) Who is (A) a partner, officer, director or employee of such 
investment adviser or (B) a partner, officer, director or employee of a 
person which controls, is controlled by, or is under common control with 
such investment adviser: Provided, That the status of such solicitor as 
a partner, officer, director or employee of such investment adviser or 
other person, and any affiliation between the investment adviser and 
such other person, is disclosed to the client at the time of the 
solicitation or referral; or
    (iii) Other than a solicitor specified in paragraph (a)(2) (i) or 
(ii) of this section if all of the following conditions are met:
    (A) The written agreement required by paragraph (a)(1)(iii) of this 
section: (1) Describes the solicitation activities to be engaged in by 
the solicitor on behalf of the investment adviser and the compensation 
to be received therefor; (2) contains an undertaking by the solicitor to 
perform his duties under the agreement in a manner consistent with the 
instructions of the investment adviser and the provisions of the Act and 
the rules thereunder; (3) requires that the solicitor, at the time of 
any solicitation activities for which compensation is paid or to be paid 
by the investment adviser, provide the client with a current copy of the 
investment adviser's written disclosure statement required by Sec.
275.204-3 of this chapter (``brochure rule'') and a separate written 
disclosure document described in paragraph (b) of this rule.
    (B) The investment adviser receives from the client, prior to, or at 
the time of, entering into any written or oral investment advisory 
contract with such client, a signed and dated acknowledgment of receipt 
of the investment adviser's written disclosure statement and the 
solicitor's written disclosure document.

    Note: The investment adviser shall retain a copy of each such 
acknowledgment and solicitor disclosure document as part of the records 
required to be kept under Sec.275.204-2(a)(15) of this chapter.

    (C) The investment adviser makes a bona fide effort to ascertain 
whether the solicitor has complied with the agreement, and has a 
reasonable basis for believing that the solicitor has so complied.
    (b) The separate written disclosure document required to be 
furnished by the solicitor to the client pursuant to

[[Page 1353]]

this section shall contain the following information:
    (1) The name of the solicitor;
    (2) The name of the investment adviser;
    (3) The nature of the relationship, including any affiliation, 
between the solicitor and the investment adviser;
    (4) A statement that the solicitor will be compensated for his 
solicitation services by the investment adviser;
    (5) The terms of such compensation arrangement, including a 
description of the compensation paid or to be paid to the solicitor; and
    (6) The amount, if any, for the cost of obtaining his account the 
client will be charged in addition to the advisory fee, and the 
differential, if any, among clients with respect to the amount or level 
of advisory fees charged by the investment adviser if such differential 
is attributable to the existence of any arrangement pursuant to which 
the investment adviser has agreed to compensate the solicitor for 
soliciting clients for, or referring clients to, the investment adviser.
    (c) Nothing in this section shall be deemed to relieve any person of 
any fiduciary or other obligation to which such person may be subject 
under any law.
    (d) For purposes of this section,
    (1) Solicitor means any person who, directly or indirectly, solicits 
any client for, or refers any client to, an investment adviser.
    (2) Client includes any prospective client.
    (3) Impersonal advisory services means investment advisory services 
provided solely by means of (i) written materials or oral statements 
which do not purport to meet the objectives or needs of the specific 
client, (ii) statistical information containing no expressions of 
opinions as to the investment merits of particular securities, or (iii) 
any combination of the foregoing services.
    (e) Special rule for solicitation of government entity clients. 
Solicitation activities involving a government entity, as defined in 
Sec.275.206(4)-5, shall be subject to the additional limitations set 
forth in that section.

[44 FR 42130, July 18, 1979; 54 FR 32441, Aug. 8, 1989, as amended at 62 
FR 28135, May 22, 1997; 63 FR 39716, July 24, 1998; 75 FR 41069, July 
14, 2010]



Sec.275.206(4)-4  [Reserved]



Sec.275.206(4)-5  Political contributions by certain investment
advisers.

    (a) Prohibitions. As a means reasonably designed to prevent 
fraudulent, deceptive or manipulative acts, practices, or courses of 
business within the meaning of section 206(4) of the Act (15 U.S.C. 80b-
6(4)), it shall be unlawful:
    (1) For any investment adviser registered (or required to be 
registered) with the Commission, or unregistered in reliance on the 
exemption available under section 203(b)(3) of the Advisers Act (15 
U.S.C. 80b-3(b)(3)), or that is an exempt reporting adviser, as defined 
in section 275.204-4(a), to provide investment advisory services for 
compensation to a government entity within two years after a 
contribution to an official of the government entity is made by the 
investment adviser or any covered associate of the investment adviser 
(including a person who becomes a covered associate within two years 
after the contribution is made); and
    (2) For any investment adviser registered (or required to be 
registered) with the Commission, or unregistered in reliance on the 
exemption available under section 203(b)(3) of the Advisers Act (15 
U.S.C. 80b-3(b)(3)), or that is an exempt reporting adviser, or any of 
the investment adviser's covered associates:
    (i) To provide or agree to provide, directly or indirectly, payment 
to any person to solicit a government entity for investment advisory 
services on behalf of such investment adviser unless such person is:
    (A) A regulated person; or
    (B) An executive officer, general partner, managing member (or, in 
each case, a person with a similar status or function), or employee of 
the investment adviser; and
    (ii) To coordinate, or to solicit any person or political action 
committee to make, any:

[[Page 1354]]

    (A) Contribution to an official of a government entity to which the 
investment adviser is providing or seeking to provide investment 
advisory services; or
    (B) Payment to a political party of a State or locality where the 
investment adviser is providing or seeking to provide investment 
advisory services to a government entity.
    (b) Exceptions--(1) De minimis exception. Paragraph (a)(1) of this 
section does not apply to contributions made by a covered associate, if 
a natural person, to officials for whom the covered associate was 
entitled to vote at the time of the contributions and which in the 
aggregate do not exceed $350 to any one official, per election, or to 
officials for whom the covered associate was not entitled to vote at the 
time of the contributions and which in the aggregate do not exceed $150 
to any one official, per election.
    (2) Exception for certain new covered associates. The prohibitions 
of paragraph (a)(1) of this section shall not apply to an investment 
adviser as a result of a contribution made by a natural person more than 
six months prior to becoming a covered associate of the investment 
adviser unless such person, after becoming a covered associate, solicits 
clients on behalf of the investment adviser.
    (3) Exception for certain returned contributions. (i) An investment 
adviser that is prohibited from providing investment advisory services 
for compensation pursuant to paragraph (a)(1) of this section as a 
result of a contribution made by a covered associate of the investment 
adviser is excepted from such prohibition, subject to paragraphs 
(b)(3)(ii) and (b)(3)(iii) of this section, upon satisfaction of the 
following requirements:
    (A) The investment adviser must have discovered the contribution 
which resulted in the prohibition within four months of the date of such 
contribution;
    (B) Such contribution must not have exceeded $350; and
    (C) The contributor must obtain a return of the contribution within 
60 calendar days of the date of discovery of such contribution by the 
investment adviser.
    (ii) In any calendar year, an investment adviser that has reported 
on its annual updating amendment to Form ADV (17 CFR 279.1) that it has 
more than 50 employees is entitled to no more than three exceptions 
pursuant to paragraph (b)(3)(i) of this section, and an investment 
adviser that has reported on its annual updating amendment to Form ADV 
that it has 50 or fewer employees is entitled to no more than two 
exceptions pursuant to paragraph (b)(3)(i) of this section.
    (iii) An investment adviser may not rely on the exception provided 
in paragraph (b)(3)(i) of this section more than once with respect to 
contributions by the same covered associate of the investment adviser 
regardless of the time period.
    (c) Prohibitions as applied to covered investment pools. For 
purposes of this section, an investment adviser to a covered investment 
pool in which a government entity invests or is solicited to invest 
shall be treated as though that investment adviser were providing or 
seeking to provide investment advisory services directly to the 
government entity.
    (d) Further prohibition. As a means reasonably designed to prevent 
fraudulent, deceptive or manipulative acts, practices, or courses of 
business within the meaning of section 206(4) of Advisers Act (15 U.S.C. 
80b-6(4)), it shall be unlawful for any investment adviser registered 
(or required to be registered) with the Commission, or unregistered in 
reliance on the exemption available under section 203(b)(3) of the 
Advisers Act (15 U.S.C. 80b-3(b)(3)), or that is an exempt reporting 
adviser, or any of the investment adviser's covered associates to do 
anything indirectly which, if done directly, would result in a violation 
of this section.
    (e) Exemptions. The Commission, upon application, may conditionally 
or unconditionally exempt an investment adviser from the prohibition 
under paragraph (a)(1) of this section. In determining whether to grant 
an exemption, the Commission will consider, among other factors:

[[Page 1355]]

    (1) Whether the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Advisers 
Act (15 U.S.C. 80b);
    (2) Whether the investment adviser:
    (i) Before the contribution resulting in the prohibition was made, 
adopted and implemented policies and procedures reasonably designed to 
prevent violations of this section; and
    (ii) Prior to or at the time the contribution which resulted in such 
prohibition was made, had no actual knowledge of the contribution; and
    (iii) After learning of the contribution:
    (A) Has taken all available steps to cause the contributor involved 
in making the contribution which resulted in such prohibition to obtain 
a return of the contribution; and
    (B) Has taken such other remedial or preventive measures as may be 
appropriate under the circumstances;
    (3) Whether, at the time of the contribution, the contributor was a 
covered associate or otherwise an employee of the investment adviser, or 
was seeking such employment;
    (4) The timing and amount of the contribution which resulted in the 
prohibition;
    (5) The nature of the election (e.g, Federal, State or local); and
    (6) The contributor's apparent intent or motive in making the 
contribution which resulted in the prohibition, as evidenced by the 
facts and circumstances surrounding such contribution.
    (f) Definitions. For purposes of this section:
    (1) Contribution means any gift, subscription, loan, advance, or 
deposit of money or anything of value made for:
    (i) The purpose of influencing any election for Federal, State or 
local office;
    (ii) Payment of debt incurred in connection with any such election; 
or
    (iii) Transition or inaugural expenses of the successful candidate 
for State or local office.
    (2) Covered associate of an investment adviser means:
    (i) Any general partner, managing member or executive officer, or 
other individual with a similar status or function;
    (ii) Any employee who solicits a government entity for the 
investment adviser and any person who supervises, directly or 
indirectly, such employee; and
    (iii) Any political action committee controlled by the investment 
adviser or by any person described in paragraphs (f)(2)(i) and 
(f)(2)(ii) of this section.
    (3) Covered investment pool means:
    (i) An investment company registered under the Investment Company 
Act of 1940 (15 U.S.C. 80a) that is an investment option of a plan or 
program of a government entity; or
    (ii) Any company that would be an investment company under section 
3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(a)), but for 
the exclusion provided from that definition by either section 3(c)(1), 
section 3(c)(7) or section 3(c)(11) of that Act (15 U.S.C. 80a-3(c)(1), 
(c)(7) or (c)(11)).
    (4) Executive officer of an investment adviser means:
    (i) The president;
    (ii) Any vice president in charge of a principal business unit, 
division or function (such as sales, administration or finance);
    (iii) Any other officer of the investment adviser who performs a 
policy-making function; or
    (iv) Any other person who performs similar policy-making functions 
for the investment adviser.
    (5) Government entity means any State or political subdivision of a 
State, including:
    (i) Any agency, authority, or instrumentality of the State or 
political subdivision;
    (ii) A pool of assets sponsored or established by the State or 
political subdivision or any agency, authority or instrumentality 
thereof, including, but not limited to a ``defined benefit plan'' as 
defined in section 414(j) of the Internal Revenue Code (26 U.S.C. 
414(j)), or a State general fund;
    (iii) A plan or program of a government entity; and
    (iv) Officers, agents, or employees of the State or political 
subdivision or

[[Page 1356]]

any agency, authority or instrumentality thereof, acting in their 
official capacity.
    (6) Official means any person (including any election committee for 
the person) who was, at the time of the contribution, an incumbent, 
candidate or successful candidate for elective office of a government 
entity, if the office:
    (i) Is directly or indirectly responsible for, or can influence the 
outcome of, the hiring of an investment adviser by a government entity; 
or
    (ii) Has authority to appoint any person who is directly or 
indirectly responsible for, or can influence the outcome of, the hiring 
of an investment adviser by a government entity.
    (7) Payment means any gift, subscription, loan, advance, or deposit 
of money or anything of value.
    (8) Plan or program of a government entity means any participant-
directed investment program or plan sponsored or established by a State 
or political subdivision or any agency, authority or instrumentality 
thereof, including, but not limited to, a ``qualified tuition plan'' 
authorized by section 529 of the Internal Revenue Code (26 U.S.C. 529), 
a retirement plan authorized by section 403(b) or 457 of the Internal 
Revenue Code (26 U.S.C. 403(b) or 457), or any similar program or plan.
    (9) Regulated person means:
    (i) An investment adviser registered with the Commission that has 
not, and whose covered associates have not, within two years of 
soliciting a government entity:
    (A) Made a contribution to an official of that government entity, 
other than as described in paragraph (b)(1) of this section; and
    (B) Coordinated or solicited any person or political action 
committee to make any contribution or payment described in paragraphs 
(a)(2)(ii)(A) and (B) of this section;
    (ii) A ``broker,'' as defined in section 3(a)(4) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(4)) or a ``dealer,'' as defined 
in section 3(a)(5) of that Act (15 U.S.C. 78c(a)(5)), that is registered 
with the Commission, and is a member of a national securities 
association registered under 15A of that Act (15 U.S.C. 78o-3), provided 
that:
    (A) The rules of the association prohibit members from engaging in 
distribution or solicitation activities if certain political 
contributions have been made; and
    (B) The Commission, by order, finds that such rules impose 
substantially equivalent or more stringent restrictions on broker-
dealers than this section imposes on investment advisers and that such 
rules are consistent with the objectives of this section; and
    (iii) A ``municipal advisor'' registered with the Commission under 
section 15B of the Exchange Act and subject to rules of the Municipal 
Securities Rulemaking Board, provided that:
    (A) Such rules prohibit municipal advisors from engaging in 
distribution or solicitation activities if certain political 
contributions have been made; and
    (B) The Commission, by order, finds that such rules impose 
substantially equivalent or more stringent restrictions on municipal 
advisors than this section imposes on investment advisers and that such 
rules are consistent with the objectives of this section.
    (10) Solicit means:
    (i) With respect to investment advisory services, to communicate, 
directly or indirectly, for the purpose of obtaining or retaining a 
client for, or referring a client to, an investment adviser; and
    (ii) With respect to a contribution or payment, to communicate, 
directly or indirectly, for the purpose of obtaining or arranging a 
contribution or payment.

[75 FR 41069, July 14, 2010, as amended at 76 FR 43013, July 19, 2011; 
77 FR 28477, May 15, 2012]



Sec.275.206(4)-6  Proxy voting.

    If you are an investment adviser registered or required to be 
registered under section 203 of the Act (15 U.S.C. 80b-3), it is a 
fraudulent, deceptive, or manipulative act, practice or course of 
business within the meaning of section 206(4) of the Act (15 U.S.C. 80b-
6(4)), for you to exercise voting authority with respect to client 
securities, unless you:
    (a) Adopt and implement written policies and procedures that are 
reasonably designed to ensure that you vote client securities in the 
best interest of clients, which procedures must

[[Page 1357]]

include how you address material conflicts that may arise between your 
interests and those of your clients;
    (b) Disclose to clients how they may obtain information from you 
about how you voted with respect to their securities; and
    (c) Describe to clients your proxy voting policies and procedures 
and, upon request, furnish a copy of the policies and procedures to the 
requesting client.

[68 FR 6593, Feb. 7, 2003]



Sec.275.206(4)-7  Compliance procedures and practices.

    If you are an investment adviser registered or required to be 
registered under section 203 of the Investment Advisers Act of 1940 (15 
U.S.C. 80b-3), it shall be unlawful within the meaning of section 206 of 
the Act (15 U.S.C. 80b-6) for you to provide investment advice to 
clients unless you:
    (a) Policies and procedures. Adopt and implement written policies 
and procedures reasonably designed to prevent violation, by you and your 
supervised persons, of the Act and the rules that the Commission has 
adopted under the Act;
    (b) Annual review. Review, no less frequently than annually, the 
adequacy of the policies and procedures established pursuant to this 
section and the effectiveness of their implementation; and
    (c) Chief compliance officer. Designate an individual (who is a 
supervised person) responsible for administering the policies and 
procedures that you adopt under paragraph (a) of this section.

[68 FR 74730, Dec. 24, 2003]



Sec.275.206(4)-8  Pooled investment vehicles.

    (a) Prohibition. It shall constitute a fraudulent, deceptive, or 
manipulative act, practice, or course of business within the meaning of 
section 206(4) of the Act (15 U.S.C. 80b-6(4)) for any investment 
adviser to a pooled investment vehicle to:
    (1) Make any untrue statement of a material fact or to omit to state 
a material fact necessary to make the statements made, in the light of 
the circumstances under which they were made, not misleading, to any 
investor or prospective investor in the pooled investment vehicle; or
    (2) Otherwise engage in any act, practice, or course of business 
that is fraudulent, deceptive, or manipulative with respect to any 
investor or prospective investor in the pooled investment vehicle.
    (b) Definition. For purposes of this section ``pooled investment 
vehicle'' means any investment company as defined in section 3(a) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3(a)) or any company that 
would be an investment company under section 3(a) of that Act but for 
the exclusion provided from that definition by either section 3(c)(1) or 
section 3(c)(7) of that Act (15 U.S.C. 80a-3(c)(1) or (7)).

[72 FR 44761, Aug. 9, 2007]



Sec.275.222-1  Definitions.

    For purposes of section 222 (15 U.S.C. 80b-18a) of the Act:
    (a) Place of business. ``Place of business'' of an investment 
adviser means:
    (1) An office at which the investment adviser regularly provides 
investment advisory services, solicits, meets with, or otherwise 
communicates with clients; and
    (2) Any other location that is held out to the general public as a 
location at which the investment adviser provides investment advisory 
services, solicits, meets with, or otherwise communicates with clients.
    (b) Principal office and place of business. ``Principal office and 
place of business'' of an investment adviser means the executive office 
of the investment adviser from which the officers, partners, or managers 
of the investment adviser direct, control, and coordinate the activities 
of the investment adviser.

[62 FR 28135, May 22, 1997, as amended at 76 FR 43014, July 19, 2011]



Sec.275.222-2  Definition of ``client'' for purposes of the national
de minimis standard.

    For purposes of section 222(d)(2) of the Act (15 U.S.C. 80b-
18a(d)(2)), an investment adviser may rely upon the definition of 
``client'' provided by

[[Page 1358]]

Sec.275.202(a)(30)-1, without giving regard to paragraph (b)(4) of 
that section.

[76 FR 43014, July 19, 2011]



        PART 276_INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT
        ADVISERS ACT OF 1940 AND GENERAL RULES AND REGULATIONS 
        THEREUNDER--Table of Contents

    Authority: 15 U.S.C. 80b et seq.

----------------------------------------------------------------------------------------------------------------
                                                      Release
                      Subject                           No.         Date            Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Opinion of General Counsel relating to section              2   Oct. 28, 1940  11 FR 10996.
 202(a)(11)(C) of the Investment Advisers Act of
 1940.
Opinion of the General Counsel relating to the use          8   Dec. 12, 1940   Do.
 of the name ``investment counsel'' under section
 208(c) of the Investment Advisers Act of 1940.
Opinion of Director of Trading and Exchange                40    Feb. 5, 1945  11 FR 10997.
 Division, relating to section 206 of the
 Investment Advisers Act of 1940, section 17(a) of
 the Securities Act of 1933, and sections 10(b) and
 15(c)(1) of the Securities Exchange Act of 1934.
Opinion of the General Counsel relating to the use         58   Apr. 10, 1951  16 FR 3387.
 of ``hedge clauses'' by brokers, dealers,
 investment advisers, and others.
Statement of the Commission to clarify the meaning        194   Jan. 25, 1966  31 FR 1005.
 of ``beneficial ownership of securities'' as
 relates to beneficial ownership of securities held
 by family members.
Statement of the Commission setting the date of May       196   Feb. 14, 1966  31 FR 3175.
 1, 1966 after which filings must reflect
 beneficial ownership of securities held by family
 members.
Statement of the Commission describing nature of          201    June 1, 1966  31 FR 7821.
 examination required to be made of all funds and
 securities held by an investment adviser and the
 content of related accountant's certificate.
Publication of the Commission's procedure to be           281   Jan. 25, 1971  36 FR 2600.
 followed if requests are to be met for no action
 or interpretative letters and responses thereto to
 be made available for public use.
Commission's statement of factors to be considered        315   Apr. 19, 1972  37 FR 7690.
 in connection with investment company advisory
 contracts containing incentive arrangements.
Applicability of Commission's policy statement on         318    May 18, 1972  37 FR 9988.
 the future structure of securities markets to
 selection of brokers and payment of commissions by
 institutional managers.
Commission's decisions on advisory committee              336    Mar. 1, 1973  38 FR 5457.
 recommendations regarding commencement of
 enforcement proceedings and termination of staff
 investigations.
Commission's statement on obligations of                  377   June 29, 1973  38 FR 17201.
 underwriters with respect to discretionary
 accounts.
Applicability of investment advisers act to certain       563   Jan. 10, 1977  42 FR 2953;
 publications.                                                                 42 FR 8140.
Contingent advisory compensation arrangements......       721    May 16, 1980  45 FR 34876.
Applicability of investment advisers act to               770   Aug. 13, 1981  46 FR 41771.
 financial planners, pension consultants, and other
 persons who provide investment advisory services
 as an integral component of other financially
 related services.
Statement of position of Commission's Division of         969   Apr. 30, 1985  50 FR 19341.
 Investment Management.
Statement of staff interpretive position regarding       1000    Dec. 3, 1985  50 FR 49835.
 certain rules and forms; uniform registration,
 disclolsure, and reporting requirements.
Applicability of the investment Advisers Act to          1092    Oct. 8, 1987  52 FR 38400.
 financial planners, pension consultants, and other
 persons who provide investment advisory services
 as a component of other financial services.
Registration of Successors to Broker-Dealers and         1357    Jan. 4, 1993  58 FR 11.
 Investment Advisors.
Use of electronic media for delivery purposes......      1562     May 9, 1996  61 FR 24651.
Statement of the Commission Regarding Use of             1710   Mar. 23, 1998  63 FR 14814
 Internet Web Sites to Offer Securities, Solicit
 Securities Transactions or Advertise Investment
 Services Offshore.
Interpretation of Section 206(3) of the Investment       1732   July 17, 1998  63 FR 39508
 Advisers Act of 1940.
Statement of the Commission Regarding Disclosure of      1738   July 29, 1998  63 FR 41404
 Year 2000 Issues and Consequences by Public
 Companies, Investment Advisers, Investment
 Companies, and Municipal Securities Issuers.
Release No. IA-2969................................  ........   Dec. 30, 2009  75 FR 1494
Commission Guidance Regarding the Definition of the   IA-4122   June 19, 2015  80 FR 37537
 Terms ``Spouse'' and ``Marriage'' Following the
 Supreme Court's Decision in United States v.
 Windsor.
Commission Interpretation Regarding Standard of       IA-5248    June 5, 2019  84 FR 33681
 Conduct for Investment Advisers.

[[Page 1359]]

 
Commission Interpretation Regarding the Solely        IA-5249    June 5, 2019  84 FR 33689
 Incidental Prong of the Broker-Dealer Exclusion
 from the Definition of Investment Adviser.
Commission Guidance Regarding the Proxy Voting        IA-5325   Aug. 21, 2019  84 FR 47427
 Responsibilities of Investment Advisers.
----------------------------------------------------------------------------------------------------------------



PART 279_FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF 1940--
Table of Contents



Sec.
279.0-1 Availability of forms.
279.1 Form ADV, for application for registration of investment adviser 
          and for amendments to such registration statement.
279.2 Form ADV-W, notice of withdrawal from registration as investment 
          adviser.
279.3 Form ADV-H, application for a temporary or continuing hardship 
          exemption.
279.4 Form ADV-NR, appointment of agent for service of process, by non-
          resident general partner and non-resident managing agent of an 
          investment adviser.
279.5-279.7 [Reserved]
279.8 Form ADV-E, cover page for certificate of accounting of securities 
          and funds in possession or custody of an investment adviser.
279.9 Form PF, reporting by investment advisers to private funds.

    Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b-1, et 
seq., Pub. L. 111-203, 124 Stat. 1376.

    Source: 33 FR 19005, Dec. 20, 1968, unless otherwise noted.



Sec.279.0-1  Availability of forms.

    (a) This part identifies and describes the forms prescribed for use 
under the Investment Advisers Act of 1940.
    (b) Any person may obtain a copy of any form prescribed for use in 
this part by written request to the Securities and Exchange Commission, 
100 F Street, NE., Washington, DC 20549. Any person may inspect the 
forms at this address and at the Commission's regional offices. (See 
Sec.200.11 of this chapter for the addresses of SEC regional offices.)

[46 FR 17757, Mar. 20, 1981, as amended at 47 FR 26820, June 22, 1982; 
59 FR 5946, Feb. 9, 1994; 73 FR 32229, June 5, 2008]



Sec.279.1  Form ADV, for application for registration of investment 
adviser and for amendments to such registration statement.

    This form shall be filed pursuant to Rule 203-1 (Sec.275.203-1 of 
this chapter) as an application for registration of an investment 
adviser pursuant to sections 203(c) or 203(g) of the Investment Advisers 
Act of 1940, and also as an amendment to registration pursuant to Rule 
204-1 (Sec.275.204-1 of this chapter).

[44 FR 21008, Apr. 9, 1979]

    Editorial Note: For Federal Register citations affecting Form ADV, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.279.2  Form ADV-W, notice of withdrawal from registration as 
investment adviser.

    This form shall be filed pursuant to Rule 203-2 (Sec.275.203-2 of 
this chapter) by a registered investment adviser as a notice of 
withdrawal from registration as such under the Investment Advisers Act 
of 1940.

    Editorial Note: For Federal Register citations affecting Form ADV-W, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.279.3  Form ADV-H, application for a temporary or continuing 
hardship exemption.

    An investment adviser must file this form under Sec.275.203-3 of 
this chapter to request a temporary hardship exemption or apply for a 
continuing hardship exemption.

[65 FR 57451, Sept. 22, 2000]

    Editorial Note: For Federal Register citations affecting Form ADV-H, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

[[Page 1360]]



Sec.279.4  Form ADV-NR, appointment of agent for service of process
by non-resident general partner and non-resident managing agent of 
an investment adviser.

    Each non-resident general partner or managing agent of an investment 
adviser must file this form under Sec.275.0-2 of this chapter.

[65 FR 57451, Sept. 22, 2000]

    Editorial Note: For Federal Register citations affecting Form ADV-
NR, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.



Sec.Sec.279.5-279.7  [Reserved]



Sec.279.8  Form ADV-E, cover page for certificate of accounting of
securities and funds in possession or custody of an investment 
adviser.

[54 FR 32049, Aug. 4, 1989]

    Editorial Note: For Federal Register citations affecting Form ADV-E, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.279.9  Form PF, reporting by investment advisers to private funds.

    This form shall be filed pursuant to Rule 204(b)-1 (Sec.
275.204(b)-1 of this chapter) by certain investment advisers registered 
or required to register under section 203 of the Act (15 U.S.C. 80b-3) 
that act as an investment adviser to one or more private funds.

[76 FR 71175, Nov. 16, 2011]

    Editorial Note: For Federal Register citations affecting Form PF, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



                 PART 281_INTERPRETATIVE RELEASES RELATING TO 
                 CORPORATE REORGANIZATIONS UNDER CHAPTER X OF THE 
                 BANKRUPTCY ACT--Table of Contents

----------------------------------------------------------------------------------------------------------------
                                                Release
                   Subject                        No.                Date               Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Letter of the Commission with respect to              1  Sept. 26, 1938.............  11 FR 10997.
 transmission to the Commission of all
 petitions, answers, orders, applications,
 reports and other papers filed under Chapter
 X of the Bankruptcy Act.
Statement by the Commission summarizing               2  ......do...................  11 FR 10998.
 Chapter X of the Bankruptcy Act.
----------------------------------------------------------------------------------------------------------------



PART 285_RULES AND REGULATIONS PURSUANT TO SECTION 15(a) OF THE
BRETTON WOODS AGREEMENTS ACT--Table of Contents



Sec.
285.1 Applicability of part.
285.2 Periodic reports.
285.3 Reports with respect to proposed distribution of primary 
          obligations.
285.4 Preparation and filing of reports.

Schedule A to Part 285

    Authority: Secs. 19, 23, 48 Stat. 85, as amended, 901, as amended, 
Sec.15, 63 Stat. 298; 15 U.S.C. 77s, 78w 22 U.S.C. 286k-1.



Sec.285.1  Applicability of part.

    This part (Regulation BW), prescribes the reports to be filed with 
the Securities and Exchange Commission by the International Bank for 
Reconstruction and Development pursuant to section 15(a) of the Bretton 
Woods Agreements Act.

[Reg. BW, 15 FR 281, Jan. 17, 1950]



Sec.285.2  Periodic reports.

    (a) Within 45 days after the end of each of its fiscal quarters, the 
Bank shall file with the Commission the following information:
    (1) Information as to any purchases or sales by the Bank of its 
primary obligations during such quarter.
    (2) Copies of the Bank's regular quarterly financial statements.
    (3) Copies of any material modifications or amendments during such 
quarter of any exhibits (other than (i) constituent documents defining 
the rights of holders of securities of other issuers guaranteed by the 
Bank and (ii) loan and guaranty agreements to which the

[[Page 1361]]

Bank is a party) previously filed with the Commission under any statute.
    (b) Copies of each annual report of the Bank to its Board of 
Governors shall be filed with the Commission within 10 days after the 
submission of such report to the Board of Governors.

[20 FR 588, Jan. 27, 1955]



Sec.285.3  Reports with respect to proposed distribution of primary
obligations.

    The Bank shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States, a report 
containing the information and documents specified in Schedule A below. 
The term ``sell'' as used in this section and in Schedule A means the 
making of a completed sale or a firm commitment to sell.

[46 FR 48179, Oct. 1, 1981]



Sec.285.4  Preparation and filing of reports.

    (a) Every report required by this part shall be filed under cover of 
a letter of transmittal which shall state the nature of the report and 
indicate the particular rule and subdivision thereof pursuant to which 
the report is filed. At least the original of every such letter shall be 
signed on behalf of the Bank by a duly authorized officer thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Sec.285.3 (Rule 3) may be filed in the 
form of a prospectus to the extent that such prospectus contains the 
information specified in Schedule A.

[Reg. BW, 15 FR 281, Jan. 17, 1950]

                         Schedule A to Part 285

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Sec.285.3 (Rule 3) with respect to a 
proposed distribution of primary obligations of the Bank. Information 
not available at the time of filing the report shall be filed as 
promptly thereafter as possible.
    Item 1. Description of obligations. As to each issue of primary 
obligations of the Bank which is to be distributed, furnish the 
following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payment dates.
    (c) The maturity date or if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of (1) any redemption provisions and (2) any 
amortization, sinking fund or retirement provisions, stating the annual 
amount, if any, which the Bank will be under obligation to apply for the 
satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the Bank will, as 
to the payment of interest or principal, rank prior to the obligations 
to be distributed, describe the nature and extent of such priority.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holders thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the Bank with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the Bank, 
if any.
    Item 2. Distribution of obligations. (a) Outline briefly the plan of 
distribution of the obligations and state the amount of the 
participation of each principal underwriter, if any.
    (b) Describe any arrangements known to the Bank or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the account of the Bank or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.
    Item 3. Distribution spread. The following information shall be 
given, in substantially

[[Page 1362]]

the tabular form indicated, as to all obligations which are to be 
offered for cash (estimate, if necessary):

------------------------------------------------------------------------
                                                   Selling
                                       Price to   discounts    Proceeds
                                          the        and        to the
                                        public   commissions     Bank
------------------------------------------------------------------------
Per..................................  ........  ...........  ..........
Total................................  ........  ...........  ..........
------------------------------------------------------------------------

    Item 4. Discounts and commissions to subunderwriters and dealers. 
State briefly the discounts and commissions to be allowed or paid to 
dealers. If any dealers are to act in the capacity of sub-underwriters 
and are to be allowed or paid any additional discounts or commissions 
for acting in such capacity, a general statement to that effect will 
suffice, without giving the additional amounts so paid or to be so paid.
    Item 5. Other expenses of distribution. Furnish a reasonably 
itemized statement of all expenses of the Bank in connection with the 
issuance and distribution of the obligations, except underwriters' or 
dealers' discounts and commissions.
    Instructions: Insofar as practicable, the itemization shall include 
transfer agents' fees, cost of printing and engraving, and legal and 
accounting fees. The information may be given as subject to future 
contingencies. If the amounts of any items are not known, estimates, 
designated as such, shall be given.
    Item 6. Application of proceeds. Make a reasonably itemized 
statement of the purposes, so far as determinable, for which the net 
proceeds to the Bank from the obligations are to be used, and state the 
approximate amount to be used for each such purpose.
    Item 7. Exhibits to be furnished. The following documents shall be 
attached to or otherwise furnished as a part of the report:
    (a) Copies of the constituent instruments defining the rights 
evidenced by the obligations.
    (b) Copies of an opinion of counsel, in the English language, as to 
the legality of the obligations.
    (c) Copies of all material contracts pertaining to the issuance or 
distribution of the obligations to which the Bank or any principal 
underwriter of the obligations is or is to be a party, except selling 
group agreements.
    (d) Copies of any prospectus or other sales literature to be 
provided by the Bank or any of the principal underwriters for general 
use in connection with the initial distribution of the obligations to 
the public.

[Reg. BW, 15 FR 281, Jan. 17, 1950, as amended at 20 FR 588, Jan. 27, 
1955]



PART 286_GENERAL RULES AND REGULATIONS PURSUANT TO SECTION 11(a) OF
THE INTER-AMERICAN DEVELOPMENT BANK ACT--Table of Contents



Sec.
286.1 Applicability of this part.
286.2 Periodic reports.
286.3 Reports with respect to proposed distribution of primary 
          obligations.
286.4 Preparation and filing of reports.

Schedule A to Part 286

    Authority: Secs. 3-9, 11, 12, 73 Stat. 299-301; 22 U.S.C. 283a-283i.

    Source: 25 FR 10452, Nov. 1, 1960, unless otherwise noted.



Sec.286.1  Applicability of this part.

    This part (Regulation IA) prescribes the reports to be filed with 
the Securities and Exchange Commission by the Inter-American Development 
Bank pursuant to section 11(a) of the Inter-American Development Bank 
Act.



Sec.286.2  Periodic reports.

    (a) Within 45 days after the end of each of its fiscal quarters, the 
Bank shall file with the Commission the following information:
    (1) Information as to any purchases or sales by the Bank of its 
primary obligations during such quarter.
    (2) Copies of the Bank's regular quarterly financial statement.
    (3) Copies of any material modifications or amendments during such 
quarter of any exhibits (other than (i) constituent documents defining 
the rights of holders of securities of other issuers guaranteed by the 
Bank, and (ii) loans and guaranty agreements to which the Bank is a 
party) previously filed with the Commission under any statute.
    (b) Copies of each annual report of the Bank to its Board of 
Governors shall be filed with the Commission within 10 days after the 
submission of such report to the Board of Governors.



Sec.286.3  Reports with respect to proposed distribution of primary 
obligations.

    The Bank shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States,

[[Page 1363]]

a report containing the information and documents specified in Schedule 
A below. The term ``sell'' as used in this section and in Schedule A 
means the making of a completed sale or a firm commitment to sell.

[46 FR 48179, Oct. 2, 1981]



Sec.286.4  Preparation and filing of reports.

    (a) Every report required by this part shall be filed under cover of 
a letter of transmittal which shall state the nature of the report and 
indicate the particular rule and subdivision thereof pursuant to which 
the report is filed. At least the original of every such letter shall be 
signed on behalf of the Bank by a duly authorized officer thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Sec.286.3 may be filed in the form of a 
prospectus to the extent that such prospectus contains the information 
specified in Schedule A.



                       Sec.Schedule A to Part 286

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Sec.286.3 with respect to a proposed 
distribution of primary obligations of the Bank. Information not 
available at the time of filing the report shall be filed as promptly 
thereafter as possible.

                   Item 1. Description of obligations

    As to each issue of primary obligations of the Bank which is to be 
distributed, furnish the following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payment dates.
    (c) The maturity date or, if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of (1) any redemption provisions and (2) any 
amortization, sinking fund or retirement provisions, stating the annual 
amount, if any, which the Bank will be under obligation to apply for the 
satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the Bank will, as 
the payment of interest or principal, rank prior to the obligations to 
be distributed, describe the nature and extent of such priority.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holders thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the Bank with respect 
thereto.
    (i) The name and address4 of the fiscal or paying agent of the Bank, 
if any.

                   Item 2. Distribution of obligations

    (a) Outline briefly the plan of distribution of the obligations and 
state the amount of the participation of each principal underwriter, if 
any.
    (b) Describe any arrangements known to the Bank or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the account of the Bank or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.

                       Item 3. Distribution spread

    The following information shall be given, in substantially the 
tabular form indicated, as to all obligations which are to be offered 
for cash (estimate, if necessary):

------------------------------------------------------------------------
                                                   Selling
                                       Price to   discounts    Proceeds
                                          the        and        to the
                                        public   commissions     bank
------------------------------------------------------------------------
Per unit.............................  ........  ...........  ..........
Total................................  ........  ...........  ..........
------------------------------------------------------------------------

    Item 4. Discounts and commissions to sub-underwriters and dealers

    State briefly the discounts and commissions to be allowed or paid to 
dealers. If any dealers are to act in the capacity of sub-underwriters 
and are to be allowed or paid any additional discounts or commissions 
for acting in such capacity, a general statement to

[[Page 1364]]

that effect will suffice, without giving the additional amounts to be so 
paid.

                 Item 5. Other expenses of distribution

    Furnish a reasonably itemized statement of all expenses of the Bank 
in connection with the issuance and distribution of the obligations, 
except underwriters' or dealers' discounts and commissions.
    Instruction. Insofar as practicable, the itemization shall include 
transfer agents' fees, cost of printing and engraving, and legal and 
accounting fees. The information may be given as subject to future 
contingencies. If the amounts of any items are not known, estimates, 
designated as such, shall be given.

                     Item 6. Application of proceeds

    Make a reasonably itemized statement of the purposes, so far as 
determinable, for which the net proceeds to the Bank from the 
obligations are to be used, and state the approximate amount to be used 
for each such purpose.

                    Item 7. Exhibits to be furnished

    The following documents shall be attached to or otherwise furnished 
as a part of the report:
    (a) Copies of the constituent instruments defining the rights 
evidenced by the obligations.
    (b) Copies of an opinion of counsel, in the English language, as to 
the legality of the obligations.
    (c) Copies of all material contracts pertaining to the issuance or 
distributions of the obligations, to which the Bank or any principal 
underwriter of the obligations is or is to be a party, except selling 
group agreements.
    (d) Copies of any prospectus or other sales literature to be 
provided by the Bank or any of the principal underwriters for general 
use in connection with the initial distribution of the obligations to 
the public.



PART 287_GENERAL RULES AND REGULATIONS PURSUANT TO SECTION 11(a) 
OF THE ASIAN DEVELOPMENT BANK ACT--Table of Contents



Sec.
287.1 Applicability of this part.
287.2 Periodic reports.
287.3 Reports with respect to proposed distribution of primary 
          obligations.
287.4 Preparation and filing of reports.
287.101 Schedule A--Information required in reports pursuant to Sec.
          287.3.

    Authority: Sec.11, 80 Stat. 73; 22 U.S.C. 285h.

    Source: AD1, 33 FR 259, Jan. 9, 1968, unless otherwise noted.



Sec.287.1  Applicability of this part.

    This part (Regulation AD) prescribes the reports to be filed with 
the Securities and Exchange Commission by the Asian Development Bank 
pursuant to section 11(a) of the Asian Development Bank Act.



Sec.287.2  Periodic reports.

    (a) Within 60 days after the end of each of its fiscal quarters, the 
Bank shall file with the Commission the following information:
    (1) Information as to any purchases or sales by the Bank of its 
primary obligations during such quarter.
    (2) Copies of the Bank's regular quarterly financial statement.
    (3) Copies of any material modifications or amendments during such 
quarter of any exhibits (other than (i) constituent documents defining 
the rights of holders of securities of other issuers guaranteed by the 
Bank, and (ii) loans and guaranty agreements to which the Bank is a 
party) previously filed with the Commission under any statute.
    (b) Copies of each annual report of the Bank to its Board of 
Governors shall be filed with the Commission within 10 days after the 
submission of such report to the Board of Governors.



Sec.287.3  Reports with respect to proposed distribution of primary 
obligations.

    The Bank shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States, a report 
containing the information and documents specified in Schedule A below. 
The term ``sell'' as used in this section and in Schedule A means the 
making of a completed sale or a firm commitment to sell.

[46 FR 48179, Oct. 1, 1981]



Sec.287.4  Preparation and filing of reports.

    (a) Every report required by this regulation shall be filed under 
cover of a letter of transmittal which shall state the nature of the 
report and indicate the particular rule and subdivision

[[Page 1365]]

thereof pursuant to which the report is filed. At least the original of 
every such letter shall be signed on behalf of the Bank by a duly 
authorized officer thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Rule 3 (17 CFR 287.3) may be filed in the 
form of a prospectus to the extent that such prospectus contains the 
information specified in Schedule A (17 CFR 287.101).



Sec.287.101  Schedule A--Information required in reports pursuant
to Sec.287.3.

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Rule 3 (17 CFR 287.3) with respect to 
a proposed distribution of primary obligations of the Bank. Information 
not available at the time of filing the report shall be filed as 
promptly thereafter as possible.

    Item 1. Description of obligations. As to each issue of primary 
obligations of the Bank which is to be distributed, furnish the 
following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payment dates.
    (c) The maturity date or, if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of (1) any redemption provisions and (2) any 
amortization, sinking fund or retirement provisions, stating the annual 
amount, if any, which the Bank will be under obligation to apply for the 
satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the Bank will, as 
to the payment of interest or principal, rank prior to the obligations 
to be distributed, describe the nature and extent of such priority.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holders thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the Bank with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the Bank, 
if any.
    Item 2. Distribution of obligations. (a) Outline briefly the plan of 
distribution of the obligations and state the amount of the 
participation of each principal underwriter, if any.
    (b) Describe any arrangements known to the Bank or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the account of the Bank or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.
    Item 3. Distribution spread. The following information shall be 
given, in substantially the tabular form indicated, as to all 
obligations which are to be offered for cash (estimate, if necessary):

------------------------------------------------------------------------
                                                   Selling
                                       Price to   discounts    Proceeds
                                          the        and        to the
                                        public   commissions     bank
------------------------------------------------------------------------
Per unit.............................  ........  ...........  ..........
Total................................  ........  ...........  ..........
------------------------------------------------------------------------

    Item 4. Discounts and commissions to subunderwriters and dealers. 
State briefly the discounts and commission to be allowed or paid to 
dealers. If any dealers are to act in the capacity of subunderwriters 
and are to be allowed or paid any additional discounts or commissions 
for action in such capacity, a general statement to that effect will 
suffice, without giving the additional amounts to be so paid.
    Item 5. Other expenses of distribution. Furnish a reasonably 
itemized statement of all expenses of the Bank in connection with the 
issuance and distribution of the obligations, except underwriters' or 
dealers' discounts and commissions.
    Instruction. Insofar as practicable, the itemization shall include 
transfer agents' fees, cost of printing and engraving, and legal and 
accounting fees. The information may be given as subject to future 
contingencies. If the amounts of any items are not known, estimates, 
designated as such, shall be given.

[[Page 1366]]

    Item 6. Application of proceeds. Make a reasonably itemized 
statement of the purposes, so far as determinable, for which the net 
proceeds to the Bank from the obligations are to be used, and state the 
approximate amount to be used for each such purpose.
    Item 7. Exhibits to be furnished. The following documents shall be 
attached to or otherwise furnished as a part of the report:
    (a) Copies of the constituent instruments defining the rights 
evidenced by the obligations.
    (b) Copies of an opinion of counsel, in the English language, as to 
the legality of the obligations.
    (c) Copies of all material contracts pertaining to the issuance or 
distributions of the obligations, to which the Bank or any principal 
underwriter of the obligations is or is to be a party, except selling 
group agreements.
    (d) Copies of any prospectus or other sales literature to be 
provided by the Bank or any of the principal underwriters for general 
use in connection with the initial distribution of the obligations to 
the public.



PART 288_GENERAL RULES AND REGULATIONS PURSUANT TO SECTION 9(a)
OF THE AFRICAN DEVELOPMENT BANK ACT--Table of Contents



Sec.
288.1 Applicability of this part.
288.2 Periodic reports.
288.3 Reports with respect to proposed distribution of primary 
          obligations.
288.4 Preparation and filing of reports.
288.101 Schedule A. Information required in reports pursuant to Sec.
          288.3

    Authority: Sec.9(a), 95 Stat. 743, 22 U.S.C. 290i-9a; Sec.19(a), 
48 Stat. 85, 15 U.S.C. 77s(a).

    Source: 50 FR 26191, June 25, 1985, unless otherwise noted.



Sec.288.1  Applicability of this part.

    This part (Regulation AFDB) prescribes the reports to be filed with 
the Securities and Exchange Commission by the African Development Bank 
pursuant to section 9(a) of the African Development Bank Act.



Sec.288.2  Periodic reports.

    (a) Within 60 days after the end of each of its fiscal quarters, the 
Bank shall file with the Commission the following information:
    (1) Information as to any purchases or sales by the Bank of its 
primary obligations during such quarter;
    (2) Two copies of the Bank's regular quarterly financial statement; 
and
    (3) Two copies of any material modifications or amendments during 
such quarter of any exhibits (other than (i) constituent documents 
defining the rights of holders of securities of other issuers guaranteed 
by the Bank, and (ii) loans and guaranty agreements to which the Bank is 
a party) previously filed with the Commission under any statute.
    (b) Two copies of each annual report of the Bank to its Board of 
Governors shall be filed with the Commission within 10 days after the 
submission of such report to the Board of Governors.



Sec.288.3  Reports with respect to proposed distribution of primary
obligations.

    The Bank shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States, a report 
containing the information and documents specified in Schedule A (17 CFR 
288.101). The term ``sell' as used in this section and in Schedule A 
means the making of a completed sale or a firm commitment to sell.



Sec.288.4  Preparation and filing of reports.

    (a) Every report required by this regulation shall be filed under 
cover of a letter of transmittal which shall state the nature of the 
report and indicate the particular rule and subdivision thereof pursuant 
to which the report is filed. At least the original of every such letter 
shall be signed on behalf of the Bank by a duly authorized officer 
thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Rule 3 (17 CFR 288.3) may be filed in the 
form of

[[Page 1367]]

prospectus to the extent that such prospectus contains the information 
specified in Schedule A (17 CFR 288.101).



Sec.288.101  Schedule A. Information required in reports pursuant
to Sec.288.3.

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Rule 3 (17 CFR 288.3) with respect to 
a proposed distribution of primary obligations of the Bank. Information 
not available at the time of filing the report shall be filed as 
promptly thereafter as possible.

                   Item 1: Description of obligations.

    As to each issue of primary obligations of the Bank which is to be 
distributed, furnish the following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payment dates.
    (c) The maturity date or, if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of (i) any redemption provisions and (ii) any 
amortization, sinking fund or retirement provisions, stating the annual 
amount, if any, which the Bank will be under obligation to apply for the 
satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the Bank will, as 
to the payment of interest or principal, rank prior to the obligations 
to be distributed, describe the nature and extent of such priority.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holders thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the Bank with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the Bank, 
if any.

                  Item 2. Distribution of obligations.

    (a) Outline briefly the plan of distribution of the obligations and 
state the amount of the participation of each principal underwriter, if 
any.
    (b) Describe any arrangements known to the Bank or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the acount of the Bank or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.

                      Item 3. Distribution spread.

    The following information shall be given, in substantially the 
tabular form indicated, as to all obligations which are to be offered 
for cash (estimate, if necessary):

------------------------------------------------------------------------
                                                  Selling
                                     Price to    discounts   Proceeds to
                                    the public      and        the bank
                                                commissions
------------------------------------------------------------------------
Per Unit.........................  ...........  ...........  ...........
      Total......................  ...........  ...........  ...........
------------------------------------------------------------------------

   Item 4. Discounts and commissions to sub-underwriters and dealers.

    State briefly the discounts and commissions to be allowed or paid to 
dealers. If any dealers are to act in the capacity of sub-underwriters 
and are to be allowed or paid any additional discounts or commissions 
for acting in such capacity, a general statement to that effect will 
suffice, without giving the additional amounts to be so paid.

               Item 5. Other expenses of the distribution.

    Furnish a reasonably itemized statement of all expenses of the Bank 
in connection with the issuance and distribution of the obligations, 
except underwriters' or dealers' discounts and commissions.
    Instruction. Insofar as practicable, the itemization shall include 
transfer agents' fees, cost of printing and engraving, and legal and 
accounting fees. The information may be given as subject to future 
contingencies. If the amounts of any items are not known, estimates, 
designated as such, shall be given.

                    Item 6. Application of proceeds.

    Make a reasonable itemized statement of the purposes, so far as 
determinable, for which the net proceeds to the Bank from the 
obligations are to be used, and state the approximate amount to be used 
for each such purpose.

                    Item 7. Exhibits to be furnished.

    The following documents shall be attached to or otherwise furnished 
as a part of the report:
    (a) Copies of the constituent instruments defining the rights 
evidenced by the obligations.

[[Page 1368]]

    (b) Copies of an opinion of counsel, in the English language, as to 
the legality of the obligations.
    (c) Copies of all material contracts pertaining to the issuance or 
distributions of the obligations, to which the Bank or any principal 
underwriter of the obligations is or is to be a party, except selling 
group agreements.
    (d) Copies of any prospectus or other sales literature to be 
provided by the Bank or any of the principal underwriters for general 
use in connection with the initial distribution of the obligations to 
the public.



PART 289_GENERAL RULES AND REGULATIONS PURSUANT TO SECTION 13(a) OF
THE INTERNATIONAL FINANCE CORPORATION ACT--Table of Contents



Sec.
289.1 Applicability of this part.
289.2 Periodic reports.
289.3 Reports with respect to proposed distribution of primary 
          obligations.
289.4 Preparation and filing of reports.
289.101 Schedule A. Information required in reports pursuant to Sec.
          289.3.

    Authority: 15 U.S.C. 77s(a); 22 U.S.C. 282m.

    Source: 56 FR 32079, July 15, 1991, unless otherwise noted.



Sec.289.1  Applicability of this part.

    This part (Regulation IFC) prescribes the reports to be filed with 
the Securities and Exchange Commission by the International Finance 
Corporation (``IFC'') pursuant to section 13(a) of the International 
Finance Corporation Act.



Sec.289.2  Periodic reports.

    (a) Within 45 days after the end of each of its fiscal quarters the 
IFC shall file with the Commission the following information:
    (1) Two copies of information as to any purchases or sales by the 
IFC of its primary obligations during such quarter;
    (2) Two copies of the IFC's regular quarterly financial statement; 
and
    (3) Two copies of any material modifications or amendments during 
such quarter of any exhibits (other than constituent documents defining 
the rights of holders of securities of other issuers guaranteed by the 
IFC, and loan and guaranty agreements to which the IFC is a party) 
previously filed with the Commission under any statute.
    (b) Each annual report of the IFC to its Board of Governors shall be 
filed with the Commission within 10 days after the submission of such 
report to the Board of Governors.



Sec.289.3  Reports with respect to proposed distribution of primary 
obligations.

    The IFC shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States, a report 
containing the information and documents specified in Schedule A of this 
part. The term ``sell'' as used in this section and in Schedule A of 
this Part means a completed sale, or a firm commitment to sell to an 
underwriter.



Sec.289.4  Preparation and filing of reports.

    (a) Every report required by this regulation shall be filed under 
cover of a letter of transmittal which shall state the nature of the 
report and indicate the particular rule and subdivision thereof pursuant 
to which the report is filed. At least the original of every such letter 
shall be signed on behalf of the IFC by a duly authorized officer 
thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Sec.289.3 may be filed in the form of a 
prospectus to the extent that such prospectus contains the information 
specified in Schedule A of this Part.



Sec.289.101  Schedule A. Information required in reports pursuant 
to Sec.289.3.

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Sec.289.3 with respect to a proposed 
distribution of primary

[[Page 1369]]

obligations of the IFC. Information not available at the time of filing 
the report shall be filed as promptly thereafter as possible.
    Item 1: Description of obligations.
    As to each issue of primary obligations of the IFC that is to be 
distributed, furnish the following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payments dates.
    (c) The maturity date or, if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of:
    (i) Any redemption provisions, and
    (ii) Any amortization, sinking fund or retirement provisions, 
stating the annual amount, if any, which the IFC will be under 
obligation to apply for the satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the IFC will, as to 
the payment of interest and principal, rank prior to the obligations to 
be distributed, describe the nature and extent of such priority, to the 
extent known.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holder thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the IFC with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the IFC, 
if any.
    Item 2: Distribution of obligations.
    (a) Outline briefly the plan of distribution of the obligations and 
state the amount of the participation of each principal underwriter, if 
any.
    (b) Describe any arrangements known to the IFC or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the account of the IFC or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.
    Item 3: Distribution spread.
    The following information shall be given, in substantially the 
tabular form indicated, as to all primary obligations that are to be 
offered for cash (estimate, if necessary):

------------------------------------------------------------------------
                                               Selling      Proceeds to
                                 Price to    discounts &  the IFC
------------------------------------------------------------------------
Per Unit.....................  __           __            __
Total........................  __           __            __
------------------------------------------------------------------------

    Item 4: Discounts and commissions to sub-underwriters and dealers.
    State briefly the discounts and commissions to be allowed or paid to 
dealers. If any dealers are to act in the capacity of sub-underwriters 
and are to be allowed or paid any additional discounts or commissions 
for acting in such capacity, a general statement to that effect will 
suffice, without giving the additional amounts to be so paid.
    Item 5: Other expenses of the distribution.
    Furnish a reasonably itemized statement of all expenses of the IFC 
in connection with the issuance and distribution of the obligations, 
except underwriters' or dealers' discounts and commissions that are 
provided in Items 2, 3 and 4.

                               Instruction

    Insofar as practicable, the itemization shall include transfer 
agents' fees, cost of printing and engraving, and legal and accounting 
fees. The information may be given as subject to future contingencies. 
If the amounts of any items are not known, estimates, designated as 
such, shall be given.

    Item 6: Application of proceeds.
    Make a reasonably itemized statement of the purposes, so far as 
determinable, for which the net proceeds to the IFC from the obligations 
are to be used, and state the approximate amount to be used for each 
such purpose.

[[Page 1370]]

    Item 7: Exhibits to be furnished.
    A copy of each of the following documents shall be attached to or 
otherwise furnished as a part of the report:
    (a) Each constituent instrument defining the rights evidenced by the 
obligations.
    (b) An opinion of counsel, written in the English language, as to 
the legality of the obligations.
    (c) Each material contract pertaining to the issuance or 
distribution of the obligations, to which the IFC or any principal 
underwriter of the obligations is or is to be party, except selling 
group agreements.
    (d) Each prospectus or other sales literature to be provided by the 
IFC or any of the principal underwriters for general use in connection 
with the initial distribution of the obligations to the public.



PART 290_GENERAL RULES AND REGULATIONS PURSUANT TO SECTION 9(a) 
OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT ACT--
Table of Contents



Sec.
290.1 Applicability of this part.
290.2 Periodic reports.
290.3 Reports with respect to proposed distribution of obligations.
290.4 Preparation and filing of reports.
290.101 Schedule A. Information required in reports pursuant to Sec.
          290.3.

    Authority: 15 U.S.C. 77s(a); 22 U.S.C. 2901-9.

    Source: 56 FR 32082, July 15, 1991, unless otherwise noted.



Sec.290.1  Applicability of this part.

    This part (Regulation EBRD) prescribes the reports to be filed with 
the Securities and Exchange Commission by the European Bank for 
Reconstruction and Development (``EBRD'') pursuant to section 9(a) of 
the European Bank for Reconstruction and Development Act.



Sec.290.2  Periodic reports.

    (a) Within 45 days after the end of each of its fiscal quarters the 
EBRD shall file with the Commission the following information:
    (1) Two copies of information as to any purchases or sales by the 
EBRD of its primary obligations during such quarter;
    (2) Two copies of the EBRD's regular quarterly financial statement; 
and
    (3) Two copies of any material modifications or amendments during 
such quarter of any exhibits (other than constituent documents defining 
the rights of holders of securities of other issuers guaranteed by the 
EBRD, and loan guaranty agreements to which the EBRD is a party) 
previously filed with the Commission under any statute.
    (b) Each annual report of the EBRD to its Board of Governors shall 
be filed with the Commission within 10 days after the submission of such 
report to the Board of Governors.



Sec.290.3  Reports with respect to proposed distribution of 
obligations.

    The EBRD shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States, a report 
containing the information and documents specified in Schedule A of this 
part. The term ``sell'' as used in this section and in Schedule A of 
this part means a completed sale, or a firm committment to sell to an 
underwriter.



Sec.290.4  Preparation and filing of reports.

    (a) Every report required by this regulation shall be filed under 
cover of a letter of transmittal which shall state the nature of the 
report and indicate the particular rule and subdivision thereof pursuant 
to which the report is filed. At least the original of every such letter 
shall be signed on behalf of the EBRD by a duly authorized officer 
thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Sec.290.3 may be filed in the form of a 
prospectus to the

[[Page 1371]]

extent that such prospectus contains the information specified in 
Schedule A of this Part.



Sec.290.101  Schedule A. Information required in reports pursuant
to Sec.290.3.

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Sec.290.3 with respect to a proposed 
distribution of primary obligations of the EBRD. Information not 
available at the time of filing the report shall be filed as promptly 
thereafter as possible.
    Item 1: Description of obligations.
    As to each issue of primary obligations of the EBRD that is to be 
distributed, furnish the following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payment dates.
    (c) The maturity date or, if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of:
    (i) Any redemption provisions and
    (ii) Any amortization, sinking fund or retirement provisions, 
stating the annual amount, if any, which the EBRD will be under 
obligation to apply for the satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the EBRD will, as 
to the payment of interest and principal, rank prior to the obligations 
to be distributed, describe the nature and extent of such priority, to 
the extent known.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holders thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the EBRD with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the EBRD, 
if any.
    Item 2: Distribution of obligations.
    (a) Outline briefly the plan of distribution of obligations and 
state the amount of the participation of each principal underwriter, if 
any.
    (b) Describe any arrangements known to the EBRD or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the account of the EBRD or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.
    Item 3: Distribution spread.
    The following information shall be given, in substantially the 
tabular form indicated, as to all primary obligations that are to be 
offered for cash (estimate, if necessary):

------------------------------------------------------------------------
                                              Selling
                                 Price to   discounts &  Proceeds to the
                                the public  commissions  EBRD
------------------------------------------------------------------------
Per Unit.....................  __           __           __
Total........................  __           __           __
------------------------------------------------------------------------

    Item 4: Discounts and commissions to sub-underwriters and dealers.
    State briefly the discounts and commissions to be allowed or paid to 
dealers. If any dealers are to act in the capacity of sub-underwriters 
and are to be allowed or paid any additional discounts or commissions 
for acting in such capacity, a general statement to that effect will 
suffice, without giving the additional amounts to be so paid.
    Item 5: Other expenses of the distribution.
    Furnish a reasonably itemized statement of all expenses of the EBRD 
in connection with the issuance and distribution of the obligations, 
except underwriters' or dealers' discounts and commissions that are 
provided in Items 2, 3 and 4.

                               Instruction

    Insofar as practicable, the itemization shall include transfer 
agents' fees, cost of printing and engraving, and legal and accounting 
fees. The information may be given

[[Page 1372]]

as subject future contingencies. If the amounts of any items are not 
known, estimates, designated as such, shall be given.

    Item 6: Application of proceeds.
    Make a reasonably itemized statement of the purposes, so far as 
determinable, for which the net proceeds to the EBRD from the 
obligations are to be used, and state the approximate amount to be used 
for each such purpose.
    Item 7: Exhibits to be furnished.
    A copy of each of the following documents shall be attached to or 
otherwise furnished as a part of the report:
    (a) Each constituent instrument defining the rights evidenced by the 
obligations.
    (b) An opinion of counsel, written in the English language, as to 
the legality of the obligations.
    (c) Each material contract pertaining to the issuance or 
distribution of the obligations, to which the EBRD or any principal 
underwriter of the obligations is or is to be a party, except selling 
group agreements.
    (d) Any prospectus or other sales literature to be provided by the 
EBRD or any of the principal underwriters for general use in connection 
with the initial distribution of the obligations to the public.



PART 300_RULES OF THE SECURITIES INVESTOR PROTECTION CORPORATION--
Table of Contents



           Accounts of ``Separate'' Customers of SIPC Members

Sec.
300.100 General.
300.101 Individual accounts.
300.102 Accounts held by executors, administrators, guardians, etc.
300.103 Accounts held by a corporation, partnership or unincorporated 
          association.
300.104 Trust accounts.
300.105 Joint accounts.

             Accounts Introduced by Other Brokers or Dealers

300.200 General.
300.201 Accounts introduced by same or different broker or dealer.

         Closeout or Completion of Open Contractual Commitments

300.300 Definitions.
300.301 Contracts to be closed out or completed.
300.302 Mechanics of closeout or completion.
300.303 Report to trustee.
300.304 Retained rights of brokers or dealers.
300.305 Excluded contracts.
300.306 Completion or closeout pursuant to SIPC direction.
300.307 Completion with cash or securities of customer.
300.400 Satisfaction of customer claims for standardized options.

Rules Relating to Satisfaction of a ``Claim for Cash'' or a ``Claim for 
                              Securities''

300.500 General.
300.501 Claim for cash.
300.502 Claim for securities.
300.503 Voidable securities transactions.

        Rules Relating to Supplemental Report on SIPC Membership

300.600 Rules relating to supplemental report on SIPC membership.

    Authority: 15 U.S.C. 78ccc.

    Source: 44 FR 5077, Jan. 25, 1979, unless otherwise noted.
    Note: The numbers to the right of the decimal points correspond with 
the respective rule numbers of the rules of the Securities Investor 
Protection Corporation (hereinafter referred to as ``SIPC'').

    Explanatory Note: Pursuant to section 3(e)(2)(D) of the Securities 
Investor Protection Act of 1970 (hereinafter referred to as ``the 
Act''), the Securities and Exchange Commission (hereinafter referred to 
as ``the Commission'') shall approve a proposed rule change submitted by 
the Securities Investor Protection Corporation if it finds that such 
proposed rule change is in the public interest and is consistent with 
the purposes of the Act, and any proposed rule change so approved shall 
be given force and effect as if promulgated by the Commission. The rules 
of this part 300 have been so approved.

           Accounts of ``Separate'' Customers of SIPC Members



Sec.300.100  General.

    (a) For the purpose of sections 9(a)(2) and 16(12) of the Securities 
Investor Protection Act (hereinafter referred to as ``the Act''), these 
rules will be applied in determining what accounts held by a person with 
a member of SIPC (hereinafter called a ``member'') are to be deemed 
accounts held in a capacity other than his individual capacity.

[[Page 1373]]

    (b) Accounts held by a customer in different capacities, as 
specified by these rules, shall be deemed to be accounts of ``separate'' 
customers.
    (c) A ``person'' as used in these rules includes, but is not limited 
to, an individual, a corporation, a partnership, an association, a joint 
stock company, a trust, an unincorporated organization, or a government 
or political subdivision thereof.
    (d) The burden shall be upon the customer to establish each capacity 
in which he claims to hold accounts separate from his individual 
capacity.



Sec.300.101  Individual accounts.

    (a) Except as otherwise provided in these rules, all accounts held 
with a member by a person in his own name, and those which under these 
rules are deemed his individual accounts, shall be combined so as to 
constitute a single account of a separate customer.
    (b) An account held with a member by an agent or nominee for another 
person as a principal or beneficial owner shall, except as otherwise 
provided in these rules, be deemed to be an individual account of such 
principal or beneficial owner.



Sec.300.102  Accounts held by executors, administrators, guardians, etc.

    (a) Accounts held with a member in the name of a decedent or in the 
name of his estate or in the name of the executor or administrator of 
the estate of the decedent shall be combined so as to constitute a 
single account of a separate customer.
    (b) An account held with a member by a guardian, custodian, or 
conservator for the benefit of a ward or for the benefit of a minor 
under the Uniform Gifts to Minors Act or in a similar capacity shall be 
deemed to be held by such guardian, custodian, or conservator in a 
different capacity from any account or accounts maintained by such 
person in his individual capacity.



Sec.300.103  Accounts held by a corporation, partnership or 
unincorporated association.

    A corporation, partnership or unincorporated association holding an 
account with a member shall be deemed to be a separate customer distinct 
from the person or persons owning such corporation or comprising such 
partnership or unincorporated association if on the filing date it 
existed for a purpose other than primarily to obtain or increase 
protection under the Act.



Sec.300.104  Trust accounts.

    (a) A trust account held with a member shall be deemed a 
``qualifying trust account'' if it is held on behalf of a valid and 
subsisting express trust created by a written instrument. No account 
held on behalf of a trust that on the filing date existed primarily to 
obtain or increase protection under the Act shall be deemed to be a 
qualifying trust account.
    (b) A qualifying trust account held with a member shall be deemed 
held by a separate customer of the member, distinct from the trustee, 
the testator or his estate, the settlor, or any beneficiary of the 
trust.
    (c) Any account held with a member on behalf of a trust which does 
not meet the requirements of paragraph (a) of this rule shall be deemed 
to be an individual account of the settlor of the trust on behalf of 
which the account is held.



Sec.300.105  Joint accounts.

    (a) A joint account shall be deemed to be a ``qualifying joint 
account'' if it is owned jointly, whether by the owners thereof as joint 
tenants with the right of survivorship, as tenants by the entirety or as 
tenants in common, or by husband and wife as community property, but 
only if each co-owner possesses authority to act with respect to the 
entire account.
    (b) Subject to paragraph (c) of this rule, each qualifying joint 
account with a member shall be deemed held by one separate customer of 
the member.
    (c) All qualifying joint accounts with a member owned by the same 
persons shall be deemed held by the same customer so that the maximum 
protection afforded to such accounts in the aggregate shall be the 
protection afforded to one separate customer of the member
    (d) A joint account with a member which does not meet the 
requirements of paragraph (a) of this rule shall be deemed to be an 
individual or qualifying joint account of the co-owner or

[[Page 1374]]

co-owners having the exclusive power to act with respect to it.

             Accounts Introduced by Other Brokers or Dealers



Sec.300.200  General.

    A person having one or more accounts cleared by the member on a 
fully disclosed basis for one or more introducing brokers or dealers is 
a customer of the member and shall be protected with respect to such 
account or accounts without regard to the protection available for any 
other account or accounts he may have with the member.



Sec.300.201  Accounts introduced by same or different broker 
or dealer.

    All accounts of a person which are introduced by the same broker or 
dealer shall be combined and protected as the single account of a 
separate customer, unless such accounts are maintained in different 
capacities as specified in Sec.Sec.300.100 through 300.105; accounts 
introduced by different brokers or dealers shall be protected 
separately.

         Closeout or Completion of Open Contractual Commitments

    Authority: Sec.3, 6(d), Pub. L. 91-598, 84 Stat. 1636 (15 U.S.C. 
78ccc, 78fff(d)), as amended by secs. 3, 5, 9, Pub. L. 95-283, 92 Stat. 
249.

    Source: Sections 300.300 through 300.307 appear at 44 FR 21211, Apr. 
9, 1979, unless otherwise noted.



Sec.300.300  Definitions.

    For the purpose of these rules, adopted pursuant to section 8(e) of 
the Securities Investor Protection Act of 1970, as amended (hereinafter 
referred to as ``the Act''):
    (a) The term failed to receive shall mean a contractual commitment 
of the debtor made in the ordinary course of business to pay to another 
broker or dealer the contract price in cash upon receipt from such 
broker or dealer of securities purchased: Provided, That the respective 
obligations of the parties remained outstanding until the close of 
business on the filing date as defined in section 16(7) of the Act 
(hereinafter referred to as the ``filing date'').
    (b) The term failed to deliver shall mean a contractual commitment 
of the debtor, made in the ordinary course of business, to deliver 
securities to another broker or dealer against receipt from such broker 
or dealer of the contract price in cash: Provided, That the respective 
obligations of the parties remained outstanding until the close of 
business on the filing date.
    (c) The term open contractual commitment shall mean a failed to 
receive or a failed to deliver which had a settlement date prior to the 
filing date and the respective obligations of the parties remained 
outstanding on the filing date or had a settlement date which occurs on 
or within three business days subsequent to the filing date: Provided, 
however, That the term ``open contractual commitment'' shall not include 
any contractual commitment for which the security which is the subject 
of the trade had not been issued by the issuer as of the trade date.
    (d) The term customer shall mean a person (other than a broker or 
dealer) in whose behalf a broker or dealer has executed a transaction 
out of which arose an open contractual commitment with the debtor, but 
shall not include any person to the extent that such person at the 
filing date (1) had a claim for property which by contract, agreement of 
understanding, or by operation of law, was a part of the capital of the 
broker or dealer who executed such transaction or was subordinated to 
the claims of creditors of such broker or dealer, or (2) had a 
relationship with the debtor which is specified in section 9(a)(4) of 
the Act.

[44 FR 21211, Apr. 9, 1979, as amended at 62 FR 10451, Mar. 7, 1997]



Sec.300.301  Contracts to be closed out or completed.

    An open contractual commitment shall be closed out or completed if:
    (a) The open contractual commitment:
    (1) Arises from a transaction in which a customer (as defined in 
Sec.300.300) of the other broker or dealer had an interest. For the 
purposes of this rule a customer is deemed to have an interest in a 
transaction if (i) the other broker was acting as agent for the customer 
or (ii) the other dealer was not a market maker in the security 
involved, to the extent such other

[[Page 1375]]

dealer held a firm order from the customer and in connection therewith: 
In the case of a buy order, prior to executing such customer's order 
purchased as principal the same number of shares or purchased shares to 
accumulate the number of shares necessary to complete the order; or in 
the case of a sell order, prior to executing such customer's order sold 
the same number of shares or a portion thereof; and
    (2)(i) Had a settlement date on or within 30 calendar days prior to 
the filing date and the respective obligations of the parties remained 
outstanding on the filing date or had a settlement date which occurs on 
or within three business days subsequent to the filing date; and
    (ii) Had a trade date on or within three business days prior to such 
settlement date; and
    (b) The other broker or dealer can establish to the satisfaction of 
the trustee through appropriate documentation that:
    (1) In the case of a broker or dealer who maintains his records on a 
specific identification basis:
    (i) The open contractual commitment arose out of a transaction in 
which his customer had such an interest, and
    (ii) In the case of a failed to deliver of the debtor, as of the 
filing date such broker's or dealer's customer's interest had not been 
sold to such broker or dealer; or
    (2) In the case of a broker or dealer who maintains his records 
other than on a specific identification basis, he has determined that a 
customer had such an interest in a manner consistent with that used by 
such broker or dealer prior to the filing date to allocate fails to 
receive and fails to deliver in computing the special reserve bank 
account requirement pursuant to the provisions of Rule 15c3-3 under the 
Securities Exchange Act of 1934 (17 CFR 240.15c3-3); or
    (3) In the case of a broker or dealer not described in paragraph 
(b)(1) or (2) of this section, he has made the determination in a manner 
which the trustee finds to be fair and equitable.

[44 FR 21211, Apr. 9, 1979, as amended at 62 FR 10451, Mar. 7, 1997]



Sec.300.302  Mechanics of closeout or completion.

    (a) The closeout or completion of an open contractual commitment 
meeting the requirements of Sec.300.301 shall be effected only:
    (1) By the buy-in or sell-out of the commitment by the other broker 
or dealer in accordance with the usual trade practices initiated by the 
other broker or dealer within or promptly upon the expiration of a 
period of 30 calendar days after settlement date; or
    (2) At the option of the trustee by the delivery of securities 
against receipt of the contract price or payment of the contract price 
against the receipt of the securities at any time within 30 calendar 
days after settlement date unless the commitment previously has been 
bought-in or sold-out in accordance with paragraph (a)(1) of this 
section; or
    (3) In the event of the refusal of the other broker or dealer to 
accept completion of an open contractual commitment in accordance with 
paragraph (a)(2) of this section, or the failure of the other broker or 
dealer to promptly buy-in or sell-out a commitment in accordance with 
paragraph (a)(1) of this section, or in the event of the failure of the 
other broker or dealer to provide the trustee with appropriate 
documentation as required by Sec.300.303, by delivery of securities 
against receipt of the contract price or payment of the contract price 
against receipt of securities, or the buy-in or sell-out of the 
commitment or cancellation of the commitment or otherwise, as may be 
appropriate, as the trustee in his discretion will most benefit the 
estate of the debtor.
    (b) In the event of a close-out of an open contractual commitment 
pursuant to paragraph (a)(1) of this section, the money differences 
resulting from such close-out shall be payable by the other broker or 
dealer to the trustee or by the trustee to the other broker or dealer, 
whichever would be entitled to receive such difference under the usual 
trade practices: Provided, however, (1) That prior to the payment of any 
such money difference by the trustee to such other broker or dealer with 
respect to transactions executed by such other broker or dealer for any 
separate

[[Page 1376]]

customer account, all open contractual commitments with respect to such 
account which meet the requirements of Sec.300.301 must have been 
completed by delivery of securities against receipt of the contract 
price or by payment of the contract price against receipt of the 
securities in conformity with paragraph (a)(2) of this section, or by 
buy-in or sell-out in conformity with paragraph (a)(1) of this section, 
and (2) that the net amount so payable by the trustee to the other 
broker or dealer shall not exceed $40,000 with respect to any separate 
customer account.



Sec.300.303  Report to trustee.

    Promptly upon the expiration of 30 calendar days after the filing 
date, or if by the expiration of such 30-day period notice pursuant to 
section 8(a) of the Act of the commencement of proceedings has not been 
published, then as soon as practicable after publication of such notice, 
a broker or dealer who had executed transactions in securities out of 
which arose open contractual commitments with the debtor shall furnish 
to the trustee such information with respect to the buy-in, sell-out or 
other status of open contractual commitments as called for by Forms 300-
A, B and C (Sec.Sec.301.300a-301.300c of this chapter) including 
appropriate supporting documentation and schedules.



Sec.300.304  Retained rights of brokers or dealers.

    (a) Nothing stated in these rules shall be construed to prejudice 
the right of a broker or dealer to any claim against the debtor's 
estate, or the right of the trustee to make any claim against a broker 
or dealer, with respect to a commitment of the debtor which was 
outstanding on the filing date, but (1) which is not described in Sec.
300.300(c), or (2) which, although described in Sec.300.300(c), does 
not meet the requirements specified in Sec.300.301 or was not closed 
out of completed in accordance with Sec.300.302 or was not reported to 
the trustee in conformity with Sec.300.303 or was not supported by 
appropriate documentation.
    (b) Nothing stated in these rules shall be construed to prejudice 
the right of a broker or dealer to a claim against the debtor's estate 
for the amount by which the money difference due the broker or dealer 
upon a buy-in or sell-out may exceed the amount paid by the trustee to 
such broker or dealer.



Sec.300.305  Excluded contracts.

    Notwithstanding the fact that an open contractual commitment 
described in Sec.300.300(c) meets the requirements of Sec.300.301 
and the other requirements of these rules, a court shall not be 
precluded from canceling such commitment, awarding damages, or granting 
such other remedy as it shall deem fair and equitable if, on application 
of the trustee or SIPC, it determines that such commitment was not 
entered into in the ordinary course of business or was entered into by 
the debtor, or the broker or dealer or his customer, for the purposes of 
creating a commitment in contemplation of a liquidation proceeding under 
the Act. Such a determination shall be made after notice and opportunity 
for hearing by the debtor, such broker or dealer, or such customer, and 
may be made before or after the delivery of securities or payment of the 
contract price or before or after any buy-in or sell-out of the open 
contractual commitment, or otherwise.



Sec.300.306  Completion or closeout pursuant to SIPC direction.

    In its discretion SIPC may, in order to prevent a substantial 
detrimental impact upon the finanical condition of one or more brokers 
or dealers, direct the closeout or completion of an open contractual 
commitment, irrespective of whether it is described in Sec.300.300(c) 
or meets the requirements of Sec.300.301 or has been reported in 
conformity with Sec.300.303 or is supported by appropriate 
documentation. SIPC shall consult with the Securities and Exchange 
Commission before SIPC makes any determinations under this section.



Sec.300.307  Completion with cash or securities of customer.

    The trustee may, if authorized by the court, complete an open 
contractual commitment of the debtor, regardless of whether it is 
described in Sec.300.300(c) or meets the requirements of Sec.300.301 
or has been reported to the trustee in conformity with Sec.300.303, to 
the extent that such commitment is completed

[[Page 1377]]

with customer name securities of the customer of the debtor for whose 
account the commitment was made, or with cash or securities paid or 
delivered by or for the account of such customer to the debtor or 
trustee after the filing date.



Sec.300.400  Satisfaction of customer claims for standardized options.

    (a) For the purpose of sections 7(b)(1), 8 (b) and (d), and 16(11) 
of the Securities Investor Protection Act (hereinafter referred to as 
``the Act''), this rule will be applied in determining what a customer 
will receive in either (1) a liquidation proceeding pursuant to the Act 
or (2) a direct payment procedure pursuant to section 10 of the Act, in 
satisfaction of a claim based upon Standardized Options positions.
    (b) As promptly as practicable after the initiation of a liquidation 
proceeding or a direct payment procedure under the Act, the trustee in a 
liquidation proceeding, or SIPC in a direct payment procedure, shall 
liquidate or cause to be liquidated, by sale or purchase, all 
Standardized Options positions held for the accounts of customers except 
to the extent that the trustee, with SIPC's consent, or SIPC as trustee, 
as the case may be, has arranged or is able promptly to arrange, a 
transfer of some or all of such positions to another SIPC member.
    (c) A trustee in a liquidation proceeding, or SIPC in a direct 
payment procedure, shall calculate the dollar amount of all Standardized 
Options positions held for the account of a customer in accordance with 
section 16(11) of the Act, and credit or debit, as appropriate, the 
dollar amount so calculated to the account of such customer.
    (d) Notwithstanding paragraph (b) of this section, neither the 
trustee in a liquidation proceeding nor SIPC in a direct payment 
procedure shall be required under this rule to liquidate any short 
position in Standardized Options covered by the deposit of (1) the 
underlying securities, in the case of a call option, or (2) treasury 
bills, in the case of a put option, by or on behalf of a customer with a 
bank or other depository. Any such positions that are not liquidated 
shall be excluded from the calculation provided for in paragraph (c) of 
this section.
    (e) In no event will Standardized Options positions be delivered to 
or on behalf of customers in satisfaction of claims pursuant to section 
7(b)(1) of the Act except to the extent that such positions have been 
transferred as provided in paragraph (b) of this section.
    (f) In no event will Standardized Options be purchased for delivery 
to customers pursuant to section 8(d) of the Act.
    (g) This rule shall not be construed as limiting or restricting in 
any way the exercise of any right of a broker or registered clearing 
agency to liquidate or cause the liquidation of Standardized Options 
Positions.
    (h) As used in this rule the term Standardized Options means options 
traded on a national securities exchange, an automated quotation system 
of a registered securities association, or a foreign securities 
exchange, and any other option that is a security under section 16(14) 
of the Act, 15 U.S.C. 78lll(14), and is issued by a securities clearing 
agency registered under section 17A of the Securities Exchange Act of 
1934, 15 U.S.C. 78q-1, or a foreign securities clearing agency.

[48 FR 49840, Oct. 28, 1983, as amended at 79 FR 2781, Jan. 16, 2014]

Rules Relating to Satisfaction of a ``Claim for Cash'' or a ``Claim for 
                              Securities''

    Source: Sections 300.500 through 300.503 appear at 53 FR 10369, Mar. 
31, 1988, unless otherwise noted.



Sec.300.500  General.

    These rules will be applied in determining whether a securities 
transaction gives rise to a ``claim for cash'' or a ``claim for 
securities'' on the filing date of either a liquidation proceeding 
pursuant to the Securities Investor Protection Act (hereinafter referred 
to as ``the Act'') or a direct payment procedure pursuant to section 10 
of the Act.



Sec.300.501  Claim for cash.

    (a) Where a SIPC member (``Debtor'') held securities in an account 
for a customer, the customer has a ``claim for

[[Page 1378]]

cash'' with respect to any authorized securities sale:
    (1) If the Debtor has sent written confirmation to the customer that 
the securities in question have been sold for or purchased from the 
customer's account; or
    (2) Whether or not such a written confirmation has been sent, if the 
securities in question have become the subject of a completed or 
executory contract for sale for or purchase from the account.
    (b) Where the Debtor held cash in an account for a customer, the 
customer has a ``claim for cash'', notwithstanding the fact that the 
customer has ordered securities purchased for the account, unless:
    (1) The Debtor has sent written confirmation to the customer that 
the securities in question have been purchased for or sold to the 
customer's account; or
    (2) Whether or not such a written confirmation has been sent, if the 
securities in question have become the subject of a completed or 
executory contract for purchase for or sale to the account.



Sec.300.502  Claim for securities.

    (a) Where the Debtor held cash in an account for a customer, the 
customer has a ``claim for securities'' with respect to any authorized 
securities purchase:
    (1) If the Debtor has sent written confirmation to the customer that 
the securities in question have been purchased for or sold to the 
customer's account; or
    (2) Whether or not such a written confirmation has been sent, if the 
securities in question have become the subject of completed or executory 
contract for sale for or purchase from the account.
    (b) Where the Debtor held securities in an account for a customer, 
the customer has a ``claim for securities'', notwithstanding the fact 
that the customer has ordered the securities sold for the account, 
unless:
    (1) The Debtor has sent written confirmation to the customer that 
the securities in question have been sold for or purchased from the 
customer's account; or
    (2) Whether or not written confirmation of the purchase has been 
sent, if the securities in question have become the subject of completed 
or executory contract for sale for or purchase form the account.



Sec.300.503  Voidable securities transactions.

    (a) Nothing in these Series 500 Rules shall be construed as limiting 
the rights of a trustee in a liquidation proceeding under the Act to 
avoid any securities transaction as fraudulent, preferential, or 
otherwise voidable under applicable law.
    (b) Nothing in these Series 500 Rules shall be construed as limiting 
the right of the Securities Investor Protection Corporation, in a direct 
payment procedure under section 10 of the Act, to reject a claim for 
cash or a claim for securities if such claim arose out of a securities 
transaction which could have been avoided in a liquidation proceeding 
under the Act.

        Rules Relating to Supplemental Report on SIPC Membership



Sec.300.600  Rules relating to supplemental report on SIPC membership.

    (a)(1) Who must file the supplemental report. Except as provided in 
paragraph (a)(2) of this section, a broker or dealer must file with 
SIPC, within 60 days after the end of its fiscal year, a supplemental 
report on the status of its membership in SIPC (commonly referred to as 
the ``Independent Accountants' Report on Applying Agreed-Upon 
Procedures'') if a rule of the Securities and Exchange Commission (SEC) 
requires the broker or dealer to file audited financial statements 
annually.
    (2) If the broker or dealer is a member of SIPC, the broker or 
dealer is not required to file the supplemental report for any year in 
which it reports $500,000 or less in total revenues in its annual 
audited statement of income filed with the SEC.
    (b) Requirements of the supplemental report. The supplemental report 
must cover the SIPC Annual General Assessment Reconciliation Form (Form 
SIPC-7) or the Certification of Exclusion From Membership Form (Form 
SIPC-3) for each year for which an SEC

[[Page 1379]]

Rule requires audited financial statements to be filed. The supplemental 
report must include the following:
    (1) A copy of the form filed or a schedule of assessment payments 
showing any overpayments applied and overpayments carried forward, 
including payment dates, amounts, and name of SIPC collection agent to 
whom mailed; or
    (2) If exclusion from membership was claimed, a statement that the 
broker or dealer qualified for exclusion from membership under the 
Securities Investor Protection Act of 1970, as amended, and the date the 
Form SIPC-3 was filed with SIPC; and
    (3) An independent public accountant's report. The independent 
public accountant, who must be independent in accordance with the 
provisions of 17 CFR 210.2-01, must be engaged to perform the following 
agreed-upon procedures in accordance with standards of the Public 
Company Accounting Oversight Board (PCAOB):
    (i) Compare assessment payments made in accordance with the General 
Assessment Payment Form (Form SIPC-6) and applied to the General 
Assessment calculation on the Form SIPC-7 with respective cash 
disbursements record entries;
    (ii) For all or any portion of a fiscal year, compare amounts 
reflected in the audited financial statements required by an SEC rule 
with amounts reported in the Form SIPC-7;
    (iii) Compare adjustments reported in the Form SIPC-7 with 
supporting schedules and working papers supporting the adjustments;
    (iv) Verify the arithmetical accuracy of the calculations reflected 
in the Form SIPC-7 and in the schedules and working papers supporting 
any adjustments; and
    (v) Compare the amount of any overpayment applied with the Form 
SIPC-7 on which it was computed; or
    (vi) If exclusion from membership is claimed, compare the income or 
loss reported in the audited financial statements required by an SEC 
rule with the Form SIPC-3.

[81 FR 14374, Mar. 17, 2016]



PART 301_FORMS, SECURITIES INVESTOR PROTECTION CORPORATION--
Table of Contents



Sec.
301.0-1 Availability of forms.

    Forms for Closeout or Completion of Open Contractual Commitments

301.300a Form 300-A, for summary of buy-ins or sell-outs of all open 
          contractual commitments.
301.300b Form 300-B, for report of all fails to deliver.
301.300c Form 300-C, for report of all fails to receive.

    Authority: Sec.3, 84 Stat. 1636 (15 U.S.C. 78ccc), as amended by 
Sec.3, Pub. L. 95-283, 92 Stat. 249.

    Source: 44 FR 21213, Apr. 9, 1979, unless otherwise noted.
    Note: Pursuant to section 3(e)(2)(D) of the Securities Investor 
Protection Act of 1970 (the ``Act''), the Securities and Exchange 
Commission (``Commission'') shall approve a proposed rule change 
submitted by the Securities Investor Protection Corporation (``SIPC'') 
if the Commission finds the rule change is in the public interest and is 
consistent with the purposes of the Act. Any rule change so approved 
shall be given force and effect as if promulgated by the Commission. The 
forms described in this part have been so approved.



Sec.301.0-1  Availability of forms.

    The forms prescribed for use under the Securities Investor 
Protection Act of 1970, as amended, (the ``Act'') and under part 300 of 
this chapter are identified and described in this part. Copies of these 
forms may be obtained upon request to, as appropriate, the Securities 
Investor Protection Corporation (``SIPC'') at 900 Seventeenth Street, 
NW., Washington, DC 20006, or the trustee appointed in a liquidation 
proceeding under section 5 of the Act.

    Forms for Closeout or Completion of Open Contractual Commitments



Sec.301.300a  Form 300-A, for summary of buy-ins or sell-outs of all 
open contractual commitments.

    This form shall be filed as required by Sec.300.303 of this 
chapter with the trustee in a proceeding under section 5 of the Act by a 
broker-dealer who executed transactions out of which arose

[[Page 1380]]

open contractual commitments, as defined by Sec.300.300(c) of this 
chapter, with the debtor in the proceeding. The form shall be used to 
summarize the buy-ins and sell-outs of those open contractual 
commitments and shall be accompanied by the forms described in 
Sec.Sec.301.300b and 301.300c.

    Editorial Note: For Federal Register citations affecting Form 300-A, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.301.300b  Form 300-B, for report of all fails to deliver.

    This form shall be filed as required by Sec.300.303 of this 
chapter with the trustee in a proceeding under section 5 of the Act by a 
broker-dealer who executed transactions out of which arose open 
contractual commitments, as defined by Sec.300.300(c) of this chapter, 
with the debtor in the proceeding. The form shall be used to report all 
the fails to deliver, as defined by Sec.300.300(b) of this chapter, 
that were open on the filing date, as well as any subsequent closeouts. 
This form shall accompany the form described in Sec.300.300a.

    Editorial Note: For Federal Register citations affecting Form 300-B, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.



Sec.301.300c  Form 300-C, for report of all fails to receive.

    This form shall be filed as required by Sec.300.303 of this 
chapter with the trustee in a proceeding under section 5 of the Act by a 
broker-dealer who executed transactions out of which arose open 
contractual commitments, as defined by Sec.300.300(c) of this chapter, 
with the debtor in the proceeding. The form shall be used to report all 
the fails to receive, as defied by Sec.300.300(a) of this chapter, 
that were open on the filing date, as well as any subsequent closeouts. 
This form shall accompany the form described in Sec.300.300a.

    Editorial Note: For Federal Register citations affecting Form 300-C, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

                        PARTS 302	399 [RESERVED]

[[Page 1381]]



                 CHAPTER IV--DEPARTMENT OF THE TREASURY




  --------------------------------------------------------------------

 SUBCHAPTER A--REGULATIONS UNDER SECTION 15C OF THE SECURITIES EXCHANGE 
                               ACT OF 1934
Part                                                                Page
400             Rules of general application................        1383
401             Exemptions..................................        1389
402             Financial responsibility....................        1394
403             Protection of customer securities and 
                    balances................................        1418
404             Recordkeeping and preservation of records...        1426
405             Reports and audit...........................        1431
420             Large position reporting....................        1436
449             Forms, Section 15C of the Securities 
                    Exchange Act of 1934....................        1449
 SUBCHAPTER B--REGULATIONS UNDER TITLE II OF THE GOVERNMENT SECURITIES 
                               ACT OF 1986
450             Custodial holdings of government securities 
                    by depository institutions..............        1451
451-499         [Reserved]

[[Page 1383]]



 SUBCHAPTER A_REGULATIONS UNDER SECTION 15C OF THE SECURITIES EXCHANGE 
                               ACT OF 1934





PART 400_RULES OF GENERAL APPLICATION--Table of Contents



Sec.
400.1 Scope of regulations.
400.2 Office responsible for regulations; filing of requests for 
          exemptions, for interpretations, and of other materials.
400.3 Definitions.
400.4 Information concerning associated persons of financial 
          institutions that are government securities brokers or 
          dealers.
400.5 Amendments to application for registration and to notice of status 
          as a government securities broker or dealer.
400.6 Notice of withdrawal from business as a government securities 
          broker or dealer by a financial institution.

    Authority: 15 U.S.C. 78o-5.

    Source: 52 FR 27926, July 24, 1987, unless otherwise noted.



Sec.400.1  Scope of regulations.

    (a) Title I of the Government Securities Act of 1986 (Pub. L. 99-
571, 100 Stat. 3208) amends the Securities Exchange Act of 1934 (48 
Stat. 881-905; 15 U.S.C. chapter 2B) (``Act'') by adding section 15C, 
authorizing the Secretary of the Treasury to promulgate regulations 
concerning the financial responsibility, protection of customer 
securities and balances, recordkeeping and reporting of brokers and 
dealers in government securities. Those regulations constitute 
subchapter A of this chapter. Unless otherwise explicitly provided, all 
regulations in this subchapter apply to all government securities 
brokers or dealers, including registered brokers or dealers and 
financial institutions. Registered brokers or dealers include OTC 
derivatives dealers.
    (b) Section 15C(a)(1)(A) of the Act (15 U.S.C. 78o-5(a)(1)(A)) 
requires all government securities brokers and government securities 
dealers, except those who are brokers or dealers registered pursuant to 
section 15 or section 15B of the Act or financial institutions, to 
register with the Securities and Exchange Commission (``Commission''). 
Regulations concerning registration are at Sec.240.15Ca2-1 et seq. of 
this title. The Commission is responsible for the interpretation of the 
definitions of government securities broker and government securities 
dealer and of the regulations at Sec.240.15Ca2-1 et seq.
    (c) Section 15C(a)(1)(B)(i) of the Act (15 U.S.C. 78o-5(a)(1)(B)(i)) 
requires all government securities brokers or dealers that are also 
registered brokers or dealers to notify the Commission of their status 
as government securities brokers or dealers. Regulations concerning 
notice are at Sec.240.15Ca1-1 of this title.
    (d) Section 15C(a)(1)(B)(i) of the Act also requires all government 
securities brokers or dealers that are financial institutions to notify 
the appropriate regulatory agency, as defined in section 3(a)(34)(G) of 
the Act (15 U.S.C. 78c(a)(34)(G)), of their status as government 
securities brokers or dealers. The form of notice, Form G-FIN, is at 
Sec.449.1 of this chapter. Forms are available from the appropriate 
regulatory agency.
    (e) Section 104 of the Government Securities Act Amendments of 1993 
(Pub. L. 103-202, 107 Stat. 2344) amended Section 15C of the Act (15 
U.S.C. 78o-5) by adding a new subsection (f), authorizing the Secretary 
of the Treasury to adopt rules to require specified persons holding, 
maintaining or controlling a large position in to-be-issued or recently-
issued Treasury securities to report such a position and make and keep 
records related to such a position. Part 420 of this subchapter contains 
the rules governing large position reporting.

[52 FR 27926, July 24, 1987, as amended at 61 FR 48348, Sept. 12, 1996; 
71 FR 54410, Sept. 15, 2006]



Sec.400.2  Office responsible for regulations; filing of requests 
for exemptions, for interpretations and of other materials.

    (a) Office responsible. The regulations in this chapter are 
promulgated by the Assistant Secretary (Domestic Finance) pursuant to a 
delegation of authority from the Secretary of the

[[Page 1384]]

Treasury. The office responsible for implementing the regulations, 
including interpretations and action on requests for exemption, 
classification, or modification, is the Office of the Commissioner, 
Bureau of the Fiscal Service.
    (b)(1) Exemptions and classifications. Section 15C(a)(4) of the Act 
(15 U.S.C. 78o-5(a)(4)) authorizes the Secretary to exempt any 
government securities broker or dealer or class thereof, conditionally 
or unconditionally, from the requirements of registration or regulations 
promulgated under section 15C. In addition, section 15C(b)(3) of the Act 
(15 U.S.C. 78o-5(b)(3)) provides for classification, by the Secretary, 
of government securities brokers or dealers and authorizes the whole or 
partial exemption of classes from rules under section 15C or the 
application of different standards to different classes.
    (2) Interpretations. Although the appropriate regulatory agencies, 
as defined in Sec.400.3, and the self-regulatory organizations, as 
defined in section 3(a)(26) of the Act (15 U.S.C. 78c(a)(26)), have 
enforcement responsibility under section 15C of the Act, Treasury is 
responsible for interpretation of section 15C(b) of the Act (15 U.S.C. 
78o-5(b)) and related sections and for interpretation and amendment of 
the regulations under this chapter (with the exception of Forms G-FIN 
and G-FINW, Sec.Sec.449.1 and 449.2 of this chapter, which are the 
responsibility of the Board of Governors of the Federal Reserve System 
[``Board'']).
    (c) Requests for interpretations, exemptions, classifications. (1) 
Interpretations under this chapter may be provided, at the discretion of 
the Department, to firms or individuals actually or potentially affected 
by the Act or regulations, or to their representatives.
    (2) Exemptions and classifications under sections 15C (a), (b) and 
(d) of the Act (15 U.S.C. 78o-5 (a), (b), and (d)) and related sections 
and Treasury regulations thereunder may be provided at the discretion of 
the Department and after consultation with the SEC and the Board, to 
firms or individuals actually or potentially affected by the Act or 
regulations, or to their representatives.
    (3) All requests for exemptions and classifications, and all 
requests for binding interpretations, shall be in writing, and shall 
conform to the following procedures.
    (i) The names of the company or companies and all other persons 
involved shall be stated. Letters pertaining to unnamed companies or 
persons or hypothetical situations will not be answered.
    (ii) The letter must contain a concise but complete statement of all 
material facts, a complete and accurate description of the entire 
transaction if the request is transactional (even though a request may 
apply to only a portion of a transaction), and a concise and unambiguous 
statement of the request, including precise statutory and regulatory 
citations.
    (iii) The letter shall indicate why the writer believes a problem 
exists or interpretation is needed, the writer's opinion on the matter, 
and the basis for such opinion.
    (iv) In addition to requests for confidential treatment under 
paragraph (c)(7)(ii) of this section, a person may request confidential 
treatment of information that is submitted as part of, or in support of, 
a request for interpretation, exemption, or classification. A separate 
request for confidential treatment and the basis for such request shall 
be submitted at the time the information for which confidential 
treatment is requested is submitted. The request for confidential 
treatment must specifically identify the information for which such 
confidential treatment is requested. To the extent practicable, the 
information should be segregated from information for which confidential 
treatment is not requested and should be clearly marked as confidential.
    (v) Information designated as confidential in accordance with 
paragraph (c)(3)(iv) of this section shall not be disclosed to a person 
requesting such information other than in accordance with the procedures 
outlined in the Department's regulations published at 31 CFR 1.6.
    (vi) An original and two copies of each request letter shall be 
submitted to the Office of the Commissioner, Government Securities 
Regulations Staff, Bureau of the Fiscal Service, 5th Floor, 401 14th 
Street SW., Washington, DC

[[Page 1385]]

20227. The envelope shall be marked ``Government Securities Act 
Request.'' The letter shall indicate in the upper right hand corner of 
the first page the particular sections of the Act and of the regulations 
at issue.
    (4) A written response by the Department to a request filed as 
stated in paragraph (c)(3) of this section shall be binding, with 
respect to the requester, on the Department, but shall cease to be 
binding if the facts are not as stated in the request or, prospectively, 
if the Department issues a superseding interpretation. In responding to 
such a request, the Department will, where appropriate, consult with and 
may obtain the formal concurrence of the appropriate regulatory agencies 
or their staffs. The Department understands that even if formal 
concurrence is not received the appropriate regulatory agencies and 
self-regulatory organizations will give appropriate deference to binding 
interpretations of the Department. The Department also expects the SEC 
staff to reflect such interpretations in responding, pursuant to the 
established procedures of the Commission, to no-action requests 
concerning rules the SEC enforces.
    (5) The Department may decline to issue an interpretation for any 
reason and, in particular, may require that a requester make inquiry of 
its appropriate regulatory agency, the Commission or designated 
examining authority before the Department responds to a request.
    (6) The Department will also provide informal oral and written 
advice, but such advice is not binding on the Department or on any other 
agency or organization.
    (7)(i) Except as provided in paragraphs (c)(3)(iv) and (c)(7)(ii) of 
this section, every letter or other written communication requesting the 
Department to provide interpretive legal advice under the Act or to 
grant, deny or modify an exemption, classification or modification of 
the regulations, together with any written response thereto, shall be 
made available for inspection and copying as soon as practicable after 
the response has been sent or given to the person requesting it. These 
documents will be made available at the following location: Treasury 
Department Library, 1500 Pennsylvania Avenue NW., Annex, Room 1020, 
Washington, DC 20220.
    (ii) Any person submitting a letter or communication may also 
simultaneously submit a request that the letter or communication and the 
Department's response be accorded confidential treatment for a specified 
period of time not to exceed 120 days from the date the response has 
been made or given to such person. The request shall state the basis 
upon which the request for confidential treatment has been made. If the 
Department determines that the request for confidential treatment should 
be denied, the requester will be given 30 days to withdraw either the 
request for confidential treatment or the letter or communication 
requesting an interpretation, classification, or exemption.
    (d) Effect of Commission interpretations. Interpretations of the 
Commission and its staff (including no-action positions) and of the 
designated examining authorities, of any Commission regulation expressly 
adopted by reference in these regulations shall be of the same effect as 
if the regulation being interpreted were solely the Commission's 
regulation. However, in the event the Treasury has issued a formal 
interpretation on the subject, the Treasury understands that the 
Commission will give that interpretation appropriate deference, 
particularly with respect to both subsequent no-action positions and the 
continued validity of prior no-action positions.

[52 FR 27926, July 24, 1987, as amended at 53 FR 28984, Aug. 1, 1988; 72 
FR 54410, Sept. 15, 2006; 79 FR 38454, July 8, 2014]



Sec.400.3  Definitions.

    Unless otherwise explicitly provided, in this subchapter and for the 
purposes of these regulations:
    Act means the Securities Exchange Act of 1934 (48 Stat. 881, 15 
U.S.C. chapter 2B, as amended);
    Appropriate regulatory agency has the meaning set out in section 
3(a)(34)(G) of the Act (15 U.S.C. 78c(a)(34)(G)), and, with respect to a 
financial institution for which an appropriate regulatory agency is not 
explicitly designated, the appropriate regulatory agency is the SEC;

[[Page 1386]]

    Associated person means a person other than a person whose functions 
are solely clerical or ministerial:
    (1) Directly engaged in any of the following activities in either a 
supervisory or non-supervisory capacity:
    (i) Underwriting, trading or sales of government securities;
    (ii) Financial advisory or consultant services for issuers in 
connection with the issuance of government securities;
    (iii) Research or investment advice, other than general economic 
information or advice, with respect to government securities in 
connection with the activities described in paragraphs (c)(1)(i) and 
(c)(1)(ii) of this section;
    (iv) Activities other than those specifically mentioned which 
involve communication, directly or indirectly, with public investors in 
government securities in connection with the activities described in 
paragraphs (c)(1)(i) and (c)(1)(ii) of this section; or
    (2) Directly engaged in the following activities in a supervisory 
capacity:
    (i) Processing and clearance activities with respect to government 
securities;
    (ii) Maintenance of records involving any of the activities 
described in paragraph (c)(1) of this section;

                           Provided, however,

    (3) That in the case of a financial institution,
    (i) Persons whose government securities functions: (A) Consist 
solely of carrying out the financial institution's activities in a 
fiduciary capacity and (B) are subject to examination by the appropriate 
regulatory agency for compliance with requirements applicable to 
activities by the financial institution in a fiduciary capacity, shall 
not be considered ``associated persons'';
    (ii) Persons whose sole government securities activities are, 
without exercising any investment discretion and solely at the direction 
of customers, to receive and/or transmit customer orders to purchase or 
sell government securities, but who do not give investment advice or 
receive transaction-based compensation shall not be considered 
``associated persons''; and
    (iii) Directors and senior officers of the financial institution who 
may from time to time set broad policy guidelines affecting the 
financial institution as a whole that are not directly related to the 
conduct of the financial institution's government securities business 
are not considered to be ``directly engaged'' in the activities 
described in this paragraph (c);
    Board means the Board of Governors of the Federal Reserve System;
    Branch or agency of a foreign bank means a Federal branch or Federal 
agency of a foreign bank or a State branch or State agency of a foreign 
bank as such terms are used in the International Banking Act of 1978, 
Pub. L. 95-369, 92 Stat. 607;
    CFTC means the Commodity Futures Trading Commission;
    Commission or SEC means the Securities and Exchange Commission;
    Designated examining authority and Examining Authority mean (1) in 
the case of a registered government securities broker or dealer that 
belongs to only one self-regulatory organization, such self-regulatory 
organization, and (2) in the case of a registered government securities 
broker or dealer that belongs to more than one self-regulatory 
organization, the self-regulatory organization designated by the 
Commission pursuant to section 17(d) of the Act (15 U.S.C. 78q(d)) as 
the entity with responsibility for examining such registered government 
securities broker or dealer;
    Fiduciary capacity includes trustee, executor, administrator, 
registrar, transfer agent, guardian, assignee, receiver, managing agent, 
and any other similar capacity involving the sole or shared exercise of 
discretion by a financial institution having fiduciary powers that is 
supervised by a Federal or state financial institution regulatory 
agency;
    Financial institution has the meaning set out in section 3(a)(46) of 
the Act (15 U.S.C. 78c(a)(46)), and such term explicitly does not 
include a subsidiary or affiliate of an institution described in such 
section unless such subsidiary or affiliate is itself described in such 
section;
    Government securities broker has the meaning set out in section 
3(a)(43) of the Act (15 U.S.C. 78c(a)(43)), and explicitly includes not 
only registered government securities brokers, but

[[Page 1387]]

also registered brokers and financial institutions;
    Government securities dealer has the meaning set out in section 
3(a)(44) of the Act (15 U.S.C. 78c(a)(44)), and explicitly includes not 
only registered government securities dealers, but also registered 
dealers and financial institutions;
    Government securities has the meaning set out in section 3(a)(42) of 
the Act (15 U.S.C. 78c(a)(42));
    OTC derivatives dealer has the same meaning set out in 17 CFR 
240.3b-12.
    Registered broker or dealer means a broker or dealer registered 
pursuant to section 15 or section 15B of the Act (15 U.S.C. 78o, 78o-4)) 
but does not include a municipal securities dealer that is a bank or a 
separately identifiable department or division of a bank;
    Registered government securities broker or dealer means a government 
securities broker or dealer registered pursuant to section 15C(a)(1)(A) 
of the Act (15 U.S.C. 78o-5(a)(1)(A));
    Secretary means the Secretary of the Treasury; and
    Treasury or Department means the Department of the Treasury, 
including in particular the Bureau of the Fiscal Service.

[52 FR 27926, July 24, 1987, as amended at 55 FR 6604, Feb. 26, 1990; 71 
FR 54410, Sept. 15, 2006; 79 FR 38455, July 8, 2014]



Sec.400.4  Information concerning associated persons of financial 
institutions that are government securities brokers or dealers.

    (a) Every associated person of a financial institution that is a 
government securities broker or dealer that is not exempt pursuant to 
Part 401 of this chapter shall file with such financial institution a 
completed Form G-FIN-4 (Sec.449.4 of this chapter) unless such person 
has on file with such financial institution a completed and current Form 
U-4 (promulgated by a self-regulatory organization) or Form MSD-4 (as 
required for associated persons of bank municipal securities dealers).
    (b) To the extent any information furnished by an associated person 
pursuant to paragraph (a) of this section (including information on a 
Form U-4 or Form MSD-4) is or becomes materially inaccurate or 
incomplete, such associated person shall promptly furnish in writing to 
such financial institution, in a form acceptable to the appropriate 
regulatory agency for such financial institution, a statement correcting 
such information.
    (c) For the purpose of verifying the information furnished by an 
associated person pursuant to paragraph (a) of this rule, every 
government securities broker or dealer that is a financial institution 
shall make inquiry of all other employers of such associated person 
during the immediately preceding three years concerning the accuracy and 
completeness of such information.
    (d) Every government securities broker or dealer that is a financial 
institution not exempt from this section pursuant to Part 401 of this 
chapter shall:
    (1) Promptly obtain and, within 10 days thereafter, file with the 
appropriate regulatory agency, in a form acceptable to such appropriate 
regulatory agency, the information required by paragraph (a) of this 
section (which shall consist of all Forms G-FIN-4 filed and a list of 
all associated persons who have filed Forms MSD-4 or U-4 with the 
financial institution since the last such filing, designating whether 
the associated person is serving in a supervisory or non-supervisory 
capacity) and by paragraph (b) of this section; and
    (2) File with the appropriate regulatory agency within 30 days after 
the termination of the status of an individual as an associated person a 
Form G-FIN-5 (Sec.449.4 of this chapter), unless--
    (i) The financial institution is required to and has filed a Form U-
5 or Form MSD-5 with respect to such person; or
    (ii) The financial institution notifies the appropriate regulatory 
agency that the individual will remain in the financial institution's 
employment and the financial institution will continue to update the 
information about such individual as provided in paragraph (b) of this 
section and will file a Form G-FIN-5 within 30 days after the 
termination of such individual's employment with the financial 
institution.
    (e) Every notice and form filed pursuant to this section shall 
constitute a

[[Page 1388]]

``report'' within the meaning of sections 15, 15C and 32(a) of the Act 
(15 U.S.C. 78o, 78o-5, 78ff(a)).

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27926, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995]



Sec.400.5  Amendments to application for registration and to notice
of status as a government securities broker or dealer.

    (a)(1) If the information contained in any application for 
registration as a government securities broker or dealer (other than the 
statements required by Sec.240.15Ca2-2 of this title) or in any 
amendment thereto, becomes inaccurate for any reason, the registered 
government securities broker or dealer shall file within 30 days 
thereafter an amendment on Form BD (Sec.249.501 of this title) 
correcting such information, in accordance with the instructions 
provided therein.
    (2) If the information contained in any notice of status as a 
government securities broker or dealer filed by a registered broker or 
dealer, or in any amendment thereto, becomes inaccurate for any reason, 
the registered broker or dealer shall file within 30 days an amendment 
on Form BD (Sec.249.501 of this title) correcting such information, in 
accordance with the instructions provided therein.
    (b) If the information contained in any notice of status as a 
government securities broker or dealer filed by a financial institution, 
or any amendment thereto, becomes inaccurate for any reason, the 
financial institution shall file within 30 days an amendment on Form G-
FIN (Sec.449.1 of this chapter) correcting such information, in 
accordance with the instructions provided therein.
    (c) Every amendment filed pursuant to this section shall constitute 
a ``report'' within the meaning of sections 15, 15C and 32(a) of the Act 
(15 U.S.C. 78o, 78o-5, 78ff(a)).

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27926, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995]



Sec.400.6  Notice of withdrawal from business as a government 
securities broker or dealer by a financial institution.

    (a) Whenever a financial institution that is a government securities 
broker or dealer that is not exempt from the notice requirements of 
section 15C(a)(1)(B)(i) of the Act (15 U.S.C. 78o-5(a)(1)(B)(i)) and of 
Sec.400.5 pursuant to part 401 of this chapter, ceases to act as a 
government securities broker or dealer, it shall file with the 
appropriate regulatory agency notice of such cessation on Form G-FINW 
(Sec.449.2 of this chapter) in accordance with the instructions 
contained therein.
    (b) Except as provided in paragraph (c) of this section, a notice 
that a financial institution has ceased to act as a government 
securities broker or dealer shall become effective for all purposes on 
the 60th day after the filing thereof with the appropriate regulatory 
agency or within such shorter period of time as the appropriate 
regulatory agency determines.
    (c) If the notice described in paragraph (a) of this section is 
filed with the appropriate regulatory agency any time after the date of 
the issuance of a notice or order by the appropriate regulatory agency 
instituting proceedings pursuant to section 15C(c)(2)(A) of the Act (15 
U.S.C. 78o-5(c)(2)(A)) to censure, suspend, limit, or bar from acting as 
a government securities broker or government securities dealer the 
entity filing such notice, or if the appropriate regulatory agency has 
instituted any action against the entity filing such notice pursuant to 
section 15C(2)(B) of the Act (15 U.S.C. Sec.78o-5(c)(2)(B)), the 
notice shall become effective pursuant to paragraph (b) of this section 
at such time and upon such terms and conditions as the appropriate 
regulatory agency deems necessary or appropriate in the public interest 
for the protection of investors.
    (d) Every notice filed pursuant to this section shall constitute a 
``report'' within the meaning of sections 15, 15C and 32(a) of the Act 
(15 U.S.C. 78o, 78o-5, 78ff(a)).

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27926, July 24, 1987, as amended at 60 FR 18734, Apr. 13, 1995]

[[Page 1389]]



PART 401_EXEMPTIONS--Table of Contents



Sec.
401.1 Exemption for organizations handling transactions in United States 
          Savings Bonds.
401.2 Exemtion for depository institutions that submit tenders for the 
          account of customers for purchase on original issue of United 
          States Treasury securities.
401.3 Exemption for financial institutions that are engaged in limited 
          government securities brokerage activities.
401.4 Exemption for financial institutions engaged in limited government 
          securities dealer activities.
401.5 Exemption for corporate credit unions transacting limited 
          government securities business with other credit unions.
401.6 Exemption for branches and agencies of foreign banks that deal 
          solely with non-United States citizens resident offshore.
401.7 Exemption for certain foreign government securities brokers or 
          dealers.

    Authority: Sec.101, Pub. L. 99-571, 100 Stat. 3209 (15 U.S.C. 78o-
5(a)(4)).

    Source: 52 FR 27930, July 24, 1987, unless otherwise noted.



Sec.401.1  Exemption for organizations handling transactions in
United States Savings Bonds.

    An organization that handles United States Savings Bond 
transactions, including a qualified issuing or paying agent or an 
organization that accommodates customers or employees by forwarding 
requested transactions to qualified issuing or paying agents or the 
Treasury and whose transactions in government securities are limited to 
these transactions and such other activities that are exempted by the 
regulations under this subchapter, shall be exempt from the provisions 
of section 15C (a), (b) and (d) of the Act (15 U.S.C. 78o-5 (a), (b), 
(d)) and the regulations of this subchapter. For the purposes of this 
section, the term ``United States Savings Bond'' means any savings-type 
security offered by the Treasury, including all series of United States 
Savings Bonds, United States Savings Notes and United States Savings 
Stamps.



Sec.401.2  Exemption for depository institutions that submit tenders
for the account of customers for purchase on original issue of 
United States Treasury securities.
          

    (a) Subject to the requirements of paragraph (b) of this section, a 
depository institution that submits tenders or subscriptions for 
purchase on original issue of United States Treasury securities for the 
account of customers on a fully disclosed basis, whose transactions in 
government securities are limited to such transactions and such other 
activities as have been exempted by regulation under this subchapter 
shall be exempt from the provisions of section 15C (a), (b) and (d) of 
the Act (15 U.S.C. 78o-5 (a), (b), (d)) and the regulations of this 
subchapter.
    (b) A depository institution that relies on the exemption contained 
in paragraph (a) of this section is required to comply with the 
regulations of part 450 of this chapter concerning custodial holdings of 
government securities.
    (c) For the purposes of this section, ``depository institution'' has 
the meaning stated in clauses (i) through (vi) of section 19(b)(1)(A) of 
the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)-(vi)) and also 
includes a foreign bank, an agency or branch of a foreign bank and a 
commercial lending company owned or controlled by a foreign bank (as 
such terms are used in the International Banking Act of 1978, Pub. L. 
95-369, 92 Stat. 607).



Sec.401.3  Exemption for financial institutions that are engaged 
in limited government securities brokerage activities.

    (a)(1) Subject to the requirements of paragraph (b) of this section, 
a financial institution shall be exempt from the provisions of sections 
15C (a), (b), and (d) of the Act (15 U.S.C. 78o-5 (a), (b), (d)) and the 
regulations of this subchapter, unless it acts as a government 
securities broker by:
    (i) Holding itself out as a government securities broker or 
interdealer broker; or
    (ii) Actively soliciting purchases or sales of government securities 
on an agency basis;

[[Page 1390]]

    (2) Notwithstanding the provisions of paragraph (a)(1) of this 
section, a financial institution shall not be regarded as acting as a 
government securities broker within the meaning of this section if it:
    (i) Effects fewer than 500 government securities brokerage 
transactions (other than transactions described in Sec.Sec.401.1 or 
401.2) per year; or
    (ii) Effects all such transactions (other than transactions 
described in Sec.Sec.401.1 or 401.2) pursuant to a contractual or 
other arrangement with one or more government securities brokers or 
dealers each of which has registered or filed notice pursuant to section 
15C(a)(1) of the Act (15 U.S.C. 78o-5(a)(1)) (each referred to as the 
``transacting government securities broker or dealer'') under which the 
transacting government securities broker or dealer will offer securities 
services on or off the premises of the financial institution, provided 
that:
    (A) The transacting government securities broker or dealer is 
clearly identified to customers as the person performing the securities 
services;
    (B) Financial institution employees perform only clerical and 
ministerial or order-taking functions in connection with government 
securities transactions unless such employees are associated persons (as 
defined in Sec.400.3 of this chapter) or registered representatives of 
the transacting government securities broker or dealer;
    (C) Financial institution employees do not receive compensation for 
government securities activities other than clerical or ministerial 
functions unless such employees are associated persons (as defined in 
Sec.400.3 of this chapter) or registered representatives of the 
transacting government securities broker or dealer; and
    (D) Such services are provided on a fully disclosed basis by the 
transacting government securities broker or dealer, i.e., the 
transacting government securities broker or dealer receives and 
maintains all required information concerning each customer, its trading 
and account.
    (b)(1) A financial institution that relies on the exemption 
contained in paragraph (a) of this section is required to comply with 
the regulations of part 450 of this chapter concerning custodial 
holdings of government securities for customers.
    (2) A branch or agency of a foreign bank that relies on the 
exemption contained in paragraph (a) of this section is in addition 
required to comply with Sec.403.5(e) of this chapter.
    (c) For the purposes of this section ``financial institution'' 
includes an insured credit union, as defined in 12 U.S.C. 1752(7).

[52 FR 27930, July 24, 1987, as amended at 71 FR 54411, Sept. 15, 2006]



Sec.401.4  Exemption for financial institutions engaged in limited 
government securities dealer activities.

    (a) Subject to the requirements of paragraph (b) of this section, a 
financial institution shall be exempt from the provisions of sections 
15C (a), (b), and (d) of the Act (15 U.S.C. 78o-5 (a), (b), (d)) and the 
regulations of this subchapter if its government securities dealer 
activities are limited to one or more of the following activities:
    (1) Sales or purchases in a fiduciary capacity;
    (2) The sale and subsequent repurchase and the purchase and 
subsequent resale of government securities pursuant to a repurchase or 
reverse repurchase agreement; and
    (3) Such other activities as have been exempted by regulation under 
this subchapter.
    (b)(1) A financial institution that relies on the exemption 
contained in paragraph (a) of this section is required to comply with:
    (i) The regulations of part 450 of this chapter concerning custodial 
holdings of government securities for customers; and
    (ii) Section 403.5(d) of this chapter concerning certain repurchase 
transactions with customers.
    (2) A branch or agency of a foreign bank that relies on the 
exemption contained in paragraph (a) of this section is in addition 
required to comply with Sec.403.5(e) of this chapter.
    (c) For the purposes of this section ``financial institution'' 
includes an insured credit union, as defined in 12 U.S.C. 1752(7).

[[Page 1391]]



Sec.401.5  Exemption for corporate credit unions transacting limited
government securities business with other credit unions.

    (a)(1) Subject to the requirements of paragraph (b) of this section, 
a corporate credit union shall be exempt from the provisions of section 
15C (a), (b) and (d) of the Act (15 U.S.C. 78o-5 (a), (b), (d)) and the 
regulations thereunder if its government securities dealer activities 
are limited to the sale and subsequent repurchase and the purchase and 
subsequent resale, each pursuant to a repurchase or reverse repurchase 
agreement, of government securities to other credit unions and such 
other activities as have been exempted by regulation under this part.
    (2) For the purposes of this section, ``corporate credit union'' 
means a credit union whose membership consists primarily of other credit 
unions and that is (i) a Federal credit union as defined in 12 U.S.C. 
1752(1), (ii) an insured credit union as defined in 12 U.S.C. 1752(7), 
or (iii) a member of the National Credit Union Administration Central 
Liquidity Facility.
    (b) A credit union that relies on the exemption contained in 
paragraph (a) of this section is required to comply with:
    (1) The regulations of part 450 of this chapter concerning custodial 
holdings of government securities; and
    (2) Section 403.5(d) concerning certain repurchase transactions with 
customers.



Sec.401.6  Exemption for branches and agencies of foreign banks that
deal solely with non-United States citizens resident offshore.

    (a) Subject to the requirements of paragraph (b) of this section, a 
branch or agency of a foreign bank shall be exempt from the provisions 
of section 15C (a), (b), and (d) of the Act (15 U.S.C. 78o-5 (a), (b), 
(d)) and the regulations of this subchapter, if all the customers with 
or on behalf of whom it engages in government securities transactions 
are limited to foreign governments, agencies of foreign governments and 
other persons and entities who are not citizens of the United States and 
who reside or, in the case of a corporation, partnership or other 
entity, have their principal place of business, outside of the United 
States.
    (b) A branch or agency that relies on the exemption contained in 
paragraph (a) of this section is required to comply with the regulations 
of part 450 of this chapter concerning custodial holdings of government 
securities.



Sec.401.7  Exemption for certain foreign government securities brokers
or dealers.

    A government securities broker or dealer (excluding a branch or 
agency of a foreign bank) that is a non-U.S. resident shall be exempt 
from the provisions of sections 15C(a), (b), and (d) of the Act (15 
U.S.C. 78o-5(a), (b) and (d)) and the regulations of this subchapter 
provided it complies with the provisions of 17 CFR 240.15a-6 (SEC Rule 
15a-6) as modified in this section.
    (a) For purposes of this section, non-U.S. resident means any person 
(including any U.S. person) engaged in business as a government 
securities broker or dealer entirely outside the U.S. that is not an 
office or branch of, or a natural person associated with, a registered 
broker or dealer, a registered government securities broker or dealer or 
a financial institution that has provided notice pursuant to Sec.
400.1(d) of this chapter.
    (b) Within Sec.240.15a-6 of this title, references to ``security'' 
and ``securities'' shall mean ``government securities'' as defined in 
Sec.400.3 of this chapter.
    (c) Section 240.15a-6(a) of this title is modified to read as 
follows:
    ``(a) A foreign broker or dealer shall be exempt from the 
registration or notice requirements of section 15C(a)(1) of the Act to 
the extent that the foreign broker or dealer:''
    (d) Paragraph 240.15a-6(a)(2)(iii) of this title is modified to read 
as follows:
    ``(iii) If the foreign broker or dealer has established a 
relationship with a registered broker or dealer for the purpose of 
compliance with paragraph (a)(3) of this rule, this relationship is 
disclosed in all research reports and all transactions with the foreign 
broker or dealer in securities discussed in the research reports are 
effected only through that registered broker or dealer, pursuant to the 
provisions of paragraph (a)(3); and''

[[Page 1392]]

    (e) Paragraph 240.15a-6(a)(3)(i)(B) of this title is modified to 
read as follows:
    ``(B) Provides its appropriate regulatory agency (upon request or 
pursuant to agreements reached between any foreign securities authority, 
including any foreign government as specified in section 3(a)(50) of the 
Act, and the Commission or the U.S. Government) with any information, 
documents, or records within the possession, custody, or control of the 
foreign broker or dealer, any testimony of foreign associated persons, 
and any assistance in taking the evidence of other persons, wherever 
located, that the appropriate regulatory agency requests and that 
relates to transactions under paragraph (a)(3) of this rule, except that 
if, after the foreign broker or dealer has exercised its best efforts to 
provide this information, including requesting the appropriate 
governmental body and, if legally necessary, its customers (with respect 
to customer information) to permit the foreign broker or dealer to 
provide this information to its appropriate regulatory agency, the 
foreign broker or dealer is prohibited from providing this information 
by applicable foreign law or regulations, then this paragraph 
(a)(3)(i)(B) shall not apply and the foreign broker or dealer will be 
subject to paragraph (c) of this rule;''
    (f) Paragraphs 240.15a-6(a)(3)(iii)(A) (4), (5) and (6) of this 
title are modified to read as follows:
    ``(4) Maintaining required books and records relating to the 
transactions, including those required by Sec.404.1 of this title for 
registered brokers and dealers (excluding registered government 
securities brokers and dealers and noticed financial institutions), 
Sec.Sec.404.2 and 404.3 of this title for registered government 
securities brokers or dealers, and Sec.404.4 of this title for noticed 
financial institutions;
    ``(5) Complying with part 402 of this title with respect to the 
transactions; and
    ``(6) Receiving, delivering, and safeguarding funds and securities 
in connection with the transactions on behalf of the U.S. institutional 
investor or the major U.S. institutional investor in compliance with 
Sec.403.1 of this title for registered brokers and dealers (excluding 
registered government securities brokers and dealers and noticed 
financial institutions); Sec.Sec.403.2, 403.3, 403.4 and 403.6 of 
this title for registered government securities brokers and dealers, and 
Sec.403.5 of this title for noticed financial institutions.''
    (g) Paragraph 240.15a-6(a)(3)(iii)(C) of this title is modified to 
read as follows:
    ``(C) Has obtained from the foreign broker or dealer, with respect 
to each foreign associated person, the types of information specified in 
Rule 17a-3(a)(12) under the Act (17 CFR 240.17a-3(a)(12)), provided that 
the information required by paragraph (a)(12)(d) of that Rule shall 
include sanctions imposed by foreign securities authorities, exchanges, 
or associations, including, without limitation, those described in 
paragraph (a)(3)(ii)(B) of this rule. Notwithstanding the above, a 
registered broker or dealer that is a noticed financial institution 
shall comply with the provisions of paragraphs 404.4(a)(3)(i) (B) and 
(C) of this title, in lieu of Rule 17a-3(a)(12), provided that the 
information required by paragraphs 404.4(a)(3)(i) (B) and (C) of this 
title shall include sanctions imposed by foreign securities authorities, 
exchanges, or associations, including, without limitation, those 
described in (a)(3)(ii)(B) of this rule;''
    (h) Paragraph 240.15a-6(a)(3)(iii)(D) of this title is modified to 
read as follows:
    ``(D) Has obtained from the foreign broker or dealer and each 
foreign associated person written consent to service of process for any 
civil action brought by or proceeding before its appropriate regulatory 
agency or a self-regulatory organization (as defined in section 3(a)(26) 
of the Act), providing that process may be served on them by service on 
the registered broker or dealer in the manner set forth on the 
registered broker's or dealer's current Form BD or other appropriate 
procedure as specified by the appropriate regulatory agency; and''
    (i) Paragraph 240.15a-6(a)(3)(iii)(E) of this title is modified to 
read as follows:
    ``(E) Maintains a written record of the information and consents 
required by paragraphs (a)(3)(iii) (C) and (D) of this rule, and all 
records in connection with trading activities of the U.S. institutional 
investor or the major U.S. institutional investor involving the

[[Page 1393]]

foreign broker or dealer conducted under paragraph (a)(3) of this rule, 
in an office of the registered broker or dealer located in the United 
States (with respect to nonresident registered brokers or dealers, 
pursuant to Rule 17a-7(a) under the Act (17 CFR 240.17a-7(a)), provided 
that in Rule 17a-7(a) references to broker or dealer shall include 
government securities brokers or dealers, as those terms are defined in 
Sec.Sec.400.3 of this title), and makes these records available to 
the appropriate regulatory agency upon request; or''
    (j) Paragraph 240.15a-6(a)(4)(i) of this title is modified to read 
as follows:
    ``(i) A registered broker or dealer, whether the registered broker 
or dealer is acting as principal for its own account or as agent for 
others, or a financial institution acting pursuant to Sec.Sec.
401.3(a)(2)(ii) or 401.4(a)(1) of this title;''
    (k) Paragraph 240.15a-6(b)(2) of this title is modified to read as 
follows:
    ``(2) The term foreign associated person shall mean any natural 
person domiciled outside the United States who is an associated person 
(a person associated with a government securities broker or a government 
securities dealer as defined in section 3(a)(45) of the Act) of the 
foreign broker or dealer and who participates in the solicitation of a 
U.S. institutional investor or a major U.S. institutional investor under 
paragraph (a)(3) of this rule.''
    (l) Paragraph 240.15a-6(b)(3) of this title is modified to read as 
follows:
    ``(3) The term ``foreign broker or dealer'' shall mean any non-U.S. 
resident person (including any U.S. person engaged in business as a 
broker or dealer entirely outside the United States, except as otherwise 
permitted by this rule) that is not an office or branch of, or a natural 
person associated with, a registered broker or dealer, whose securities 
activities, if conducted in the United States, would be described by the 
definition of ``government securities broker'' or ``government 
securities dealer'' in sections 3(a)(43) and 3(a)(44) of the Act.''
    (m) Paragraph 240.15a-6(b)(5) of this title is modified to read as 
follows:
    ``(5) Only for the purposes of this rule, the term ``registered 
broker or dealer'' shall mean a person that is registered with the 
Commission under section 15C(a)(2) of the Act or a broker or dealer or a 
financial institution who has provided notice to its appropriate 
regulatory agency under section 15C(a)(1)(B)(ii) of the Act.''
    (n) For the purposes of this section, Sec.240.15a-6(b) of this 
title shall include a new paragraph (8) to read as follows:
    ``(8) The term registered government securities broker or dealer has 
the meaning set out in Sec.400.3 of this title.''
    (o) For the purposes of this section, 240.15a-6(b) of this title 
shall include a new paragraph (9) to read as follows:
    ``(9) The term noticed financial institution means a financial 
institution as defined at Sec.400.3 of this title that has provided 
notice to its appropriate regulatory agency pursuant to Sec.400.1(d) 
of this title.''
    (p) For the purposes of this section, Sec.240.15a-6(b) of this 
title shall include a new paragraph (10) to read as follows:
    ``(10) The term appropriate regulatory agency has the meaning set 
out in Sec.400.3 of this title.''
    (q) Section 240.15a-6(c) of this title is modified to read as 
follows:
    ``(c) The Secretary of the Treasury, upon receiving notification 
from an appropriate regulatory agency that the laws or regulations of a 
foreign country have prohibited a foreign broker or dealer, or a class 
of foreign brokers or dealers, engaging in activities exempted by 
paragraph (a)(3) of this rule, from providing, in response to a request 
from an appropriate regulatory agency, information, documents, or 
records within its possession, custody, or control, testimony of foreign 
associated persons, or assistance in taking the evidence of other 
persons, wherever located, related to activities exempted by paragraph 
(a)(3) of this rule, may consider to be no longer applicable the 
exemption provided in paragraph (a)(3) of this rule with respect to the 
subsequent activities of the foreign broker or dealer or class of 
foreign brokers or dealers if the Secretary finds that continuation of 
the exemption is inconsistent with the public interest, the

[[Page 1394]]

protection of investors and the purposes of the Government Securities 
Act.''

(Approved by the Office of Management and Budget under control number 
1535-0089)

[55 FR 27462, July 3, 1990; 55 FR 29293, July 18, 1990, as amended at 60 
FR 11026, Mar. 1, 1995; 71 FR 54411, Sept. 15, 2006. Redesignated at 79 
FR 38455, July 8, 2014]



PART 402_FINANCIAL RESPONSIBILITY--Table of Contents



Sec.
402.1 Application of part to registered brokers and dealers and 
          financial institutions; special rules for futures commission 
          merchants and government securities interdealer brokers; 
          effective date.
402.2 Capital requirements for registered government securities brokers 
          and dealers.
402.2a Appendix A--Calculation of market risk haircut for purposes of 
          Sec.402.2(g)(2).
402.2b [Reserved]
402.2c Appendix C--Consolidated computations of liquid capital and total 
          haircuts for certain subsidiaries and affiliates.
402.2d Appendix D--Modification of Sec.240.15c3-1d of this title, 
          relating to satisfactory subordination agreements, for 
          purposes of Sec.402.2.

    Authority: 15 U.S.C. 78o-5(b)(1)(A), (b)(4), Pub. L. 111-203, 124 
Stat. 1376.

    Source: 52 FR 27931, July 24, 1987, unless otherwise noted.



Sec.402.1  Application of part to registered brokers and dealers
and financial institutions; special rules for futures commission
merchants and government securities interdealer brokers; effective
date.
          

    (a) Application of part. This part applies to all government 
securities brokers and dealers, except as otherwise provided herein.
    (b) Registered brokers or dealers. This part does not apply to a 
registered broker or dealer (including an OTC derivatives dealer) that 
is subject to Sec.240.15c3-1 of this title (SEC Rule 15c3-1).
    (c) Financial institutions. This part does not apply to a government 
securities broker or dealer that is a financial institution and that is:
    (1) Subject to the rules and regulations of its appropriate 
regulatory agency concerning capital requirements, or
    (2) A branch or agency of a foreign bank subject to regulation, 
supervision, and examination by state or Federal authorities having 
regulatory or supervisory authority over commercial bank and trust 
companies.
    (d) Futures commission merchants. A futures commission merchant 
subject to Sec.1.17 of this title that is a government securities 
broker or dealer but is not a registered broker or dealer shall not be 
subject to the limitations of Sec.402.2 but rather to the capital 
requirement of Sec.1.17 or Sec.240.15c3-1, except paragraph (e)(3) 
thereof, of this title, whichever is greater.
    (e) Government securities interdealer broker. (1) A government 
securities interdealer broker, as defined in paragraph (e)(2) of this 
section, may, with the prior written consent of the Secretary, elect not 
to be subject to the limitations of Sec.402.2 but rather to be subject 
to the requirements of Sec.240.15c3-1 of this title (SEC Rule 15c3-1), 
except paragraphs (c)(2)(ix) and (e)(3) thereof, and paragraphs (e)(3) 
through (8) of this section by filing such election in writing with its 
designated examining authority. A government securities interdealer 
broker may not revoke such election without the written consent of its 
designated examining authority.
    (2)(i) Government securities interdealer broker means an entity 
engaged exclusively in business as a broker that effects, on an 
initially fully disclosed or identified group basis, transactions in 
government securities for counterparties that are government securities 
brokers or dealers who have registered or given notice pursuant to 
section 15C(a)(1) of the Act (15 U.S.C. 78o-5(a)(1)), and that promptly 
transmits all funds and delivers all securities received in connection 
with its activities as a government securities interdealer broker and 
does not otherwise hold funds or securities for or owe money or 
securities to its counterparties and, except as provided in paragraph 
(e)(2)(ii) of this section, does not have or maintain any government 
securities in its proprietary or other accounts. For the purpose of this 
paragraph (e)(2)(i), ``identified group basis'' means that a 
counterparty has consented to the

[[Page 1395]]

identity of the specific group of entities from which the other 
counterparty is chosen.
    (ii) A government securities interdealer broker may have or maintain 
government securities in its proprietary or other accounts only as a 
result of:
    (A) Engaging in overnight reverse repurchase or securities borrowed 
transactions solely for the purpose of facilitating the process of 
clearing government securities transactions;
    (B) Engaging in overnight repurchase or securities loaned 
transactions solely for the purpose of reducing its financing expense in 
connection with the clearance of government securities transactions;
    (C) Subordinated loans subject to satisfactory subordination 
agreements pursuant to Sec.240.l5c3-1(d) of this title;
    (D) Collateral or depository requirements of a clearing corporation 
or association with which it participates in the clearance of government 
securities transactions; or
    (E) The investment of its excess cash.

The maturities of any government securities held or maintained under 
paragraph (e)(2)(ii) (C), (D), or (E) of this section may not exceed one 
year.
    (3) In order to qualify to operate under this paragraph (e), a 
government securities interdealer broker shall at all times have and 
maintain net capital, as defined in Sec.240.15c3-1(c)(2) of this title 
with the modifications of this paragraph (e), of not less than 
$1,000,000.
    (4) For purposes of this paragraph (e), a government securities 
interdealer broker need not deduct loans to commercial banks for one 
business day of immediately available funds (commonly referred to as 
``sales of federal funds'') held by the government securities 
interdealer broker in connection with the clearance of securities on the 
day the loan is made.
    (5) For purposes of this paragraph (e), a government securities 
interdealer broker need not deduct net pair-off receivables and money 
differences until the close of business of the third business day 
following the day the funds are due and give-up receivables outstanding 
no more than 30 days from the billing date, which shall be no later than 
the last day of the month in which they arise, as otherwise would be 
required under Sec.240.15c3-1(c)(2)(iv)(B) of this title.
    (6) For purposes of this paragraph (e), a government securities 
interdealer broker shall deduct from net worth \1/4\ of 1 percent of the 
contract value of each government securities failed-to-deliver contract 
which is outstanding 5 business days or longer. Such deduction shall be 
increased by any excess of the contract price of the failed-to-deliver 
contract over the market value of the underlying security.
    (7) For purposes of this paragraph (e), a government securities 
interdealer broker may exclude from its aggregate indebtedness 
computation indebtedness adequately collateralized by government 
securities outstanding for not more than one business day and offset by 
government securities failed to deliver of the same issue and quantity. 
In no event may a government securities interdealer broker exclude any 
overnight bank loan attributable to the same government securities 
failed-to-deliver contract for more than one business day. A government 
securities interdealer broker need not deduct from net worth the amount 
by which the market value of securities failed to receive outstanding 
longer than thirty (30) calendar days exceeds the contract value of 
those failed to receive as required by Sec.240.15c3-1(c)(2)(iv)(E) of 
this title.
    (8)(i) For purposes of this paragraph (e), a government securities 
interdealer broker shall deduct from net worth 5 percent of its net 
exposure to each counterparty.
    (ii) Net exposure. For purposes of this paragraph (e), net exposure 
shall equal:
    (A) The sum of the dollar amount of funds, debt instruments, other 
securities, and other inventory at risk, in the first instance, to the 
government securities interdealer broker in the event of the 
counterparty's default,
    (B) Reduced, but not to less than zero, by the sum of:
    (1) The dollar amount of funds, debt instruments, other securities, 
and other inventory at risk, in the first instance, to the counterparty 
in the event of the government securities interdealer broker's default;

[[Page 1396]]

    (2) The deductions taken from net worth for unsecured receivables, 
repurchase and reverse repurchase deficits, aged fails to deliver, and 
aged fails to receive arising from transactions with the counterparty;
    (3) Demand deposits in the case where the counterparty is a 
commercial bank;
    (4) Loans for one business day of immediately available funds 
(commonly referred to as ``sales of federal funds'') held by the 
government securities interdealer broker in connection with the 
clearance of securities on the day the loan is made in the case where 
the counterparty is a commercial bank;
    (5) Custodial holdings of securities in the case where the 
counterparty is a clearing bank or clearing broker of the government 
securities interdealer broker; and
    (6) Exposure to a counterparty due to holding marketable instruments 
subject to market risk haircuts under appendix A to this section (Sec.
402.2a) for which the counterparty is the obligor.
    (9) On the application of the government securities interdealer 
broker, the designated examining authority may extend the periods of 
time in this paragraph (e) if it determines that the extension is 
warranted because of exceptional circumstances and that the government 
securities interdealer broker is acting in good faith.
    (f) This part shall be effective July 25, 1987.

[52 FR 27931, July 24, 1987, as amended at 60 FR 11024, Mar. 1, 1995; 71 
FR 54411, Sept. 15, 2006; 79 FR 38455, July 8, 2014]



Sec.402.2  Capital requirements for registered government securities
brokers and dealers.

    (a) General rule. No government securities broker or dealer shall 
permit its liquid capital to be below an amount equal to 120 percent of 
total haircuts as defined in paragraph (g) of this section.
    (b)(1) Minimum liquid capital for brokers or dealers that carry 
customer accounts. Notwithstanding the provisions of paragraph (a) of 
this section, a government securities broker or dealer that carries 
customer or broker or dealer accounts and receives or holds funds or 
securities for those persons within the meaning of Sec.240.15c3-
1(a)(2)(i) of this title, shall have and maintain liquid capital in an 
amount not less than $250,000, after deducting total haircuts as defined 
in paragraph (g) of this section.
    (2) Minimum liquid capital for brokers or dealers that carry 
customer accounts, but do not generally hold customer funds or 
securities. Notwithstanding the provisions of paragraphs (a) and (b)(1) 
of this section, a government securities broker or dealer that carries 
customer or broker or dealer accounts and is exempt from the provisions 
of Sec.240.15c3-3 of this title, as made applicable to government 
securities brokers and dealers by Sec.403.4 of this part, pursuant to 
paragraph (k)(2)(i) thereof (17 CFR 240.15c3-3(k)(2)(i)), shall have and 
maintain liquid capital in an amount not less than $100,000, after 
deducting total haircuts as defined in paragraph (g) of this section.
    (c)(1) Minimum liquid capital for introducing brokers that receive 
securities. Notwithstanding the provisions of paragraphs (a) and (b) of 
this section, a government securities broker or dealer that introduces 
on a fully disclosed basis transactions and accounts of customers to 
another registered or noticed government securities broker or dealer but 
does not receive, directly or indirectly, funds from or for, or owe 
funds to, customers, and does not carry the accounts of, or for, 
customers shall have and maintain liquid capital in an amount not less 
than $50,000, after deducting total haircuts as defined in paragraph (g) 
of this section. A government securities broker or dealer operating 
pursuant to this paragraph (c)(1) may receive, but shall not hold 
customer or other broker or dealer securities.
    (2) Minimum liquid capital for introducing brokers that do not 
receive or handle customer funds or securities. Notwithstanding the 
provisions of paragraphs (a), (b), and (c)(1) of this section, a 
government securities broker or dealer that does not receive, directly 
or indirectly, or hold funds or securities for, or owe funds or 
securities to, customers, and does not carry accounts of, or for, 
customers and that effects ten or fewer transactions in securities in

[[Page 1397]]

any one calendar year for its own investment account shall have and 
maintain liquid capital in an amount not less than $25,000, after 
deducting total haircuts as defined in paragraph (g) of this section.
    (d) Liquid capital. ``Liquid capital'' means net capital as defined 
in Sec.240.15c3-1(c)(2) of this title with the following 
modifications:
    (1) The percentages used to calculate the deductions for failed to 
deliver contracts required by Sec.240.15c3-1(c)(2)(ix) of this title 
when the underlying instrument is a Treasury market risk instrument as 
defined in paragraph (e) of this section are the appropriate net 
position haircut factors specified in paragraph (f)(2) of this section;
    (2) The percentages used to calculate deductions required by Sec.
240.15c3-1(c)(2)(iv)(B) of this title for securities that are Treasury 
market risk instruments are the appropriate net position haircut factors 
specified in paragraph (f)(2) of this section;
    (3) The deduction required by Sec.240.15c3-1(c)(2)(iv)(F)(3)(i) of 
this title relating to repurchase agreement deficits shall be determined 
without reference to Sec.240.15c3-1(c)(2)(iv)(F)(3)(i)(B) or Sec.
240.15c3-1(c)(2)(iv)(F)(3)(i)(C);
    (4) The deductions from net worth required by Sec.Sec.240.15c3-1 
(c)(2)(vi) and (c)(2)(viii) of this title and the adjustments to net 
worth set forth in Sec.240.15c3-1a and Sec.240.15c3-1b of this title 
(Appendices A and B to SEC Rule 15c3-1) are omitted;
    (5) Net pair-off receivables and money differences need not be 
deducted as otherwise would be required under Sec.240.15c3-
1(c)(2)(iv)(B) of this title until the close of business of the third 
business day following the day the funds are due;
    (6) Give-up receivables outstanding no more than 30 days from the 
billing date, which shall be no later than the last day of the month in 
which they arise, need not be deducted as otherwise would be required 
under Sec.240.15c3-1(c)(2)(iv)(B) of this title;
    (7) Loans to commercial banks for one business day of immediately 
available funds (commonly referred to as ``sales of federal funds'') 
held by the government securities broker or dealer in connection with 
the clearance of securities on the day the loan is made need not be 
deducted; and
    (8) In determining net worth, all long and short positions in 
unlisted options that are Treasury market risk instruments shall be 
evaluated in the manner set forth in Sec.240.15c3-1(c)(2)(i)(B)(1) and 
not in the manner set forth in Sec.240.15c3-1(c)(2)(i)(B)(2) of this 
title.
    (e) Treasury market risk instruments. (1) For purposes of this part, 
the term ``Treasury market risk instrument'' means the following dollar-
denominated securities, debt instruments, and derivative instruments:
    (i) Government securities, except equity securities and those 
mortgage-backed securities described in paragraph (e)(2) of this 
section;
    (ii) Zero-coupon receipts or certificates based on marketable 
Treasury notes or bonds;
    (iii) Marketable certificates of deposit of no more than one year to 
maturity;
    (iv) Bankers acceptances;
    (v) Commercial paper of no more than one year to maturity and which 
has only a minimal amount of credit risk as determined by the government 
securities broker or dealer pursuant to reasonably designed written 
policies and procedures the government securities broker or dealer 
establishes, maintains, and enforces to assess and monitor 
creditworthiness. These policies and procedures should result in 
creditworthiness assessments that typically are consistent with market 
data;
    (vi) Securities, other than equity securities, issued by 
international organizations that have a statutory exemption from the 
registration requirements of the Securities Act of 1933 and the 
Securities Exchange Act of 1934 provided their changes in yield are 
closely correlated to the changes in yield of similar Treasury 
securities, including STRIPS;
    (vii) Futures, forwards, and listed options on Treasury market risk 
instruments described in paragraphs (e)(1)(i)-(vi) of this section or on 
time deposits whose changes in yield are closely correlated with the 
Treasury market risk instruments described in paragraph (e)(1)(iii) of 
this section, settled on a cash or delivery basis;

[[Page 1398]]

    (viii) Options on those futures contracts described in paragraph 
(e)(1)(vii) of this section, settled on a cash or delivery basis; and
    (ix) Unlisted options on marketable Treasury bills, notes or bonds.
    (2) ``Treasury market risk instrument'' does not include mortgage-
backed securities that do not pass through to each security holder on a 
pro rata basis a distribution based on the monthly payments and 
prepayments of principal and interest on the underlying pool of mortgage 
collateral less fees and expenses.
    (f)(1) Haircut categories. For purposes of this part, the applicable 
categories within which non-zero-coupon and zero-coupon Treasury market 
risk instruments are classified are:

----------------------------------------------------------------------------------------------------------------
                         Term or type for non-zero-
       Category              coupon instruments                    Term for zero-coupon instruments
----------------------------------------------------------------------------------------------------------------
A.....................  Less than 45 days...........  Less than 45 days.
B.....................  At least 45 days but less     At least 45 days but less than 135 days.
                         than 135 days.
C.....................  At least 135 days but less    At least 135 days but less than 9 months.
                         than 9 months.
D.....................  At least 9 months but less    At least 9 months but less than 1 year, 6 months.
                         than 1 year, 6 months.
E.....................  At least 1 year, 6 months     At least 1 year, 6 months but less than 3 years.
                         but less than 3 years, 6
                         months.
F.....................  At least 3 years, 6 months    At least 3 years but less than 5 years, 6 months.
                         but less than 7 years, 6
                         months.
G.....................  At least 7 years, 6 months    At least 5 years, 6 months but less than 9 years.
                         but less than 15 years.
H.....................  15 years and over...........  At least 9 years but less than 12 years.
I.....................  ............................  At least 12 years but less than 21 years
J.....................  ............................  21 years and over.
MB....................  All fixed rate mortgage-
                         backed securities that are
                         Treasury market risk
                         instruments..
AR....................  All adjustable rate mortgage-
                         backed securities that are
                         Treasury market risk
                         instruments.
----------------------------------------------------------------------------------------------------------------

    (2) Haircut factors. For purposes of this part, the applicable net 
position and offset haircut factors to be used in the calculation of the 
Treasury market risk haircut are as follows:

------------------------------------------------------------------------
                                                      Haircut factors
                                                 -----------------------
                                                      Net
                    Category                       position     Offsets
                                                   haircuts    (percent)
                                                   (percent)
------------------------------------------------------------------------
A...............................................        None        None
B...............................................        0.12        0.02
C...............................................        0.20        0.03
D...............................................        0.45        0.07
E...............................................        1.10        0.22
F...............................................        2.20        0.44
G...............................................        3.30        0.50
H...............................................        4.50        0.90
I...............................................        7.75        1.55
J...............................................       11.25        3.38
MB..............................................        3.30        0.66
AR..............................................        1.10        0.22
------------------------------------------------------------------------

    (3) Category pair hedging disallowance haircut factors. For purposes 
of this part, the applicable category pair hedging disallowance haircut 
factors to be used in the calculation of the Treasury market risk 
haircut are as follows:

------------------------------------------------------------------------
                                              Percent disallowed
              Category               -----------------------------------
                                       C   D   E   F   G   H   I   J  MB
------------------------------------------------------------------------
B...................................  30  40
C...................................  ..  20  30
D...................................  ..  ..  20  30  40
E...................................  ..  ..  ..  20  30  40
F...................................  ..  ..  ..  ..  20  30  40  ..  30
G...................................  ..  ..  ..  ..  ..  20  30  ..  30
H...................................  ..  ..  ..  ..  ..  ..  20  40  40
I...................................  ..  ..  ..  ..  ..  ..  ..  40
------------------------------------------------------------------------

    (g) Total haircuts. ``Total haircuts'' equals the sum of the credit 
risk haircut and the market risk haircut.
    (1) Credit risk haircut. The ``credit risk haircut'' equals the sum 
of the total counterparty exposure haircut, the total concentration of 
credit haircut and the credit volatility haircut.
    (i) Net credit exposure. For purposes of this part, net credit 
exposure shall equal:
    (A) The sum of the dollar amount of funds, debt instruments, other 
securities, and other inventory at risk to the government securities 
broker or dealer in the event of the counterparty's default and the 
market value of purchased unlisted options written by the counterparty 
that are Treasury market risk instruments,
    (B) Reduced, but not to less than zero, by the sum of:

[[Page 1399]]

    (1) The dollar amount of funds, debt instruments, other securities, 
and other inventory at risk to the counterparty in the event of the 
government securities broker's or dealer's default and the market value 
of unlisted options written by the government securities broker or 
dealer and held by the counterparty that are Treasury market risk 
instruments;
    (2) The deductions taken from net worth for unsecured receivables, 
repurchase and reverse repurchase agreement deficits, aged fails to 
deliver, and aged fails to receive arising from transactions with the 
counterparty;
    (3) Demand deposits in the case where the counterparty is a 
commercial bank;
    (4) Loans for one business day of immediately available funds 
(commonly referred to as ``sales of federal funds'') held by the 
government securities broker or dealer in connection with the clearance 
of securities on the day the loan is made in the case where the 
counterparty is a commercial bank;
    (5) Custodial holdings of securities in the case where the 
counterparty is a clearing bank or clearing broker of the government 
securities broker or dealer; and
    (6) Exposure to a counterparty due to holding marketable instruments 
subject to market risk haircuts under appendix A to this section (Sec.
402.2a) for which the counterparty is the obligor.
    (ii) Total counterparty exposure haircut. The ``total counterparty 
exposure haircut'' equals the sum of the counterparty exposure haircuts 
taken for all counterparties except a Federal Reserve Bank, of the 
government securities broker or dealer. The ``counterparty exposure 
haircut'' equals the product of a counterparty exposure haircut factor 
of 5 percent and the net credit exposure to a single counterparty not in 
excess of 15 percent of the government securities broker's or dealer's 
liquid capital.
    (iii) Total concentration of credit haircut. The ``total 
concentration of credit haircut'' equals the sum of the concentration of 
credit haircuts taken for all counterparties of the government 
securities broker or dealer. The ``concentration of credit haircut'' 
equals the product of a concentration of credit haircut factor of 25 
percent and the amount by which the net credit exposure to a single 
counterparty is in excess of 15 percent of the government securities 
broker's or dealer's liquid capital.
    (iv) Credit volatility haircut. The ``credit volatility haircut'' 
equals the product of a credit volatility haircut factor of 0.15 percent 
and the dollar amount of the larger of the gross long position or gross 
short position in those Treasury market risk instruments described in 
paragraphs (e)(1)(iii), (iv) and (v) of this section that have a term to 
maturity greater than 44 days, including futures and forwards thereon, 
settled on a cash or delivery basis, and futures and forwards on time 
deposits described in paragraph (e)(1)(vii) of this section, that have a 
term to maturity greater than 44 days, settled on a cash or delivery 
basis.
    (2) Market risk haircut. The ``market risk haircut'' equals the sum 
of the Treasury market risk haircut and the other securities haircut, 
calculated in accordance with the provisions of appendix A of this 
section, Sec.402.2a.
    (h) Debt-equity requirements. No government securities broker or 
dealer shall permit the total of outstanding principal amounts of its 
satisfactory subordination agreements as defined in Sec.240.15c3-1d of 
this title (appendix D to SEC Rule 15c3-1) modified as provided in 
appendix D to this section, Sec.402.2d, to exceed the allowable levels 
set forth in Sec.240.15c3-1(d) of this title.
    (i) Provisions relating to the withdrawal of equity capital--(1) 
Notice provisions. No equity capital of the government securities broker 
or dealer or a subsidiary or affiliate consolidated pursuant to appendix 
C to this section, Sec.402.2c, may be withdrawn by action of a 
stockholder or partner, or by redemption or repurchase of shares of 
stock by any of the consolidated entities or through the payment of 
dividends or any similar distribution, nor may any unsecured advance or 
loan be made to a stockholder, partner, sole proprietor, employee or 
affiliate without providing written notice, given in accordance with 
paragraph (i)(1)(iv) of this section, when specified in paragraphs 
(i)(1) (i) and (ii) of this section:

[[Page 1400]]

    (i) Two business days prior to any withdrawals, advances or loans if 
those withdrawals, advances or loans on a net basis exceed in the 
aggregate in any 30 calendar day period, 30 percent of the government 
securities broker's or dealer's excess liquid capital. A government 
securities broker or dealer, in an emergency situation, may make 
withdrawals, advances or loans that on a net basis exceed 30 percent of 
the government securities broker's or dealer's excess liquid capital in 
any 30 calendar day period without giving the advance notice required by 
this paragraph, with the prior approval of its designated examining 
authority. When a government securities broker or dealer makes a 
withdrawal with the consent of its designated examining authority, it 
shall in any event comply with paragraph (i)(1)(ii) of this section; and
    (ii) Two business days after any withdrawals, advances or loans if 
those withdrawals, advances or loans on a net basis exceed in the 
aggregate in any 30 calendar day period, 20 percent of the government 
securities broker's or dealer's excess liquid capital.
    (iii) This paragraph (i)(1) of this section does not apply to:
    (A) Securities or commodities transactions in the ordinary course of 
business between a government securities broker or dealer and an 
affiliate where the government securities broker or dealer makes payment 
to or on behalf of such affiliate for such transaction and then receives 
payment from such affiliate for the securities or commodities 
transaction within two business days from the date of the transaction; 
or
    (B) Withdrawals, advances or loans which in the aggregate in any 
such 30 calendar day period, on a net basis, equal $500,000 or less.
    (iv) Each required notice shall be effective when received by the 
Commission in Washington, DC, the regional or district office of the 
Commission for the area in which the government securities broker or 
dealer has its principal place of business, and the government 
securities broker's or dealer's designated examining authority.
    (2) Withdrawal limitations. No equity capital of the government 
securities broker or dealer or a subsidiary or affiliate consolidated 
pursuant to appendix C to this section, Sec.402.2c, may be withdrawn 
by action of a stockholder or a partner, or by redemption or repurchase 
of shares of stock by any of the consolidated entities or through the 
payment of dividends or any similar distribution, nor may any unsecured 
advance or loan be made to a stockholder, partner, sole proprietor, 
employee or affiliate if, after giving effect thereto and to any other 
such withdrawals, advances or loans and any Payments of Payment 
Obligations (as defined in Sec.240.15c3-1d of this title, appendix D 
to SEC Rule 15c3-1, modified as provided in appendix D to this section, 
Sec.402.2d) under satisfactory subordination agreements which are 
scheduled to occur within 180 calendar days following such withdrawal, 
advance or loan, either:
    (i) The ratio of liquid capital to total haircuts, determined as 
provided in Sec.402.2, would be less than 150 percent; or
    (ii) Liquid capital minus total haircuts would be less than 120 
percent of the minimum capital required by Sec.402.2(b) or Sec.
402.2(c) as applicable; or
    (iii) In the case of any government securities broker or dealer 
included in such consolidation, the total outstanding principal amounts 
of satisfactory subordination agreements of the government securities 
broker or dealer (other than such agreements which qualify as equity 
under Sec.240.15c3-1(d) of this title) would exceed 70% of the debt-
equity total as defined in Sec.240.15c3-1(d).
    (3) Miscellaneous provisions. (i) Excess liquid capital is that 
amount in excess of the amount required by the greater of Sec.402.2(a) 
or, Sec.Sec.402.2 (b) or (c), as applicable. For the purposes of 
paragraphs (i)(1) and (i)(2) of this section, a government securities 
broker or dealer may use the amount of excess liquid capital, liquid 
capital and total haircuts reported in its most recently required filed 
Form G-405 for the purposes of calculating the effect of a projected 
withdrawal, advance or loan relative to excess liquid capital or total 
haircuts. The government securities broker or dealer must assure itself 
that the excess liquid capital, liquid capital

[[Page 1401]]

or the total haircuts reported on the most recently required filed Form 
G-405 have not materially changed since the time such report was filed.
    (ii) The term equity capital includes capital contributions by 
partners, par or stated value of capital stock, paid-in capital in 
excess of par, retained earnings or other capital accounts. The term 
equity capital does not include securities in the securities accounts of 
partners and balances in limited partners' capital accounts in excess of 
their stated capital contributions.
    (iii) Paragraphs (i)(1) and (i)(2) of this section shall not 
preclude a government securities broker or dealer from making required 
tax payments or preclude the payment to partners of reasonable 
compensation, and such payments shall not be included in the calculation 
of withdrawals, advances or loans for purposes of paragraphs (i)(1) and 
(i)(2) of this section.
    (iv) For the purposes of this subsection (i), any transaction 
between a government securities broker or dealer and a stockholder, 
partner, sole proprietor, employee or affiliate that results in a 
diminution of the government securities broker's or dealer's liquid 
capital shall be deemed to be an advance or loan of liquid capital.
    (j) Modification of appendices to Sec.240.15c3-1 of this title. 
For purposes of this section, appendix C to this section (Sec.402.2c) 
is substituted for appendix C to Rule 15c3-1 (Sec.240.15c3-1c of this 
title), and appendix D to Rule 15c3-1 (Sec.240.15c3-1d of this title), 
relating to Satisfactory Subordination Agreements, is modified as 
provided in appendix D to this section (Sec.402.2d).

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27931, July 24, 1987, as amended at 53 FR 28984, Aug. 1, 1988; 60 
FR 11024, Mar. 1, 1995; 79 FR 38455, July 8, 2014]



Sec.402.2a  Appendix A--Calculation of market risk haircut for 
purposes of Sec.402.2(g)(2).

    The market risk haircut is the sum of the Treasury market risk 
haircut and the other securities haircut, calculated as follows.
    (a) Treasury market risk haircut. The ``Treasury market risk 
haircut'' equals the sum of the total governments offset portion 
haircut, the total futures and options offset haircut, the total hedging 
disallowance haircut, and the residual net position haircut, calculated 
with respect to financings and positions in Treasury market risk 
instruments, except to the extent that a permissible election is made 
pursuant to paragraph (b)(1) of this section to include qualified 
positions in the calculation of the other securities haircut.
    (1) Total governments offset portion haircut. The ``total 
governments offset portion haircut'' equals the sum of the governments 
offset portion haircuts calculated for each category in Sec.
402.2(f)(1). The ``governments offset portion haircuts'' equal, for each 
category in Sec.402.2(f)(1), the product of the offset haircut factor 
for that category set out in Sec.402.2(f)(2) and the smaller of the 
absolute values of the gross long immediate position or gross short 
immediate position for that category. Schedules B and C in paragraph (c) 
of this section can be used to make this calculation.
    (i)(A) The ``gross long immediate position'' for purposes of this 
part equals, for each category except categories MB and AR in Sec.
402.2(f)(1), the sum of the market values of each long immediate 
position in Treasury market risk instruments with a term to maturity 
(or, in the case of a floating rate note, the time to the next scheduled 
interest rate adjustment or the term to maturity, whichever is less) 
corresponding to such category, the contract values of each reverse 
repurchase agreement with a term to maturity or time to the next 
scheduled interest rate adjustment, whichever is less, corresponding to 
that category, and the values of the cash collateral of each security 
borrowing with a term to maturity or time to next scheduled interest 
rate adjustment, whichever is less, corresponding to such category.
    (B) In the case of category MB, the ``gross long immediate 
position'' equals the sum of the market values of all long immediate 
positions in fixed rate mortgage-backed securities which are Treasury 
market risk instruments.
    (C) In the case of category AR, the ``gross long immediate 
position'' equals the sum of the market values of all long immediate 
positions in adjustable

[[Page 1402]]

rate mortgage-backed securities which are Treasury market risk 
instruments.
    (ii)(A) The ``gross short immediate position'' for purposes of this 
section equals, for each category except categories MB and AR in Sec.
402.2(f)(1), the sum of the market values of each short immediate 
position in Treasury market risk instruments with a term to maturity 
(or, in the case of a floating rate note, the time to the next scheduled 
interest rate adjustment or the term to maturity, whichever is less) 
corresponding to such category, and the values of funds received from 
each financing transaction (including repurchase agreements, securities 
lending secured by cash collateral, and term financings, but excluding 
subordinated debt which meets the requirements of Sec.240.15c3-1d of 
this title modified as provided in Sec.402.2d) with a term to maturity 
or time to the next scheduled interest rate adjustment, whichever is 
less, corresponding to that category.
    (B) In the case of category MB, the ``gross short immediate 
position'' equals the sum of the market values of all short immediate 
positions in fixed rate mortgage-backed securities which are Treasury 
market risk instruments.
    (C) In the case of category AR, the ``gross short immediate 
position'' equals the sum of the market values of all short immediate 
positions in adjustable rate mortgage-backed securities which are 
Treasury market risk instruments.
    (iii) The term long immediate position in a Treasury market risk 
instrument means, for purposes of this part:
    (A) The net long position in a Treasury market risk instrument as of 
the trade date, except when the settlement date, in the case of a 
Treasury market risk instrument except a mortgage-backed security, is 
scheduled more than five business days in the future, and, in the case 
of a mortgage-backed security, more than thirty calendar days in the 
future;
    (B) The net long when-issued position in a marketable U.S. Treasury 
security between announcement and issue date;
    (C) The net long when-issued position in a government agency or a 
government-sponsored agency debt security between release date and issue 
date; and
    (D) The net long when-issued position in a security described in 
Sec.402.2(e)(1)(vi) between announcement date and issue date.
    (iv) The term short immediate position on a Treasury market risk 
instrument means, for purposes of this part:
    (A) The net short position in a Treasury market risk instrument as 
of the trade date, except when the settlement date, in the case of a 
Treasury market risk instrument except a mortgage-backed security, is 
scheduled more than five business days in the future, and, in the case 
of a mortgage-backed security, more than thirty calendar days in the 
future;
    (B) The net short when-issued position in a marketable U.S. Treasury 
security between announcement and issue date;
    (C) The net short when-issued position in a government agency or a 
government-sponsored agency debt security between release date and issue 
date; and
    (D) The net short when-issued position in a security described in 
Sec.402.2(e)(1)(vi) between announcement date and issue date.
    (2) Net immediate position interim haircut. The ``net immediate 
position interim haircut'' equals, for each category in Sec.
402.2(f)(1), the product of the net position haircut factor for that 
category and the sum of the gross long immediate position and the gross 
short immediate position for that category. For purposes of this part, a 
gross long immediate position shall be a positive number and a gross 
short immediate position shall be a negative number. Schedules B and C 
in paragraph (c) of this section can be used to make this calculation.
    (3) Total futures and options offset haircut. The ``total futures 
and options offset haircut'' equals the sum of the futures and options 
offset haircuts calculated for each category in Sec.402.2(f)(1). The 
``futures and options offset haircut'' equals, for each category in 
Sec.402.2(f)(1), the product of a futures and options offset factor of 
20 percent and the smaller of the absolute values of the positive and 
negative aggregate interim haircuts for that category.

[[Page 1403]]

Schedule D in paragraph (c) of this section can be used to make this 
calculation.
    (i) Positive aggregate interim haircut. The ``positive aggregate 
interim haircut'' equals, for each category in Sec.402.2(f)(1), the 
sum of the positive net immediate position interim haircut (see 
paragraph (a)(2) of this section), the gross long futures and forward 
interim haircut, and the positive gross options interim haircut for that 
category. Schedule D in paragraph (c) of this section can be used to 
make this calculation.
    (A) Gross long futures and forward interim haircut. The ``gross long 
futures and forward interim haircut'' equals, for each category in Sec.
402.2(f)(1), the sum of the interim haircuts on each long futures 
position and long forward position placed, in the case of a futures or 
forward contract which is a Treasury market risk instrument except those 
on mortgage-backed securities, in the category corresponding to the sum 
of the term to maturity of the contract and the term to maturity of the 
underlying instrument at the time of the maturity of the contract or, in 
the case of a futures or forward contract on Treasury market risk 
mortgage-backed securities, in the category corresponding to the type of 
Treasury market risk mortgage-backed security.
    (1) For purposes of this part, the interim haircut on each long 
futures position and each long forward position is the product of the 
net position haircut factor for the category corresponding to, in the 
case of a futures or forward contract which is a Treasury market risk 
instrument except those on mortgage-backed securities, the maturity of 
the underlying instrument at the time of the maturity of the contract 
or, in the case of a futures or forward contract on Treasury market risk 
mortgage-backed securities, the type of Treasury market risk mortgage-
backed security and the value of the long futures position or long 
forward position evaluated at the current market price for such 
contract.
    (2) For purposes of this part, the gross long futures and forward 
interim haircut shall be a positive number.
    (B) Positive gross options interim haircut. The ``positive gross 
options interim haircut'' equals, for each category in Sec.
402.2(f)(1), the sum of the interim haircuts on each purchased call and 
sold put placed in the category in which the underlying instrument would 
be placed.
    (1) For purposes of this part, the ``interim haircut on each 
purchased call and sold put'' equals the lesser of the market value of 
the option or, (i) in the case of an option on a cash instrument, the 
product of the net position haircut factor for the category to which the 
underlying cash instrument corresponds and the market value of the 
underlying cash instrument or, (ii) in the case of an option on a 
futures contract, the interim haircut on the underlying futures 
contract.
    (2) For purposes of this part, the positive gross options interim 
haircut is a positive number.
    (ii) Negative aggregate interim haircut. The ``negative aggregate 
interim haircut'' equals, for each category in Sec.402.2(f)(1), the 
sum of the negative net immediate position interim haircut (see 
paragraph (a)(2) of this section), the gross short futures and forward 
interim haircut, and the negative gross options interim haircut for that 
category. Schedule D in paragraph (c) of this section can be used to 
make this calculation.
    (A) Gross short futures and forward interim haircut. The ``gross 
short futures and forward interim haircut'' equals, for each category in 
Sec.402.2(f)(1), the sum of the interim haircuts on each short futures 
position and short forward position placed, in the case of a futures or 
forward contract which is a Treasury market risk instrument except those 
on mortgage-backed securities, in the category corresponding to the sum 
of the term to maturity of the contract and the term to maturity of the 
underlying instrument at the time of the maturity of the contract or, in 
the case of a futures or forward contract on Treasury market risk 
mortgage-backed securities, in the category corresponding to the type of 
Treasury market risk mortgage-backed security.
    (1) For purposes of this part, the ``interim haircut on each short 
futures position and each short forward position''

[[Page 1404]]

is the product of the net position haircut factor for the category 
corresponding to, in the case of a futures or forward contract which is 
a Treasury market risk instrument except those on mortgage-backed 
securities, the maturity of the underlying instrument at the time of the 
maturity of the contract or, in the case of a futures or forward 
contract on Treasury market risk mortgage-backed securities, the type of 
Treasury market risk mortgage-backed security and the value of the short 
futures position or short forward position evaluated at the current 
market price for such contract.
    (2) For purposes of this part, the gross short futures and forward 
interim haircut is a negative number.
    (B) Negative gross options interim haircut. The ``negative gross 
options interim haircut'' equals, for each category in Sec.
402.2(f)(1), the sum of the interim haircuts on each sold call and 
purchased put placed in the category in which the underlying instrument 
would be placed.
    (1) For purposes of this part, the ``interim haircut on each sold 
call and purchased put'' equals the lesser of the market value of the 
option or, (i) in the case of an option on a cash instrument, the 
product of the net position haircut factor for the category to which the 
underlying cash instrument corresponds and the market value of the 
underlying cash instrument or, (ii) in the case of an option on a 
futures contract, the interim haircut on the underlying futures 
contract.
    (2) For purposes of this part, the negative gross options interim 
haircut is a negative number.
    (4) Total hedging disallowance haircut. The ``total hedging 
disallowance haircut'' equals the sum of the hedging disallowance 
haircuts calculated pursuant to each netting of qualified netting 
interim haircuts. The ``hedging disallowance haircut'' equals the 
absolute value of the product of the applicable category pair hedging 
disallowance haircut factor specified in Sec.402.2(f)(3) and the 
smaller in absolute value of any two qualified netting interim haircuts, 
netted in accordance with the provisions of this paragraph. Schedule E 
in paragraph (c) of this section can be used to make this calculation.
    (i) Qualified netting interim haircut. The term ``qualified netting 
interim haircut'' means a residual position interim haircut or a net 
residual position interim haircut.
    (A) Residual position interim haircut. The ``residual position 
interim haircut'' equals, for each category in Sec.402.2(f)(1), the 
sum of the positive aggregate interim haircut and the negative aggregate 
interim haircut corresponding to the category, calculated in accordance 
with the provisions of paragraph (a)(3) of this section.
    (B)(1) Net residual position interim haircut. The ``net residual 
position interim haircut'' equals, for any two categories between which 
netting is permitted, the sum of (i) the residual position interim 
haircuts calculated for those categories, in the case of the category of 
the larger in absolute value of the two residual position interim 
haircuts being netted, and (ii) zero, in the case of the category of the 
smaller in absolute value of the two residual position interim haircuts 
being netted.
    (2) For the purposes of this paragraph (a)(4), netting is permitted 
only between categories for which a category pair hedging disallowance 
haircut factor has been specified in paragraph Sec.402.2(f)(3).
    (ii) Net residual position interim haircuts shall be substituted for 
the residual position interim haircuts in the respective categories in 
which they have been placed and shall be considered as if they were 
residual position interim haircuts. New net residual position interim 
haircuts may continue to be calculated until for each category pair for 
which netting is permitted at least one of the two qualified netting 
interim haircuts is zero or both qualified netting interim haircuts are 
of the same sign.
    (5) Residual net position haircut. The ``residual net position 
haircut'' equals the sum of the absolute values of all qualified netting 
interim haircuts remaining in each category after the completion of the 
calculation of permissible nettings described in paragraph (a)(4) of 
this section. Schedule E in paragraph (c) of this section can be used to 
make this calculation.
    (b) Other securities haircut. The ``other securities haircut'' 
equals the sum of

[[Page 1405]]

all deductions specified in Sec.240.15c3-1 (c)(2)(vi) and (c)(2)(viii) 
of this title and Sec.Sec.240.15c3-1a and 240.l5c3-1b of this title 
for long and short positions in securities, futures contracts, forward 
contracts, options, and other inventory which are not Treasury market 
risk instruments as defined in Sec.402.2(e).
    (1) A registered government securities broker or dealer may elect to 
exclude from its calculation of the Treasury market risk haircut and 
include in its calculation of the other securities haircut long and 
short positions in Treasury market risk instruments if such positions 
form part of a hedge against long and short positions in securities, 
futures contracts, forward contracts, or options which are not Treasury 
market risk instruments. Only the portion of the total position in a 
Treasury market risk instrument that forms part of such hedge may be 
excluded from the calculation of the Treasury market risk haircut and 
included in the calculation of the other securities haircut.
    (2) For purposes of this paragraph (b), a gross long or short 
position in Treasury market risk instruments shall be considered part of 
a hedge if the inclusion of such position in the calculation of the 
other securities haircut would serve to reduce said haircut.
    (3) For purposes of this paragraph (b) as it relates to Sec.
240.15c3-1(c)(2)(vi)(M) (``undue concentration''), references to ``10 
percent of the ``net capital''' shall be understood to refer to 10 
percent of the liquid capital and references to ``Appendix (D) (17 CFR 
240.15c3-1d)'' shall be understood to refer to such section as modified 
by Sec.402.2d.
    (c) Schedules. This paragraph sets forth schedules which may be used 
by government securities brokers or dealers in the calculation of total 
haircuts as required by this part 402. The appropriate regulatory agency 
or designated examining authority may specify other substantially 
similar forms required to be used by government securities brokers or 
dealers in the calculation of such haircuts.

       Schedule A--Liquid Capital Requirement, Summary Computation
                        [In thousands of dollars]
1. Liquid capital \1\..........................................      ___
2. Haircuts on security and financing positions including
 contractual commitments:
    a. Total governments offset portion haircut (Schedule C)...      ___
    b. Total futures and options offset haircut (Schedule D)...      ___
    c. Total hedging disallowance haircut (Schedule E).........      ___
    d. Residual net position haircut (Schedule E)..............      ___
    e. Other securities haircut (use SEC factors)..............      ___
3. Haircuts on credit exposure:
    a. Total counterparty exposure haircut.....................      ___
    b. Total concentration of credit haircut...................      ___
    c. Credit volatility haircut...............................      ___
4. Total haircuts (sum of lines 2 a through e, 3 a, b, and c)..      ___
5. Capital-to-risk ratio (line 1 divided by line 4)............     ___
 
\1\ Identical to the amount reported on line 3640 of the Report on
  Finances and Operations of Government Securities Brokers and Dealers,
  Form G-405.


[[Page 1406]]

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[[Page 1409]]

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                  Instructions to Schedules A through E

    Schedules A through E may be used by government securities brokers 
or dealers subject to 17 CFR 402 to determine the firm's capital-to-risk 
ratio. Section 402.2 provides that a government securities broker or 
dealer must meet the applicable minimum dollar liquid capital 
requirement and that the firm's ratio of liquid capital to risk (total 
haircuts) must be at least 1.2:1; liquid capital must exceed risk by at 
least 20 percent. Total haircuts is the risk measure used in the ratio; 
it is made up of measures of market risk and measures of credit risk. 
The market risk of a government securities broker's or dealer's 
positions is accounted for

[[Page 1410]]

through the Treasury market risk haircut and the other securities 
haircut. Credit risk is accounted for in the counterparty exposure, 
concentration of credit, and credit volatility haircuts and in the 
computation of liquid capital through the various deductions and 
charges.
    Only positions in Treasury market risk instruments and financings 
may be used in the calculation of the Treasury market risk haircut. 
Treasury market risk instruments and financings are described in 17 CFR 
402.2 and in the instructions to the schedule where they are to be first 
entered. All other types of financial instruments are to be included in 
the calculation of the other securities haircut. Calculation of the 
other securities haircut is based on the SEC's Rule 15c3-1 (17 CFR 
240.15c3-1).
    Treasury market risk instruments may be excluded from the 
calculation of the Treasury market risk haircut if they are included in 
the calculation of the other securities haircut as part of a hedge 
against long and short positions in securities, futures contracts, 
forward contracts, or options that are not Treasury market risk 
instruments. Only the portion of the total position in a Treasury market 
risk instrument that forms part of such a hedge may be excluded, and the 
result of this transfer of the Treasury market risk instruments must be 
a reduction in the other securities haircut.
    The categories for classifying Treasury market risk instruments are 
designated in 17 CFR 402.2(f)(1). The categories, which are designated 
by a maturity range, contain all securities with remaining terms to 
maturity greater than or equal to the lower end of the range but less 
than the higher. A half year is always considered to be 6 months. In 
categories A through D, zero-coupon instruments are to be treated in the 
same manner as all other instruments. In categories E through J, the 
maturity designations in parentheses give the maturities of the zero-
coupon instruments to be placed in that category. All mortgage-backed 
securities that are Treasury market risk instruments are to be placed in 
category MB or category AR, depending on whether they are backed by 
conventional or adjustable-rate mortgages.
    All haircuts may be calculated to the nearest hundred dollars, 
unless such rounding would materially affect the liquid capital 
calculation.
    Appendix A to the Preamble published with the temporary regulations 
for 17 CFR part 402 (52 FR 19669, May 26, 1987) contains an example of 
the capital calculation. It may also be used as an aid in completing 
these schedules.

       Schedule A--Liquid Capital Requirement Summary Computation

    Schedule A is used to determine the capital-to-risk ratio by 
comparing liquid capital to total haircuts. Schedule A will be the last 
schedule completed as many of the haircuts entered on Schedule A are 
calculated on Schedules B through E.
    Line 1--Enter liquid capital, which is identical to the amount 
reported on line 3640 of the Report on Finances and Operations of 
Government Securities Brokers and Dealers, Form G-405.
    Line 2--Haircuts on ``Security and Financing Positions'' including 
contractual commitments:
    a. Enter the Total Governments Offset Portion Haircut from column 10 
of Schedule C.
    b. Enter the Total Futures and Options Offset Haircut from column 19 
of Schedule D.
    c. Enter the Total Hedging Disallowance Haircut as calculated in 
Schedule E, column 27.
    d. Enter the Residual Net Position Haircut as given in column 28 of 
Schedule E.
    e. Enter the other securities haircut as determined by applying the 
SEC haircut factors to securities, futures contracts, forward contracts, 
options and other inventory that are not Treasury market risk 
instruments as defined in 17 CFR 402.2(e). The other securities haircut 
is the sum of all applicable deductions as specified in 17 CFR 240.15c3-
1 (c)(2)(vi) and (c)(2)(viii) and in 17 CFR 240.15c3-1a and 240.15c3-1b. 
Any position(s) in Treasury market risk instruments that have been 
excluded from the calculation of the Treasury market risk haircut 
because they are part of a hedge with these other instruments are to be 
included in the calculation of this haircut.
    Line 3--Haircuts on credit exposure:
    a. Enter the total counterparty exposure haircut which is the sum of 
the counterparty exposure haircut with each counterparty, except a 
Federal Reserve Bank. A counterparty exposure haircut is equal to 5 
percent of the net credit exposure to a single counterparty which is not 
in excess of 15 percent of the government securities broker's or 
dealer's liquid capital. If the net credit exposure to a counterparty 
does exceed 15 percent of liquid capital, the excess will be used in 
calculating the total concentration of credit haircut on line 3b.
    Net credit exposure equals the difference between the government 
securities broker's or dealer's credit exposure to a single counterparty 
and that counterparty's credit exposure to the government securities 
broker or dealer. The government securities broker's or dealer's credit 
exposure to a counterparty is equal to the sum of the dollar amount of 
funds, debt instruments, other securities, and other inventory at risk 
to the government securities broker or dealer in the event of the 
counterparty's default and the market value of purchased unlisted 
options that are Treasury market risk instruments and were written by 
the counterparty.

[[Page 1411]]

It does not include, however, (1) the deduction taken from net worth for 
unsecured receivables, repurchase and reverse repurchase agreement 
deficits, aged fails to deliver, and aged fails to receive arising from 
transactions with the counterparty; (2) demand deposits in the case 
where the counterparty is a commercial bank; (3) loans of immediately 
available funds (commonly referred to as ``sales of federal funds'') 
held by the government securities broker or dealer in connection with 
the clearance of securities on the day the loan is made in the case 
where the counterparty is a commercial bank; (4) custodial holdings of 
securities in the case where the counterparty is a clearing bank or 
clearing broker of the government securities broker or dealer; or (5) 
credit exposure to the counterparty due to holding marketable 
instruments for which the counterparty is the obligor.
    The counterparty's credit exposure to the government securities 
broker or dealer equals the dollar amount of funds, debt instruments, 
other securities, and other inventory at risk to the counterparty in the 
event of the government security broker's or dealer's default and any 
unlisted options written by the government securities broker or dealer 
and held by the counterparty.
    b. Enter the total concentration of credit haircut which is the sum 
of all concentration of credit haircuts applied in cases where the net 
credit exposure (as defined above) to a single counterparty is in excess 
of 15 percent of the government securities broker's or dealer's liquid 
capital. The concentration of credit haircut is 25 percent of the amount 
of net credit exposure in excess of 15 percent of the government 
securities broker's or dealer's liquid capital.
    c. Enter the credit volatility haircut which equals a factor of 0.15 
percent applied to the larger of the gross long or gross short position 
in money market instruments qualifying as Treasury market risk 
instruments which mature in 45 days or more, in futures and forwards on 
these instruments that are settled on a cash or delivery basis, and in 
futures and forwards on time deposits described in Sec.
402.2(e)(1)(vii), that mature in 45 days or more, settled on a cash or 
delivery basis. Money market instruments qualifying as Treasury market 
risk instruments are (1) marketable certificates of deposit with no more 
than one year to maturity, (2) bankers acceptances, and (3) commercial 
paper of no more than one year to maturity and which has only a minimal 
amount of credit risk as determined by the government securities broker 
or dealer pursuant to reasonably designed written policies and 
procedures the government securities broker or government securities 
dealer establishes, maintains, and enforces to assess and monitor 
creditworthiness. These policies and procedures should result in 
creditworthiness assessments that typically are consistent with market 
data.
    Line 4--Enter total haircuts which is the sum of lines 2 a through 
e, and 3 a, b, and c.
    Line 5--Enter the capital-to-risk ratio which is found by dividing 
line 1, ``Liquid capital,'' by line 4, ``Total haircuts.'' The capital-
to-risk ratio must be at least equal to 1.2:1.

  Schedule B--Calculation of Net Immediate Position in Securities and 
                               Financings

    Schedule B is used to calculate the net immediate position in and 
offset portion of securities and financings. The results are then 
carried over to Schedule C for initial haircut calculations. Futures, 
forwards, and options which are Treasury market risk instruments are to 
be entered on Schedule D.
    Positions in and financings on debt instruments other than mortgage-
backed or adjustable rate mortgage-backed securities should be placed in 
the category corresponding to their remaining term to maturity. In the 
case of a floating rate note, however, the note should be placed in the 
category corresponding to the time to the next scheduled interest rate 
adjustment or remaining term to maturity, whichever is less.
    Column 1--Under ``Financings-Long'' report in the appropriate 
category the contract value of reverse repurchase agreements and the 
value(s) of cash collateral on security borrowings. Financings so 
reported should be placed in the category corresponding to the remaining 
term to maturity or time to the next scheduled interest rate adjustment, 
whichever is less.
    Column 2--Under ``Financings-Short'' report in the appropriate 
category as a negative number the values of funds received from 
financing transactions. Include repurchase agreements, securities 
lending secured by cash collateral, and term financings, but exclude 
subordinated debt which meets the requirements of 17 CFR 240.15c3-1d as 
modified by 17 CFR 402.2d. Financings so reported should be placed in 
the category corresponding to the remaining term to maturity or time to 
the next scheduled interest rate adjustment, whichever is less.
    Columns 3 and 4--Report in the appropriate column by maturity or 
type of mortgage-backed security under ``Securities Positions'' the sum 
of the market values of immediate positions in Treasury market risk 
instruments. The net position in each individual Treasury market risk 
instrument is to be appropriately reported as a long (+) or short (-) 
position in summation with all other positions of the same category 
(long/short). Short positions are assigned a negative value. Treasury 
market risk instruments are defined in 17 CFR 402.2(e). Those to be 
reported in Schedule B are:

[[Page 1412]]

    (1) Government securities as defined in 17 CFR 400.3 except equity 
securities and mortgage-backed securities which do not pass through to 
the security holder on a pro rata basis a distribution based on the 
monthly payments and prepayments of principal and interest on the 
underlying pool of mortgage collateral less fees and expenses;
    (2) Zero-coupon receipts or certificates based on marketable 
Treasury notes or bonds;
    (3) Marketable certificates of deposit of no more than one year to 
maturity;
    (4) Bankers acceptances;
    (5) Commercial paper of no more than one year to maturity and which 
has only a minimal amount of credit risk as determined by the government 
securities broker or dealer pursuant to reasonably designed written 
policies and procedures the government securities broker or dealer 
establishes, maintains, and enforces to assess and monitor 
creditworthiness. These policies and procedures should result in 
creditworthiness assessments that typically are consistent with market 
data; and
    (6) Securities described in Sec.402.2(e)(1)(vi).
    Report all positions as of the trade date. If the settlement date is 
scheduled for more than five business days in the future (or, in the 
case of a mortgage-backed security, more than thirty calendar days in 
the future), then report the position as a forward contract on Schedule 
D. Also, under ``Securities Positions'' in the appropriate column and 
category, report any when-issued position in a marketable Treasury 
security between announcement and issue date, any when-issued position 
in a government agency or a government-sponsored agency debt security 
between release date and issue date, and any when-issued position in a 
security described in Sec.402.2(e)(1)(vi) between announcement date 
and issue date.
    Exclude positions in Treasury market risk instruments which form 
part of a hedge against long and short positions in securities, futures 
contracts, forward contracts, or options that are not Treasury market 
risk instruments and are to be included in the calculation of the other 
securities haircut. Only that portion of the total position in a 
Treasury market risk instrument that forms part of such a hedge may be 
excluded, and the inclusion of the Treasury market risk instruments must 
reduce the other securities haircut.
    Column 5--Under ``Total Securities and Financing Positions (+)'' 
report in the appropriate category the sum of the long financings 
(column 1) and long securities positions (column 3).
    Column 6--Under ``Total Securities and Financing Positions (-)'' 
report in the appropriate category the sum of the short financings 
(column 2) and short securities positions (column 4).
    Column 7--Under ``Offset Portions'' report in the appropriate 
category the lesser of the absolute values of the positive (column 5) or 
negative (column 6) total securities and financing positions.
    Column 8--Under ``Net Immediate Positions'' report in the 
appropriate category the sum, or net value, of the positive (column 5) 
and negative (column 6) total securities and financing positions.
    Columns 7, ``Offset Portions,'' and 8, ``Net Immediate Positions,'' 
are to be carried to Schedule C.

   Schedule C--Governments Offset Portion and Net Immediate Position 
                      Interim Haircuts Calculation

    Schedule C is used to calculate the total governments offset portion 
haircut and net immediate position interim haircuts by applying offset 
and net position haircut factors to the offset portions and net 
immediate positions in Treasury market risk instruments and financings. 
The total governments offset portion haircut is then carried to Schedule 
A, and the net immediate position interim haircuts are carried to 
Schedule D or E.
    Column 7--Transfer to column 7, ``Governments Offset Portion--$ 
Amounts,'' column seven from Schedule B, ``Offset Portions.''
    Column 9--These are the governments offset portion haircut factors 
given at 17 CFR 402.2(f)(2). They may be updated from time to time.
    Column 10--Under ``Governments Offset Portion--Haircuts'' report in 
the appropriate category the product of the corresponding values in 
column 7, ``$ Amounts,'' and in column 9, ``Factors.''
    To determine the total governments offset portion haircut, sum the 
values under ``Governments Offset Portion--Haircuts'' in column 10, and 
enter this number in the appropriate space. Carry this value to Schedule 
A, line 2a, converting, if necessary, to thousands of dollars.
    Column 8--Transfer to column 8, ``Net Immediate Positions--$ 
Amounts,'' column eight from Schedule B, ``Net Immediate Positions.''
    Column 11--These are the net immediate position haircut factors 
given at 17 CFR 402.2(f)(2). They may be updated from time to time.
    Column 12--Under ``Net Immediate Positions--Interim Haircuts'' place 
in the appropriate category the product of the corresponding values in 
column 8, ``$ Amounts,'' and in column 11, ``Factors.'' A haircut on a 
short position remains negative.
    Carry column 12 to Schedule D, or, if there are no futures, 
forwards, or options positions, to Schedule E.

[[Page 1413]]

  Schedule D--Consolidation of Net Immediate Position Interim Haircuts 
             with Gross Futures and Options Interim Haircuts

    Schedule D is used to enter haircuts on futures, forwards and 
options positions and to calculate the total futures and options offset 
haircut and the residual position interim haircuts as needed for 
Schedules A and E respectively. If there are no futures and options 
positions, it is not necessary to fill out Schedule D.
    Report on Schedule D futures, forwards, and options which are 
Treasury market risk instruments as defined in Sec.402.2(e). These 
futures, forwards, and listed option contracts may be based on any of 
the Treasury market risk instruments described in the instructions to 
columns 3 and 4 on Schedule B or on time deposits whose changes in yield 
are closely correlated with marketable certificates of deposit which are 
Treasury market risk instruments, as described in Sec.
402.2(e)(1)(vii). Options on Treasury market risk futures contracts and 
unlisted options on marketable Treasury bills, notes, and bonds are also 
to be included. Futures contracts may settle on a cash or delivery 
basis. Any of these contracts which are being included as part of a 
hedge in the calculation of the other securities haircut must be 
excluded from Schedule D.
    Report as a forward contract any position for which the time between 
trade date and settlement date is more than five business days (30 
calendar days for a mortgage-backed security). Any when-issued position 
in a marketable Treasury security established between announcement and 
issue date, any when-issued position in a government agency or a 
government-sponsored agency debt security established between release 
date and issue date, and any when-issued position in a security 
described in Sec.402.2(e)(1)(vi) between announcement date and issue 
date is reported in the appropriate category on Schedule B under 
``Securities Positions.''
    Column 12--Transfer to column 12, ``Net Immediate Position Interim 
Haircuts,'' column 12 from Schedule C, ``Net Immediate Positions--
Interim Haircuts,'' converting, if necessary, to thousands of dollars.
    Columns 13 and 14--Under ``Gross Interim Haircuts--Futures and 
Forward'' enter in the appropriate category the sum of the interim 
haircuts on the futures or forward positions belonging to that category. 
The interim haircut on a futures or forward position equals the product 
of the value of the position evaluated at the current market price for 
such contract and the net position haircut factor that corresponds to 
either the term to maturity of the underlying instrument or, for 
mortgage-backed securities, the type of security. The term to maturity 
of the underlying instrument is the term to maturity of the deliverable 
security at the time of the maturity of the futures or forward contract. 
The haircut on a futures or forward position on a non-mortgaged-backed 
instrument is to be entered in the category corresponding to the sum of 
the remaining time to maturity of the futures or forward contract and 
the maturity of the underlying instrument. Haircuts on futures and 
forwards on mortgage-backed securities are to be entered in the 
appropriate mortgage-backed securities category. The interim haircuts on 
long futures and forwards are positive (column 13), and on short futures 
and forwards, negative (column 14).
    Columns 15 and 16--Under ``Gross Interim Haircuts--Options'' enter, 
in the category in which the instrument directly underlying the contract 
would be entered, the lesser of (1) the market value of the option or 
(2) the net immediate position interim haircut on the underlying cash 
instrument or gross futures interim haircut on the underlying futures 
contract. Note that in the case of an option on a futures contract the 
category in which the option contract is to be entered is the sum of the 
remaining time to maturity of the futures or forward contract and the 
maturity of the instrument underlying the futures or forward contract. 
The haircut factor used to determine the gross futures interim haircut 
is that factor corresponding to the term to maturity of the deliverable 
security at the time of the maturity of the futures or forward contract. 
Gross option haircuts on purchased calls and sold puts are positive, 
those on sold calls and purchased puts are negative.
    Column 17--Under ``Aggregate Interim Haircuts (+)'' enter in the 
appropriate category, the sum of any positive net immediate position 
interim haircut (column 12) and the positive gross option (column 15) 
and gross futures and forward (column 13) interim haircuts for that 
category.
    Column 18--Under ``Aggregate Interim Haircuts (-)'' enter in the 
appropriate category, the sum of any negative net immediate position 
interim haircut (column 12) and the negative gross option (column 16) 
and gross futures and forward (column 14) interim haircuts for that 
category.
    Column 19--Under ``Futures and Options Offset Portions'' enter, in 
the appropriate category, the lesser of the absolute values of the 
positive and negative aggregate interim haircuts (columns 17 and 18) for 
that category.
    The total futures and options offset portion is the sum of the 
values in column 19 under ``Futures and Options Offset Portions.''
    The total futures and options offset haircut is the total futures 
and options offset portion multiplied by a factor of 20 percent and is 
carried to line 2b, Schedule A.
    Column 20--Enter in the appropriate category under ``Residual 
Position Interim

[[Page 1414]]

Haircuts'' the sum, or net value, of the positive and negative aggregate 
interim haircuts. Carry this to column 20 on Schedule E.

 Schedule E--Calculation of Hedging Disallowance Haircuts When Netting 
                       Haircuts Across Categories

    Schedule E is used to calculate the hedging disallowance and 
residual net position haircuts which are then carried to Schedule A. The 
purpose of Schedule E is to hedge positions in different categories in 
order to reduce total haircuts. Netting the residual position interim 
haircuts reflects the risk reduction inherent in hedges between 
positions in different categories where the price volatility is 
reasonably well correlated.
    Section 402.2(f)(3) of the rule specifies the hedging disallowance 
haircut factors for the category pairs. Netting of residual position 
interim haircuts is permitted only between any two categories for which 
a hedging disallowance haircut factor is specified. Hedging disallowance 
haircuts are similar to offset haircuts in that they are applied to the 
smaller of the two residual position interim haircuts and represent the 
portion of the hedge being ``disallowed.'' A hedging disallowance 
haircut is determined each time two residual position interim haircuts 
are netted.
    There are three levels of permissible netting corresponding to the 
three hedging disallowance haircut factors: The 20 percent, 30 percent, 
and 40 percent levels. It is not necessary to net all possible pairs at 
any one level. A greater reduction in total haircuts can sometimes be 
obtained by choosing not to net a pair at one level (e.g., the 20 
percent level) so that one element of the pair can be netted against a 
third category at another level (e.g., the 30 percent level).
    Column 20--Transfer column 20, ``Residual Position Interim 
Haircuts,'' from Schedule D. If there are no futures or options 
positions, transfer instead column 12, ``Net Immediate Positions--
Interim Haircuts,'' from Schedule C.
    Column 21--Use the matrix at 17 CFR 402.2(f)(3) to determine the 
categories from which the residual position interim haircuts may be 
paired at the 20 percent level. For each pair multiply the smaller of 
the absolute values of the two residual position interim haircuts by the 
hedging disallowance haircut factor of 20 percent, and, in the category 
of the smaller, enter the resulting hedging disallowance haircut.
    Column 22--For each pair being netted at this level, enter under 
``Net Residual Position Interim Haircuts'' (1) the sum, or net value, of 
the two residual position interim haircuts (and/or net residual position 
interim haircuts) in the category of the larger (in absolute value) of 
the two interim haircuts that were netted, and (2) a zero in the 
category of the smaller.
    These net residual position interim haircuts replace the residual 
position interim haircuts (or net residual position interim haircuts) 
from which they were derived. Net residual position interim haircuts can 
in turn be used in any other allowable netting exactly as residual 
position interim haircuts would be. If further netting of that category 
at the same level is permissible and possible, it will be necessary to 
replace the net residual position interim haircut involved with a new 
(and smaller) net residual position interim haircut in column 22.
    Since the net residual position interim haircut in any category 
containing a hedging disallowance haircut is zero, further netting with 
any such category is impossible.
    After all netting has been completed for category pairs with a 20 
percent hedging disallowance haircut factor, move on to column 23.
    Column 23--Use the matrix at 17 CFR 402.2(f)(3) to determine the 
categories from which the residual position interim haircuts and/or net 
residual position interim haircuts may be paired at the 30 percent 
level. In each category, the newest (and smallest) net residual position 
interim haircut determined by netting at the 20 percent level replaces 
the old value and must be used in hedging in that category at higher 
levels. For each pair being netted, multiply the smaller of the absolute 
values of the two (net) residual position interim haircuts by the 
hedging disallowance haircut factor of 30 percent, and in the category 
of the smaller, enter the resulting hedging disallowance haircut.
    Column 24--For each pair being netted at this level, enter under 
``Net Residual Position Interim Haircuts'' (1) the sum, or net value, of 
the two residual position interim haircuts and/or net residual position 
interim haircuts in the category of the larger (in absolute value) of 
the two interim haircuts that were netted, and (2) a zero in the 
category of the smaller.
    These net residual position interim haircuts replace the residual 
position interim haircuts (or net residual position interim haircuts) 
from which they were derived. Net residual position interim haircuts can 
in turn be used in any other allowable netting exactly as residual 
position interim haircuts would be. If further netting of that category 
at the same level is permissible and possible, it will be necessary to 
replace the net residual position interim haircut involved with a new 
(and smaller) net residual position interim haircut.
    After all netting has been completed for category pairs with a 30 
percent hedging disallowance haircut factor, continue to column 25.
    Column 25--Use the matrix at 17 CFR 402.2(f)(3) to determine the 
categories from which the residual position interim haircuts and/or net 
residual position interim haircuts

[[Page 1415]]

may be paired at the 40 percent level. In each category, any new net 
residual position interim haircut determined by netting at the 20 or 30 
percent level replaces the old value and must be used in hedging with 
that category at the 40 percent level. For each pair being netted, 
multiply the smaller of the absolute values of the two (net) residual 
position interim haircuts by the hedging disallowance haircut factor of 
40 percent and, in the category of the smaller, enter the resulting 
hedging disallowance haircut.
    Column 26--For each pair being netted at this level, enter under 
``Net Residual Position Interim Haircuts'' (1) the sum, or net value, of 
the two (net) residual position interim haircuts in the category of the 
larger (in absolute value) of the two interim haircuts that were netted, 
and (2) a zero in the category of the smaller. If further netting of 
that category at the same level is permissible and possible, it will be 
necessary to replace the net residual position interim haircut involved 
with a new (and smaller) net residua1 position interim haircut.
    Column 27--When all possible (net) residual position interim 
haircuts have been netted, enter under ``Hedging Disallowance Haircuts'' 
all hedging disallowance haircuts calculated in the netting procedures, 
each in its appropriate category.
    Enter under ``Total Hedging Disallowance Haircut'' the sum of all 
the hedging disallowance haircuts entered in column 27. Carry to 
Schedule A, line 2c.
    Column 28--Under ``Qualified Netting Interim Haircuts'' enter in the 
appropriate category the absolute value of the haircut given under ``Net 
Residual Position Interim Haircut'' at the highest hedging disallowance 
factor used for that category (columns 26, 24, or 22). This value will 
also be the smallest of the net residual position interim haircuts in 
that category. If the position in a given category was not used in 
hedging then enter the absolute value of the residual position interim 
haircut from column 20.
    Sum the qualified netting interim haircuts, enter this value under 
``Residual Net Position Haircut,'' and carry to Schedule A, line 2d.

[52 FR 27931, July 24, 1987, as amended at 53 FR 28985, Aug. 1, 1988; 71 
FR 54411, Sept. 15, 2006; 79 FR 38455, July 8, 2014]



Sec.402.2b  [Reserved]



Sec.402.2c  Appendix C--Consolidated computations of liquid capital
and total haircuts for certain subsidiaries and affiliates.

    (a) Consolidation. (1) A government securities broker or dealer (the 
``parent broker or dealer''), in computing its liquid capital and total 
haircuts pursuant to Sec.402.2:
    (i) Shall consolidate in a single computation of liquid capital the 
assets and liabilities of any subsidiary or affiliate for which the 
parent broker or dealer guarantees, endorses, or assumes directly or 
indirectly the obligations or liabilities if the parent broker or dealer 
has obtained the opinion of counsel described in paragraph (b) of this 
section with respect to such subsidiary or affiliate;
    (ii) May not consolidate in a single computation of liquid capital 
the assets and liabilities of any subsidiary or affiliate for which the 
parent broker or dealer guarantees, endorses, or assumes directly or 
indirectly the obligations or liabilities if the parent broker or dealer 
has not obtained the opinion of counsel described in paragraph (b) of 
this section with respect to such subsidiary or affiliate, but in that 
event, the parent broker or dealer shall compute its total haircuts by 
adding the total haircuts of each such subsidiary or affiliate computed 
in accordance with the provisions of Sec.402.2 to the haircuts of the 
parent broker or dealer computed separately in accordance with the 
provisions of Sec.402.2; and
    (iii) May consolidate in its computation of liquid capital the 
assets and liabilities of any majority owned and controlled subsidiary 
or affiliate for which the parent broker or dealer does not guarantee, 
endorse or assume directly or indirectly the obligations or liabilities 
if the parent broker or dealer has obtained the opinion of counsel 
described in paragraph (b) of this section with respect to such 
subsidiary or affiliate.
    (2) With respect to any subsidiary or affiliate whose assets and 
liabilities are consolidated in the parent broker's or dealer's 
computation of liquid capital according to the provisions of paragraph 
(a)(1)(i) or (a)(1)(iii) of this section, the parent broker or dealer 
shall compute its haircuts in accordance with the provisions of Sec.
402.2 as if the consolidated entity were one firm, or, in the 
alternative, shall add the total haircuts of each consolidated 
subsidiary or affiliate computed in accordance with the provisions of 
Sec.402.2 to the haircuts of the parent broker or

[[Page 1416]]

dealer computed separately in accordance with the provisions of Sec.
402.2.
    (b) Required counsel opinion. The opinion of counsel referred to in 
paragraph (a) of this section shall demonstrate to the satisfaction of 
the Commission, through the Designated Examining Authority, that net 
asset values, or the portion thereof related to the parent broker's or 
dealer's ownership interest in a majority owned and controlled 
subsidiary or affiliate, may be caused by the parent broker or dealer or 
an appointed trustee to be distributed to the parent broker or dealer 
within 30 calendar days. Such opinion shall also set forth the actions 
necessary to cause such a distribution to be made, identify the parties 
having the authority to take such actions, identify and describe the 
rights of other parties or classes of parties, including but not limited 
to customers, general creditors, subordinated lenders, minority 
shareholder employees, litigants and governmental or regulatory 
authorities, who may delay or prevent such a distribution and such other 
assurances as the Commission or the Designated Examining Authority by 
rule or interpretation may require. Such opinion shall be current and 
periodically renewed in connection with the parent broker's or dealer's 
annual audit pursuant to Sec.240.17a-5 of this title, as made 
applicable to government securities brokers or dealers by Sec.405.2 of 
this chapter, or upon any material change in circumstances.
    (c) Principles of consolidation. The following minimum and non-
exclusive requirements shall govern the consolidation of a subsidiary or 
affiliate in the computation of total liquid capital and total haircuts 
of a government securities broker or dealer pursuant to this section:
    (1) The total liquid capital of the government securities broker or 
dealer shall be reduced by the estimated amount of any taxes reasonably 
anticipated to be incurred upon distribution of the assets of the 
subsidiary or affiliate.
    (2) Liabilities of a consolidated subsidiary or affiliate that are 
subordinated to the claims of present and future creditors pursuant to a 
satisfactory subordination agreement shall not be added to consolidated 
net worth unless such subordination extends also to the claims of 
present or future creditors of the parent broker or dealer and all 
consolidated subsidiaries.
    (3) Subordinated liabilities of a consolidated subsidiary or 
affiliate that are consolidated in accordance with paragraph (c)(2) of 
this section may not be prepaid, repaid or accelerated if any of the 
entities included in such consolidation would otherwise be unable to 
comply with the provision of Sec.240.15c3-1d of this title, as 
modified by Sec.402.2d.
    (4) Each government securities broker or dealer included within the 
consolidation shall at all times be in compliance with the liquid 
capital or net capital requirement to which it is subject.
    (d) Certain Precluded Acts. Even if consolidation is not required or 
allowed under paragraph (a) of this section, no parent broker or dealer 
shall guarantee, endorse or assume directly or indirectly any obligation 
or liability of a subsidiary or affiliate unless the obligation or 
liability is reflected in the parent broker's or dealer's computation of 
liquid capital.



Sec.402.2d  Appendix D--Modification of Sec.240.15c3-1d of this
title, relating to satisfactory subordination agreements, for 
purposes of Sec.402.2.

    Section 240.15c3-1d of this title shall apply to government 
securities brokers and dealers subject to the requirements of Sec.
402.2 with the following modifications.
    (a) References to ``broker or dealer'' include government securities 
brokers and dealers.
    (b) References to ``17 CFR 240.15c3-1'' mean Sec.402.2.
    (c) Section 240.15c3-1d(a)(2)(iii) is modified to read as follows:
    ``(iii) The term ``Collateral Value'' of any securities pledged to 
secure a secured demand note shall mean the market value of such 
securities after giving effect to the haircuts specified in Sec.402.2a 
of this title.''
    (d) References to ``17 CFR 240.15c3-1d'' mean that section as 
modified by this section.
    (e) Section 240.15c3-1d(b)(6)(iii) is modified to read as follows:
    ``(iii) The secured demand note agreement may also provide that, in 
lieu of

[[Page 1417]]

the procedures specified in the provisions required by paragraph 
(b)(6)(ii) of this section, the lender, with the prior written consent 
of the government securities broker or dealer and the Examining 
Authority for such broker or dealer, may reduce the unpaid principal 
amount of the secured demand note. After giving effect to such 
reduction, the liquid capital, as defined in Sec.402.2(d) of this 
title, of the government securities broker or dealer may not be less 
than 150% of the government securities broker's or dealer's total 
haircuts, as defined in Sec.402.2(g) of this title. No single secured 
demand note shall be permitted to be reduced by more than 15% of its 
original principal amount and after such reduction no excess collateral 
may be withdrawn. No Examining Authority shall consent to a reduction of 
the principal amount of a secured demand note if, after giving effect to 
such reduction, liquid capital after deducting total haircuts would be 
less than 120% of the minimum dollar amount required by Sec.402.2(b) 
or Sec.402.2(c) of this title as applicable.''
    (f) Section 240.15c3-1d(b)(7) is modified to read as follows:
    ``(7) A government securities broker or dealer at its option but not 
at the option of the lender may, if the subordination agreement so 
provides, make a Payment of all or any portion of the Payment Obligation 
thereunder prior to the scheduled maturity date of such Payment 
Obligation (hereinafter referred to as a ``Prepayment''), but in no 
event may any Prepayment be made before the expiration of one year from 
the date such subordination agreement became effective. This restriction 
shall not apply to temporary subordination agreements which comply with 
the provisions of paragraph (c)(5) of this section. No Prepayment shall 
be made if, after giving effect thereto (and to all Payments of Payment 
Obligations under any other subordinated agreements then outstanding the 
maturities or accelerated maturities of which are scheduled to fall due 
within six months after the date such Prepayment is to occur pursuant to 
this provision or on or prior to the date on which the Payment 
Obligation in respect of such Prepayment is scheduled to mature 
disregarding this provision, whichever date is earlier) without 
reference to any projected profit or loss of the government securities 
broker or dealer, the liquid capital, as defined in Sec.402.2(d) of 
this title, of the government securities broker or dealer would be less 
than 150% of the government securities broker's or dealer's total 
haircuts, as defined in Sec.402.2(g) of this title. Notwithstanding 
the above, no Prepayment shall occur without the prior written approval 
of the Examining Authority for such government securities broker or 
dealer.''.
    (g) Section 240.15c3-1d(b)(8) is modified to read as follows:
    ``(i) The Payment Obligation of the government securities broker or 
dealer in respect of any subordination agreement shall be suspended and 
shall not mature if, after giving effect to Payment of such Payment 
Obligation (and to all Payments of Payment Obligations of such broker or 
dealer under any other subordination agreement(s) then outstanding which 
are scheduled to mature on or before such Payment Obligation), either 
the liquid capital, as defined in Sec.402.2(d) of this title, of the 
government securities broker or dealer would be less than 150% of the 
government securities broker's or dealer's total haircuts, as defined in 
Sec.402.2(g) of this title, or the government securities broker's or 
dealer's liquid capital after deducting total haircuts would be less 
than 120% of the minimum dollar amount required by Sec.402.2(b) or 
Sec.402.2(c) of this title, as applicable. The subordination agreement 
may provide that if the Payment Obligation of the government securities 
broker or dealer thereunder does not mature and is suspended as a result 
of the requirement of this paragraph (b)(8) for a period of not less 
than six months, the government securities broker or dealer shall 
thereupon commence the rapid and orderly liquidation of its business but 
the right of the lender to receive Payment, together with accrued 
interest or compensation, shall remain subordinate as required by the 
provisions of 17 CFR 240.15c3-1 and 240.15c3-1d.''.
    (h) Section 240.15c3-1d(b)(10)(ii)(B) is modified to read as 
follows:

[[Page 1418]]

    ``(B) The liquid capital, as defined in Sec.402.2(d) of this 
title, of the government securities broker or dealer being less than 
120% of total haircuts, as defined in Sec.402.2(g) of this title, 
throughout a period of 15 consecutive business days, commencing on the 
day the broker or dealer first determines and notifies the Examining 
Authority for the government securities broker or dealer, or the 
Examining Authority or the Commission first determines and notifies the 
government securities broker or dealer of such fact;''.
    (i) Section 240.15c3-1d(c)(2) is modified to read as follows:
    ``(2) Notice of Maturity or Accelerated Maturity. Every government 
securities broker or dealer shall immediately notify the Examining 
Authority for such broker or dealer if, after giving effect to all 
Payments of Payment Obligations subordination agreements then 
outstanding which are then due or mature within the following six months 
without reference to any projected profit or loss of the broker or 
dealer, the liquid capital, as defined in Sec.402.2(d) of this title, 
of such government securities broker or dealer, would be less than 150% 
of total haircuts, as defined in Sec.402.2(g) of this title.''.
    (j) Section 240.15c3-1d(c)(5)(i) is modified to read as follows:
    ``(i) For the purpose of enabling a government securities broker or 
dealer to participate as an underwriter of securities or other 
extraordinary activities in compliance with the capital requirements of 
Sec.402.2 of this title, a government securities broker or dealer 
shall be permitted, on no more than three occasions in any 12 month 
period, to enter into a subordination agreement on a temporary basis 
which has a stated term of no more than 45 days from the date such 
subordination agreement became effective. This temporary relief shall 
not apply to a government securities broker or dealer if, within the 
preceding thirty calendar days, it has given notice pursuant to Sec.
405.3, or if immediately prior to entering into such subordination 
agreement, the liquid capital, as defined in Sec.402.2(d) of this 
title, of such broker or dealer would be less than 150% of total 
haircuts, as defined in Sec.402.2(g) of this title, or the amount of 
its then outstanding subordination agreements exceeds the limits 
specified in Sec.240.15c3-1(d). Such temporary subordination agreement 
shall be subject to all other provisions of this appendix D.''.
    (k) Section 240.15c3-1d(c)(5)(ii)(A) is modified to read as follows:
    ``(A) After giving effect thereto (and to all Payments of Payment 
Obligations under any other subordinated agreements then outstanding the 
maturity or accelerated maturities of which are scheduled to fall due 
within six months after the date such prepayment is to occur pursuant to 
this provision or on or prior to the date on which the Payment 
Obligation in respect of such prepayment is schedu1ed to mature 
disregarding this provision, whichever date is earlier) without 
reference to any projected profit or loss of the government securities 
broker or dealer, the liquid capital, as defined in Sec.402.2(d) of 
this title, of such broker or dealer, would be less than 180% of total 
haircuts, as defined in Sec.402.2(g) of this title.''.

[52 FR 27931, July 24, 1987, as amended at 59 FR 53731, Oct. 26, 1994]



PART 403_PROTECTION OF CUSTOMER SECURITIES AND BALANCES--
Table of Contents



Sec.
403.1 Application of part to registered brokers and dealers.
403.2 Hypothecation of customer securities.
403.3 Use of customers' free credit balances.
403.4 Customer protection--reserves and custody of securities.
403.5 Custody of securities held by financial institutions that are 
          government securities brokers or dealers.
403.6 Compliance with part by futures commission merchants.
403.7 Effective dates.

    Authority: Sec.101, Pub. L. 99-571, 100 Stat. 3209; Sec.4(b), Pub. 
L. 101-432, 104 Stat. 963; Sec.102, Sec.106, Pub. L. 103-202, 107 
Stat. 2344 (15 U.S.C. 78o-5(a)(5), (b)(1)(A), (b)(4)).

    Source: 52 FR 27947, July 24, 1987, unless otherwise noted.



Sec.403.1  Application of part to registered brokers and dealers.

    With respect to their activities in government securities, 
compliance by registered brokers or dealers with Sec.240.8c-1 of this 
title (SEC Rule 8c-1),

[[Page 1419]]

as modified by Sec.403.2 (a), (b) and (c), with Sec.240.15c2-1 of 
this title (SEC Rule 15c2-1), with Sec.240.15c3-2 of this title (SEC 
Rule 15c3-2), as modified by Sec.403.3, and with Sec.240.15c3-3 of 
this title (SEC Rule 15c3-3), as modified by Sec.403.4 (a) through 
(d), (f)(2) through (3), (g) through (j), and (m), including provisions 
in those rules relating to OTC derivatives dealers, constitutes 
compliance with this part.

[71 FR 54411, Sept. 15, 2006]



Sec.403.2  Hypothecation of customer securities.

    Every registered government securities broker or dealer shall comply 
with the requirements of Sec.240.8c-1 of this title concerning 
hypothecation of customer securities with the following modifications:
    (a) In Sec.240.8c-1(a), the words ``no government securities 
broker or dealer'' shall be substituted for the words ``no member of a 
national securities exchange, and no broker or dealer who transacts a 
business in securities through the medium of such member.''
    (b) Section 240.8c-1(d) is modified to read as follows:

    ``(d) Exemption for clearing liens. The provisions of paragraphs 
(a)(2), (a)(3) and (f) of this section shall not apply to any lien or 
claim of a clearing bank, or the clearing corporation (or similar 
department or association) of a national securities exchange or a 
registered national securities association, for a loan made to acquire 
any securities subject to said lien and to be repaid on the same 
calendar day, which loan is incidental to the clearing of transactions 
in securities or loans through such bank, corporation, department or 
association; provided, however, that for the purpose of paragraph (a)(3) 
of this section, `aggregate indebtedness of all customers in respect of 
securities carried for their accounts' shall not include indebtedness in 
respect of any securities subject to any lien or claim exempted by this 
paragraph.''

    (c) References to ``member, broker or dealer'' mean ``government 
securities broker or dealer.''



Sec.403.3  Use of customers' free credit balances.

    Every registered government securities broker or dealer shall comply 
with the requirement of Sec.240.15c3-2 of this title concerning the 
use of customer free credit balances. For purposes of this section, all 
references to ``broker or dealer'' in Sec.240.15c3-2 shall include 
government securities brokers and dealers.



Sec.403.4  Customer protection--reserves and custody of securities.

    Every registered government securities broker or dealer shall comply 
with the requirements of Sec.Sec.240.15c3-3 and 240.15c3-3a of this 
title (SEC Rule 15c3-3 and Exhibit A thereto), with the following 
modifications:
    (a) References to ``broker or dealer'' include government securities 
brokers and dealers.
    (b) ``Fully paid securities,'' as defined in Sec.240.15c3-3(a)(3) 
of this title, includes all securities held by a government securities 
broker or a government securities dealer for the account of a customer 
who has made full payment for such securities.
    (c) ``Margin securities,'' as defined in Sec.240.15c3-3(a)(4) of 
this title, includes any securities for which a customer has not made 
full payment and for which the customer has received an extension of 
credit by a government securities broker or government securities dealer 
for a portion of the purchase price.
    (d) ``Excess margin securities,'' as defined in Sec.240.15c3-
3(a)(5) of this title, includes margin securities carried for the 
account of a customer having a market value in excess of 140 percent of 
the total of the debit balances in the customer's account or accounts 
with the broker or dealer.
    (e) For purposes of this section, Sec.240.15c3-3(b)(3)(iii)(A) of 
this title is modified to read as follows:
    (A) Must provide to the lender upon the execution of the agreement, 
or by the close of the business day of the loan if the loan occurs 
subsequent to the execution of the agreement, collateral that fully 
secures the loan of securities, consisting exclusively of cash or United 
States Treasury bills or Treasury notes or an irrevocable letter of

[[Page 1420]]

credit issued by a bank as defined in Sec.3(a)(6)(A)-(C) of the Act 
(15 U.S.C. 78c(a)(6)(A)-(C)) or such other collateral as the Secretary 
designates as permissible by order as consistent with the public 
interest, the protection of investors, and the purposes of the Act, 
after giving consideration to the collateral's liquidity,
    (f)(1) For purposes of this section, Sec.240.15c3-3(b)(4)(i)(C) is 
modified to read as follows:
    ``(C) Advise the counterparty in the repurchase agreement that the 
Securities Investor Protection Act of 1970 will not provide protection 
to the counterparty with respect to the repurchase agreement.''
    (2) For purposes of this section, Sec.240.15c3-3(b)(4)(ii) is 
modified to read as follows:
    ``(ii) For purposes of this paragraph (4), securities are in the 
broker's or dealer's control only if they are in the control of the 
broker or dealer within the meaning of Sec.240.15c3-3(c)(1), (c)(3), 
(c)(5), (c)(6), or Sec.403.4(f) of this title.''
    (3) For purposes of this section, Sec.240.15c3-3(b)(4)(iv) is 
redesignated Sec.240.15c3-3(b)(4)(iv)(A) and paragraph (b)(4)(iv)(B) 
is added to read as follows:
    ``(B) A person that is a non-U.S. citizen residing outside of the 
United States or a foreign corporation, partnership, or trust may waive, 
but only in writing, the right to receive the confirmation required by 
paragraph (b)(4)(i)(B) of this section.''
    (g)(1) Securities under the control of a broker or dealer, as 
described in Sec.240.15c3-3(c) of this title, shall include securities 
maintained by a broker or dealer in an account at a depository 
institution, as defined in section 19(b)(A)(i)-(vi) of the Federal 
Reserve Act (12 U.S.C. 461(b)(1)(A)(i)-(vi)), which depository 
institution has a book-entry securities account at a Federal Reserve 
Bank through which it provides clearing services (``clearing bank''), 
provided the securities are maintained in a Segregated Account of the 
government securities broker or dealer. For purposes of this paragraph 
(f)(1) and paragraph (h) of this section, a Segregated Account is an 
account (other than a clearing account) of the government securities 
broker or dealer maintained on the books of a clearing bank pursuant to 
a written clearing agreement with such clearing bank which provides 
that:
    (i) Such account is established for the purpose of segregating 
securities of counterparties or customers of such broker or dealer from 
proprietary securities of the broker or dealer;
    (ii) The broker or dealer is entitled to direct the disposition of 
the securities; and
    (iii) The clearing bank does not have, and will not assert, any 
claim or lien against such securities nor will the clearing bank grant 
any third party, including any Federal Reserve Bank, any interest in 
such securities so long as they are maintained in the segregated 
account.
    (2) For purposes of this section, Sec.240.15c3-3(c)(2) of this 
title is redesignated as paragraph (c)(2)(i) and new paragraph 
(c)(2)(ii) is added to read as follows:
    ``(ii) Are carried for the account of any customer by a government 
securities broker or dealer in an account designated exclusively for 
customers of the government securities broker or dealer with a 
registered broker or dealer or another registered government securities 
broker or dealer (the ``carrying broker or dealer'') in compliance with 
instructions of the registered government securities broker or dealer to 
the carrying broker or dealer that the securities are to be maintained 
free of any charge, lien or claim of any kind in favor of the carrying 
broker or dealer or any persons claiming through such carrying broker or 
dealer; or''.

    (h) For the purposes of this section, Sec.240.15c3-3(d)(2) of this 
title is modified to read as follows:

    ``(2) Securities included on its books or records as failed to 
receive more than 30 calendar days, or in the case of mortgage-backed 
securities, more than 60 calendar days, then the government securities 
broker or government securities dealer shall, not later than the 
business day following the day on which such determination is made, take 
prompt steps to obtain possession or control of securities so failed to 
receive through a buy-in procedure or otherwise; or''


[[Page 1421]]


    (i) In addition to the notification required by Sec.240.15c3-3(i) 
of this title, whenever any government securities broker or dealer 
instructs its clearing bank to place securities in a Segregated Account 
(as defined in paragraph (f)(1) of this section), and the clearing bank 
refuses to do so as of the close of business on that day, the broker or 
dealer shall, in accordance with Sec.240.17a-11(f) of this title, give 
telegraphic notice of the notification by the clearing bank within 24 
hours and within 48 hours of the telegraphic notice, file a report 
stating what steps are being taken to correct the situation.
    (j) For purposes of this section, Sec.240.15c3-3(l) of this title 
is modified to read as follows:

    ``(l) Delivery or disposition of securities. Nothing stated in this 
section shall be construed as affecting the absolute right of a customer 
of a government securities broker or dealer, unless otherwise agreed in 
writing, in the normal course of business operations following demand 
made on the broker or dealer, to receive the physical delivery of 
certificates if the securities are issued in certificated form, or to 
direct a transfer of or otherwise to exercise control over any 
securities if they are:
    ``(1) Fully-paid securities to which the customer is entitled;
    ``(2) Margin securities upon full payment by such customer to the 
broker or dealer of the customer's indebtedness to the broker or dealer; 
or
    ``(3) Excess margin securities not reasonably required to 
collateralize such customer's indebtedness to the broker or dealer.''.

    (k) Except with respect to a government securities interdealer 
broker subject to the financial responsibility requirements of Sec.
402.1(e) and a registered government securities broker or dealer that is 
a futures commission merchant registered with the CFTC, Sec.240.15c3-
3(e)(3) is modified for purposes of this section to read as follows:

    ``(3) Computations necessary to determine the amount required to be 
deposited as specified in paragraph (e)(1) of this section shall be made 
weekly, as of the close of the last business day of the week, and the 
deposit so computed shall be made no later than 1 hour after the opening 
of banking business on the second following business day; provided, 
however, a government securities broker or dealer registered pursuant to 
section 15C(a)(1)(A) of the Act (15 U.S.C. 78o-5 (a)(1)(A)) which has a 
ratio of liquid capital to total haircuts (calculated in accordance with 
part 402 of this chapter) of 1.8 or greater and which carries aggregate 
customer funds (as defined in paragraph (a)(10) of this section), as 
computed at the last required computation pursuant to this section, not 
exceeding $1 million, may in the alternative make the computation 
monthly, as of the close of the last business day of the month, and, in 
such event, shall deposit not less than 105 percent of the amount so 
computed no later than 1 hour after the opening of banking business on 
the second following business day. If a registered government securities 
broker or dealer, computing on a monthly basis, has, at the time of any 
required computation, a ratio of liquid capital to total haircuts of 
less than 1.8, such broker or dealer shall thereafter compute weekly as 
aforesaid until four successive weekly computations are made, none of 
which were made at a time when its ratio of liquid capital to total 
haircuts was less than 1.8. Computations in addition to the computation 
required in this paragraph (3), may be made as of the close of any other 
business day, and the deposits so computed shall be made no later than 1 
hour after the opening of banking business on the second following 
business day. The registered government securities broker or dealer 
shall make and maintain a record of each such computation made pursuant 
to this paragraph (3) or otherwise and preserve such record in 
accordance with Sec.240.17a-4.''.

    (l) Except with respect to a government securities interdealer 
broker subject to the financial responsibility requirements of Sec.
402.1(e) and a registered government securities broker or dealer that is 
a futures commission merchant registered with the CFTC, Note E(5) of 
Sec.240.15c3-3a of this title is modified for purposes of this section 
to read as follows:


[[Page 1422]]


    ``(5) Debit balances in margin accounts (other than omnibus 
accounts) shall be reduced by the amount by which any single customer's 
debit balance exceeds 25% (to the extent such amount is greater than 
$50,000) of the government securities broker's or dealer's liquid 
capital unless such broker or dealer can demonstrate that the debit 
balance is directly related to credit items in the Reserve Formula. 
Related accounts (e.g., the separate accounts of an individual, accounts 
under common control or subject to cross guarantees) shall be deemed to 
be a single customer's accounts for purposes of this provision.''.

    (m) For purposes of this section, the suspension of Sec.240.15c3-
3(m) of this title (38 FR 12103, May 9, 1973) is no longer effective and 
the paragraph is modified to read as follows: ``(m) If a government 
securities broker or government securities dealer executes a sell order 
of a customer (other than an order to execute a sale of securities which 
the seller does not own, which for the purposes of this paragraph shall 
mean that the customer placing the sell order has identified the sale as 
a short sale to the government securities broker or dealer) and if for 
any reason whatever the government securities broker or government 
securities dealer has not obtained possession of the government 
securities, other than mortgage-backed securities, from the customer 
within 30 calendar days, or in the case of mortgage-backed securities 
within 60 calendar days, after the settlement date, the government 
securities broker or government securities dealer shall immediately 
thereafter close the transaction with the customer by purchasing, or 
otherwise obtaining, securities of like kind and quantity. For purposes 
of this paragraph (m), the term ``customer'' shall not include a broker 
or dealer who maintains a special omnibus account with another broker or 
dealer in compliance with section 4(b) of Regulation T (12 CFR 
220.4(b)).

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27947, July 24, 1987, as amended at 53 FR 28986, Aug. 1, 1988; 59 
FR 9406, Feb. 28, 1994; 60 FR 18734, Apr. 13, 1995; 69 FR 33259, June 
14, 2004]



Sec.403.5  Custody of securities held by financial institutions 
that are government securities brokers or dealers.

    (a) A government securities broker or dealer that is a financial 
institution shall:
    (1) Comply with part 450 with respect to all government securities 
held for the account of customers of the financial institution in its 
capacity as a fiduciary or custodian (unless otherwise exempt pursuant 
to Sec.450.3); and
    (2) Comply with part 450 and with paragraphs (b), (c) and (d) of 
this section with respect to all fully paid and excess margin government 
securities held for customers of the financial institution in its 
capacity as government securities broker or dealer, and government 
securities that are the subject of a repurchase agreement between the 
financial institution and certain counterparties as described in 
paragraph (d) of this section.
    (b) A financial institution shall not be in violation of the 
possession or control requirements of paragraphs (c) and (d) of this 
section if, solely as the result of normal business operations, 
temporary lags occur between the time when a security is first required 
to be in the financial institution's possession or control and the time 
when it is actually placed in possession or control, provided that the 
financial institution takes timely steps in good faith to establish 
prompt possession or control. In the event that a financial institution 
has accepted funds from a customer for the purchase of securities and 
the financial institution does not initiate the purchase of the 
specified securities by the close of the next business day after receipt 
of such customer's funds, the financial institution shall immediately 
deposit or redeposit the funds in an account belonging to such customer 
and send the customer notice of such deposit or redeposit.

[[Page 1423]]

    (c)(1) On each business day a financial institution shall determine 
the quantity and issue of such securities, if any, that are required to 
be but are not in the financial institution's possession or control. As 
appropriate to bring such securities into possession or control, the 
financial institution shall:
    (i) Promptly obtain the release of any lien, charge, or other 
encumbrance against such securities;
    (ii) Promptly obtain the return of any securities loaned;
    (iii) Take prompt steps to obtain possession or control of 
securities failed to receive for more than 30 calendar days, or in the 
case of mortgage-backed securities, for more than 60 calendar days; or
    (iv) Take prompt steps to buy in securities as necessary to the 
extent any shortage of securities in possession or control cannot be 
resolved as required by any of the above procedures.
    (2) The financial institution shall prepare and maintain a current 
and detailed description of the procedures and internal controls that it 
utilizes to comply with the possession or control requirements of this 
paragraph (c), which shall be made available upon request to its 
appropriate regulatory agency.
    (3) Nothing stated in this section shall be construed as affecting 
the absolute right of a customer of a government securities broker or 
dealer, unless otherwise agreed in writing, in the normal course of 
business operations following demand made on the broker or dealer, to 
receive the physical delivery of certificates if the securities are 
issued in certificated form, or to direct a transfer of or otherwise to 
exercise control over any securities if they are:
    (i) Fully-paid securities to which the customer is entitled;
    (ii) Margin securities upon full payment by such customer to the 
broker or dealer of the customer's indebtedness to the broker or dealer; 
or
    (iii) Excess margin securities not reasonably required to 
collateralize such customer's indebtedness to the broker or dealer.
    (d)(1) A financial institution that retains custody of securities 
that are the subject of a repurchase agreement between the financial 
institution and a counterparty shall:
    (i) Obtain the repurchase agreement in writing;
    (ii) Confirm in writing the specific securities that are the subject 
of a repurchase transaction pursuant to such agreement at the end of the 
day of initiation of the transaction and at the end of any other day 
during which other securities are substituted if the substitution 
results in a change to issuer, maturity date, par amount or coupon rate 
specified in the previous confirmation;
    (iii) Advise the counterparty in the repurchase agreement that the 
funds held by the financial institution pursuant to a repurchase 
transaction are not a deposit and therefore are not insured by the 
Federal Deposit Insurance Corporation, or the National Credit Union 
Share Insurance Fund, as applicable;
    (iv) If the counterparty agrees to grant the financial institution 
the right to substitute securities, include in the written repurchase 
agreement the provision by which the financial institution retains the 
right to substitute securities;
    (v) If the counterparty agrees to grant the financial institution 
the right to substitute securities, include in the written repurchase 
agreement the following disclosure statement, which must be prominently 
displayed in the written repurchase agreement immediately preceding the 
provision governing the right to substitution:

                          ``Required Disclosure

    The [seller] is not permitted to substitute other securities for 
those subject to this agreement and therefore must keep the [buyer's] 
securities segregated at all times, unless in this agreement the [buyer] 
grants the [seller] the right to substitute other securities. If the 
[buyer] grants the right to substitute, this means that the [buyer's] 
securities will likely be commingled with the [seller's] own securities 
during the trading day. The [buyer] is advised that, during any trading 
day that the [buyer's] securities are commingled with the [seller's] 
securities, they may be subject to liens granted by the [seller] to 
third parties and may be used by the [seller] for deliveries on other 
securities transactions. Whenever the securities are commingled, the 
[seller's] ability to resegregate substitute securities for the [buyer]

[[Page 1424]]

will be subject to the [seller's] ability to satisfy any lien or to 
obtain substitute securities.''; and

    (vi) Maintain possession or control of securities that are the 
subject of the agreement in accordance with Sec.450.4(a) of this 
chapter, except when exercising its right of substitution in accordance 
with the provisions of the agreement and paragraph (d)(1)(iv) of this 
section.
    (2)(i) A confirmation issued in accordance with paragraph (d)(1)(ii) 
of this section shall specify the issuer, maturity date, coupon rate, 
par amount and market value of the security and shall further identify a 
CUSIP or mortgage-backed security pool number, as appropriate, except 
that a CUSIP or a pool number is not required on the confirmation if it 
is identified in internal records of the broker or dealer that designate 
the specific security of the counterparty. For purposes of this 
paragraph (d)(2), the market value of any security that is the subject 
of the repurchase transaction shall be the most recently available bid 
price plus accrued interest, obtained by any reasonable and consistent 
methodology.
    (ii) A person that is a non-U.S. citizen residing outside of the 
United States or a foreign corporation, partnership, or trust may waive, 
but only in writing, the right to receive the confirmation required by 
paragraph (d)(1)(ii) of this section.
    (3) This paragraph (d) shall not apply to a repurchase agreement 
between the financial institution and a broker or dealer (including a 
government securities broker or dealer), a registered municipal 
securities dealer, or a director or principal officer of the financial 
institution or any person to the extent that his claim is explicitly 
subordinated to the claims of creditors of the financial institution.
    (e)(1) A government securities broker or dealer that is a branch or 
agency of a foreign bank shall keep on deposit with an insured bank (as 
that term is defined in 12 U.S.C. 1813(h)) an amount equal to the amount 
that would be required to be set aside pursuant to Sec.240.15c3-
3(e)(1) of this title with respect to government securities of customers 
of such branch or agency that are citizens or residents of the United 
States. The amount required to be deposited pursuant to this Sec.
403.5(e)(1) may be reduced by the amount of assets pledged or deposited 
by the branch or agency pursuant to regulations promulgated by a Federal 
or State banking regulatory agency that are attributable to liabilities 
to customers which are included both in the calculation of the required 
pledge or deposit of assets and in the calculation of the amount to be 
set aside pursuant to Sec.240.15c3-3(e)(1) of this title.
    (2) The amount deposited in accordance with this section shall be 
pledged to the appropriate regulatory agency of the branch or agency 
making the deposit for the exclusive benefit of the customers to whom 
the credit balances are owed.
    (3) For purposes of making the calculation pursuant to Sec.
240.15c3-3(e)(1) of this title, the terms ``free credit balances,'' 
``other credit balances'' and ``credit balances'' shall not include any 
funds placed in deposits or accounts enumerated at 12 CFR 204.2.
    (4) For purposes of making the calculation pursuant to Sec.
240.15c3-3(e)(1) of this title, the formula set forth at Sec.240.15c3-
3a of this title shall be modified as follows:
    (i) For purposes of this section, references to ``securities 
account,'' ``cash account,'' ``margin account'', or other customer 
accounts for purposes of this section shall not include any deposits or 
accounts enumerated at 12 CFR 204.2;
    (ii) References to ``security or ``securities shall mean U.S. 
government securities;
    (iii) References to net capital shall be inapplicable;
    (iv) Item 2 is modified to read as follows:

    ``2. Monies borrowed by the branch or agency collateralized by 
securities carried for the account of customers. (See Note B.)'';

    (v) Item 4 is modified to read as follows:

    ``4. Customers' securities failed to receive only with respect to 
transactions for which payment has been received by and is under the 
control of the branch or agency. (See Note D.)'';


[[Page 1425]]


    (vi) Note B is modified to read as follows:

    ``Note B. Item 2 shall include the principal amount of Restricted 
Letters of Credit obtained by members of Options Clearing Corporation 
which are collateralized by customers' securities. Item 2 shall not 
include bank loans to customers in the ordinary course collateralized by 
the customers' U.S. government securities.''; and

    (vii) Note C is modified to read as follows:

    ``Note C. Item 3 shall include in addition to monies payable against 
customers' securities loaned the amount by which the market value of 
securities loaned exceeds the collateral value received from the lending 
of such securities. Item 3 shall exclude cash collateral received 
pursuant to a written securities lending agreement that complies fully 
with the supervisory guidelines of its appropriate regulatory agency 
that expressly govern securities lending practices.''.

    (5) Computations necessary to determine the amount required to be 
deposited as specified in paragraph (e)(1) of this section shall be made 
weekly, as of the close of the last business day of this week, and the 
deposit so computed shall be made no later than one hour after the 
opening of banking business on the second following business day.
    (6) A government securities broker or dealer that is a branch or 
agency of a foreign bank shall make and maintain a record of each 
computation made pursuant to paragraph (e)(5) of this section and 
preserve each such record for a period of not less than three years, the 
first two years in an easily accessible place.
    (f)(1) For purposes of this section, the terms ``fully paid 
securities,'' ``margin securities,'' and ``excess margin securities'' 
shall have the meanings described in Sec.403.4 (b), (c) and (d).
    (2) For purposes of this section, the term ``customer'' shall 
include any person from whom or on whose behalf a financial institution 
that is a government securities broker or dealer has received or 
acquired or holds securities for the account of that person or funds 
resulting from transactions in securities for or with such person or 
that represent principal, interest, or other proceeds of such 
securities. The term shall not include a broker or dealer that is 
registered pursuant to section 15, 15B or 15C (a)(1)(A) of the Act (15 
U.S.C. 78o, 78o-4, 78o-5(a)(1)(A)) or that has filed notice of its 
status as a government securities broker or dealer pursuant to section 
15C(a)(1)(B) of the Act (15 U.S.C. 78o-5(a)(1)(B)) except with respect 
to securities maintained by such broker or dealer in a Segregated 
Account as defined in Sec.403.4(f)(1) and with respect to securities 
otherwise identified by such broker or dealer as customer securities for 
purposes of maintaining possession or control of such securities as 
required by this part. The term ``customer'' shall not include a 
director or principal officer of the financial institution or any other 
person to the extent that that person has a claim for property or funds, 
which by contract, agreement or understanding, or by operation of law, 
is part of the capital of the financial institution or is subordinated 
to the claims of creditors of the financial institution.
    (g) If a financial institution executes a sell order of a customer 
(other than an order to execute a sale of securities which the seller 
does not own, which for the purposes of this paragraph shall mean that 
the customer placing the sell order has identified the sale as a short 
sale to the financial institution) and if for any reason whatever the 
financial institution has not obtained possession of the government 
securities, except mortgage-backed securities, from the customer within 
30 calendar days, or in the case of mortgage-backed securities within 60 
calendar days, after the settlement date, the financial institution 
shall immediately thereafter close the transaction with the customer by 
purchasing, or otherwise obtaining, securities of like kind and 
quantity.
    (h) The appropriate regulatory agency of a financial institution 
that is a government securities broker or dealer may extend the period 
specified in paragraphs (c)(1)(iii) and (g) of this section on 
application of the financial institution for one or more limited periods 
commensurate with the circumstances, provided the appropriate regulatory 
agency is satisfied that the financial institution is acting in good 
faith in making the application and

[[Page 1426]]

that exceptional circumstances warrant such action. Each appropriate 
regulatory agency should make and preserve for a period of not less than 
three years a record of each extension granted pursuant to this 
paragraph, which contains a summary of the justification for the 
granting of the extension.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27947, July 24, 1987, as amended at 53 FR 28986, Aug. 1, 1988; 55 
FR 6604, Feb. 26, 1990; 59 FR 9406, Feb. 28, 1994; 60 FR 11026, Mar. 1, 
1995]



Sec.403.6  Compliance with part by futures commission merchants.

    A registered government securities broker or dealer that is also a 
futures commission merchant registered with the CFTC shall comply with 
the provisions of this part with respect to all customer funds and 
securities except those that are incidental to the broker's or dealer's 
futures-related business, as defined in Sec.240.3a43-1(b) of this 
title. For purposes of the preceding sentence, the term ``customer'' 
shall have the meaning set forth in Sec.240.15c3-3(a)(1) of this 
title.



Sec.403.7  Effective dates.

    (a) General. Except as provided in paragraphs (b) through (e) of 
this section, this part shall be effective on the last business day in 
October 1987.
    (b) Confirmations. The requirements of Sec.Sec.403.4 and 403.5(d) 
to describe the specific securities that are the subject of a repurchase 
transaction, including the market value of such securities, on a 
confirmation at the initiation of a repurchase transaction or on 
substitution of other securities shall be effective January 31, 1988.
    (c) Written repurchase agreements. The requirement to obtain a 
repurchase agreement in writing with the provisions described in 
Sec.Sec.403.4 and 403.5(d) shall be effective October 31, 1987, in 
the case of new customers of a government securities broker or dealer 
and shall be effective January 31, 1988, in the case of existing 
customers of a government securities broker or dealer. For purposes of 
this paragraph, an ``existing customer'' of a government securities 
broker or dealer is any counterparty with whom the government securities 
broker or dealer has entered into a repurchase transaction on or after 
January 1, 1986, but before July 25, 1987. For purposes of this 
paragraph, a ``new customer'' of a government securities broker or 
dealer is any counterparty other than an existing customer.

[52 FR 27947, July 24, 1987, as amended at 53 FR 28986, Aug. 1, 1988; 79 
FR 38456, July 8, 2014]



PART 404_RECORDKEEPING AND PRESERVATION OF RECORDS--Table of Contents



Sec.
404.1 Application of part to registered brokers and dealers.
404.2 Records to be made and kept current by registered government 
          securities brokers and dealers; records of non-resident 
          registered government securities brokers and dealers.
404.3 Records to be preserved by registered government securities 
          brokers and dealers.
404.4 Records to be made and preserved by government securities brokers 
          and dealers that are financial institutions.
404.5 Securities counts by registered government securities brokers and 
          dealers.

    Authority: 15 U.S.C. 78o-5 (b)(1)(B), (b)(1)(C), (b)(2), (b)(4).

    Source: 52 FR 27952, July 24, 1987, unless otherwise noted.



Sec.404.1  Application of part to registered brokers and dealers.

    Compliance by a registered broker or dealer with Sec.240.17a-3 of 
this title (pertaining to records to be made), Sec.240.17a-4 of this 
title (pertaining to preservation of records), Sec.240.17a-13 of this 
title (pertaining to quarterly securities counts) and Sec.240.17a-7 of 
this title (pertaining to records of non-resident brokers or dealers), 
including provisions in those rules relating to OTC derivatives dealers, 
constitutes compliance with this part.

[71 FR 54411, Sept. 15, 2006]



Sec.404.2  Records to be made and kept current by registered
government securities brokers and dealers; records of non-resident
registered government securities brokers and dealers.
          

    (a) Every registered government securities broker or dealer shall 
comply

[[Page 1427]]

with the requirements of Sec.240.17a-3 of this title (SEC Rule 17a-3), 
with the following modifications:
    (1) References to ``broker or dealer'' and ``broker or dealer 
registered pursuant to Section 15 of the Act'' include registered 
government securities brokers or dealers.
    (2) References to Sec.Sec.240.17a-3, 240.17a-4, 240.17a-5, and 
240.17a-13 mean such sections as modified by this part and part 405 of 
this chapter.
    (3) (i) Except in the case of a government securities interdealer 
broker who is subject to the financial responsibility rules of Sec.
402.1(e) of this chapter and a registered government securities broker 
or dealer that is a futures commission merchant registered with the 
CFTC, paragraph 240.17a-3(a)(1l) is modified to read as follows:

    ``(11) A record of the proof of money balances of all ledger 
accounts in the form of trial balances, and a record of the computation 
of liquid capital and total haircuts, as of the trial date, determined 
as provided in Sec.402.2 of this title; provided however, that such 
computation need not be made by any registered government securities 
broker or dealer unconditionally exempt from part 402 of this title. 
Such trial balances and computations shall be prepared current1y at 
least once a month.''.

    (ii) For a government securities interdealer broker who is subject 
to the financial responsibility rules of Sec.402.1(e) of this chapter, 
references to Sec.240.15c3-1 include modifications contained in Sec.
402.1(e) of this chapter.
    (4) Paragraph 240.17a-3(b)(1) is modified to read as follows:

    ``(1) This section shall not be deemed to require a government 
securities broker or dealer registered pursuant to section 15C(a)(1)(A) 
of the Act (15 U.S.C. 78o-5(a)(1)(A)) to make or keep such records of 
transactions cleared for such government securities broker or dealer as 
are customarily made and kept by a clearing broker or dealer pursuant to 
the requirements of Sec.Sec.240.17a-3 and 240.17a-4: Provided, that 
the clearing broker or dealer has and maintains net capital of not less 
than $250,000 (or, in the case of a clearing broker or dealer that is a 
registered government securities broker or dealer, liquid capital less 
total haircuts, determined as provided in Sec.402.2 of this title, of 
not less than $250,000) and is otherwise in compliance with Sec.
240.15c3-1, Sec.402.2 of this title, or the capital rules of the 
exchange of which such clearing broker or dealer is a member if the 
members of such exchange are exempt from Sec.240.15c3-1 by paragraph 
(b)(2) thereof.''

    (5) The undertaking in Sec.240.17a-3(b)(2) is modified to read as 
follows:

    ``The undersigned hereby undertakes to maintain and preserve on 
behalf of [registered government securities broker or dealer] the books 
and records required to be maintained by [registered government 
securities broker or dealer] pursuant to 17 CFR 404.2 and 404.3 and 
Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934 and to 
permit examination of such books and records at any time or from time to 
time during business hours by examiners or other representatives of the 
Securities and Exchange Commission, and to furnish to said Commission at 
its principal office in Washington, DC, or at any regional office of 
said Commission specified in a demand made by or on behalf of said 
Commission for copies of books and records, true, correct, complete, and 
current copies of any or all, or any part, of such books and records. 
This undertaking shall be binding upon the undersigned, and the 
successors and assigns of the undersigned.''.

    (6) Section 240.17a-3(c) is modified to read as follows:

    ``(c) This section shall not be deemed to require a government 
securities broker or dealer to make or keep such records as are required 
by paragraph (a) reflecting the sale and redemption of United States 
Savings Bonds, United States Savings Notes and United States Savings 
Stamps.''.

    (b) Every registered government securities broker or dealer shall 
comply with the requirements of Sec.240.17h-1T of this title (SEC Rule 
17h-1T), with the following modifications:
    (1) For the purposes of this section, references to ``broker or 
dealer'' and ``broker or dealer registered with the Commission pursuant 
to Section 15 of the Act'' mean registered government securities brokers 
or dealers.
    (2) For the purposes of this section, references to Sec.Sec.
240.17h-1T and 240.17h-2T of this title mean those sections as modified 
by Sec.Sec.404.2(b) and 405.5, respectively.
    (3) For the purposes of this section, ``associated person'' has the 
meaning set out in Section 3(a)(18) of the Act (15 U.S.C. 78c(a)(18)), 
except that natural persons are excluded.

[[Page 1428]]

    (4) Paragraphs 240.17h-1T(a)(1)(iii) through (vi) of this title are 
modified to read as follows:

    ``(iii) A description of all material pending legal or arbitration 
proceedings involving a Material Associated Person or the registered 
government securities broker or dealer that are required to be 
disclosed, under generally accepted accounting principles on a 
consolidated basis, by the highest level holding company that is a 
Material Associated Person.
    ``(iv) Consolidated and consolidating balance sheets, prepared in 
accordance with generally accepted accounting principles, which may be 
unaudited and which shall include the notes to the financial statements, 
as of quarter-end for the registered government securities broker or 
dealer and its highest level holding company that is a Material 
Associated Person;
    ``(v) Quarterly consolidated and consolidating income statements and 
consolidated cash flow statements, prepared in accordance with generally 
accepted accounting principles, which may be unaudited and which shall 
include the notes to the financial statements, for the registered 
government securities broker or dealer and its highest level holding 
company that is a Material Associated Person;

    Note 1 to paragraph 240.17h-1T(a)(1)(v).
    Statements of comprehensive income (as defined in 17 CFR 210.1-02) 
must be included in place of income statements, if required by the 
applicable generally accepted accounting principles.

    ``(vi) The amount as of quarter-end, and at month-end if greater 
than quarter-end, of the aggregate long and short securities and 
commodities positions held by each Material Associated Person, including 
a separate listing of each single unhedged securities or commodities 
position, other than U.S. Treasury securities, that exceeds the 
Materiality Threshold at any month-end;''

    (5) Paragraphs 240.17h-1T(a)(3) and (a)(4) of this title are 
modified to read as follows:

    ``(3) The information, reports and records required by the 
provisions of this section shall be maintained and preserved in 
accordance with the provisions of Sec.404.3 of this title and shall be 
kept for a period of not less than three years in an easily accessible 
place.
    ``(4) For the purposes of this section and Sec.405.5 of this 
title, the term ``Materiality Threshold'' shall mean the greater of:
    ``(i) $100 million; or
    ``(ii) 10 percent of the registered government securities broker's 
or dealer's liquid capital based on the most recently filed Form G-405 
(or, in the case of futures commission merchants and interdealer brokers 
subject to the capital rules in Sec.Sec.402.1(d) and 402.1(e), 
respectively, tentative net capital based on the most recently filed 
Form X-17A-5) or 10 percent of the Material Associated Person's tangible 
net worth, whichever is greater.''

    (6) Paragraph 240.17h-1T(b) of this title is modified to read as 
follows:

    ``(b) Special provisions with respect to Material Associated Persons 
subject to the supervision of certain domestic regulators. A registered 
government securities broker or dealer shall be deemed to be in 
compliance with the recordkeeping requirements of paragraph (a)(1)(iii) 
through (x) of this section with respect to a Material Associated Person 
if: * * * ''

    (7) Paragraph 240.17h-1T(c) of this title is modified to read as 
follows:

    ``(c) Special provisions with respect to Material Associated Persons 
subject to the supervision of a foreign financial regulatory authority. 
A registered government securities broker or dealer shall be deemed to 
be in compliance with the recordkeeping requirements of paragraph 
(a)(1)(iii) through (x) of this section with respect to a Material 
Associated Person if such registered government securities broker or 
dealer maintains in accordance with the provisions of this section 
copies of the reports filed by such Material Associated Person with a 
Foreign Financial Regulatory Authority. The registered government 
securities broker or dealer shall maintain a copy of the original report 
and a copy translated into the English language. For the purposes of 
this section, the term Foreign Financial Regulatory Authority shall have 
the meaning set forth in section 3(a)(52) of the Act.''

    (8) Paragraph 240.17h-1T(d) of this title is modified to read as 
follows:

    ``(d) Exemptions. (1) The provisions of this section shall not apply 
to any registered government securities broker or dealer:
    ``(i) Which is exempt from the provisions of Sec.240.15c3-3 of 
this title, as made applicable by Sec.403.4, pursuant to paragraph 
(k)(2) of Sec.240.15c3-3 of this title; or
    ``(ii) If the registered government securities broker or dealer does 
not qualify for an exemption from the provisions of Sec.240.15c3-3 of 
this title, as made applicable by Sec.403.4, and such registered 
government securities broker or dealer does not hold funds or securities 
for, or owe money or securities to, customers and does not carry the 
accounts of, or for, customers; unless
    ``(iii) In the case of paragraphs (d)(1)(i) or (ii) of this section, 
the registered government securities broker or dealer maintains capital 
of at least $20,000,000, including debt

[[Page 1429]]

subordinated in accordance with Appendix D of Sec.240.15c3-1 of this 
title, as modified by Appendix D of Sec.402.2.
    ``(2) The provisions of this section shall not apply to any 
registered government securities broker or dealer which maintains 
capital of less than $250,000, including debt subordinated in accordance 
with Appendix D of Sec.240.15c3-1 of this title, as modified by 
Appendix D of Sec.402.2, even if the registered government securities 
broker or dealer holds funds or securities for, or owes money or 
securities to, customers or carries the accounts of, or for, customers.
    ``(3) The provisions of this section shall not apply to any 
registered government securities broker or dealer which has an 
associated person that is a registered broker or dealer, provided that:
    ``(i) The registered broker or dealer is subject to, and in 
compliance with, the provisions of Sec.240.17h-1T and Sec.240.17h-2T 
of this title, and
    ``(ii) All of the Material Associated Persons of the registered 
government securities broker or dealer are Material Associated Persons 
of the registered broker or dealer subject to Sec.240.17h-1T and Sec.
240.17h-2T of this title.
    ``(4) In calculating capital for the purposes of this paragraph, a 
registered government securities broker or dealer shall include with its 
equity capital and subordinated debt the equity capital and subordinated 
debt of any other registered government securities brokers or dealers or 
registered brokers or dealers that are associated persons of such 
registered government securities broker or dealer, except that the 
equity capital and subordinated debt of registered brokers and dealers 
that are exempt from the provisions of Sec.240.15c3-3 of this title, 
pursuant to paragraph (k)(1) of Sec.240.15c3-3, shall not be included 
in the capital computation.
    ``(5) The Secretary may, upon written application by a Reporting 
Registered Government Securities Broker or Dealer, exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any registered government securities brokers or dealers 
that are associated persons of such Reporting Registered Government 
Securities Broker or Dealer. The term ``Reporting Registered Government 
Securities Broker or Dealer'' shall mean any registered government 
securities broker or dealer that submits such application to the 
Secretary on behalf of its associated registered government securities 
brokers or dealers.''

    (9) Paragraph 240.17h-1T(g) of this title is modified to read as 
follows:

    ``(g) Implementation schedule. Every registered government 
securities broker or dealer subject to the requirements of this section 
shall maintain and preserve the information required by paragraphs 
(a)(1)(i), (ii), and (iii) of this section commencing June 30, 1995. 
Commencing September 30, 1995, the provisions of this section shall 
apply in their entirety.''

    (c)(1) Every non-resident government securities broker or dealer 
registered or applying for registration pursuant to Section 15C of the 
Act shall comply with Sec.240.17a-7 of this title, provided that:
    (i) For the purposes of this section, references to ``broker or 
dealer'' and ``broker or dealer registered or applying for registration 
pursuant to Section 15 of the Act'' mean registered government 
securities brokers or dealers; and
    (ii) For the purposes of this section, references to ``any rule or 
regulation of the Commission'' and ``any rule or regulation of the 
Securities and Exchange Commission'' mean any rule or regulation of the 
Secretary.
    (2) For the purposes of this section, the term ``non-resident 
government securities broker or dealer'' means:
    (i) In the case of an individual, one who resides in or has his 
principal place of business in any place not subject to the jurisdiction 
of the United States;
    (ii) In the case of a corporation, one incorporated in or having its 
principal place of business in any place not subject to the jurisdiction 
of the United States; and
    (iii) In the case of a partnership or other unincorporated 
organization or association, one having its principal place of business 
in any place not subject to the jurisdiction of the United States.

    (d) Effective date. Paragraph (a) of this section shall be effective 
on October 31, 1987, except that registered government securities 
brokers and dealers are required to maintain the records specified in 
Sec.240.17a-3(a) (12), (13), (14) and (15) beginning July 25, 1987.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27952, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995; 60 
FR 20399, Apr. 26, 1995; 83 FR 66616, Dec. 27, 2018]

[[Page 1430]]



Sec.404.3  Records to be preserved by registered government
securities brokers and dealers.

    (a) Every registered government securities broker or dealer, except 
a government securities interdealer broker subject to the financial 
responsibility rules of Sec.402.1(e) and a registered government 
securities broker or dealer that is also a futures commission merchant 
registered with the CFTC, shall comply with the requirements of Sec.
240.17a-4 of this title (SEC Rule 17a-4), with the following 
modifications:
    (1) References to ``broker or dealer'' and ``broker and dealer 
registered pursuant to Section 15 of the Act'' include registered 
government securities brokers or dealers.
    (2) References to Sec.Sec.240.17a-3, .17a-4, and .17a-5 mean such 
sections as modified by this part and part 405 of this chapter.
    (3) References to Sec.240.15c3-1, relating to net capital, and 
``Computation for Net Capital'' thereunder mean Sec.402.2 of this 
chapter and the computation of the ratio of liquid capital to total 
haircuts required thereunder.
    (4) References to Sec.240.15c3-3, relating to possession or 
control of customer securities and balances, mean Sec.403.4 of this 
chapter.
    (5) References to Form X-17A-5 mean Form G-405 (Sec.449.5 of this 
chapter).
    (6) The computation described in Sec.240.17a-4(b)(8)(x) is not 
required.
    (b) A government securities interdealer broker subject to the 
financial responsibility rules of Sec.402.1(e) and a registered 
government securities broker or dealer that is also a futures commission 
merchant registered with the CFTC, shall comply with the requirements of 
Sec.240.17a-4 of this title (SEC Rule 17a-4), with the following 
modifications:
    (1) References to ``broker or dealer'' and ``broker and dealer'' 
include registered government securities brokers or dealers.
    (2) References to Sec.Sec.240.17a-3, 240.17a-4, and 240.17a-5 
mean such sections as modified by this part and part 405 of this 
chapter.
    (3) With respect to a government securities interdealer broker 
subject to the financial responsibility rules of Sec.402.1(e) of this 
chapter, references to Sec.240.15c3-1, relating to net capital, and 
``Computation for Net Capital'' thereunder include the modifications 
contained in Sec.402.1(e) of this chapter.
    (4) References to Sec.240.15c3-3, relating to possession or 
control of customer securities and balances, mean Sec.403.4 of this 
chapter.
    (c) This section shall be effective on July 25, 1987.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27952, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995]



Sec.404.4  Records to be made and preserved by government securities
brokers and dealers that are financial institutions.

    (a) Records to be made and kept. Every financial institution that is 
a government securities broker or dealer and that is not exempt from 
this part pursuant to part 401 of this chapter shall comply with the 
requirements of Sec.Sec.404.2 and 404.3 unless such financial 
institution:
    (1) Is subject to 12 CFR part 12 (relating to national banks), 12 
CFR part 208 (relating to state member banks of the Federal Reserve 
System) or 12 CFR part 344 (relating to state banks that are not members 
of the Federal Reserve System), or is a United States branch or agency 
of a foreign bank and complies with 12 CFR part 12 (for federally 
licensed branches and agencies of foreign banks) or 12 CFR part 208 (for 
uninsured state-licensed branches and agencies of foreign banks) or 12 
CFR part 344 (for insured state licensed branches and agencies of 
foreign banks);
    (2) Complies with the recordkeeping requirements of Sec.450.4(c), 
(d) and (f) of this chapter; and
    (3) Makes and keeps current:
    (i)(A) A securities record or ledger reflecting separately for each 
government security as of the settlement dates all ``long'' or ``short'' 
positions (including government securities that are the subjects of 
repurchase or reverse repurchase agreements) carried by such financial 
institution for its own account or for the account of its customers or 
others (except securities

[[Page 1431]]

held in a fiduciary capacity) and showing the location of all government 
securities long and the offsetting position to all government securities 
short, including long security count differences and short security 
count differences classified by the date of the count and verification 
in which they were discovered, and in all cases the name or designation 
of the account in which each position is carried;
    (B) A complete and current Form G-FIN-4 (Sec.449.3 of this 
chapter) or Form U-4 (promulgated by a self-regulatory organization) or 
Form MSD-4 (as required for associated persons of bank municipal 
securities dealers) for each associated person as defined in Sec.400.3 
of this chapter;
    (C) A Form G-FIN-5 (Sec.449.4 of this chapter) or Form U-5 
(promulgated by a self-regulatory organization) or Form MSD-5 (as 
required for associated persons of bank municipal securities dealers) 
for each associated person whose association has been terminated as 
provided in Sec.400.4(d)(2) of this chapter; and
    (D) A complete and current Form G-FIN (Sec.449.1 of this chapter) 
and, if applicable, a Form G-FINW (Sec.449.2 of this chapter).
    (ii) For purposes of paragraph (a)(3)(i)(A) of this section, 
``safekeeping'' may be shown as a location of any securities long as 
long as the financial institution complies with the requirements of part 
450 of this chapter with respect to such securities.
    (b) Preservation of records. (1) The records required by paragraph 
(a)(3)(i)(A) of this section shall be preserved for not less than six 
years, the first two years in an easily accessible place.
    (2) The records required by paragraphs (a)(3)(i) (B) and (C) of this 
section shall be preserved for at least three years after the person who 
is the subject of the record has terminated his employment and any other 
association with the government securities broker or dealer function of 
the financial institution.
    (3) The records required by paragraph (a)(3)(i)(D) of this section 
shall be preserved for at least three years after the financial 
institution has notified the appropriate regulatory agency that it has 
ceased to function as a government securities broker or dealer.
    (c) Effective date. This section shall be effective on July 25, 
1987, except that until October 31, 1987, a financial institution 
government securities broker or dealer is not required to make and keep 
current the securities position record required by paragraph 
(a)(3)(i)(A) of this section.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27952, July 24, 1987, as amended at 53 FR 28987, Aug. 1, 1988; 60 
FR 11026, Mar. 1, 1995; 62 FR 7155, Feb. 18, 1997; 72 FR 54411, Sept. 
15, 2006]



Sec.404.5  Securities counts by registered government securities 
brokers and dealers.

    (a) Securities counts. Every registered government securities broker 
or dealer shall comply with the requirements of Sec.240.17a-13 of this 
title (Commission Rule 17a-13), with the modification that references to 
``broker or dealer'' and ``broker and dealer registered pursuant to 
Section 15 of the Act'' include registered government securities brokers 
or dealers.
    (b) Effective date. This section shall be effective on October 31, 
1987.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27952, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995]



PART 405_REPORTS AND AUDIT--Table of Contents



Sec.
405.1 Application of part to registered brokers and dealers and to 
          financial institutions; transition rule.
405.2 Reports to be made by registered government securities brokers and 
          dealers.
405.3 Notification provisions for certain registered government 
          securities brokers and dealers.
405.4 Financial recordkeeping and reporting of currency and foreign 
          transactions by registered government securities brokers and 
          dealers.
405.5 Risk assessment reporting requirements for registered government 
          securities brokers and dealers.

    Authority: 15 U.S.C. 78o-5 (b)(1)(B), (b)(1)(C), (b)(2), (b)(4).

    Source: 52 FR 27954, July 24, 1987, unless otherwise noted.

[[Page 1432]]



Sec.405.1  Application of part to registered brokers and dealers
and to financial institutions; transition rule.

    (a) Compliance by registered brokers or dealers with Sec.Sec.
240.17a-5, 240.17a-8, and 240.17a-11 of this title (Commission Rules 
17a-5, 17a-8 and 17a-11), including provisions of those rules relating 
to OTC derivatives dealers, constitutes compliance with this part.
    (b) A government securities broker or dealer that is a financial 
institution and is subject to financial reporting rules of its 
appropriate regulatory agency is exempt from the provisions of 
Sec.Sec.405.2 and 405.3.
    (c) This part shall be effective July 25, 1987, Provided however,
    (1) That registered government securities brokers or dealers shall 
first be required to file the reports required by Sec.240.17a-5(a), by 
virtue of Sec.405.2, for the month and the quarter during which they 
were first required to comply with part 402 of this chapter other than 
the interim liquid capital requirements of Sec.402.1(f); but that
    (2) For any quarter ending prior to the quarter during which they 
were first required to comply with part 402 of this chapter other than 
the interim liquid capital requirements of Sec.402.1(f), registered 
government securities brokers or dealers shall file with the designated 
examining authority for such registered broker or dealer, within 17 
business days after the close of the quarter, an unaudited balance sheet 
(with appropriate notes) for such quarter, prepared in accordance with 
generally accepted accounting principles.

[52 FR 27954, July 24, 1987, as amended at 71 FR 54411, Sept. 15, 2006]



Sec.405.2  Reports to be made by registered government securities
brokers and dealers.

    (a) Every registered government securities broker or dealer, except 
a government securities interdealer broker subject to the financial 
responsibility requirements of Sec.402.1(e) of this chapter and a 
government securities broker or dealer that is also a futures commission 
merchant registered with the CFTC, shall comply with the requirements of 
Sec.240.17a-5 of this title (SEC Rule 17a-5), with the following 
modifications:
    (1) References to ``broker or dealer'' include registered government 
securities brokers and dealers.
    (2) References to ``rules of the Commission'' or words of similar 
import include, where appropriate, the regulations contained in this 
subchapter.
    (3) References to Form X-17A-5 mean Form G-405 (Sec.449.5 of this 
chapter).
    (4) For the purposes of Sec.240.17a-5(a)(4) of this title, the 
Commission may, on the terms and conditions stated in that subparagraph, 
declare effective a plan with respect to Form G-405, in which case, that 
plan shall be treated the same as a plan approved with respect to Form 
X-17A-5.
    (5) References to ``net capital'' mean ``liquid capital'' as defined 
in Sec.402.2(d) of this chapter.
    (6) References to Sec.240.15c3-1, relating to net capital, mean 
Sec.402.2 of this chapter.
    (7) Paragraph 240.17a-5(c)(2)(ii) is modified to read as follows:

    ``(ii) A footnote containing a statement of the registered 
government securities broker's or dealer's liquid capital, total 
haircuts, and ratio of liquid capital to total haircuts, determined in 
accordance with Sec.402.2 of this title. Such statement shall include 
summary financial statements of subsidiaries consolidated pursuant to 
Sec.402.2c of this title, where material, and the effect thereof on 
the liquid capital, total haircuts and ratio of liquid capital to total 
haircuts of the registered government securities broker or dealer.''.

    (8) References to Sec.240.15c3-3 and the exhibits thereto, 
relating to possession or control of customer securities and reserve 
requirements, mean Sec.403.4 of this chapter.
    (9) The reference to Sec.240.15b1-2 of this title, relating to 
financial statements to be filed upon registration, means Sec.
240.15Ca2-2.
    (10) The supplemental report described in Sec.240.17a-5(e)(4) of 
this title, concerning the Securities Investor Protection Act, is not 
required.
    (11) The statement described in Sec.240.17a-5(f)(2) of this title 
shall be headed ``Notice Pursuant to Section 405.2,'' and shall be filed 
within 30 days

[[Page 1433]]

following the effective date of registration as a government securities 
broker or dealer.
    (12) References in Sec.240.17a-5(h)(2) of this title to Sec.
240.17a-11 mean Sec.405.3(a) of this chapter.
    (b) A government securities interdealer broker subject to the 
financial responsibility requirements of Sec.402.1(e) of this chapter 
shall comply with the requirements of Sec.240.17a-5 of this title (SEC 
Rule 17a-5), with the following modifications:
    (1) References to ``broker or dealer'' include government securities 
interdealer brokers;
    (2) References to ``rules of the Commission'' or words of similar 
import include, where appropriate, the regulations contained in this 
subchapter.
    (3) References to ``net capital'' mean net capital calculated as 
provided in Sec.402.1(e) of this chapter.
    (4) References to Sec.240.15c3-1, relating to net capital, include 
the modifications contained in Sec.402.1(e) of this chapter.
    (5) References to Sec.240.15c3-3 and the exhibits thereto, 
relating to possession or control of customer securities and reserve 
requirements, mean Sec.403.4 of this chapter.
    (6) The reference to Sec.240.15b1-2 of this title, relating to 
financial statements to be filed upon registration, means Sec.
240.15Ca2-2.
    (7) The supplemental report described in Sec.240.17a-5(e)(4) of 
this title, concerning the Securities Investor Protection Act, is not 
required.
    (8) The statement described in Sec.240.17a-5(f)(2) of this title 
shall be headed ``Notice Pursuant to Section 405.2'' and shall be filed 
within 30 days following the effective date of registration as a 
government securities broker.
    (9) References in Sec.240.17a-5(h)(2) of this title to Sec.
240.17a-11 mean Sec.405.3(b) of this chapter.
    (c) A registered government securities broker or dealer that is also 
a futures commission merchant registered with the CFTC shall comply with 
the requirements of Sec.240.17a-5 of this title (SEC Rule 17a-5), with 
the following modifications:
    (1) References to ``broker or dealer'' include registered government 
securities brokers and dealers.
    (2) References to ``rules of the Commission'' or words of similar 
import include, where appropriate, the regulations contained in this 
subchapter.
    (3) References to Sec.240.15c3-3 and the exhibits thereto, 
relating to possession or control of customer securities and reserve 
requirements, mean Sec.403.4 of this chapter.
    (4) The reference to Sec.240.15b1-2 of this title, relating to 
financial statements to be filed upon registration, means Sec.
240.15Ca2-2.
    (5) The supplemental report described in Sec.240.17a-5(e)(4) of 
this title, concerning the Securities Investor Protection Act, is not 
required.
    (6) The statement described in Sec.240.17a-5(f)(2) of this title 
shall be headed ``Notice Pursuant to Sec.405.2,'' and shall be filed 
within 30 days following the effective date of registration as a 
government securities broker or dealer.
    (7) References in Sec.240.17a-5(h)(2) of this title to Sec.
240.17a-11 mean Sec.405.3(c) of this chapter.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27954, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995; 64 
FR 1737, Jan. 12, 1999; 79 FR 38456, July 8, 2014]



Sec.405.3  Notification provisions for certain registered government
securities brokers and dealers.

    (a) Every registered government securities broker or dealer, other 
than a government securities interdealer broker that is subject to the 
financial responsibility requirements of Sec.402.1(e) and a government 
securities broker or dealer that is also a futures commission merchant 
registered with the CFTC, shall comply with the requirements of Sec.
240.17a-11 of this title (SEC Rule 17a-11), with the following 
modifications:
    (1) References to ``broker or dealer'' include registered government 
securities brokers and dealers.
    (2) References to Sec.240.15c3-1, relating to net capital, mean 
Sec.402.2 of this chapter.
    (3) References to ``net capital'' mean ``liquid capital'' as defined 
in Sec.402.2 of this chapter.

[[Page 1434]]

    (4) References to Sec.240.17a-5, relating to reports and audit, 
mean Sec.405.2(a) of this chapter.
    (5) Section 240.17a-11(c), for the purposes of this section, is 
modified to read as follows:
    ``(c) Every registered government securities broker or dealer shall 
send notice promptly (but within 24 hours) in accordance with paragraph 
(g) of this section if a computation made pursuant to the requirements 
of Sec.402.2 of this title shows, at any time during the month, that 
its liquid capital is less than 150 percent of total haircuts, 
determined in accordance with Sec.402.2 of this title, or that its 
capital after deducting total haircuts from liquid capital is less than 
120 percent of the registered government securities broker or dealer's 
minimum capital requirement specified in Sec.402.2 (b) or (c) of this 
title as applicable.''
    (6) References to Sec.240.17a-3, relating to records, mean Sec.
404.2 of this chapter.
    (b) A government securities interdealer broker that is subject to 
the financial responsibility requirements of Sec.402.1(e) of this 
chapter shall comply with the requirements of Sec.240.17a-11 of this 
title (SEC Rule 17a-11), with the following modifications:
    (1) References to ``broker or dealer'' include government securities 
interdealer brokers;
    (2) References to Sec.240.15c3-1, relating to net capital, include 
the modifications contained in Sec.402.1(e) of this chapter.
    (3) References to ``net capital'' mean net capital calculated as 
provided in Sec.402.1(e) of this chapter.
    (4) References to Sec.240.17a-5, relating to reports and audit, 
mean Sec.405.2(b) of this chapter.
    (5) References to Sec.240.17a-3, relating to records, mean Sec.
404.2 of this chapter.
    (c) A registered government securities broker or dealer that is also 
a futures commission merchant registered with the CFTC shall comply with 
the requirements of Sec.240.17a-11 of this title (SEC Rule 17a-11), 
with the following modifications:
    (1) References to ``broker or dealer'' include government securities 
brokers and dealers.
    (2) References to Sec.240.15c3-1, relating to net capital, mean 
either Sec.240.15c3-1 or Sec.1.17 of this title, depending on which 
computation results in the higher net capital requirement.
    (3) References to ``net capital'' mean the higher of net capital 
calculated under Sec.240.15c3-1 or Sec.1.17 of this title.
    (4) References to Sec.240.17a-5, relating to reports and audit, 
mean Sec.405.2(c) of this chapter.
    (5) Section 240.17a-11(c) for the purposes of this section is 
modified to read as follows:
    ``(c) Every broker or dealer shall send notice promptly (but within 
24 hours) after the occurrence of the events specified in paragraphs 
(c)(1), (c)(2), (c)(3), or (c)(4) of this section in accordance with 
paragraph (g) of this section:''
    (6) A new paragraph 240.17a-11(c)(4) is added to read as follows:
    ``(4) If a computation made by a government securities broker or 
dealer that is not a registered broker or dealer but that is also a 
futures commission merchant registered with the Commodity Futures 
Trading Commission shows that:
    ``(i) The adjusted net capital of such entity is less than the 
greater of:
    ``(A) 150 percent of the appropriate minimum dollar amount required 
by Sec.1.17(a)(1)(i), or
    ``(B) 6 percent of the following amount: The customer funds required 
to be segregated pursuant to Sec.4d(2) of the Commodity Exchange Act 
and Sec.1.17 of this title, less the market value of commodity options 
purchased by option customers on or subject to the rules of a contract 
market, provided, however, the deduction for each option customer shall 
be limited to the amount of customer funds in such option customer's 
account; or
    ``(ii) At any point during the month, aggregate indebtedness is in 
excess of 1200 percent of net capital or total net capital is less than 
120 percent of the minimum net capital required.''
    (7) References to Sec.240.17a-3, relating to records, mean Sec.
404.2 of this chapter.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27954, July 24, 1987, as amended at 59 FR 53731, Oct. 26, 1994; 
59 FR 55910, Nov. 9, 1994; 60 FR 18734, Apr. 13, 1995]

[[Page 1435]]



Sec.405.4  Financial recordkeeping and reporting of currency and
foreign transactions by registered government securities brokers
and dealers.

    Every registered government securities broker or dealer who is 
subject to the requirements of the Currency and Foreign Transactions 
Reporting Act of 1970 shall comply with the reporting, recordkeeping and 
record retention requirements of 31 CFR part 103. Where 31 CFR part 103 
and Sec.404.3 of this chapter require the same records to be preserved 
for different periods of time, such records or reports shall be 
preserved for the longer period of time.



Sec.405.5  Risk assessment reporting requirements for registered
government securities brokers and dealers.

    (a) Every registered government securities broker or dealer shall 
comply with the requirements of Sec.240.17h-2T of this title (SEC Rule 
17h-2T), with the following modifications:
    (1) For the purposes of this section, references to ``broker or 
dealer'' and ``broker or dealer registered with the Commission pursuant 
to Section 15 of the Act'' mean registered government securities brokers 
or dealers.
    (2) For the purposes of this section, references to Sec.Sec.
240.17h-1T and 240.17h-2T of this title mean those sections as modified 
by Sec.Sec.404.2(b) and 405.5, respectively.
    (3) For the purposes of this section, ``associated person'' has the 
meaning set out in Section 3(a)(18) of the Act (15 U.S.C. 78c(a)(18)), 
except that natural persons are excluded.
    (4) Paragraph 240.17h-2T(b) of this title is modified to read as 
follows:
    ``(b) Exemptions. (1) The provisions of this section shall not apply 
to any registered government securities broker or dealer:
    ``(i) Which is exempt from the provisions of Sec.240.15c3-3 of 
this title, as made applicable by Sec.403.4, pursuant to paragraph 
(k)(2) of Sec.240.15c3-3 of this title; or
    ``(ii) If the registered government securities broker or dealer does 
not qualify for exemption from the provisions of Sec.240.15c3-3 of 
this title, as made applicable by Sec.403.4, and such registered 
government securities broker or dealer does not hold funds or securities 
for, or owe money or securities to, customers and does not carry the 
accounts of, or for, customers; unless
    ``(iii) In the case of paragraphs (b)(1) (i) or (ii) of this 
section, the registered government securities broker or dealer maintains 
capital of at least $20,000,000, including debt subordinated in 
accordance with appendix D of Sec.240.15c3-1 of this title, as 
modified by appendix D of Sec.402.2.
    ``(2) The provisions of this section shall not apply to any 
registered government securities broker or dealer which maintains 
capital of less than $250,000, including debt subordinated in accordance 
with appendix D of Sec.240.15c3-1 of this title, as modified by 
appendix D of Sec.402.2, even if the registered government securities 
broker or dealer holds funds or securities for, or owes money or 
securities to, customers or carries the accounts of, or for, customers.
    ``(3) The provisions of this section shall not apply to any 
registered government securities broker or dealer which has an 
associated person that is a registered broker or dealer, provided that:
    ``(i) The registered broker or dealer is subject to, and in 
compliance with, the provisions of Sec.240.17h-1T and Sec.240.17h-2T 
of this title, and
    ``(ii) All of the Material Associated Persons of the registered 
government securities broker or dealer are Material Associated Persons 
of the registered broker or dealer subject to Sec.240.17h-1T and Sec.
240.17h-2T of this title.
    ``(4) In calculating capital for the purposes of this paragraph, a 
registered government securities broker or dealer shall include with its 
equity capital and subordinated debt the equity capital and subordinated 
debt of any other registered government securities brokers or dealers or 
registered brokers or dealers that are associated persons of such 
registered government securities broker or dealer, except that the 
equity capital and subordinated debt of registered brokers and dealers 
that are exempt from the provisions of Sec.240.15c3-3 of this title, 
pursuant to paragraph (k)(1) of Sec.240.15c3-3, shall

[[Page 1436]]

not be included in the capital computation.
    ``(5) The Secretary may, upon written application by a Reporting 
Registered Government Securities Broker or Dealer, exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any registered government securities brokers or dealers 
that are associated persons of such Reporting Registered Government 
Securities Broker or Dealer. The term ``Reporting Registered Government 
Securities Broker or Dealer'' shall mean any registered government 
securities broker or dealer that submits such application to the 
Secretary on behalf of its associated registered government securities 
brokers or dealers.''
    (5) Paragraph 240.17h-2T(c) of this title is modified to read as 
follows:
    ``(c) Special provisions with respect to Material Associated Persons 
subject to the supervision of certain domestic regulators. A registered 
government securities broker or dealer shall be deemed to be in 
compliance with the reporting requirements of paragraph (a) of this 
section with respect to a Material Associated Person if such registered 
government securities broker or dealer files Items 1, 2, and 3 (in Part 
I) of Form 17-H in accordance with paragraph (a) of this section, 
provided that:
    ``(1) Such Material Associated Person is subject to examination by 
or the reporting requirements of a Federal banking agency and the 
registered government securities broker or dealer or such Material 
Associated Person furnishes in accordance with paragraph (a) of this 
section copies of reports filed by the Material Associated Person with 
the Federal banking agency pursuant to section 5211 of the Revised 
Statutes, section 9 of the Federal Reserve Act, section 7(a) of the 
Federal Deposit Insurance Act, section 10(b) of the Home Owners' Loan 
Act, or section 5 of the Bank Holding Company Act of 1956; or * * * ''
    (6) Paragraph 240.17h-2T(d) of this title is modified to read as 
follows:
    ``(d) Special provisions with respect to Material Associated Persons 
subject to the supervision of a foreign financial regulatory authority. 
A registered government securities broker or dealer shall be deemed to 
be in compliance with the reporting requirements of paragraph (a) of 
this section with respect to a Material Associated Person if such 
registered government securities broker or dealer furnishes, in 
accordance with the provisions of paragraph (a) of this section, Items 
1, 2, and 3 (in Part I) of Form 17-H and copies of the reports filed by 
such Material Associated Person with a Foreign Financial Regulatory 
Authority. The registered government securities broker or dealer shall 
file a copy of the original Foreign Financial Regulatory report and a 
copy translated into the English language. For the purposes of this 
section, the term Foreign Financial Regulatory Authority shall have the 
meaning set forth in section 3(a)(52) of the Act.''

(Approved by the Office of Management and Budget under control number 
1535-0089)

[60 FR 20401, Apr. 26, 1995, as amended at 79 FR 38456, July 8, 2014]



PART 420_LARGE POSITION REPORTING--Table of Contents



Sec.
420.1 Applicability.
420.2 Definitions.
420.3 Reporting.
420.4 Recordkeeping.
420.5 Applicability date.

Appendix A to Part 420--Separate Reporting Entity
Appendix B to Part 420--Sample Large Position Report

    Authority: 15 U.S.C. 78o-5(f).

    Source: 79 FR 73414, Dec. 10, 2014, unless otherwise noted.



Sec.420.1  Applicability.

    (a) This part is applicable to all persons that participate in the 
government securities market, including, but not limited to: Government 
securities brokers and dealers, depository institutions that exercise 
investment discretion, registered investment companies, registered 
investment advisers, pension funds, hedge funds, and insurance companies 
that may control a position in a recently-issued marketable Treasury 
bill, note, or bond as those terms are defined in Sec.420.2.
    (b) Notwithstanding paragraph (a) of this section, Treasury requests 
that central banks (including U.S. Federal

[[Page 1437]]

Reserve Banks for their own account), foreign governments, and 
international monetary authorities voluntarily submit large position 
reports when they meet or exceed a reporting threshold.



Sec.420.2  Definitions.

    For the purposes of this part:
    Aggregating entity means a single entity (e.g., a parent company, 
affiliate, or organizational component) that is combined with other 
entities, as specified in the definition of ``reporting entity'' of this 
section, to form a reporting entity. In those cases where an entity has 
no affiliates, the aggregating entity is the same as the reporting 
entity.
    Control means having the authority to exercise investment discretion 
over the purchase, sale, retention, or financing of specific Treasury 
securities.
    Large position threshold means the minimum dollar par amount of the 
specified Treasury security that a reporting entity must control in 
order for the entity to be required to submit a large position report. 
It also means the minimum number of futures, options on futures, and 
exchange-traded options contracts for which the specified Treasury 
security is deliverable that the reporting entity must control in order 
for the entity to be required to submit a large position report. 
Treasury will announce the large position thresholds, which may vary 
with each notice of request to report large position information and 
with each specified Treasury security. Treasury may announce different 
thresholds for certain reporting criteria. Under no circumstances will a 
large position threshold be less than 10 percent of the amount 
outstanding of the specified Treasury security.
    Recently-issued means:
    (1) With respect to Treasury securities that are issued quarterly or 
more frequently, the three most recent issues of the security.
    (2) With respect to Treasury securities that are issued less 
frequently than quarterly, the two most recent issues of the security.
    (3) With respect to a reopened security, the entire issue of a 
reopened security (older and newer portions) based on the date the new 
portion of the reopened security is issued by Treasury (or for when-
issued securities, the scheduled issue date).
    (4) For all Treasury securities, a security announced to be issued 
or auctioned but unissued (when-issued), starting from the date of the 
issuance announcement. The most recent issue of the security is the one 
most recently announced.
    (5) Treasury security issues other than those specified in 
paragraphs (1) and (2) of this definition, provided that such large 
position information is necessary and appropriate for monitoring the 
impact of concentrations of positions in Treasury securities.
    Reporting entity means any corporation, partnership, person, or 
other entity and its affiliates, as further provided herein. For the 
purposes of this definition, an affiliate is any: Entity that is more 
than 50% owned, directly or indirectly, by the aggregating entity or by 
any other affiliate of the aggregating entity; person or entity that 
owns, directly or indirectly, more than 50% of the aggregating entity; 
person or entity that owns, directly or indirectly, more than 50% of any 
other affiliate of the aggregating entity; or entity, a majority of 
whose board of directors or a majority of whose general partners are 
directors or officers of the aggregating entity or any affiliate of the 
aggregating entity.
    (1) Subject to the conditions prescribed in appendix A to this part, 
one aggregating entity, or a combination of aggregating entities, may be 
recognized as a separate reporting entity.
    (2) Notwithstanding this definition, any persons or entities that 
intentionally act together with respect to the investing in, retention 
of, or financing of Treasury securities are considered, collectively, to 
be one reporting entity.
    Reporting requirement means that an entity must file a large 
position report when it meets any one of eight criteria contained in 
appendix B to this part.



Sec.420.3  Reporting.

    (a) A reporting entity must file a large position report if it meets 
the reporting requirement as defined in Sec.420.2. Treasury will 
provide notice of the large position thresholds by issuing

[[Page 1438]]

a public announcement and subsequently publishing the notice in the 
Federal Register. Such notice will identify the Treasury security 
issue(s) to be reported (including, where applicable, identifying the 
related STRIPS principal component); the date or dates for which the 
large position information must be reported; and the large position 
thresholds for that issue. A reporting entity is responsible for taking 
reasonable actions to be aware of such a notice.
    (b) A reporting entity shall select one entity from among its 
aggregating entities (i.e., the designated filing entity) as the entity 
designated to compile and file a report on behalf of the reporting 
entity. The designated filing entity shall be responsible for filing any 
large position reports in response to a notice issued by Treasury and 
for maintaining the additional records prescribed in Sec.420.4.
    (c)(1) In response to a notice issued under paragraph (a) of this 
section requesting large position information, a reporting entity that 
controls an amount of the specified Treasury security that equals or 
exceeds one of the specified large position thresholds stated in the 
notice shall compile and report the amounts of the reporting entity's 
positions in the order specified, as follows:
    (i) Part I. Positions in the Security Being Reported as of the 
Opening of Business on the Report Date, including positions:
    (A) In book-entry accounts of the reporting entity;
    (B) As collateral against borrowings of funds on general collateral 
finance repurchase agreements;
    (C) As collateral against borrowings of funds on tri-party 
repurchase agreements;
    (D) As collateral or margin to secure other contractual obligations 
of the reporting entity; and
    (E) Otherwise available to the reporting entity.
    (ii) Part II. Settlement Obligations Attributable to Outright 
Purchase and Sale Contracts Negotiated Prior to or on the Report Date 
(excluding settlement fails), including:
    (A) Obligations to receive or deliver, on the report date, the 
security being reported attributable to contracts for cash settlement (T 
+ 0);
    (B) Obligations to receive or deliver, on the report date, the 
security being reported attributable to contracts for regular settlement 
(T + 1);
    (C) Obligations to receive or deliver, on the report date, the 
security being reported attributable to contracts, including when-issued 
contracts, for forward settlement (T + n, n1);
    (D) Obligations to receive, on the report date, the security being 
reported attributable to Treasury auction awards; and
    (E) Obligations to receive or deliver, on the report date, principal 
STRIPS derived from the security being reported attributable to 
contracts for cash settlement, regular settlement, when-issued 
settlement, and forward settlement.
    (iii) Part III. Settlement Obligations Attributable to Delivery-
versus-Payment Financing Contracts (including repurchase agreements and 
securities lending agreements) Negotiated Prior to or on the Report Date 
(excluding settlement fails), including:
    (A) Obligations to receive or deliver, on the report date, the 
security being reported, and principal STRIPS derived from the security 
being reported, attributable to overnight agreements;
    (B) Obligations to receive or deliver, on the report date, the 
security being reported, and principal STRIPS derived from the security 
being reported, attributable to term agreements due to open on, or due 
to close on, the report date; and
    (C) Obligations to receive or deliver, on the report date, the 
security being reported, and principal STRIPS derived from the security 
being reported, attributable to open agreements due to open on, or due 
to close on, the report date.
    (iv) Part IV. Settlement Fails from Days Prior to the Report Date 
(Legacy Obligations), including obligations to receive or deliver, on 
the report date, the security being reported, and principal STRIPS 
derived from the security being reported, arising out of settlement 
fails on days prior to the report date.
    (v) Part V. Settlement Fails as of the Close of Business on the 
Report Date,

[[Page 1439]]

including obligations to receive or deliver, on the business day 
following the report date, the security being reported, and principal 
STRIPS derived from the security being reported, arising out of 
settlement fails on the report date.
    (vi) Part VI. Positions in the Security Being Reported as of the 
Close of Business on the Report Date, including positions:
    (A) In book-entry accounts of the reporting entity;
    (B) As collateral against borrowings of funds on general collateral 
finance repurchase agreements;
    (C) As collateral against borrowings of funds on tri-party 
repurchase agreements;
    (D) As collateral or margin to secure other contractual obligations 
of the reporting entity; and
    (E) Otherwise available to the reporting entity.
    (vii) Part VII. Quantity of Continuing Delivery-versus-Payment 
Financing Contracts for the Security Being Reported, including the gross 
amount of security being reported borrowed or lent out on term delivery-
versus-payment repurchase agreements opened before the report date and 
not due to close until after the report date, and on open delivery-
versus-payment repurchase agreements opened before the report date and 
not closed on the report date.
    (viii) Part VIII. Futures and Options Contracts, including:
    (A)(1) Net position, as of the close of market on the business day 
prior to the report date, in futures, options on futures, and exchange-
traded options contracts on which the security being reported is 
deliverable (report number of contracts); and
    (2) Net position, as of the close of market on the report date, in 
futures, options on futures, and exchange-traded options contracts on 
which the security being reported is deliverable (report number of 
contracts).
    (B)(1) Net position, as of the close of market on the business day 
prior to the report date, in over-the-counter options contracts on which 
the security being reported is deliverable (report notional amount of 
contracts regardless of option delta); and
    (2) Net position, as of the close of market on the report date, in 
over-the-counter options contracts on which the security being reported 
is deliverable (report notional amount of contracts regardless of option 
delta).
    (d) An illustration of a sample report is contained in appendix B of 
this part.
    (e) Each of the components of Part I-Part VIII of paragraph (c)(1) 
of this section shall be reported as a positive number or zero. All 
reportable amounts should be reported in the order specified above and 
at par in millions of dollars, except futures, options on futures, and 
exchange-traded options contracts, which should be reported as the 
number of contracts. Over-the-counter options contracts should be 
reported as the notional dollar amount of contracts regardless of option 
delta.
    (f) Each submitted large position report must include the following 
administrative information: Name of the reporting entity; address of the 
principal place of business; name and address of the designated filing 
entity; the Treasury security that is being reported; the CUSIP number 
for the security being reported; the report date or dates for which 
information is being reported; the date the report was submitted; name 
and telephone number of the person to contact regarding information 
reported; and name and position of the authorized individual submitting 
this report.
    (1) Reporting entities have the option to identify the type(s) of 
business engaged in by the reporting entity and its aggregating entities 
with positions in the specified Treasury security by checking the 
appropriate box. The types of businesses include: Broker or dealer, 
government securities broker or dealer, municipal securities broker or 
dealer, futures commission merchant, bank holding company, non-bank 
holding company, bank, investment adviser, commodity pool operator, 
pension trustee, non-pension trustee, and insurance company. Reporting 
entities may select as many business types as applicable. If the 
reporting entity is engaged in a business that is not listed, it could 
select ``other'' and provide a description of its business with respect 
to positions in the specified Treasury security.

[[Page 1440]]

    (2) Reporting entities also have the option to identify their 
overall investment strategy with respect to positions in the specified 
Treasury security by checking the appropriate box. Active investment 
strategies include those that involve purchasing, selling, borrowing, 
lending, and financing positions in the security prior to maturity. 
Passive investment strategies include those that involve holding the 
security until maturity. A combination of active and passive strategies 
would involve applying the aforementioned active and passive strategies 
to all or a portion of a reporting entity's positions in the specified 
Treasury security. Reporting entities may select the most applicable 
investment strategy.
    (g) The large position report must be signed by one of the 
following: The chief compliance officer; chief legal officer; chief 
financial officer; chief operating officer; chief executive officer; or 
managing partner or equivalent of the designated filing entity. The 
designated filing entity must also include in the report, immediately 
preceding the signature, a statement of certification as follows:

    By signing below, I certify that the information contained in this 
report with regard to the designated filing entity is accurate and 
complete. Further, after reasonable inquiry and to the best of my 
knowledge and belief, I certify that: (i) The information contained in 
this report with regard to any other aggregating entities is accurate 
and complete; and (ii) the reporting entity, including all aggregating 
entities, is in compliance with the requirements of 17 CFR part 420.

    (h) The report must be filed before noon Eastern Time on the fourth 
business day following issuance of a public announcement.
    (i) A report to be filed pursuant to paragraph (c) of this section 
will be considered filed when received by Treasury or the Federal 
Reserve Bank of New York according to the instructions provided in the 
public announcement.
    (j) A reporting entity that has filed a report pursuant to paragraph 
(c) of this section shall, at the request of Treasury, or the Federal 
Reserve Bank of New York at the direction of Treasury, timely provide 
any supplemental information pertaining to such report.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[79 FR 73414, Dec. 10, 2014, as amended at 83 FR 52768, Oct. 18, 2018]



Sec.420.4  Recordkeeping.

    (a) Recordkeeping responsibility of aggregating entities. 
Notwithstanding the provisions of paragraphs (b) and (c) of this 
section, an aggregating entity that controls a portion of its reporting 
entity's position in a recently-issued Treasury security, when such 
position of the reporting entity equals or exceeds $2 billion, shall be 
responsible for making and maintaining the records prescribed in this 
section.
    (b) Records to be made and preserved by entities that are subject to 
the recordkeeping provisions of the SEC, Treasury, or the appropriate 
regulatory agencies for financial institutions. As an aggregating 
entity, compliance by a registered broker or dealer, registered 
government securities broker or dealer, noticed financial institution, 
depository institution that exercises investment discretion, registered 
investment adviser, or registered investment company with the applicable 
recordkeeping provisions of the SEC, Treasury, or the appropriate 
regulatory agencies for financial institutions shall constitute 
compliance with this section, provided that, if such entity is also the 
designated filing entity, it:
    (1) Makes and keeps copies of all large position reports filed 
pursuant to this part;
    (2) Makes and keeps supporting documents or schedules used to 
compute data for the large position reports filed pursuant to this part, 
including any certifications or schedules it receives from aggregating 
entities pertaining to their holdings of the reporting entity's 
position;
    (3) Makes and keeps a chart showing the organizational entities that 
are aggregated (if applicable) in determining the reporting entity's 
position; and
    (4) With respect to recordkeeping preservation requirements that 
contain more than one retention period, preserves records required by 
paragraphs (b)(1) through (3) of this section for the

[[Page 1441]]

longest record retention period of applicable recordkeeping provisions.
    (c) Records to be made and preserved by other entities. (1) An 
aggregating entity that is not subject to the provisions of paragraph 
(b) of this section shall make and preserve a journal, blotter, or other 
record of original entry containing an itemized record of all 
transactions that contribute to a reporting entity's position, including 
information showing the account for which such transactions were 
effected and the following information pertaining to the identification 
of each instrument: The type of security, the par amount, the CUSIP 
number, the trade date, the maturity date, the type of transaction 
(e.g., a reverse repurchase agreement), and the name or other 
designation of the person from whom sold or purchased.
    (2) If such aggregating entity is also the designated filing entity, 
then in addition it shall make and preserve the following records:
    (i) Copies of all large position reports filed pursuant to this 
part;
    (ii) Supporting documents or schedules used to compute data for the 
large position reports filed pursuant to this part, including any 
certifications or schedules it receives from aggregating entities 
pertaining to their holdings of the reporting entity's position; and
    (iii) A chart showing the organizational entities that are 
aggregated (if applicable) in determining the reporting entity's 
position.
    (3) With respect to the records required by paragraphs (c)(1) and 
(2) of this section, each such aggregating entity shall preserve such 
records for a period of not less than six years, the first two years in 
an easily accessible place. If an aggregating entity maintains its 
records at a location other than its principal place of business, the 
aggregating entity must maintain an index that states the location of 
the records, and such index must be easily accessible at all times.

(Approved by the Office of Management and Budget under control number 
1535-0089)



Sec.420.5  Applicability date.

    The provisions of this part shall be first applicable beginning 
March 31, 1997.



         Sec.Appendix A to Part 420--Separate Reporting Entity

    Subject to the following conditions, one or more aggregating 
entity(ies) (e.g., parent, subsidiary, or organizational component) in a 
reporting entity, either separately or together with one or more other 
aggregating entity(ies), may be recognized as a separate reporting 
entity. All of the following conditions must be met for such entity(ies) 
to qualify for recognition as a separate reporting entity:
    (1) Such entity(ies) must be prohibited by law or regulation from 
exchanging, or must have established written internal procedures 
designed to prevent the exchange of information related to transactions 
in Treasury securities with any other aggregating entity;
    (2) Such entity(ies) must not be created for the purpose of 
circumventing these large position reporting rules;
    (3) Decisions related to the purchase, sale or retention of Treasury 
securities must be made by employees of such entity(ies). Employees of 
such entity(ies) who make decisions to purchase or dispose of Treasury 
securities must not perform the same function for other aggregating 
entities; and
    (4) The records of such entity(ies) related to the ownership, 
financing, purchase and sale of Treasury securities must be maintained 
by such entity(ies). Those records must be identifiable--separate and 
apart from similar records for other aggregating entities.
    To obtain recognition as a separate reporting entity, each 
aggregating entity or group of aggregating entities must request such 
recognition from Treasury pursuant to the procedures outlined in Sec.
400.2(c) of this chapter. Such request must provide a description of the 
entity or group and its position within the reporting entity, and 
provide the following certification:
    [Name of the entity(ies)] hereby certifies that to the best of its 
knowledge and belief it meets the conditions for a separate reporting 
entity as described in appendix A to 17 CFR part 420. The above named 
entity also certifies that it has established written policies or 
procedures, including ongoing compliance monitoring processes, that are 
designed to prevent the entity or group of entities from:
    (1) Exchanging any of the following information with any other 
aggregating entity (a) positions that it holds or plans to trade in a 
Treasury security; (b) investment strategies that it plans to follow 
regarding Treasury securities; and (c) financing strategies that it 
plans to follow regarding Treasury securities, or
    (2) In any way intentionally acting together with any other 
aggregating entity with respect to the purchase, sale, retention or 
financing of Treasury securities.

[[Page 1442]]

    The above-named entity agrees that it will promptly notify Treasury 
in writing when any of the information provided to obtain separate 
reporting entity status changes or when this certification is no longer 
valid.
    Any entity, including any organizational component thereof, that 
previously has received recognition as a separate bidder in Treasury 
auctions from Treasury pursuant to 31 CFR part 356 is also recognized as 
a separate reporting entity without the need to request such status, 
provided such entity continues to be in compliance with the conditions 
set forth in appendix A to 31 CFR part 356.



        Sec.Appendix B to Part 420--Sample Large Position Report

    Formula for Determining Whether To Submit a Large Position Report

(Report all components as a positive number or zero in millions of 
dollars at par value)

[[Page 1443]]

[GRAPHIC] [TIFF OMITTED] TR10DE14.003


[[Page 1444]]


[GRAPHIC] [TIFF OMITTED] TR10DE14.004


[[Page 1445]]


[GRAPHIC] [TIFF OMITTED] TR10DE14.005


[[Page 1446]]


[GRAPHIC] [TIFF OMITTED] TR10DE14.006


[[Page 1447]]


[GRAPHIC] [TIFF OMITTED] TR10DE14.007


[[Page 1448]]


[GRAPHIC] [TIFF OMITTED] TR10DE14.008


[[Page 1449]]





PART 449_FORMS, SECTION 15C OF THE SECURITIES EXCHANGE ACT OF 1934--
Table of Contents



Sec.
449.1 Form G-FIN, notification by financial institutions of status as 
          government securities broker or dealer pursuant to section 
          15C(a)(1)(B)(i) of the Securities Exchange Act of 1934.
449.2 Form G-FINW, notification by financial institutions of cessation 
          of status as government securities broker or dealer pursuant 
          to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 
          1934 and Sec.400.6 of this chapter.
449.3 Form G-FIN-4, notification by persons associated with financial 
          institutions that are government securities brokers and 
          dealers pursuant to section 15C(a)(1)(B)(i) of the Securities 
          Exchange Act of 1934 and Sec.400.4 of this chapter.
449.4 Form G-FIN-5, notification of termination of association with a 
          financial institution that is a government securities broker 
          or dealer pursuant to section 15C(a)(1)(B)(i) of the 
          Securities Exchange Act of 1934 and Sec.400.4 of this 
          chapter.
449.5 Form G-405, information required of registered government 
          securities brokers and dealers pursuant to section 15C of the 
          Securities Exchange Act of 1934 and Sec.Sec.405.2 and 405.3 
          of this chapter.

    Authority: 15 U.S.C. 78o-5(a), (b)(1)(B), (b)(4).

    Source: 52 FR 27956, July 24, 1987, unless otherwise noted.



Sec.449.1  Form G-FIN, notification by financial institutions of
status as government securities broker or dealer pursuant to section
15C(a)(1)(B)(i) of the Securities Exchange Act of 1934.

    This form is to be used by financial institutions that are 
government securities brokers or dealers not exempt under part 401 of 
this chapter to notify their appropriate regulatory agency of their 
status. The form is promulgated by the Board of Governors of the Federal 
Reserve System and is available from the Board of Governors of the 
Federal Reserve System, the Comptroller of the Currency, the Federal 
Deposit Insurance Corporation, and the SEC.

[52 FR 27956, July 24, 1987, as amended at 79 FR 38456, July 8, 2014]



Sec.449.2  Form G-FINW, notification by financial institutions of 
cessation of status as government securities broker or dealer pursuant
to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and 
Sec.400.6 of this chapter.

    This form is to be used by financial institutions that are 
government securities brokers or dealers to notify their appropriate 
regulatory agency that they have ceased to function as a government 
securities broker or dealer. The form is promulgated by the Board of 
Governors of the Federal Reserve System and is available from the Board 
of Governors of the Federal Reserve System, the Comptroller of the 
Currency, the Federal Deposit Insurance Corporation, and the SEC.

[52 FR 27956, July 24, 1987, as amended at 79 FR 38456, July 8, 2014]



Sec.449.3  Form G-FIN-4, notification by persons associated with 
financial institutions that are government securities brokers and 
dealers pursuant to section 15C(a)(1)(B)(i) of the Securities 
Exchange Act of 1934 and Sec.400.4 of this chapter.
          

    This form is to be used by associated persons of financial 
institutions that are government securities brokers or dealers to 
provide certain information to the financial institution and the 
appropriate regulatory agency concerning employment, residence, and 
statutory disqualification. The form is promulgated by the Department of 
the Treasury and is available from the Board of Governors of the Federal 
Reserve System, the Comptroller of the Currency, the Federal Deposit 
Insurance Corporation, and the SEC.

[52 FR 27956, July 24, 1987, as amended at 79 FR 38456, July 8, 2014]

    Editorial Note: For Federal Register citations affecting Form G-FIN-
4, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and at www.govinfo.gov.

[[Page 1450]]



Sec.449.4  Form G-FIN-5, notification of termination of association
with a financial institution that is a government securities broker
or dealer pursuant to section 15C(a)(1)(B)(i) of the Securities 
Exchange Act of 1934 and Sec.400.4 of this chapter.

    This form is to be used by financial institutions that are 
government securities brokers or dealers to notify the appropriate 
regulatory agency of the fact that an associated person is no longer 
associated with the government securities broker or dealer function of 
the financial institution. The form is promulgated by the Department of 
the Treasury and is available from the Board of Governors of the Federal 
Reserve System, the Comptroller of the Currency, the Federal Deposit 
Insurance Corporation, and the SEC.

[52 FR 27956, July 24, 1987, as amended at 79 FR 38456, July 8, 2014]



Sec.449.5  Form G-405, information required of registered government
securities brokers and dealers pursuant to section 15C of the 
Securities Exchange Act of 1934 and Sec.Sec.405.2 and 405.3 
of this chapter.

    This form is to be used by registered government securities brokers 
and dealers to make the monthly, quarterly and annual financial reports 
required by part 405 of this chapter. The form is promulgated by the 
Department of the Treasury and is available from the SEC and the 
designated examining authorities.

    Editorial Note: For Federal Register citations affecting Form G-405, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.gov.

[[Page 1451]]



SUBCHAPTER B_REGULATIONS UNDER TITLE II OF THE GOVERNMENT SECURITIES ACT 
                                 OF 1986





PART 450_CUSTODIAL HOLDINGS OF GOVERNMENT SECURITIES BY DEPOSITORY 
INSTITUTIONS--Table of Contents



Sec.
450.1 Scope of regulations; office responsible.
450.2 Definitions.
450.3 Exemption for holdings subject to fiduciary standards.
450.4 Custodial holdings of government securities.
450.5 Effective date.

    Authority: Sec.201, Pub. L. 99-571, 100 Stat. 3222-23 (31 U.S.C. 
3121, 9110); Sec.101, Pub. L. 99-571, 100 Stat. 3208 (15 U.S.C. 78o-
5(b)(1)(A), (b)(4), (b)(5)(B)).

    Source: 52 FR 27957, July 24, 1987, unless otherwise noted.



Sec.450.1  Scope of regulations; office responsible.

    (a) This part applies to depository institutions that hold 
government securities as fiduciary, custodian, or otherwise for the 
account of a customer, and that are not government securities brokers or 
dealers, as defined in sections 3(a)(43) and 3(a)(44) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(43)-(44)). Depository 
institutions exempt under part 401 of this chapter from the requirements 
of Subchapter A of this chapter must comply with this part. Certain 
depository institutions that are government securities brokers or 
dealers must also comply with this part, as well as with additional 
requirements set forth in Sec.403.5.
    (b) The regulations in this subchapter are promulgated by the 
Assistant Secretary (Domestic Finance) pursuant to a delegation of 
authority from the Secretary of the Treasury. The office responsible for 
the regulations is the Office of the Commissioner, Bureau of the Fiscal 
Service. Procedures for obtaining interpretations of the regulations are 
set forth at Sec.400.2.

[52 FR 27957, July 24, 1987, as amended at 53 FR 28987, Aug. 1, 1988; 79 
FR 38456, July 8, 2014]



Sec.450.2  Definitions.

    For purposes of this subchapter:
    (a) Appropriate regulatory agency has the meaning set out in section 
3(a)(34)(G) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(34)(G)), except that the appropriate regulatory agency for--
    (1) A Federal credit union as defined in 12 U.S.C. 1752(1) and an 
insured credit union as defined in 12 U.S.C. 1752(7) is the National 
Credit Union Administration; and
    (2) Any depository institution for whom an appropriate regulatory 
agency is not explicitly specified by either section 3(a)(34)(G) or this 
paragraph, is the SEC;
    (b) Customer includes, but is not limited to, the counterparty to a 
transaction pursuant to a repurchase agreement for whom the depository 
institution retains possession of the security sold subject to 
repurchase, but does not include a broker or dealer that is registered 
pursuant to section 15, 15B or 15C(a)(1)(A) of the Act (15 U.S.C. 78o, 
78o-4, 78o-5(a)(l)(A)) or that has filed notice of its status as a 
government securities broker or dealer pursuant to section 15C(a)(1)(B) 
of the Act (15 U.S.C. 78o-5(a)(1)(B)) except as provided in Sec.450.4.
    (c) Depository institution has the meaning stated in clauses (i) 
through (vi) of section 19(b)(1)(A) of the Federal Reserve Act (12 
U.S.C. 461(b)(1)(A) (i)-(vi)) and also includes a foreign bank, an 
agency or branch of a foreign bank and a commercial lending company 
owned or controlled by a foreign bank (as such terms are defined in the 
International Banking Act of 1978, Pub. L. 95-369, 92 Stat. 607);
    (d) Fiduciary capacity includes trustee, executor, administrator, 
registrar, transfer agent, guardian, assignee, receiver, managing agent, 
and any other similar capacity involving the sole or shared exercise of 
discretion by a depository institution having fiduciary powers that is 
supervised by a Federal or state financial institution regulatory 
agency; and

[[Page 1452]]

    (e) Government securities means:

------------------------------------------------------------------------
                If . . .                            Then . . .
------------------------------------------------------------------------
(1)(i) A depository institution is a     ``Government securities'' means
 government securities broker or dealer   those obligations described in
 as defined in sections 3(a)(43) and      subparagraphs (A), (B), (C),
 3(a)(44) of the Securities Exchange      or (E) of section 3(a)(42) of
 Act of 1934 (15 U.S.C. 78c(a)(43)-       the Securities Exchange Act of
 (44)).                                   1934 (15 U.S.C. 78c(a)(42)(A)-
                                          (C), (E))
------------------------------------------------------------------------
(ii) A depository institution is exempt  ``Government securities'' means
 under Part 401 of this chapter from      those obligations described in
 the requirements of Subchapter A.        subparagraphs (A), (B), (C),
                                          or (E) of section 3(a)(42) of
                                          the Securities Exchange Act of
                                          1934 (15 U.S.C. 78c(a)(42)(A)-
                                          (C), (E))
------------------------------------------------------------------------
(2) A depository institution is not a    ``Government securities'' means
 government securities broker or dealer   those obligations described in
 as defined in sections 3(a)(43) and      subparagraphs (A), (B), or (C)
 3(a)(44) of the Securities Exchange      of section 3(a)(42) of the
 Act of 1934 (15 U.S.C. 78c(a)(43)-       Securities Exchange Act of
 (44)).                                   1934 (15 U.S.C. 78c(a)(42)(A)-
                                          (C))
------------------------------------------------------------------------


[52 FR 27957, July 24, 1987, as amended at 55 FR 6604, Feb. 26, 1990; 66 
FR 28655, May 24, 2001; 66 FR 29888, June 1, 2001]



Sec.450.3  Exemption for holdings subject to fiduciary standards.

    (a) The Secretary has determined that the rules and standards of the 
Comptroller of the Currency, the Board of Governors of the Federal 
Reserve System, and the Federal Deposit Insurance Corporation governing 
the holding of government securities in a fiduciary capacity by 
depository institutions subject thereto are adequate. Accordingly, such 
depository institutions are exempt from this part with respect to their 
holdings of government securities in a fiduciary capacity and their 
holdings of government securities in a custodial capacity provided that:
    (1) Such institution has adopted policies and procedures that would 
apply to such custodial holdings all the requirements imposed by its 
appropriate regulatory agency that are applicable to government 
securities held in a fiduciary capacity, and
    (2) Such custodial holdings are subject to examination by the 
appropriate regulatory agency for compliance with such fiduciary 
requirements.
    (b) The Secretary expects that each appropriate regulatory agency 
will notify the Department if it materially revises its rules and 
standards governing the holding of government securities in a fiduciary 
capacity.

[52 FR 27957, July 24, 1987, as amended at 70 FR 29446, May 23, 2005; 79 
FR 38456, July 8, 2014]



Sec.450.4  Custodial holdings of government securities.

    Depository institutions that are subject to this part shall observe 
the following requirements with respect to their holdings of government 
securities for customer accounts:
    (a)(1) Except as otherwise provided in this section, a depository 
institution shall maintain possession or control of all government 
securities held for the account of customers by segregating such 
securities from the assets of the depository institution and keeping 
them free of any lien, charge or claim of any third party granted or 
created by such depository institution.
    (2)(i) Where customer securities are maintained by a depository 
institution at another depository institution, including but not limited 
to a correspondent bank or a trust company (``custodian institution''), 
the depository institution shall be in compliance with paragraph (a)(1) 
of this section if:
    (A) The depository institution notifies the custodian institution 
that such securities are customer securities;
    (B) The custodian institution maintains such securities in an 
account that is designated for customers of the depository institution 
and that does not contain proprietary securities of the depository 
institution; and
    (C) The depository institution instructs the custodian institution 
to maintain such securities free of any lien, charge, or claim of any 
kind in favor of such custodian institution or any persons claiming 
through it.

[[Page 1453]]

    (ii) To the extent that a custodian institution holds securities 
that have been identified as customer securities by a depository 
institution in accordance with paragraph (a)(2)(i) of this section, the 
custodian institution shall treat such securities as customer securities 
separate from any other securities held for the account of the 
depository institution.
    (3)(i) Where securities that a depository institution is required, 
pursuant to this part 450, to keep free of all liens, charges, or other 
claims (``customer securities'') are maintained by a depository 
institution at a Federal Reserve Bank, the depository institution shall 
be in compliance with paragraph (a)(1) of this section if any lien, 
charge or other claim of such Federal Reserve Bank or any person 
claiming through it against securities of the depository institution 
expressly excludes customer securities.
    (ii) Notwithstanding paragraph (a)(3)(i) of this section, a 
depository institution described in that paragraph shall be in 
compliance with paragraph (a)(1) of this section if a Federal Reserve 
Bank retains a lien on securities received during the day that are 
subsequently determined to be customer securities, provided that,
    (A) On that day, the depository institution:
    (1) Because of extraordinary circumstances, at the end of that day 
either requests a discount window advance or is unable to eliminate an 
overdraft with its Federal Reserve Bank and the Federal Reserve Bank 
extends credit to the depository institution in order to assure the 
safety and soundness or liquidity of the depository institution; and
    (2) After reasonable efforts, is unable to provide the Federal 
Reserve Bank with an adequate security interest in other collateral that 
is clearly identifiable as pledgeable by the depository institution 
sufficient to fully collateralize such extension of credit; and
    (B) The depository institution diligently pursues with the Federal 
Reserve Bank the substitution of other collateral for securities 
determined to be customer securities; and
    (C) The Federal Reserve Bank agrees that to the extent the lien 
extends to collateral of a value greater than the outstanding balance on 
the loan, customer securities will be the first collateral released from 
the lien.
    (4)(i) To the extent that a depository institution holds securities 
that have been identified to such depository institution as customer 
securities by a government securities broker or dealer, or that the 
government securities broker or dealer has instructed the depository 
institution to place in a segregated account, in accordance with part 
403 of subchapter A of this chapter, the depository institution shall 
treat such securities as customer securities separate from any other 
securities held for the account of the government securities broker or 
dealer and shall comply with all of the provisions of this section with 
respect to such customer securities, except as provided in paragraph 
(a)(4)(ii) of this section.
    (ii) A clearing bank that provides clearing services for a 
government securities broker or dealer and that maintains a segregated 
account as described in Sec.403.4 of this chapter shall not be 
required to transfer securities to such account upon the instruction of 
the broker or dealer for whom such account is maintained if the clearing 
bank determines that such securities continue to be required as 
collateral for an extension of clearing credit to such dealer. Whenever 
a clearing bank does not segregate securities as of the close of 
business upon the instruction of such broker or dealer, it shall send a 
notification to the appropriate regulatory agency of the broker or 
dealer for whom such account is maintained. Such securities shall 
thereafter be segregated pursuant to the instruction of the broker or 
dealer as soon as they are no longer required by the clearing bank as 
collateral for the extension of clearing credit.
    (5) A depository institution that is subject to part 403 is not 
required to maintain possession or control of margin securities as that 
term is defined in Sec.403.5(f)(1).
    (6) Notwithstanding the requirement of paragraph (a)(1) to maintain 
possession or control of customer securities, a depository institution 
may lend such

[[Page 1454]]

securities to a third party pursuant to the written agreement of the 
customer, if such loan of securities is carried out in full compliance 
with supervisory guidelines of its appropriate regulatory agency that 
expressly govern securities lending practices.
    (b)(1) Except as otherwise provided in paragraph (b)(2) of this 
section, a depository institution shall issue a confirmation or a 
safekeeping receipt for each security held for a customer in accordance 
with this section with the exception of securities that are the subject 
of repurchase transactions which are subject to the requirements of 
Sec.403.5(d) of this chapter. The confirmation or safekeeping receipt 
shall identify the issuer, maturity date, par amount and coupon rate of 
the security being confirmed. The confirmation may be supplied to the 
customer in any manner that complies with applicable Federal banking 
regulations.
    (2) A depository institution shall not be required to send the 
confirmation or safekeeping receipt required by paragraph (b)(1) of this 
section to a customer that is a non-U.S. citizen residing outside the 
United States or a foreign corporation, partnership, or trust, if such 
customer expressly waives in writing the right to receive such 
confirmation or safekeeping receipt.
    (c) Records of government securities held for customers shall be 
maintained and shall be kept separate and distinct from other records of 
the depository institution. Such records shall:
    (1) Provide a system for identifying each customer, and each 
government security (or the amount of each issue of a government 
security issued in book-entry form) held for the customer;
    (2) Describe the customer's interest in the government security;
    (3) Indicate all receipts and deliveries of government securities 
and all receipts and disbursements of cash by the depository institution 
in connection with such securities;
    (4) Include a copy of the safekeeping receipt or a confirmation 
issued for each government security held; and
    (5) Provide an adequate basis for audit of such information.
    (d) Counts of government securities held for customers in both 
definitive and book-entry form shall be conducted at least annually and 
such counts shall be reconciled with customer account records.
    (1) Counts of book-entry securities and of definitive securities 
held outside the possession of the depository institution shall be made 
by reconciliation of the records of the depository institution with 
those of any depository, depository institution, or Federal Reserve Bank 
on whose books the depository institution has securities accounts.
    (2) The depository institution conducting the count shall also 
verify any such securities in transfer, in transit, pledged, loaned, 
borrowed, deposited, failed to receive, failed to deliver, subject to 
repurchase or reverse repurchase agreements or otherwise subject to the 
depository institution's control or direction that are not in its 
physical possession, where the securities have been in such status for 
longer than thirty days.
    (3) The dates and results of such counts and reconciliations shall 
be documented with differences noted in a security count difference 
account not later than seven business days after the date of each 
required count and verification as provided in this paragraph (d).
    (e) For purposes of this section, a depository institution shall 
treat a government securities broker or dealer as a customer with 
respect to securities maintained by such government securities broker or 
dealer in a Segregated Account as defined in Sec.403.4(f)(1) of this 
chapter and with respect to securities otherwise identified to the 
depository institution as customer securities for purposes of 
maintaining possession or control of such securities as required by part 
403 of this chapter. The recordkeeping requirements of paragraph (c) of 
this section require the depository institution to treat such securities 
as customer securities separate from any other securities held for the 
account of the government securities broker or dealer, but do not 
require the depository institution to keep records identifying 
individual customers of the government securities broker or dealer.
    (f) The records required by paragraphs (c) and (d)(3) of this 
section

[[Page 1455]]

shall be preserved for not less than six years, the first two years in 
an easily accessible place.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27957, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995]



Sec.450.5  Effective date.

    This part shall be effective October 31, 1987.

                        PARTS 451	499 [RESERVED]

[[Page 1457]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.


  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  Table of OMB Control Numbers
  List of CFR Sections Affected

[[Page 1459]]



                    Table of CFR Titles and Chapters




                      (Revised as of April 1, 2020)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Department of Housing and Urban Development (Parts 
                2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 1460]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600--3699)

[[Page 1461]]

    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  U.S. International Development Finance Corporation 
                (Parts 4300--4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)

[[Page 1462]]

     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)
        CI  National Mediation Board (Part 10101)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                Department of Agriculture (Parts 800--899)

[[Page 1463]]

        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  [Reserved]
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  [Reserved]
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

[[Page 1464]]

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  (Parts 500--599) [Reserved]
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)

[[Page 1465]]

       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  National Technical Information Service, Department of 
                Commerce (Parts 1100--1199)

[[Page 1466]]

      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399) [Reserved]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)

[[Page 1467]]

        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)

[[Page 1468]]

        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

[[Page 1469]]

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--899)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900--999)
        VI  Office of the Assistant Secretary, Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)

[[Page 1470]]

        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)

[[Page 1471]]

      VIII  Office of Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Department of Defense, Defense Logistics Agency (Parts 
                1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army, Department 
                of Defense (Parts 200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)

[[Page 1472]]

       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Career, Technical and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  (Parts 1100--1199) [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  U.S. Copyright Office, Library of Congress (Parts 
                200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

[[Page 1473]]

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  [Reserved]
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]

[[Page 1474]]

            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)

[[Page 1475]]

       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
        IX  Denali Commission (Parts 900--999)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, Department 
                of Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission of Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Parts 2300--2399)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

[[Page 1476]]

        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199) [Reserved]
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]

[[Page 1477]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)

[[Page 1478]]

        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 1479]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of April 1, 2020)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, VIII, IX, X, XI; 9, 
                                                  II
Agricultural Research Service                     7, V
Agriculture, Department of                        2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, VIII, IX, X, XI; 9, 
                                                  II
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force, Department of                          32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
   Compliance Board
[[Page 1480]]

Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI; 38, II
Army, Department of                               32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Career, Technical, and Adult Education, Office    34, IV
     of
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazard Investigation Board    40, VI
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce, Department of                           2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I
Defense, Department of                            2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51

[[Page 1481]]

  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy, Department of                             32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Denali Commission                                 45, IX
Disability, National Council on                   5, C; 34, XII
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical, and Adult Education, Office  34, IV
       of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Policy, National Commission for        1, IV
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 5, XXIII; 10, II, 
                                                  III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, II
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II

[[Page 1482]]

  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission of                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5

[[Page 1483]]

  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V

[[Page 1484]]

Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior, Department of                           2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Enforcement Bureau, Bureau of        30, II
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Development Finance Corporation,    5, XXXIII; 22, VII
     U.S.
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice, Department of                            2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor, Department of                              2, XXIX; 5, XLII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50

[[Page 1485]]

  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I, VII
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Libraries and Information Science, National       45, XVII
     Commission on
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV, VI
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          5, CI; 29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
   and Technology Policy
[[Page 1486]]

National Technical Information Service            15, XI
National Telecommunications and Information       15, XXIII; 47, III, IV, V
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy, Department of                               32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, IV, XXXV; 45, VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Utilities Service                           7, XVII, XVIII, XLII
Safety and Environmental Enforcement, Bureau of   30, II
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI

[[Page 1487]]

Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State, Department of                              2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Tennessee Valley Authority                        5, LXIX; 18, XIII
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury, Department of the                       2, X; 5, XXI; 12, XV; 17, 
                                                  IV; 31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
U.S. Copyright Office                             37, II
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs, Department of                   2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 1489]]







                      Table of OMB Control Numbers



The OMB control numbers for chapter II of title 17 appear in Sec.  
200.800. For the convenience of the user, Sec.  200.800 is reprinted 
below.



Sec.  200.800  OMB control numbers assigned pursuant to the Paperwork Reduction Act.

    (a) Purpose: This subpart collects and displays the control numbers 
assigned to information collection requirements of the Commission by the 
Office of Management and Budget pursuant to the Paperwork Reduction Act 
of 1980, 44 U.S.C. 3500 et seq. This subpart displays current OMB 
control numbers for those information collection requirements of the 
Commission that are rules and regulations and codified in 17 CFR either 
in full text or incorporated by reference with the approval of the 
Director of the Office of the Federal Register.
    (b) Display.

------------------------------------------------------------------------
                                    17 CFR part or section
      Information collection         where identified and    Current OMB
           requirement                     described         control No.
------------------------------------------------------------------------
Regulation S-X...................  Part 210................    3235-0009
Regulation S-B...................  Part 228................    3235-0417
Regulation S-K...................  Part 229................    3235-0071
Rule 154.........................  230.154.................    3235-0495
Rule 155.........................  230.155.................    3235-0549
Rule 236.........................  230.236.................    3235-0095
Rule 237.........................  230.237.................    3235-0528
Regulation A.....................  230.251 thru 230.263....    3235-0286
Regulation C.....................  230.400 thru 230.494....    3235-0074
Rule 425.........................  230.425.................    3235-0521
Rule 477.........................  230.477.................    3235-0550
Rule 489.........................  230.489.................    3235-0411
Rule 498.........................  230.498.................    3235-0488
Regulation D.....................  230.500 thru 230.508....    3235-0076
Regulation E.....................  230.601 thru 230.610a...    3235-0232
Rule 604.........................  230.604.................    3235-0232
Rule 605.........................  230.605.................    3235-0232
Rule 609.........................  230.609.................    3235-0233
Rule 701.........................  230.701.................    3235-0522
Regulation S.....................  230.901 thru 230.905....    3235-0357
Regulation S-T...................  Part 232................    3235-0424
Form SB-1........................  239.9...................    3235-0423
Form SB-2........................  239.10..................    3235-0418
Form S-1.........................  239.11..................    3235-0065
Form S-2.........................  239.12..................    3235-0072
Form S-3.........................  239.13..................    3235-0073
Form N-2.........................  239.14..................    3235-0026
Form N-1A........................  239.15A.................    3235-0307
Form S-6.........................  239.16..................    3235-0184
Form S-8.........................  239.16b.................    3235-0066
Form N-3.........................  239.17a.................    3235-0316
Form N-4.........................  239.17b.................    3235-0318
Form S-11........................  239.18..................    3235-0067
Form N-14........................  239.23..................    3235-0336
Form N-5.........................  239.24..................    3235-0169
Form S-4.........................  239.25..................    3235-0324
Form F-1.........................  239.31..................    3235-0258
Form F-2.........................  239.32..................    3235-0257
Form F-3.........................  239.33..................    3235-0256
Form F-4.........................  239.34..................    3235-0325
Form F-6.........................  239.36..................    3235-0292
Form F-7.........................  239.37..................    3235-0383
Form F-8.........................  239.38..................    3235-0378
Form F-10........................  239.40..................    3235-0380
Form F-80........................  239.41..................    3235-0404

[[Page 1490]]

 
Form F-X.........................  239.42..................    3235-0379
Form F-N.........................  239.43..................    3235-0411
Form ID..........................  239.63..................    3235-0328
Form SE..........................  239.64..................    3235-0327
Form TH..........................  239.65..................    3235-0425
Form 1-A.........................  239.90..................    3235-0286
Form 2-A.........................  239.91..................    3235-0286
Form 144.........................  239.144.................    3235-0101
Form 1-E.........................  239.200.................    3235-0232
Form CB..........................  239.800.................    3235-0518
Rule 6a-1........................  240.6a-1................    3235-0017
Rule 6a-3........................  240.6a-3................    3235-0021
Rule 6a-4........................  240.6a-4................    3235-0554
Rule 6h-1........................  240.6h-1................    3235-0555
Rule 8c-1........................  240.8c-1................    3235-0514
Rule 9b-1........................  240.9b-1................    3235-0480
Rule 10a-1.......................  240.10a-1...............    3235-0475
Rule 10b-10......................  240.10b-10..............    3235-0444
Rule 10b-17......................  240.10b-17..............    3235-0476
Rule 10b-18......................  240.10b-18..............    3235-0474
Rule 10A-1.......................  240.10A-1...............    3235-0468
Rule 11a1-1(T)...................  240.11a1-1(T)...........    3235-0478
Rule 12a-5.......................  240.12a-5...............    3235-0079
Regulation 12B...................  240.12b-1 thru 240.12b-     3235-0062
                                    36.
Rule 12d1-3......................  240.12d1-3..............    3235-0109
Rule 12d2-1......................  240.12d2-1..............    3235-0081
Rule 12d2-2......................  240.12d2-2..............    3235-0080
Rule 12f-1.......................  240.12f-1...............    3235-0128
Rule 13a-16......................  240.13a-16..............    3235-0116
Regulation 13D/G.................  240.13d-1 thru 240.13d-7    3235-0145
Schedule 13D.....................  240.13d-101.............    3235-0145
Schedule 13G.....................  240.13d-102.............    3235-0145
Rule 13e-1.......................  240.13e-1...............    3235-0305
Rule 13e-3.......................  240.13e-3...............    3235-0007
Schedule 13E-3...................  240.13e-100.............    3235-0007
Schedule 13e-4F..................  240.13e-101.............    3235-0375
Regulation 14A...................  240.14a-1 thru 240.14a-     3235-0059
                                    12.
Schedule 14A.....................  240.14a-101.............    3235-0059
Regulation 14C...................  240.14c-1...............    3235-0057
Schedule 14C.....................  240.14c-101.............    3235-0057
Regulation 14D...................  240.14d-1 thru 240.14d-9    3235-0102
Schedule TO......................  240.14d-100.............    3235-0515
Schedule 14D-1...................  240.14d-101.............    3235-0102
Schedule 14D-9...................  240.14d-101.............    3235-0102
Schedule 14D-1F..................  240.14d-102.............    3235-0376
Schedule 14D-9F..................  240.14d-103.............    3235-0382
Regulation 14E...................  240.14e-1 thru 240.14e-2    3235-0102
Rule 14f-1.......................  240.14f-1...............    3235-0108
Rule 15a-4.......................  240.15a-4...............    3235-0010
Rule 15a-6.......................  240.15a-6...............    3235-0371
Rule 15b1-1......................  240.15b1-1..............    3235-0012
Rule 15b6-1(a)...................  240.15b6-1(a)...........    3235-0018
Rule 15c1-5......................  240.15c1-5..............    3235-0471
Rule 15c1-6......................  240.15c1-6..............    3235-0472
Rule 15c1-7......................  240.15c1-7..............    3235-0134
Rule 15c2-1......................  240.15c2-1..............    3235-0485
Rule 15c2-5......................  240.15c2-5..............    3235-0198
Rule 15c2-7......................  240.15c2-7..............    3235-0479
Rule 15c2-8......................  240.15c2-8..............    3235-0481
Rule 15c2-11.....................  240.15c2-11.............    3235-0202
Rule 15c2-12.....................  240.15c2-12.............    3235-0372
Rule 15c3-1......................  240.15c3-1..............    3235-0200
Rule 15c3-1(c)(13)...............  240.15c3-1(c)(13).......    3235-0499
Appendix F to Rule 15c3-1........  240.15c3-1f.............    3235-0496
Rule 15c3-3......................  240.15c3-3..............    3235-0078
Rule 15c3-4......................  240.15c3-4..............    3235-0497
Rule 15d-16......................  240.15d-16..............    3235-0116
Rule 15g-2.......................  240.15g-2...............    3235-0434
Rule 15g-3.......................  240.15g-3...............    3235-0392
Rule 15g-4.......................  240.15g-4...............    3235-0393
Rule 15g-5.......................  240.15g-5...............    3235-0394
Rule 15g-6.......................  240.15g-6...............    3235-0395

[[Page 1491]]

 
Rule 15g-9.......................  240.15g-9...............    3235-0385
Rule 15Aj-1......................  240.15Aj-1..............    3235-0044
Rule 15Ba2-1.....................  240.15Ba2-1.............    3235-0083
Rule 15Ba2-5.....................  240.15Ba2-5.............    3235-0088
Rule 15Bc3-1.....................  240.15Bc3-1.............    3235-0087
Rule 17a-1.......................  240.17a-1...............    3235-0208
Rule 17a-2.......................  240.17a-2...............    3235-0201
Rule 17a-3.......................  240.17a-3...............    3235-0033
Rule 17a-3(a)(16)................  240.17a-3(a)(16)........    3235-0508
Rule 17a-4.......................  240.17a-4...............    3235-0279
Rule 17a-4(b)(10)................  240.17a-4(b)(10)........    3235-0506
Rule 17a-5.......................  240.17a-5...............    3235-0123
Rule 17a-5(c)....................  240.17a-5(c)............    3235-0199
Rule 17a-6.......................  240.17a-6...............    3235-0489
Rule 17a-7.......................  240.17a-7...............    3235-0131
Rule 17a-8.......................  240.17a-8...............    3235-0092
Rule 17a-9T......................  240.17a-9T..............    3235-0524
Rule 17a-10......................  240.17a-10..............    3235-0122
Rule 17a-11......................  240.17a-11..............    3235-0085
Rule 17a-12......................  240.17a-12..............    3235-0498
Rule 17a-13......................  240.17a-13..............    3235-0035
Rule 17a-19......................  240.17a-19..............    3235-0133
Rule 17a-22......................  240.17a-22..............    3235-0196
Rule 17a-25......................  240.17a-25..............    3235-0540
Rule 17f-1(b)....................  240.17f-1(b)............    3235-0032
Rule 17f-1(c)....................  240.17f-1(c)............    3235-0037
Rule 17f-1(g)....................  240.17f-1(g)............    3235-0290
Rule 17f-2(a)....................  240.17f-2(a)............    3235-0034
Rule 17f-2(c)....................  240.17f-2(c)............    3235-0029
Rule 17f-2(d)....................  240.17f-2(d)............    3235-0028
Rule 17f-2(e)....................  240.17f-2(e)............    3235-0031
Rule 17f-5.......................  240.17f-5...............    3235-0269
Rule 17h-1T......................  240.17h-1T..............    3235-0410
Rule 17h-2T......................  240.17h-2T..............    3235-0410
Rule 17Ab2-1.....................  240.17Ab2-1(a)..........    3235-0195
Rule 17Ac2-1.....................  240.17Ac2-1.............    3235-0084
Rule 17Ad-2(c), (d), and (h).....  240.17Ad-2(c), (d) and      3235-0130
                                    (h).
Rule 17Ad-3(b)...................  240.17Ad-3(b)...........    3235-0473
Rule 17Ad-4(b) and (c)...........  240.17Ad-4(b) and (c)...    3235-0341
Rule 17Ad-6......................  240.17Ad-6..............    3235-0291
Rule 17Ad-7......................  240.17Ad-7..............    3235-0291
Rule 17Ad-10.....................  240.17Ad-10.............    3235-0273
Rule 17Ad-11.....................  240.17Ad-11.............    3235-0274
Rule 17Ad-13.....................  240.17Ad-13.............    3235-0275
Rule 17Ad-15.....................  240.17Ad-15.............    3235-0409
Rule 17Ad-16.....................  240.17Ad-16.............    3235-0413
Rule 17Ad-17.....................  240.17Ad-17.............    3235-0469
Rule 19b-1.......................  240.19b-1...............    3235-0354
Rule 19b-4.......................  240.19b-4...............    3235-0045
Rule 19b-4(e)....................  240.19b-4(e)............    3235-0504
Rule 19b-5.......................  240.19b-5...............    3235-0507
Rule 19b-7.......................  240.19b-7...............    3235-0553
Rule 19d-1.......................  240.19d-1(b) thru           3235-0206
                                    240.19d-1(i).
Rule 19d-2.......................  240.19d-2...............    3235-0205
Rule 19d-3.......................  240.19d-3...............    3235-0204
Rule 19h-1.......................  240.19h-1(a), (c) thru      3235-0259
                                    (e), and (g).
Rule 24b-1.......................  240.24b-1...............    3235-0194
Rule 101.........................  242.101.................    3235-0464
Rule 102.........................  242.102.................    3235-0467
Rule 103.........................  242.103.................    3235-0466
Rule 104.........................  242.104.................    3235-0465
Rule 301.........................  242.301.................    3235-0509
Rule 302.........................  242.302.................    3235-0510
Rule 303.........................  242.303.................    3235-0505
Rule 604.........................  242.604.................    3235-0462
Rule 605.........................  242.605.................    3235-0542
Rule 606.........................  242.606.................    3235-0541
Rule 607.........................  242.607.................    3235-0435
Rule 608.........................  242.608.................    3235-0500
Rule 609.........................  242.609.................    3235-0043
Rule 611.........................  242.611.................    3235-0600
Regulation S-P...................  Part 248................    3235-0537

[[Page 1492]]

 
Form 1...........................  249.1...................    3235-0017
Form 1-N.........................  249.10..................    3235-0554
Form 25..........................  249.25..................    3235-0080
Form 26..........................  249.26..................    3235-0079
Form 3...........................  249.103.................    3235-0104
Form 4...........................  249.104.................    3235-0287
Form 5...........................  249.105.................    3235-0362
Form 8-A.........................  249.208a................    3235-0056
Form 10..........................  249.210.................    3235-0064
Form 10-SB.......................  249.210b................    3235-0419
Form 18..........................  249.218.................    3235-0121
Form 20-F........................  249.220f................    3235-0288
Form 40-F........................  249.240f................    3235-0381
Form 6-K.........................  249.306.................    3235-0116
Form 8-K.........................  249.308.................    3235-0060
Form 10-Q........................  249.308a................    3235-0070
Form 10-QSB......................  249.308b................    3235-0416
Form 10-K........................  249.310.................    3235-0063
Form 10-KSB......................  249.310b................    3235-0420
Form 11-K........................  249.311.................    3235-0082
Form 18-K........................  249.318.................    3235-0120
Form 12B-25......................  249.322.................    3235-0058
Form 15..........................  249.323.................    3235-0167
Form 13F.........................  249.325.................    3235-0006
Form SE..........................  249.444.................    3235-0327
Form ID..........................  249.446.................    3235-0328
Form DF..........................  249.448.................    3235-0482
Form BD..........................  249.501.................    3235-0012
Form BDW.........................  249.501a................    3235-0018
Form BD-N........................  249.501b................    3235-0556
Form X-17A-5.....................  249.617.................    3235-0123
Form X-17A-19....................  249.635.................    3235-0133
Form ATS.........................  249.637.................    3235-0509
Form ATS-R.......................  249.638.................    3235-0509
Form CRS.........................  249.640.................    3235-0766
Form X-15AJ-1....................  249.802.................    3235-0044
Form X-15AJ-2....................  249.803.................    3235-0044
Form 19b-4.......................  249.819.................    3235-0045
Form 19b-4(e)....................  249.820.................    3235-0504
Form Pilot.......................  249.821.................    3235-0507
Form SIP.........................  249.1001................    3235-0043
Form MSD.........................  249.1100................    3235-0083
Form MSDW........................  249.1110................    3235-0087
Form X-17F-1A....................  249.1200................    3235-0037
Form TA-1........................  249b.100................    3235-0084
Form TA-W........................  249b.101................    3235-0151
Form TA-2........................  249b.102................    3235-0337
Form CA-1........................  249b.200................    3235-0195
Rule 7a-15 thru 7a-37............  260.7a-15 thru 260.7a-37    3235-0132
Form T-1.........................  269.1...................    3235-0110
Form T-2.........................  269.2...................    3235-0111
Form T-3.........................  269.3...................    3235-0105
Form T-4.........................  269.4...................    3235-0107
Form ID..........................  269.7...................    3235-0328
Form SE..........................  269.8...................    3235-0327
Form T-6.........................  269.9...................    3235-0391
Rule 0-1.........................  270.0-1.................    3235-0531
Rule 2a-7........................  270.2a-7................    3235-0268
Rule 2a19-1......................  270.2a19-1..............    3235-0332
Rule 3a-4........................  270.3a-4................    3235-0459
Rule 6c-7........................  270.6c-7................    3235-0276
Rule 6e-2........................  270.6e-2................    3235-0177
Rule 7d-1........................  270.7d-1................    3235-0311
Rule 7d-2........................  270.7d-2................    3235-0527
Section 8(b) of the Investment     270.8b-1 thru 270.8b-32.    3235-0176
 Company Act of 1940.
Rule 10f-3.......................  270.10f-3...............    3235-0226
Rule 11a-2.......................  270.11a-2...............    3235-0272
Rule 11a-3.......................  270.11a-3...............    3235-0358
Rule 12b-1.......................  270.12b-1...............    3235-0212
Rule 17a-7.......................  270.17a-7...............    3235-0214
Rule 17a-8.......................  270.17a-8...............    3235-0235
Rule 17e-1.......................  270.17e-1...............    3235-0217

[[Page 1493]]

 
Rule 17f-1.......................  270.17f-1...............    3235-0222
Rule 17f-2.......................  270.17f-2...............    3235-0223
Rule 17f-4.......................  270.17f-4...............    3235-0225
Rule 17f-6.......................  270.17f-6...............    3235-0447
Rule 17f-7.......................  270.17f-7...............    3235-0529
Rule 17g-1(g)....................  270.17g-1(g)............    3235-0213
Rule 17j-1.......................  270.17j-1...............    3235-0224
Rule 18f-1.......................  270.18f-1...............    3235-0211
Rule 18f-3.......................  270.18f-3...............    3235-0441
Rule 19a-1.......................  270.19a-1...............    3235-0216
Rule 20a-1.......................  270.20a-1...............    3235-0158
Rule 22d-1.......................  270.22d-1...............    3235-0310
Rule 23c-1.......................  270.23c-1...............    3235-0260
Rule 23c-3.......................  270.23c-3...............    3235-0422
Rule 27e-1.......................  270.27e-1...............    3235-0545
Rule 30b2-1......................  270.30b2-1..............    3235-0220
Rule 30d-2.......................  270.30d-2...............    3235-0494
Rule 30e-1.......................  270.30e-1...............    3235-0025
Rule 30e-3.......................  270.30e-3...............    3235-0758
Rule 31a-1.......................  270.31a-1...............    3235-0178
Rule 31a-2.......................  270.31a-2...............    3235-0179
Rule 32a-4.......................  270.32a-4...............    3235-0530
Rule 34b-1.......................  270.34b-1...............    3235-0346
Rule 35d-1.......................  270.35d-1...............    3235-0548
Form N-5.........................  274.5...................    3235-0169
Form N-8A........................  274.10..................    3235-0175
Form N-2.........................  274.11a-1...............    3235-0026
Form N-3.........................  274.11b.................    3235-0316
Form N-4.........................  274.11c.................    3235-0318
Form N-8B-2......................  274.12..................    3235-0186
Form N-6F........................  274.15..................    3235-0238
Form 24F-2.......................  274.24..................    3235-0456
Form N-18F-1.....................  274.51..................    3235-0211
Form N-54A.......................  274.53..................    3235-0237
Form N-54C.......................  274.54..................    3235-0236
Form N-CEN.......................  274.101.................    3235-0729
Form N-27E-1.....................  274.127e-1..............    3235-0545
Form N-27F-1.....................  274.127f-1..............    3235-0546
Form N-PORT......................  274.150.................    3235-0730
Form N-17D-1.....................  274.200.................    3235-0229
Form N-23C-1.....................  274.201.................    3235-0230
Form N-8F........................  274.218.................    3235-0157
Form N-17F-1.....................  274.219.................    3235-0359
Form N-17F-2.....................  274.220.................    3235-0360
Form N-23c-3.....................  274.221.................    3235-0422
Form ID..........................  274.402.................    3235-0328
Form SE..........................  274.403.................    3235-0327
Rule 0-2.........................  275.0-2.................    3235-0240
Rule 203-3.......................  275.203-3...............    3235-0538
Rule 204-2.......................  275.204-2...............    3235-0278
Rule 204-3.......................  275.204-3...............    3235-0047
Rule 206(3)-2....................  275.206(3)-2............    3235-0243
Rule 206(4)-2....................  275.206(4)-2............    3235-0241
Rule 206(4)-3....................  275.206(4)-3............    3235-0242
Rule 206(4)-4....................  275.206(4)-4............    3235-0345
Form ADV.........................  279.1...................    3235-0049
Schedule I to Form ADV...........  279.1...................    3235-0490
Form ADV-W.......................  279.2...................    3235-0313
Form ADV-H.......................  379.3...................    3235-0538
Form 4-R.........................  279.4...................    3235-0240
Form 5-R.........................  279.5...................    3235-0240
Form 6-R.........................  279.6...................    3235-0240
Form 7-R.........................  279.7...................    3235-0240
Form ADV-E.......................  279.8...................    3235-0361
------------------------------------------------------------------------


[[Page 1494]]


[67 FR 14634, Mar. 27, 2002, as amended at 70 FR 37611, June 29, 2005; 
76 FR 46616, Aug. 3, 2011; 77 FR 18684, Mar. 28, 2012; 80 FR 6902, Feb. 
9, 2015; 82 FR 82009, Nov. 18, 2016; 83 FR 29203, June 22, 2018; 84 FR 
33629, July 12, 2019]

[[Page 1495]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2015 are enumerated in the following list. Entries indicate the 
nature of the changes effected. Page numbers refer to Federal Register 
pages. The user should consult the entries for chapters, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.govinfo.gov. For changes to this volume of the 
CFR prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 
1964-1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. 
The ``List of CFR Sections Affected 1986-2000'' is available at 
www.govinfo.gov.

                                  2015

17 CFR
                                                                   80 FR
                                                                    Page
Chapter II
240 Authority citation revised..............................14550, 49013
240.12g5-1 (a)(7) added............................................21922
240.12g-6 Added; eff. 5-16-16......................................71570
240.13n-1 Added; eff. 5-18-15......................................14550
240.13n-2 Added; eff. 5-18-15......................................14550
240.13n-3 Added; eff. 5-18-15......................................14550
240.13n-4 Added; eff. 5-18-15......................................14550
240.13n-5 Added; eff. 5-18-15......................................14550
240.13n-6 Added; eff. 5-18-15......................................14550
240.13n-7 Added; eff. 5-18-15......................................14550
240.13n-8 Added; eff. 5-18-15......................................14550
240.13n-9 Added; eff. 5-18-15......................................14550
240.13n-10 Added; eff. 5-18-15.....................................14550
240.13n-11 Added; eff. 5-18-15.....................................14550
240.13n-12 Added; eff. 5-18-15.....................................14550
240.14a-101 Amended................................................50187
240.15c2-11 (a)(3) and (d)(2)(i) revised...........................21923
240.15Fb1-1 Undesignated center heading and section added..........49013
240.15Fb2-2 Added..................................................49013
240.15Fb2-3 Added..................................................49013
240.15Fb2-4 Added..................................................49013
240.15Fb2-5 Added..................................................49013
240.15Fb2-6 Added..................................................49013
240.15Fb3-1 Added..................................................49013
240.15Fb3-2 Added..................................................49013
240.15Fb3-3 Added..................................................49013
240.15Fb6-1 Added..................................................49013
240.15Fb6-2 Added..................................................49013
240.24b-2 (b) amended; (h) added; eff. 5-18-15.....................14556
241 Interpretive releases...................................37536, 47831
242 Heading revised; eff. 5-18-15..................................14728
242.900 Added; eff. 5-18-15........................................14728
242.901 Added; eff. 5-18-15........................................14728
242.902 Added; eff. 5-18-15........................................14728
242.903 Added; eff. 5-18-15........................................14728
242.904 Added; eff. 5-18-15........................................14728
242.905 Added; eff. 5-18-15........................................14728
242.906 Added; eff. 5-18-15........................................14728
242.907 Added; eff. 5-18-15........................................14728
242.908 Added; eff. 5-18-15........................................14728
242.909 Added; eff. 5-18-15........................................14728
242.1000 Corrected.................................................81454
249 Authority citation amended.....................................50187
249.208a (a) revised; (e) added; Form 8-A revised..................21923
249.308 Form 8-K amended...........................................50187
249.446 Form ID amended............................................71611
249.1500 (Subpart P) Added; eff. 5-18-15...........................14557
249.1600--249.1601 (Subpart Q) Added...............................49017
249.2000 (Subpart U) Added; eff. 5-16-16...........................71570
    Regulation at 80 FR 71570 eff. date corrected to 1-29-16.......79473
260 Authority citation revised.....................................21925
260.4a-1 Revised...................................................21925
269.7 Form ID amended..............................................71611

[[Page 1496]]

    Regulation at 80 FR 71611 eff. date corrected to 1-29-16.......79473
270.2a-7 (a)(11), (14), (22), (24), (26), (32) and (d)(3)(iii)(C) 
        removed; (a)(12), (13), (15) through (21), (23), (25), 
        (27) through (31), (33) and (34) redesignated as new 
        (a)(11) through (28); (a)(5), new (16)(ii), (c)(2)(i), 
        (d)(3)(iii) introductory text, (A) and (g)(8)(i)(B) 
        amended; (d)(2), (3)(i), (f), (g)(3), (h)(3) and (j) 
        revised....................................................58153
270.12d3-1 (d)(7)(v) amended.......................................58155
270.31a-1 (b)(1) amended...........................................58155
271 Interpretive releases..........................................37537
274.11A Form N-1A amended..........................................58155
274.201 Form N-MFP amended.........................................58155
274.402 Form ID amended............................................71611
    Regulation at 80 FR 71611 eff. date corrected to 1-29-16.......79473
275 Policy statement...............................................37538
276 Interpretive releases..........................................37537

                                  2016

17 CFR
                                                                   81 FR
                                                                    Page
Chapter II
240 Authority citation amended......................................8637
    Technical correction....................................12821, 32643
    Authority citation revised..............................28705, 30142
    Policy statement........................................33374, 49163
    Authority citation amended.....................................70900
240.3a67-10 (a)(5), (6) and (d) added..............................30142
240.3a71-3 (b)(1)(iii)(C) added; eff. 4-19-16.......................8637
    (a)(6) through (9) and (c) added...............................30142
240.3a71-5 (c) added; eff. 4-19-16..................................8637
240.3a71-6 Added...................................................30143
    (d)(3) added...................................................39844
240.3b-4 (c)(1) Instruction redesignated as (c)(1) Note and 
        revised....................................................28705
240.10A-1 (a)(4)(i) amended; eff. 6-1-18...........................82020
240.12b-25 Heading, (a) and (b)(2)(ii) amended; eff. 6-1-18........82020
240.12g-1 Revised..................................................28705
    (b)(1) correctly revised.......................................95458
240.12g-2 Revised..................................................28705
240.12g-3 (a)(2), (b)(2) and (c)(2) revised........................28706
240.12g-4 (a) revised..............................................28706
240.12g5-1 (a)(8) added............................................28706
240.12h-3 (b)(1) revised...........................................28706
240.13a-10 (h) and Note 1 amended; eff. 6-1-18.....................82020
240.13a-11 (b) introductory text amended; eff. 6-1-18..............82020
240.13a-13 (b)(1) amended; eff. 6-1-18.............................82020
240.13a-16 (a)(1) amended; eff. 6-1-18.............................82020
240.13n-4 (b)(8) amended; (b)(9), (10) and (d) added...............60607
240.13q-1 Revised..................................................49426
240.15d-10 (h) amended; eff. 6-1-18................................82020
240.15d-11 (b) introductory text amended; eff. 6-1-18..............82020
240.15d-13 (b)(1) amended; eff. 6-1-18.............................82020
240.15d-16 (a)(1) amended; eff. 6-1-18.............................82020
240.15Fb1-1 Undesignated center heading revised....................39844
240.15Fh-1 Added...................................................30144
240.15Fh-2 Added...................................................30144
240.15Fh-3 Added...................................................30144
240.15Fh-4 Added...................................................30144
240.15Fh-5 Added...................................................30144
240.15Fh-6 Added...................................................30144
240.15Fi-1 Added...................................................39844
240.15Fi-2 Added...................................................39844
240.15Fk-1 Added...................................................30144
240.15g-9 (c)(2) amended; eff. 5-22-17.............................83553
240.17a-23 Removed; CFR correction.................................18747
240.17Ab2-2 Added..................................................70901
240.17Ad-22 (a), (c)(1) and (d) introductory text revised; (e) and 
        (f) added..................................................70901
241 Interpretive releases..........................................40793
242 Policy statement...............................................94251
242.900 (u) revised; (tt) added....................................53653
242.901 (a)(1), (2)(i), (ii)(E)(2), (3), (4), (3) and (e)(1)(ii) 
        added; (d)(4), (8), (9), (e)(2) and (h) revised............53653
242.902 (c)(6) and (7) revised; (c)(8) added.......................53654
242.905 (a) revised................................................53654
242.906 Revised....................................................53654
242.907 (a)(6) revised.............................................53655

[[Page 1497]]

242.908 (a)(1)(i) and (ii) amended; (a)(1)(iii), (iv), (v), 
        (b)(3), (4) and (5) added; (b)(1) and (2) revised..........53655
249 Authority citation revised.....................................37138
    Authority citation amended.....................................82020
249.308 Form 8-K amended...........................................40512
    Form 8-K amended; eff. 5-22-17.................................83553
249.310 Form 10-K amended; interim.................................37138
249.312 Form 10-D amended..........................................40512
249.322 (a) amended; eff. 6-1-18...................................82020
249.330 Revised; eff. 6-1-18.......................................82020
249.332 Removed; eff. 8-1-19.......................................82020
249b Authority citation amended....................................49427
249b.400 Form SD amended...........................................49427
270.8b-16 (a) amended; eff. 6-1-18.................................82020
270.8b-33 Amended; eff. 8-1-19.....................................82020
270.10f-3 (c)(9) removed; eff. 6-1-18..............................82020
270.17j-1 (a)(8) amended; eff. 5-22-17.............................83554
270.22c-1 (a)(3) added; eff. 11-19-18..............................82137
270.22e-4 Added....................................................82264
270.30a-1 Revised; eff. 6-1-18.....................................82020
270.30a-2 Heading and (a) amended; eff. 8-1-19.....................82021
270.30a-3 (b) and (c) amended; eff. 8-1-19.........................82021
270.30a-4 Added; eff. 6-1-18.......................................82021
270.30b1-1 Removed; eff. 6-1-18....................................82021
270.30b1-2 Removed; eff. 6-1-18....................................82021
270.30b1-3 Removed; eff. 6-1-18....................................82021
270.30b1-5 Removed; eff. 8-1-19....................................82021
270.30b1-9 Added...................................................82021
270.30b1-10 Added..................................................82266
270.30d-1 Amended; eff. in part 6-1-18 and in part 8-1-19..........82021
270.31a-2 (a)(2) revised; eff. 11-19-18............................82138
274 Authority citation amended.......................82021, 82138, 82266
274.11A Form N-1A amended; eff. in part 8-1-19.....................82021
274.11A Form N-1A amended...................................82138, 82266
274.11a-1 Form N-2 amended; eff. in part 8-1-19....................82022
274.11b Form N-3 amended; eff. in part 8-1-19......................82022
274.11c Form N-4 amended...........................................82023
274.11d Form N-6 amended...........................................82023
274.101 Revised; eff. 6-1-18.......................................82023
    Form N-CEN amended......................................82139, 82267
274.128 Form N-CSR amended.........................................82066
274.130 Removed; eff. 8-1-19.......................................82066
274.150 Added......................................................82066
    Form N-PORT amended............................................82267
274.218 Form N-8F amended; eff. 6-1-18.............................82081
274.223 Added......................................................82268
275 Authority citation amended.....................................60457
    Policy statement...............................................66526
275.202(a)(11)(G)-1 (e) removed....................................60457
275.203-1 (a) and Note to (a) and (b) amended; (b) and (e) 
        removed; (c) and (d) redesignated as new (b) and (c).......60457
275.203A-5 Removed.................................................60457
275.204-1 (b)(1) amended; (c) removed; (d) and (e) redesignated as 
        new (c) and (d)............................................60458
275.204-2 (a)(7) revised; (a)(16) amended..........................60458
275.204-3 (g) removed; (h) redesignated as new (g).................60458
275.204A-1 (e)(7) amended; eff. 5-22-17............................83554
279.1 Form ADV amended.............................................60458
300.600 Undesignated center heading and section added..............14374

                                  2017

17 CFR
                                                                   82 FR
                                                                    Page
Chapter I
240 Authority citation amended.....................................17555
240.12a-11 Revised; interim........................................10707
240.12b-2 Amended..................................................17555
240.12h-1 (i) revised; interim.....................................10707
240.14a-21 (a), (b), (c) and section amended.......................17555
240.15c6-1 (a) revised; eff. 5-30-17...............................15601
241 Interpretive releases...................................41148, 41150
249 Interpretation.................................................44917
    Compliance notification........................................58731
249.210 Form 10 amended............................................17556
249.220f Form 20-F amended..................................14143, 17556
249.240f Form 40-F amended.........................................17556
249.308 Form 8-K amended...........................................17557
249.308a Form 10-Q amended.........................................17557
249.310 Form 10-K amended..........................................17557
249.332 Regulation at 81 FR 82020 eff. date delayed to 5-1-20......58731
260.4d-12 Revised; interim.........................................10707

[[Page 1498]]

270.8b-33 Regulation at 81 FR 82020 eff. date delayed to 5-1-20....58731
270.30a-2 Regulation at 81 FR 82021 eff. date delayed to 5-1-20....58731
270.30a-3 Regulation at 81 FR 82021 eff. date delayed to 5-1-20....58731
270.30b1-5 Regulation at 81 FR 82021 eff. date delayed to 5-1-20 
                                                                   58731
270.30b1-9(T) Added (temporary)....................................58739
270.30d-1 Form N-Q amended.........................................58731
271 Interpretive releases...................................41148, 41151
274.11A Form N-1A amended..........................................58731
274.11a-1 Form N-2 amended.........................................58731
274.11b Form N-3...................................................58731
274.130 Form N-CSR.................................................58731
279.1 Form ADV amended.............................................21475
279.2 Form ADV-W amended...........................................21475

                                  2018

17 CFR
                                                                   83 FR
                                                                    Page
Chapter II
240 Policy statement...............................................55486
240.3a1-1 revised..................................................38911
240.3a51-1 (a)(2)(i)(A)(3) revised.................................50221
    (a) introductory text amended..................................58427
240.10A-1 (b)(3) revised...........................................50221
240.12b-2 Amended...........................................32021, 50221
240.12g-3 (a)(2), (b)(2), and (c)(2) revised.......................50221
240.13a-10 (b) and (g)(3) revised..................................50221
240.13a-14 (f) revised.............................................40878
240.13b2-2 (b)(2)(i) and (ii) revised..............................50222
240.13h-1 (a)(5) amended...........................................58427
240.14a-16 (f)(2)(iii) amended.....................................29204
240.15c2-12 (b)(5)(i)(C)(14) amended; (b)(5)(i)(C)(15), (16), and 
        (f)(11) added..............................................44742
240.15c3-1g (b)(1)(i)(A), (ii)(A), (E), (2)(i)(A), and (D) revised
                                                                   50222
240.15d-2 (a) revised..............................................50222
240.15d-10 (b) and (g)(3) revised..................................50222
240.15d-14 (f) revised.............................................40878
240.17a-5 (d)(2)(i) Note 1 added...................................50223
240.17a-12 (b)(2) Note 1 added.....................................50223
240.17g-3 (a)(1)(i) amended........................................50223
240.17h-1T (a)(1)(v) Note 1 added..................................50223
242.101 (b)(1) revised.............................................64222
242.105 (b)(1)(i)(C) and (ii) amended..............................58427
242.201 (a)(1), (2), (4) through (7), and (9) amended..............58427
242.204 (g)(2) amended.............................................58427
242.300 (f) introductory text, (2), and (3) revised; (k) added.....38911
242.301 (a)(5), (b)(2)(i), (vii), (9)(i), (ii), (10) heading, (i) 
        introductory text, and (ii) amended; (b)(2)(viii) added....38911
242.303 (a) introductory text and (2)(ii) amended; (a)(1)(v) added
                                                                   38911
242.304 Added......................................................38911
242.600 (b)(52) through (83) redesignated as (b)(56) through (87); 
        (b)(49), (50), (51) redesignated as (b)(51), (52), and 
        (53); (b)(1) through (48) redesignated as (b)(2) through 
        (49); new (b)(1), (50), (54), and (55) added; new 
        (b)(5)(i) amended; new (b)(20) and (49) revised............58427
242.602 (a)(5)(i) and (ii) amended.................................58427
242.605 (a)(2) preliminary note removed; (a)(2) introductory text 
        added; (a)(2) amended......................................58427
242.606 (a) and (b) revised........................................58427
242.611 (c) amended................................................58429
242.1000 Amended...................................................58429
249 Interpretation..................................................8166
249.210 Form 10 amended............................................32022
    Heading revised................................................50223
249.220f Form 20-F amended...........................40878, 50223, 66461
249.240f Form 40-F amended..................................40878, 50225
249.306 Form 6-K amended...........................................40879
249.308a Form 10-Q amended.........................................32022
249.310 Form 10-K amended............................32022, 40880, 50225
249.311 Form 11-K amended..........................................50225
249.312 Form 10-D amended..........................................50226
249.322 Form 12b-25 amended........................................64222
249.331 Form N-CSR amended.........................................29208
249.617 Form X-17A-5 amended...........50226, 50227, 50228, 50230, 50231
249.640 Added......................................................38913
    Form ATS-N amended.............................................56257
249.1100 Form MSD amended....................................4139, 22193
249.1300 Form MA amended...........................................22193
249.1310 Form MA-I amended.........................................22193

[[Page 1499]]

249.2000 Form Funding Portal amended...............................22192
270 Interpretation..................................................8342
270.8b-1 Revised...................................................40880
270.8b-2 Introductory text revised.................................40880
270.8b-33 Removed..................................................40880
270.24b-4 Added....................................................64222
270.30a-2 (d) removed..............................................40880
270.30e-3 Added....................................................29205
    (a) amended; (i) removed; eff. 1-1-22..........................29206
274 Interpretation..................................................8342
274.5 Form N-5 amended.............................................50232
274.11A Form N-1A amended.......29206, 29207, 31876, 40880, 50232, 62454
274.11a-1 Form N-2 amended..................................29207, 50233
274.11b Form N-3 amended.............................29207, 29208, 50233
274.11c Form N-4 amended....................................29208, 50233
274.11d Form N-6 amended....................................29208, 50234
274.12 Form N-8B-2 amended.........................................50234
274.128 Form N-CSR amended.........................................29208
274.150 Form N-PORT amended........................................31876
274.402 Form ID amended............................................11639
275.203(l)-1 (a) introductory text revised..........................1302
275.203(m)-1 (d)(1) revised.........................................1302
Chapter IV
404.2 (b)(4)(v) Note 1 added.......................................66616
420.3 (a) amended; (h), (i), and (j) revised.......................52768
449.5 Form G-405 amended....................................66617, 66618

                                  2019

17 CFR
                                                                   84 FR
                                                                    Page
Chapter II
240 Authority citation amended.......................33491, 33629, 44041
    Correction: authority citation amended.........................55055
    Technical correction....................................13796, 39178
    Compliance notification........................................18136
240.3a71-6 (d)(4) and (5) added....................................44041
    (d)(6) added...................................................68646
240.10A-1 (c) introductory text revised............................50739
240.12b-23 Revised.................................................12727
240.12b-32 Removed.................................................12728
240.14a-101 Amended..........................................2426, 12728
240.15c3-1 (a)(5) and (c)(2)(xii) redesignated as (a)(5)(i) and 
        (c)(2)(xii)(A); (a)(5)(ii), (10) undesignated center 
        heading and text, (c)(2)(vi)(O), (P), new (xii)(B), (xv), 
        and (17) added; (a)(7) undesignated center heading, (i), 
        (ii), and (c)(2)(iv)(E) revised............................44042
240.15c3-1a (a)(3), (4), (b)(1)(v)(C)(3), and (4) revised; 
        (b)(1)(v)(C)(5) added......................................44044
240.15c3-1b (a)(3)(iii)(C) amended; (b) added......................44044
240.15c3-1d (b)(7), (8), (10)(ii)(B), (c)(2), and (5)(i)(B) 
        revised....................................................44045
240.15c3-1e (c)(4)(v)(D) removed; Preliminary note, (a)(7), and 
        (c)(4)(v)(E) through (H) redesignated as introductory 
        text, (a)(7)(i), and (c)(4)(v)(D) through (G); new 
        introductory text, (a) introductory text, (c)(3), and 
        (e)(1) revised; new (a)(7)(ii), (c)(4)(v)(B)(1), and (2) 
        added; (e) introductory text amended.......................44046
240.15c3-3 Introductory text and (p) added.........................44047
240.15c3-3b Added..................................................44050
240.15l-1 Added....................................................33491
240.15Fb6-1 Removed; eff. 4-22-19...................................4947
240.15Ga-2 (e) revised; (f)(i) and (ii) redesignated as (f)(1) and 
        (2)........................................................40258
240.16a-3 (e) removed..............................................12728
240.17a-3 (a)(24) added............................................33629
    Introductory text, (a)(12)(i)(I), and (25) through (30) added; 
(a) introductory text, (1), (3), (4)(vi), (vii), (5) through (11), 
(12)(i) introductory text, (A), (E) through (H), (ii), and (b) 
through (g) revised; (a)(12)(i) undesignated text and (h) removed; 
(a)(16)(ii)(A), (B), (17)(i)(A), (B)(1), (C), (D), (18)(i), and 
(19)(i) amended....................................................68646

[[Page 1500]]

240.17a-4 Introductory text, (b)(8)(xvi), (xvii), (14), (15), 
        (16), and (m)(5) added; (a), (b) introductory text, (1), 
        (3), (4), (5), (7), (b)(8) introductory text, (i), (v) 
        through (viii), (xii) through (xv), (9), (12), (13), (c), 
        (d), (e) introductory text through (4), (6), (f)(3)(vii), 
        (g), (i), (m)(1) through (4) revised; (b)(11), (e)(8), (f) 
        introductory text, (2) introductory text, (3) introductory 
        text, (iv)(B), (vi), (h), (j), (k)(1), and (l) amended.....68649
240.17a-5 Introductory text added; (a)(1) removed; (a)(2) through 
        (7) redesignated as (a)(1) through (6); (a) heading, new 
        (a)(1)(ii), (iii), (iv), new (a)(2) through (5), (b)(1), 
        (c)(3), (d)(1)(i)(B), (2)(i), (ii), (iii), (3)(i)(A)(4), 
        (5), (B), (C), (iii), (6), (e)(1)(ii), (2), (3), (4), (h) 
        note, and (o) revised; new (a)(6), (b)(3), (4), (5), 
        (c)(1), (2), (4)(iii), (5)(iii)(C), (d)(1)(i) introductory 
        text, (f)(3)(v)(B), (k) introductory text, (l), (m)(1), 
        (2), (4), and (n)(2) amended; undesignated text following 
        (c)(4)(iii) designated as (c)(4)(iv).......................68652
240.17a-11 (a) removed; (b) through (i) redesignated as (a) 
        through (d) and (g) through (j); Introductory text and (f) 
        added; new (a), (b) introductory text, (c), (d), and (g) 
        through (j) revised........................................68655
240.17a-12 Amended.................................................68656
240.17a-4 (e)(5) revised...........................................33492
    (e)(10) added..................................................33629
240.17a-5 (e)(1)(i)(A) revised.....................................27712
240.17a-14 Added...................................................33629
240.17g-5 (a)(3)(iv) added.........................................40258
240.17g-7 (a)(3) revised...........................................40258
240.18a-1--240.18a-10 Undesignated center heading added............44052
240.18a-1 Added....................................................44052
    (d)(9)(iii)(A) and (B) added...................................68656
240.18a-1a Added...................................................44061
240.18a-1b Added...................................................44063
240.18a-1c Added...................................................44065
240.18a-1d Added...................................................44065
240.18a-2 Added....................................................44068
240.18a-3 Added....................................................44068
240.18a-4 Added....................................................44071
240.18a-4a Added...................................................44075
240.18a-5 Added....................................................68656
240.18a-6 Added....................................................68659
240.18a-7 Added....................................................68662
240.18a-8 Added....................................................68667
240.18a-9 Added....................................................68668
240.18a-10 Added...................................................44076
    (a) introductory text, (b)(1), (2), (3), (c) introductory 
text, (d)(2)(ii) introductory text, and (e) revised; (b)(4) and 
(5) added..........................................................68668
240.24b-2 (b)(2) revised...........................................50739
241 Authority citation added; interpretive release.................47419
242 Compliance notification........................................18136
242.610T Added; eff. 4-22-19 through 12-29-23.......................5298
249 Authority citation amended.....................................33630
249 Technical correction...........................................13796
249.103 Form 3 amended.............................................12728
249.104 Form 4 amended.............................................12728
249.105 Form 5 amended.............................................12728
249.208a Form 8-A amended..........................................12728
249.210 Form 10 amended............................................12728
249.220f Form 20-F amended.........................................12728
249.240f Form 40-F amended.........................................12730
249.308 Form 8-K amended...........................................12730
    Form 10-Q amended..............................................12731
249.310 Form 10-K amended..........................................12731
249.312 Form 10-D amended...................................12732, 39969
249.331 Form N-CSR amended.........................................12738
249.617--249.641 (Subpart G) Heading revised.......................68669
249.617 Revised....................................................68669
    Form X-17A-5 amended.............................68669, 68671, 68721
249.641 Added......................................................33630
255.1 (c) revised..................................................35022
255.2 (r) revised..................................................35022
    Revised........................................................62237
255.3 (e)(5) through (13) redesignated as (e)(6) through (14); 
        (b), (d)(3), (8), (9), new (e)(11), (12), and (14) 
        revised; (d)(10) through (13) and new (e)(5) added.........62239
255.4 Revised......................................................62241
255.5 (b) and (c)(1) introductory text revised; (c)(4) added.......62243
255.6 (e)(3) revised; (e)(4) and (6) removed; (e)(5) redesignated 
        as new (e)(4)..............................................62244
255.10 (d)(9)(iii) revised.........................................35022
    (c)(7)(ii) and (8)(i)(A) revised...............................62244

[[Page 1501]]

255.11 (a)(6) revised..............................................35022
    Regulation at 84 FR 35022 corrected............................38115
    (c) revised....................................................62244
255.12 Second (e)(2)(vi) redesignated as (e)(2)(vii)...............62244
255.13 (a), (b)(3), (4), and (c) revised...........................62244
255.14 (a)(2)(ii)(B) revised.......................................62245
255.20 (a), (b) introductory text, (c), (d), (e) introductory 
        text, and (f)(2) revised; (g), (h), and (i) added..........62245
255 Appendix A revised.............................................62246
255 Appendix B removed.............................................62248
255 Appendix Z added; eff. 1-1-20 through 12-31-20.................62248
270 Technical correction...........................................13796
    Authority citation amended.....................................57234
270.0-4 Revised....................................................12732
270.6c-11 Added....................................................57234
270.8b-23 Removed..................................................12732
270.8b-24 Removed..................................................12732
270.8b-32 Removed..................................................12732
270.30b1-9 Revised; interim.........................................7987
271 Authority citation added; interpretive release.................47426
274 Technical correction...........................................13796
274.5 Form N-5 amended......................................12733, 39969
274.11A Form N-1A amended............................12733, 39969, 57236
274.11a-1 Form N-2 amended..................................12734, 39969
274.11b Form N-3 amended....................................12735, 39969
274.11c Form N-4 amended....................................12736, 39969
274.11d Form N-6 amended....................................12736, 39970
274.12 Form N-8B-2 amended...........................12737, 39970, 57237
274.101 Form N-CEN amended.........................................57237
274.128 Form N-CSR amended..................................12738, 57237
274.150 Revised; Form N-PORT amended; interim.......................7988
    Form N-PORT amended............................................57237
274.223 Form N-LIQUID amended; interim..............................7988
275 Authority citation amended.....................................33630
275 Technical correction...........................................13796
275.0-6 Revised....................................................12738
275.203-1 (a) revised..............................................33630
275.204-1 (a) and (b) revised; (e) added...........................33630
275.204-2 (a)(14)(i) revised.......................................33630
275.204-5 Added....................................................33631
276 Interpretive release....................................33681, 33689
276 Authority citation added; interpretive release.................47427
279 Authority citation revised.....................................33631
279.1 Form ADV amended.............................................33631

                                  2020

   (Regulations published from January 1, 2020, through April 1, 2020)

17 CFR
                                                                   85 FR
                                                                    Page
Chapter II
240.0-13 Heading, (a), (b), and (e) revised; eff. 4-6-20............6350
240.3a71-3 (a)(10) through (13) and (d) added; (b)(1)(iii)(C) 
        revised; eff. 4-6-20........................................6350
240.3a71-6 (d)(7) added; eff. 4-6-20................................6412
240.12b-2 Amended; eff. 4-27-20....................................17241
240.15Fb2-1 (d) and (e) revised; eff. 4-6-20........................6352
240.15Fi-1 Revised; eff. 4-6-20.....................................6412
240.15Fi-3 Added; eff. 4-6-20.......................................6413
240.15Fi-4 Added; eff. 4-6-20.......................................6414
240.15Fi-5 Added; eff. 4-6-20.......................................6414
240.17a-3 (a)(31) added; eff. 4-6-20................................6416
240.17a-4 (b)(1) revised; (e)(11) and (12) added; eff. 4-6-20.......6416
240.18a-5 (a)(10)(iii) and (b)(8)(iii) added; eff. 4-6-20...........6353
    (a)(18) and (b)(14) added; eff. 4-6-20..........................6416
240.18a-6 (b)(1)(i) and (2)(i) revised; (d)(4) and (5) added; eff. 
        4-6-20......................................................6416
241 Table amended..................................................10571
249.220 Form 20-F amended..........................................17242
249.240 Form 40-F amended..........................................17242
249.310 Form 10-K amended..........................................17242
275.203(l)-1 (a) introductory text revised.........................13741
275.203(m)-1 (d)(1) revised........................................13741


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